UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
10-Q








(Mark
One)


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





For
the quarterly period ended September 30, 2009





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





For the
transition period from _______ to ________





Commission
File Number: 0-20632





FIRST
BANKS, INC.


(Exact
name of registrant as specified in its charter)





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





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





(314)
854-4600


(Registrant’s
telephone number, including area code)


__________________________





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.


T
Yes     £
No





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


£
Yes     T
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 T (Do not
      check if a smaller reporting company)
            Smaller
      reporting company £





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





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





Class
            Shares
      Outstanding
              at October 31, 2009Common
      Stock, $250.00 par value
            23,661












FirstBanks,
Inc.





Table
of Contents








PagePART
      I.
            FINANCIAL
      INFORMATIONItem1.
            Financial
      Statements:Consolidated Balance Sheets
            1Consolidated Statements of Operations
            2Consolidated Statements of Changes in Stockholders’ Equity and
      Comprehensive Income (Loss)
            3Consolidated Statements of Cash Flows
            4Notes to Consolidated Financial Statements
            5Item
      2.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            37Item
      3.
            Quantitative and Qualitative Disclosures about Market
      Risk
            68Item
      4.
            Controls and Procedures
            68PART
      II.
            OTHER
      INFORMATIONItem
      1.
            Legal Proceedings
            69Item
      1A.
            Risk Factors
            69Item
      6.
            Exhibits
            69SIGNATURES
            70


Table of Contents


PART
I – FINANCIAL INFORMATION


Item
1 – Financial Statements





First Banks, Inc.





Consolidated
Balance Sheets – (Unaudited)


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





September 30,
            
            
            December 31,2009
            
            
            2008ASSETSCash
      and cash equivalents:Cash
      and due from banks
            
            $
            113,845
            
            
            
            166,161Short-term
      investments
            
            
            1,534,136
            
            
            
            676,155Total
      cash and cash equivalents
            
            
            1,647,981
            
            
            
            842,316Investment
      securities:Available
      for sale
            
            
            619,614
            
            
            
            557,182Held
      to maturity (fair value of $15,780 and $18,507,
    respectively)
            
            
            14,662
            
            
            
            17,912Total
      investment securities
            
            
            634,276
            
            
            
            575,094Loans:Commercial,
      financial and agricultural
            
            
            2,176,680
            
            
            
            2,575,505Real
      estate construction and development
            
            
            1,134,585
            
            
            
            1,572,212Real
      estate mortgage
            
            
            4,121,072
            
            
            
            4,336,368Consumer
      and installment
            
            
            59,459
            
            
            
            77,877Loans
      held for sale
            
            
            37,464
            
            
            
            38,720Total
      loans
            
            
            7,529,260
            
            
            
            8,600,682Unearned
      discount
            
            
            (6,250
            )
            
            
            (7,707
            )Allowance
      for loan losses
            
            
            (290,738
            )
            
            
            (220,214
            )Net
      loans
            
            
            7,232,272
            
            
            
            8,372,761FHLB
      and Federal Reserve Bank stock, at cost
            
            
            66,756
            
            
            
            47,832Bank
      premises and equipment, net
            
            
            211,200
            
            
            
            236,528Goodwill
      and other intangible assets
            
            
            262,791
            
            
            
            306,800Bank-owned
      life insurance
            
            
            26,288
            
            
            
            118,825Deferred
      income taxes
            
            
            29,747
            
            
            
            36,851Other
      real estate
            
            
            163,981
            
            
            
            91,524Other
      assets
            
            
            99,319
            
            
            
            154,623Assets
      held for sale
            
            
            19,862
            
            
            
            —Assets
      of discontinued operations
            
            
            286,003
            
            
            
            —Total
      assets
            
            $
            10,680,476
            
            
            
            10,783,154LIABILITIESDeposits:Noninterest-bearing
      demand
            
            $
            1,230,470
            
            
            
            1,241,916Interest-bearing
      demand
            
            
            927,664
            
            
            
            935,805Savings
      and money market
            
            
            2,725,686
            
            
            
            2,777,285Time
      deposits of $100 or more
            
            
            1,105,322
            
            
            
            1,254,652Other
      time deposits
            
            
            2,156,220
            
            
            
            2,531,862Total
      deposits
            
            
            8,145,362
            
            
            
            8,741,520Other
      borrowings
            
            
            818,704
            
            
            
            575,133Subordinated
      debentures
            
            
            353,885
            
            
            
            353,828Deferred
      income taxes
            
            
            38,461
            
            
            
            45,565Accrued
      expenses and other liabilities
            
            
            67,784
            
            
            
            70,753Liabilities
      held for sale
            
            
            45,530
            
            
            
            —Liabilities
      of discontinued operations
            
            
            511,959
            
            
            
            —Total
      liabilities
            
            
            9,981,685
            
            
            
            9,786,799STOCKHOLDERS’ EQUITYFirst
      Banks, Inc. stockholders’ equity:Preferred
      stock:$1.00
      par value, 4,689,830 shares authorized, no shares issued and
      outstanding
            
            
            —
            
            
            
            —Class A convertible,
      adjustable rate, $20.00 par value,750,000 shares authorized,
      641,082 shares issued and outstanding
            
            
            12,822
            
            
            
            12,822Class
      B adjustable rate, $1.50 par value, 200,000 shares authorized, 160,505 shares
      issued and outstanding
            
            
            241
            
            
            
            241Class
      C fixed rate, cumulative, perpetual, $1.00 par value, 295,400 shares
      authorized, issued and outstanding
            
            
            280,524
            
            
            
            278,057Class
      D fixed rate, cumulative, perpetual, $1.00 par value, 14,770 shares
      authorized, issued and outstanding
            
            
            17,343
            
            
            
            17,343Common
      stock, $250.00 par value, 25,000 shares authorized, 23,661 shares issued
      and outstanding
            
            
            5,915
            
            
            
            5,915Additional
      paid-in capital
            
            
            12,480
            
            
            
            9,685Retained
      earnings
            
            
            250,028
            
            
            
            536,714Accumulated
      other comprehensive income
            
            
            914
            
            
            
            6,195Total
      First Banks, Inc. stockholders’ equity
            
            
            580,267
            
            
            
            866,972Noncontrolling
      interest in subsidiaries
            
            
            118,524
            
            
            
            129,383Total
      stockholders’ equity
            
            
            698,791
            
            
            
            996,355Total
      liabilities and stockholders’ equity
            
            $
            10,680,476
            
            
            
            10,783,154





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


1
 Table of Contents


First Banks, Inc.





Consolidated
Statements of Operations – (Unaudited)


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





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Interest
      income:Interest
      and fees on loans
            
            $
            102,529
            
            
            
            131,445
            
            
            
            318,002
            
            
            
            416,259Investment
      securities
            
            
            6,121
            
            
            
            8,199
            
            
            
            19,845
            
            
            
            27,787FHLB
      and Federal Reserve Bank stock
            
            
            629
            
            
            
            684
            
            
            
            1,573
            
            
            
            1,964Short-term
      investments
            
            
            763
            
            
            
            839
            
            
            
            1,664
            
            
            
            1,137Total
      interest income
            
            
            110,042
            
            
            
            141,167
            
            
            
            341,084
            
            
            
            447,147Interest
      expense:Deposits:Interest-bearing
      demand
            
            
            423
            
            
            
            1,129
            
            
            
            1,246
            
            
            
            4,218Savings
      and money market
            
            
            6,574
            
            
            
            13,545
            
            
            
            23,199
            
            
            
            42,440Time
      deposits of $100 or more
            
            
            8,214
            
            
            
            10,881
            
            
            
            26,909
            
            
            
            38,389Other
      time deposits
            
            
            16,220
            
            
            
            20,561
            
            
            
            52,974
            
            
            
            68,495Other
      borrowings
            
            
            2,859
            
            
            
            3,874
            
            
            
            6,873
            
            
            
            11,623Notes
      payable
            
            
            —
            
            
            
            45
            
            
            
            37
            
            
            
            1,310Subordinated
      debentures
            
            
            3,555
            
            
            
            4,980
            
            
            
            12,365
            
            
            
            16,078Total
      interest expense
            
            
            37,845
            
            
            
            55,015
            
            
            
            123,603
            
            
            
            182,553Net
      interest income
            
            
            72,197
            
            
            
            86,152
            
            
            
            217,481
            
            
            
            264,594Provision
      for loan losses
            
            
            107,000
            
            
            
            99,000
            
            
            
            327,000
            
            
            
            229,000Net
      interest (loss) income after provision for loan losses
            
            
            (34,803
            )
            
            
            (12,848
            )
            
            
            (109,519
            )
            
            
            35,594Noninterest
      income:Service
      charges on deposit accounts and customer service fees
            
            
            13,411
            
            
            
            13,429
            
            
            
            38,427
            
            
            
            36,645Gain
      on loans sold and held for sale
            
            
            2,193
            
            
            
            908
            
            
            
            9,562
            
            
            
            3,199Net
      gain (loss) on investment securities
            
            
            3,095
            
            
            
            (1,092
            )
            
            
            4,279
            
            
            
            (5,715
            )Bank-owned
      life insurance investment income
            
            
            84
            
            
            
            554
            
            
            
            646
            
            
            
            2,251Net
      (loss) gain on derivative instruments
            
            
            (4,838
            )
            
            
            (57
            )
            
            
            (4,437
            )
            
            
            1,729Decrease
      in fair value of servicing rights
            
            
            (684
            )
            
            
            (5,304
            )
            
            
            (2,386
            )
            
            
            (6,508
            )Loan
      servicing fees
            
            
            2,165
            
            
            
            2,258
            
            
            
            6,419
            
            
            
            6,383Gain
      on extinguishment of term repurchase agreement
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            5,000Other
            
            
            1,913
            
            
            
            4,161
            
            
            
            9,722
            
            
            
            15,445Total
      noninterest income
            
            
            17,339
            
            
            
            14,857
            
            
            
            62,232
            
            
            
            58,429Noninterest
      expense:Salaries
      and employee benefits
            
            
            27,358
            
            
            
            31,588
            
            
            
            83,794
            
            
            
            99,528Occupancy,
      net of rental income
            
            
            8,379
            
            
            
            8,740
            
            
            
            25,005
            
            
            
            25,403Furniture
      and equipment
            
            
            4,631
            
            
            
            4,969
            
            
            
            14,206
            
            
            
            15,164Postage,
      printing and supplies
            
            
            1,142
            
            
            
            1,406
            
            
            
            3,702
            
            
            
            4,555Information
      technology fees
            
            
            7,505
            
            
            
            8,754
            
            
            
            23,497
            
            
            
            27,097Legal,
      examination and professional fees
            
            
            3,725
            
            
            
            4,049
            
            
            
            11,142
            
            
            
            10,552Amortization
      of intangible assets
            
            
            1,695
            
            
            
            2,173
            
            
            
            5,138
            
            
            
            6,511Advertising
      and business development
            
            
            420
            
            
            
            1,731
            
            
            
            1,838
            
            
            
            5,010FDIC
      insurance
            
            
            4,929
            
            
            
            1,431
            
            
            
            18,240
            
            
            
            4,308Expenses
      on other real estate
            
            
            3,911
            
            
            
            1,918
            
            
            
            11,414
            
            
            
            3,791Other
            
            
            8,955
            
            
            
            9,748
            
            
            
            23,782
            
            
            
            25,887Total
      noninterest expense
            
            
            72,650
            
            
            
            76,507
            
            
            
            221,758
            
            
            
            227,806Loss
      from continuing operations before provision(benefit) for income
      taxes
            
            
            (90,114
            )
            
            
            (74,498
            )
            
            
            (269,045
            )
            
            
            (133,783
            )Provision
      (benefit) for income taxes
            
            
            58
            
            
            
            (51,448
            )
            
            
            2,516
            
            
            
            (72,450
            )Net
      loss from continuing operations, net of tax
            
            
            (90,172
            )
            
            
            (23,050
            )
            
            
            (271,561
            )
            
            
            (61,333
            )Loss
      from discontinued operations, net of tax
            
            
            (2,285
            )
            
            
            (2,065
            )
            
            
            (8,448
            )
            
            
            (8,394
            )Net
      loss
            
            
            (92,457
            )
            
            
            (25,115
            )
            
            
            (280,009
            )
            
            
            (69,727
            )Less:
      net (loss) income attributable to noncontrolling interest in
      subsidiaries
            
            
            (1,380
            )
            
            
            (154
            )
            
            
            (6,207
            )
            
            
            24Net
      loss attributable to First Banks, Inc.
            
            $
            (91,077
            )
            
            
            (24,961
            )
            
            
            (273,802
            )
            
            
            (69,751
            )Net
      loss available to common stockholders
            
            $
            (95,961
            )
            
            
            (25,157
            )
            
            
            (288,699
            )
            
            
            (70,275
            )Basic
      loss per common share from continuing operations
            
            $
            (3,959.09
            )
            
            
            (975.97
            )
            
            
            (11,844.42
            )
            
            
            (2,615.35
            )Basic
      loss per common share from discontinued operations
            
            $
            (96.57
            )
            
            
            (87.27
            )
            
            
            (357.05
            )
            
            
            (354.76
            )Basic
      loss per common share
            
            $
            (4,055.66
            )
            
            
            (1,063.24
            )
            
            
            (12,201.47
            )
            
            
            (2,970.11
            )Diluted
      loss per common share from continuing operations
            
            $
            (3,959.09
            )
            
            
            (975.97
            )
            
            
            (11,844.42
            )
            
            
            (2,615.35
            )Diluted
      loss per common share from discontinued operations
            
            $
            (96.57
            )
            
            
            (87.27
            )
            
            
            (357.05
            )
            
            
            (354.76
            )Diluted
      loss per common share
            
            $
            (4,055.66
            )
            
            
            (1,063.24
            )
            
            
            (12,201.47
            )
            
            
            (2,970.11
            )Weighted
      average shares of common stock outstanding
            
            
            23,661
            
            
            
            23,661
            
            
            
            23,661
            
            
            
            23,661





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


2
 Table of Contents




First Banks, Inc.





Consolidated
Statements of Changes in Stockholders’ Equity


and
Comprehensive Income (Loss) – (Unaudited)





Nine
Months Ended September 30, 2009 and Year Ended December 31, 2008


(dollars
expressed in thousands, except per share data)





First Banks, Inc. Stockholders’
      EquityPreferred
      Stock
            
            
            Common
      Stock
            
            
            Additional
      Paid-In Capital
            
            
            Retained
      Earnings
            
            
            Accu-
      mulated Other Compre- hensive Income (Loss)
            
            
            Non-
      controlling Interest
            
            
            Total
      Stock- holders’ EquityBalance,
      December 31, 2007
            
            $
            13,063
            
            
            
            5,915
            
            
            
            9,685
            
            
            
            818,343
            
            
            
            (4,929
            )
            
            
            5,544
            
            
            
            847,621Comprehensive
      loss:Net
      loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (287,155
            )
            
            
            —
            
            
            
            (1,158
            )
            
            
            (288,313
            )Other
      comprehensive income (loss):Unrealized
      gains on investment securities, net of tax
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            6,043
            
            
            
            —
            
            
            
            6,043Reclassification
      adjustment for investment securities losses included in net loss, net of
      tax
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            5,694
            
            
            
            —
            
            
            
            5,694Change
      in unrealized gains on derivative instruments, net of tax
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,745
            
            
            
            —
            
            
            
            1,745Reclassification
      adjustment for establishment of deferred tax asset valuation allowance on
      derivatives
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (1,707
            )
            
            
            —
            
            
            
            (1,707
            )Pension
      liability adjustment, net of tax
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (651
            )
            
            
            —
            
            
            
            (651
            )Total
      comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (277,189
            )Change
      in noncontrolling interest ownership
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            124,997
            
            
            
            124,997Cumulative
      effect of change in accounting principle
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            6,312
            
            
            
            —
            
            
            
            —
            
            
            
            6,312Issuance
      of Class C Preferred Stock
            
            
            278,057
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            278,057Issuance
      of Class D Preferred Stock
            
            
            17,343
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            17,343Preferred
      stock dividends declared
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (786
            )
            
            
            —
            
            
            
            —
            
            
            
            (786
            )Balance,
      December 31, 2008
            
            
            308,463
            
            
            
            5,915
            
            
            
            9,685
            
            
            
            536,714
            
            
            
            6,195
            
            
            
            129,383
            
            
            
            996,355Comprehensive
      loss:Net
      loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (273,802
            )
            
            
            —
            
            
            
            (6,207
            )
            
            
            (280,009
            )Other
      comprehensive income (loss):Unrealized
      gains on investment securities, net of tax
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            4,939
            
            
            
            —
            
            
            
            4,939Reclassification
      adjustment for investment securities gains included in net loss, net of
      tax
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (2,781
            )
            
            
            —
            
            
            
            (2,781
            )Change
      in unrealized gains on derivative instruments, net of tax
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (4,511
            )
            
            
            —
            
            
            
            (4,511
            )Amortization
      of net loss related to pension plan liability, net of tax
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            104
            
            
            
            —
            
            
            
            104Reclassification
      adjustments for deferred tax asset valuation allowance
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (3,032
            )
            
            
            —
            
            
            
            (3,032
            )Total
      comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (285,290
            )Purchase
      of noncontrolling interest in SBLS LLC
            
            
            —
            
            
            
            —
            
            
            
            2,795
            
            
            
            —
            
            
            
            —
            
            
            
            (4,652
            )
            
            
            (1,857
            )Accretion
      of discount on preferred stock
            
            
            2,467
            
            
            
            —
            
            
            
            —
            
            
            
            (2,467
            )
            
            
            —
            
            
            
            —
            
            
            
            —Preferred
      stock dividends declared
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (10,417
            )
            
            
            —
            
            
            
            —
            
            
            
            (10,417
            )Balance,
      September 30, 2009
            
            $
            310,930
            
            
            
            5,915
            
            
            
            12,480
            
            
            
            250,028
            
            
            
            914
            
            
            
            118,524
            
            
            
            698,791





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


3
 Table of Contents


First Banks, Inc.





Consolidated
Statements of Cash Flows – (Unaudited)


(dollars
expressed in thousands)





Nine
      Months EndedSeptember 30,2009
            
            
            2008Cash
      flows from operating activities:Net
      loss attributable to First Banks, Inc.
            
            $
            (273,802
            )
            
            
            (69,751
            )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
      and amortization of bank premises and equipment
            
            
            17,730
            
            
            
            18,611Amortization
      of intangible assets
            
            
            6,973
            
            
            
            8,346Originations
      of loans held for sale
            
            
            (469,061
            )
            
            
            (168,726
            )Proceeds
      from sales of loans held for sale
            
            
            479,010
            
            
            
            226,187Payments
      received on loans held for sale
            
            
            1,697
            
            
            
            13,560Provision
      for loan losses
            
            
            327,000
            
            
            
            229,000Benefit
      for current income taxes
            
            
            (31,084
            )
            
            
            (66,611
            )(Benefit)
      provision for deferred income taxes
            
            
            (84,261
            )
            
            
            10,913Increase
      (decrease) in deferred tax asset valuation allowance
            
            
            117,861
            
            
            
            (22,243
            )Decrease
      in accrued interest receivable
            
            
            5,006
            
            
            
            16,034Decrease
      in accrued interest payable
            
            
            (2,399
            )
            
            
            (4,867
            )Decrease
      in current income taxes receivable
            
            
            62,050
            
            
            
            3,067Gain
      on loans sold and held for sale
            
            
            (9,725
            )
            
            
            (3,556
            )Net
      (gain) loss on investment securities
            
            
            (4,279
            )
            
            
            5,715Net
      loss (gain) on derivative instruments
            
            
            4,437
            
            
            
            (1,729
            )Decrease
      in fair value of servicing rights
            
            
            2,386
            
            
            
            6,508Gain
      on extinguishment of term repurchase agreement
            
            
            —
            
            
            
            (5,000
            )Other
      operating activities, net
            
            
            9,313
            
            
            
            17,071Net
      (loss) income attributable to noncontrolling interest in
      subsidiaries
            
            
            (6,207
            )
            
            
            24Net
      cash provided by operating activities
            
            
            152,645
            
            
            
            212,553Cash
      flows from investing activities:Cash
      paid for earn-out consideration to Adrian N. Baker &
      Company
            
            
            (2,939
            )
            
            
            (2,920
            )Proceeds
      from sales of investment securities available for sale
            
            
            311,776
            
            
            
            351,751Maturities
      of investment securities available for sale
            
            
            606,716
            
            
            
            278,426Maturities
      of investment securities held to maturity
            
            
            3,234
            
            
            
            1,411Purchases
      of investment securities available for sale
            
            
            (974,403
            )
            
            
            (314,474
            )Purchases
      of investment securities held to maturity
            
            
            —
            
            
            
            (1,557
            )Redemptions
      of FHLB and Federal Reserve Bank stock
            
            
            4,742
            
            
            
            14,705Purchases
      of FHLB and Federal Reserve Bank stock
            
            
            (23,666
            )
            
            
            (26,557
            )Proceeds
      from sales of commercial loans held for sale
            
            
            1,366
            
            
            
            3,421Net
      decrease (increase) in loans
            
            
            408,000
            
            
            
            (276,128
            )Recoveries
      of loans previously charged-off
            
            
            9,936
            
            
            
            5,998Purchases
      of bank premises and equipment
            
            
            (12,254
            )
            
            
            (19,377
            )Net
      proceeds from sales of other real estate owned
            
            
            38,625
            
            
            
            11,170Proceeds
      from termination of BOLI policy
            
            
            90,578
            
            
            
            —Cash
      paid for purchase of noncontrolling interest in SBLS LLC
            
            
            (1,857
            )
            
            
            —Cash
      received for noncontrolling interest in FB Holdings, LLC
            
            
            —
            
            
            
            115,000Other
      investing activities, net
            
            
            (2,124
            )
            
            
            1,987Net
      cash provided by investing activities
            
            
            457,730
            
            
            
            142,856Cash
      flows from financing activities:Increase
      in demand, savings and money market deposits
            
            
            260,667
            
            
            
            148,356Decrease
      in time deposits
            
            
            (308,099
            )
            
            
            (405,155
            )Decrease
      in Federal Reserve Bank advances
            
            
            (100,000
            )
            
            
            —Advances
      drawn on Federal Home Loan Bank advances
            
            
            600,000
            
            
            
            890,000Repayments
      of Federal Home Loan Bank advances
            
            
            (200,052
            )
            
            
            (590,130
            )Decrease
      in federal funds purchased
            
            
            —
            
            
            
            (76,500
            )Decrease
      in securities sold under agreements to repurchase
            
            
            (50,861
            )
            
            
            (41,065
            )Advances
      drawn on notes payable
            
            
            —
            
            
            
            55,000Repayments
      of notes payable
            
            
            —
            
            
            
            (94,000
            )Payment
      of preferred stock dividends
            
            
            (6,365
            )
            
            
            (524
            )Net
      cash provided by (used in) financing activities
            
            
            195,290
            
            
            
            (114,018
            )Net
      increase in cash and cash equivalents
            
            
            805,665
            
            
            
            241,391Cash
      and cash equivalents, beginning of period
            
            
            842,316
            
            
            
            231,675Cash
      and cash equivalents, end of period
            
            $
            1,647,981
            
            
            
            473,066Supplemental
      disclosures of cash flow information:Cash
      paid (received) during the period for:Interest
      on liabilities
            
            $
            132,419
            
            
            
            199,799Income
      taxes
            
            
            (61,858
            )
            
            
            (14,427
            )Noncash
      investing and financing activities:Cumulative
      effect of change in accounting principle
            
            $
            —
            
            
            
            6,312Loans
      transferred to other real estate
            
            
            127,189
            
            
            
            49,778





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


4
 Table of Contents




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 the 2008 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, 2009 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2009.





In
connection with the preparation of the consolidated financial statements, First
Banks has evaluated subsequent events after the consolidated balance sheet date
of September 30, 2009 through November 13, 2009, the date the financial
statements were issued.





Principles of
Consolidation.  The consolidated financial statements include
the accounts of the parent company and its subsidiaries, giving effect to the
noncontrolling interest in subsidiaries, as more fully described below, and in
Note 8 to the consolidated financial statements. All significant intercompany
accounts and transactions have been eliminated. Certain reclassifications of
2008 amounts have been made to conform to the 2009 presentation. All financial
information is reported on a continuing operations basis, unless otherwise
noted. See Note 2 to the consolidated financial statements for discussion
regarding discontinued operations and certain assets and liabilities held for
sale at September 30, 2009.





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 holding company, Coast Financial Holdings, Inc. (CFHI),
headquartered in Bradenton, Florida.





Prior to
First Banks’ acquisition of CFHI in November 2007, First Bank, headquartered in
St. Louis, Missouri, was a wholly owned banking subsidiary of SFC. In November
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); Universal Premium
Acceptance Corporation and its wholly owned subsidiary, UPAC of California, Inc.
(collectively, UPAC); FB Holdings, LLC (FB Holdings); Small Business Loan Source
LLC (SBLS LLC); and ILSIS, Inc. All of the subsidiaries are wholly owned as of
September 30, 2009, except FB Holdings, which was 53.23% owned by First Bank and
46.77% owned by First Capital America, Inc. (FCA), as further described in Note
8 to the consolidated financial statements. On April 30, 2009, First Bank and
FCA entered into a Purchase Agreement providing for FCA to sell its 17.45%
ownership interest in SBLS LLC to First Bank. As such, effective April 30, 2009,
First Bank owned 100.0% of SBLS LLC, as further described in Note 8 to the
consolidated financial statements. On September 30, 2009, First Bank purchased
all of the loans and certain other assets and assumed all of the liabilities of
SBLS LLC.





FB
Holdings and SBLS LLC (prior to the its acquisition by First Bank on April 30,
2009, as discussed above) are included in the consolidated financial statements
with the noncontrolling ownership interest reported as a component of
stockholders’ equity in the consolidated balance sheets as “noncontrolling
interest in subsidiaries” and the earnings or loss, net of tax, attributable to
the noncontrolling ownership interest, reported as “net (loss) income
attributable to noncontrolling interest in subsidiaries” in the consolidated
statements of operations.


5
 Table of Contents




Significant
Accounting Policies.In June 2009, the FASB
issued SFAS No. 168– The FASB Accounting Standards
CodificationTMand the Hierarchy of Generally
Accepted Accounting Principles, a Replacement of SFAS No. 162 – The Hierarchy of
Generally Accepted Accounting Principles,which was subsequently
incorporated into Accounting Standards CodificationTM, or
ASC, Topic 105, “Generally
Accepted Accounting Principles.” This accounting pronouncement
establishes the FASB ASC as the source of authoritative GAAP recognized by the
FASB to be applied by nongovernmental entities. Rules and interpretive releases
of the United States Securities and Exchange Commission, or SEC, under authority
of federal securities laws, are also sources of authoritative GAAP for SEC
registrants. The ASC, which became effective for financial statements issued for
interim and annual periods ending after September 15, 2009, supersedes all
then-existing non-SEC accounting and reporting standards. All other
non-grandfathered, non-SEC accounting literature not included in the ASC will
become non-authoritative. First Banks adopted this new accounting pronouncement
for the quarterly period ended September 30, 2009, which did not have a material
impact on First Banks’ consolidated financial statements or the disclosures
presented in its consolidated financial statements.





On
January 1, 2009, First Banks implemented SFAS No. 160 – Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB 51,which was
subsequently incorporated into ASC Topic 810, “Consolidation.”ASC Topic 810
establishes new accounting and reporting standards for noncontrolling interests
in a subsidiary and for the deconsolidation of a subsidiary. ASC Topic 810
requires entities to classify noncontrolling interests as a component of
stockholders’ equity and requires subsequent changes in ownership interests in a
subsidiary to be accounted for as an equity transaction. Additionally, ASC Topic
810 requires 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. ASC Topic 810 also requires expanded disclosures that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. ASC Topic 810 was 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. The
implementation of ASC Topic 810 on January 1, 2009 resulted in the
noncontrolling interest in subsidiaries of $129.4 million being reclassified
from a liability to a component of stockholders’ equity in the consolidated
balance sheets.





Regulatory
Matters.  In connection with the most recent regular
examinations of the Company and First Bank by the Federal Reserve Bank of St.
Louis (FRB) and the Missouri Division of Finance (MDOF), the Company and First
Bank entered into informal agreements with each regulatory 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.





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 9 to the consolidated financial statements, at September 30,
2009, First Bank’s Tier 1 capital ratio was 8.91%, or approximately $159.8
million over the minimum level required by the agreement. The Company and First
Bank were in full compliance with all provisions of the respective informal
agreements as of September 30, 2009 and December 31, 2008, and are committed to
endeavoring to meet the requirements of the agreements in a timely
manner.





On August
10, 2009, First Banks announced the deferral of its regularly scheduled interest
payments on its outstanding junior subordinated notes relating to its $345.0
million of trust preferred securities beginning with the regularly scheduled
quarterly interest payments that would otherwise have been made in September and
October 2009, as further described in Note 12 to the consolidated financial
statements. The terms of the junior subordinated notes and the related trust
indentures allow First Banks to defer such payments of interest for up to 20
consecutive quarterly periods without default or penalty; however, First Banks
continues to accrue interest on its subordinated debentures in its consolidated
financial statements. During the deferral period, First Banks may not, among
other things and with limited exceptions, pay cash dividends on or repurchase
its common stock or preferred stock nor make any payment on outstanding debt
obligations that rank equally with or junior to the junior subordinated notes.
Accordingly, First Banks also suspended the payment of cash dividends on its
outstanding common stock and preferred stock beginning with the regularly
scheduled quarterly dividend payments on the preferred stock that would
otherwise have been made in August and September 2009, as further described in
Note 13 to the consolidated financial statements. In conjunction with this
election, First Banks suspended the declaration of dividends on its Class A and
Class B preferred stock, but continues to declare and accumulate dividends on
its Class C and Class D preferred stock.


6
 Table of Contents




(2)
            Discontinued
      Operations andAssets and Liabilities Held for
  Sale





Discontinued
Operations.On August 7,
2009, First Bank signed a Purchase and Assumption Agreement that provides for
the sale of certain assets and the transfer of certain liabilities of First
Bank’s Texas region (Texas) to Sterling Bank (Sterling), headquartered in
Houston, Texas. Under the terms of the agreement, Sterling is to purchase
approximately $236.6 million in loans as well as certain other assets, including
premises and equipment associated with First Bank’s Texas operations. Sterling
is also to assume approximately $503.3 million of deposits associated with First
Bank’s 19 Texas retail branches, including certain commercial deposit
relationships, for a premium of 6.0%, or approximately $30.0 million. The
transaction, which is subject to regulatory approvals and certain closing
conditions, is expected to be completed during the fourth quarter of 2009. First
Banks applied discontinued operations accounting in accordance with ASC Topic
205-20, “Presentation of
Financial Statements – Discontinued Operations,” to the assets and
liabilities being sold in Texas as of September 30, 2009 and for the three and
nine months ended September 30, 2009 and 2008. These assets and liabilities,
which were previously reported in the First Bank segment, were sold as part of
First Banks’ Capital Optimization Plan (Capital Plan) to preserve risk-based
capital during the current and continuing economic downturn. See further
discussion of First Banks’ Capital Plan under “Management’s Discussion and
Analysis of Financial Condition and Results of Operations —General – Recent
Developments.”





On
September 18, 2009, First Bank, Adrian N. Baker & Company (ANB) and MVP
signed a Stock Purchase Agreement that provided for the sale of First Bank’s
subsidiaries, ANB and MVP, to AHM Corporation Holdings, Inc. (AHM). Under the
terms of the agreement, AHM purchased all of the capital stock of ANB for a
purchase price of approximately $14.8 million. The sale of ANB was completed on
September 30, 2009 and resulted in a pre-tax gain on the sale of $527,000. ANB,
which was previously reported in the First Bank segment, was sold as part of
First Banks’ Capital Plan. The MVP transaction was subsequently terminated by
First Bank on November 9, 2009. MVP was previously reported in the First Bank
segment. First Banks applied discontinued operations accounting to ANB and MVP
as of September 30, 2009 and for the three and nine months ended September 30,
2009 and 2008.





