FIRST BANKS, INC - FORM 10-Q

Attached files

file	filename
EX-31 - EXHIBIT 31.2 - FIRST BANKS, INC	ex31_2.htm
EX-31 - EXHIBIT 31.1 - FIRST BANKS, INC	ex31_1.htm
EX-32 - EXHIBIT 32.2 - FIRST BANKS, INC	ex32_2.htm
EX-32 - EXHIBIT 32.1 - FIRST BANKS, INC	ex32_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2011

o 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.

xYes o No

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

oYes oNo

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

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

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

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 April 30, 2011

Common Stock, $250.00 par value

23,661

First Banks, Inc.

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PART I.		FINANCIAL INFORMATION

	Item 1.	Financial Statements:

		Consolidated Balance Sheets	1

		Consolidated Statements of Operations	2

		Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (Loss)	3

		Consolidated Statements of Cash Flows	4

		Notes to Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	75

	Item 4.	Controls and Procedures	75

PART II.		OTHER INFORMATION

	Item 1.	Legal Proceedings	76

	Item 6.	Exhibits	76

SIGNATURES			77

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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)

	March 31,			December 31,
	2011			2010
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	86,739			70,964
Short-term investments		867,672			924,794
Total cash and cash equivalents		954,411			995,758
Investment securities:
Available for sale		1,745,752			1,483,185
Held to maturity (fair value of $14,961 and $11,990, respectively)		14,233			11,152
Total investment securities		1,759,985			1,494,337
Loans:
Commercial, financial and agricultural		947,219			1,045,832
Real estate construction and development		439,449			490,766
Real estate mortgage		2,675,723			2,872,104
Consumer and installment		28,849			33,623
Loans held for sale		17,914			54,470
Total loans		4,109,154			4,496,795
Unearned discount		(4,119	)		(4,511	)
Allowance for loan losses		(183,973	)		(201,033	)
Net loans		3,921,062			4,291,251
Federal Reserve Bank and Federal Home Loan Bank stock, at cost		28,202			30,121
Bank premises and equipment, net		158,682			161,414
Goodwill and other intangible assets		128,255			129,054
Deferred income taxes		19,107			18,004
Other real estate		126,554			140,628
Other assets		70,746			71,763
Assets held for sale		2,177			2,266
Assets of discontinued operations		40,215			43,532
Total assets	$	7,209,396			7,378,128
LIABILITIES
Deposits:
Noninterest-bearing demand	$	1,118,906			1,167,206
Interest-bearing demand		947,519			919,973
Savings and money market		2,199,989			2,206,763
Time deposits of $100 or more		740,978			828,651
Other time deposits		1,239,325			1,335,822
Total deposits		6,246,717			6,458,415
Other borrowings		39,404			31,761
Subordinated debentures		354,000			353,981
Deferred income taxes		26,289			25,186
Accrued expenses and other liabilities		136,583			83,900
Liabilities held for sale		12,740			23,406
Liabilities of discontinued operations		93,691			94,184
Total liabilities		6,909,424			7,070,833

STOCKHOLDERS’ EQUITY
First Banks, Inc. stockholders’ equity:
Preferred stock:
$1.00 par value, 4,689,830 shares authorized, no shares issued and outstanding		—			—
Class A convertible, adjustable rate, $20.00 par value, 750,000 shares authorized, 641,082 shares issued and outstanding		12,822			12,822
Class B adjustable rate, $1.50 par value, 200,000 shares authorized, 160,505 shares issued and outstanding		241			241
Class C fixed rate, cumulative, perpetual, $1.00 par value, 295,400 shares authorized, issued and outstanding		285,592			284,737
Class D fixed rate, cumulative, perpetual, $1.00 par value, 14,770 shares authorized, issued and outstanding		17,343			17,343
Common stock, $250.00 par value, 25,000 shares authorized, 23,661 shares issued and outstanding		5,915			5,915
Additional paid-in capital		12,480			12,480
Retained deficit		(132,218	)		(120,827	)
Accumulated other comprehensive income ( loss)		830			(2,318	)
Total First Banks, Inc. stockholders’ equity		203,005			210,393
Noncontrolling interest in subsidiary		96,967			96,902
Total stockholders’ equity		299,972			307,295
Total liabilities and stockholders’ equity	$	7,209,396			7,378,128

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

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First Banks, Inc.

Consolidated Statements of Operations – (Unaudited)

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

	Three Months Ended March 31,
	2011			2010

Interest income:
Interest and fees on loans	$	52,580			77,764
Investment securities		8,760			5,204
Federal Reserve Bank and Federal Home Loan Bank stock		396			583
Short-term investments		532			1,220
Total interest income		62,268			84,771
Interest expense:
Deposits:
Interest-bearing demand		307			366
Savings and money market		2,866			4,067
Time deposits of $100 or more		2,825			4,353
Other time deposits		4,445			7,225
Other borrowings		26			3,388
Subordinated debentures		3,302			3,100
Total interest expense		13,771			22,499
Net interest income		48,497			62,272
Provision for loan losses		10,000			42,000
Net interest income after provision for loan losses		38,497			20,272
Noninterest income:
Service charges on deposit accounts and customer service fees		9,703			10,212
Gain on loans sold and held for sale		386			920
Net gain on investment securities		527			—
Net loss on derivative instruments		(56	)		(1,327	)
Decrease in fair value of servicing rights		(489	)		(749	)
Loan servicing fees		2,269			2,262
Other		1,784			4,090
Total noninterest income		14,124			15,408
Noninterest expense:
Salaries and employee benefits		20,841			21,960
Occupancy, net of rental income		6,925			7,149
Furniture and equipment		3,229			3,797
Postage, printing and supplies		814			1,120
Information technology fees		6,496			7,373
Legal, examination and professional fees		3,063			3,454
Amortization of intangible assets		799			925
Advertising and business development		501			417
FDIC insurance		5,285			4,933
Write-downs and expenses on other real estate		4,926			7,907
Other		5,967			6,889
Total noninterest expense		58,846			65,924
Loss from continuing operations, before provision for income taxes		(6,225	)		(30,244	)
Provision for income taxes		52			105
Net loss from continuing operations, net of tax		(6,277	)		(30,349	)
Income from discontinued operations, net of tax		194			2,343
Net loss		(6,083	)		(28,006	)
Less: net income (loss) attributable to noncontrolling interest in subsidiary		65			(437	)
Net loss attributable to First Banks, Inc.		(6,148	)		(27,569	)
Preferred stock dividends declared and undeclared		4,388			4,161
Accretion of discount on preferred stock		855			833
Net loss available to common stockholders	$	(11,391	)		(32,563	)

Basic and diluted loss per common share from continuing operations	$	(489.61	)		(1,475.28	)
Basic and diluted earnings per common share from discontinued operations		8.20			99.02
Basic and diluted loss per common share	$	(481.41	)		(1,376.26	)

Weighted average shares of common stock outstanding		23,661			23,661

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

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First Banks, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

and Comprehensive Income (Loss) – (Unaudited)

Three Months Ended March 31, 2011 and Year Ended December 31, 2010

(dollars expressed in thousands, except per share data)

	First Banks, Inc. Stockholders’ Equity
	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings			Accu- mulated Other Compre- hensive Income (Loss)			Non- controlling Interest			Total Stock- holders’ Equity

Balance, December 31, 2009	$	311,762		5,915		12,480		91,271			(2,464	)		103,416			522,380
Comprehensive loss:
Net loss		—		—		—		(191,737	)		—			(6,514	)		(198,251	)
Other comprehensive income (loss):
Unrealized gains on investment securities, net of tax		—		—		—		—			4,764			—			4,764
Reclassification adjustment for investment securities gains included in net loss, net of tax		—		—		—		—			(5,378	)		—			(5,378	)
Change in unrealized gains on derivative instruments, net of tax		—		—		—		—			(3,734	)		—			(3,734	)
Pension liability adjustment, net of tax		—		—		—		—			(4	)		—			(4	)
Reclassification adjustments for deferred tax asset valuation allowance		—		—		—		—			4,498			—			4,498
Total comprehensive loss																	(198,105	)
Accretion of discount on preferred stock		3,381		—		—		(3,381	)		—			—			—
Preferred stock dividends declared		—		—		—		(16,980	)		—			—			(16,980	)
Balance, December 31, 2010		315,143		5,915		12,480		(120,827	)		(2,318	)		96,902			307,295
Comprehensive loss:
Net (loss) income		—		—		—		(6,148	)		—			65			(6,083	)
Other comprehensive income (loss):
Unrealized gains on investment securities, net of tax		—		—		—		—			2,364			—			2,364
Reclassification adjustment for investment securities gains included in net loss, net of tax		—		—		—		—			(335	)		—			(335	)
Pension liability adjustment, net of tax		—		—		—		—			15			—			15
Reclassification adjustments for deferred tax asset valuation allowance		—		—		—		—			1,104			—			1,104
Total comprehensive loss																	(2,935	)
Accretion of discount on preferred stock		855		—		—		(855	)		—			—			—
Preferred stock dividends declared		—		—		—		(4,388	)		—			—			(4,388	)
Balance, March 31, 2011	$	315,998		5,915		12,480		(132,218	)		830			96,967			299,972

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

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First Banks, Inc.

Consolidated Statements of Cash Flows – (Unaudited)

(dollars expressed in thousands)

	Three Months Ended March 31,
	2011			2010

Cash flows from operating activities:
Net loss attributable to First Banks, Inc.	$	(6,148	)		(27,569	)
Net income (loss) attributable to noncontrolling interest in subsidiary		65			(437	)
Less: net income from discontinued operations		194			2,343
Net loss from continuing operations		(6,277	)		(30,349	)

Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of bank premises and equipment		3,727			4,727
Amortization of intangible assets		799			925
Originations of loans held for sale		(57,515	)		(61,575	)
Proceeds from sales of loans held for sale		94,957			70,767
Payments received on loans held for sale		78			299
Provision for loan losses		10,000			42,000
Provision for current income taxes		52			105
Benefit for deferred income taxes		(2,890	)		(8,073	)
Increase in deferred tax asset valuation allowance		2,890			8,073
Decrease (increase) in accrued interest receivable		1,956			(896	)
Increase in accrued interest payable		1,694			856
Decrease in current income taxes receivable		45			—
Gain on loans sold and held for sale		(386	)		(920	)
Net gain on investment securities		(527	)		—
Net loss on derivative instruments		56			1,327
Decrease in fair value of servicing rights		489			749
Write-downs on other real estate		2,563			4,456
Other operating activities, net		3,388			(7,628	)
Net cash provided by operating activities – continuing operations		55,099			24,843
Net cash provided by operating activities – discontinued operations		26			4,110
Net cash provided by operating activities		55,125			28,953
Cash flows from investing activities:
Net cash paid for sale of assets and liabilities of discontinued operations, net of cash and cash equivalents sold		—			(834,841	)
Cash paid for sale of branches, net of cash and cash equivalents sold		(7,922	)		(8,408	)
Proceeds from sales of investment securities available for sale		25,641			—
Maturities of investment securities available for sale		58,143			47,006
Maturities of investment securities held to maturity		250			728
Purchases of investment securities available for sale		(298,293	)		(381,550	)
Purchases of investment securities held to maturity		(3,450	)		—
Redemptions of Federal Home Loan Bank and Federal Reserve Bank stock		1,919			13,239
Purchases of Federal Home Loan Bank and Federal Reserve Bank stock		—			(113	)
Proceeds from sales of commercial loans		20,905			20,210
Net decrease in loans		280,229			244,768
Recoveries of loans previously charged-off		9,845			30,255
Purchases of bank premises and equipment		(1,125	)		(1,343	)
Net proceeds from sales of other real estate owned		20,684			20,060
Proceeds from termination of bank-owned life insurance policy		—			19,247
Other investing activities, net		(121	)		441
Net cash provided by (used in) investing activities – continuing operations		106,705			(830,301	)
Net cash provided by investing activities – discontinued operations		3,643			24,562
Net cash provided by (used in) investing activities		110,348			(805,739	)

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First Banks, Inc.