Assets
and liabilities of discontinued operations at September 30, 2009 were as
follows:





September 30, 2009Texas
            
            
            MVP
            
            
            Total(dollars
      expressed in thousands)Cash
      and due from banks
            
            $
            5,383
            
            
            
            —
            
            
            
            5,383Loans:Commercial,
      financial and agricultural
            
            
            119,358
            
            
            
            —
            
            
            
            119,358Real
      estate construction and development
            
            
            24,803
            
            
            
            —
            
            
            
            24,803Residential
      real estate
            
            
            20,492
            
            
            
            —
            
            
            
            20,492Multi-family
      residential
            
            
            5,413
            
            
            
            —
            
            
            
            5,413Commercial
      real estate
            
            
            60,258
            
            
            
            —
            
            
            
            60,258Consumer
      and installment
            
            
            6,272
            
            
            
            —
            
            
            
            6,272Total
      loans
            
            
            236,596
            
            
            
            —
            
            
            
            236,596Bank
      premises and equipment, net
            
            
            18,432
            
            
            
            19
            
            
            
            18,451Goodwill
      and other intangible assets
            
            
            24,962
            
            
            
            —
            
            
            
            24,962Other
      assets
            
            
            —
            
            
            
            611
            
            
            
            611Assets
      of discontinued operations
            
            $
            285,373
            
            
            
            630
            
            
            
            286,003Deposits:Noninterest-bearing
      demand
            
            $
            89,713
            
            
            
            —
            
            
            
            89,713Interest-bearing
      demand
            
            
            43,833
            
            
            
            —
            
            
            
            43,833Savings
      and money market
            
            
            177,754
            
            
            
            —
            
            
            
            177,754Time
      deposits of $100 or more
            
            
            87,563
            
            
            
            —
            
            
            
            87,563Other
      time deposits
            
            
            104,421
            
            
            
            —
            
            
            
            104,421Total
      deposits
            
            
            503,284
            
            
            
            —
            
            
            
            503,284Other
      borrowings
            
            
            5,516
            
            
            
            —
            
            
            
            5,516Accrued
      expenses and other liabilities
            
            
            1,238
            
            
            
            1,921
            
            
            
            3,159Liabilities
      of discontinued operations
            
            $
            510,038
            
            
            
            1,921
            
            
            
            511,959


7
 Table of Contents




Loss from
discontinued operations, net of tax, for the three months ended September 30,
2009 and 2008 was as follows:





Three
      Months Ended
            
            
            Three
      Months EndedSeptember 30, 2009
            
            
            September 30, 2008Texas
            
            
            MVP
            
            
            ANB
            
            
            Total
            
            
            Texas
            
            
            MVP
            
            
            ANB
            
            
            Total(dollars
      expressed in thousands)Interest
      income:Interest
      and fees on loans
            
            $
            3,158
            
            
            
            —
            
            
            
            —
            
            
            
            3,158
            
            
            
            3,120
            
            
            
            —
            
            
            
            —
            
            
            
            3,120Other
      interest income
            
            
            —
            
            
            
            —
            
            
            
            2
            
            
            
            2
            
            
            
            —
            
            
            
            —
            
            
            
            10
            
            
            
            10Total
      interest income
            
            
            3,158
            
            
            
            —
            
            
            
            2
            
            
            
            3,160
            
            
            
            3,120
            
            
            
            —
            
            
            
            10
            
            
            
            3,130Interest
      expense:Interest
      on deposits
            
            
            1,979
            
            
            
            —
            
            
            
            —
            
            
            
            1,979
            
            
            
            3,160
            
            
            
            —
            
            
            
            —
            
            
            
            3,160Other
      borrowings
            
            
            3
            
            
            
            —
            
            
            
            —
            
            
            
            3
            
            
            
            17
            
            
            
            —
            
            
            
            —
            
            
            
            17Total
      interest expense
            
            
            1,982
            
            
            
            —
            
            
            
            —
            
            
            
            1,982
            
            
            
            3,177
            
            
            
            —
            
            
            
            —
            
            
            
            3,177Net
      interest income (loss)
            
            
            1,176
            
            
            
            —
            
            
            
            2
            
            
            
            1,178
            
            
            
            (57
            )
            
            
            —
            
            
            
            10
            
            
            
            (47
            )Provision
      for loan losses
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Net
      interest income (loss) after provision for loan losses
            
            
            1,176
            
            
            
            —
            
            
            
            2
            
            
            
            1,178
            
            
            
            (57
            )
            
            
            —
            
            
            
            10
            
            
            
            (47
            )Noninterest
      income:Service
      charges and customer service fees
            
            
            1,137
            
            
            
            —
            
            
            
            —
            
            
            
            1,137
            
            
            
            1,122
            
            
            
            —
            
            
            
            —
            
            
            
            1,122Gain
      on loans sold and held for sale
            
            
            62
            
            
            
            —
            
            
            
            —
            
            
            
            62
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Investment
      management income
            
            
            —
            
            
            
            599
            
            
            
            —
            
            
            
            599
            
            
            
            —
            
            
            
            737
            
            
            
            —
            
            
            
            737Insurance
      fee and commission income
            
            
            —
            
            
            
            —
            
            
            
            1,671
            
            
            
            1,671
            
            
            
            —
            
            
            
            —
            
            
            
            1,835
            
            
            
            1,835Loan
      servicing fees
            
            
            93
            
            
            
            —
            
            
            
            —
            
            
            
            93
            
            
            
            67
            
            
            
            —
            
            
            
            —
            
            
            
            67Other
            
            
            29
            
            
            
            —
            
            
            
            —
            
            
            
            29
            
            
            
            71
            
            
            
            1
            
            
            
            1
            
            
            
            73Total
      noninterest income
            
            
            1,321
            
            
            
            599
            
            
            
            1,671
            
            
            
            3,591
            
            
            
            1,260
            
            
            
            738
            
            
            
            1,836
            
            
            
            3,834Noninterest
      expense:Salaries
      and employee benefits
            
            
            2,023
            
            
            
            710
            
            
            
            1,026
            
            
            
            3,759
            
            
            
            2,373
            
            
            
            243
            
            
            
            1,013
            
            
            
            3,629Occupancy,
      net of rental income
            
            
            978
            
            
            
            51
            
            
            
            102
            
            
            
            1,131
            
            
            
            1,019
            
            
            
            49
            
            
            
            126
            
            
            
            1,194Furniture
      and equipment
            
            
            258
            
            
            
            19
            
            
            
            18
            
            
            
            295
            
            
            
            311
            
            
            
            26
            
            
            
            14
            
            
            
            351Legal,
      examination and professional fees
            
            
            73
            
            
            
            113
            
            
            
            142
            
            
            
            328
            
            
            
            90
            
            
            
            109
            
            
            
            161
            
            
            
            360Amortization
      of intangible assets
            
            
            540
            
            
            
            —
            
            
            
            72
            
            
            
            612
            
            
            
            540
            
            
            
            —
            
            
            
            72
            
            
            
            612FDIC
      insurance
            
            
            290
            
            
            
            —
            
            
            
            —
            
            
            
            290
            
            
            
            84
            
            
            
            —
            
            
            
            —
            
            
            
            84Other
            
            
            1,001
            
            
            
            30
            
            
            
            135
            
            
            
            1,166
            
            
            
            812
            
            
            
            46
            
            
            
            115
            
            
            
            973Total
      noninterest expense
            
            
            5,163
            
            
            
            923
            
            
            
            1,495
            
            
            
            7,581
            
            
            
            5,229
            
            
            
            473
            
            
            
            1,501
            
            
            
            7,203(Loss)
      income from operations of discontinued operations
            
            
            (2,666
            )
            
            
            (324
            )
            
            
            178
            
            
            
            (2,812
            )
            
            
            (4,026
            )
            
            
            265
            
            
            
            345
            
            
            
            (3,416
            )Gain
      on sale of discontinued operations
            
            
            —
            
            
            
            —
            
            
            
            527
            
            
            
            527
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Provision
      (benefit) for income taxes
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (1,592
            )
            
            
            105
            
            
            
            136
            
            
            
            (1,351
            )Net
      (loss) income from discontinued operations
            
            $
            (2,666
            )
            
            
            (324
            )
            
            
            705
            
            
            
            (2,285
            )
            
            
            (2,434
            )
            
            
            160
            
            
            
            209
            
            
            
            (2,065
            )





Loss from
discontinued operations, net of tax, for the nine months ended September 30,
2009 and 2008 was as follows:





Nine
      Months Ended
            
            
            Nine
      Months EndedSeptember 30, 2009
            
            
            September 30, 2008Texas
            
            
            MVP
            
            
            ANB
            
            
            Total
            
            
            Texas
            
            
            MVP
            
            
            ANB
            
            
            Total(dollars
      expressed in thousands)Interest
      income:Interest
      and fees on loans
            
            $
            8,914
            
            
            
            —
            
            
            
            —
            
            
            
            8,914
            
            
            
            9,170
            
            
            
            —
            
            
            
            —
            
            
            
            9,170Other
      interest income
            
            
            —
            
            
            
            —
            
            
            
            5
            
            
            
            5
            
            
            
            —
            
            
            
            —
            
            
            
            37
            
            
            
            37Total
      interest income
            
            
            8,914
            
            
            
            —
            
            
            
            5
            
            
            
            8,919
            
            
            
            9,170
            
            
            
            —
            
            
            
            37
            
            
            
            9,207Interest
      expense:Interest
      on deposits
            
            
            6,410
            
            
            
            —
            
            
            
            —
            
            
            
            6,410
            
            
            
            11,331
            
            
            
            —
            
            
            
            —
            
            
            
            11,331Other
      borrowings
            
            
            7
            
            
            
            —
            
            
            
            —
            
            
            
            7
            
            
            
            55
            
            
            
            —
            
            
            
            —
            
            
            
            55Total
      interest expense
            
            
            6,417
            
            
            
            —
            
            
            
            —
            
            
            
            6,417
            
            
            
            11,386
            
            
            
            —
            
            
            
            —
            
            
            
            11,386Net
      interest income (loss)
            
            
            2,497
            
            
            
            —
            
            
            
            5
            
            
            
            2,502
            
            
            
            (2,216
            )
            
            
            —
            
            
            
            37
            
            
            
            (2,179
            )Provision
      for loan losses
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Net
      interest income (loss) after provision for loan losses
            
            
            2,497
            
            
            
            —
            
            
            
            5
            
            
            
            2,502
            
            
            
            (2,216
            )
            
            
            —
            
            
            
            37
            
            
            
            (2,179
            )Noninterest
      income:Service
      charges and customer service fees
            
            
            3,344
            
            
            
            —
            
            
            
            —
            
            
            
            3,344
            
            
            
            3,079
            
            
            
            —
            
            
            
            —
            
            
            
            3,079Gain
      on loans sold and held for sale
            
            
            163
            
            
            
            —
            
            
            
            —
            
            
            
            163
            
            
            
            357
            
            
            
            —
            
            
            
            —
            
            
            
            357Investment
      management income
            
            
            —
            
            
            
            1,657
            
            
            
            —
            
            
            
            1,657
            
            
            
            —
            
            
            
            2,779
            
            
            
            —
            
            
            
            2,779Insurance
      fee and commission income
            
            
            —
            
            
            
            —
            
            
            
            5,828
            
            
            
            5,828
            
            
            
            —
            
            
            
            —
            
            
            
            5,739
            
            
            
            5,739Loan
      servicing fees
            
            
            276
            
            
            
            —
            
            
            
            —
            
            
            
            276
            
            
            
            158
            
            
            
            —
            
            
            
            —
            
            
            
            158Other
            
            
            86
            
            
            
            1
            
            
            
            5
            
            
            
            92
            
            
            
            132
            
            
            
            1
            
            
            
            19
            
            
            
            152Total
      noninterest income
            
            
            3,869
            
            
            
            1,658
            
            
            
            5,833
            
            
            
            11,360
            
            
            
            3,726
            
            
            
            2,780
            
            
            
            5,758
            
            
            
            12,264Noninterest
      expense:Salaries
      and employee benefits
            
            
            6,239
            
            
            
            2,078
            
            
            
            3,132
            
            
            
            11,449
            
            
            
            8,162
            
            
            
            2,113
            
            
            
            3,083
            
            
            
            13,358Occupancy,
      net of rental income
            
            
            3,032
            
            
            
            148
            
            
            
            325
            
            
            
            3,505
            
            
            
            2,943
            
            
            
            147
            
            
            
            355
            
            
            
            3,445Furniture
      and equipment
            
            
            835
            
            
            
            55
            
            
            
            50
            
            
            
            940
            
            
            
            933
            
            
            
            77
            
            
            
            48
            
            
            
            1,058Legal,
      examination and professional fees
            
            
            229
            
            
            
            326
            
            
            
            542
            
            
            
            1,097
            
            
            
            253
            
            
            
            389
            
            
            
            517
            
            
            
            1,159Amortization
      of intangible assets
            
            
            1,619
            
            
            
            —
            
            
            
            216
            
            
            
            1,835
            
            
            
            1,619
            
            
            
            —
            
            
            
            216
            
            
            
            1,835FDIC
      insurance
            
            
            1,082
            
            
            
            —
            
            
            
            —
            
            
            
            1,082
            
            
            
            220
            
            
            
            —
            
            
            
            —
            
            
            
            220Other
            
            
            2,352
            
            
            
            112
            
            
            
            465
            
            
            
            2,929
            
            
            
            2,281
            
            
            
            190
            
            
            
            424
            
            
            
            2,895Total
      noninterest expense
            
            
            15,388
            
            
            
            2,719
            
            
            
            4,730
            
            
            
            22,837
            
            
            
            16,411
            
            
            
            2,916
            
            
            
            4,643
            
            
            
            23,970(Loss)
      income from operations of discontinued operations
            
            
            (9,022
            )
            
            
            (1,061
            )
            
            
            1,108
            
            
            
            (8,975
            )
            
            
            (14,901
            )
            
            
            (136
            )
            
            
            1,152
            
            
            
            (13,885
            )Gain
      on sale of discontinued operations
            
            
            —
            
            
            
            —
            
            
            
            527
            
            
            
            527
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Provision
      (benefit) for income taxes
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (5,893
            )
            
            
            (53
            )
            
            
            455
            
            
            
            (5,491
            )Net
      (loss) income from discontinued operations
            
            $
            (9,022
            )
            
            
            (1,061
            )
            
            
            1,635
            
            
            
            (8,448
            )
            
            
            (9,008
            )
            
            
            (83
            )
            
            
            697
            
            
            
            (8,394
            )


8
 Table of Contents




First
Banks did not allocate any consolidated interest that is not directly
attributable to or related to discontinued operations.





All
financial information in the consolidated financial statements, with the
exception of the consolidated statement of cash flows, and notes to the
consolidated financial statements reflects continuing operations, unless
otherwise noted.





Assets Held for
Sale and Liabilities Held for Sale.On August 27,
2009, First Bank entered into a Branch Purchase and Assumption Agreement
providing for the sale of First Bank’s Lawrenceville, Illinois branch office to
The Peoples State Bank of Newton (Peoples). Under the terms of the agreement,
Peoples is to assume approximately $24.6 million of deposits as well as certain
other liabilities, and will purchase approximately $15.1 million of loans as
well as certain other assets, including premises and equipment. The transaction,
which is subject to regulatory approvals and certain closing conditions, is
expected to be completed during the first quarter of 2010.





On August
31, 2009, First Bank entered into a Branch Purchase and Assumption Agreement
providing for the sale of First Bank’s Springfield, Illinois branch office to
First Bankers Trust Company, National Association, a subsidiary of First Bankers
Trustshares, Inc. (First Bankers). Under the terms of the agreement, First
Bankers is to assume approximately $20.8 million of deposits as well as certain
other liabilities, and will purchase approximately $1.6 million of loans as well
as certain other assets, including premises and equipment. The transaction,
which is subject to regulatory approvals and certain closing conditions, is
expected to be completed during the fourth quarter of 2009.





The
assets and liabilities associated with the Lawrenceville and Springfield branch
offices (Branch Sales) are reflected in assets held for sale and liabilities
held for sale in the consolidated balance sheet as of September 30, 2009. The
Branch Sales were not included in discontinued operations as First Banks will
have continuing involvement in the respective regions.


9
 Table of Contents




(3)
            Investments
      in Debt and Equity Securities





Securities
Available for Sale.The amortized
cost, contractual maturity, gross unrealized gains and losses and fair value of
investment securities available for sale at September 30, 2009 and December 31,
2008 were as follows:





Maturity
            
            
            Total
            
            
            Gross
            
            
            
            
            
            Weighted1
      Year
            
            
            1-5
            
            
            5-10
            
            
            After
            
            
            Amortized
            
            
            Unrealized
            
            
            Fair
            
            
            Averageor Less
            
            
            Years
            
            
            Years
            
            
            10 Years
            
            
            Cost
            
            
            Gains
            
            
            Losses
            
            
            Value
            
            
            Yield(dollars
      expressed in thousands)September
      30, 2009:Carrying
      value:U.S.
      Government sponsored agencies
            
            $
            783
            
            
            
            26,538
            
            
            
            17,730
            
            
            
            —
            
            
            
            45,051
            
            
            
            272
            
            
            
            —
            
            
            
            45,323
            
            
            
            2.80
            %Residential
      mortgage-backed
            
            
            1,028
            
            
            
            11,799
            
            
            
            5,713
            
            
            
            495,948
            
            
            
            514,488
            
            
            
            4,856
            
            
            
            (952
            )
            
            
            518,392
            
            
            
            3.49Commercial
      mortgage-backed
            
            
            —
            
            
            
            14,973
            
            
            
            12,621
            
            
            
            —
            
            
            
            27,594
            
            
            
            387
            
            
            
            (1
            )
            
            
            27,980
            
            
            
            4.01State
      and political subdivisions
            
            
            2,252
            
            
            
            5,968
            
            
            
            5,511
            
            
            
            —
            
            
            
            13,731
            
            
            
            442
            
            
            
            (2
            )
            
            
            14,171
            
            
            
            4.04Equity
      investments
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            15,483
            
            
            
            15,483
            
            
            
            —
            
            
            
            (1,735
            )
            
            
            13,748
            
            
            
            2.58Total
            
            $
            4,063
            
            
            
            59,278
            
            
            
            41,575
            
            
            
            511,431
            
            
            
            616,347
            
            
            
            5,957
            
            
            
            (2,690
            )
            
            
            619,614
            
            
            
            3.45Fair
      value:Debt
      securities
            
            $
            4,101
            
            
            
            60,146
            
            
            
            42,312
            
            
            
            499,307Equity
      securities
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            13,748Total
            
            $
            4,101
            
            
            
            60,146
            
            
            
            42,312
            
            
            
            513,055Weighted
      average yield
            
            
            4.50
            %
            
            
            3.16
            %
            
            
            4.04
            %
            
            
            3.43
            %December
      31, 2008:Carrying
      value:U.S.
      Government sponsored agencies
            
            $
            779
            
            
            
            499
            
            
            
            485
            
            
            
            —
            
            
            
            1,763
            
            
            
            83
            
            
            
            —
            
            
            
            1,846
            
            
            
            5.35
            %Residential
      mortgage-backed
            
            
            2,376
            
            
            
            17,594
            
            
            
            35,804
            
            
            
            461,634
            
            
            
            517,408
            
            
            
            3,171
            
            
            
            (3,448
            )
            
            
            517,131
            
            
            
            5.14State
      and political subdivisions
            
            
            4,687
            
            
            
            9,246
            
            
            
            6,565
            
            
            
            584
            
            
            
            21,082
            
            
            
            229
            
            
            
            (102
            )
            
            
            21,209
            
            
            
            4.17Equity
      investments
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            16,984
            
            
            
            16,984
            
            
            
            12
            
            
            
            —
            
            
            
            16,996
            
            
            
            4.00Total
            
            $
            7,842
            
            
            
            27,339
            
            
            
            42,854
            
            
            
            479,202
            
            
            
            557,237
            
            
            
            3,495
            
            
            
            (3,550
            )
            
            
            557,182
            
            
            
            5.07Fair
      value:Debt
      securities
            
            $
            7,918
            
            
            
            27,706
            
            
            
            43,491
            
            
            
            461,071Equity
      securities
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            16,996Total
            
            $
            7,918
            
            
            
            27,706
            
            
            
            43,491
            
            
            
            478,067Weighted
      average yield
            
            
            4.64
            %
            
            
            4.22
            %
            
            
            4.30
            %
            
            
            5.19
            %





Securities Held
to Maturity.  The amortized
cost, contractual maturity, gross unrealized gains and losses and fair value of
investment securities held to maturity at September 30, 2009 and December 31,
2008 were as follows:





Maturity
            
            
            Total
            
            
            Gross
            
            
            
            
            
            Weighted1
      Year
            
            
            1-5
            
            
            5-10
            
            
            After
            
            
            Amortized
            
            
            Unrealized
            
            
            Fair
            
            
            Averageor Less
            
            
            Years
            
            
            Years
            
            
            10 Years
            
            
            Cost
            
            
            Gains
            
            
            Losses
            
            
            Value
            
            
            Yield(dollars
      expressed in thousands)September
      30, 2009:Carrying
      value:Residential
      mortgage-backed
            
            $
            —
            
            
            
            —
            
            
            
            1,742
            
            
            
            2,324
            
            
            
            4,066
            
            
            
            214
            
            
            
            —
            
            
            
            4,280
            
            
            
            5.19
            %Commercial
      mortgage-backed
            
            
            —
            
            
            
            6,586
            
            
            
            —
            
            
            
            —
            
            
            
            6,586
            
            
            
            541
            
            
            
            —
            
            
            
            7,127
            
            
            
            5.34State
      and political subdivisions
            
            
            319
            
            
            
            1,513
            
            
            
            645
            
            
            
            1,533
            
            
            
            4,010
            
            
            
            363
            
            
            
            —
            
            
            
            4,373
            
            
            
            5.35Total
            
            $
            319
            
            
            
            8,099
            
            
            
            2,387
            
            
            
            3,857
            
            
            
            14,662
            
            
            
            1,118
            
            
            
            —
            
            
            
            15,780
            
            
            
            5.30Fair
      value:Debt
      securities
            
            $
            323
            
            
            
            8,727
            
            
            
            2,537
            
            
            
            4,193Weighted
      average yield
            
            
            3.25
            %
            
            
            5.14
            %
            
            
            4.68
            %
            
            
            6.17
            %December
      31, 2008:Carrying
      value:Residential
      mortgage-backed
            
            $
            —
            
            
            
            —
            
            
            
            748
            
            
            
            4,265
            
            
            
            5,013
            
            
            
            120
            
            
            
            —
            
            
            
            5,133
            
            
            
            5.09
            %Commercial
      mortgage-backed
            
            
            —
            
            
            
            —
            
            
            
            6,669
            
            
            
            —
            
            
            
            6,669
            
            
            
            218
            
            
            
            —
            
            
            
            6,887
            
            
            
            5.16State
      and political subdivisions
            
            
            1,964
            
            
            
            1,849
            
            
            
            625
            
            
            
            1,792
            
            
            
            6,230
            
            
            
            258
            
            
            
            (1
            )
            
            
            6,487
            
            
            
            4.97Total
            
            $
            1,964
            
            
            
            1,849
            
            
            
            8,042
            
            
            
            6,057
            
            
            
            17,912
            
            
            
            596
            
            
            
            (1
            )
            
            
            18,507
            
            
            
            5.07Fair
      value:Debt
      securities
            
            $
            1,974
            
            
            
            1,900
            
            
            
            8,299
            
            
            
            6,334Weighted
      average yield
            
            
            4.19
            %
            
            
            4.12
            %
            
            
            5.10
            %
            
            
            5.62
            %


10
 Table of Contents




Proceeds
from sales of available-for-sale investment securities were $311.8 million and
$351.8 million for the nine months ended September 30, 2009 and 2008,
respectively. Gross realized gains and gross realized losses on
available-for-sale investment securities for the three and nine months ended
September 30, 2009 and 2008 were as follows:





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Gross
      realized gains on sales
            
            $
            3,128
            
            
            
            21
            
            
            
            4,918
            
            
            
            1,396Gross
      realized losses on sales
            
            
            (33
            )
            
            
            (122
            )
            
            
            (654
            )
            
            
            (126
            )Gross
      realized gains on calls
            
            
            —
            
            
            
            8
            
            
            
            15
            
            
            
            396Other-than-temporary
      impairment
            
            
            —
            
            
            
            (999
            )
            
            
            —
            
            
            
            (7,381
            )Net
      realized gains (losses)
            
            $
            3,095
            
            
            
            (1,092
            )
            
            
            4,279
            
            
            
            (5,715
            )





Gross
unrealized losses on investment securities and the fair value of the related
securities, aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position, at September 30,
2009 and December 31, 2008 were as follows:





September 30, 2009Less than 12 months
            
            
            12 months or more
            
            
            TotalFair
            
            
            Unrealized
            
            
            Fair
            
            
            Unrealized
            
            
            Fair
            
            
            UnrealizedValue
            
            
            Losses
            
            
            Value
            
            
            Losses
            
            
            Value
            
            
            Losses(dollars
      expressed in thousands)Available
      for sale:Residential
      mortgage-backed
            
            $
            132,359
            
            
            
            (778
            )
            
            
            924
            
            
            
            (174
            )
            
            
            133,283
            
            
            
            (952
            )Commercial
      mortgage-backed
            
            
            —
            
            
            
            —
            
            
            
            152
            
            
            
            (1
            )
            
            
            152
            
            
            
            (1
            )State
      and political subdivisions
            
            
            20
            
            
            
            —
            
            
            
            263
            
            
            
            (2
            )
            
            
            283
            
            
            
            (2
            )Equity
      investments
            
            
            4,806
            
            
            
            (1,735
            )
            
            
            —
            
            
            
            —
            
            
            
            4,806
            
            
            
            (1,735
            )Total
            
            $
            137,185
            
            
            
            (2,513
            )
            
            
            1,339
            
            
            
            (177
            )
            
            
            138,524
            
            
            
            (2,690
            )Held
      to maturity:State
      and political subdivisions
            
            $
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —








December 31, 2008Less than 12 months
            
            
            12 months or more
            
            
            TotalFair
            
            
            Unrealized
            
            
            Fair
            
            
            Unrealized
            
            
            Fair
            
            
            UnrealizedValue
            
            
            Losses
            
            
            Value
            
            
            Losses
            
            
            Value
            
            
            Losses(dollars
      expressed in thousands)Available
      for sale:Residential
      mortgage-backed
            
            $
            123,944
            
            
            
            (1,711
            )
            
            
            114,600
            
            
            
            (1,737
            )
            
            
            238,544
            
            
            
            (3,448
            )State
      and political subdivisions
            
            
            4,479
            
            
            
            (101
            )
            
            
            25
            
            
            
            (1
            )
            
            
            4,504
            
            
            
            (102
            )Total
            
            $
            128,423
            
            
            
            (1,812
            )
            
            
            114,625
            
            
            
            (1,738
            )
            
            
            243,048
            
            
            
            (3,550
            )Held
      to maturity:State
      and political subdivisions
            
            $
            202
            
            
            
            (1
            )
            
            
            —
            
            
            
            —
            
            
            
            202
            
            
            
            (1
            )





First
Banks did not recognize any other-than-temporary impairment on
available-for-sale debt or equity securities in earnings for the three and nine
months ended September 30, 2009. First Banks recognized other-than-temporary
impairment on available-for-sale equity securities of $1.0 million and $7.4
million in earnings for the three and nine months ended September 30, 2008.
First Banks recognized other-than-temporary impairment of $6.4 million in the
second quarter of 2008 on an equity investment in the common stock of a single
company in the financial services industry, which management considers to have
been primarily caused by economic events impacting the financial services
industry as a whole. First Banks also recognized other-than-temporary impairment
of $1.0 million on a preferred stock investment in the third quarter of 2008,
necessitated by bankruptcy proceedings of the underlying financial services
company.





Mortgage-backed securities –
The unrealized losses on investments in residential and commercial
mortgage-backed securities were caused by fluctuations in interest rates. The
contractual terms of these securities are guaranteed by government-sponsored
enterprises. It is expected that the securities would not be settled at a price
less than the amortized cost. Because the decline in fair value is attributable
to changes in interest rates and not credit loss, and because First Banks does
not intend to sell the debt securities and it is not more likely than not that
it will be required to sell the debt securities before the anticipated recovery
of the remaining amortized cost basis or maturity, these investments are not
considered other-than-temporarily impaired.





State and political
subdivisions – The unrealized losses on investments in state and
political subdivisions were caused by fluctuations in interest rates. It is
expected that the securities would not be settled at a price less than the
amortized cost. Because the decline in fair value is attributable to changes in
interest rates and not credit loss, and because First Banks does not intend to
sell the debt securities and it is not more likely than not that it will be
required to sell the debt securities before the anticipated recovery of the
remaining amortized cost basis or maturity, these investments are not considered
other-than-temporarily impaired.


11
 Table of Contents




Equity investments – The
unrealized losses on investments in equity investments at September 30, 2009
consisted of an unrealized loss of $1.7 million on an investment in the common
stock of two companies in the financial services industry which management
considers to have been caused by economic events affecting the financial
services industry as a whole. First Banks’ investment in these companies was in
an unrealized loss position for approximately nine months through September 30,
2009. First Banks does not believe the unrealized losses are
other-than-temporary at September 30, 2009.





(4)
            Loans
      and Allowance for Loan Losses





The
following table summarizes the composition of our loan portfolio at September
30, 2009 and December 31, 2008:





September 30,
            
            
            December 31,2009
            
            
            2008(dollars
      expressed in thousands)Commercial,
      financial and agricultural
            
            $
            2,176,680
            
            
            
            2,575,505Real
      estate construction and development
            
            
            1,134,585
            
            
            
            1,572,212Real
      estate mortgage:One-to-four
      family residential
            
            
            1,346,763
            
            
            
            1,553,366Multi-family
      residential
            
            
            229,700
            
            
            
            220,404Commercial
      real estate
            
            
            2,544,609
            
            
            
            2,562,598Consumer
      and installment, net of unearned discount
            
            
            53,209
            
            
            
            70,170Loans
      held for sale
            
            
            37,464
            
            
            
            38,720Loans,
      net of unearned discount
            
            $
            7,523,010
            
            
            
            8,592,975





First
Banks had $664.2 million and $442.4 million of impaired loans, consisting of
loans on nonaccrual status and restructured loans, at September 30, 2009 and
December 31, 2008, respectively. The allowance for loan losses includes an
allocation for each impaired loan, with the exception of acquired impaired loans
classified as nonaccrual loans, which are initially measured at fair value with
no allocated allowance for loan losses. The aggregate allocation of the
allowance for loan losses related to impaired loans was approximately $106.1
million and $63.2 million at September 30, 2009 and December 31, 2008,
respectively.





The
outstanding balance and carrying amount of impaired loans acquired in
acquisitions was $7.2 million and $2.4 million at September 30, 2009,
respectively, $26.5 million and $10.0 million at December 31, 2008,
respectively, and $44.0 million and $22.2 million at September 30, 2008,
respectively. Changes in the carrying amount of impaired loans acquired in
acquisitions for the three and nine months ended September 30, 2009 and 2008
were as follows:





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Balance,
      beginning of period
            
            $
            3,041
            
            
            
            30,383
            
            
            
            9,997
            
            
            
            46,003Transfers
      to other real estate
            
            
            (254
            )
            
            
            (2,543
            )
            
            
            (3,545
            )
            
            
            (7,749
            )Loans
      charged-off
            
            
            (174
            )
            
            
            (1,892
            )
            
            
            (3,363
            )
            
            
            (6,952
            )Payments
      and settlements
            
            
            (227
            )
            
            
            (3,760
            )
            
            
            (703
            )
            
            
            (9,114
            )Balance,
      end of period
            
            $
            2,386
            
            
            
            22,188
            
            
            
            2,386
            
            
            
            22,188





There was
no allowance for loan losses related to these loans as these loans were recorded
at lower of cost or fair value at September 30, 2009 and December 31, 2008. As
the loans were classified as nonaccrual loans, there was no accretable yield
related to these loans at September 30, 2009 and December 31,
2008.


12
 Table of Contents




Changes
in the allowance for loan losses for the three and nine months ended September
30, 2009 and 2008 were as follows:





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Balance,
      beginning of period
            
            $
            287,317
            
            
            
            200,957
            
            
            
            220,214
            
            
            
            168,391Loans
      charged-off
            
            
            (107,378
            )
            
            
            (91,458
            )
            
            
            (266,412
            )
            
            
            (192,363
            )Recoveries
      of loans previously charged-off
            
            
            3,799
            
            
            
            2,527
            
            
            
            9,936
            
            
            
            5,998Net
      loans charged-off
            
            
            (103,579
            )
            
            
            (88,931
            )
            
            
            (256,476
            )
            
            
            (186,365
            )Provision
      for loan losses
            
            
            107,000
            
            
            
            99,000
            
            
            
            327,000
            
            
            
            229,000Balance,
      end of period
            
            $
            290,738
            
            
            
            211,026
            
            
            
            290,738
            
            
            
            211,026





(5)
            Goodwill
      And Other Intangible Assets





Goodwill
and other intangible assets, net of amortization, were comprised of the
following at September 30, 2009 and December 31, 2008:





September 30, 2009
            
            
            December 31, 2008Gross
            
            
            
            
            
            GrossCarrying
            
            
            Accumulated
            
            
            Carrying
            
            
            AccumulatedAmount
            
            
            Amortization
            
            
            Amount
            
            
            Amortization(dollars
      expressed in thousands)Amortized
      intangible assets:Core
      deposit intangibles (1)
            
            $
            30,618
            
            
            
            (19,609
            )
            
            
            53,916
            
            
            
            (33,251
            )Customer
      list intangibles
            
            
            19,305
            
            
            
            (4,022
            )
            
            
            23,320
            
            
            
            (3,903
            )Other
      intangibles (2)
            
            
            2,210
            
            
            
            (1,678
            )
            
            
            2,385
            
            
            
            (1,695
            )Total
            
            $
            52,133
            
            
            
            (25,309
            )
            
            
            79,621
            
            
            
            (38,849
            )Unamortized
      intangible assets:Goodwill
      (3)
            
            $
            235,967
            
            
            
            
            
            
            
            266,028


_________________


(1)
            The
      gross carrying amount and accumulated amortization for core deposit
      intangibles at September 30, 2009 have been reduced by $12.5 million
      related to core deposit intangibles associated with certain acquisitions
      that became fully amortized in December 2008, and $4.0 million related to
      discontinued operations as further described in Note 2 to the consolidated
      financial statements.


(2)
            The
      gross carrying amount and accumulated amortization for other intangibles
      at September 30, 2009 have been reduced by $175,000 related to other
      intangibles associated with certain acquisitions that became fully
      amortized in May 2009.


(3)
            Goodwill
      at September 30, 2009 has been reduced by $23.0 million related to
      discontinued operations and assets held for sale, as further described in
      Note 2 to the consolidated financial
statements.





First
Banks allocated goodwill to ANB, Texas and the Branch Sales, of $10.0 million,
$21.0 million and $2.0 million, respectively, based on the relative fair values
of the businesses and operations being disposed of and the portion of the First
Bank segment that will be retained. Goodwill included in assets of discontinued
operations and assets held for sale was $21.0 million and $2.0 million,
respectively, at September 30, 2009. Core deposit intangibles of $4.0 million
related to Texas are also included in assets of discontinued operations at
September 30, 2009. A customer list intangible of $3.0
million  related to ANB was recorded as a reduction of gain on sale of
discontinued operations upon the sale of ANB on September 30, 2009. First Banks
did not allocate any goodwill to MVP.





Amortization
of intangible assets was $1.7 million and $5.1 million for the three and nine
months ended September 30, 2009, respectively, compared to $2.2 million and $6.5
million for the comparable periods in 2008. 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.





(dollars
      expressed in thousands)Year
      ending December 31:2009
      remaining
            
            $
            1,6952010
            
            
            6,4062011
            
            
            5,2792012
            
            
            2,0132013
            
            
            1,2582014
            
            
            1,223Thereafter
            
            
            8,950Total
            
            $
            26,824


13
 Table of Contents


Changes
in the carrying amount of goodwill for the three and nine months ended September
30, 2009 and 2008 were as follows:





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Balance,
      beginning of period
            
            $
            268,967
            
            
            
            266,078
            
            
            
            266,028
            
            
            
            263,747Goodwill
      acquired during the period (1)
            
            
            —
            
            
            
            —
            
            
            
            2,939
            
            
            
            2,920Goodwill
      allocated to sale transactions (2)
            
            
            (10,000
            )
            
            
            —
            
            
            
            (10,000
            )
            
            
            —Goodwill
      allocated to discontinued operations (3)
            
            
            (21,000
            )
            
            
            —
            
            
            
            (21,000
            )
            
            
            —Goodwill
      allocated to assets held for sale (3)
            
            
            (2,000
            )
            
            
            —
            
            
            
            (2,000
            )
            
            
            —Acquisition-related
      adjustments (4)
            
            
            —
            
            
            
            (44
            )
            
            
            —
            
            
            
            (633
            )Balance,
      end of period
            
            $
            235,967
            
            
            
            266,034
            
            
            
            235,967
            
            
            
            266,034


_________________


(1)
            Goodwill
      acquired during 2009 and 2008 pertains to additional earn-out
      consideration associated with the acquisition of ANB in March
      2006.


(2)
            Goodwill
      allocated to sale transactions during 2009 pertains to the sale of ANB on
      September 30, 2009, as further described in Note 2 to the consolidated
      financial statements.


(3)
            Goodwill
      transferred to discontinued operations and assets held for sale pertains
      to Texas and the Branch Sales, as further described in Note 2 to the
      consolidated financial statements.


(4)
            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 pertain
      to the acquisition of CFHI in November
2007.





The
Company’s annual measurement date for its goodwill impairment test is December
31. First Banks engaged an independent valuation firm to assist in computing the
fair value estimate for the impairment assessment by utilizing two separate
valuation methodologies and applying a weighted average to each methodology in
order to determine fair value for its single reporting unit, First Bank. The
valuation methodologies utilized a comparison of the average price to book value
of comparable businesses and a discounted cash flow valuation technique. As a
result of this independent third party valuation, the Company concluded that the
carrying value of its single reporting unit exceeded its fair value at December
31, 2008.





Because
the carrying value of First Banks’ reporting unit exceeded the estimated fair
value at December 31, 2008, First Banks engaged the same independent valuation
firm to assist in computing the fair value of First Bank’s assets and
liabilities in order to determine the implied fair value of First Bank’s
goodwill at December 31, 2008. Management compared the implied fair value of
First Bank’s goodwill, as determined by the independent valuation firm, with its
carrying value, and concluded that there was no goodwill impairment as of
December 31, 2008.





As a
result of adverse changes in the Company’s business climate resulting from
continued deterioration in the loan portfolio and other factors, the Company
performed an interim period goodwill impairment analysis as of September 30,
2009. The Step 1 analysis of the interim goodwill impairment test indicated the
carrying amount of First Banks’ single reporting unit exceeded the estimated
fair value. Therefore, Step 2 testing was required. First Banks determined, as a
result of the Step 2 analysis, that the goodwill assigned to First Banks’ single
reporting unit was not impaired as of September 30, 2009.





First
Banks believes the estimates and assumptions used in the goodwill impairment
test are reasonable. However, further deterioration in the outlook for credit
quality or other factors could impact the fair value of the single reporting
unit as determined under Step 1 of the goodwill impairment test. A decrease in
the fair value of the reporting unit would decrease the implied fair value of
goodwill as further determined under Step 2 of the goodwill impairment
test.





Step 2 of
the goodwill impairment test compared the implied fair value of goodwill with
the carrying value of goodwill. The implied fair value of goodwill is determined
in the same manner as the determination of the amount of goodwill recognized in
a business combination. The fair value of a reporting unit is allocated to all
of the assets and liabilities of that unit (including any unrecognized
intangible assets) as if the reporting unit had been acquired in a business
combination and the fair value of the reporting unit was the price paid to
acquire the reporting unit. The fair value allocated to all of the assets and
liabilities of the reporting unit requires significant judgment, especially for
those assets and liabilities that are not measured on a recurring basis such as
certain types of loans. The excess of the fair value of the reporting unit over
the amounts assigned to its assets and liabilities is the implied fair value of
goodwill.





The fair
value assigned to loans significantly affected the determination of the implied
fair value of the Company’s single reporting unit’s goodwill at September 30,
2009. The implied fair value of a reporting unit’s goodwill will generally
increase if the fair value of the reporting unit’s loans is less than the
carrying value of the reporting unit’s loans. The fair value of the reporting
unit’s loans was derived from discounted cash flow analyses. Loans were grouped
into over 50 loan pools based on similar characteristics such as maturity,
payment type and payment frequency, and rate type and underlying index. These
cash flow calculations include assumptions for prepayment estimates over the
loan’s remaining life, considerations for the current interest rate environment
compared to the weighted average rate of the loan portfolio, a credit risk
component based on the historical and expected performance of each loan
portfolio stratum and a liquidity adjustment related to the current market
environment. To the extent any of these assumptions change in the future, the
implied fair value of the reporting unit’s goodwill could change materially. A
decrease in the discount rate utilized in deriving the fair value of the
reporting unit’s loans would decrease the implied fair value of
goodwill.


14
 Table of Contents




Due to
the current economic environment and the uncertainties regarding the impact on
the Company’s reporting unit, there can be no assurances that the Company’s
estimates and assumptions made for the purposes of the Company’s goodwill
impairment testing will prove to be accurate predictions in the
future.  Significant changes to the Company’s estimates and
assumptions that may become necessary in the future may result in future
goodwill impairment that may materially affect the carrying value of the
Company’s assets and operating results.





(6)
            Servicing
      Rights





Mortgage Banking
Activities.  At September 30, 2009 and December 31, 2008, First
Banks serviced mortgage loans for others totaling $1.23 billion and $1.09
billion, respectively. Changes in mortgage servicing rights for the three and
nine months ended September 30, 2009 and 2008 were as follows:





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Balance,
      beginning of period
            
            $
            10,686
            
            
            
            15,967
            
            
            
            7,418
            
            
            
            5,290Re-measurement
      to fair value upon election to measure servicing rights at fair value
      under ASC Topic 860
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            9,538Originated
      mortgage servicing rights
            
            
            1,670
            
            
            
            158
            
            
            
            5,298
            
            
            
            1,831Change
      in fair value resulting from changes in valuation inputs or assumptions
      used in valuation model(1)
            
            
            (386
            )
            
            
            (4,134
            )
            
            
            1,229
            
            
            
            (3,583
            )Other
      changes in fair value (2)
            
            
            (442
            )
            
            
            (343
            )
            
            
            (2,417
            )
            
            
            (1,428
            )Balance,
      end of period
            
            $
            11,528
            
            
            
            11,648
            
            
            
            11,528
            
            
            
            11,648


_________________


(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, 2009 and December 31, 2008, First
Banks serviced United States Small Business Administration (SBA) loans for
others totaling $238.5 million and $221.5 million, respectively. Changes in SBA
servicing rights for the three and nine months ended September 30, 2009 and 2008
were as follows:





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Balance,
      beginning of period
            
            $
            8,123
            
            
            
            9,756
            
            
            
            8,963
            
            
            
            7,468Re-measurement
      to fair value upon election to measure servicing rights at fair value
      under ASC Topic 860
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            905Originated
      SBA servicing rights
            
            
            192
            
            
            
            559
            
            
            
            694
            
            
            
            2,612Change
      in fair value resulting from changes in valuation inputs or assumptions
      used in valuation model (1)
            
            
            579
            
            
            
            (552
            )
            
            
            (14
            )
            
            
            (537
            )Other
      changes in fair value (2)
            
            
            (435
            )
            
            
            (275
            )
            
            
            (1,184
            )
            
            
            (960
            )Balance,
      end of period
            
            $
            8,459
            
            
            
            9,488
            
            
            
            8,459
            
            
            
            9,488


_________________


(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.


15
 Table of Contents




(7)
            Loss
      Per Common Share





The
following is a reconciliation of basic and diluted loss per share (EPS) for the
three and nine months ended September 30, 2009 and 2008:





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      in thousands, except share and per share data)Basic:Net
      loss from continuing operations attributable to First Banks,
      Inc.
            
            $
            (88,792
            )
            
            
            (22,896
            )
            
            
            (265,354
            )
            
            
            (61,357
            )Preferred
      stock dividends declared and undeclared
            
            
            (4,052
            )
            
            
            (196
            )
            
            
            (12,430
            )
            
            
            (524
            )Accretion
      of discount on preferred stock
            
            
            (832
            )
            
            
            —
            
            
            
            (2,467
            )
            
            
            —Net
      loss from continuing operations attributable to common
      stockholders
            
            
            (93,676
            )
            
            
            (23,092
            )
            
            
            (280,251
            )
            
            
            (61,881
            )Net
      loss from discontinued operations attributable to common
      stockholders
            
            
            (2,285
            )
            
            
            (2,065
            )
            
            
            (8,448
            )
            
            
            (8,394
            )Net
      loss available to First Banks, Inc. common stockholders
            
            $
            (95,961
            )
            
            
            (25,157
            )
            
            
            (288,699
            )
            
            
            (70,275
            )Weighted
      average shares of common stock outstanding
            
            
            23,661
            
            
            
            23,661
            
            
            
            23,661
            
            
            
            23,661Basic
      loss per common share – continuing operations
            
            $
            (3,959.09
            )
            
            
            (975.97
            )
            
            
            (11,844.42
            )
            
            
            (2,615.35
            )Basic
      loss per common share – discontinued operations
            
            $
            (96.57
            )
            
            
            (87.27
            )
            
            
            (357.05
            )
            
            
            (354.76
            )Basic
      loss per common share
            
            $
            (4,055.66
            )
            
            
            (1,063.24
            )
            
            
            (12,201.47
            )
            
            
            (2,970.11
            )Diluted:Net
      loss from continuing operations attributable to common
      stockholders
            
            $
            (93,676
            )
            
            
            (23,092
            )
            
            
            (280,251
            )
            
            
            (61,881
            )Net
      loss from discontinued operations attributable to common
      stockholders
            
            
            (2,285
            )
            
            
            (2,065
            )
            
            
            (8,448
            )
            
            
            (8,394
            )Net
      loss available to First Banks, Inc. common stockholders
            
            
            (95,961
            )
            
            
            (25,157
            )
            
            
            (288,699
            )
            
            
            (70,275
            )Effect
      of dilutive securities:Class
      A convertible preferred stock
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Diluted
      EPS – net loss available to First Banks, Inc. common
      stockholders
            
            $
            (95,961
            )
            
            
            (25,157
            )
            
            
            (288,699
            )
            
            
            (70,275
            )Weighted
      average shares of common stock outstanding
            
            
            23,661
            
            
            
            23,661
            
            
            
            23,661
            
            
            
            23,661Effect
      of dilutive securities:Class
      A convertible preferred stock
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Weighted
      average diluted shares of common stock outstanding
            
            
            23,661
            
            
            
            23,661
            
            
            
            23,661
            
            
            
            23,661Diluted
      loss per common share – continuing operations
            
            $
            (3,959.09
            )
            
            
            (975.97
            )
            
            
            (11,844.42
            )
            
            
            (2,615.35
            )Diluted
      loss per common share – discontinued operations
            
            $
            (96.57
            )
            
            
            (87.27
            )
            
            
            (357.05
            )
            
            
            (354.76
            )Diluted
      loss per common share
            
            $
            (4,055.66
            )
            
            
            (1,063.24
            )
            
            
            (12,201.47
            )
            
            
            (2,970.11
            )





(8)
            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 $7.1
million and $22.4 million for the three and nine months ended September 30,
2009, respectively, and $8.4 million and $25.6 million for the comparable
periods in 2008. 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 $803,000 and $2.3 million during the three and nine
months ended September 30, 2009, respectively, and $920,000 and $2.9 million for
the comparable periods in 2008. In addition, First Services paid approximately
$466,000 and $1.4 million for the three and nine months ended September 30,
2009, respectively, and $464,000 and $1.4 million for the comparable periods in
2008, in rental payments for occupancy of certain First Bank premises from which
business is conducted.


16
 Table of Contents




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 $1.5 million and $4.3 million for the three and nine
months ended September 30, 2009, respectively, and $1.2 million and $4.9 million
for the comparable periods in 2008, 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 $54,000 and $162,000
for the three and nine months ended September 30, 2009, respectively, and
$55,000 and $175,000 for the comparable periods in 2008, to First Bank in rental
payments for occupancy of certain First Bank premises from which brokerage
business is conducted.





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 $108,000 and $325,000 for
the three and nine months ended September 30, 2009, respectively, and $109,000
and $313,000 for the comparable periods in 2008.





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 and June
2007, First Bank contributed $4.0 million and $7.8 million, respectively, to
SBLS LLC in the form of additional capital contributions, thereby increasing
First Bank’s ownership of SBLS LLC to 76.0% and decreasing FCA’s ownership to
24.0%. On March 31, 2009, First Bank contributed $5.0 million to SBLS LLC in the
form of an additional capital contribution, thereby increasing First Bank’s
ownership of SBLS LLC to 82.55% and decreasing FCA’s ownership to
17.45%.





On April
30, 2009, First Bank and FCA entered into a Purchase Agreement providing for FCA
to sell its 17.45% ownership interest in SBLS LLC to First Bank for a purchase
price consisting of (i) an initial payment to be made on or before May 15, 2009
of an amount equal to 50% of the carrying value of FCA’s ownership interest in
SBLS LLC as of April 30, 2009, as reflected within the financial statements of
First Banks, which represented an estimate agreed to by First Bank and FCA of
the fair market value of FCA’s ownership interest in SBLS LLC, and (ii) an
adjustment in the purchase price to reflect such fair market value, based upon
an appraisal of such value to be performed by an independent third party
mutually acceptable to First Bank and FCA. As such, effective April 30, 2009,
First Bank owned 100% of SBLS LLC. On May 14, 2009, First Bank made an initial
payment of $1.6 million to FCA, representing 50% of the carrying value of FCA’s
ownership interest in SBLS LLC as of April 30, 2009. Subsequent to May 14, 2009,
First Bank obtained an appraisal of SBLS LLC from an independent third party
indicating the fair market value of FCA’s ownership interest to be $1.9 million
as of April 30, 2009, or $241,000 greater than the initial payment. The
additional amount of $241,000 due to FCA, which was reflected in accrued and
other liabilities in the consolidated balance sheets as of June 30, 2009, was
paid in July 2009. As a result of the purchase of FCA’s minority interest in
SBLS LLC, First Banks recorded an increase in additional paid-in-capital with a
corresponding decrease in noncontrolling interest in subsidiaries of $2.8
million during the second quarter of 2009.





In
September 2008, SBLS LLC executed a Promissory Note with First Bank that
provided a $75.0 million unsecured revolving line of credit with a maturity date
of September 30, 2009. This Promissory Note renewed the existing promissory note
that matured on September 30, 2008. Interest was payable monthly in arrears on
the outstanding loan balance at a current rate equal to the 30-day London
Interbank Offered Rate plus 40 basis points. On January 1, 2009, SBLS LLC
executed an Amended Promissory Note with First Bank, which modified the interest
payable monthly in arrears on the outstanding loan balance to a current rate
equal to the First Bank internal Commercial Cost of Funds Rate, which was 3.84%,
3.58% and 3.46% for the first, second and third quarters of 2009, respectively.
The balance of advances under the respective agreements was zero and $66.2
million at September 30, 2009 and December 31, 2008, respectively. On September
30, 2009, First Bank purchased all of the loans and certain other assets and
assumed all of the liabilities of SBLS LLC, and in conjunction with this
transaction, SBLS LLC paid off in full the outstanding loan balance. Interest
expense recorded by SBLS LLC under the respective agreements was $501,000 and
$1.8 million for the three and nine months ended September 30, 2009,
respectively, compared to $464,000 and $1.5 million for the comparable periods
in 2008. The balance of the advances and the related interest expense recognized
by SBLS LLC was eliminated for purposes of the consolidated financial
statements.





In May
2008, First Banks formed FB Holdings, a limited liability company organized in
the State of Missouri. FB Holdings operates as a majority-owned subsidiary of
First Bank and was formed for the primary purpose of holding and managing
certain nonperforming loans and assets to allow the liquidation of such assets
at a time that is more economically advantageous to First Bank and to permit an
efficient vehicle for the investment of additional capital by the Company’s sole
owner of its Class A and Class B preferred stock. During 2008, First Bank
contributed cash of $9.0 million and nonperforming loans and assets with a fair
value of approximately $133.3 million, and FCA contributed cash of $125.0
million to FB Holdings. As a result, First Bank owned 53.23% and FCA owned the
remaining 46.77% of FB Holdings as of September 30, 2009. The contribution of
cash by FCA is reflected as a component of stockholders’ equity in the
consolidated balance sheets and, consequently, increased the Company’s and First
Bank’s total risk-based capital ratios under existing regulatory
guidelines.


17
 Table of Contents




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 were $128,000 and $457,000 for the three and nine
months ended September 30, 2009, respectively, compared to $72,000 and $168,000
for the three and nine months ended September 30, 2008.





In May
2008, First Banks entered into a Revolving Credit Note and a Stock Pledge
Agreement with Investors of America Limited Partnership (Investors of America,
LP), as amended on August 11, 2008 (the Credit Agreement), as further described
in Note 11 to the consolidated financial statements. Investors of America, LP is
a Nevada limited partnership that was created by and for the benefit of First
Banks’ Chairman and members of his immediate family. The Credit Agreement
matured on June 30, 2009. There were no advances outstanding under the Credit
Agreement at June 30, 2009 or December 31, 2008. Interest expense, comprised of
commitment fees, recorded by First Banks under the Credit Agreement was $37,000
for the nine months ended September 30, 2009. Interest expense, including
commitment fees, 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 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 $23.1
million and $49.0 million at September 30, 2009 and December 31, 2008,
respectively. First Bank does not extend credit to its officersor 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.





(9)
            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 result in 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 its agreement entered into with the MDOF and
the FRB, as further described in Note 1 to the consolidated financial statements
and under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations —Regulatory Matters.” At September 30, 2009, First Bank’s
Tier 1 capital ratio of 8.91% was approximately $159.8 million over the minimum
level required by the agreement.





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, 2009, First
Banks was adequately capitalized and First Bank was well capitalized. As of
September 30, 2009, the most recent notification from First Banks’ primary
regulator categorized First Banks as adequately capitalized 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.


18
 Table of Contents




At
September 30, 2009 and December 31, 2008, First Banks’ and First Bank’s required
and actual capital ratios were as follows:





For
            
            
            To be WellActual
            
            
            Capital
            
            
            Capitalized UnderSeptember 30, 2009
            
            
            December 31, 2008
            
            
            Adequacy
            
            
            Prompt CorrectiveAmount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio
            
            
            Purposes
            
            
            Action Provisions(dollars
      expressed in thousands)Total
      capital (to risk-weighted assets):First
      Banks
            
            $
            859,159
            
            
            
            10.26
            %
            
            $
            1,148,407
            
            
            
            12.11
            %
            
            
            8.0
            %
            
            
            10.0
            %First
      Bank
            
            
            852,719
            
            
            
            10.19
            
            
            
            1,042,948
            
            
            
            11.01
            
            
            
            8.0
            
            
            
            10.0Tier
      1 capital (to risk-weighted assets):First
      Banks
            
            
            481,363
            
            
            
            5.75
            
            
            
            841,152
            
            
            
            8.87
            
            
            
            4.0
            
            
            
            6.0First
      Bank
            
            
            745,773
            
            
            
            8.91
            
            
            
            923,318
            
            
            
            9.75
            
            
            
            4.0
            
            
            
            6.0Tier
      1 capital (to average assets):First
      Banks
            
            
            481,363
            
            
            
            4.64
            
            
            
            841,152
            
            
            
            8.04
            
            
            
            3.0
            
            
            
            5.0First
      Bank
            
            
            745,773
            
            
            
            7.20
            
            
            
            923,318
            
            
            
            8.85
            
            
            
            3.0
            
            
            
            5.0





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 provided for a five-year transition period, ending March 31, 2009,
for the application of the quantitative limits. On March 16, 2009, the Federal
Reserve adopted a final rule that delays the effective date for the application
of the quantitative limits to March 31, 2011. Until March 31, 2011, the
aggregate amount of qualifying cumulative perpetual preferred stock and
qualifying trust preferred securities that may be included in Tier 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 noncontrolling 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 2011, if implemented as of September 30, 2009, would reduce First Banks’
total capital (to risk-weighted assets), Tier 1 capital (to risk-weighted
assets) and Tier 1 capital (to average assets) to 8.35% , 4.71% and 3.81%,
respectively. The final rules that will be effective in March 2011, if
implemented as of September 30, 2009, would not have an impact on First Bank’s
regulatory capital ratios.





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


19
 Table of Contents




(10)
            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, 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 are available nationwide.





The
financial results of Texas, MVP and ANB, which were previously reported in the
First Bank segment, were reclassified to discontinued operations at September
30, 2009 and for the three and nine months ended September 30, 2009 and 2008.
See Note 2 to the consolidated financial statements for a discussion of
discontinued operations.




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:





First Bank
            
            
            Corporate,
      Other and IntercompanyReclassifications
            
            
            Consolidated TotalsSeptember 30,
            
            
            December 31,
            
            
            September 30,
            
            
            December 31,
            
            
            September 30,
            
            
            December 31,2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Balance
      sheet information:Investment
      securities
            
            $
            620,528
            
            
            
            559,611
            
            
            
            13,748
            
            
            
            15,483
            
            
            
            634,276
            
            
            
            575,094Loans,
      net of unearned discount
            
            
            7,523,010
            
            
            
            8,592,975
            
            
            
            —
            
            
            
            —
            
            
            
            7,523,010
            
            
            
            8,592,975FHLB
      and Federal Reserve Bank stock
            
            
            66,756
            
            
            
            47,832
            
            
            
            —
            
            
            
            —
            
            
            
            66,756
            
            
            
            47,832Goodwill
      and other intangible assets
            
            
            262,791
            
            
            
            306,800
            
            
            
            —
            
            
            
            —
            
            
            
            262,791
            
            
            
            306,800Assets
      held for sale
            
            
            19,862
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            19,862
            
            
            
            —Assets
      of discontinued operations
            
            
            286,003
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            286,003
            
            
            
            —Total
      assets
            
            
            10,660,398
            
            
            
            10,756,737
            
            
            
            20,078
            
            
            
            26,417
            
            
            
            10,680,476
            
            
            
            10,783,154Deposits
            
            
            8,162,804
            
            
            
            8,843,901
            
            
            
            (17,442
            )
            
            
            (102,381
            )
            
            
            8,145,362
            
            
            
            8,741,520Other
      borrowings
            
            
            818,704
            
            
            
            575,133
            
            
            
            —
            
            
            
            —
            
            
            
            818,704
            
            
            
            575,133Subordinated
      debentures
            
            
            —
            
            
            
            —
            
            
            
            353,885
            
            
            
            353,828
            
            
            
            353,885
            
            
            
            353,828Liabilities
      held for sale
            
            
            45,530
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            45,530
            
            
            
            —Liabilities
      of discontinued operations
            
            
            511,959
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            511,959
            
            
            
            —Total
      stockholders’ equity
            
            
            1,038,025
            
            
            
            1,240,940
            
            
            
            (339,234
            )
            
            
            (244,585
            )
            
            
            698,791
            
            
            
            996,355


20
 Table of Contents




First Bank
            
            
            Corporate,
      Other and IntercompanyReclassifications
            
            
            Consolidated TotalsThree
      Months Ended
            
            
            Three
      Months Ended
            
            
            Three
      Months EndedSeptember 30,
            
            
            September 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Income
      statement information:Interest
      income
            
            $
            109,915
            
            
            
            140,943
            
            
            
            127
            
            
            
            224
            
            
            
            110,042
            
            
            
            141,167Interest
      expense
            
            
            34,330
            
            
            
            50,001
            
            
            
            3,515
            
            
            
            5,014
            
            
            
            37,845
            
            
            
            55,015Net
      interest income
            
            
            75,585
            
            
            
            90,942
            
            
            
            (3,388
            )
            
            
            (4,790
            )
            
            
            72,197
            
            
            
            86,152Provision
      for loan losses
            
            
            107,000
            
            
            
            99,000
            
            
            
            —
            
            
            
            —
            
            
            
            107,000
            
            
            
            99,000Net
      interest (loss) income after provision for loan losses
            
            
            (31,415
            )
            
            
            (8,058
            )
            
            
            (3,388
            )
            
            
            (4,790
            )
            
            
            (34,803
            )
            
            
            (12,848
            )Noninterest
      income
            
            
            22,455
            
            
            
            15,047
            
            
            
            (5,116
            )
            
            
            (190
            )
            
            
            17,339
            
            
            
            14,857Amortization
      of intangible assets
            
            
            1,695
            
            
            
            2,173
            
            
            
            —
            
            
            
            —
            
            
            
            1,695
            
            
            
            2,173Other
      noninterest expense
            
            
            70,271
            
            
            
            74,612
            
            
            
            684
            
            
            
            (278
            )
            
            
            70,955
            
            
            
            74,334Loss
      from continuing operations before provision (benefit) for income
      taxes
            
            
            (80,926
            )
            
            
            (69,796
            )
            
            
            (9,188
            )
            
            
            (4,702
            )
            
            
            (90,114
            )
            
            
            (74,498
            )Provision
      (benefit) for income taxes
            
            
            103
            
            
            
            (49,801
            )
            
            
            (45
            )
            
            
            (1,647
            )
            
            
            58
            
            
            
            (51,448
            )Net
      loss from continuing operations, net of tax
            
            
            (81,029
            )
            
            
            (19,995
            )
            
            
            (9,143
            )
            
            
            (3,055
            )
            
            
            (90,172
            )
            
            
            (23,050
            )Discontinued
      operations, net of tax
            
            
            (2,285
            )
            
            
            (2,065
            )
            
            
            —
            
            
            
            —
            
            
            
            (2,285
            )
            
            
            (2,065
            )Net
      loss
            
            
            (83,314
            )
            
            
            (22,060
            )
            
            
            (9,143
            )
            
            
            (3,055
            )
            
            
            (92,457
            )
            
            
            (25,115
            )Net
      (loss) income attributable to noncontrolling interest in
      subsidiaries
            
            
            (1,380
            )
            
            
            (154
            )
            
            
            —
            
            
            
            —
            
            
            
            (1,380
            )
            
            
            (154
            )Net
      loss attributable to First Banks, Inc.
            
            $
            (81,934
            )
            
            
            (21,906
            )
            
            
            (9,143
            )
            
            
            (3,055
            )
            
            
            (91,077
            )
            
            
            (24,961
            )








First Bank
            
            
            Corporate,
      Other and IntercompanyReclassifications
            
            
            Consolidated TotalsNine
      Months Ended
            
            
            Nine
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Income
      statement information:Interest
      income
            
            $
            340,699
            
            
            
            446,445
            
            
            
            385
            
            
            
            702
            
            
            
            341,084
            
            
            
            447,147Interest
      expense
            
            
            111,422
            
            
            
            165,205
            
            
            
            12,181
            
            
            
            17,348
            
            
            
            123,603
            
            
            
            182,553Net
      interest income
            
            
            229,277
            
            
            
            281,240
            
            
            
            (11,796
            )
            
            
            (16,646
            )
            
            
            217,481
            
            
            
            264,594Provision
      for loan losses
            
            
            327,000
            
            
            
            229,000
            
            
            
            —
            
            
            
            —
            
            
            
            327,000
            
            
            
            229,000Net
      interest (loss) income after provision for loan losses
            
            
            (97,723
            )
            
            
            52,240
            
            
            
            (11,796
            )
            
            
            (16,646
            )
            
            
            (109,519
            )
            
            
            35,594Noninterest
      income
            
            
            67,344
            
            
            
            65,349
            
            
            
            (5,112
            )
            
            
            (6,920
            )
            
            
            62,232
            
            
            
            58,429Amortization
      of intangible assets
            
            
            5,138
            
            
            
            6,511
            
            
            
            —
            
            
            
            —
            
            
            
            5,138
            
            
            
            6,511Other
      noninterest expense
            
            
            216,396
            
            
            
            217,399
            
            
            
            224
            
            
            
            3,896
            
            
            
            216,620
            
            
            
            221,295Loss
      from continuing operations before provision (benefit) for income
      taxes
            
            
            (251,913
            )
            
            
            (106,321
            )
            
            
            (17,132
            )
            
            
            (27,462
            )
            
            
            (269,045
            )
            
            
            (133,783
            )Provision
      (benefit) for income taxes
            
            
            2,275
            
            
            
            (62,813
            )
            
            
            241
            
            
            
            (9,637
            )
            
            
            2,516
            
            
            
            (72,450
            )Net
      loss from continuing operations, net of tax
            
            
            (254,188
            )
            
            
            (43,508
            )
            
            
            (17,373
            )
            
            
            (17,825
            )
            
            
            (271,561
            )
            
            
            (61,333
            )Discontinued
      operations, net of tax
            
            
            (8,448
            )
            
            
            (8,394
            )
            
            
            —
            
            
            
            —
            
            
            
            (8,448
            )
            
            
            (8,394
            )Net
      loss
            
            
            (262,636
            )
            
            
            (51,902
            )
            
            
            (17,373
            )
            
            
            (17,825
            )
            
            
            (280,009
            )
            
            
            (69,727
            )Net
      (loss) income attributable to noncontrolling interest in
      subsidiaries
            
            
            (6,207
            )
            
            
            24
            
            
            
            —
            
            
            
            —
            
            
            
            (6,207
            )
            
            
            24Net
      loss attributable to First Banks, Inc.
            
            $
            (256,429
            )
            
            
            (51,926
            )
            
            
            (17,373
            )
            
            
            (17,825
            )
            
            
            (273,802
            )
            
            
            (69,751
            )


21
 Table of Contents




(11)
            Other
      Borrowings and Notes Payable





Other
Borrowings.  Other borrowings were comprised of the following
at September 30, 2009 and December 31, 2008:





September 30,
            
            
            December 31,2009
            
            
            2008(dollars
      expressed in thousands)Securities
      sold under agreements to repurchase:Daily
            
            $
            98,046
            
            
            
            154,423Term
            
            
            120,000
            
            
            
            120,000FRB
      borrowings (1)
            
            
            —
            
            
            
            100,000FHLB
      advances
            
            
            600,658
            
            
            
            200,710Total
            
            $
            818,704
            
            
            
            575,133


________________________


(1)
            In
      November 2008, First Bank entered into a $100.0 million borrowing with the
      FRB upon termination of a $100.0 million FHLB advance, and subsequently
      renewed the borrowing at maturity in December 2008 at a fixed interest
      rate of 0.42%. First Bank repaid this borrowing upon maturity in February
      2009.





The
maturity date, par amount and interest rate on First Bank’s FHLB advances as of
September 30, 2009 and December 31, 2008 were as follows:





Maturity Date
            
            Par Amount
            
            
            InterestRate(dollars
      expressed in thousands)September
      30, 2009:Fixed Rate:April
      23, 2010
            
            $
            100,000
            
            
            
            1.69
            %July
      9, 2010
            
            
            100,000
            
            
            
            0.85
            %April
      27, 2011
            
            
            100,000
            
            
            
            1.77
            %July
      11, 2011
            
            
            100,000
            
            
            
            1.49
            %August
      8, 2012
            
            
            100,000
            
            
            
            2.20
            %September
      1, 2010
            
            
            433
            
            
            
            4.32
            %September
      1, 2010
            
            
            225
            
            
            
            4.23
            %$
            500,658
            
            
            
            1.60
            %Variable Rate:September
      23, 2016
            
            $
            100,000
            
            
            
            0.30
            %December
      31, 2008:Fixed Rate:February
      17, 2009 (1)
            
            $
            100,000
            
            
            
            2.92
            %July
      23, 2009 (2)
            
            
            100,000
            
            
            
            2.53
            %September
      1, 2010
            
            
            446
            
            
            
            4.32
            %September
      1, 2010
            
            
            264
            
            
            
            4.23
            %$
            200,710
            
            
            
            2.73
            %


________________________


(1)
            First
      Bank repaid this advance upon maturity in February
  2009.


(2)
            In
      March 2009, First Bank prepaid this $100.0 million FHLB advance and
      incurred a prepayment penalty of $357,000. The prepayment penalty was
      recorded as interest expense on other borrowings in the consolidated
      statements of operations.





The
maturity date, par amount, interest rate and interest rate floor strike price on
First Bank’s term repurchase agreement as of September 30, 2009 and December 31,
2008 were as follows:





Maturity Date
            
            Par Amount
            
            
            InterestRate
            
            
            Interest
      Rate FloorStrike
    Price(dollars
      expressed in thousands)April
      12, 2012 (1)
            
            $
            120,000
            
            
            
            3.36
            %
            
            
            —


________________________


(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.





Notes
Payable.  In May 2008, First Banks entered into a Credit
Agreement with Investors of America, LP that provided 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 8 to the
consolidated financial statements. The Credit Agreement matured on June 30,
2009. There were no advances outstanding under the Credit Agreement at maturity
on June 30, 2009 or December 31, 2008.