Consolidated Statements of Cash Flows (Continued) – (Unaudited)

(dollars expressed in thousands)

	Three Months Ended March 31,
	2011			2010

Cash flows from financing activities:
Decrease in demand, savings and money market deposits		(28,648	)		(27,497	)
Decrease in time deposits		(185,325	)		(11,619	)
Repayments of Federal Home Loan Bank advances		—			(200,000	)
Increase (decrease) in securities sold under agreements to repurchase		7,643			(239	)
Net cash used in financing activities – continuing operations		(206,330	)		(239,355	)
Net cash used in financing activities – discontinued operations		(490	)		(30,729	)
Net cash used in financing activities		(206,820	)		(270,084	)
Net decrease in cash and cash equivalents		(41,347	)		(1,046,870	)
Cash and cash equivalents, beginning of period		995,758			2,516,251
Cash and cash equivalents, end of period	$	954,411			1,469,381


Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest on liabilities	$	12,077			21,643
Income taxes		(47	)		15
Noncash investing and financing activities:
Loans transferred to other real estate	$	10,262			33,692

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

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First Banks, Inc.

Notes to Consolidated Financial Statements

Note 1 – Basis of Presentation

The consolidated financial statements of First Banks, Inc. and subsidiaries (the Company) are unaudited and should be read in conjunction with the consolidated financial statements contained in the 2010 Annual Report on Form 10-K. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and conform to predominant practices within the banking industry. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation of the results of operations for the interim periods presented herein, have been included. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

Principles of Consolidation. The consolidated financial statements include the accounts of the parent company and its subsidiaries, giving effect to the noncontrolling interest in subsidiary, as more fully described below and in Note 8 to the consolidated financial statements. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications of 2010 amounts have been made to conform to the 2011 presentation.

All financial information is reported on a continuing operations basis, unless otherwise noted. See Note 2 to the consolidated financial statements for a discussion regarding discontinued operations and certain assets and liabilities held for sale at March 31, 2011.

The Company operates through its wholly owned subsidiary bank holding company, The San Francisco Company (SFC), headquartered in St. Louis, Missouri, and SFC’s wholly owned subsidiary bank, First Bank, also headquartered in St. Louis, Missouri.

First Bank operates through its branch banking offices and subsidiaries: First Bank Business Capital, Inc.; FB Holdings, LLC (FB Holdings); Small Business Loan Source LLC (SBLS LLC); ILSIS, Inc.; FBIN, Inc.; SBRHC, Inc.; HVIIHC, Inc., FBSA Missouri, Inc., FBSA California, Inc., NT Resolution Corporation, LC Resolution Corporation, and WBI Resolution, LLC. All of the subsidiaries are wholly owned as of March 31, 2011, except FB Holdings, which was 53.23% owned by First Bank and 46.77% owned by First Capital America, Inc. (FCA), a corporation owned and operated by the Company’s Chairman of the Board and members of his immediate family, as further described in Note 8 to the consolidated financial statements. FB Holdings is included in the consolidated financial statements with the noncontrolling ownership interest reported as a component of stockholders’ equity in the consolidated balance sheets as “noncontrolling interest in subsidiary” and the earnings or loss, net of tax, attributable to the noncontrolling ownership interest, reported as “net income (loss) attributable to noncontrolling interest in subsidiary” in the consolidated statements of operations.

Regulatory Agreements and Other Matters. On March 24, 2010, the Company, SFC and First Bank entered into a Written Agreement (Agreement) with the Federal Reserve Bank of St. Louis (FRB) requiring the Company and First Bank to take certain steps intended to improve their overall financial condition. Pursuant to the Agreement, the Company prepared and filed with the FRB a number of specific plans designed to strengthen and/or address the following matters: (i) board oversight over the management and operations of the Company and First Bank; (ii) credit risk management practices; (iii) lending and credit administration policies and procedures; (iv) asset improvement; (v) capital; (vi) earnings and overall financial condition; and (vii) liquidity and funds management.

The Agreement requires, among other things, that the Company and First Bank obtain prior approval from the FRB in order to pay dividends. In addition, the Company must obtain prior approval from the FRB to: (i) take any other form of payment from First Bank representing a reduction in capital of First Bank; (ii) make any distributions of interest, principal or other sums on junior subordinated debentures or trust preferred securities; (iii) incur, increase or guarantee any debt; or (iv) purchase or redeem any shares of the Company’s stock. Pursuant to the terms of the Agreement, the Company and First Bank submitted a written plan to the FRB to maintain sufficient capital at the Company, on a consolidated basis, and at First Bank, on a standalone basis. In addition, the Agreement also provides that the Company and First Bank must notify the FRB if the risk-based capital ratios of either entity fall below those set forth in the capital plans that were accepted by the FRB, and specifically if First Bank falls below the criteria for being well capitalized under the regulatory framework for prompt corrective action. The Company must also notify the FRB before appointing any new directors or senior executive officers or changing the responsibilities of any senior executive officer position. The Agreement also requires the Company and First Bank to comply with certain restrictions regarding indemnification and severance payments. The Agreement is specifically enforceable by the FRB in court.

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The Company and First Bank must furnish periodic progress reports to the FRB regarding compliance with the Agreement. As of the date of this filing, the Company and First Bank have provided progress reports and other reports, as required under the Agreement. It is likely that the Company and First Bank may receive additional requests from the FRB regarding compliance with the Agreement. Management intends to respond promptly to any such requests. The Agreement will remain in effect until stayed, modified, terminated or suspended by the FRB.

The description of the Agreement above represents a summary and is qualified in its entirety by the full text of the Agreement which is incorporated herein by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the United States Securities and Exchange Commission (SEC) on March 25, 2010.

Prior to entering into the Agreement on March 24, 2010, the Company and First Bank had entered into a memorandum of understanding and an informal agreement, respectively, with the FRB and the State of Missouri Division of Finance (MDOF). Each of the agreements were characterized by regulatory authorities as informal actions that were neither published nor made publicly available by the agencies and are used when circumstances warrant a milder form of action than a formal supervisory action, such as a written agreement or cease and desist order. The informal agreement with the MDOF is still in place and there have not been any modifications thereto since its inception in September 2008.

Under the terms of the prior memorandum of understanding with the FRB, the Company agreed, among other things, to provide certain information to the FRB including, but not limited to, financial performance updates, notice of plans to materially change its fundamental business and notice to issue trust preferred securities or raise additional equity capital. In addition, the Company agreed not to pay any dividends on its common or preferred stock or make any distributions of interest or other sums on its trust preferred securities without the prior approval of the FRB.

First Bank, under its informal agreement with the MDOF and the FRB, agreed to, among other things, prepare and submit plans and reports to the agencies regarding certain matters including, but not limited to, the performance of First Bank’s loan portfolio. In addition, First Bank agreed not to declare or pay any dividends or make certain other payments without the prior consent of the MDOF and the FRB and to maintain a Tier 1 capital to total assets ratio of no less than 7.00%. As further described in Note 9 to the consolidated financial statements, First Bank’s Tier 1 capital to total assets ratio was 7.83% at March 31, 2011.

While the Company and First Bank intend to take such actions as may be necessary to comply with the requirements of the Agreement with the FRB and informal agreement with the MDOF, there can be no assurance that the Company and First Bank will be able to comply fully with the requirements of the Agreement or that First Bank will be able to comply fully with the provisions of the informal agreement, that compliance with the Agreement and the informal agreement will not be more time consuming or more expensive than anticipated, that compliance with the Agreement and the informal agreement will enable the Company and First Bank to resume profitable operations, or that efforts to comply with the Agreement and the informal agreement will not have adverse effects on the operations and financial condition of the Company or First Bank. If the Company or First Bank is unable to comply with the terms of the Agreement or the informal agreement, respectively, the Company and First Bank could become subject to various requirements limiting the ability to develop new business lines, mandating additional capital, and/or requiring the sale of certain assets and liabilities. Failure of the Company and First Bank to meet these conditions could lead to further enforcement action by the regulatory agencies. The terms of any such additional regulatory actions, orders or agreements could have a materially adverse effect on our business, financial condition or results of operations.

On August 10, 2009, the Company announced the deferral of its regularly scheduled interest payments on its outstanding junior subordinated notes relating to its $345.0 million of trust preferred securities beginning with the regularly scheduled quarterly interest payments that would otherwise have been made in September and October 2009, as further described in Note 12 to the consolidated financial statements. During the deferral period, the Company may not, among other things and with limited exceptions, pay cash dividends on or repurchase its common stock or preferred stock or make any payment on outstanding debt obligations that rank equally with or junior to the junior subordinated notes. Accordingly, the Company also suspended the payment of cash dividends on its outstanding common stock and preferred stock beginning with the regularly scheduled quarterly dividend payments on the preferred stock that would otherwise have been made in August and September 2009, as further described in Note 13 to the consolidated financial statements. In conjunction with this election, the Company suspended the declaration of dividends on its Class A and Class B preferred stock, but continues to declare and accumulate dividends on its Class C Fixed Rate Cumulative Perpetual Preferred Stock (Class C Preferred Stock) and Class D Fixed Rate Cumulative Perpetual Preferred Stock (Class D Preferred Stock). As a result of our deferral of dividends on our Class C and Class D preferred stock to the United States Department of the Treasury (U.S. Treasury) for six quarters, the U.S. Treasury has the right to elect two directors to our Board but has not elected to do so as of May 13, 2011.

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Capital Plan. As further described in Note 2 to the consolidated financial statements, on August 10, 2009, the Company announced the adoption of a Capital Optimization Plan (Capital Plan) designed to improve its regulatory capital ratios and financial performance through certain divestiture activities, asset reductions and expense reductions. The Capital Plan was adopted in order to, among other things, preserve and enhance the Company’s risk-based capital.

The successful completion of all or any portion of the Capital Plan is not assured, and no assurance can be made that the Capital Plan will not be materially modified in the future. The decision to implement the Capital Plan reflects the adverse affect that the severe downturn in the commercial and residential real estate markets has had on the Company’s financial condition and results of operations. If the Company is not able to complete substantially all of the Capital Plan, its business, financial condition, including regulatory capital ratios, and results of operations may be materially and adversely affected and its ability to withstand continued adverse economic conditions could be threatened.