22
 Table of Contents




(12)
            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 $3.2 million and $11.0 million for
the three and nine months ended September 30, 2009, respectively, and $4.8
million and $15.8 million for the comparable periods in 2008, 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, 2009 and December 31, 2008
were as follows:





Name of Trust
            
            Issuance Date
            
            MaturityDate
            
            CallDate(1)
            
            InterestRate (2)
            
            Trust
      PreferredSecurities
            
            SubordinatedDebenturesVariable RateFirst
      Bank Statutory Trust II
            
            September
      2004
            
            September
      20, 2034
            
            September
      20, 2009
            
            
            +
      205.0
            bp
            $
            20,000
            
            $
            20,619Royal
      Oaks Capital Trust I
            
            October
      2004
            
            January
      7, 2035
            
            January
      7, 2010
            
            
            +
      240.0
            bp
            
            4,000
            
            
            4,124First
      Bank Statutory Trust III
            
            November
      2004
            
            December
      15, 2034
            
            December
      15, 2009
            
            
            +
      218.0
            bp
            
            40,000
            
            
            41,238First
      Bank Statutory Trust IV
            
            March
      2006
            
            March
      15, 2036
            
            March
      15, 2011
            
            
            +
      142.0
            bp
            
            40,000
            
            
            41,238First
      Bank Statutory Trust V
            
            April
      2006
            
            June
      15, 2036
            
            June
      15, 2011
            
            
            +
      145.0
            bp
            
            20,000
            
            
            20,619First
      Bank Statutory Trust VI
            
            June
      2006
            
            July
      7, 2036
            
            July
      7, 2011
            
            
            +
      165.0
            bp
      (3a)
            
            25,000
            
            
            25,774First
      Bank Statutory Trust VII
            
            December
      2006
            
            December
      15, 2036
            
            December
      15, 2011
            
            
            +
      185.0
            bp
      (3b)
            
            50,000
            
            
            51,547First
      Bank Statutory Trust VIII
            
            February
      2007
            
            March
      30, 2037
            
            March
      30, 2012
            
            
            +
      161.0
            bp
      (3c)
            
            25,000
            
            
            25,774First
      Bank Statutory Trust X
            
            August
      2007
            
            September 15, 2037
            
            September 15, 2012
            
            
            +
      230.0
            bp
            
            15,000
            
            
            15,464First
      Bank Statutory Trust IX
            
            September 2007
            
            December
      15, 2037
            
            December
      15, 2012
            
            
            +
      225.0
            bp
      (3d)
            
            25,000
            
            
            25,774First
      Bank Statutory Trust XI
            
            September
      2007
            
            December
      15, 2037
            
            December
      15, 2012
            
            
            +
      285.0
            bp
            
            10,000
            
            
            10,310Fixed RateFirst
      Bank Statutory Trust
            
            March
      2003
            
            March
      20, 2033
            
            March
      20, 2008
            
            
            8.10
            %
            
            25,000
            
            
            25,774First
      Preferred Capital Trust IV
            
            April
      2003
            
            June
      30, 2033
            
            June
      30, 2008
            
            
            8.15
            %
            
            46,000
            
            
            47,423


__________________


(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
      were designated as cash flow hedges prior to August 10, 2009, 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%.





On August
10, 2009, First Banks announced the deferral of its regularly scheduled interest
payments on its outstanding junior subordinated notes relating to its $345.0
million of trust preferred securities beginning with the regularly scheduled
quarterly interest payments that would otherwise have been made in September and
October 2009. The terms of the junior subordinated notes and the related trust
indentures allow First Banks to defer such payments of interest for up to 20
consecutive quarterly periods without default or penalty. During the deferral
period, the respective trusts will suspend the declaration and payment of
dividends on the trust preferred securities. During the deferral period, First
Banks may not, among other things and with limited exceptions, pay cash
dividends on or repurchase its common stock or preferred stock nor make any
payment on outstanding debt obligations that rank equally with or junior to the
junior subordinated notes. First Banks has deferred $3.3 million of its
regularly scheduled interest as of September 30, 2009.





The
announcement of the deferral of interest payments on the underlying trust
preferred securities in August 2009 resulted in the discontinuation of hedge
accounting on First Banks’ interest rate swap agreements designated as cash flow
hedges on its subordinated debentures. Accordingly, First Banks reclassified a
cumulative fair value adjustment of $4.6 million on its interest rate swap
agreements designated as cash flow hedges from accumulated other comprehensive
income to loss on derivative instruments. In conjunction with the
discontinuation of hedge accounting, the net interest differential on these
interest rate swap agreements was recorded as a reduction of noninterest income
rather than an increase to interest expense on subordinated debentures effective
August 2009.


23
 Table of Contents


Under its
Memorandum of Understanding with the FRB, First Banks agreed, among other
things, to provide certain information to the FRB, including, but not limited
to, prior notice regarding the issuance of additional trust preferred
securities. First Banks also agreed not to make any distributions of interest or
other sums on its outstanding trust preferred securities without the prior
approval of the FRB, as further described in Note 1 to the consolidated
financial statements.


(13)
            Stockholders’
      Equity





There is
no established public trading market for First Banks’ common stock. Various
trusts, which were established by and are administered by and for the benefit of
First Banks’ Chairman of the Board and members of his immediate family, own all
of the voting stock of First Banks.





First
Banks has four classes of preferred stock outstanding. The Class A preferred
stock is convertible into shares of common stock at a rate based on the ratio of
the par value of the preferred stock to the current market value of the common
stock at the date of conversion, to be determined by independent appraisal at
the time of conversion.  Shares of Class A preferred stock may be
redeemed by First Banks at any time at 105.0% of par value.  The Class
B preferred stock may not be redeemed or converted.  The holders of
the Class A and Class B preferred stock have full voting rights. Dividends on
the Class A and Class B preferred stock are adjustable quarterly based on the
highest of the Treasury Bill Rate or the Ten Year Constant Maturity Rate for the
two-week period immediately preceding the beginning of the quarter. This rate
shall not be less than 6.0% nor more than 12.0% on the Class A preferred stock,
or less than 7.0% nor more than 15.0% on the Class B preferred stock. Effective
August 10, 2009, First Banks suspended the declaration of dividends on its Class
A and Class B preferred stock.





On
December 31, 2008,First Banks issued
295,400 shares of Class C Fixed Rate Cumulative Perpetual Preferred Stock (Class
C Preferred Stock) and 14,770 shares of Class D Fixed Rate Cumulative Perpetual
Preferred Stock (Class D Preferred Stock) to the United States Department of the
Treasury (U.S. Treasury) in conjunction with the U.S. Treasury’s Troubled Asset
Relief Program’s Capital Purchase Program (TARP). The Class C Preferred Stock
has a par value of $1.00 per share and a liquidation preference of $1,000 per
share. The holders of the Class C Preferred Stock have no voting rights except
in certain limited circumstances. The Class C Preferred Stock carries an annual
dividend rate equal to 5% for the first five years and the annual dividend rate
increases to 9% thereafter, payable quarterly in arrears beginning February 15,
2009. The Class D Preferred Stock has a par value of $1.00 per share and a
liquidation preference of $1,000 per share. The holders of the Class D Preferred
Stock have no voting rights except in certain limited circumstances. The Class D
Preferred Stock carries an annual dividend rate equal to 9%, payable quarterly
in arrears beginning February 15, 2009. The Class C Preferred Stock and the
Class D Preferred Stock qualify as Tier 1 capital. Effective February 17, 2009,
the Class C Preferred Stock and the Class D Preferred Stock may be redeemed at
any time without penalty and without the need to raise new capital, subject to
the U.S. Treasury’s consultation with the Company’s primary regulatory agency.
The Class D Preferred Stock may not be redeemed until all of the outstanding
shares of the Class C Preferred Stock have been redeemed.





First
Banks allocated the total proceeds received under the TARP of $295.4 million to
the Class C Preferred Stock and the Class D Preferred Stock based on the
relative fair values of the respective classes of preferred stock at the time of
issuance. The discount on the Class C Preferred Stock of $17.3 million is being
accreted to retained earnings on a level-yield basis over five years, consistent
with management’s estimates of the life of the preferred stock. Accretion of the
discount on the Class C Preferred Stock was $2.5 million for the nine months
ended September 30, 2009.





The
redemption of any issue of preferred stock requires the prior approval of the
Federal Reserve. Furthermore, the agreement that First Banks entered into with
the U.S. Treasury associated with the issuance of the Class C and D Preferred
Stock contains limitations on certain actions of First Banks, including, but not
limited to, payment of dividends and redemptions and acquisitions of First
Banks’ equity securities. In addition, First Banks, under its Memorandum of
Understanding with the FRB, has agreed, among other things, to provide certain
information to the FRB including, but not limited to, notice of plans to
materially change its fundamental business and notice to raise additional equity
capital.  In addition, First Banks agreed not to declare any dividends
on its common or preferred stock without the prior approval of the FRB, as
further described in Note 1 to the consolidated financial
statements.





On August
10, 2009, First Banks announced the deferral of its regularly scheduled interest
payments on its outstanding junior subordinated notes relating to its $345.0
million of trust preferred securities beginning with the regularly scheduled
quarterly interest payments that would otherwise have been made in September and
October 2009, as further described in Note 12 to the consolidated financial
statements. During the deferral period, First Banks may not, among other things
and with limited exceptions, pay cash dividends on or repurchase its common
stock or preferred stock nor make any payment on outstanding debt obligations
that rank equally with or junior to the junior subordinated notes. Accordingly,
First Banks also suspended the payment of cash dividends on its outstanding
common stock and preferred stock beginning with the regularly scheduled
quarterly dividend payments on the preferred stock that would otherwise have
been made in August and September 2009. First Banks has declared and deferred
$4.0 million of its regularly scheduled dividend payments on its Class C and
Class D Preferred Stock and has declared and accrued an additional $27,000 of
cumulative dividends on its deferred dividend payments as of September 30,
2009.


24
 Table of Contents




On
January 1, 2009, First Banks implemented ASC Topic 810, “Consolidation,”which
resulted in the reclassification of noncontrolling interest in subsidiaries of
$129.4 million from a liability to a component of stockholders’ equity in the
consolidated balance sheets, as further described in Note 1 to the consolidated
financial statements.





As a
result of the purchase of FCA’s minority interest in SBLS LLC, First Banks
recorded an increase in additional paid-in-capital of $2.8 million and a
decrease in noncontrolling interest in subsidiaries of $4.7 million during the
second quarter of 2009, as further described in Note 1 and Note 8 to the
consolidated financial statements.





The
following table presents the transactions affecting accumulated other
comprehensive income (loss) included in stockholders’ equity for the three and
nine months ended September 30, 2009 and 2008:





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Net
      loss
            
            $
            (92,457
            )
            
            
            (25,115
            )
            
            
            (280,009
            )
            
            
            (69,727
            )Other
      comprehensive income (loss):Unrealized
      gains (losses) on available-for-sale investment securities, net of
      tax
            
            
            3,553
            
            
            
            1,419
            
            
            
            4,939
            
            
            
            (153
            )Reclassification
      adjustment for available-for-sale investment securities (gains) losses
      included in net loss, net of tax
            
            
            (2,011
            )
            
            
            710
            
            
            
            (2,781
            )
            
            
            3,715Reclassification
      adjustment for deferred tax asset valuation allowance on investment
      securities
            
            
            (1,012
            )
            
            
            —
            
            
            
            (680
            )
            
            
            —Change
      in unrealized gains on derivative instruments, net of tax (1)
            
            
            5
            
            
            
            24
            
            
            
            (4,511
            )
            
            
            3,225Reclassification
      adjustment for deferred tax asset valuation allowance on derivative
      instruments
            
            
            3
            
            
            
            —
            
            
            
            (2,428
            )
            
            
            —Amortization
      of net loss related to pension liability, net of tax
            
            
            35
            
            
            
            —
            
            
            
            104
            
            
            
            —Reclassification
      adjustment for deferred tax asset valuation allowance on pension
      liability
            
            
            25
            
            
            
            —
            
            
            
            76
            
            
            
            —Comprehensive
      loss
            
            
            (91,859
            )
            
            
            (22,962
            )
            
            
            (285,290
            )
            
            
            (62,940
            )Comprehensive
      (loss) income attributable to noncontrolling interest in
      subsidiaries
            
            
            (1,380
            )
            
            
            (154
            )
            
            
            (6,207
            )
            
            
            24Comprehensive
      loss attributable to First Banks, Inc.
            
            $
            (90,479
            )
            
            
            (22,808
            )
            
            
            (279,083
            )
            
            
            (62,964
            )


__________________


(1)
            In
      the third quarter of 2009, First Banks reclassified a cumulative fair
      value adjustment of $4.6 million on its interest rate swap agreements
      designated as cash flow hedges on its subordinated debentures from
      accumulated other comprehensive income to loss on derivative instruments
      as a result of the discontinuation of hedge accounting following the
      announcement of the deferral of interest payments on the underlying trust
      preferred securities in August 2009, as further described in Note 12 and
      Note 16 to the consolidated financial
  statements.





First
Banks did not recognize any other-than-temporary impairment on
available-for-sale debt or equity securities in earnings for the three and nine
months ended September 30, 2009. First Banks recognized other-than-temporary
impairment on available-for-sale equity securities of $1.0 million and $7.4
million in earnings for the three and nine months ended September 30, 2008,
respectively, as described in Note 3 to the consolidated financial
statements.





(14)
            Income
      Taxes





The
realization of First Banks’ net deferred tax assets is based on the expectation
of future taxable income and the utilization of tax planning
strategies.  First Banks recorded a full valuation allowance against
its net deferred tax assets at December 31, 2008. The deferred tax asset
valuation allowance was recorded in accordance with SFAS No. 109, Accounting for Income Taxes,which was subsequently incorporated into ASC Topic 740, “Income Taxes.” Under ASC
Topic 740, the Company is required to assess whether it is more likely than not
that some portion or all of the Company’s deferred tax assets will not be
realized. Pursuant to ASC Topic 740, concluding that a deferred tax asset
valuation allowance is not required is difficult when there is significant
evidence which is objective and verifiable, such as the lack of recoverable
taxes, an excess of reversing deductible differences over reversing taxable
differences and cumulative losses in recent years.  If, in the future,
the Company generates taxable income on a sustained basis, management’s
conclusion regarding the need for a deferred tax asset valuation allowance could
change, resulting in the reversal of a portion or all of such deferred tax asset
valuation allowance.


25
 Table of Contents




A summary
of First Banks’ deferred tax assets and deferred tax liabilities at September
30, 2009 and December 31, 2008 is as follows:





September 30,
            
            
            December 31,2009
            
            
            2008(dollars
      expressed in thousands)Gross
      deferred tax assets
            
            $
            307,655
            
            
            
            196,903Valuation
      allowance
            
            
            (277,908
            )
            
            
            (160,052
            )Deferred
      tax assets, net of valuation allowance
            
            
            29,747
            
            
            
            36,851Deferred
      tax liabilities
            
            
            38,461
            
            
            
            45,565Net
      deferred tax liabilities
            
            $
            (8,714
            )
            
            
            (8,714
            )





The
Company’s valuation allowance was $277.9 million and $160.1 million at September
30, 2009 and December 31, 2008, respectively. At September 30, 2009 and December
31, 2008, for federal income tax purposes, First Banks had net operating loss
carryforwards of approximately $275.5 million and $105.8 million,
respectively.





At
September 30, 2009 and December 31, 2008, First Banks’ liability for uncertain
tax positions, excluding interest and penalties, was $3.5 million and $3.3
million, respectively. At September 30, 2009 and December 31, 2008, the total
amount of unrecognized tax benefits that would affect the effective income tax
rate was $1.7 million and $1.6 million, respectively. During the nine months
ended September 30, 2009, First Banks recorded additional liabilities for
unrecognized tax benefits of $137,000 that, if recognized, would decrease the
provision for income taxes by $90,000.





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, 2009 and December 31, 2008, interest accrued for unrecognized tax positions
was $1.2 million and $1.0 million, respectively. The Company recorded interest
expense of $63,000 and $190,000 for the three and nine months ended September
30, 2009, respectively, compared to $5,000 and $435,000 for the comparable
periods in 2008. There were no penalties for unrecognized tax positions accrued
at September 30, 2009 and December 31, 2008, nor did First Banks recognize any
expense for penalties during the three and nine months ended September 30, 2009
and 2008.





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, 2009 could decrease by
approximately $85,000 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 taxes is
estimated to be approximately $85,000. 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 (IRS) and except
for changes to 2003 from the carryback of a 2008 casualty loss, there are no
open issues for years prior to 2005. Currently, the IRS is examining First
Bank’s federal income tax returns for the years 2003 and 2005 through 2008.
These years contain matters that could be subject to differing interpretations
of applicable tax laws and regulations as they relate to the amount, timing or
inclusion of revenue and expenses. The Company has recorded a tax benefit only
for those positions that meet the “more likely than not” standard. First Banks’
current estimate of the resolution of various state examinations, none of which
are in process, is reflected in accrued income taxes; however, final settlement
of the examinations or changes in First Banks’ estimate may result in future
income tax expense or benefit.  First Bank has executed a waiver for
the statute of limitations extending the period for the 2005 tax year to
December 31, 2010.


26
 Table of Contents




(15)
            Fair
      Value Disclosures





In
accordance with ASC Topic 820, “Fair Value Measurements and
Disclosures,” financial assets and financial liabilities that are
measured at fair value subsequent to initial recognition are grouped into three
levels of inputs or assumptions that market participants would use in pricing
the asset or liability, including assumptions about risk and the reliability of
assumptions used to determine fair value. The three input levels of the
valuation hierarchy are as follows:





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





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





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





The
following describes valuation methodologies used to measure financial assets and
financial liabilities at fair value, as well as the general classification of
such financial instruments pursuant to the valuation hierarchy.





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





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





Loans.The
Company does not record loans at fair value on a recurring basis. However, from
time to time, a loan is considered impaired and an allowance for loan losses is
established. Loans are considered impaired when, in the judgment of management
based on current information and events, it is probable that payment of all
amounts due under the contractual terms of the loan agreement will not be
collected. Acquired impaired loans are classified as nonaccrual loans and are
initially measured at fair value with no allocated allowance for loan losses. An
allowance for loan losses is recorded to the extent there is further credit
deterioration subsequent to acquisition date. In accordance with ASC Topic 820,
impaired loans where an allowance is established based on the fair value of
collateral require classification in the fair value hierarchy. Once a loan is
identified as impaired, management measures the impairment in accordance with
SFAS No. 114 – Accounting by
Creditors for Impairment of a Loan,which was subsequently incorporated
into ASC Topic 310-10-35, “Receivables.” Impairment is
measured by reference to an observable market price, if one exists, the expected
future cash flows of an impaired loan discounted at the loan’s effective
interest rate, or the fair value of the collateral for a collateral-dependent
loan.  In most cases, First Banks measures fair value based on the
value of the collateral securing the loan.  Collateral may be in the
form of real estate or personal property, including equipment and inventory. The
vast majority of the collateral is real estate. The value of the collateral is
determined based on third party appraisals as well as internal estimates. These
measurements are classified as Level 3.





Derivative
instruments.Substantially all derivative instruments utilized
by the Company are traded in over-the-counter markets where quoted market prices
are not readily available. Derivative instruments utilized by the Company
include interest rate swap agreements, interest rate 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.


27
 Table of Contents




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





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





Items Measured on
a Recurring Basis.  Assets and liabilities measured at fair
value on a recurring basis as of September 30, 2009 and December 31, 2008 are
reflected in the following table:





Fair Value MeasurementsSeptember 30, 2009Level 1
            
            
            Level 2
            
            
            Level 3
            
            
            Fair Value(dollars
      expressed in thousands)Assets:Available-for-sale
      investment securities:U.S.
      Government sponsored agencies
            
            $
            —
            
            
            
            45,323
            
            
            
            —
            
            
            
            45,323Residential
      mortgage-backed
            
            
            —
            
            
            
            518,392
            
            
            
            —
            
            
            
            518,392Commercial
      mortgage-backed
            
            
            —
            
            
            
            27,980
            
            
            
            —
            
            
            
            27,980State
      and political subdivisions
            
            
            —
            
            
            
            14,171
            
            
            
            —
            
            
            
            14,171Equity
      investments
            
            
            3,070
            
            
            
            10,678
            
            
            
            —
            
            
            
            13,748Mortgage
      loans held for sale
            
            
            —
            
            
            
            26,740
            
            
            
            —
            
            
            
            26,740Derivative
      instruments
            
            
            —
            
            
            
            1,072
            
            
            
            —
            
            
            
            1,072Servicing
      rights
            
            
            —
            
            
            
            —
            
            
            
            19,987
            
            
            
            19,987Total
            
            $
            3,070
            
            
            
            644,356
            
            
            
            19,987
            
            
            
            667,413Liabilities:Derivative
      instruments
            
            $
            —
            
            
            
            5,039
            
            
            
            —
            
            
            
            5,039Nonqualified
      deferred compensation plan
            
            
            8,758
            
            
            
            —
            
            
            
            —
            
            
            
            8,758Total
            
            $
            8,758
            
            
            
            5,039
            
            
            
            —
            
            
            
            13,797








Fair Value MeasurementsDecember 31, 2008Level 1
            
            
            Level 2
            
            
            Level 3
            
            
            Fair Value(dollars
      expressed in thousands)Assets:Available-for-sale
      investment securities:U.S.
      Government sponsored agencies
            
            $
            —
            
            
            
            1,846
            
            
            
            —
            
            
            
            1,846Residential
      mortgage-backed
            
            
            —
            
            
            
            517,131
            
            
            
            —
            
            
            
            517,131State
      and political subdivisions
            
            
            —
            
            
            
            21,209
            
            
            
            —
            
            
            
            21,209Equity
      investments
            
            
            6,318
            
            
            
            10,678
            
            
            
            —
            
            
            
            16,996Mortgage
      loans held for sale
            
            
            —
            
            
            
            18,483
            
            
            
            —
            
            
            
            18,483Derivative
      instruments
            
            
            —
            
            
            
            583
            
            
            
            —
            
            
            
            583Servicing
      rights
            
            
            —
            
            
            
            —
            
            
            
            16,381
            
            
            
            16,381Total
            
            $
            6,318
            
            
            
            569,930
            
            
            
            16,381
            
            
            
            592,629Liabilities:Derivative
      instruments
            
            $
            —
            
            
            
            4,953
            
            
            
            —
            
            
            
            4,953Nonqualified
      deferred compensation plan
            
            
            7,676
            
            
            
            —
            
            
            
            —
            
            
            
            7,676Total
            
            $
            7,676
            
            
            
            4,953
            
            
            
            —
            
            
            
            12,629


28
 Table of Contents




The
following table presents the changes in Level 3 assets measured on a recurring
basis for the three and nine months ended September 30, 2009 and
2008:





Servicing RightsThree
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Balance,
      beginning of period
            
            $
            18,809
            
            
            
            25,723
            
            
            
            16,381
            
            
            
            12,758Impact
      of election to measure servicing rights at fair value under ASC Topic
      860
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            10,443Total
      gains or losses (realized/unrealized):Included
      in earnings(1)
            
            
            (684
            )
            
            
            (5,304
            )
            
            
            (2,386
            )
            
            
            (6,508
            )Included
      in other comprehensive income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Purchases,
      issuances and settlements
            
            
            1,862
            
            
            
            717
            
            
            
            5,992
            
            
            
            4,443Transfers
      in and/or out of level 3
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Balance,
      end of period
            
            $
            19,987
            
            
            
            21,136
            
            
            
            19,987
            
            
            
            21,136


_________________


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





Items Measured on
a Nonrecurring Basis.  From time to time, 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, 2009 and December 31, 2008 are reflected
in the following table:





Fair Value MeasurementsSeptember 30, 2009Level 1
            
            
            Level 2
            
            
            Level 3
            
            
            Fair Value(dollars
      expressed in thousands)Assets:Loans
      held for sale
            
            $
            —
            
            
            
            10,724
            
            
            
            —
            
            
            
            10,724Impaired
      loans
            
            
            —
            
            
            
            —
            
            
            
            558,117
            
            
            
            558,117Total
            
            $
            —
            
            
            
            10,724
            
            
            
            558,117
            
            
            
            568,841








Fair Value MeasurementsDecember 31, 2008Level 1
            
            
            Level 2
            
            
            Level 3
            
            
            Fair Value(dollars
      expressed in thousands)Assets:Loans
      held for sale
            
            $
            —
            
            
            
            20,237
            
            
            
            —
            
            
            
            20,237Impaired
      loans
            
            
            —
            
            
            
            —
            
            
            
            382,105
            
            
            
            382,105Total
            
            $
            —
            
            
            
            20,237
            
            
            
            382,105
            
            
            
            402,342





Non-Financial
Assets and Non-Financial Liabilities.Certain non-financial
assets measured at fair value on a non-recurring basis include other real estate
(upon initial recognition or subsequent impairment), non-financial assets and
non-financial liabilities measured at fair value in the second step of a
goodwill impairment test, and intangible assets and other non-financial
long-lived assets measured at fair value for impairment assessment.





During
the first nine months of 2009, certain other real estate, upon initial
recognition, was re-measured and reported at fair value through a charge-off to
the allowance for loan losses based upon the estimated fair value of the other
real estate. The fair value of other real estate, upon initial recognition, is
estimated using Level 3 inputs based on third-party appraisals, and where
applicable, discounted based on management’s judgment taking into account
current market conditions, distressed or forced sale price comparisons and other
factors in effect at the time of valuation. Other real estate measured at fair
value upon initial recognition totaled $127.2 million during the nine months
ended September 30, 2009. In addition to other real estate measured at fair
value upon initial recognition, First Banks recorded write-downs to the balance
of other real estate of $335,000 and $1.5 million to noninterest expense for the
three and nine months ended September 30, 2009, respectively. Other real estate
was $164.0 million at September 30, 2009, compared to $91.5 million at December
31, 2008.





Fair Value of Financial
Instruments.The fair value of financial instruments is
management’s estimate of the values at which the instruments could be exchanged
in a transaction between willing parties. These estimates are subjective and may
vary significantly from amounts that would be realized in actual transactions.
In addition, other significant assets are not considered financial assets
including servicing assets, deferred income tax assets, bank premises and
equipment and goodwill and other intangible assets. Furthermore, the income
taxes that would be incurred if First Banks were to realize any of the
unrealized gains or unrealized losses indicated between the estimated fair
values and corresponding carrying values could have a significant effect on the
fair value estimates and have not been considered in any of the
estimates.


29
 Table of Contents




The
following summarizes the methods and assumptions used in estimating the fair
value of all other financial instruments:





Cash and cash
equivalents and accrued interest receivable:The carrying values
reported in the consolidated balance sheets approximate fair value.





Held-to-maturity
investment securities: The fair value of held-to-maturity investment
securities is based on quoted market prices where available. If quoted market
prices are not available, the fair value is based on quoted market prices of
comparable instruments.





Loans: The
fair value of all other loans held for portfolio was estimated utilizing
discounted cash flow calculations. These cash flow calculations include
assumptions for prepayment estimates over the loans’ remaining life,
considerations for the current interest rate environment compared to the
weighted average rate of the loan portfolio, a credit risk component based on
the historical and expected performance of each portfolio and a liquidity
adjustment related to the current market environment.





Loans held for
sale: The fair value of loans held for sale, which is the amount reported
in the consolidated balance sheets, is based on quoted market prices where
available. If quoted market prices are not available, the fair value is based on
quoted market prices of comparable instruments.





Bank-owned life
insurance: The fair value of bank-owned life insurance is based on quoted
market prices where available. If quoted market prices are not available, the
fair value is based on quoted market prices of comparable
instruments.





Deposits:
The fair value of deposits generally payable on demand (i.e.,
noninterest-bearing and interest-bearing demand, and savings and money market
accounts) is considered equal to their respective carrying amounts as reported
in the consolidated balance sheets. The fair value of demand deposits does not
include the benefit that results from the low-cost funding provided by deposit
liabilities compared to the cost of borrowing funds in the market. The fair
value disclosed for time deposits was estimated utilizing a discounted cash flow
calculation that applied interest rates currently being offered on similar
deposits to a schedule of aggregated monthly maturities of time deposits. If the
estimated fair value is lower than the carrying value, the carrying value is
reported as the fair value of time deposits.





Other borrowings,
notes payable and accrued interest payable: The carrying values reported
in the consolidated balance sheets for variable rate borrowings approximate fair
value. The fair value of fixed rate borrowings is based on quoted market prices
where available. If quoted market prices are not available, the fair value is
based on discounting contractual maturities using an estimate of current market
rates for similar instruments.





Subordinated
debentures: The
fair value of subordinated debentures is based on quoted market prices of
comparable instruments.





Off-Balance Sheet
Financial Instruments: The fair value of commitments to extend credit,
standby letters of credit and financial guarantees is based on estimated
probable credit losses.


30
 Table of Contents




The
estimated fair value of First Banks’ financial instruments at September 30, 2009
and December 31, 2008 was as follows:





September 30, 2009
            
            
            December 31, 2008Carrying
      Value
            
            
            Estimated
      Fair Value
            
            
            Carrying
      Value
            
            
            Estimated
      Fair Value(dollars
      expressed in thousands)Financial
      Assets:Cash
      and cash equivalents
            
            $
            1,647,981
            
            
            
            1,647,981
            
            
            
            842,316
            
            
            
            842,316Investment
      securities:Available
      for sale
            
            
            619,614
            
            
            
            619,614
            
            
            
            557,182
            
            
            
            557,182Held
      to maturity
            
            
            14,662
            
            
            
            15,780
            
            
            
            17,912
            
            
            
            18,507Loans
      held for portfolio
            
            
            7,194,808
            
            
            
            6,630,664
            
            
            
            8,334,041
            
            
            
            7,683,098Loans
      held for sale
            
            
            37,464
            
            
            
            37,464
            
            
            
            38,720
            
            
            
            38,720FHLB
      and Federal Reserve Bank stock
            
            
            66,756
            
            
            
            66,756
            
            
            
            47,832
            
            
            
            47,832Derivative
      instruments
            
            
            1,072
            
            
            
            1,072
            
            
            
            583
            
            
            
            583Bank-owned
      life insurance
            
            
            26,288
            
            
            
            26,288
            
            
            
            118,825
            
            
            
            118,825Accrued
      interest receivable
            
            
            31,353
            
            
            
            31,353
            
            
            
            35,773
            
            
            
            35,773Assets
      held for sale
            
            
            19,862
            
            
            
            19,862
            
            
            
            —
            
            
            
            —Assets
      of discontinued operations
            
            
            286,003
            
            
            
            286,003
            
            
            
            —
            
            
            
            —Financial
      Liabilities:Deposits:Noninterest-bearing
      demand
            
            $
            1,230,470
            
            
            
            1,230,470
            
            
            
            1,241,916
            
            
            
            1,241,916Interest-bearing
      demand
            
            
            927,664
            
            
            
            927,664
            
            
            
            935,805
            
            
            
            935,805Savings
      and money market
            
            
            2,725,686
            
            
            
            2,725,686
            
            
            
            2,777,285
            
            
            
            2,777,285Time
      deposits
            
            
            3,261,542
            
            
            
            3,290,695
            
            
            
            3,786,514
            
            
            
            3,832,495Other
      borrowings
            
            
            818,704
            
            
            
            828,688
            
            
            
            575,133
            
            
            
            576,021Derivative
      instruments
            
            
            5,039
            
            
            
            5,039
            
            
            
            4,953
            
            
            
            4,953Accrued
      interest payable
            
            
            11,266
            
            
            
            11,266
            
            
            
            12,561
            
            
            
            12,561Subordinated
      debentures
            
            
            353,885
            
            
            
            212,331
            
            
            
            353,828
            
            
            
            269,946Liabilities
      held for sale
            
            
            45,530
            
            
            
            43,254
            
            
            
            —
            
            
            
            —Liabilities
      of discontinued operations
            
            
            511,959
            
            
            
            481,762
            
            
            
            —
            
            
            
            —Off-Balance
      Sheet Financial Instruments:Commitments
      to extend credit, standby letters of credit and financial
      guarantees
            
            $
            (679
            )
            
            
            (679
            )
            
            
            (419
            )
            
            
            (419
            )





(16)
            Derivative
      Financial Instruments





First
Banks utilizes derivative financial instruments to assist in the management of
interest rate sensitivity by modifying the re-pricing, maturity and option
characteristics of certain assets and liabilities. Derivative financial
instruments held by First Banks as of September 30, 2009 and December 31, 2008
are summarized as follows:





September 30, 2009
            
            
            December 31, 2008Notional
      Amount
            
            
            Credit
      Exposure
            
            
            Notional
      Amount
            
            
            Credit
      Exposure(dollars
      expressed in thousands)Cash
      flow hedges – subordinated debentures (1)
            
            $
            125,000
            
            
            
            —
            
            
            
            125,000
            
            
            
            —Customer
      interest rate swap agreements
            
            
            82,135
            
            
            
            807
            
            
            
            16,000
            
            
            
            85Interest
      rate lock commitments
            
            
            48,000
            
            
            
            1,186
            
            
            
            48,700
            
            
            
            831Forward
      commitments to sell mortgage-backed securities
            
            
            59,000
            
            
            
            —
            
            
            
            40,300
            
            
            
            —


_________________


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





The
notional amounts of derivative financial instruments do not represent amounts
exchanged by the parties and, therefore, are not a measure of First Banks’
credit exposure through its use of these instruments. The credit exposure
represents the loss First Banks 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. First Banks’ credit exposure on interest rate swaps is limited to the net
fair value and related accrued interest receivable reduced by the amount of
collateral pledged by the counterparty. At September 30, 2009 and December 31,
2008, First Banks had pledged cash of $4.4 million and $3.7 million,
respectively, as collateral in connection with its interest rate swap agreements
on subordinated debentures. Collateral requirements are monitored on a daily
basis and adjusted as necessary.


31
 Table of Contents




First
Banks realized net interest income on its derivative financial instruments of
$3.7 million and $10.5 million for the three and nine months ended September 30,
2009, respectively, compared to $2.9 million and $7.6 million for the comparable
periods in 2008. First Banks also recorded net losses, which are included in
noninterest income in the statements of operations, of $4.8 million and $4.4
million on derivative instruments for the three and nine months ended September
30, 2009, respectively, compared to net losses of $57,000 and net gains of $1.7
million for the comparable periods in 2008.





Cash Flow Hedges
– Subordinated Debentures.  First Banks has entered into four
interest rate swap agreements, which were designated as cash flow hedges prior
to August 2009, with the objective of stabilizing the long-term cost of capital
and cash flow, and accordingly, net interest expense on subordinated debentures
to the respective call dates of certain subordinated debentures. These swap
agreements provide for First Banks to receive an adjustable rate of interest
equivalent to the three-month London Interbank Offered Rate (LIBOR) plus 1.65%,
1.85%, 1.61% and 2.25%, and pay a fixed rate of interest. The terms of the swap
agreements provide for First Banks to pay and receive interest on a quarterly
basis.





The
amount receivable by First Banks under these swap agreements was $206,000 and
$528,000 at September 30, 2009 and December 31, 2008, respectively, and the
amount payable by First Banks under these swap agreements was $437,000 and
$451,000 at September 30, 2009 and December 31, 2008, respectively.





In August
2009, First Banks reclassified a cumulative fair value adjustment of $4.6
million on its interest rate swap agreements designated as cash flow hedges on
its subordinated debentures from accumulated other comprehensive income to loss
on derivative instruments as a result of the discontinuation of hedge accounting
following the announcement of the deferral of interest payments on the
underlying trust preferred securities in August 2009. In conjunction with the
discontinuation of hedge accounting, the net interest differential on these
interest rate swap agreements was recorded as a reduction of noninterest income
effective August 2009.





The
maturity dates, notional amounts, interest rates paid and received and fair
value of First Banks’ interest rate swap agreements designated as cash flow
hedges on certain subordinated debentures as of September 30, 2009 and December
31, 2008 were as follows:





Maturity Date
            
            Notional
      Amount
            
            
            Interest
      Rate Paid
            
            
            Interest
      Rate Received
            
            
            Fair
      Value(dollars
      expressed in thousands)September
      30, 2009:July
      7, 2011
            
            $
            25,000
            
            
            
            4.40
            %
            
            
            2.16
            %
            
            $
            (715
            )December
      15, 2011
            
            
            50,000
            
            
            
            4.91
            
            
            
            2.15
            
            
            
            (1,833
            )March
      30, 2012
            
            
            25,000
            
            
            
            4.71
            
            
            
            1.89
            
            
            
            (954
            )December
      15, 2012
            
            
            25,000
            
            
            
            5.57
            
            
            
            2.55
            
            
            
            (1,085
            )$
            125,000
            
            
            
            4.90
            
            
            
            2.18
            
            
            $
            (4,587
            )December
      31, 2008:July
      7, 2011
            
            $
            25,000
            
            
            
            4.40
            %
            
            
            6.40
            %
            
            $
            (575
            )December
      15, 2011
            
            
            50,000
            
            
            
            4.91
            
            
            
            3.85
            
            
            
            (1,945
            )March
      30, 2012
            
            
            25,000
            
            
            
            4.71
            
            
            
            3.08
            
            
            
            (1,048
            )December
      15, 2012
            
            
            25,000
            
            
            
            5.57
            
            
            
            4.25
            
            
            
            (1,308
            )$
            125,000
            
            
            
            4.90
            
            
            
            4.29
            
            
            $
            (4,876
            )





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





Ø
            In
      September 2006, First Banks 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 were certain variable rate loans within First Banks’
      commercial loan portfolio. The swap agreements provided for First Banks 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 provided for First Banks to pay and receive
      interest on a quarterly basis. In December 2008, First Banks terminated
      these swap agreements. The pre-tax gain of $20.8 million, in aggregate, is
      being amortized as an increase to interest and fees on loans in the
      consolidated statements of operations over the remaining terms of the
      respective interest rate swap agreements, which had contractual maturity
      dates of September 18, 2009 and September 20,
  2010.


32
 Table of Contents




For
interest rate swap agreements designated as cash flow hedges, the effective
portion of the gain or loss on the derivative is reported as a component of
other comprehensive income (loss) and reclassified into interest income or
interest expense in the same period the hedged transaction affects earnings. The
ineffective portion of the change in the cash flow hedge’s gain or loss is
recorded in noninterest income on each monthly measurement date. First Banks did
not recognize any ineffectiveness related to interest rate swap agreements that
were designated as cash flow hedges on subordinated debentures in the
consolidated statements of operations for the three and nine months ended
September 30, 2008, or from January 1, 2009 through the discontinuation of hedge
accounting in August 2009. The net cash flows on these interest rate swap
agreements on subordinated debentures were recorded as an adjustment to interest
expense on subordinated debentures until the discontinuation of hedge accounting
in August 2009. First Banks also did not recognize any ineffectiveness related
to interest rate swap agreements designated as cash flow hedges on loans in the
consolidated statements of operations for the three and nine months ended
September 30, 2009 and 2008. The net cash flows on the interest rate swap
agreements on loans were recorded as an adjustment to interest income on
loans.





Customer Interest
Rate Swap Agreements.First Bank offers interest rate swap
agreements to certain customers to assist in hedging their risks of adverse
changes in interest rates. First Bank serves as an intermediary between its
customers and the financial markets. Each interest rate swap agreement between
First Bank and its customers is offset by an interest rate swap agreement
between First Bank and various counterparties. These interest rate swap
agreements do not qualify for hedge accounting treatment. Changes in the fair
value are recognized in noninterest income on a monthly basis. Each customer
contract is paired with an offsetting contract, and as such, there is no
significant impact to net income (loss). The notional amount of these interest
rate swap agreements at September 30, 2009 and December 31, 2008 was $82.1
million and $16.0 million, respectively.





Interest Rate
Floor Agreements.  In September 2005, First Bank entered into a
$100.0 million notional amount three-year interest rate floor agreement in
conjunction with its interest rate risk management program. The interest rate
floor agreement provided for First Bank 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, First Bank entered into a $200.0 million
notional amount three-year interest rate floor agreement in conjunction with the
restructuring of one of First Bank’s $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 First Bank 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. In May 2008,
First Bank terminated its interest rate floor agreements to modify its overall
hedge position in accordance with its interest rate risk management program, and
did not incur any gains or losses in conjunction with the termination of these
interest rate floor agreements. Changes in the fair value of interest rate floor
agreements are recognized in noninterest income.





Interest Rate
Floor Agreements Embedded in Term Repurchase Agreements.  First
Bank has a term repurchase agreement under a master repurchase agreement with an
unaffiliated third party, as further described in Note 11 to the 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 the net interest margin against
changes in interest rates and providing funding for security purchases. The term
repurchase agreement had a borrowing amount of $100.0 million, a maturity date
of October 12, 2010, and contained an embedded interest rate floor agreement
which was terminated in 2008. The interest rate floor agreement included within
the term repurchase agreement represented an embedded derivative instrument
which, in accordance with existing accounting literature governing derivative
instruments, was not required to be separated from the term repurchase agreement
and accounted for separately as a derivative financial instrument. As such, the
term repurchase agreement is reflected in other borrowings in the consolidated
balance sheets and the related interest expense is reflected as interest expense
on other borrowings in the consolidated statements of operations. In March 2008,
First Bank restructured its 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
agreement 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 the consolidated statements of operations.





Interest Rate
Lock Commitments / Forward Commitments to Sell Mortgage-Backed
Securities. Derivative financial instruments issued by First Banks
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 2009. The fair value of the interest rate lock commitments, which is
included in other assets in the consolidated balance sheets, was an unrealized
gain of $1.2 million and $831,000 at September 30, 2009 and December 31, 2008,
respectively. The fair value of the forward contracts to sell mortgage-backed
securities, which is included in other assets in the consolidated balance
sheets, was an unrealized loss of $832,000 and an unrealized loss of $325,000 at
September 30, 2009 and December 31, 2008, respectively. Changes in the fair
value of interest rate lock commitments and forward commitments to sell
mortgage-backed securities are recognized in noninterest
income.


33
 Table of Contents




The
following table summarizes derivative financial instruments held by First Banks,
their estimated fair values and their location in the consolidated balance
sheets at September 30, 2009 and December 31, 2008:





September 30, 2009
            
            December 31, 2008Balance
      Sheet Location
            
            Fair
      Value Gain (Loss)
            
            Balance
      Sheet Location
            
            Fair
      Value Gain (Loss)(dollars
      expressed in thousands)Derivative
      financial instruments designated as hedging instruments under ASC Topic
      815:Cash
      flow hedges – subordinated debentures (1)
            Other
      liabilities
            
            $
            —
            
            Other
      liabilities
            
            
            (4,876
            )Derivative
      financial instruments not designated as hedging instruments under ASC
      Topic 815:Customer
      interest rate swap agreements
            Other
      assets
            
            $
            718
            
            Other
      assets
            
            
            76Interest
      rate lock commitments
            Other
      assets
            
            
            1,186
            
            Other
      assets
            
            
            831Forward
      commitments to sell mortgage-backed securities
            Other
      assets
            
            
            (832
            )
            Other
      assets
            
            
            (325
            )Total
      derivatives in other assets
            
            
            $
            1,072
            
            
            
            
            582Interest
      rate swap agreements– subordinated debentures
            Other
      liabilities
            
            $
            (4,587
            )
            Other
      liabilities
            
            
            —Customer
      interest rate swap agreements
            Other
      liabilities
            
            
            (452
            )
            Other
      liabilities
            
            
            (76
            )Total
      derivatives in other liabilities
            
            
            $
            (5,039
            )
            
            
            
            (76
            )


_________________


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





The
following table summarizes amounts included in the consolidated statements of
operations and in accumulated other comprehensive income in the consolidated
balance sheets as of and for the three and nine months ended September 30, 2009
and 2008 related to interest rate swap agreements designated as cash flow
hedges:





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Derivative
      financial instruments designated as hedging instruments under ASC Topic
      815:Cash
      flowhedges –
      loans:Amount
      reclassified from accumulated other comprehensive income to interest
      income on loans
            
            $
            3,938
            
            
            
            3,015
            
            
            
            11,815
            
            
            
            7,782Amount
      of gain recognized in other comprehensive income
            
            
            —
            
            
            
            4,300
            
            
            
            —
            
            
            
            10,105Cash
      flowhedges –
      subordinated debentures (1):Amount
      reclassified from accumulated other comprehensive income to interest
      expense on subordinated debentures
            
            
            260
            
            
            
            85
            
            
            
            1,279
            
            
            
            192Amount
      reclassified from accumulated other comprehensive income to net gain
      (loss) on derivative instruments
            
            
            (4,587
            )
            
            
            —
            
            
            
            (4,587
            )
            
            
            —Amount
      of gain (loss) recognized in other comprehensive income
            
            
            (6,019
            )
            
            
            (1,333
            )
            
            
            (6,108
            )
            
            
            2,446


_________________


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





The
unamortized gain related to the fair value of the cash flow hedges on loans
terminated in December 2008 in accumulated other comprehensive income was $7.7
million and $19.5 million on a gross basis and $5.0 million and $12.7 million,
net of tax, at September 30, 2009 and December 31, 2008, respectively. The loss
included in accumulated other comprehensive income related to cash flow hedges
on subordinated debentures was zero at September 30, 2009 and $4.9 million on a
gross basis and $3.2 million, net of tax, at December 31, 2008,
respectively.  In August 2009, First Banks reclassified a cumulative
fair value adjustment of $4.6 million on its interest rate swap agreements
designated as cash flow hedges on its subordinated debentures from accumulated
other comprehensive income to loss on derivative instruments as a result of the
discontinuation of hedge accounting following the announcement of the deferral
of interest payments on the underlying trust preferred securities in August
2009, as further described in Note 12 to the consolidated financial
statements.


34
 Table of Contents




The
following table summarizes amounts included in the consolidated statements of
operations for the three and nine months ended September 30, 2009 and 2008
related to non-hedging derivative instruments:





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Derivative
      financial instruments not designated as hedging instruments under ASC
      Topic 815:Interest
      rate swap agreements – subordinated debentures:Net
      (loss) gain on derivative instruments
            
            $
            (5,118
            )
            
            
            —
            
            
            
            (5,118
            )
            
            
            —Customer
      interest rate swap agreements:Net
      (loss) gain on derivative instruments
            
            
            280
            
            
            
            —
            
            
            
            681
            
            
            
            —Interest
      rate floor agreements:Net
      (loss) gain on derivative instruments
            
            
            —
            
            
            
            (57
            )
            
            
            —
            
            
            
            1,729Interest
      rate floor agreements embedded in Term Repurchase
    Agreements:Gain
      on extinguishment of term repurchase agreement
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            5,000Interest
      rate lock commitments:Gain
      on loans sold and held for sale
            
            
            602
            
            
            
            (70
            )
            
            
            355
            
            
            
            69Forward
      commitments to sell mortgage-backed securities:Gain
      on loans sold and held for sale
            
            
            (1,343
            )
            
            
            (649
            )
            
            
            (507
            )
            
            
            42





(17)
            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, 2009 and December 31, 2008, 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.





Other
Litigation.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.





As
further described in Note 1 to the consolidated financial statements, the
Company and First Bank have entered into informal agreements with the MDOF and
the FRB.


35
 Table of Contents




(18)
            Subsequent
      Events





In
connection with the preparation of the consolidated financial statements, First
Banks has evaluated subsequent events after the consolidated balance sheet date
of September 30, 2009 through November 13, 2009, the date the financial
statements were issued.





On
November 11, 2009, First Bank entered into a Purchase and Assumption Agreement
that provides for the sale of certain assets and the transfer of certain
liabilities of First Bank’s Chicago franchise (Chicago) to FirstMerit Bank, N.A.
(FirstMerit). Under the terms of the agreement, FirstMerit is to purchase
approximately $315.0 million in loans as well as certain other assets, including
premises and equipment, associated with First Bank’s Chicago operations.
FirstMerit is also to assume all of the deposits associated with First Bank’s 24
Chicago retail branches, including certain commercial deposit relationships, for
a premium of 3.50%, or approximately $42.0 million based on $1.20 billion of
such deposits at September 30, 2009. In conjunction with this transaction, on
November 11, 2009, First Bank Business Capital, Inc., First Bank’s wholly
owned asset based lending subsidiary, entered into a Loan Purchase Agreement
that provides for the sale of certain loans to FirstMerit. Under the terms
of the agreement, FirstMerit is to purchase approximately $100.0 million in
loans at a discount of approximately 8.5%. The acquired loans and deposits
represent approximately 5.3% and 13.8% of First Banks’ total loans and deposits
at September 30, 2009, respectively. The transaction associated with the Chicago
branches, which is subject to regulatory approvals and certain closing
conditions, is expected to be completed during the first quarter of 2010. The
loan purchase transaction, which is subject to certain closing conditions, is
expected to be completed during the fourth quarter of 2009.


36
 Table of Contents




Item2– 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 following, which are not
necessarily presented in order of likelihood or significance of
impact:





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





Ø
            The
      effects of and changes in trade and monetary and fiscal policies and laws,
      including, but not limited to, the interest rate policies of the Federal
      Open Market Committee of the Federal Reserve Board of Governors, the
      Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee
      Program and the U.S. Treasury's Capital Purchase Program and Troubled
      Asset Repurchase Program authorized by the Emergency Economic
      Stabilization Act of 2008;





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





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





Ø
            Our
      results of operations, financial condition and business may be materially,
      adversely affected if we fail to successfully implement our Capital
      Plan;





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





Ø
            Volatility
      and disruption in national and international financial
      markets;





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





Ø
            Changes
      in consumer spending, borrowings and savings
  habits;





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





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





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





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





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





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





Ø
            The
      geographic dispersion of our
offices;





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





Ø
            The
      highly regulated environment in which we
  operate;





Ø
            Regulatory
      actions that impact First Banks, Inc. 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





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





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





Ø
            The
      competition of larger acquirers with greater
  resources;





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





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





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





Ø
            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 that may impact these forward-looking
statements, please refer to our 2008 Annual Report on Form 10-K, as filed with
the United States Securities and Exchange Commission on March 25, 2009. 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.


37
 Table of Contents




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:





Ø
            First
      Bank Business Capital, Inc.;


Ø
            Missouri
      Valley Partners, Inc., or MVP;


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


Ø
            FB
      Holdings, LLC, or FB Holdings;


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


Ø
            ILSIS,
      Inc.





First
Bank’s subsidiaries are wholly owned except FB Holdings, which is 53.23% owned
by First Bank and 46.77% owned by First Capital America, Inc., or FCA, as of
September 30, 2009.





On April
30, 2009, First Bank and FCA entered into a Purchase Agreement providing for FCA
to sell its 17.45% ownership interest in SBLS LLC to First Bank, as further
described in Note 8 to the consolidated financial statements.  As
such, effective April 30, 2009, First Bank owns 100% of SBLS LLC. On September
30, 2009, First Bank purchased all of the loans and certain other assets and
assumed all of the liabilities of SBLS LLC.





At
September 30, 2009, we had assets of $10.68 billion, loans, net of unearned
discount, of $7.52 billion, deposits of $8.15 billion and stockholders’ equity
of $698.8 million, and we currently operate 209 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, 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 are available
nationwide.





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.





Recent
Developments.On August 10, 2009, we announced substantial progress with
respect to our Capital Optimization Plan, or Capital Plan. The Capital Plan,
which was initiated in 2008, was adopted in order to, among other things,
preserve our risk-based capital in the current and continuing economic downturn.
We have completed, or are in the process of completing, a number of initiatives
as part of our Capital Plan, including:





Ø
            The
      sale of certain assets and the transfer of certain liabilities of our
      Texas franchise to Sterling Bank under a Purchase and Assumption Agreement
      dated August 7, 2009 as further discussed under “—Discontinued
      Operations;”


38
 Table of Contents




Ø
            The
      sale of certain assets and the transfer of certain liabilities of our
      Chicago franchise to FirstMerit Bank, N.A., or FirstMerit, under a
      Purchase and Assumption Agreement dated November 11, 2009. Under the terms
      of the agreement, FirstMerit is to purchase approximately $315.0 million
      in loans as well as certain other assets, including premises and equipment
      associated with First Bank’s Chicago operations. FirstMerit is also to
      assume all of the deposits associated with First Bank’s 24 Chicago retail
      branches, including certain commercial deposit relationships, for a
      premium of 3.50%, or approximately $42.0 million based on $1.20 billion of
      such deposits at September 30, 2009. The transaction, which is subject to
      regulatory approvals and certain closing conditions, is expected to be
      completed during the first quarter of
2010;





Ø
            The
      sale of certain loans of our First Bank Business Capital, Inc. subsidiary
      to FirstMerit under a Loan Purchase Agreement dated November 11, 2009.
      Under the terms of the agreement, FirstMerit is to purchase approximately
      $100.0 million in loans at a discount of approximately 8.5%. The
      transaction, which is subject to certain closing conditions, is expected
      to be completed during the fourth quarter of
  2009;





Ø
            The
      sale of Adrian N. Baker & Company, or ANB, to AHM Corporation
      Holdings, Inc., or AHM, under a Stock Purchase Agreement dated September
      18, 2009 as further discussed under “—Discontinued
      Operations;”





Ø
            The
      sale of two of our Illinois branch offices as further discussed under
      “—Discontinued Operations;”





Ø
            The
      deferral of regularly scheduled interest payments on our outstanding
      junior subordinated notes relating to our $345.0 million of trust
      preferred securities in addition to the suspension of the payment of cash
      dividends on our outstanding common stock and preferred stock. We expect
      our deferral of interest on the junior subordinated notes and our
      suspension of cash dividends on our common stock and preferred stock will
      preserve approximately $8.0 million per quarter based upon the interest
      and dividend payments completed in the first and second quarters of 2009.
      See further discussion under “—Regulatory Matters and
      Liquidity;”





Ø
            The
      reduction of First Banks’ net risk-weighted assets by $1.87 billion from
      $10.25 billion at December 31, 2007 to $8.38 billion at September 30,
      2009; and





Ø
            Significant
      reductions in certain controllable expenses including, but not limited to,
      compensation, marketing and business development, information technology
      fees, travel and entertainment and office
  supplies.





We
believe the successful completion of our Capital Plan would substantially
improve our capital position; however, no assurances can be made that we will be
able to successfully complete all, or any portion of our Capital Plan, or that
the Capital Plan will not be materially modified in the future. Our decision to
implement the Capital Plan reflects the adverse effect that the severe downturn
in the commercial and residential real estate markets has had on our financial
condition. If we are not able to successfully complete a substantial portion of
our Capital Plan, our business may be materially and adversely
affected.





Discontinued
Operations.  On August 7, 2009, First Bank entered into a
Purchase and Assumption Agreement with Sterling Bank, or Sterling, headquartered
in Houston, Texas, providing for the sale of certain assets and the transfer of
certain liabilities of our Texas region, or Texas, to Sterling Bank. Under the
terms of the agreement, Sterling is to purchase approximately $236.6 million in
loans as well as certain other assets, including premises and equipment
associated with First Bank’s Texas operations. Sterling is also to assume
approximately $503.3 million of deposits associated with First Bank’s 19 Texas
retail branches, including certain commercial deposit relationships, for a
premium of 6.0%, or approximately $30.0 million. The acquired loans and deposits
represent approximately 3.0% and 5.8% of First Banks total loans and deposits at
September 30, 2009, respectively. The transaction, which is subject to
regulatory approvals and certain closing conditions, is expected to be completed
during the fourth quarter of 2009. These assets and liabilities, which were
previously reported in the First Bank segment, will be sold as part of our
Capital Plan.





On
September 18, 2009, First Bank, ANB and MVP signed a Stock Purchase Agreement
that provided for the sale of First Bank’s subsidiaries, ANB and MVP, to AHM.
Under the terms of the agreement, AHM purchased all of the capital stock of ANB
for a purchase price of approximately $14.8 million.  The sale of ANB
was completed on September 30, 2009 and resulted in a pre-tax gain on the sale
of $527,000. The sale of MVP was subsequently terminated by First Bank on
November 9, 2009. MVP was previously reported in the First Bank segment. ANB,
which was also previously reported in the First Bank segment, was sold as part
of our Capital Plan.





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


39
 Table of Contents




Assets and
Liabilities Held for Sale. On August 27, 2009, First Bank entered into a
Branch Purchase and Assumption Agreement providing for the sale of First Bank’s
Lawrenceville, Illinois branch office to The Peoples State Bank of Newton, or
Peoples. Under the terms of the agreement, Peoples is to assume approximately
$24.6 million of deposits as well as certain other liabilities, and will
purchase approximately $15.1 million of loans as well as certain other assets,
including premises and equipment. The transaction, which is subject to
regulatory approvals and certain closing conditions, is expected to be completed
during the first quarter of 2010.





On August
31, 2009, First Bank entered into a Branch Purchase and Assumption Agreement
providing for the sale of First Bank’s Springfield, Illinois branch office to
First Bankers Trust Company, National Association, a subsidiary of First Bankers
Trustshares, Inc., or First Bankers. Under the terms of the agreement, First
Bankers is to assume approximately $20.8 million of deposits as well as certain
other liabilities, and will purchase approximately $1.6 million of loans as well
as certain other assets, including premises and equipment. The transaction,
which is subject to regulatory approvals and certain closing conditions, is
expected to be completed during the fourth quarter of 2009.





The
assets and liabilities associated with the Springfield and Lawrenceville branch
offices, or collectively the Branch Sales, are reflected in assets held for sale
and liabilities held for sale in our consolidated balance sheet as of September
30, 2009. See Note 2 to our accompanying consolidated financial statements for
further discussion regarding assets held for sale and liabilities held for
sale.





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 State of Missouri Division of Finance, or the 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.





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 9 to our accompanying consolidated financial statements, at
September 30, 2009, First Bank’s Tier 1 capital ratio was 8.91%, or
approximately $159.8 million over the minimum level required by the agreement.
As further described in Note 1 and Note 9 to our accompanying consolidated
financial statements, our management has concluded that the Company and First
Bank were in full compliance with all provisions of the respective informal
agreements as of September 30, 2009. In addition, the Company and First Bank are
committed to endeavoring to meet the requirements of the agreements in a timely
manner.





On August
10, 2009, we announced our intention to defer our regularly scheduled interest
payments on our outstanding junior subordinated notes relating to our $345.0
million of trust preferred securities beginning with the regularly scheduled
quarterly interest payments that would otherwise have been made in September and
October 2009. The terms of the junior subordinated notes and the related trust
indentures allow us to defer such payments of interest for up to 20 consecutive
quarterly periods without default or penalty. During the deferral period, we may
not, among other things and with limited exceptions, pay cash dividends on or
repurchase our common stock or preferred stock nor make any payment on
outstanding debt obligations that rank equally with or junior to the junior
subordinated notes. Accordingly, we also suspended the payment of cash dividends
on our outstanding common stock and preferred stock beginning with the regularly
scheduled quarterly dividend payments on our preferred stock that would
otherwise have been made in August and September 2009, as further described in
Note 18 to the consolidated financial statements.





On
September 29, 2009, the Federal Deposit Insurance Corporation, or FDIC, adopted
a Notice of Proposed Rulemaking, or NPR, that would require insured institutions
to prepay their estimated quarterly risk-based assessments for the fourth
quarter of 2009 and for all of 2010, 2011 and 2012 along with their risk-based
deposit insurance assessment for the third quarter of 2009 on December 30, 2009.
The FDIC Board also voted to maintain current assessment rates through December
31, 2010, to adopt a uniform three-basis point increase in assessment rates for
all of 2011 and 2012, and extend the restoration period from seven to eight
years. The prepayment, which was adopted by the FDIC Board of
Directors on November 12, 2009, will be recorded as a prepaid expense on
December 30, 2009, if required.


40
 Table of Contents




Financial
Condition





Total
assets decreased $102.7 million to $10.68 billion at September 30, 2009, from
$10.78 billion at December 31, 2008. The decrease in our total assets was
primarily attributable to decreases in our loan portfolio, bank-owned life
insurance and other assets, partially offset by increases in cash and short-term
investments, our investment securities portfolio and other real
estate.





Cash and
cash equivalents increased $805.7 million to $1.65 billion at September 30,
2009, compared to $842.3 million at December 31, 2008. The increase in cash and
cash equivalents was primarily attributable to a decrease in our loan portfolio
and an increase in other borrowings, partially offset by an increase in our
investment securities portfolio and decreases in deposits. We increased our cash
and cash equivalents as a result of the pending sale of Texas, which is expected
to close in the fourth quarter of 2009 and will result in a cash outflow of
approximately $225.0 million, in addition to the pending Branch Sales and the
recently announced sale of our Chicago region on November 11, 2009, which
will also result in significant future cash outflows, as further discussed under
“—Liquidity.”





Investment
securities increased $59.2 million to $634.3 million at September 30, 2009, from
$575.1 million at December 31, 2008. We used cash and cash equivalents to
increase our available-for-sale investment securities portfolio throughout the
first nine months of 2009.





Loans,
net of unearned discount, decreased $1.07 billion to $7.52 billion at September
30, 2009, from $8.59 billion at December 31, 2008, reflecting the
reclassification of $236.6 million of certain of our Texas region loans to
assets of discontinued operations and the reclassification of $16.7 million of
loans associated with the Branch Sales to assets held for sale at September 30,
2009, in addition to loan charge-offs of $266.4 million, transfers to other real
estate of $127.2 million, as further discussed below, and other loan activity,
including principal repayments and overall reduced loan demand, as further
discussed under “—Loans and Allowance for Loan Losses.”





Bank
premises and equipment, net of depreciation and amortization, decreased $25.3
million to $211.2 million at September 30, 2009, from $236.5 million at December
31, 2008, reflecting the reclassification of $18.5 million and $706,000 of bank
premises and equipment to assets of discontinued operations and assets held for
sale at September 30, 2009, respectively, associated with our 19 Texas retail
branches and the Branch Sales.





Goodwill
and other intangible assets decreased $44.0 million to $262.8 million at
September 30, 2009, from $306.8 million at December 31, 2008. The decrease
reflects the reclassification of $25.0 million of intangible assets to assets of
discontinued operations at September 30, 2009 associated with the sale of our 19
Texas retail branches, the reclassification of $2.0 million of intangible assets
to assets held for sale at September 30, 2009 associated with the Branch Sales,
the sale of ANB on September 30, 2009 which resulted in a decrease of $13.0
million of goodwill and other intangible assets, and
amortization.  See Note 5 to our consolidated financial statements for
further discussion of goodwill and other intangible assets.





Bank-owned
life insurance, or BOLI, decreased $92.5 million to $26.3 million at September
30, 2009, from $118.8 million at December 31, 2008. We terminated our largest
BOLI policy in June 2009, resulting in a reduction in the carrying value of BOLI
of approximately $93.1 million. In July 2009, we received an initial cash
payment of $90.6 million from the liquidation of the underlying assets
associated with the terminated BOLI policy.





Other
real estate increased $72.5 million to $164.0 million at September 30, 2009,
from $91.5 million at December 31, 2008 reflecting substantially higher
foreclosure activity, primarily of real estate construction and development
loans, as further discussed under “—Loans and Allowance for Loan
Losses.”





Other
assets decreased $55.3 million to $99.3 million at September 30, 2009, from
$154.6 million at December 31, 2008. The decrease is primarily attributable to a
refund of approximately $62.0 million of federal income taxes received in the
second quarter of 2009, which was classified as an income tax receivable within
other assets in our consolidated balance sheets at December 31, 2008. This
decrease is partially offset by a receivable of $14.8 million recorded on
September 30, 2009 in conjunction with the sale of ANB.





Assets of
discontinued operations and assets held for sale were $286.0 million and $19.9
million at September 30, 2009, respectively. See Note 2 to our consolidated
financial statements for further discussion of discontinued operations and
assets held for sale.


41
 Table of Contents




Deposits
decreased $596.2 million to $8.15 billion at September 30, 2009, from $8.74
billion at December 31, 2008, reflecting the reclassification of $503.3 million
of certain of our Texas region deposits to liabilities of discontinued
operations and the reclassification of $45.4 million of deposits associated with
the Branch Sales to liabilities held for sale at September 30, 2009. Time
deposits decreased $525.0 million during the first nine months of 2009,
reflecting the reclassification of $216.9 million of aggregate time deposits
associated with discontinued operations and Branch Sales to liabilities of
discontinued operations and liabilities held for sale, and a decline of $96.6
million in deposits in the Certificate of Deposit Account Registry Service, or
CDARS. The reduction in CDARS deposits is primarily due to management’s decision
to use CDARS for placement of customer deposits and thereby earn fee income,
rather than using CDARS to acquire time deposits from other banks. The declines
in noninterest-bearing demand deposits, interest-bearing demand deposits and
savings and money market deposits reflect the reclassification of $94.4 million,
$48.5 million and $188.5 million, respectively, in aggregate deposits associated
with discontinued operations and Branch Sales to liabilities of discontinued
operations and liabilities held for sale at September 30, 2009. These decreases
were partially offset by organic growth in noninterest-bearing demand deposits,
interest-bearing demand deposits and savings and money market deposits of $83.5
million, $40.4 million and $136.9 million, respectively, through our deposit
development programs, including marketing campaigns coupled with enhanced
product and service offerings.





Other
borrowings, which are comprised of securities sold under agreements to
repurchase, Federal Home Loan Bank, or FHLB, advances, Federal Reserve Bank, or
FRB, borrowings and federal funds purchased, increased $243.6 million to $818.7
million at September 30, 2009, compared to $575.1 million at December 31, 2008.
We utilized excess liquidity from cash and short-term investments during the
first quarter of 2009 to payoff $200.0 million in FHLB advances and $100.0
million in FRB borrowings. During the second and third quarters of 2009, we
entered into $600.0 million in FHLB advances, as further discussed under
“—Liquidity.”  In addition, our securities sold under agreements to
repurchase declined by $50.9 million during the first nine months of 2009
primarily due to a reduction in customer balances associated with this product
segment and the reclassification of $5.5 million of daily repurchase agreements
associated with our Texas region to liabilities of discontinued
operations.





Liabilities
associated with discontinued operations and Branch Sales at September 30, 2009
were $512.0 million and $45.5 million respectively. See Note 2 to our
consolidated financial statements for a description of discontinued operations
and liabilities held for sale.





Total
stockholders’ equity, including noncontrolling interest in subsidiaries, was
$698.8 million and $996.4 million at September 30, 2009 and December 31, 2008,
respectively, reflecting a decrease of $297.6 million during the first nine
months of 2009. The decrease for 2009 was primarily attributable
to:





Ø
            A
      net loss of $273.8 million;





Ø
            Dividends
      declared of $328,000 on our Class A and Class B preferred
      stock;





Ø
            Dividends
      declared of $10.1 million on our Class C and Class D preferred
      stock;





Ø
            A
      decrease of $5.3 million in accumulated other comprehensive income
      primarily due to changes in unrealized gains and losses on our derivative
      financial instruments and investment securities;
  and





Ø
            A
      decrease in noncontrolling interest in subsidiaries of $10.9 million,
      reflecting a decrease of $6.2 million associated with net losses in FB
      Holdings and SBLS LLC in addition to a decrease of $4.7 million associated
      with the purchase of FCA’s minority interest in SBLS LLC; partially offset
      by





Ø
            An
      increase of $2.8 million in additional paid-in capital as a result of the
      purchase of FCA’s minority interest in SBLS LLC, as further described in
      Note 1 and Note 8 to the consolidated financial
  statements.








Results
of Operations





Net
Income.  We recorded a net loss, including discontinued
operations, of $91.1 million and $273.8 million for the three and nine months
ended September 30, 2009, respectively, compared to a net loss of $25.0 million
and $69.8 million for the comparable periods in 2008. The net losses reflect the
following:





Ø
            A
      provision for loan losses of $107.0 million and $327.0 million for the
      three and nine months ended September 30, 2009, respectively, compared to
      $99.0 million and $229.0 million for the comparable periods in
      2008;





Ø
            Net
      interest income of $72.2 million and $217.5 million for the three and nine
      months ended September 30, 2009, respectively, compared to $86.2 million
      and $264.6 million for the comparable periods in 2008, which resulted in a
      decline in our net interest margin to 2.96% and 3.07% for the three and
      nine months ended September 30, 2009, respectively, compared to 3.55% and
      3.66% for the comparable periods in
2008;


42
 Table of Contents




Ø
            Noninterest
      income of $17.3 million and $62.2 million for the three and nine months
      ended September 30, 2009, respectively, compared to $14.9 million and
      $58.4 million for the comparable periods in
  2008;





Ø
            Noninterest
      expense of $72.7 million and $221.8 million for the three and nine months
      ended September 30, 2009, respectively, compared to $76.5 million and
      $227.8 million for the comparable periods in
  2008;





Ø
            A
      provision for income taxes of $58,000 and $2.5 million for the three and
      nine months ended September 30, 2009, respectively, compared to a benefit
      for income taxes of $51.4 million and $72.5 million for the comparable
      periods in 2008; and





Ø
            A
      loss from discontinued operations, net of tax, of $2.3 million and $8.4
      million for the three and nine months ended September 30, 2009,
      respectively, compared to $2.1 million and $8.4 million for the comparable
      periods in 2008.