Successful Completion of Consent Solicitation. In October 2010, the Company, the holder of 100% of the outstanding common stock of First Preferred Capital Trust IV (Trust), began soliciting consents from the holders of the 8.15% cumulative trust preferred securities of the Trust (Trust Preferred Securities). The Company solicited consents to amend: (a) the Indenture, dated April 1, 2003 (Indenture) relating to the 8.15% Subordinated Debentures due 2033 issued by the Company to the Trust (Debentures); (b) the Amended and Restated Trust Agreement, dated April 1, 2003, relating to the Trust (the Trust Agreement); and (c) the Preferred Securities Guarantee, dated April 1, 2003 (Guarantee Agreement) relating to the Trust Preferred Securities.

The Company solicited the consents to the Indenture, Trust Agreement and Guarantee Agreement in order to increase capital planning flexibility under the terms of those documents and the provisions of the indentures, guarantee agreements and trust agreements relating to other tranches of trust preferred securities. The amendments provide an opportunity for the Company to improve its capital position and decrease its level of indebtedness during a period in which it is deferring interest payments in accordance with the terms of the Indenture.

On January 25, 2011, the Company obtained the requisite consents from the holders of the Trust Preferred Securities approving the amendments. On January 26, 2011, the Company entered into the amendments that were approved in the consent solicitation, which consist of: (i) the First Supplemental Indenture, dated as of January 26, 2011 (Supplemental Indenture) between the Company, as Issuer, and The Bank of New York Mellon Trust Company, N.A., as Trustee; (ii) the First Amendment to the Trust Agreement, dated January 26, 2011 (Trust Amendment), among the Company, The Bank of New York Mellon Trust Company, N.A., as Property Trustee, Wilmington Trust Company, as Delaware Trustee, and the Administrative Trustees named therein; and (iii) the First Amendment to Preferred Securities Guarantee Agreement, dated as of January 26, 2011 (Guarantee Amendment) between the Company, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Guarantee Trustee.

Note 2 – Discontinued Operations and Assets and Liabilities Held for Sale

Discontinued Operations. Northern Illinois Region. During 2010, First Bank entered into three Branch Purchase and Assumption Agreements that provided for the sale of certain assets and the transfer of certain liabilities associated with 14 of First Bank’s branch banking offices in Northern Illinois, as further described below.

On December 21, 2010, First Bank entered into a Branch Purchase and Assumption Agreement with United Community Bank (United Community) that provided for the sale of certain assets and the transfer of certain liabilities associated with First Bank’s three retail branches in Pittsfield, Roodhouse and Winchester, Illinois to United Community. The transaction was completed on May 13, 2011, as further described in Note 18 to the consolidated financial statements. Under the terms of the agreement, United Community assumed approximately $92.5 million of deposits associated with these branches for a weighted average premium of approximately 2.4%, or $2.2 million. United Community also purchased approximately $37.9 million of loans as well as certain other assets at par value, including premises and equipment, associated with these branches. The assets and liabilities sold in this transaction are reflected in assets and liabilities of discontinued operations in the consolidated balance sheets as of March 31, 2011 and December 31, 2010.

On June 7, 2010, First Bank entered into a Branch Purchase and Assumption Agreement with Bank of Springfield that provided for the sale of certain assets and the transfer of certain liabilities of First Bank’s branch banking office located in Jacksonville, Illinois (Jacksonville Branch) to Bank of Springfield. The transaction was completed on September 24, 2010. Under the terms of the agreement, Bank of Springfield assumed $28.9 million of deposits associated with the Jacksonville Branch for a premium of approximately 4.00%, or $1.2 million. Bank of Springfield also purchased $2.2 million of loans as well as certain other assets at par value, including premises and equipment, associated with the Jacksonville Branch.

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On May 7, 2010, First Bank entered into a Branch Purchase and Assumption Agreement with First Mid-Illinois Bank & Trust, N.A. (First Mid-Illinois) that provided for the sale of certain assets and the transfer of certain liabilities associated with 10 of First Bank’s retail branches in Peoria, Galesburg, Quincy, Bartonville, Knoxville and Bloomington, Illinois to First Mid-Illinois. The transaction was completed on September 10, 2010. Under the terms of the agreement, First Mid-Illinois assumed $336.0 million of deposits for a premium of 4.77%, or $15.6 million. First Mid-Illinois also purchased approximately $135.2 million of loans as well as certain other assets at par value, including premises and equipment, associated with these branches.

The 14 branches in the transactions with United Community, Bank of Springfield and First Mid-Illinois are collectively defined as the Northern Illinois Region (Northern Illinois Region). The Bank of Springfield and First Mid-Illinois transactions, in the aggregate, resulted in a gain of $6.4 million, net of a reduction in goodwill and intangible assets of $9.7 million allocated to the Northern Illinois Region, during the third quarter of 2010. The United Community transaction resulted in a preliminary gain of approximately $400,000, net of a reduction in goodwill and intangible assets of $1.6 million allocated to the Northern Illinois Region, during the second quarter of 2011, as further described in Note 18 to the consolidated financial statements.

The Company 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 the Northern Illinois Region as of March 31, 2011 and December 31, 2010 and for the three months ended March 31, 2011 and 2010. These assets and liabilities, which were previously reported in the First Bank segment, were sold as part of the Company’s Capital Plan to preserve risk-based capital. See further discussion of the Company’s Capital Plan under “Item 2 —Recent Developments and Other Matters – Capital Plan.”

Missouri Valley Partners, Inc. On March 5, 2010, First Bank entered into a Stock Purchase Letter Agreement that provided for the sale of First Bank’s subsidiary, Missouri Valley Partners, Inc. (MVP) to Stifel Financial Corp. The transaction was completed on April 15, 2010. Under the terms of the agreement, First Bank sold all of the capital stock of MVP for a purchase price of $515,000. The transaction resulted in a loss of $156,000 during the second quarter of 2010. The Company applied discontinued operations accounting to MVP for the three months ended March 31, 2010. MVP was previously reported in the First Bank segment and was sold as part of the Company’s Capital Plan.

Texas Region. On February 8, 2010, First Bank entered into a Purchase and Assumption Agreement with Prosperity Bank (Prosperity), headquartered in Houston, Texas, that provided for the sale of certain assets and the transfer of certain liabilities of First Bank’s Texas franchise (Texas Region) to Prosperity. The transaction was completed on April 30, 2010. Under the terms of the agreement, Prosperity assumed substantially all of the deposits associated with First Bank’s 19 Texas retail branches which totaled $492.2 million, for a premium of 5.50%, or $26.9 million. Prosperity also purchased $96.7 million of loans as well as certain other assets, including premises and equipment, associated with First Bank’s Texas Region. The transaction resulted in a gain of $5.0 million, net of a reduction in goodwill and intangible assets of $20.0 million allocated to the Texas Region, during the second quarter of 2010. The Company applied discontinued operations accounting to the assets and liabilities being sold in the Texas Region for the three months ended March 31, 2010. These assets and liabilities, which were previously reported in the First Bank segment, were sold as part of the Company’s Capital Plan.

WIUS, Inc. and WIUS of California, Inc. On December 3, 2009, First Bank and Universal Premium Acceptance Corporation, predecessor to WIUS, Inc., and its wholly owned subsidiary, WIUS of California, Inc. (collectively, WIUS), entered into a Purchase and Sale Agreement that provided for the sale of certain assets and the transfer of certain liabilities of WIUS to PFS Holding Company, Inc., Premium Financing Specialists, Inc., Premium Financing Specialists of California, Inc. and Premium Financing Specialists of the South, Inc. (collectively, PFS). Under the terms of the agreement, PFS purchased $141.3 million of loans as well as certain other assets, including premises and equipment, associated with WIUS. PFS also assumed certain other liabilities associated with WIUS. With the exception of the subsequent sale of $1.5 million of additional loans to PFS on February 26, 2010, the transaction was completed on December 31, 2009, and resulted in a loss of $13.1 million, net of a reduction in goodwill and intangible assets of $20.0 million allocated to WIUS, during the fourth quarter of 2009. On August 31, 2010, First Bank sold all of the capital stock of WIUS to an unrelated third party for a purchase price of approximately $100,000, which resulted in a loss of approximately $29,000. The Company applied discontinued operations accounting to WIUS for the three months ended March 31, 2010. WIUS, which was previously reported in the First Bank segment, was sold as part of the Company’s Capital Plan.

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Chicago Region. On November 11, 2009, First Bank entered into a Purchase and Assumption Agreement that provided for the sale of certain assets and the transfer of certain liabilities of First Bank’s Chicago franchise (Chicago Region) to FirstMerit Bank, N.A. (FirstMerit). The transaction was completed on February 19, 2010. Under the terms of the agreement, FirstMerit assumed substantially all of the deposits associated with First Bank’s 24 Chicago retail branches which totaled $1.20 billion, for a premium of 3.50%, or $42.1 million. FirstMerit also purchased $301.2 million of loans as well as certain other assets, including premises and equipment, associated with First Bank’s Chicago Region. The transaction resulted in a gain of $8.4 million, net of a reduction in goodwill and intangible assets of $26.3 million allocated to the Chicago Region, during the first quarter of 2010. The Company applied discontinued operations accounting to the assets and liabilities being sold in the Chicago Region for the three months ended March 31, 2010. These assets and liabilities, which were previously reported in the First Bank segment, were sold as part of the Company’s Capital Plan.

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

	March 31, 2011		December 31, 2010
	Northern Illinois		Northern Illinois
	(dollars expressed in thousands)

Cash and due from banks	$	779		693
Loans:
Commercial, financial and agricultural		6,351		6,891
Real estate construction and development		20		50
Residential real estate		12,655		13,953
Multi-family residential		135		135
Commercial real estate		15,767		17,253
Consumer and installment, net of unearned discount		1,774		1,983
Total loans		36,702		40,265
Bank premises and equipment, net		832		850
Goodwill and other intangible assets		1,558		1,558
Other assets		344		166
Assets of discontinued operations	$	40,215		43,532
Deposits:
Noninterest-bearing demand	$	11,269		11,223
Interest-bearing demand		18,150		17,619
Savings and money market		25,066		23,832
Time deposits of $100 or more		5,359		5,789
Other time deposits		33,742		35,613
Total deposits		93,586		94,076
Accrued expenses and other liabilities		105		108
Liabilities of discontinued operations	$	93,691		94,184

Income from discontinued operations, net of tax, for the three months ended March 31, 2011 was as follows:

	Three Months Ended March 31, 2011
	Northern Illinois
	(dollars expressed in thousands)
Interest income:
Interest and fees on loans	$	607
Interest expense:
Interest on deposits		181
Total interest expense		181
Net interest income		426
Provision for loan losses		—
Net interest income after provision for loan losses		426
Noninterest income:
Service charges and customer service fees		161
Loan servicing fees		2
Total noninterest income		163
Noninterest expense:
Salaries and employee benefits		203
Occupancy, net of rental income		44
Furniture and equipment		19
Legal, examination and professional fees		1
FDIC insurance		81
Other		47
Total noninterest expense		395
Income from operations of discontinued operations		194
Provision (benefit) for income taxes		—
Net income from discontinued operations, net of tax	$	194

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Income from discontinued operations, net of tax, for the three months ended March 31, 2010 was as follows:

	Three Months Ended March 31, 2010
	Northern Illinois		Chicago			Texas			WIUS			MVP			Total
	(dollars expressed in thousands)
Interest income:
Interest and fees on loans	$	3,306		2,391			1,363			—			—			7,060
Interest expense:
Interest on deposits		1,475		2,550			1,366			—			—			5,391
Other borrowings		—		—			3			4			—			7
Total interest expense		1,475		2,550			1,369			4			—			5,398
Net interest income (loss)		1,831		(159	)		(6	)		(4	)		—			1,662
Provision for loan losses		—		—			—			—			—			—
Net interest income (loss) after provision for loan losses		1,831		(159	)		(6	)		(4	)		—			1,662
Noninterest income:
Service charges and customer service fees		781		523			900			—			—			2,204
Investment management income		—		—			—			—			689			689
Loan servicing fees		—		—			62			—			—			62
Other		—		254			15			—			(1	)		268
Total noninterest income		781		777			977			—			688			3,223
Noninterest expense:
Salaries and employee benefits		1,062		2,137			1,837			32			421			5,489
Occupancy, net of rental income		406		606			971			—			51			2,034
Furniture and equipment		126		178			233			—			13			550
Legal, examination and professional fees		21		123			56			5			81			286
Amortization of intangible assets		150		—			—			—			—			150
FDIC insurance		522		292			352			—			—			1,166
Other		225		424			519			29			22			1,219
Total noninterest expense		2,512		3,760			3,968			66			588			10,894
Income (loss) from operations of discontinued operations		100		(3,142	)		(2,997	)		(70	)		100			(6,009	)
Net gain (loss) on sale of discontinued operations		—		8,440			—			(88	)		—			8,352
Provision (benefit) for income taxes		—		—			—			—			—			—
Net income (loss) from discontinued operations, net of tax	$	100		5,298			(2,997	)		(158	)		100			2,343

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

All financial information in the consolidated financial statements and notes to the consolidated financial statements reflects continuing operations, unless otherwise noted.

Assets Held for Sale and Liabilities Held for Sale. On January 28, 2011, First Bank entered into a Branch Purchase and Assumption Agreement that provided for the sale of First Bank’s Edwardsville, Illinois branch office (Edwardsville Branch) to National Bank. Under the terms of the agreement, National Bank assumed $10.4 million of deposits associated with the Edwardsville Branch for a premium of $130,000. National Bank also purchased $667,000 of loans associated with the Edwardsville Branch at a premium of 0.5%, or approximately $3,000, and premises and equipment associated with the Edwardsville Branch at a premium of approximately $640,000. The transaction was completed on April 29, 2011 and resulted in a gain of approximately $265,000, net of a reduction in goodwill of $500,000 allocated to the transaction, as further described in Note 18 to the consolidated financial statements. The assets and liabilities associated with the Edwardsville Branch were reflected in assets held for sale and liabilities held for sale in the consolidated balance sheets as of March 31, 2011 and December 31, 2010.

On November 9, 2010, First Bank entered into a Branch Purchase and Assumption Agreement that provided for the sale of First Bank’s San Jose, California branch office (San Jose Branch) to City National Bank (City National). The transaction was completed on February 11, 2011 and resulted in a loss of $334,000 during the first quarter of 2011. Under the terms of the agreement, City National assumed $8.4 million of deposits for a premium of 5.85%, or approximately $371,000. City National also purchased certain other assets at par value, including premises and equipment. The assets and liabilities associated with the San Jose Branch were reflected in assets held for sale and liabilities held for sale in the consolidated balance sheet as of December 31, 2010.

The Edwardsville and San Jose branch sales were not included in discontinued operations as the Company will have continuing involvement in the respective regions.

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Note 3 – Investments in Debt and Equity Securities

Securities Available for Sale. The amortized cost, contractual maturity, gross unrealized gains and losses and fair value of investment securities available for sale at March 31, 2011 and December 31, 2010 were as follows:

	Maturity												Total		Gross							Weighted
	1 Year			1-5			5-10			After			Amortized		Unrealized					Fair		Average
	or Less			Years			Years			10 Years			Cost		Gains		Losses			Value		Yield
	(dollars expressed in thousands)
March 31, 2011:
Carrying value:
U.S. Treasury	$	—			101,335			—			—			101,335		51		(113	)		101,273		0.73	%
U.S. Government sponsored agencies		1,000			19,147			—			—			20,147		216		(63	)		20,300		1.70
Residential mortgage- backed		222			2,558			11,690			1,563,656			1,578,126		11,336		(8,302	)		1,581,160		2.54
Commercial mortgage-backed		—			—			828			—			828		43		—			871		4.41
State and political subdivisions		1,719			3,719			1,538			—			6,976		311		—			7,287		3.99
Corporate notes		—			—			9,200			15,000			24,200		—		(17	)		24,183		4.72
Equity investments		—			—			—			10,678			10,678		—		—			10,678		3.42
Total	$	2,941			126,759			23,256			1,589,334			1,742,290		11,957		(8,495	)		1,745,752		2.47
Fair value:
Debt securities	$	3,017			127,070			23,409			1,581,578
Equity securities		—			—			—			10,678
Total	$	3,017			127,070			23,409			1,592,256

Weighted average yield		3.53	%		1.02	%		2.85	%		2.57	%

December 31, 2010:
Carrying value:
U.S. Treasury	$	—			101,478			—			—			101,478		4		(280	)		101,202		0.73	%
U.S. Government sponsored agencies		—			20,220			—			—			20,220		199		(87	)		20,332		1.70
Residential mortgage-backed		262			5,646			15,152			1,320,364			1,341,424		9,447		(9,293	)		1,341,578		2.48
Commercial mortgage-backed		—			—			966			—			966		42		—			1,008		4.19
State and political subdivisions		2,507			4,031			1,540			—			8,078		309		—			8,387		3.96
Equity investments		—			—			—			10,678			10,678		—		—			10,678		3.41
Total	$	2,769			131,375			17,658			1,331,042			1,482,844		10,001		(9,660	)		1,483,185		2.37
Fair value:
Debt securities	$	2,832			131,600			17,912			1,320,163
Equity securities		—			—			—			10,678
Total	$	2,832			131,600			17,912			1,330,841

Weighted average yield		4.01	%		1.12	%		2.09	%		2.49	%

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Securities Held to Maturity. The amortized cost, contractual maturity, gross unrealized gains and losses and fair value of investment securities held to maturity at March 31, 2011 and December 31, 2010 were as follows:

	Maturity												Total		Gross						Weighted
	1 Year			1-5			5-10			After			Amortized		Unrealized				Fair		Average
	or Less			Years			Years			10 Years			Cost		Gains		Losses		Value		Yield
	(dollars expressed in thousands)
March 31, 2011:
Carrying value:
Residential mortgage -backed	$	—			—			836			703			1,539		110		—		1,649		5.10	%
Commercial mortgage -backed		—			6,405			—			—			6,405		317		—		6,722		5.16
State and political subdivisions		1,050			3,132			573			1,534			6,289		301		—		6,590		3.73
Total	$	1,050			9,537			1,409			2,237			14,233		728		—		14,961		4.52
Fair value:
Debt securities	$	1,050			9,886			1,510			2,515

Weighted average yield		1.35	%		4.36	%		4.72	%		6.57	%

December 31, 2010:
Carrying value:
Residential mortgage -backed	$	—			—			962			912			1,874		132		—		2,006		5.15	%
Commercial mortgage -backed		—			6,437			—			—			6,437		440		—		6,877		5.16
State and political subdivisions		—			733			574			1,534			2,841		266		—		3,107		5.66
Total	$	—			7,170			1,536			2,446			11,152		838		—		11,990		5.29
Fair value:
Debt securities	$	—			7,645			1,635			2,710

Weighted average yield		—	%		4.99	%		4.71	%		6.51	%

Proceeds from sales of available-for-sale investment securities were $25.6 million for the three months ended March 31, 2011. There were no sales of available-for-sale investment securities for the three months ended March 31, 2010. Gross realized gains and gross realized losses on investment securities for the three months ended March 31, 2011 were as follows:

		Three Months Ended March 31, 2011
	(dollars expressed in thousands)

Gross realized gains on sales of available-for-sale securities		$	529
Gross realized losses on sales of available-for-sale securities			(1	)
Other-than-temporary impairment			(1	)
Net realized gains		$	527

The Company did not recognize other-than-temporary impairment on available-for-sale equity securities for the three months ended March 31, 2010.

Investment securities with a carrying value of approximately $215.3 million and $234.9 million at March 31, 2011 and December 31, 2010, respectively, were pledged in connection with deposits of public and trust funds, securities sold under agreements to repurchase and for other purposes as required by law.

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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 March 31, 2011 and December 31, 2010 were as follows:

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(dollars expressed in thousands)
March 31, 2011:
Available for sale:
U.S. Treasury	$	61,067		(113	)		—		—			61,067		(113	)
U.S. Government sponsored agencies		8,725		(63	)		—		—			8,725		(63	)
Residential mortgage-backed		691,675		(8,230	)		328		(72	)		692,003		(8,302	)
Corporate notes		4,183		(17	)		—		—			4,183		(17	)
Total	$	765,650		(8,423	)		328		(72	)		765,978		(8,495	)

December 31, 2010:
Available for sale:
U.S. Treasury	$	91,193		(280	)		—		—			91,193		(280	)
U.S. Government sponsored agencies		8,731		(87	)		—		—			8,731		(87	)
Residential mortgage-backed		544,657		(9,218	)		341		(75	)		544,998		(9,293	)
Total	$	644,581		(9,585	)		341		(75	)		644,922		(9,660	)

Residential Mortgage-backed securities – The unrealized losses on investments in residential 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 the Company does not intend to sell these investments and it is more likely than not that First Bank will not be required to sell these securities before the anticipated recovery of the remaining amortized cost basis or maturity, these investments are not considered other-than-temporarily impaired. At March 31, 2011 and December 31, 2010, the unrealized losses for residential mortgage-backed securities for 12 months or more included nine securities.

Note 4 – Loans and Allowance for Loan Losses

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

	March 31,		December 31,
	2011		2010
	(dollars expressed in thousands)

Commercial, financial and agricultural	$	947,219		1,045,832
Real estate construction and development		439,449		490,766
Real estate mortgage:
One-to-four family residential		987,742		1,050,895
Multi-family residential		176,112		178,289
Commercial real estate		1,511,869		1,642,920
Consumer and installment, net of unearned discount		24,730		29,112
Loans held for sale		17,914		54,470
Loans, net of unearned discount	$	4,105,035		4,492,284

The allowance for loan losses is a reserve for estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the loan portfolio, and is based on quarterly evaluations of the collectability and historical loss experience of loans. Actual credit losses, net of recoveries, are deducted from the allowance for loan losses. A provision for loan losses, which is a charge against earnings, is recorded to bring the allowance for loan losses to a level that, in management’s judgment, is appropriate to absorb probable losses in the loan portfolio.