The
increase in our provision for loan losses in 2009 was primarily driven by
increased net loan charge-offs and declining asset quality trends throughout our
loan portfolio as a result of continued weak economic conditions and significant
declines in real estate values, 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 a significant increase in nonaccrual loans during 2009 and a 400
basis point decrease, in aggregate, in the prime lending rate in 2008, coupled
with a significant decline in the London Interbank Offered Rate, or LIBOR,
during the same period, and a higher average balance of lower-yielding
short-term investments, partially offset by a decrease in deposit and other
interest-bearing liability costs. We are currently in an asset-sensitive balance
sheet 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 primarily resulted from increased gains on
loans sold and held for sale, increases in net gains on investment securities
and lower declines in the fair value of servicing rights; partially offset by an
increase in net losses on derivative instruments, a pre-tax gain of $5.0 million
recorded on the extinguishment of a term repurchase agreement in 2008 and a gain
of $1.8 million on the sale of various state tax credits in 2008. See further
discussion under “—Noninterest Income.”





The
decrease in noninterest expense primarily resulted from reductions in salaries
and employee benefits expense attributable to profit improvement initiatives and
certain staffing reductions completed in 2008 and in the first nine months of
2009, and reductions in information technology fees and advertising and business
development expenses. These decreases were partially offset by increased FDIC
insurance assessment premiums and expenses on other real estate properties, as
further discussed under “—Noninterest Expense.”





The
increase in the provision for income taxes primarily resulted from the
consolidated net operating loss due to existing federal and state net operating
loss carryforwards on which the realization of the related tax benefits is not
“more likely than not,” as further discussed under “—Provision for Income Taxes”
and in Note 14 to our consolidated financial statements. The benefit for income
taxes for the three and nine months ended September 30, 2008 includes 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.





Net Interest
Income.Net interest income, expressed on a tax-equivalent
basis, decreased to $72.4 million and $218.2 million for the three and nine
months ended September 30, 2009, respectively, compared to $86.5 million and
$265.6 million for the comparable periods in 2008. Our net interest margin
declined to 2.96% and 3.07% for the three and nine months ended September 30,
2009, respectively, compared to 3.55% and 3.66% for the comparable periods in
2008. 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.





We
attribute the decline in our net interest margin and net interest income for the
three and nine months ended September 30, 2009 as compared to the same periods
in 2008 to an increase in the average amount of our nonperforming loans and
significant reversals of interest accrued on loans placed on nonaccrual status,
in addition to significant declines in the prime lending rate that began in
September 2007 and continued throughout 2008 and the decline in LIBOR during
2008 and 2009, as further discussed below. Our net interest margin and net
interest income has also been negatively impacted by higher levels of average
lower-yielding short-term investments. Our net interest income for the three and
nine months ended September 30, 2009 and 2008 was positively impacted by an
increase in earnings on our interest rate swap agreements that were entered into
in conjunction with our interest rate risk management program, as further
discussed below.


43
 Table of Contents




Our
balance sheet is presently 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 yield earned on our
interest-earning assets decreased 130 and 136 basis points to 4.51% and 4.81%
for the three and nine months ended September 30, 2009, respectively, compared
to 5.81% and 6.17% for the same periods in 2008, while the average rate paid on
our interest-bearing liabilities decreased 81 and 88 basis points to 1.87% and
2.11% for the three and nine months ended September 30, 2009, respectively,
compared to 2.68% and 2.99% for the same periods in 2008. Our average
interest-earning assets increased $9.1 million and decreased $206.8 million to
$9.71 billion and $9.49 billion for the three and nine months ended September
30, 2009, respectively, from $9.70 billion for the comparable periods in 2008.
The increase during the three months ended September 30, 2009 compared to the
same period in 2008 primarily resulted from a $984.2 million increase in our
average short-term investments, a $5.7 million increase in our average FHLB and
FRB stock, and a $5.5 million increase in our average investment securities,
partially offset by a $986.3 million decrease in our average loans. The decrease
during the nine months ended September 30, 2009 compared to the same period in
2008 resulted from a decrease in our average loans of $730.2 million and our
average investment securities of $128.9 million, partially offset by an increase
in our average short-term investments of $649.5 million. Average
interest-bearing liabilities decreased $145.3 million and $323.1 million to
$8.03 billion and $7.84 billion for the three and nine months ended September
30, 2009, respectively, from $8.17 billion and $8.16 billion for the comparable
periods in 2008.





Interest
income on our loan portfolio, expressed on a tax-equivalent basis, decreased to
$102.6 million and $318.3 million for the three and nine months ended September
30, 2009, respectively, compared to $131.6 million and $416.7 million for the
comparable periods in 2008. Average loans, net of unearned discount, decreased
$986.3 million and $730.2 million to $7.76 billion and $8.06 billion for the
three and nine months ended September 30, 2009, respectively, from $8.75 billion
and $8.79 billion for the comparable periods in 2008. The decrease in average
loans primarily reflects a decrease in internal growth, loan charge-offs and
transfers of certain loans to other real estate. The yield on our loan portfolio
decreased 74 and 105 basis points to 5.24% and 5.28% for the three and nine
months ended September 30, 2009, respectively, compared to 5.98% and 6.33% for
the comparable periods in 2008. The yield on our loan portfolio continues to be
adversely impacted by the decrease in the prime lending rate throughout 2008 to
historically low levels and the significant decrease in the LIBOR rate
throughout 2008 and 2009, as a significant portion of our loan portfolio is
priced to the prime lending and LIBOR rate indices. Furthermore, the yield on
our loan portfolio continues to be adversely impacted by the significant
increase in the average level of nonaccrual loans, as further discussed under
“—Loans and Allowance for Loan Losses.” Our nonaccrual loans decreased our
average yield on loans by approximately 55 and 41 basis points during the three
and nine months ended September 30, 2009, respectively, compared to
approximately 33 and 28 basis points during the comparable periods in 2008.
Interest income on our loan portfolio was positively impacted by income
associated with our interest rate swap agreements of $3.9 million and $11.8
million for the three and nine months ended September 30, 2009, respectively,
compared to $3.0 million and $7.8 million for the same periods in 2008. During
2009, we have been re-pricing our loan portfolio to be more reflective of
current market conditions by implementing interest rate floors and increasing
margins to prime lending and LIBOR rates in accordance with the respective
borrower’s credit risk profile.





Interest
income on our investment securities, expressed on a tax-equivalent basis, was
$6.2 million and $20.2 million for the three and nine months ended September 30,
2009, respectively, compared to $8.4 million and $28.3 million for the
comparable periods in 2008. Average investment securities were $709.2 million
and $649.7 million for the three and nine months ended September 30, 2009,
respectively, compared to $703.8 million and $778.7 million for the comparable
periods in 2008. The reduction in our average investment securities during the
first nine months of 2009 reflects the utilization of funds provided by
maturities and sales of investment securities to increase our average short-term
investments. The yield earned on our investment portfolio was 3.48% and 4.17%
for the three and nine months ended September 30, 2009, respectively, compared
to 4.74% and 4.86% for the comparable periods in 2008, reflecting the decline in
short-term interest rates as well as the sale of higher-yielding investment
securities throughout the first nine months of 2009 resulting in gains of $4.3
million.





Dividends
on our FHLB and FRB stock were $629,000 and $1.6 million for the three and nine
months ended September 30, 2009, respectively, compared to $684,000 and $2.0
million for the comparable periods in 2008. Average FHLB and FRB stock was $60.7
million and $54.8 million for the three and nine months ended September 30,
2009, respectively, compared to $55.0 million and $51.9 million for the
comparable periods in 2008. The yield earned on our FHLB and FRB stock was 4.11%
and 3.84% for the three and nine months ended September 30, 2009, respectively,
compared to 4.95% and 5.06% for the comparable periods in 2008.


44
 Table of Contents




Interest
income on our short-term investments was $763,000 and $1.7 million for the three
and nine months ended September 30, 2009, respectively, compared to $839,000 and
$1.1 million for the comparable periods in 2008. Average short-term investments
were $1.17 billion and $728.8 million for the three and nine months ended
September 30, 2009, respectively, compared to $186.8 million and $79.3 million
for the comparable periods in 2008. The increase in the average balance of
short-term investments was primarily due to a higher level of liquidity in the
first nine months of 2009 as compared to 2008. The yield earned on our
short-term investments was 0.26% and 0.31% for the three and nine months ended
September 30, 2009, respectively, compared to 1.79% and 1.91% for the comparable
periods in 2008, reflecting a significant decline in short-term interest rates.
The majority of funds in our short-term investments during 2009 were maintained
in our correspondent bank account with the Federal Reserve Bank of St. Louis,
which currently earns 0.25%. We increased our cash and cash equivalents as a
result of the pending sale of Texas which is expected to close in the fourth
quarter of 2009 and will result in a cash outflow of approximately $225.0
million in addition to the pending Branch Sales and the recently announced sale
of our Chicago region on November 11, 2009 which will also result in significant
cash outflows. See further discussion under “—Liquidity.”





Interest
expense on our interest-bearing deposits decreased to $31.4 million and $104.3
million for the three and nine months ended September 30, 2009, respectively,
compared to $46.1 million and $153.5 million for the comparable periods in 2008.
Average interest-bearing deposits decreased to $7.01 billion and $6.99 billion
for the three and nine months ended September 30, 2009, respectively, compared
to $7.18 billion and $7.19 billion for the comparable periods in 2008,
reflecting anticipated run-off of higher rate certificates of deposits,
partially offset by organic growth through deposit development programs. The mix
of our deposit portfolio volumes reflects a shift from time deposits to savings
and money market deposits. The decrease in average interest-bearing deposits for
the first nine months of 2009 compared to the same period in 2008 is comprised
of decreases in average time deposits of $235.3 million and average
interest-bearing demand deposits of $24.7 million; partially offset by an
increase in average savings and money market deposits of $55.7 million. The
Florida region accounted for $140.1 million of the decrease in our average time
deposits, which was anticipated as part of our planned post-acquisition strategy
to improve the net interest margin in this region. These time deposits carried
substantially higher interest rates than those throughout our other markets. The
aggregate weighted average rate paid on our deposit portfolio was 1.78% and
2.00% for the three and nine months ended September 30, 2009, respectively,
compared to 2.56% and 2.85% for the comparable periods in 2008, and 1.97% and
2.25% for the second and first quarters of 2009, respectively, reflective of the
declining interest rate environment, an anticipated run-off of higher rate
certificates of deposit and our efforts to reduce deposit costs across our
deposit portfolio. The weighted average rate paid on our time deposit portfolio
declined to 2.92% and 3.15% for the three and nine months ended September 30,
2009, respectively, from 3.55% and 3.94% for the comparable periods in 2008; the
average rate paid on our savings and money market deposit portfolio declined to
0.95% and 1.15% for the three and nine months ended September 30, 2009,
respectively, from 1.96% and 2.15% for the comparable periods in 2008; and the
average rate paid on our interest-bearing demand deposits declined to 0.18% for
the three and nine months ended September 30, 2009, from 0.49% and 0.60% for the
comparable periods in 2008, respectively. We anticipate continued reductions in
our deposit costs as certain of our certificates of deposit and money market
accounts re-price from promotional rates to current market interest
rates.





Interest
expense on our other borrowings was $2.9 million and $6.9 million for the three
and nine months ended September 30, 2009, respectively, compared to $3.9 million
and $11.6 million for the comparable periods in 2008. Average other borrowings
were $669.3 million and $498.6 million for the three and nine months ended
September 30, 2009, respectively, compared to $637.6 million and $589.3 million
for the comparable periods in 2008. The aggregate weighted average rate paid on
our other borrowings was 1.69% and 1.84% for the three and nine months ended
September 30, 2009, respectively, compared to 2.42% and 2.63% for the comparable
periods in 2008. 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.





Interest
expense on our notes payable was zero and $37,000 for the three and nine months
ended September 30, 2009, respectively, compared to $45,000 and $1.3 million for
the comparable periods in 2008. We did not have any balances outstanding under
our notes payable during 2009. Our notes payable averaged $3.1 million and $28.3
million for the three and nine months ended September 30, 2008, respectively.
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. 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. The decrease in our average notes
payable during the periods is attributable to contractual payments and
additional prepayments made on our outstanding notes payable. Specifically,
during the second quarter of 2008, we were advanced $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 former secured credit facility with a group of unaffiliated financial
institutions. During the third quarter of 2008, we repaid in full the
outstanding balance on our new secured revolving line of
credit.  Subsequent to that time, we did not borrow any additional
funds on the new secured line of credit, which matured on June 30, 2009, as
further discussed in Note 11 to our consolidated financial
statements.


45
 Table of Contents




Interest
expense on our subordinated debentures was $3.6 million and $12.4 million for
the three and nine months ended September 30, 2009, respectively, compared to
$5.0 million and $16.1 million for the comparable periods in 2008. Average
subordinated debentures were $353.9 million for the three and nine months ended
September 30, 2009, compared to $353.8 million for the three and nine months
ended September 30, 2008. The aggregate weighted average rate paid on our
subordinated debentures was 3.99% and 4.67% for the three and nine months ended
September 30, 2009, respectively, compared to 5.60% and 6.07% for the comparable
periods in 2008. The aggregate weighted average rates and the level of interest
expense reflect: (a) the reduction in LIBOR rates, and the impact to the related
spreads to LIBOR during the periods; and (b) the entrance into four interest
rate swap agreements with a notional amount of $125.0 million in aggregate
during March 2008 that effectively converted the interest payments on certain of
our subordinated debentures from a variable rate to a fixed rate. In August
2009, we discontinued hedge accounting on these interest rate swap agreements
due to the deferral of interest payments on our trust preferred securities.
Therefore, the net interest recorded on the interest rate swap agreements was
recorded as noninterest income effective August 2009, as further described under
“—Interest Rate Risk Management” and in Note 12 and Note 16 to our consolidated
financial statements. Interest expense on subordinated debentures includes
interest expense associated with our interest rate swap agreements of $260,000
and $1.3 million for the three and nine months ended September 30, 2009,
respectively, compared to $85,000 and $192,000 for the comparable periods in
2008.


46
 Table of Contents




The
following table sets forth, on a tax-equivalent basis, certain information on a
continuing basis relating to our average balance sheets, and reflects the
average yield earned on our interest-earning assets, the average cost of our
interest-bearing liabilities and the resulting net interest income for the three
and nine months ended September 30, 2009 and 2008.





Three
      Months Ended September 30,
            
            
            Nine
      Months Ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Average Balance
            
            
            Interest Income/
      Expense
            
            
            Yield/ Rate
            
            
            Average Balance
            
            
            Interest Income/
      Expense
            
            
            Yield/ Rate
            
            
            Average Balance
            
            
            Interest Income/
      Expense
            
            
            Yield/ Rate
            
            
            Average Balance
            
            
            Interest Income/
      Expense
            
            
            Yield/ Rate(dollars
      expressed in thousands)ASSETSInterest-earning
      assets:Loans (1)(2)(3)(4)
            
            $
            7,764,681
            
            
            
            102,645
            
            
            
            5.24
            %
            
            $
            8,750,967
            
            
            
            131,592
            
            
            
            5.98
            %
            
            $
            8,058,153
            
            
            
            318,304
            
            
            
            5.28
            %
            
            $
            8,788,398
            
            
            
            416,724
            
            
            
            6.33
            %Investment securities
      (4)
            
            
            709,213
            
            
            
            6,226
            
            
            
            3.48
            
            
            
            703,753
            
            
            
            8,377
            
            
            
            4.74
            
            
            
            649,713
            
            
            
            20,242
            
            
            
            4.17
            
            
            
            778,658
            
            
            
            28,325
            
            
            
            4.86FHLB
      and FRB stock
            
            
            60,725
            
            
            
            629
            
            
            
            4.11
            
            
            
            54,982
            
            
            
            684
            
            
            
            4.95
            
            
            
            54,752
            
            
            
            1,573
            
            
            
            3.84
            
            
            
            51,862
            
            
            
            1,964
            
            
            
            5.06Short-term
      investments
            
            
            1,171,017
            
            
            
            763
            
            
            
            0.26
            
            
            
            186,793
            
            
            
            839
            
            
            
            1.79
            
            
            
            728,808
            
            
            
            1,664
            
            
            
            0.31
            
            
            
            79,319
            
            
            
            1,137
            
            
            
            1.91Total
      interest-earning assets
            
            
            9,705,636
            
            
            
            110,263
            
            
            
            4.51
            
            
            
            9,696,495
            
            
            
            141,492
            
            
            
            5.81
            
            
            
            9,491,426
            
            
            
            341,783
            
            
            
            4.81
            
            
            
            9,698,237
            
            
            
            448,150
            
            
            
            6.17Nonearning
      assets
            
            
            644,592
            
            
            
            
            
            
            
            
            
            
            
            842,564
            
            
            
            
            
            
            
            
            
            
            
            736,299
            
            
            
            
            
            
            
            
            
            
            
            837,563Assets
      of discontinued operation
            
            
            315,934
            
            
            
            
            
            
            
            
            
            
            
            297,668
            
            
            
            
            
            
            
            
            
            
            
            316,356
            
            
            
            
            
            
            
            
            
            
            
            282,560Total
      assets
            
            $
            10,666,162
            
            
            
            
            
            
            
            
            
            
            $
            10,836,727
            
            
            
            
            
            
            
            
            
            
            $
            10,544,081
            
            
            
            
            
            
            
            
            
            
            $
            10,818,360LIABILITIES
      AND
              STOCKHOLDERS’
      EQUITYInterest-bearing
      liabilities:Interest-bearing
      deposits:Interest-bearing
      demand
            
            $
            931,927
            
            
            
            423
            
            
            
            0.18
            %
            
            $
            912,788
            
            
            
            1,129
            
            
            
            0.49
            %
            
            $
            908,701
            
            
            
            1,246
            
            
            
            0.18
            %
            
            $
            933,411
            
            
            
            4,218
            
            
            
            0.60
            %Savings
      and money market
            
            
            2,754,467
            
            
            
            6,574
            
            
            
            0.95
            
            
            
            2,744,387
            
            
            
            13,545
            
            
            
            1.96
            
            
            
            2,687,910
            
            
            
            23,199
            
            
            
            1.15
            
            
            
            2,632,173
            
            
            
            42,440
            
            
            
            2.15Time
      deposits of $100 or more
            
            
            1,112,917
            
            
            
            8,214
            
            
            
            2.93
            
            
            
            1,192,273
            
            
            
            10,881
            
            
            
            3.63
            
            
            
            1,130,757
            
            
            
            26,909
            
            
            
            3.18
            
            
            
            1,271,588
            
            
            
            38,389
            
            
            
            4.03Other
      time deposits
            
            
            2,206,437
            
            
            
            16,220
            
            
            
            2.92
            
            
            
            2,330,269
            
            
            
            20,561
            
            
            
            3.51
            
            
            
            2,257,784
            
            
            
            52,974
            
            
            
            3.14
            
            
            
            2,352,287
            
            
            
            68,495
            
            
            
            3.89Total
      interest-bearing deposits
            
            
            7,005,748
            
            
            
            31,431
            
            
            
            1.78
            
            
            
            7,179,717
            
            
            
            46,116
            
            
            
            2.56
            
            
            
            6,985,152
            
            
            
            104,328
            
            
            
            2.00
            
            
            
            7,189,459
            
            
            
            153,542
            
            
            
            2.85Other
      borrowings
            
            
            669,296
            
            
            
            2,859
            
            
            
            1.69
            
            
            
            637,617
            
            
            
            3,874
            
            
            
            2.42
            
            
            
            498,626
            
            
            
            6,873
            
            
            
            1.84
            
            
            
            589,262
            
            
            
            11,623
            
            
            
            2.63Notes payable (5)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            3,092
            
            
            
            45
            
            
            
            5.79
            
            
            
            —
            
            
            
            37
            
            
            
            —
            
            
            
            28,271
            
            
            
            1,310
            
            
            
            6.19Subordinated
      debentures (3)
            
            
            353,876
            
            
            
            3,555
            
            
            
            3.99
            
            
            
            353,799
            
            
            
            4,980
            
            
            
            5.60
            
            
            
            353,857
            
            
            
            12,365
            
            
            
            4.67
            
            
            
            353,780
            
            
            
            16,078
            
            
            
            6.07Total
      interest-bearing liabilities
            
            
            8,028,920
            
            
            
            37,845
            
            
            
            1.87
            
            
            
            8,174,225
            
            
            
            55,015
            
            
            
            2.68
            
            
            
            7,837,635
            
            
            
            123,603
            
            
            
            2.11
            
            
            
            8,160,772
            
            
            
            182,553
            
            
            
            2.99Noninterest-bearing
      liabilities:Demand
      deposits
            
            
            1,236,457
            
            
            
            
            
            
            
            
            
            
            
            1,139,819
            
            
            
            
            
            
            
            
            
            
            
            1,206,459
            
            
            
            
            
            
            
            
            
            
            
            1,118,809Other
      liabilities
            
            
            103,691
            
            
            
            
            
            
            
            
            
            
            
            61,018
            
            
            
            
            
            
            
            
            
            
            
            102,290
            
            
            
            
            
            
            
            
            
            
            
            81,167Liabilities
      of discontinued operations
            
            
            527,932
            
            
            
            
            
            
            
            
            
            
            
            564,430
            
            
            
            
            
            
            
            
            
            
            
            522,945
            
            
            
            
            
            
            
            
            
            
            
            587,991Total
      liabilities
            
            
            9,897,000
            
            
            
            
            
            
            
            
            
            
            
            9,939,492
            
            
            
            
            
            
            
            
            
            
            
            9,669,329
            
            
            
            
            
            
            
            
            
            
            
            9,948,739Stockholders’
      equity
            
            
            769,162
            
            
            
            
            
            
            
            
            
            
            
            897,235
            
            
            
            
            
            
            
            
            
            
            
            874,752
            
            
            
            
            
            
            
            
            
            
            
            869,621Total
      liabilities and stockholders’ equity
            
            $
            10,666,162
            
            
            
            
            
            
            
            
            
            
            $
            10,836,727
            
            
            
            
            
            
            
            
            
            
            $
            10,544,081
            
            
            
            
            
            
            
            
            
            
            $
            10,818,360Net
      interest income
            
            
            
            
            
            
            72,418
            
            
            
            
            
            
            
            
            
            
            
            86,477
            
            
            
            
            
            
            
            
            
            
            
            218,180
            
            
            
            
            
            
            
            
            
            
            
            265,597Interest
      rate spread
            
            
            
            
            
            
            
            
            
            
            2.64
            
            
            
            
            
            
            
            
            
            
            
            3.13
            
            
            
            
            
            
            
            
            
            
            
            2.70
            
            
            
            
            
            
            
            
            
            
            
            3.18Net interest
      margin(6)
            
            
            
            
            
            
            
            
            
            
            2.96
            %
            
            
            
            
            
            
            
            
            
            
            3.55
            %
            
            
            
            
            
            
            
            
            
            
            3.07
            %
            
            
            
            
            
            
            
            
            
            
            3.66
            %


____________________


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


(2)
            Interest
      income on loans includes loan fees.


(3)
            Interest
      income and interest expense include the effects of interest rate swap
      agreements.


(4)
            Information
      is presented on a tax-equivalent basis assuming a tax rate of 35%. The
      tax-equivalent adjustments were approximately $221,000 and $699,000 for
      the three and nine months ended September 30, 2009, respectively, and
      $325,000 and $1.0 million for the comparable periods in
    2008.


(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,
      respectively.


(6)
            Net
      interest margin is the ratio of net interest income (expressed on a
      tax-equivalent basis) to average interest-earning
  assets.


47
 Table of Contents




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,
2009, respectively, as compared to the three and nine months ended September 30,
2008. The change in interest due to the combined rate/volume variance has been
allocated to rate and volume changes in proportion to the dollar amounts of the
change in each.





Increase (Decrease) Attributable to Change
      in:Three
      Months Ended September 30, 2009 Compared to 2008
            
            
            Nine
      Months Ended September 30, 2009 Compared to 2008Volume
            
            
            Rate
            
            
            NetChange
            
            
            Volume
            
            
            Rate
            
            
            NetChange(dollars
      expressed in thousands)Interest
      earned on:Loans:
      (1) (2)
      (3)Taxable
            
            $
            (13,861
            )
            
            
            (14,997
            )
            
            
            (28,858
            )
            
            
            (32,692
            )
            
            
            (65,262
            )
            
            
            (97,954
            )Tax-exempt
      (4)
            
            
            (30
            )
            
            
            (59
            )
            
            
            (89
            )
            
            
            (104
            )
            
            
            (362
            )
            
            
            (466
            )Investment
      securities:Taxable
            
            
            208
            
            
            
            (2,151
            )
            
            
            (1,943
            )
            
            
            (3,965
            )
            
            
            (3,716
            )
            
            
            (7,681
            )Tax-exempt(4)
            
            
            (207
            )
            
            
            (1
            )
            
            
            (208
            )
            
            
            (461
            )
            
            
            59
            
            
            
            (402
            )FHLB
      and Federal Reserve Bank stock
            
            
            68
            
            
            
            (123
            )
            
            
            (55
            )
            
            
            104
            
            
            
            (495
            )
            
            
            (391
            )Short-term
      investments
            
            
            1,174
            
            
            
            (1,250
            )
            
            
            (76
            )
            
            
            2,200
            
            
            
            (1,673
            )
            
            
            527Total
      interest income
            
            
            (12,648
            )
            
            
            (18,581
            )
            
            
            (31,229
            )
            
            
            (34,918
            )
            
            
            (71,449
            )
            
            
            (106,367
            )Interest
      paid on:Interest-bearing
      demand deposits
            
            
            23
            
            
            
            (729
            )
            
            
            (706
            )
            
            
            (108
            )
            
            
            (2,864
            )
            
            
            (2,972
            )Savings
      and money market deposits
            
            
            50
            
            
            
            (7,021
            )
            
            
            (6,971
            )
            
            
            877
            
            
            
            (20,118
            )
            
            
            (19,241
            )Time
      deposits
            
            
            (1,719
            )
            
            
            (5,289
            )
            
            
            (7,008
            )
            
            
            (6,606
            )
            
            
            (20,395
            )
            
            
            (27,001
            )Other
      borrowings
            
            
            188
            
            
            
            (1,203
            )
            
            
            (1,015
            )
            
            
            (1,609
            )
            
            
            (3,141
            )
            
            
            (4,750
            )Notes
      payable (5)
            
            
            (22
            )
            
            
            (23
            )
            
            
            (45
            )
            
            
            (636
            )
            
            
            (637
            )
            
            
            (1,273
            )Subordinated
      debentures (3)
            
            
            1
            
            
            
            (1,426
            )
            
            
            (1,425
            )
            
            
            3
            
            
            
            (3,716
            )
            
            
            (3,713
            )Total
      interest expense
            
            
            (1,479
            )
            
            
            (15,691
            )
            
            
            (17,170
            )
            
            
            (8,079
            )
            
            
            (50,871
            )
            
            
            (58,950
            )Net
      interest income
            
            $
            (11,169
            )
            
            
            (2,890
            )
            
            
            (14,059
            )
            
            
            (26,839
            )
            
            
            (20,578
            )
            
            
            (47,417
            )


________________________


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


(2)
            Interest
      income on loans includes loan fees.


(3)
            Interest
      income and interest expense include the 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 $107.0 million for the three months ended September 30, 2009,
compared to $99.0 million for the comparable period in 2008. We recorded a
provision for loan losses of $327.0 million for the nine months ended September
30, 2009, compared to $229.0 million for the comparable period in 2008. The
increase in the provision for loan losses was primarily driven by increased net
loan charge-offs and declining asset quality trends throughout our loan
portfolio as a result of continued weak economic conditions and significant
declines in real estate values, as further discussed under “—Loans and Allowance
for Loan Losses.”





Our
nonperforming loans were $664.2 million at September 30, 2009, compared to
$494.4 million at June 30, 2009, $475.7 million at March 31, 2009 and $442.4
million at December 31, 2008. Our net loan charge-offs were $103.6 million and
$256.5 million for the three and nine months ended September 30, 2009,
respectively, compared to $88.9 million and $186.4 million for the comparable
periods in 2008. Our annualized net loan charge-offs were 5.29% and 4.26% of
average loans for the three and nine months ended September 30, 2009,
respectively, compared to 4.04% and 2.83% for the same periods in 2008. Loan
charge-offs were $107.4 million and $266.4 million for the three and nine months
ended September 30, 2009, respectively, compared to $91.5 million and $192.4
million for the comparable periods in 2008, and loan recoveries were $3.8
million and $9.9 million for the three and nine months ended September 30, 2009,
respectively, compared to $2.5 million and $6.0 million for the comparable
periods in 2008, as further discussed under “—Loans and Allowance for Loan
Losses.”





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 $17.3 million and $62.2
million for the three and nine months ended September 30, 2009, respectively,
compared to $14.9 million and $58.4 million for the comparable periods in 2008.
Noninterest income consists primarily of service charges on deposit accounts and
customer service fees, mortgage-banking revenues, net gains (losses) on
investment securities and derivative instruments, changes in the fair value of
servicing rights, loan servicing fees and other income.


48
 Table of Contents




Service
charges on deposit accounts and customer service fees were $13.4 million and
$38.4 million for the three and nine months ended September 30, 2009,
respectively, compared to $13.4 million and $36.6 million for the comparable
periods in 2008. The increase in service charges and customer service fees for
the nine months ended September 30, 2009 compared to the same period in 2008 is
primarily attributable to an increase in retail non-sufficient funds and
returned check fee income as well as an increase in commercial service charges
resulting from our efforts to control fee waivers, a decrease in the earnings
credit rate due to the decline in short-term interest rates throughout the
periods, and reflects changes in the deposit mix during the periods as well as
cyclical changes in consumer spending within our customer base.





Gains on
loans sold and held for sale increased to $2.2 million and $9.6 million for the
three and nine months ended September 30, 2009, respectively, compared to
$908,000 and $3.2 million for the comparable periods in 2008. The increase is
primarily attributable to an increase in the volume of mortgage loans originated
and subsequently sold in the secondary market resulting from increased levels of
refinancing of one-to-four family residential real estate loans in light of
declining mortgage interest rates experienced during 2009.





We
recorded net gains on investment securities of $3.1 million and $4.3 million for
the three and nine months ended September 30, 2009, respectively, compared to
net losses on investment securities of $1.1 million and $5.7 million for the
comparable periods in 2008. During the first nine months of 2009, we sold
certain available-for-sale investment securities that carried relatively high
risk-weightings for regulatory capital purposes and repositioned a portion of
our investment securities portfolio to lower risk-weighted investments. We
recognized other-than-temporary impairment on available-for-sale securities of
$6.4 million in the second quarter of 2008 on an equity investment in the common
stock of a single company in the financial services industry, which management
considers to have been primarily caused by economic events impacting the
financial services industry as a whole. We also recognized other-than-temporary
impairment of $1.0 million on a preferred stock investment in the third quarter
of 2008, necessitated by bankruptcy proceedings of the underlying financial
services company. These impairment losses were partially offset by a gain of
approximately $867,000 on the sale of approximately $81.5 million of
mortgage-backed available-for-sale investment securities during the first
quarter of 2008.





BOLI
investment income was $84,000 and $646,000 for the three and nine months ended
September 30, 2009, respectively, compared to $554,000 and $2.3 million for the
comparable periods in 2008. The decrease 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. In June 2009, we terminated our largest insurance policy resulting
in a reduction in the carrying value of our BOLI investment of approximately
$93.1 million, as previously discussed. We did not record any gain or loss for
the three and nine months ended September 30, 2009 as a result of the
termination of this insurance policy.





We
recorded net losses of $4.8 million and $4.4 million on derivative instruments
for the three and nine months ended September 30, 2009, respectively. We
recorded net losses of $57,000 and net gains of $1.7 million for the three and
nine months ended September 30, 2008, respectively. The net loss for the three
and nine months ended September 30, 2009 is primarily attributable to a
cumulative fair value adjustment of $4.6 million on our interest rate swap
agreements designated as cash flow hedges on our subordinated debentures that
was reclassified from accumulated other comprehensive income to loss on
derivative instruments as a result of the discontinuation of hedge accounting
treatment following the announcement of the deferral of interest payments on the
underlying trust preferred securities in August 2009. In conjunction with the
discontinuation of hedge accounting, the net interest differential on these
interest rate swap agreements was recorded as a reduction of noninterest income
effective August 2009. These losses were partially offset by income generated
from the issuance of customer interest rate swap agreements throughout the first
nine months of 2009. The net loss for the three months ended September 30, 2008
and the net gain for the nine months ended September 30, 2008 were primarily
attributable to changes in the fair value of our interest rate floor agreements.
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. We did not incur any gains or losses in conjunction with the
termination of our interest rate floor agreements, as further described under
“—Interest Rate Risk Management” and in Note 16 to our consolidated financial
statements.





We
recorded net losses of $684,000 and $2.4 million associated with changes in the
fair value of mortgage and SBA servicing rights for the three and nine months
ended September 30, 2009, respectively, compared to net losses of $5.3 million
and $6.5 million for the comparable periods in 2008. The changes in the fair
value of mortgage and SBA servicing rights during the periods reflect changes in
mortgage interest rates and the related changes in estimated prepayment speeds.
The change also reflects changes in cash flow assumptions on the underlying SBA
loans in the serviced portfolio.


49
 Table of Contents




Loan
servicing fees were $2.2 million and $6.4 million for the three and nine months
ended September 30, 2009, respectively, compared to $2.3 million and $6.4
million for the comparable periods in 2008. These fees are primarily
attributable to fee income generated from the servicing of real estate mortgage
loans owned by investors and originated by our mortgage banking division, as
well as SBA loans to small business concerns. The level of fees is impacted by
the balance of loans serviced, and is partially offset by increased interest
shortfall on serviced residential mortgage loans attributable to accelerated
payoffs due to increased refinancing levels. Interest shortfall represents the
difference between the interest collected from a loan servicing customer upon
prepayment of the loan and the full month of interest that is required to be
remitted to the security owner.





In March
2008, we restructured a $100.0 million term repurchase agreement, which included
the following primary modifications: (a) increased the borrowing amount to
$120.0 million; (b) extended the maturity date from October 12, 2010 to April
12, 2012; (c) converted the interest rate from a variable rate to a fixed rate
of 3.36%; and (d) terminated 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 recorded in the three months
ended March 31, 2008, as further described in Note 11 and Note 16 to our
consolidated financial statements.