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The allocation methodology applied by the Company, designed to assess the appropriateness of the allowance for loan losses, includes an allocation methodology, as well as management’s ongoing review and grading of the loan portfolio into criticized loan categories (defined as specific loans warranting either specific allocation, or a criticized status of special mention, substandard, doubtful or loss). The allocation methodology focuses on evaluation of several factors, including but not limited to: evaluation of facts and circumstances related to specific loans, management’s ongoing review and grading of the loan portfolio, consideration of historical loan loss and delinquency experience within each portfolio category, trends in past due and nonaccrual loans, the level of potential problem loans, the risk characteristics of the various classifications of loans, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect potential credit losses. Because each of the criteria used is subject to change, the allocation of the allowance for loan losses is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular loan category. The total allowance for loan losses is available to absorb losses from any segment of the loan portfolio.

When an individual loan is determined to be impaired, the allowance for loan losses attributable to the loan is allocated based on management’s estimate of the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flows, as well as evaluation of legal options available to the Company. The amount of impairment is measured based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the fair value of the underlying collateral less applicable selling costs, or the observable market price of the loan. If foreclosure is probable or the loan is collateral dependent, impairment is measured using the fair value of the loan’s collateral, less estimated costs to sell. Large groups of homogeneous loans, such as residential mortgage, home equity and installment loans, are aggregated and collectively evaluated for impairment.

The following table presents the aging of loans by loan classification at March 31, 2011 and December 31, 2010:

	30-59 Days		60-89 Days		90 Days and Over		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days Accruing
	(dollars expressed in thousands)
March 31, 2011:
Commercial, financial and agricultural	$	14,308		1,246		82,070		97,624		849,595		947,219		361
Real estate construction and development		1,801		240		126,589		128,630		310,819		439,449		—
One-to-four-family residential:
Bank portfolio		5,329		931		14,285		20,545		189,826		210,371		1,262
Mortgage Division portfolio		8,391		5,345		29,038		42,774		347,500		390,274		—
Home equity		4,043		1,944		8,037		14,024		373,073		387,097		809
Multi-family residential		10,337		8,050		12,462		30,849		145,263		176,112		—
Commercial real estate		6,141		1,635		111,915		119,691		1,392,178		1,511,869		—
Consumer and installment		787		136		42		965		23,765		24,730		—
Loan held for sale		—		—		—		—		17,914		17,914		—
Total	$	51,137		19,527		384,438		455,102		3,649,933		4,105,035		2,432

December 31, 2010:
Commercial, financial and agricultural	$	5,574		7,286		68,274		81,134		964,698		1,045,832		909
Real estate construction and development		1,523		10,816		137,176		149,515		341,251		490,766		2,932
One-to-four-family residential:
Bank portfolio		5,157		2,296		14,845		22,298		217,065		239,363		366
Mortgage Division portfolio		9,998		4,968		33,386		48,352		363,601		411,953		—
Home equity		5,373		1,658		8,438		15,469		384,110		399,579		1,316
Multi-family residential		16,279		1,670		12,960		30,909		147,380		178,289		—
Commercial real estate		9,391		15,252		129,187		153,830		1,489,090		1,642,920		—
Consumer and installment		515		265		165		945		28,167		29,112		—
Loan held for sale		—		—		—		—		54,470		54,470		—
Total	$	53,810		44,211		404,431		502,452		3,989,832		4,492,284		5,523

Under the Company’s loan policy, loans are placed on nonaccrual status once principal or interest payments become 90 days past due. However, individual loan officers may submit written requests for approval to continue the accrual of interest on loans that become 90 days past due. These requests may be submitted for approval consistent with the authority levels provided in the Company’s credit approval policies, and they are only granted if an expected near term future event, such as a pending renewal or expected payoff, exists at the time the loan becomes 90 days past due. If the expected near term future event does not occur as anticipated, the loan is then placed on nonaccrual status. At March 31, 2011 and December 31, 2010, the Company had $2.4 million and $5.5 million, respectively, of loans past due 90 days or more and still accruing interest.

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

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

Under the Company’s risk rating system, special mention loans are those loans that do not currently expose the Company to sufficient risk to warrant classification as substandard, troubled debt restructuring (TDR) or nonaccrual, but possess weaknesses that deserve management’s close attention. Substandard loans include those loans characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. A loan is classified as a TDR when a borrower is experiencing financial difficulties that lead to the restructuring of a loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. Loans classified as nonaccrual have all the weaknesses inherent in those loans classified as substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

The following table presents the credit exposure of the commercial loan portfolio by internally assigned credit grade as of March 31, 2011 and December 31, 2010:

	Commercial and Industrial		Real Estate Construction and Development		Multi-family		Commercial Real Estate		Total
	(dollars expressed in thousands)
March 31, 2011:
Pass	$	744,296		143,533		111,020		1,163,959		2,162,808
Special mention		37,462		71,797		4,785		142,177		256,221
Substandard		82,503		94,385		47,845		93,818		318,551
Troubled debt restructuring		1,249		3,145		—		—		4,394
Nonaccrual		81,709		126,589		12,462		111,915		332,675
	$	947,219		439,449		176,112		1,511,869		3,074,649

December 31, 2010:
Pass	$	829,820		151,686		112,369		1,285,902		2,379,777
Special mention		48,264		73,464		47,376		113,469		282,573
Substandard		100,383		128,227		5,584		95,933		330,127
Troubled debt restructuring		—		3,145		—		18,429		21,574
Nonaccrual		67,365		134,244		12,960		129,187		343,756
	$	1,045,832		490,766		178,289		1,642,920		3,357,807

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The following table presents the credit exposure of the one-to-four family residential mortgage Bank portfolio and home equity portfolio by internally assigned credit grade as of March 31, 2011 and December 31, 2010:

	Bank Portfolio		Home Equity		Total
	(dollars expressed in thousands)
March 31, 2011:
Pass	$ $	158,558		377,310		535,868
Special mention		7,700		809		8,509
Substandard		31,090		1,750		32,840
Nonaccrual		13,023		7,228		20,251
	$	210,371		387,097		597,468

December 31, 2010:
Pass	$ $	175,947		389,566		565,513
Special mention		17,358		1,316		18,674
Substandard		31,579		1,575		33,154
Nonaccrual		14,479		7,122		21,601
	$	239,363		399,579		638,942

The following table presents the credit exposure of the one-to-four family residential Mortgage Division portfolio and consumer and installment portfolio by payment activity as of March 31, 2011 and December 31, 2010:

	Mortgage Division Portfolio		Consumer and Installment		Total
	(dollars expressed in thousands)
March 31, 2011:
Pass	$ $	265,787		24,688		290,475
Substandard		10,131		—		10,131
Troubled debt restructuring		85,318		—		85,318
Nonaccrual		29,038		42		29,080
	$	390,274		24,730		415,004

December 31, 2010:
Pass	$ $	277,379		28,947		306,326
Substandard		9,859		—		9,859
Troubled debt restructuring		91,329		—		91,329
Nonaccrual		33,386		165		33,551
	$	411,953		29,112		441,065

Loans deemed to be impaired include TDRs and nonaccrual loans. Impaired loans with outstanding balances equal to or greater than $500,000 are evaluated individually for impairment. For these loans, the Company measures the level of impairment based on the present value of the estimated projected cash flows or the estimated value of the collateral. If the current valuation is lower than the current book balance of the loan, the negative difference is evaluated for possible charge-off. In instances where management determines that a charge-off is not appropriate, a specific reserve is established for the individual loan in question. This specific reserve is included as a part of the overall allowance for loan losses.

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The following tables present the recorded investment, unpaid principal balance, related allowance for loan losses, average recorded investment and interest income recognized while on impaired status for impaired loans without a related allowance for loan losses and for impaired loans with a related allowance for loan losses by loan classification at March 31, 2011 and December 31, 2010:

	Recorded Investment		Unpaid Principal Balance		Related Allowance for Loan Losses		Average Recorded Investment		Interest Income Recognized
	(dollars expressed in thousands)
March 31, 2011:
With No Related Allowance Recorded:
Commercial, financial and agricultural	$	19,883		39,487		—		18,014		13
Real estate construction and development		64,119		81,413		—		66,011		32
Real estate mortgage:
Bank portfolio		3,713		3,760		—		3,921		—
Mortgage Division portfolio		15,305		32,610		—		15,998		—
Home equity portfolio		—		—		—		—		—
Multi-family residential		7,924		10,015		—		8,082		—
Commercial real estate		52,114		62,897		—		60,426		86
Consumer and installment		—		—		—		—		—
		163,058		230,182		—		172,452		131
With A Related Allowance Recorded:
Commercial, financial and agricultural		63,075		77,212		7,348		57,148		—
Real estate construction and development		65,615		123,549		10,566		67,551		15
Real estate mortgage:
Bank portfolio		9,310		11,636		328		9,830		—
Mortgage Division portfolio		99,051		107,472		15,041		103,538		683
Home equity portfolio		7,228		7,815		1,446		7,175		—
Multi-family residential		4,538		7,673		1,253		4,629		—
Commercial real estate		59,801		76,430		8,593		69,340		—
Consumer and installment		42		42		17		104		—
		308,660		411,829		44,592		319,315		698
Total:
Commercial, financial and agricultural		82,958		116,699		7,348		75,162		13
Real estate construction and development		129,734		204,962		10,566		133,562		47
Real estate mortgage:
Bank portfolio		13,023		15,396		328		13,751		—
Mortgage Division portfolio		114,356		140,082		15,041		119,536		683
Home equity portfolio		7,228		7,815		1,446		7,175		—
Multi-family residential		12,462		17,688		1,253		12,711		—
Commercial real estate		111,915		139,327		8,593		129,766		86
Consumer and installment		42		42		17		104		—
	$	471,718		642,011		44,592		491,767		829

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	Recorded Investment		Unpaid Principal Balance		Related Allowance for Loan Losses		Average Recorded Investment		Interest Income Recognized
	(dollars expressed in thousands)
December 31, 2010:
With No Related Allowance Recorded:
Commercial, financial and agricultural	$	9,777		29,258		—		9,244		246
Real estate construction and development		40,527		40,997		—		79,408		38
Real estate mortgage:
Bank portfolio		4,141		4,324		—		4,088		—
Mortgage Division portfolio		15,469		34,113		—		15,536		—
Home equity portfolio		—		—		—		—		—
Multi-family residential		5,555		5,702		—		4,833		—
Commercial real estate		54,317		56,983		—		47,881		1,249
Consumer and installment		—		—		—		—		—
		129,786		171,377		—		160,990		1,533
With A Related Allowance Recorded:
Commercial, financial and agricultural		57,588		70,668		6,617		54,448		21
Real estate construction and development		96,862		187,568		10,605		189,790		695
Real estate mortgage:
Bank portfolio		10,338		12,550		372		10,204		—
Mortgage Division portfolio		109,246		117,075		16,746		109,721		3,697
Home equity portfolio		7,122		7,601		1,155		5,302		—
Multi-family residential		7,405		12,349		1,024		6,443		—
Commercial real estate		93,299		120,311		14,329		82,244		—
Consumer and installment		165		165		55		290		—
		382,025		528,287		50,903		458,442		4,413
Total:
Commercial, financial and agricultural		67,365		99,926		6,617		63,692		267
Real estate construction and development		137,389		228,565		10,605		269,198		733
Real estate mortgage:
Bank portfolio		14,479		16,874		372		14,292		—
Mortgage Division portfolio		124,715		151,188		16,746		125,257		3,697
Home equity portfolio		7,122		7,601		1,155		5,302		—
Multi-family residential		12,960		18,051		1,024		11,276		—
Commercial real estate		147,616		177,294		14,329		130,125		1,249
Consumer and installment		165		165		55		290		—
	$	511,811		699,664		50,903		619,432		5,946

Recorded investment represents the Company’s investment in its impaired loans reduced by any charge-offs recorded against the allowance for loan losses on these same loans. At March 31, 2011 and December 31, 2010, the Company had recorded charge-offs of $170.3 million and $187.9 million, respectively, on its impaired loans, representing the difference between the unpaid principal balance and the recorded investment reflected in the table above. The unpaid principal balance represents the principal amount contractually owed to the Company by the borrowers on the impaired loans.