Other
income was $1.9 million and $9.7 million for the three and nine months ended
September 30, 2009, respectively, compared to $4.2 million and $15.4 million for
the comparable periods in 2008. The decrease is primarily attributable to the
following:





Ø
            Recoveries
      of certain loan principal balances that had been previously charged off by
      the financial institutions prior to their acquisition by First Banks of
      $13,000 and $107,000 for the three and nine months ended September 30,
      2009, respectively, compared to $186,000 and $1.7 million for the same
      periods in 2008;





Ø
            Income
      of $1.8 million recognized in the second quarter of 2008 on the sale of
      various state tax credits;





Ø
            A
      gain recognized in the first quarter of 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;
and





Ø
            Losses
      on sales of other real estate of $1.4 million and gains on sales of other
      real estate of $40,000 for the three and nine months ended September 30,
      2009, respectively, compared to gains on sales of other real estate of
      $509,000 and $219,000 for the comparable periods in
  2008.





Noninterest
Expense.Noninterest expense was
$72.7 million and $221.8 million for the three and nine months ended September
30, 2009, respectively, compared to $76.5 million and $227.8 million for the
comparable periods in 2008. The decrease in noninterest expense was primarily
attributable to our continued efforts to improve our expense levels through
certain profit improvement initiatives that were implemented throughout 2008 and
2009, partially offset by increased FDIC insurance assessment premiums and
expenses associated with the increased level of nonperforming assets, including
expenses on other real estate properties.





Salaries
and employee benefits expense decreased to $27.4 million and $83.8 million for
the three and nine months ended September 30, 2009, respectively, from $31.6
million and $99.5 million for the comparable periods in 2008. The overall
decrease in salaries and employee benefits expense is primarily attributable to
certain staff reductions during 2008 and the first nine months of 2009. Our
total full-time equivalent employees (FTEs), including those related to
discontinued operations, decreased to approximately 2,045 at September 30, 2009,
from 2,209 at December 31, 2008 and 2,283 at September 30, 2008. Our total FTEs,
excluding those related to discontinued operations, decreased to approximately
1,921 at September 30, 2009, from 2,021 at December 31, 2008 and 2,086 at
September 30, 2008, representing a decrease of 4.9% and 7.9%, respectively. The
decrease in salaries and employee benefits expense also reflects a decline in
incentive compensation expense commensurate with our earnings performance and a
decline in other benefits expenses, including medical and prescription expenses
and our 401(k) matching contribution, which was eliminated effective April 1,
2009.





Occupancy,
net of rental income, and furniture and equipment expense was $13.0 million and
$39.2 million for the three and nine months ended September 30, 2009,
respectively, compared to $13.7 million and $40.6 million for the same periods
in 2008. The decrease in 2009 primarily reflects reduced furniture, fixtures and
equipment expenditures associated with prior expansion activities and certain
branch closures.





Postage,
printing and supplies expense decreased to $1.1 million and $3.7 million for the
three and nine months ended September 30, 2009, respectively, from $1.4 million
and $4.6 million for the comparable periods in 2008, reflecting a decrease in
office supplies and check printing expenses as a result of profit improvement
initiatives.





Information
technology and item processing fees decreased to $7.5 million and $23.5 million
for the three and nine months ended September 30, 2009, respectively, from $8.8
million and $27.1 million for the comparable periods in 2008. As more fully
described in Note 8 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 and other subsidiaries. The decrease in information technology
fees is primarily due to the implementation of certain profit improvement
initiatives and negotiated fee reductions with First Services,
L.P.


50
 Table of Contents




Legal,
examination and professional fees were $3.7 million and $11.1 million for the
three and nine months ended September 30, 2009, respectively, compared to $4.0
million and $10.6 million for the comparable periods in 2008. The increase for
the nine months ended September 30, 2009, as compared to the same period in
2008, primarily reflects higher legal expenses related to collection and
foreclosure efforts associated with the increase in nonperforming assets,
partially offset by expenses incurred in the prior year related to internal
investigations, including the investigation commissioned by our Audit Committee
regarding certain matters associated with the mortgage banking division and the
resulting restatement of our consolidated financial statements. The decrease for
the three months ended September 30, 2009, as compared to the three months ended
September 30, 2008, reflects expenses incurred in the prior year related to
internal investigations and ongoing litigation matters, including those assumed
through the acquisition of Coast Bank of Florida; partially offset by higher
legal expenses related to the increase in nonperforming assets. We anticipate
legal, examination and professional fees will remain at higher than historical
levels until economic conditions stabilize which will result in higher legal and
professional fees associated with foreclosure efforts on problem loans, other
collection efforts and ongoing litigation matters.





Amortization
of intangible assets decreased to $1.7 million and $5.1 million for the three
and nine months ended September 30, 2009, respectively, from $2.2 million and
$6.5 million for the comparable periods in 2008, attributable to the completion
of the amortization period of certain core deposit and other intangible
assets.





Advertising
and business development expense decreased to $420,000 and $1.8 million for the
three and nine months ended September 30, 2009, respectively, from $1.7 million
and $5.0 million for the comparable periods in 2008, reflecting certain profit
improvement initiatives and management’s efforts to reduce these expenditures in
light of the current economic environment.





FDIC
insurance expense increased to $4.9 million and $18.2 million for the three and
nine months ended September 30, 2009, respectively, from $1.4 million and $4.3
million for the comparable periods in 2008. We had built up several million
dollars of credits through previous acquisitions that were utilized to offset
FDIC insurance premiums and were depleted in 2008. Our premium rates increased
in the first quarter of 2009 and again in the second and third quarter of 2009,
and are expected to continue to increase in the future based on our risk
assessment rating in addition to recent developments within the banking
industry, including the failure of other financial institutions. We recorded
additional FDIC insurance expense of $4.8 million in the second quarter of 2009
related to a special assessment paid on September 30, 2009 of five basis points
on each FDIC-insured depository institution’s assets minus its Tier 1 capital as
of June 30, 2009.





Expenses
on other real estate increased to $3.9 million and $11.4 million for the three
and nine months ended September 30, 2009, respectively, from $1.9 million and
$3.8 million for the comparable periods in 2008. The increase in other real
estate expenses is primarily attributable to expenses associated with increased
foreclosure activity, including current and delinquent real estate taxes paid on
other real estate properties as well as other property preservation related
expenses. The balance of our other real estate properties increased to $164.0
million at September 30, 2009, from $156.9 million at June 30, 2009, $145.8
million at March 31, 2009, $91.5 million at December 31, 2008 and $44.3 million
at September 30, 2008. We expect the level of write-downs and expenses on our
other real estate properties to remain at elevated levels in the near term as a
result of the increase in our other real estate balances and the expected future
transfer of certain of our nonperforming loans into our other real estate
portfolio.





Other
expense was $9.0 million and $23.8 million for the three and nine months ended
September 30, 2009, respectively, compared to $9.7 million and $25.9 million for
the comparable periods in 2008. Other expense encompasses numerous general and
administrative expenses including communications, insurance, freight and courier
services, correspondent bank charges, loan expenses, miscellaneous losses and
recoveries, memberships and subscriptions, transfer agent fees, sales taxes and
travel, meals and entertainment. The decrease in other expense is primarily
attributable to profit improvement initiatives and management’s efforts to
reduce overall expense levels, partially offset by an increase in overdraft
losses, and an increase in loan expenses attributable to collection efforts
related to asset quality matters.





Provision for
Income Taxes.We recorded a provision
for income taxes of $58,000 and $2.5 million for the three and nine months ended
September 30, 2009, respectively, compared to a benefit for income taxes of
$51.4 million and $72.5 million for the three and nine months ended September
30, 2008, respectively. The change in the provision for income taxes primarily
resulted from the consolidated net operating loss due to existing federal and
state net operating loss carryforwards on which the realization of the related
tax benefits is not “more likely than not,” as further described in Note 14 to
our consolidated financial statements. The benefit for income taxes for the
three and nine months ended September 30, 2008 reflects 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.


51
 Table of Contents




Interest
Rate Risk Management





We
utilize derivative financial instruments to assist in our management of interest
rate sensitivity by modifying the repricing, maturity and option characteristics
of certain assets and liabilities. We also sell interest rate swap agreements to
certain customers who wish to modify their interest rate risk.  We
offset the interest rate risk of these swap agreements by simultaneously
purchasing matching interest rate swap agreements with offsetting pay/receive
rates from other financial institutions.  Because of the matching
terms of the offsetting agreements, the net effect of the changes in the fair
value of the paired swaps is minimal.





The
derivative financial instruments we held as of September 30, 2009 and December
31, 2008 are summarized as follows:





September 30, 2009
            
            
            December 31, 2008Notional
      Amount
            
            
            Credit
      Exposure
            
            
            Notional
      Amount
            
            
            Credit
      Exposure(dollars
      expressed in thousands)Cash
      flow hedges – subordinated debentures (1)
            
            $
            125,000
            
            
            
            —
            
            
            
            125,000
            
            
            
            —Customer
      interest rate swap agreements
            
            
            82,135
            
            
            
            807
            
            
            
            16,000
            
            
            
            85Interest
      rate lock commitments
            
            
            48,000
            
            
            
            1,186
            
            
            
            48,700
            
            
            
            831Forward
      commitments to sell mortgage-backed securities
            
            
            59,000
            
            
            
            —
            
            
            
            40,300
            
            
            
            —


_________________


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





We
realized net interest income on our derivative financial instruments of $3.7
million and $10.5 million for the three and nine months ended September 30,
2009, respectively, compared to $2.9 million and $7.6 million for the comparable
periods in 2008. The earnings associated with our derivative financial
instruments reflect the interest rate environment during these periods as well
as the overall level of our derivative instruments throughout these
periods.




We
recorded net losses of $4.8 million and $4.4 million on derivative instruments
for the three and nine months ended September 30, 2009, respectively. The net
loss for the three and nine months ended September 30, 2009 is primarily
attributable to a cumulative fair value adjustment of $4.6 million on our
interest rate swap agreements designated as cash flow hedges on our subordinated
debentures that was reclassified from accumulated other comprehensive income to
loss on derivative instruments as a result of the discontinuation of hedge
accounting treatment following the announcement of the deferral of interest
payments on the underlying trust preferred securities in August 2009. The loss
was partially offset by income generated from the issuance of our customer
interest rate swap agreements. 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. The net loss for the three months ended
September 30, 2008 and the net gain for the nine months ended September 30, 2008
were primarily attributable to changes in the fair value of our interest rate
floor agreements. 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.





Our
derivative financial instruments are more fully described in Note 16 to our
consolidated financial statements.


52
 Table of Contents




Loans
and Allowance for Loan Losses





Loan
Portfolio Composition.Interest
earned on our loan portfolio represents the principal source of income for First
Bank. Interest and fees on loans were 93.2% of our total interest income for the
three and nine months ended September 30, 2009, compared to 93.1% for the
comparable periods in 2008.





Loans,
net of unearned discount, decreased $1.07 billion to $7.52 billion, or 70.4% of
our assets, at September 30, 2009, compared to $8.59 billion, or 79.7% of our
assets, at December 31, 2008. Loans, net of unearned discount, at September 30,
2009 reflect the reclassification of $236.6 million of loans to assets of
discontinued operations, as further described in Note 2 to our Consolidated
Financial Statements. The following table summarizes the composition of our loan
portfolio at September 30, 2009 and December 31, 2008:





September 30,
            
            
            December 31,2009
            
            
            2008(dollars
      expressed in thousands)Commercial,
      financial and agricultural
            
            $
            2,176,680
            
            
            
            2,575,505Real
      estate construction and development
            
            
            1,134,585
            
            
            
            1,572,212Real
      estate mortgage:One-to-four
      family residential
            
            
            1,346,763
            
            
            
            1,553,366Multi-family
      residential
            
            
            229,700
            
            
            
            220,404Commercial
      real estate
            
            
            2,544,609
            
            
            
            2,562,598Consumer
      and installment, net of unearned discount
            
            
            53,209
            
            
            
            70,170Loans
      held for sale
            
            
            37,464
            
            
            
            38,720Loans,
      net of unearned discount
            
            $
            7,523,010
            
            
            
            8,592,975





The
following table summarizes the composition of our loan portfolio by region at
September 30, 2009 and December 31, 2008:





September 30,
            
            
            December 31,2009
            
            
            2008(dollars
      expressed in thousands)Mortgage
      Division, excluding Florida
            
            $
            384,263
            
            
            
            447,218Florida
            
            
            340,220
            
            
            
            424,316Northern
      California
            
            
            893,377
            
            
            
            1,052,133Southern
      California
            
            
            1,846,485
            
            
            
            1,884,520Chicago
            
            
            631,039
            
            
            
            674,330Metropolitan
      St. Louis, Missouri
            
            
            1,651,558
            
            
            
            1,815,880Texas
      (1)
            
            
            449,614
            
            
            
            769,289First
      Bank Business Capital, Inc.
            
            
            189,313
            
            
            
            247,153Northern
      and Southern Illinois
            
            
            721,495
            
            
            
            875,483Other
            
            
            415,646
            
            
            
            402,653Total
            
            $
            7,523,010
            
            
            
            8,592,975


_______________


(1)
            The
      decrease during the first nine months of 2009 reflects the
      reclassification of $236.6 million of our Texas region loans to
      discontinued operations at September 30, 2009, as further described below
      and in Note 2 to our consolidated financial
  statements.





We
attribute the net decrease in our loan portfolio during the first nine months of
2009 primarily to:





Ø
            A
      decrease of $398.8 million in our commercial, financial and agricultural
      portfolio, reflecting the reclassification of $119.4 million of certain of
      our Texas region loans to assets of discontinued operations at September
      30, 2009, loan charge-offs of $82.3 million, primarily comprised of three
      significant charge-offs totaling approximately $59.2 million, as further
      discussed below, and portfolio runoff associated with a decline in
      internal production and reduced loan demand within our
      markets;





Ø
            A
      decrease of $437.6 million in our real estate construction and development
      portfolio primarily resulting from our efforts to reduce the exposure in
      our construction and development portfolio in light of the current
      economic environment within our market areas. The decrease during the
      first nine months of 2009 reflects loan charge-offs of $89.1 million,
      transfers to other real estate and other loan activity, including
      transfers of loans from real estate construction and development to
      commercial real estate and multi-family residential real estate upon
      completion of the construction of the underlying projects related to such
      loans, and the reclassification of $24.8 million of certain of our Texas
      region loans to discontinued operations at September 30, 2009. Of the
      remaining balance in our real estate construction and development
      portfolio of $1.13 billion, $391.2 million, or 34.5%, is on nonaccrual
      status at September 30, 2009. The following table summarizes the
      composition of our real estate construction and development portfolio by
      region as of September 30, 2009 and December 31,
  2008:


53
 Table of Contents




September 30,
            
            
            December 31,2009
            
            
            2008(dollars
      expressed in thousands)Northern
      California
            
            $
            107,942
            
            
            
            234,942Southern
      California
            
            
            463,241
            
            
            
            504,354Chicago
            
            
            131,748
            
            
            
            185,054Metropolitan
      St. Louis, Missouri
            
            
            181,540
            
            
            
            230,254Texas
            
            
            176,797
            
            
            
            283,993Florida
            
            
            14,195
            
            
            
            37,242Other
            
            
            59,122
            
            
            
            96,373Total
            
            $
            1,134,585
            
            
            
            1,572,212





Within
our real estate construction and development portfolio, we have experienced the
most distress in our Northern and Southern California and Chicago regions. Of
the remaining Northern California portfolio balance of $107.9 million, $18.9
million, or 17.5%, of loans were in a nonperforming status as of September 30,
2009; of the remaining Southern California portfolio balance of $463.2 million,
$233.8 million, or 50.5%, of loans were in a nonperforming status as of
September 30, 2009; and of the remaining Chicago portfolio balance of $131.7
million, $79.6 million, or 60.4%, of loans were in a nonperforming status as of
September 30, 2009. We also experienced continued distress within our Florida
and metropolitan St. Louis regions, as further discussed below; and





Ø
            A
      decrease of $206.6 million in our one-to-four family residential real
      estate loan portfolio primarily attributable to loan charge-offs of $70.0
      million, the reclassification of $20.5 million of certain of our Texas
      region loans to assets of discontinued operations, the reclassification of
      $8.5 million of loans associated with the Branch Sales to assets held for
      sale, transfers to other real estate and principal payments, partially
      offset by a net increase in our home equity loan portfolio of $14.0
      million. The following table summarizes the composition of our one-to-four
      family residential real estate loan portfolio as of September 30, 2009 and
      December 31, 2008:





September 30,
            
            
            December 31,2009
            
            
            2008(dollars
      expressed in thousands)One-to-four
      family residential real estate:Non-Mortgage
      Division portfolio
            
            $
            356,996
            
            
            
            455,545Mortgage
      Division portfolio, excluding Florida
            
            
            356,876
            
            
            
            427,821Florida
      Mortgage Division portfolio
            
            
            188,794
            
            
            
            239,906Home
      equity portfolio
            
            
            444,097
            
            
            
            430,094Total
            
            $
            1,346,763
            
            
            
            1,553,366





Our
Non-Mortgage Division loan portfolio consists of prime mortgage loans originated
to customers from our retail branch banking network. As of September 30, 2009,
approximately 6.62% of this portfolio is delinquent or on nonaccrual status. The
decrease in this portfolio from December 31, 2008 to September 30, 2009 is
primarily due to prepayments associated with the mortgage refinance environment
throughout the first nine months of 2009.





Our
Mortgage Division portfolio, excluding Florida, consists of both prime mortgage
loans and Alt A and sub-prime mortgage loans. At September 30, 2009,
approximately $178.7 million of the Mortgage Division portfolio consisted of
prime mortgages and the remaining $178.2 million consisted of Alt A and
sub-prime mortgages. We continue to experience significant distress within this
portfolio of loans. We recorded net loan charge-offs of $31.9 million on this
portfolio for the nine months ended September 30, 2009 as a result of charging
these loans down to 67.5% of current appraised values at the time these loans
became nonperforming loans, which represents an estimate of average sale
transactions based on ongoing sale activity. As of September 30, 2009,
approximately 27.2% of this portfolio is delinquent or restructured, consisting
of loans 30-89 days delinquent of $20.6 million, restructured loans of $20.9
million and nonaccrual loans of $55.4 million.





Our
Florida portfolio was acquired in the CFHI acquisition. We incurred net loan
charge-offs of $26.5 million on this portfolio during the first nine months of
2009. As of September 30, 2009, approximately 24.2% of the Florida portfolio is
delinquent or restructured, consisting of loans 30-89 days delinquent of $7.6
million, restructured loans of $8.5 million and nonaccrual loans of $29.6
million.




Our home
equity portfolio consists of prime loans originated to customers from our retail
branch banking network. As of September 30, 2009, approximately 2.07% of this
portfolio is delinquent or on nonaccrual status;


54
 Table of Contents




Ø
            A
      decrease of $18.0 million in our commercial real estate loan portfolio
      primarily due to our efforts to reduce our exposure to commercial real
      estate in the current economic environment, loan charge-offs of $23.7
      million, the reclassification of $60.3 million of certain of our Texas
      loans to assets of discontinued operations and the reclassification of
      $4.8 million of loans associated with the Branch Sales to assets held for
      sale at September 30, 2009. These decreases were partially offset by
      transfers of loans from real estate construction and development to
      commercial real estate upon completion of the construction of the
      underlying projects related to such loans;
and





Ø
            A
      decrease of $17.0 million in our consumer and installment loan portfolio,
      net of unearned discount, reflecting the reclassification of $6.3 million
      of certain of our Texas region loans to assets of discontinued operations
      at September 30, 2009, loan charge-offs of $1.0 million, and portfolio
      runoff associated with a decline in internal production and reduced loan
      demand within our markets.





These
decreases in our loan portfolio were partially offset by:





Ø
            An
      increase of $9.3 million in multi-family residential real estate loans
      primarily attributable to transfers of loans from real estate construction
      and development to multi-family residential real estate upon completion of
      the construction of the underlying projects related to such loans. This
      increase was partially offset by a decrease of $5.4 million due to the
      reclassification of certain of our Texas region loans to assets of
      discontinued operations at September 30,
2009.





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.





Nonperforming
Assets.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, 2009 and December 31, 2008:





September 30,
            
            
            December 31,2009
            
            
            2008(dollars
      expressed in thousands)Commercial,
      financial and agricultural:Nonaccrual
            
            $
            57,023
            
            
            
            40,647Restructured
            
            
            18,763
            
            
            
            —Real
      estate construction and development:Nonaccrual
            
            
            391,223
            
            
            
            270,444Real
      estate mortgage:One-to-four
      family residential:Nonaccrual
            
            
            103,003
            
            
            
            83,140Restructured
            
            
            29,420
            
            
            
            24,641Multi-family
      residential:Nonaccrual
            
            
            6,377
            
            
            
            545Commercial
      real estate:Nonaccrual
            
            
            58,213
            
            
            
            23,009Consumer
      and installment:Nonaccrual
            
            
            209
            
            
            
            —Total
      nonperforming loans
            
            
            664,231
            
            
            
            442,426Other
      real estate
            
            
            163,981
            
            
            
            91,524Total
      nonperforming assets
            
            $
            828,212
            
            
            
            533,950Loans,
      net of unearned discount
            
            $
            7,523,010
            
            
            
            8,592,975Loans
      past due 90 days or more and still accruing
            
            $
            11,093
            
            
            
            7,094Ratio
      of:Allowance
      for loan losses to loans
            
            
            3.86
            %
            
            
            2.56
            %Nonperforming
      loans to loans
            
            
            8.83
            
            
            
            5.15Allowance
      for loan losses to nonperforming loans
            
            
            43.77
            
            
            
            49.77Nonperforming
      assets to loans and other real estate
            
            
            10.77
            
            
            
            6.15


55
 Table of Contents




Nonperforming
loans, consisting of loans on nonaccrual status and restructured loans were
$664.2 million at September 30, 2009, compared to $494.4 million at June 30,
2009, $475.7 million at March 31, 2009 and $442.4 million at December 31, 2008.
Nonperforming loans were 8.83% of loans, net of unearned discount, at September
30, 2009, compared to 6.03% of loans, net of unearned discount, at June 30,
2009, 5.65% at March 31, 2009 and 5.15% at December 31, 2008. Other real estate
owned increased to $164.0 million at September 30, 2009, from $156.9 million at
June 30, 2009, $145.8 million at March 31, 2009 and $91.5 million at December
31, 2008. Our nonperforming assets, consisting of nonperforming loans and other
real estate owned, were $828.2 million at September 30, 2009, compared to $651.3
million at June 30, 2009, $621.5 million at March 31, 2009 and $534.0 million at
December 31, 2008. Loans past due 90 days or more and still accruing interest
were $11.1 million at September 30, 2009, compared to $41.9 million at June 30,
2009, $7.3 million at March 31, 2009 and $7.1 million at December 31,
2008.





Our
nonperforming assets at September 30, 2009 included $12.8 million of nonaccrual
loans and $80.8 million of other real estate owned, or $93.6 million of
nonperforming assets, held by FB Holdings, a subsidiary of First Bank which is
46.77% owned by FCA, an affiliated entity. As such, FB Holdings owned
approximately 11.3% of our nonperforming assets at September 30, 2009. Our
nonperforming assets at December 31, 2008 included $61.0 million of nonaccrual
loans and $51.9 million of other real estate owned, or $112.9 million of
nonperforming assets, in aggregate, held by FB Holdings, and as such, FCA owned
approximately 21.1% of our nonperforming assets at December 31,
2008.





Nonperforming
assets increased $294.3 million, or 55.1%, to $828.2 million at September 30,
2009 from nonperforming assets of $534.0 million at December 31, 2008. We
attribute the $294.3 million increase in our nonperforming assets during the
first nine months of 2009 to the following:





Ø
            An
      increase in nonaccrual loans of $16.4 million in our commercial, financial
      and agricultural portfolio primarily resulting from continued weak
      economic conditions nationwide. At September 30, 2009, approximately 2.62%
      of this portfolio is on nonaccrual status. Nonaccrual loans in our
      commercial, financial and agricultural portfolio decreased $24.4 million
      from $81.5 million at June 30, 2009, primarily as a result of $30.9
      million of loan charge-offs in the third quarter of
  2009;





Ø
            An
      increase in commercial, financial and agricultural restructured loans to
      $18.8 million at September 30, 2009 due to a single credit relationship in
      our First Bank Business Capital, Inc. subsidiary that was considered a
      troubled debt restructuring. There were no restructured loans in this
      portfolio as of December 31, 2008;





Ø
            An
      increase in nonaccrual loans of $120.8 million in our real estate
      construction and development loan portfolio driven by additional asset
      quality deterioration within this portfolio, including: (a) loans with an
      aggregate balance of $116.6 million to a single borrower in addition to a
      $66.1 million single loan to a separate borrower being placed on
      nonaccrual status in our Southern California region during the third
      quarter of 2009; and (b) the addition of a single credit of $23.9 million
      in our Chicago region that was placed on nonaccrual status in the third
      quarter of 2009; partially offset by (c) charge-offs of $89.1 million and
      transfers to other real estate. We continue to experience deterioration in
      our real estate construction and development portfolio as a result of weak
      economic conditions and significant continued declines in real estate
      values and we expect these trends to continue until market conditions
      stabilize, both on a nationwide basis and in our primary market
      areas;





Ø
            An
      increase in nonaccrual loans of $35.2 million in our commercial real
      estate portfolio primarily driven by continued weak economic conditions
      and significant declines in real estate values. At September 30, 2009,
      approximately 2.29% of this portfolio is on nonaccrual
    status;





Ø
            An
      increase in nonaccrual loans of $19.9 million in our one-to-four family
      residential real estate loan portfolio primarily driven by current market
      conditions and the overall deterioration of Alt A and sub-prime
      residential mortgage loan products experienced throughout the mortgage
      banking industry. Our one-to-four family residential nonaccrual loans in
      our Mortgage Banking division, excluding Florida, increased $16.9 million,
      from $38.5 million at December 31, 2008 to $55.4 million at September 30,
      2009. Our one-to-four family residential nonaccrual loans in our Florida
      region decreased $1.0 million, from $30.7 million at December 31, 2008 to
      $29.6 million at September 30, 2009. The remaining increase in our
      one-to-four family residential nonaccrual loans of $4.0 million occurred
      in our Non-Mortgage division
portfolio;





Ø
            An
      increase in one-to-four family restructured loans of $4.8 million to $29.4
      million at September 30, 2009, consisting of total restructured loans of
      $33.2 million, partially offset by $3.8 million of restructured loans
      classified as nonaccrual in the one-to-four family residential real estate
      loan category. Restructured loans (not classified as nonaccrual) within
      our Mortgage Banking division and Florida region were $20.9 million and
      $8.5 million, respectively, at September 30, 2009. Throughout 2008 and the
      first nine months of 2009, certain one-to-four family residential mortgage
      loans in our Florida region and Mortgage Banking division, primarily
      located in California, were restructured, whereby the contractual interest
      rate was reduced over a certain time period due to concentrated efforts to
      work with borrowers to facilitate appropriate loan terms in light of
      ongoing market conditions and individual borrower circumstances. As of
      September 30, 2009, we had total one-to-four family restructured loans of
      $33.2 million, of which $3.8 million, or 11.5%, were on nonaccrual status
      and $4.3 million, or 12.9% were delinquent. As such, 24.4% of our
      restructured loans were delinquent or on nonaccrual status at September
      30, 2009;


56
 Table of Contents




Ø
            An
      increase in nonaccrual loans of $5.8 million in our multi-family
      residential real estate loan portfolio. At September 30, 2009,
      approximately 2.78% of this portfolio is on nonaccrual status;
      and





Ø
            An
      increase in other real estate owned of $72.5 million to $164.0 million at
      September 30, 2009, primarily resulting from the foreclosure of real
      estate construction and development loans throughout the first nine months
      of 2009.  During this time period, loans aggregating $127.2
      million were transferred to other real
estate.





We expect
the declining and unstable market conditions associated with our one-to-four
family residential mortgage loan portfolio, our real estate construction and
development portfolio and our commercial real estate portfolio to continue,
which will likely continue to impact the overall level of our nonperforming
loans, loan charge-offs and provision for loan losses and other real estate
balances associated with these segments of our loan portfolio.




The
following table summarizes the composition of our nonperforming assets by region
/ business segment at September 30, 2009 and December 31, 2008:





September 30,
            
            
            December 31,2009
            
            
            2008(dollars
      expressed in thousands)Mortgage
      Division, excluding Florida
            
            $
            85,670
            
            
            
            67,591Florida
      region
            
            
            72,741
            
            
            
            81,303Northern
      California
            
            
            105,890
            
            
            
            104,864Southern
      California
            
            
            279,687
            
            
            
            81,655Chicago
            
            
            109,173
            
            
            
            52,051Metropolitan
      St. Louis, Missouri
            
            
            46,908
            
            
            
            62,598Texas
            
            
            60,258
            
            
            
            37,956First
      Bank Business Capital, Inc.
            
            
            23,108
            
            
            
            24,501Northern
      and Southern Illinois
            
            
            24,256
            
            
            
            11,542Other
            
            
            20,521
            
            
            
            9,889Total
      nonperforming assets
            
            $
            828,212
            
            
            
            533,950





The
increase in the Southern California region is primarily attributable to loans
with an aggregate balance of $116.6 million to a single borrower in addition to
a $66.1 million single loan to a separate borrower being placed on nonaccrual
status during the third quarter of 2009. The increase in the Chicago region is
primarily attributable to the addition of a single credit of $23.9 million that
was placed on nonaccrual status in the third quarter of 2009 in addition to
other asset quality deterioration within our real estate construction and
development portfolio.





Loans
past due 90 days or more and still accruing interest were $11.1 million at
September 30, 2009, compared to $41.9 million at June 30, 2009, $7.3 million at
March 31, 2009 and $7.1 million at December 31, 2008. The decrease in loans past
due 90 days or more and still accruing interest during the third quarter of 2009
is primarily attributable to two credit relationships totaling approximately
$32.0 million in aggregate that were considered problem loans at June 30, 2009
and were renewed subsequent to June 30, 2009. Under our loan policy, loans are
placed on nonaccrual status once principal or interest payments become 90 days
past due. However, individual loan officers may submit written requests for
approval to continue the accrual of interest on loans that become 90 days past
due. These requests may be submitted for approval consistent with the authority
levels provided in our credit approval policies, and they are only granted if an
expected near term future event, such as a pending renewal or expected payoff,
exists at the time the loan becomes 90 days past due. If the expected near term
future event does not occur as anticipated, the loan is then placed on
nonaccrual status. Management considers the nonperforming loan trends in its
overall assessment of the adequacy of the allowance for loan
losses.


57
 Table of Contents




Potential
Problem Loans.As
of September 30, 2009 and December 31, 2008, $454.5 million and $224.1 million,
respectively, of loans not included in the nonperforming assets table above were
identified by management as having potential credit problems, or potential
problem loans. The following table presents the categories of potential problem
loans as of September 30, 2009 and December 31, 2008:





September 30,
            
            
            December 31,2009
            
            
            2008(dollars
      expressed in thousands)Commercial,
      financial and agricultural
            
            $
            95,667
            
            
            
            67,164Real
      estate construction and development
            
            
            204,786
            
            
            
            99,207Real
      estate mortgage:One-to-four
      family residential
            
            
            1,895
            
            
            
            1,398Multi-family
      residential
            
            
            11,088
            
            
            
            12,810Commercial
      real estate
            
            
            141,058
            
            
            
            43,473Total
      potential problem loans
            
            $
            454,494
            
            
            
            224,052





The
increase in the level of potential problem loans during 2009 reflects continued
weak economic conditions in the nationwide housing markets, increasing
unemployment rates and ongoing significant declines in real estate values in all
of our markets.





The
following table summarizes the composition of our potential problem loans by
region / business segment at September 30, 2009 and December 31,
2008:





September 30,
            
            
            December 31,2009
            
            
            2008(dollars
      expressed in thousands)Florida
            
            $
            3,415
            
            
            
            2,790Northern
      California
            
            
            55,695
            
            
            
            36,450Southern
      California
            
            
            59,904
            
            
            
            11,653Chicago
            
            
            38,278
            
            
            
            11,757Metropolitan
      St. Louis, Missouri
            
            
            197,554
            
            
            
            75,318Texas
            
            
            66,992
            
            
            
            44,370First
      Bank Business Capital, Inc.
            
            
            —
            
            
            
            7,914Northern
      and Southern Illinois
            
            
            22,563
            
            
            
            28,436Other
            
            
            10,093
            
            
            
            5,364Total
      potential problem loans
            
            $
            454,494
            
            
            
            224,052





The
increase in potential problem loans in the metropolitan St. Louis, Missouri
region is primarily due to the addition of two large real estate construction
and development credits with a combined balance of $60.1 million at September
30, 2009 in addition to increases in commercial and industrial, commercial real
estate and other real estate construction and development potential problem
loans. We have also experienced significant increases in potential problem loans
in Northern and Southern California, Chicago and Texas as a result of continued
weak economic conditions in the nationwide housing markets, increasing
unemployment rates and ongoing significant declines in real estate values in
these markets.





Our
credit risk management policies and procedures, as further described under
“—Allowance for Loan Losses,” focus on identifying potential problem loans.
Potential problem loans may be identified by the assigned lender, the credit
administration department or the internal credit review department.
Specifically, the originating loan officers have primary responsibility for
monitoring and overseeing their respective credit relationships, including, but
not limited to: (a) periodic reviews of financial statements; (b) periodic site
visits to inspect and evaluate loan collateral; (c) ongoing communication with
primary borrower representatives; and (d) appropriately monitoring and adjusting
the risk rating of the respective credit relationships should ongoing conditions
or circumstances associated with the relationship warrant such adjustments. In
addition, in the current severely weakened economic environment, our credit
administration department and our internal credit review department are
reviewing all loans with credit exposure over certain thresholds in loan
portfolio segments in which we, or other financial institutions, have
experienced significant loan charge-offs, such as real estate construction and
development and one-to-four family residential real estate loans, and on loan
portfolio segments that appear to be most likely to generate additional loan
charge-offs in the future, such as commercial real estate. We include adversely
rated credits, including potential problem loans, on our monthly loan watch
list.  Loans on our watch list require regular detailed loan status
reports prepared by the responsible officer which are discussed in formal
meetings with internal credit review and credit administration staff members
that are generally conducted on a quarterly basis.