The outstanding balance and carrying amount of impaired loans acquired in acquisitions was $567,000 and $94,000 at March 31, 2011, respectively, $1.4 million and $314,000 at December 31, 2010, respectively, and $5.0 million and $1.3 million at March 31, 2010, respectively. Changes in the carrying amount of impaired loans acquired in acquisitions for the three months ended March 31, 2011 and 2010 were as follows:

	Three Months Ended March 31,
	2011			2010
	(dollars expressed in thousands)

Balance, beginning of period	$	314			1,945
Transfers to other real estate		(49	)		(192	)
Loans charged-off		(29	)		(345	)
Payments and settlements		(142	)		(94	)
Balance, end of period	$	94			1,314

As the loans were classified as nonaccrual loans, there was no accretable yield related to these loans at March 31, 2011 and December 31, 2010. There were no impaired loans acquired during the three months ended March 31, 2011 and 2010.

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Changes in the allowance for loan losses for the three months ended March 31, 2011 and 2010 were as follows:

	Three Months Ended March 31,
	2011			2010
	(dollars expressed in thousands)

Balance, beginning of period	$	201,033			266,448
Allowance for loan losses allocated to loans sold		—			(257	)
		201,033			266,191
Loans charged-off		(36,905	)		(88,382	)
Recoveries of loans previously charged-off		9,845			30,255
Net loans charged-off		(27,060	)		(58,127	)
Provision for loan losses		10,000			42,000
Balance, end of period	$	183,973			250,064

The following table represents a summary of changes in the allowance for loan losses by portfolio segment for the three months ended March 31, 2011 in addition to the impairment method used by loan category at March 31, 2011:

	Commercial and Industrial			Real Estate Construction and Development			One-to-Four Family Residential			Multi- Family Residential		Commercial Real Estate			Consumer and Installment			Total
	(dollars expressed in thousands)
March 31, 2011:
Allowance for loan losses:
Beginning balance	$	28,000			58,439			60,762			5,158		47,880			794			201,033
Charge-offs		(5,554	)		(10,314	)		(9,725	)		—		(11,094	)		(218	)		(36,905	)
Recoveries		2,890			3,870			1,282			—		1,719			84			9,845
Provision for loan losses		1,235			339			3,410			3,362		1,618			36			10,000
Ending balance	$	26,571			52,334			55,729			8,520		40,123			696			183,973
Ending balance: individually evaluated for impairment	$	5,394			7,486			3,077			957		5,936			—			22,850
Ending balance: collectively evaluated for impairment	$	21,177			44,848			52,652			7,563		34,187			696			161,123
Financing receivables:
Ending balance	$	947,219			439,449			987,742			176,112		1,511,869			24,730			4,087,121
Ending balance: individually evaluated for impairment	$	60,698			123,934			21,728			12,462		100,800			—			319,622
Ending balance: collectively evaluated for impairment	$	886,521			315,515			966,014			163,650		1,411,069			24,730			3,767,499
Ending balance: loans acquired with deteriorated credit quality	$	—			—			94			—		—			—			94

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The following table represents a summary of the allowance for loan losses by portfolio segment at December 31, 2010 in addition to the impairment method used by loan category at December 31, 2010:

	Commercial and Industrial		Real Estate Construction and Development		One-to-Four Family Residential		Multi- Family Residential		Commercial Real Estate		Consumer and Installment		Total
	(dollars expressed in thousands)
December 31, 2010:
Allowance for loan losses	$	28,000		58,439		60,762		5,158		47,880		794		201,033
Ending balance: individually evaluated for impairment	$	4,690		6,572		4,975		644		9,997		—		26,878
Ending balance: collectively evaluated for impairment	$	23,310		51,867		55,787		4,514		37,883		794		174,155
Financing receivables:
Ending balance	$	1,045,832		490,766		1,050,895		178,289		1,642,920		29,112		4,437,814
Ending balance: individually evaluated for impairment	$	44,585		128,797		30,388		12,960		136,254		—		352,984
Ending balance: collectivelyevaluated for impairment	$	1,001,247		361,969		1,020,507		165,329		1,506,666		29,112		4,084,830
Ending balance: loans acquired with deteriorated credit quality	$	—		—		314		—		—		—		314

Note 5 – Goodwill And Other Intangible Assets

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

	March 31, 2011					December 31, 2010
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
	(dollars expressed in thousands)

Amortized intangible assets:
Core deposit intangibles (1)	$	17,074		(14,786	)		20,594		(17,507	)

Unamortized intangible assets:
Goodwill (2)	$	125,967					125,967

_________________

(1)

The gross carrying amount and accumulated amortization for core deposit intangibles at March 31, 2011 and December 31, 2010 have been reduced by $617,000 and $559,000, respectively, or a net of $58,000, related to discontinued operations, as further described in Note 2 to the consolidated financial statements.

(2)	Goodwill at March 31, 2011 and December 31, 2010 has been reduced by $2.0 million, related to discontinued operations and assets held for sale, as further described below and in Note 2 to the consolidated financial statements.

The Company allocated goodwill related to the remaining branches to be sold in the Northern Illinois Region of $1.5 million, which is included in assets of discontinued operations at March 31, 2011 and December 31, 2010. The Company allocated goodwill related to the sale of the Edwardsville Branch of $500,000, which is included in assets held for sale at March 31, 2011 and December 31, 2010. The Company did not allocate any goodwill to the sale of the San Jose Branch.

Core deposit intangibles of $58,000 related to the remaining branches to be sold in the Northern Illinois Region were included in assets of discontinued operations at March 31, 2011 and December 31, 2010.

Amortization of intangible assets was $799,000 and $925,000 for the three months ended March 31, 2011 and 2010, respectively. Amortization of core deposit intangibles has been estimated in the following table.

	(dollars expressed in thousands)
Year ending December 31:
2011 remaining	$	1,824
2012		464
Total	$	2,288

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The Company’s annual measurement date for its goodwill impairment test is December 31. The Company engaged an independent valuation firm to assist in computing the fair value estimate for the impairment assessment by utilizing two separate valuation methodologies and applying a weighted average to each methodology in order to determine fair value 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. Taking into account this independent third party valuation, the Company concluded that the carrying value of its single reporting unit exceeded its estimated fair value at December 31, 2010.

Because the carrying value of the Company’s reporting unit exceeded the estimated fair value at December 31, 2010, the Company engaged the same independent valuation firm to assist in computing the fair value of First Bank’s assets and liabilities in order to determine the implied fair value of First Bank’s goodwill at December 31, 2010. Management compared the implied fair value of First Bank’s goodwill, as determined by the independent valuation firm, with its carrying value. Taking into account the results of the goodwill impairment analysis performed for the year ended December 31, 2010, First Bank did not record goodwill impairment.

As a result of continued adversity in the Company’s business climate, the Company performed an interim period goodwill impairment analysis as of March 31, 2011. The Step 1 analysis of the interim goodwill impairment test indicated the carrying amount of the Company’s single reporting unit exceeded the estimated fair value. Therefore, Step 2 testing was required. The Company determined, as a result of the Step 2 analysis, that the goodwill assigned to the Company’s single reporting unit was not impaired as of March 31, 2011.

The Company believes the estimates and assumptions utilized in the goodwill impairment test are reasonable. However, further deterioration in the outlook for credit quality or other factors could impact the estimated fair value of the single reporting unit as determined under Step 1 of the goodwill impairment test. A decrease in the estimated fair value of the reporting unit would decrease the implied fair value of goodwill as further determined under Step 2 of the goodwill impairment test. Step 2 of the goodwill impairment test compared the implied fair value of goodwill with the carrying value of goodwill. The implied fair value of goodwill is determined in the same manner as the determination of the amount of goodwill recognized in a business combination. The fair value of a reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The fair value allocated to all of the assets and liabilities of the reporting unit requires significant judgment, especially for those assets and liabilities that are not measured on a recurring basis such as certain types of loans. The excess of the estimated fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill.

The estimated fair value assigned to loans significantly affected the determination of the implied fair value of First Bank’s goodwill at March 31, 2011 and December 31, 2010. The implied fair value of a reporting unit’s goodwill will generally increase if the estimated fair value of the reporting unit’s loans is less than the carrying value of the reporting unit’s loans. The estimated fair value of the reporting unit’s loans was derived from discounted cash flow analyses. Loans were grouped into loan pools based on similar characteristics such as maturity, payment type and payment frequency, and rate type and underlying index. These cash flow calculations include assumptions for prepayment estimates over the loan’s remaining life, considerations for the current interest rate environment compared to the weighted average rate of the loan portfolio, a credit risk component based on the historical and expected performance of each loan portfolio stratum and a liquidity adjustment related to the current market environment. To the extent any of these assumptions change in the future, the implied fair value of the reporting unit’s goodwill could change materially. A decrease in the discount rate utilized in deriving the estimated fair value of the reporting unit’s loans would decrease the implied fair value of goodwill.

The estimated fair value assigned to the core deposit intangible, or First Bank’s deposit base, also significantly affected the determination of the implied fair value of First Bank’s goodwill at March 31, 2011 and December 31, 2010. The implied fair value of a reporting unit’s goodwill will generally decrease by the estimated fair value assigned to the reporting unit’s core deposit intangible. The estimated fair value of the core deposit intangible was derived from discounted cash flow analyses with considerations for estimated deposit runoff, cost of the deposit base, interest costs, net maintenance costs and the cost of alternative funds. The resulting estimate of the fair value of the core deposit intangible represents the present value of the difference in cash flows between maintaining the existing deposits and obtaining alternative funds over the life of the deposit base. To the extent any of these assumptions used to determine the estimated fair value of the core deposit intangible change in the future, the implied fair value of the reporting unit’s goodwill could change materially.

Due to the recent economic environment and the uncertainties regarding the impact on First Bank, there can be no assurance that the Company’s estimates and assumptions made for the purposes of the goodwill impairment testing will prove to be accurate predictions in the future. Adverse changes in the economic environment, First Bank’s operations, or other factors could result in a decline in the implied fair value of First Bank, which could result in the recognition of future goodwill impairment that may materially affect the carrying value of First Bank’s assets and its related operating results.

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Note 6 – Servicing Rights

Mortgage Banking Activities. At March 31, 2011 and December 31, 2010, First Bank serviced mortgage loans for others totaling $1.29 billion and $1.27 billion, respectively. Changes in mortgage servicing rights for the three months ended March 31, 2011 and 2010 were as follows:

	Three Months Ended March 31,
	2011			2010
	(dollars expressed in thousands)

Balance, beginning of period	$	12,150			12,130
Originated mortgage servicing rights		1,118			796
Change in fair value resulting from changes in valuation inputs or assumptions used in valuation model (1)		199			275
Other changes in fair value (2)		(577	)		(497	)
Balance, end of period	$	12,890			12,704

_________________

(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 March 31, 2011 and December 31, 2010, First Bank serviced United States Small Business Administration (SBA) loans for others totaling $194.5 million and $200.4 million, respectively. Changes in SBA servicing rights for the three months ended March 31, 2011 and 2010 were as follows:

	Three Months Ended March 31,
	2011			2010
	(dollars expressed in thousands)

Balance, beginning of period	$	7,432			8,478
Originated SBA servicing rights		—			21
Change in fair value resulting from changes in valuation inputs or assumptions used in valuation model (1)		227			106
Other changes in fair value (2)		(338	)		(633	)
Balance, end of period	$	7,321			7,972

_________________

(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.

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Note 7 – Earnings (Loss) Per Common Share

The following is a reconciliation of basic and diluted earnings (loss) per share (EPS) for the three months ended March 31, 2011 and 2010:

		Three Months Ended March 31,
		2011			2010
	(dollars in thousands, except share and per share data)

Basic:
Net loss from continuing operations attributable to First Banks, Inc.		$	(6,342	)		(29,912	)
Preferred stock dividends declared and undeclared			(4,388	)		(4,161	)
Accretion of discount on preferred stock			(855	)		(833	)
Net loss from continuing operations attributable to common stockholders			(11,585	)		(34,906	)
Net income from discontinued operations attributable to common stockholders			194			2,343
Net loss available to First Banks, Inc. common stockholders		$	(11,391	)		(32,563	)

Weighted average shares of common stock outstanding			23,661			23,661

Basic loss per common share – continuing operations		$	(489.61	)		(1,475.28	)
Basic earnings per common share – discontinued operations		$	8.20			99.02
Basic loss per common share		$	(481.41	)		(1,376.26	)

Diluted:
Net loss from continuing operations attributable to common stockholders		$	(11,585	)		(34,906	)
Net income from discontinued operations attributable to common stockholders			194			2,343
Net loss available to First Banks, Inc. common stockholders			(11,391	)		(32,563	)
Effect of dilutive securities:
Class A convertible preferred stock			—			—
Diluted loss per common share – net loss available to First Banks, Inc. common stockholders		$	(11,391	)		(32,563	)

Weighted average shares of common stock outstanding			23,661			23,661
Effect of dilutive securities:
Class A convertible preferred stock			—			—
Weighted average diluted shares of common stock outstanding			23,661			23,661

Diluted loss per common share – continuing operations		$	(489.61	)		(1,475.28	)
Diluted earnings per common share – discontinued operations		$	8.20			99.02
Diluted loss per common share		$	(481.41	)		(1,376.26	)

Note 8 – Transactions With Related Parties

First Services, L.P. First Services, L.P. (First Services), a limited partnership indirectly owned by the Company’s Chairman and members of his immediate family, provides information technology, item processing and various related services to the Company and First Bank. Fees paid under agreements with First Services were $6.1 million and $6.9 million for the three months ended March 31, 2011 and 2010, respectively. First Services leases information technology and other equipment from First Bank. First Services paid First Bank rental fees for the use of such equipment of $521,000 and $742,000 during the three months ended March 31, 2011 and 2010, respectively. In addition, First Services paid approximately $462,000 and $465,000 for the three months ended March 31, 2011 and 2010, respectively, in rental payments to First Bank for occupancy of certain First Bank premises from which business is conducted.

Effective January 1, 2009, First Services entered into an Affiliate Services Agreement with the Company and First Bank. The Affiliate Services Agreement relates to various services provided to First Services, including certain human resources, payroll, employee benefit and training services, insurance services and vendor payment processing services. Fees accrued under the Affiliate Services Agreement by First Services were $50,000 and $65,000 for the three months ended March 31, 2011 and 2010, respectively.

First Brokerage America, L.L.C. First Brokerage America, L.L.C. (First Brokerage), a limited liability company indirectly owned by the Company’s Chairman and members of his immediate family, received approximately $1.6 million and $1.1 million for the three months ended March 31, 2011 and 2010, respectively, in gross commissions paid by unaffiliated third-party companies. The commissions received primarily resulted from sales of annuities, securities and other insurance products to customers of First Bank. First Brokerage paid approximately $149,000 and $41,000 for the three months ended March 31, 2011 and 2010, respectively, to First Bank in rental payments for occupancy of certain First Bank premises from which brokerage business is conducted.

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Dierbergs Markets, Inc. First Bank leases certain of its in-store branch offices and automated teller machine (ATM) sites from Dierbergs Markets, Inc., a grocery store chain headquartered in St. Louis, Missouri that is owned and operated by the brother of the Company’s Chairman and members of his immediate family. Total rent expense incurred by First Bank under the lease obligation contracts was $118,000 and $114,000 for the three months ended March 31, 2011 and 2010, respectively.

First Capital America, Inc. / FB Holdings, LLC. In May 2008, the Company formed FB Holdings, a limited liability company organized in the state of Missouri. FB Holdings operates as a majority-owned subsidiary of First Bank and was formed for the primary purpose of holding and managing certain nonperforming loans and assets to allow the liquidation of such assets at a time that is more economically advantageous to First Bank and to permit an efficient vehicle for the investment of additional capital by the Company’s sole owner of its Class A and Class B preferred stock. 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 March 31, 2011. The contribution of cash by FCA is reflected as a component of stockholders’ equity in the consolidated balance sheets and, consequently, increased the Company’s and First Bank’s risk-based capital ratios under then-existing regulatory guidelines, subject to certain limitations.

FB Holdings entered into a Services Agreement with the Company and First Bank effective May 2008. The Services Agreement relates to various services provided to FB Holdings by the Company 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 $54,000 and $102,000 for the three months ended March 31, 2011 and 2010, respectively.

Investors of America Limited Partnership. On March 24, 2011, the Company entered into a Revolving Credit Note and a Stock Pledge Agreement (the Credit Agreement) with Investors of America Limited Partnership (Investors of America, LP), as further described in Note 11 to the consolidated financial statements. Investors of America, LP is a Nevada limited partnership that was created by and for the benefit of the Company’s Chairman and members of his immediate family. The agreement provides for a $5.0 million secured revolving line of credit to be utilized for general working capital needs. This borrowing arrangement, which has a maturity date of December 31, 2012 and an interest rate of the London Interbank Offered Rate (LIBOR) plus 300 basis points, is intended to supplement, if necessary, the parent company’s overall level of unrestricted cash to cover the parent company’s projected operating expenses for the foreseeable future. There were no balances outstanding with respect to the Credit Agreement as of and for the three months ended March 31, 2011.

Loans to Directors and/or their Affiliates. First Bank has had in the past, and may have in the future, loan transactions in the ordinary course of business with its directors and/or their affiliates. These loan transactions have been made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unaffiliated persons and did not involve more than the normal risk of collectability or present other unfavorable features. Loans to directors, their affiliates and executive officers of the Company were approximately $4.0 million and $9.1 million at March 31, 2011 and December 31, 2010, respectively. First Bank does not extend credit to its officers or to officers of the Company, except extensions of credit secured by mortgages on personal residences, loans to purchase automobiles, personal credit card accounts and deposit account overdraft protection under a plan whereby a credit limit has been established in accordance with First Bank’s standard credit criteria.

Depositary Accounts of Directors and/or their Affiliates. Certain directors and/or their affiliates maintain funds on deposit with First Bank in the ordinary course of business. These deposit transactions include demand, savings and time accounts, and have been established on the same terms, including interest rates, as those prevailing at the time for comparable transactions with unaffiliated persons.

Note 9 – Regulatory Capital

The Company and First Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the operations and financial condition of the Company and First Bank. Under these capital requirements, the Company and First Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

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Quantitative measures established by regulation to ensure capital adequacy require the Company and First Bank to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets.

The Company did not meet the minimum regulatory capital standards established for bank holding companies by the Federal Reserve at March 31, 2011 and December 31, 2010. The Company must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below in order to meet the minimum capital adequacy standards.

First Bank was categorized as well capitalized at March 31, 2011 and December 31, 2010 under the prompt corrective action provisions of the regulatory capital standards. First Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below in order to be categorized as well capitalized. In addition, First Bank is currently required to maintain its Tier 1 capital to total assets ratio at no less than 7.00% in accordance with the provisions of its informal agreement entered into with the MDOF, as further described in Note 1 to the consolidated financial statements. First Bank’s Tier 1 capital to total assets ratio of 7.83% and 7.68% at March 31, 2011 and December 31, 2010, respectively, exceeded the 7.00% minimum level required under the terms of the informal agreement with the MDOF.

As further described in Note 1 to the consolidated financial statements, on August 10, 2009, the Company announced the adoption of its Capital Plan, in order to, among other things, preserve the Company’s risk-based capital levels. The successful completion of all or any portion of the Capital Plan is not assured, and no assurance can be made that the Capital Plan will not be materially modified in the future. If the Company is not able to complete substantially all of the Capital Plan, its regulatory capital ratios may be materially and adversely affected and its ability to withstand continued adverse economic conditions could be threatened.

At March 31, 2011 and December 31, 2010, the Company and First Bank’s required and actual capital ratios were as follows:

														To be Well Capitalized Under Prompt Corrective Action Provisions



	Actual											For Capital Adequacy Purposes
	March 31, 2011					December 31, 2010 (1)
	Amount		Ratio			Amount			Ratio
	(dollars expressed in thousands)

Total capital (to risk-weighted assets):
First Banks, Inc.	$	193,196		4.29	%		$	305,006		6.29	%	8.0	%	N/A
First Bank		620,373		13.78				626,976		12.95		8.0		10.0	%

Tier 1 capital (to risk-weighted assets):
First Banks, Inc.		96,598		2.14				152,503		3.15		4.0		N/A
First Bank		562,485		12.49				564,664		11.66		4.0		6.0

Tier 1 capital (to average assets):
First Banks, Inc.		96,598		1.35				152,503		1.99		4.0		N/A
First Bank		562,485		7.89				564,664		7.40		4.0		5.0

_________________

(1)

The decline in First Banks, Inc.’s regulatory capital ratios during the first quarter of 2011 reflects the implementation of new Federal Reserve rules that became effective on March 31, 2011, as further described below. First Banks, Inc.’s total capital (to risk-weighted assets), Tier 1 capital (to risk-weighted assets) and Tier 1 capital (to average assets) at December 31, 2010 would have been 4.53%, 2.27% and 1.44%, respectively, under the new rules if implemented as of December 31, 2010.