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


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Potential
problem loans are regularly evaluated for impaired loan status by lenders, the
credit administration department and the internal credit review department. When
management makes the determination that a loan should be considered impaired, an
initial specific reserve is allocated to the impaired loan, if necessary, until
the loan is charged down to the appraised value of the underlying collateral,
typically within 60 to 90 days of becoming impaired. In the current economic
environment, management typically utilizes appraisals performed no earlier than
180 days prior to the charge-off, and in most cases, appraisals utilized are
dated within 60 days of the charge-off. As such, management typically addresses
collateral shortfalls through charge-offs as opposed to recording specific
reserves on individual loans. Once a loan is charged down to the appraised value
of the underlying collateral, management regularly monitors the carrying value
of the loan for any additional deterioration and records additional reserves or
charge-offs as necessary. As a general guideline, management orders new
appraisals on any impaired loan or other real estate property in which the most
recent appraisal is more than 18 months old; however, management also orders new
appraisals on impaired loans or other real estate properties in the event
circumstances, such as a rapid change in market conditions in a particular
region, change.





We
continue our efforts to reduce nonperforming and potential problem loans and
re-define our overall strategy and business plans with respect to our loan
portfolio as deemed necessary in light of ongoing and dramatic changes in market
conditions in the markets in which we operate.





Allowance
for Loan Losses.Our
allowance for loan losses as a percentage of loans, net of unearned discount,
was 3.86% at September 30, 2009, compared to 3.51% at June 30, 2009, 3.05% at
March 31, 2009, and 2.56% at December 31, 2008. Our allowance for loan losses as
a percentage of nonperforming loans was 43.77%, 58.12%, 53.93%, and 49.77% at
September 30, 2009, June 30, 2009, March 31, 2009 and December 31, 2008,
respectively. Our allowance for loan losses increased to $290.7 million at
September 30, 2009, compared to $287.3 million at June 30, 2009, $256.6 million
at March 31, 2009 and $220.2 million at December 31, 2008.





Our
allowance for loan losses and allowance for loan losses as a percentage of
loans, net of unearned discount, have increased throughout 2009. The increase in
the allowance for loan losses and the allowance for loan losses as a percentage
of loans, net of unearned discount, is primarily attributable to the
following:





Ø
            The
      downward migration of performing loans to more severe risk ratings that
      carry a higher reserve allocation, including the risk rating for potential
      problem loans.  The Company has adjusted the risk ratings on
      loans across all commercial loan types, resulting in higher allowance for
      loan losses allocations. Specifically, substantially all real estate
      construction and development loans have migrated downward in risk ratings
      resulting in increased allowance for loan losses allocations as a result
      of our charge-off levels within this portfolio segment and declining real
      estate values throughout our primary
markets;





Ø
            The
      increase in our nonperforming loans. Our nonperforming loans have
      significantly increased resulting in a higher allowance for loan losses
      allocation being applied to these loans;
and





Ø
            An
      increase in the allowance for loan losses allocation related to our
      qualitative and environmental factors utilized in our allowance for loan
      losses calculation resulting from continued asset quality deterioration,
      declining real estate values, current economic conditions and other
      factors.





During
the same time period, our allowance for loan losses as a percentage of
nonperforming loans has declined. We record charge-offs on nonperforming loans
typically within 60 to 90 days of the credit relationship reaching nonperforming
loan status. We measure impairment and the resulting charge-off amount based
primarily on third party appraisals.  As such, rather than carrying
specific reserves on nonperforming loans, which would have the effect of
increasing the allowance for loan losses as a percentage of nonperforming loans,
we recognize a loan loss through a charge to the allowance for loan losses once
the credit relationship reaches nonperforming loan status, which has the effect
of reducing the allowance for loan losses as a percentage of nonperforming
loans.


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 Table of Contents




Changes
in the allowance for loan losses for the three and nine months ended September
30, 2009 and 2008 were as follows:





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Balance,
      beginning of period
            
            $
            287,317
            
            
            
            200,957
            
            
            
            220,214
            
            
            
            168,391Loans
      charged-off:Commercial,
      financial and agricultural
            
            
            (30,916
            )
            
            
            (6,192
            )
            
            
            (82,272
            )
            
            
            (11,808
            )Real
      estate construction and development
            
            
            (40,978
            )
            
            
            (64,069
            )
            
            
            (89,117
            )
            
            
            (132,471
            )Real
      estate mortgage:One-to-four
      family residential loans
            
            
            (18,142
            )
            
            
            (20,597
            )
            
            
            (69,960
            )
            
            
            (44,321
            )Multi-family
      residential loans
            
            
            (43
            )
            
            
            —
            
            
            
            (347
            )
            
            
            (19
            )Commercial
      real estate loans
            
            
            (16,862
            )
            
            
            (150
            )
            
            
            (23,713
            )
            
            
            (2,579
            )Consumer
      and installment
            
            
            (437
            )
            
            
            (450
            )
            
            
            (1,003
            )
            
            
            (1,165
            )Total
      loans charged-off
            
            
            (107,378
            )
            
            
            (91,458
            )
            
            
            (266,412
            )
            
            
            (192,363
            )Recoveries
      of loans previously charged-off:Commercial
      financial and agricultural
            
            
            2,103
            
            
            
            1,678
            
            
            
            4,545
            
            
            
            4,021Real
      estate construction and development
            
            
            616
            
            
            
            362
            
            
            
            1,282
            
            
            
            902Real
      estate mortgage:One-to-four
      family residential loans
            
            
            903
            
            
            
            267
            
            
            
            2,745
            
            
            
            496Multi-family
      residential loans
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2Commercial
      real estate loans
            
            
            111
            
            
            
            142
            
            
            
            1,172
            
            
            
            326Consumer
      and installment
            
            
            66
            
            
            
            78
            
            
            
            192
            
            
            
            251Recoveries
      of loans previously charged-off
            
            
            3,799
            
            
            
            2,527
            
            
            
            9,936
            
            
            
            5,998Net
      loans charged-off
            
            
            (103,579
            )
            
            
            (88,931
            )
            
            
            (256,476
            )
            
            
            (186,365
            )Provision
      for loan losses
            
            
            107,000
            
            
            
            99,000
            
            
            
            327,000
            
            
            
            229,000Balance,
      end of period
            
            $
            290,738
            
            
            
            211,026
            
            
            
            290,738
            
            
            
            211,026





We
recorded net loan charge-offs of $103.6 million and $256.5 million for the three
and nine months ended September 30, 2009, respectively, compared to $88.9
million and $186.4 million for the comparable periods in 2008. Our annualized
net loan charge-offs as a percentage of average loans were 4.26% for the first
nine months of 2009, compared to 2.83% for the comparable period in
2008.




We
attribute the net increase in our net loan charge-offs to the
following:





Ø
            Net
      loan charge-offs of $28.8 million and $77.7 million recorded for the three
      and nine months ended September 30, 2009, respectively, associated with
      our commercial, financial and agricultural portfolio, compared to $4.5
      million and $7.8 million for the comparable periods in 2008, reflecting
      declining market conditions within certain sectors of this portfolio that
      began in the first quarter of 2009. Specifically in this portfolio, we
      recorded $18.5 million in aggregate loan charge-offs on a single credit in
      our First Bank Business Capital, Inc. subsidiary during the first nine
      months of 2009, as well as a $10.7 million loan charge-off on a single
      credit in our Northern California region that went on nonaccrual status
      during the second quarter of 2009, and $30.0 million in aggregate loan
      charge-offs on a single credit in our Southern California region that went
      on nonaccrual status during the first quarter of
  2009;





Ø
            Net
      loan charge-offs of $40.4 million and $87.8 million recorded for the three
      and nine months ended September 30, 2009, respectively, associated with
      our real estate construction and development portfolio, compared to $63.7
      million and $131.6 million for the comparable periods in 2008, including
      loan charge-offs of $12.0 million on two credit relationships in our
      Chicago region and $14.8 million on two credit relationships in our
      Southern California region in the third quarter of 2009. We continue to
      experience significant distress and drastically declining market
      conditions within our Northern and Southern California, Chicago and St.
      Louis real estate markets, resulting in increased developer inventories,
      slower lot and home sales and significantly declining real estate
      values;





Ø
            Net
      loan charge-offs of $17.2 million and $67.2 million recorded for the three
      and nine months ended September 30, 2009, respectively, associated with
      our one-to-four family residential mortgage portfolio, compared to $20.3
      million and $43.8 million for the comparable periods in 2008. These net
      loan charge-offs primarily consist of $8.7 million and $31.9 million,
      respectively, associated with our one-to-four family residential mortgage
      portfolio generated by our Mortgage Division, excluding Florida, compared
      to $12.9 million and $31.6 million for the comparable periods in 2008, and
      $5.7 million and $26.5 million, respectively, associated with our Florida
      one-to-four family residential portfolio, compared to $2.1 million and
      $2.6 million for the comparable periods in 2008;
  and


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Ø
            Net
      loan charge-offs of $16.8 million and $22.5 million recorded for the three
      and nine months ended September 30, 2009, respectively, associated with
      our commercial real estate portfolio, compared to $8,000 and $2.3 million
      for the comparable periods in 2008, including a $4.9 million loan
      charge-off on a single credit relationship in our Northern California
      region and a $7.9 million loan charge-off on a single credit relationship
      in our Chicago region in the third quarter of
  2009.





The
following table summarizes the composition of our net loan charge-offs
(recoveries) by region / business segment for the three and nine months ended
September 30, 2009 and 2008:





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(dollars
      expressed in thousands)Mortgage
      Division, excluding Florida
            
            $
            8,707
            
            
            
            12,883
            
            
            
            31,895
            
            
            
            31,649Florida
            
            
            9,454
            
            
            
            10,641
            
            
            
            44,434
            
            
            
            18,943Northern
      California
            
            
            15,345
            
            
            
            38,118
            
            
            
            37,117
            
            
            
            95,479Southern
      California
            
            
            36,884
            
            
            
            9,902
            
            
            
            60,712
            
            
            
            13,307Chicago
            
            
            23,915
            
            
            
            11,837
            
            
            
            42,111
            
            
            
            12,907Metropolitan
      St. Louis, Missouri
            
            
            760
            
            
            
            4,090
            
            
            
            3,179
            
            
            
            5,471Texas
            
            
            2,561
            
            
            
            1,029
            
            
            
            6,546
            
            
            
            4,917First
      Bank Business Capital, Inc.
            
            
            2,915
            
            
            
            (190
            )
            
            
            21,610
            
            
            
            (281
            )Northern
      and Southern Illinois
            
            
            634
            
            
            
            (82
            )
            
            
            2,995
            
            
            
            2,106Other
            
            
            2,404
            
            
            
            703
            
            
            
            5,877
            
            
            
            1,867Total
      net loan charge-offs
            
            $
            103,579
            
            
            
            88,931
            
            
            
            256,476
            
            
            
            186,365





As shown
in the preceding table, while our net loan charge-offs in our Northern
California region have declined considerably in 2009 as compared to 2008, other
regions have experienced significantly higher net loan charge-offs, particularly
Florida, Southern California, Chicago and First Bank Business Capital,
Inc.





During
the three months ended September 30, 2009, net loan charge-offs in our Southern
California region consist primarily of a $20.0 million charge-off on a
commercial and industrial loan and a $10.9 million charge-off on a real estate
construction and development loan. During the three months ended September 30,
2009, net loan charge-offs in our Chicago region consist primarily of an
aggregate $19.9 million of charge-offs on three separate real estate
construction and development loans.





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, increasing unemployment rates and significant declines in real estate
values in all of our markets. Should real estate values further decline as a
result of current economic conditions, we may continue to experience
deterioration within our loan portfolio, and as a result, continued increased
loan charge-offs.





We
continue to closely monitor our loan portfolio and address the ongoing
challenges posed by the severely weakened economic environment that has directly
impacted and continues to impact many of our market segments. Specifically, we
continue to focus on loan portfolio segments in which we have experienced
significant loan charge-offs and on loan portfolio segments that could generate
additional loan charge-offs in the future, such as commercial real estate. We
consider these factors in our overall assessment of the adequacy of our
allowance for loan losses.





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





We
include adversely rated credits, including loans requiring close monitoring that
would not normally be considered classified credits by our regulators, on our
monthly loan watch list. Loans may be added to our watch list for reasons that
are temporary and correctable, such as the absence of current financial
statements of the borrower or a deficiency in loan documentation. Loans may also
be added to our watch list whenever any adverse circumstance is detected which
might affect the borrower’s ability to comply with the contractual terms of the
loan. The delinquency of a scheduled loan payment, deterioration in the
borrower’s financial condition identified in a review of periodic financial
statements, a decrease in the value of the collateral securing the loan, or a
change in the economic environment within which the borrower operates could
initiate the addition of a loan to our watch list. Loans on our watch list
require periodic detailed loan status reports prepared by the responsible
officer which are discussed in formal meetings with credit review and credit
administration staff members. Upgrades and downgrades of loan risk ratings may
be initiated by the responsible loan officer. However, upgrades of risk ratings
associated with significant credit relationships and/or problem credit
relationships may only be made with the concurrence of appropriate regional or
senior regional credit officers.


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 Table of Contents




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 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.





The
allocation of the allowance for loan losses by loan category is a result of the
application of our risk rating system augmented by qualitative analysis. The
same procedures we employ to determine the overall risk in our loan portfolio
and our requirements for the allowance for loan losses determine the
distribution of the allowance by loan category. Consequently, the distribution
of the allowance will change from period to period due to (a) changes in the
aggregate loan balances by loan category; (b) changes in the identified risk in
each loan in the portfolio over time, excluding those homogeneous categories of
loans such as consumer and installment loans and residential real estate
mortgage loans for which risk ratings are changed based on payment performance;
and (c) changes in loan concentrations by borrower.





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, including
certificates issued through the CDARS program, borrowing federal funds, selling
securities under agreements to repurchase and utilizing borrowings from the
FHLB, the FRB and other borrowings. The aggregate funds acquired from these
sources were $1.92 billion and $1.83 billion at September 30, 2009 and December
31, 2008, 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 at September 30, 2009:





Certificates
      of Depositof $100,000 or
      More
            
            
            OtherBorrowings
            
            
            Total(dollars
      expressed in thousands)Three
      months or less
            
            $
            403,910
            
            
            
            98,046
            
            
            
            501,956Over
      three months through six months
            
            
            210,325
            
            
            
            —
            
            
            
            210,325Over
      six months through twelve months
            
            
            279,911
            
            
            
            200,658
            
            
            
            480,569Over
      twelve months
            
            
            211,176
            
            
            
            520,000
            
            
            
            731,176Total
            
            $
            1,105,322
            
            
            
            818,704
            
            
            
            1,924,026





In
addition to these sources of funds, First Bank has established a borrowing
relationship with the FRB. This borrowing relationship, which is secured
primarily by commercial loans, provides an additional liquidity facility that
may be utilized for contingency purposes. Advances drawn on First Bank’s
established borrowing relationship require the prior approval of the FRB, and
First Bank did not have any FRB borrowings outstanding at September 30, 2009.
First Bank’s borrowing capacity under the agreement was approximately $1.14
billion at December 31, 2008 and First Bank had FRB borrowings outstanding of
$100.0 million at December 31, 2008, as further discussed
below.


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 Table of Contents




In
addition, First Bank’s borrowing capacity through its relationship with the FHLB
was approximately $472.5 million and $911.1 million at September 30, 2009 and
December 31, 2008, respectively. The borrowing relationship is secured by
one-to-four family residential, multi-family residential and commercial real
estate loans. First Bank requests advances and/or repays advances from the FHLB
based on its current and future projected liquidity needs. We had FHLB advances
outstanding of $600.7 million at September 30, 2009 and $200.7 million at
December 31, 2008. Standby letters of credit issued by the FHLB on First Bank’s
behalf were $83.6 million and $127.1 million at September 30, 2009 and December
31, 2008, respectively.





During
the first quarter of 2009, funds available from short-term investments were
utilized to repay $200.0 million of FHLB advances and the $100.0 million FRB
borrowing. In April 2009, we entered into two $100.0 million FHLB advances that
mature in April 2010 and April 2011 at fixed interest rates of 1.69% and 1.77%,
respectively. We entered into the following FHLB advances during the third
quarter of 2009: two $100.0 million FHLB advances in July 2009 that mature in
July 2010 and July 2011 at fixed interest rates of 0.85% and 1.49%,
respectively; a $100.0 million FHLB advance in August 2009 that matures in
August 2012 at a fixed interest rate of 2.20%; and a $100.0 million FHLB advance
in September 2009 that matures in September 2016, with a variable interest rate
of 0.30% in effect as of September 30, 2009.





First
Banks had a borrowing relationship with its affiliated entity, Investors of
America, LP, which provided for a $30.0 million secured revolving line of credit
to be utilized for general working capital needs and capital investments in
subsidiaries. This borrowing relationship matured on June 30, 2009, as further
described in Note 8 and Note 11 to our consolidated financial statements. First
Banks did not have any balances outstanding on this borrowing arrangement at
maturity on June 30, 2009 or December 31, 2008. The Company is currently
required to obtain prior approval from the FRB prior to incurring additional
debt obligations, in accordance with the provisions of the informal agreements
further described under “—Regulatory Matters.”





Cash and
cash equivalents increased $805.7 million to $1.65 billion at September 30,
2009, compared to $842.3 million at December 31, 2008. Our loan-to-deposit ratio
decreased to 92.4% at September 30, 2009, from 98.3% at December 31, 2008. We
supplemented our overall liquidity position during the third quarter of 2009
with the additional $400.0 million of FHLB advances, as described above, in
anticipation of the completion of certain transactions during the fourth quarter
of 2009 and the first quarter of 2010 associated with our Capital Plan, which
will require significant cash outlays upon completion of the sale transactions.
The sale of Texas during the fourth quarter of 2009, the Branch Sales during the
fourth quarter of 2009 and the first quarter of 2010, and the announced sale of
Chicago during the first quarter of 2010 are expected to result in cash outlays
of approximately $225.0 million, $30.0 million and $815.0 million, respectively,
or $1.07 billion in aggregate. These cash outlays are partially offset by the
announced sale of certain loans in our First Bank Business Capital, Inc.
subsidiary which is expected to result in our receipt of a cash payment of
approximately $91.5 million during the fourth quarter of 2009. See Notes 2 and
18 to our consolidated financial statements for further discussion of
discontinued operations and other corporate transactions.





We
continue to closely monitor liquidity and implement actions deemed necessary to
maintain an appropriate level of liquidity in light of unstable market
conditions, changes in loan funding needs, operating and debt service
requirements, current deposit trends and events that may occur in conjunction
with our Capital Plan.





We
continue to seek opportunities to improve our overall liquidity position,
including the development of a Liquidity Management Committee and a more
efficient collateral management process.


63
 Table of Contents




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, 2009 were as
follows:





Less
      than 1 Year
            
            
            1-3
      Years
            
            
            3-5
      Years
            
            
            Over
      5 Years
            
            
            Total(1)(dollars
      expressed in thousands)Operating
      leases
            
            $
            16,661
            
            
            
            27,921
            
            
            
            18,614
            
            
            
            43,911
            
            
            
            107,107Certificates
      of deposit (2)
            
            
            2,583,596
            
            
            
            652,166
            
            
            
            24,745
            
            
            
            1,035
            
            
            
            3,261,542Other
      borrowings (2)
            
            
            298,704
            
            
            
            420,000
            
            
            
            —
            
            
            
            100,000
            
            
            
            818,704Subordinated
      debentures (3)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            353,885
            
            
            
            353,885Preferred
      stock issued under the TARP (3)
      (4)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            310,170
            
            
            
            310,170Other
      contractual obligations
            
            
            826
            (5)
            
            
            377
            
            
            
            198
            
            
            
            6
            
            
            
            1,407Total
            
            $
            2,899,787
            
            
            
            1,100,464
            
            
            
            43,557
            
            
            
            809,007
            
            
            
            4,852,815


_______________


(1)
            Amounts
      exclude FIN 48 unrecognized tax liabilities of $3.5 million and related
      accrued interest expense of $1.2 million for which the timing of payment
      of such liabilities cannot be reasonably estimated as of September 30,
      2009.


(2)
            Amounts
      exclude the related interest expense and dividends accrued on these
      obligations as of September 30,
2009.


(3)
            Amounts
      exclude the accrued interest expense on subordinated debentures and the
      accrued dividends on preferred stock issued under the TARP of $3.5 million
      and $4.1 million, respectively, as of September 30, 2009. 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.


(4)
            Represents
      amounts payable upon redemption of the Class C and Class D preferred stock
      issued under the TARP of $295.4 million and $14.8 million,
      respectively.


(5)
            Includes
      an accrued expense related to our remaining estimated indemnification
      obligation, as a member bank, to share certain litigation costs of
      Visa.





We
agreed, among other things, not to declare or pay any dividends on our common or
preferred stock or make any distributions of interest or other sums on our trust
preferred securities without the prior approval of the FRB, as previously
discussed under “—Regulatory Matters.”





On August
10, 2009, we announced the deferral of our regularly scheduled interest payments
on our outstanding junior subordinated notes relating to our $345.0 million of
trust preferred securities beginning with the regularly scheduled quarterly
interest payments that would otherwise have been made in September and October
2009. The terms of the junior subordinated notes and the related trust
indentures allow us to defer such payments of interest for up to 20 consecutive
quarterly periods without default or penalty. During the deferral period, we may
not, among other things and with limited exceptions, pay cash dividends on or
repurchase our common stock or preferred stock nor make any payment on
outstanding debt obligations that rank equally with or junior to our junior
subordinated notes. Accordingly, we also suspended the payment of cash dividends
on our outstanding common stock and preferred stock beginning with the regularly
scheduled quarterly dividend payments on our preferred stock that would
otherwise have been made in August and September 2009, as further described in
Note 18 to the consolidated financial statements.





We
believe we have sufficient liquidity to meet our current and future near-term
liquidity needs; however, no assurances can be made that our liquidity position
will not be materially, adversely affected in the future. In addition, our
ability to receive future dividends from First Bank to assist us in meeting our
operating requirements, both on a short-term and long-term basis, is subject to
regulatory approval, as further described above and under “—Regulatory
Matters.”








Effects
of New Accounting Standards





In
December 2007, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 141(R) – Business Combinations, which
was subsequently incorporated into Accounting Standards CodificationTM,, or
ASC, Topic 805, “Business
Combinations,” significantly changes how entities apply the acquisition
method to business combinations. The most significant changes affecting how
entities account for business combinations under ASC Topic 805 include: (a) the
acquisition date is the date the acquirer obtains control; (b) all (and only)
identifiable assets acquired, liabilities assumed, and noncontrolling interests
in the acquiree are stated at fair value on the acquisition date; (c) assets or
liabilities arising from noncontractual contingencies are 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
are 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, which was subsequently
incorporated into ASC Topic 420, “Exit or Disposal Cost
Obligations,” are expensed as incurred; (f) transaction costs are
expensed as incurred; (g) reversals of deferred income tax valuation allowances
and income tax contingencies are recognized in earnings subsequent to the
measurement period; and (h) the allowance for loan losses of an acquiree is not
permitted to be recognized by the acquirer. Additionally, ASC Topic 805 requires
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. ASC Topic 805 is effective for all business combinations completed
on or after January 1, 2009. For business combinations in which the acquisition
date was before the effective date, the provisions of ASC Topic 805 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. The adoption of ASC Topic 805 did not have a material impact on our
financial condition, results of operations or the disclosures that are presented
in our consolidated financial statements.


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In
December 2007, the FASB issued SFAS No. 160 – Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB 51, which was
subsequently incorporated into ASC Topic 810, “Consolidation.” ASC Topic
810 establishes new accounting and reporting standards for noncontrolling
interests in a subsidiary and for the deconsolidation of a subsidiary. ASC Topic
810 requires entities to classify noncontrolling interests as a component of
stockholders’ equity and requires subsequent changes in ownership interests in a
subsidiary to be accounted for as an equity transaction. Additionally, ASC Topic
810 requires 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. ASC Topic 810 also requires expanded disclosures that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. ASC Topic 810 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. We implemented
ASC Topic 810 on January 1, 2009, which resulted in our noncontrolling interest
in subsidiaries of $129.4 million at December 31, 2008 being reclassified from a
liability to a component of our stockholders’ equity in our consolidated balance
sheets.





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,which was subsequently incorporated
into ASC Topic 815, “Derivatives and Hedging.”ASC Topic 815 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 ASC Topic 815 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, ASC Topic 815 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. ASC Topic 815 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008.
We implemented ASC Topic 815 on January 1, 2009 and the required disclosures are
reported in Note 16 to our consolidated financial statements.





In April
2009, the FASB issued FASB Staff Position, or FSP, SFAS 157-4– Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly,which was
subsequently incorporated into ASC Topic 820, “Fair Value Measurements and
Disclosures.”ASC Topic 820 affirms that the objective of fair value when
the market for an asset is not active is the price that would be received to
sell the asset in an orderly transaction, and clarifies and includes additional
factors for determining whether there has been a significant decrease in market
activity for an asset when the market for that asset is not active. ASC Topic
820 requires an entity to base its conclusion about whether a transaction was
not orderly on the weight of the evidence. ASC Topic 820 also amended existing
accounting guidance to expand certain disclosure requirements. ASC Topic 820 is
effective for interim and annual periods ending after June 15, 2009 and is
applied prospectively. We adopted the provisions of ASC Topic 820 during the
second quarter of 2009, which did not have a material impact on our consolidated
financial statements or the disclosures presented in our consolidated financial
statements.





In April
2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2– Recognition and Presentation of
Other-Than-Temporary Impairments,which was subsequently incorporated
into ASC Topic 320, “Investments – Debt and Equity
Securities.” This ASC (i) changes existing guidance for determining
whether an impairment is other than temporary to debt securities and (ii)
replaces the existing requirement that the entity’s management assert it has
both the intent and ability to hold an impaired security until recovery with a
requirement that management assert: (a) it does not have the intent to sell the
security; and (b) it is more likely than not it will not have to sell the
security before recovery of its cost basis. Under ASC Topic 320, declines in the
fair value of held-to-maturity and available-for-sale securities below their
cost that are deemed to be other than temporary are reflected in earnings as
realized losses to the extent the impairment is related to credit losses. The
amount of the impairment related to other factors is recognized in other
comprehensive income. These ASC’s are effective for interim and annual periods
ending after June 15, 2009 and are applied prospectively. We adopted the
provisions of ASC Topic 320 during the second quarter of 2009 which did not have
a material impact on our consolidated financial statements. The interim
disclosures required by ASC Topic 320 are reported in Note 3 and Note 13 to our
consolidated financial statements.


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In April
2009, the FASB issued FSP SFAS 107-1 and Accounting Principles Board, or APB,
Opinion 28-1 –Interim
Disclosures about Fair Value of Financial Instruments,which were
subsequently incorporated into ASC Topic 825, “Financial Instruments.” This
ASC amends the existing guidance to require an entity to provide disclosures
about fair value of financial instruments in interim financial information and
to require those disclosures in summarized financial information at interim
reporting periods. Under ASC Topic 825, a publicly traded company shall include
disclosures about the fair value of its financial instruments whenever it issues
summarized financial information for interim reporting periods. In addition,
entities must disclose, in the body or in the accompanying notes of its
summarized financial information for interim reporting periods and in its
financial statements for annual reporting periods, the fair value of all
financial instruments for which it is practicable to estimate that value,
whether recognized or not recognized in the statement of financial position, as
required by ASC Topic 825. ASC Topic 825 is effective for interim periods ending
after June 15, 2009 and is applied prospectively. The interim disclosures
required by ASC Topic 825 are reported in Note 15 to our consolidated financial
statements.





In May
2009, the FASB issued SFAS No. 165 – Subsequent Events, which was
subsequently incorporated into ASC Topic 855, “Subsequent Events.” ASC
Topic 855 incorporates accounting and disclosure requirements related to
subsequent events into U.S. generally accepted accounting principles, or GAAP,
making management directly responsible for subsequent-events accounting and
disclosure. ASC Topic 855 sets forth: (a) the period after the balance sheet
date during which management shall evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements; (b)
the circumstances under which an entity shall recognize events or transactions
occurring after the balance sheet date in its financial statements; and (c) the
disclosures that an entity shall make about events or transactions that occurred
after the balance sheet date. The requirements for subsequent-events accounting
and disclosure are not significantly different from those in auditing standards.
ASC Topic 855 is effective for interim and annual periods ending after June 15,
2009. We adopted the provisions of ASC Topic 855 in the second quarter of 2009,
which did not have a material impact on our consolidated financial statements or
the disclosures that are presented in our consolidated financial
statements.





In June
2009, the FASB issued SFAS No. 166– Accounting for Transfers of
Financial Assets, an Amendment of SFAS No. 140 – Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which
was subsequently incorporated into ASC Topic 860, “Transfers and Servicing.”
SFAS No. 166 amends ASC Topic 860 and requires more information about transfers
of financial assets, including securitization transactions and where companies
have continuing exposure to the risks related to transferred financial assets.
It eliminates the concept of a “qualifying special-purpose entity,” changes the
requirements for derecognizing financial assets and requires additional
disclosures. SFAS No. 166 is effective for the annual period beginning after
November 15, 2009 and for interim periods within the first annual reporting
period, and must be applied to transfers occurring on or after the effective
date. We are currently evaluating the requirements of SFAS No. 166, which are
not expected to significantly impact our consolidated financial statements or
the disclosures that will be presented in our consolidated financial
statements.





In June
2009, the FASB issued SFAS No. 167– Amendments to FASB Interpretation
No. 46(R). SFAS No. 167 amends FIN 46(R) – Consolidation of Variable Interest
Entities, which was subsequently incorporated into ASC Topic 810, “Consolidation,” to change
how a company determines when an entity that is insufficiently capitalized or is
not controlled through voting (or similar rights) should be consolidated, and
requires additional disclosures about involvement with variable interest
entities, any significant changes in risk exposure due to that involvement and
how that involvement affects the company’s financial statements. The
determination of whether a company is required to consolidate an entity is based
on, among other things, an entity’s purpose and design and a company’s ability
to direct the activities of the entity that most significantly impact the
entity’s economic performance. SFAS No. 167 is effective for the annual period
beginning after November 15, 2009 and for interim periods within the first
annual reporting period. We are currently evaluating the requirements of SFAS
No. 167, which are not expected to significantly impact our consolidated
financial statements or the disclosures that will be presented in our
consolidated financial statements.


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In June
2009, the FASB issued SFAS No. 168– The FASB Accounting Standards
CodificationTMand the Hierarchy of Generally
Accepted Accounting Principles, a Replacement of SFAS No. 162 – The Hierarchy of
Generally Accepted Accounting Principles,which was subsequently
incorporated into ASC Topic 105, “Generally Accepted Accounting
Principles.” The FASB ASC establishes the source of authoritative GAAP
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the United States Securities and Exchange Commission,
or SEC, under authority of federal securities laws, are also sources of
authoritative GAAP for SEC registrants. The ASC supersedes all then-existing
non-SEC accounting and reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification will become
non-authoritative. ASC Topic 105 is effective for financial statements issued
for interim and annual periods ending after September 15, 2009. We adopted this
new accounting pronouncement for the quarterly period ended September 30, 2009,
which did not have a material impact on our consolidated financial statements or
the disclosures presented in our consolidated financial
statements.


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Item3 – Quantitative and Qualitative Disclosures about Market
Risk





At
December 31, 2008, 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 50 basis points was
projected to have a relatively minimal impact on our net interest income, an
instantaneous parallel decline in the interest yield curve of 50 basis points
indicated a pre-tax projected loss of approximately 3.6% of net interest income,
based on assets and liabilities at December 31, 2008. At September 30, 2009, 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 cuts in interest rates
throughout 2008, has negatively impacted our net interest income and will
continue to impact the level of our net interest income throughout the remainder
of 2009, as reflected in our net interest margin for the three and nine months
ended September 30, 2009 as compared to the same periods in 2008, and further
discussed under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Results of Operations.”








Item4 – Controls and Procedures





The
Company’s management, including our President and Chief Executive Officer and
our Chief Financial Officer have evaluated the effectiveness of our “disclosure
controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, or the Exchange Act), as of the end of the
period covered by this report. Based on such evaluation, our President and Chief
Executive Officer and our Chief Financial Officer have concluded that, as of the
end of such period, the Company’s disclosure controls and procedures were
effective 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. There have not been any changes in
the Company’s internal control over financial reporting (as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal
quarter to which this report relates that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.


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PART
II – OTHER INFORMATION








Item1– Legal Proceedings





The
information required by this item is set forth in Note 17, Contingent
Liabilities, to our consolidated financial statements appearing elsewhere in
this report and is incorporated herein by reference.





In the
ordinary course of business, we and our subsidiaries become involved in legal
proceedings including litigation arising out of our efforts to collect
outstanding loans. It is not uncommon for collection efforts to lead to
so-called “lender liability” suits in which borrowers may assert various claims
against us. Our management, in consultation with legal counsel, believes the
ultimate resolution of these existing proceedings will not have a material
adverse effect on our business, financial condition or results of
operations.





As
further described in Management’s Discussion and Analysis of Financial Condition
and Results of Operations and in Note 1 to our consolidated financial statements
appearing elsewhere in this report, the Company and First Bank have entered into
informal agreements with the Federal Reserve Bank of St. Louis and the Missouri
Division of Finance.








Item1A– Risk factors





In
addition to the risk factors described in our Annual Report on Form 10-K for the
year ended December 31, 2008,  we have identified the following
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 appearing elsewhere in this
report:





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


Ø
              Negative
      perception could adversely affect our business, impacting our financial
      condition, results of operations and cash flows.Negative perception
      or publicity is inherent in any business. Although the Company takes steps
      to minimize reputation risk in dealing with customers and other
      constituencies, the Company is inherently exposed to the risk of negative
      perception by the public and our customers as a result of, but not limited
      to, our participation in the TARP under the Emergency Economic
      Stabilization Act of 2008 and as a result of actions imposed by our
      regulators. The risk of negative perception by the public and our
      customers may adversely affect the Company’s ability to maintain and
      attract customers and employees.





Item
6– Exhibits





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





Exhibit Number
            Description31.1
            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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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, 2009





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






70