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In March 2005, the Federal Reserve adopted a final rule, Risk-Based Capital Standards: Trust Preferred Securities and the Definition of Capital, which allows for the continued limited inclusion of trust preferred securities in Tier 1 capital. The Federal Reserve’s final rule limits restricted core capital elements to 25% of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability. Amounts of restricted core capital elements in excess of these limits may generally be included in Tier 2 capital. Specifically, amounts of qualifying trust preferred securities and cumulative perpetual preferred stock in excess of the 25% limit may be included in Tier 2 capital, but will be limited, together with subordinated debt and limited-life preferred stock, to 50% of Tier 1 capital. In addition, the final rule provides that in the last five years before the maturity of the underlying subordinated note, the outstanding amount of the associated trust preferred securities is to be excluded from Tier 1 capital and included in Tier 2 capital, subject to one-fifth amortization per year. The final rule provided for a five-year transition period, ending March 31, 2009, for the application of the quantitative limits. In March 2009, the Federal Reserve adopted a final rule that delayed the effective date for the application of the quantitative limits to March 31, 2011. Until March 31, 2011, the aggregate amount of qualifying cumulative perpetual preferred stock and qualifying trust preferred securities that may be included in Tier 1 capital was limited to 25% of the sum of the following core capital elements: qualifying common stockholders’ equity, qualifying noncumulative and cumulative perpetual preferred stock, qualifying noncontrolling interest in the equity accounts of consolidated subsidiaries and qualifying trust preferred securities. The Company determined that the Federal Reserve’s final rules that became effective on March 31, 2011, if implemented as of December 31, 2010, would have reduced the Company’s total capital (to risk-weighted assets), Tier 1 capital (to risk-weighted assets) and Tier 1 capital (to average assets) to 4.53%, 2.27% and 1.44%, respectively.

As a result of the implementation of the Federal Reserve’s final rule on March 31, 2011, the Company remains below the minimum regulatory capital standards established for bank holding companies, as noted above, and could be subject to additional actions by regulators that could have a direct material effect on the operations and financial condition of the Company and First Bank. The final rules that became effective on March 31, 2011 had no impact on First Bank’s regulatory capital ratios.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 restricts new issuances of trust preferred securities from being included as Tier 1 capital for all bank holding companies.

Note 10 – Business Segment Results

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

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

	First Bank				Corporate, Other and Intercompany Reclassifications						Consolidated Totals
	March 31, 2011		December 31, 2010		March 31, 2011			December 31, 2010			March 31, 2011		December 31, 2010
	(dollars expressed in thousands)
Balance sheet information:
Investment securities	$	1,749,307		1,483,659		10,678			10,678			1,759,985		1,494,337
Loans, net of unearned discount		4,105,035		4,492,284		—			—			4,105,035		4,492,284
FHLB and FRB stock		28,202		30,121		—			—			28,202		30,121
Goodwill and other intangible assets		128,255		129,054		—			—			128,255		129,054
Assets held for sale		2,177		2,266		—			—			2,177		2,266
Assets of discontinued operations		40,215		43,532		—			—			40,215		43,532
Total assets		7,193,441		7,361,706		15,955			16,422			7,209,396		7,378,128
Deposits		6,250,111		6,462,068		(3,394	)		(3,653	)		6,246,717		6,458,415
Other borrowings		39,404		31,761		—			—			39,404		31,761
Subordinated debentures		—		—		354,000			353,981			354,000		353,981
Liabilities held for sale		12,740		23,406		—			—			12,740		23,406
Liabilities of discontinued operations		93,691		94,184		—			—			93,691		94,184
Stockholders’ equity		693,628		693,458		(393,656	)		(386,163	)		299,972		307,295

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	First Bank						Corporate, Other and Intercompany Reclassifications						Consolidated Totals
	Three Months Ended March 31,						Three Months Ended March 31,						Three Months Ended March 31,
	2011			2010			2011			2010			2011			2010
	(dollars expressed in thousands)
Income statement information:
Interest income	$	62,118			84,669			150			102			62,268			84,771
Interest expense		10,472			19,404			3,299			3,095			13,771			22,499
Net interest income (loss)		51,646			65,265			(3,149	)		(2,993	)		48,497			62,272
Provision for loan losses		10,000			42,000			—			—			10,000			42,000
Net interest income (loss) after provision for loan losses		41,646			23,265			(3,149	)		(2,993	)		38,497			20,272
Noninterest income		14,177			16,734			(53	)		(1,326	)		14,124			15,408
Amortization of intangible assets		799			925			—			—			799			925
Other noninterest expense		58,053			64,919			(6	)		80			58,047			64,999
Loss from continuing operations before provision (benefit) for income taxes		(3,029	)		(25,845	)		(3,196	)		(4,399	)		(6,225	)		(30,244	)
Provision (benefit) for income taxes		143			105			(91	)		—			52			105
Net loss from continuing operations, net of tax		(3,172	)		(25,950	)		(3,105	)		(4,399	)		(6,277	)		(30,349	)
Discontinued operations, net of tax		194			2,343			—			—			194			2,343
Net loss		(2,978	)		(23,607	)		(3,105	)		(4,399	)		(6,083	)		(28,006	)
Net income (loss) attributable to noncontrolling interest in subsidiary		65			(437	)		—			—			65			(437	)
Net loss attributable to First Banks, Inc	$	(3,043	)		(23,170	)		(3,105	)		(4,399	)		(6,148	)		(27,569	)

Note 11 – Notes Payable and Other Borrowings

Notes Payable. On March 24, 2011, the Company entered into a Credit Agreement with Investors of America, LP, as further described in Note 8 to the consolidated financial statements. The agreement provides for a $5.0 million secured revolving line of credit to be utilized for general working capital needs. This borrowing arrangement, which has a maturity date of December 31, 2012 and an interest rate of LIBOR plus 300 basis points, is intended to supplement, if necessary, the parent company’s overall level of unrestricted cash to cover the parent company’s projected operating expenses for the foreseeable future. The parent company’s unrestricted cash was $3.4 million and $3.6 million at March 31, 2011 and December 31, 2010, respectively. There were no balances outstanding with respect to the Credit Agreement as of and for the three months ended March 31, 2011.

Other Borrowings. Other borrowings were comprised solely of daily securities sold under agreement to repurchase of $39.4 million and $31.8 million at March 31, 2011 and December 31, 2010, respectively.

Note 12 – Subordinated Debentures

The Company has formed or assumed various affiliated Delaware or Connecticut statutory and business trusts (collectively, the Trusts) that were created for the sole purpose of issuing trust preferred securities. The trust preferred securities were issued in private placements, with the exception of First Preferred Capital Trust IV, which was issued in a publicly underwritten offering. The Company owns all of the common securities of the Trusts. The gross proceeds of the offerings were used by the Trusts to purchase variable rate or fixed rate junior subordinated debentures from the Company. The junior subordinated debentures are the sole asset of the Trusts. In connection with the issuance of the trust preferred securities, the Company made certain guarantees and commitments that, in the aggregate, constitute a full and unconditional guarantee by the Company of the obligations of the Trusts under the trust preferred securities. The Company’s distributions accrued on the junior subordinated debentures were $3.3 million and $3.1 million for the three months ended March 31, 2011 and 2010, respectively, and are included in interest expense in the consolidated statements of operations. Deferred issuance costs associated with the Company’s junior subordinated debentures are included as a reduction of junior subordinated debentures in the consolidated balance sheets and are amortized on a straight-line basis to the maturity date of the respective junior subordinated debentures. The structure of the trust preferred securities currently satisfies the regulatory requirements for inclusion, subject to certain limitations, in the Company’s capital base, as further discussed in Note 9 to the consolidated financial statements.

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A summary of the junior subordinated debentures issued to the Trusts in conjunction with the trust preferred securities offerings at March 31, 2011 and December 31, 2010 were as follows:

Name of Trust

Issuance Date

Maturity Date

Call Date (1)

Interest Rate (2)

Trust

Preferred

Securities

Subordinated

Debentures

(dollars expressed in thousands)

Variable Rate

First Bank Statutory Trust II

September 2004

September 20, 2034

September 20, 2009

+ 205.0

20,000

20,619

Royal Oaks Capital Trust I

October 2004

January 7, 2035

January 7, 2010

+ 240.0

4,000

4,124

First Bank Statutory Trust III

November 2004

December 15, 2034

December 15, 2009

+ 218.0

40,000

41,238

First Bank Statutory Trust IV

March 2006

March 15, 2036

March 15, 2011

+ 142.0

40,000

41,238

First Bank Statutory Trust V

April 2006

June 15, 2036

June 15, 2011

+ 145.0

20,000

20,619

First Bank Statutory Trust VI

June 2006

July 7, 2036

July 7, 2011

+ 165.0

25,000

25,774

First Bank Statutory Trust VII

December 2006

December 15, 2036

December 15, 2011

+ 185.0

50,000

51,547

First Bank Statutory Trust VIII

February 2007

March 30, 2037

March 30, 2012

+ 161.0

25,000

25,774

First Bank Statutory Trust X

August 2007

September 15, 2037

September 15, 2012

+ 230.0

15,000

15,464

First Bank Statutory Trust IX

September 2007

December 15, 2037

December 15, 2012

+ 225.0

25,000

25,774

First Bank Statutory Trust XI

September 2007

December 15, 2037

December 15, 2012

+ 285.0

10,000

10,310

Fixed Rate

First Bank Statutory Trust

March 2003

March 20, 2033

March 20, 2008

8.10

25,000

25,774

First Preferred Capital Trust IV

April 2003

June 30, 2033

June 30, 2008

8.15

46,000

47,423

_________________

(1)	The junior subordinated debentures are callable at the option of the Company on the call date shown at 100% of the principal amount plus accrued and unpaid interest.

(2)	The interest rates paid on the trust preferred securities are based on either a variable rate or a fixed rate. The variable rate is based on the three-month LIBOR plus the basis point spread shown.

In August 2009, the Company announced the deferral of its regularly scheduled interest payments on its outstanding junior subordinated 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 the Company 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, the Company may not, among other things and with limited exceptions, pay cash dividends on or repurchase its common stock or preferred stock nor make any payment on outstanding debt obligations that rank equally with or junior to the junior subordinated notes. The Company has deferred $21.8 million and $18.8 million of its regularly scheduled interest payments as of March 31, 2011 and December 31, 2010, respectively. In addition, the Company has accrued additional interest expense of $869,000 and $621,000 as of March 31, 2011 and December 31, 2010, respectively, on the regularly scheduled deferred interest payments based on the interest rate in effect for each junior subordinated note issuance in accordance with the respective terms of the underlying agreements.

In March 2008, the Company entered into four interest rate swap agreements with an aggregate notional amount of $125.0 million, which were designated as cash flow hedges prior to August 10, 2009, to effectively convert the interest payments on four issuances of the junior subordinated debentures from variable rate to fixed rate to the respective call dates, as further described in Note 16 to the consolidated financial statements. 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 the Company’s interest rate swap agreements designated as cash flow hedges on its junior subordinated debentures. Accordingly, the Company 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 loss to net 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 junior subordinated debentures effective August 2009.

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

As further described in Note 1 to the consolidated financial statements, the Company successfully completed a consent solicitation and amended certain provisions of the Indenture and related Guarantee and Trust Agreements associated with the trust preferred securities of First Preferred Capital Trust IV.

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Note 13 – Stockholders’ Equity

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

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

On December 31, 2008, the Company issued 295,400 shares of Class C Preferred Stock and 14,770 shares of Class D Preferred Stock to the U.S. Treasury in conjunction with the U.S. Treasury’s Troubled Asset Relief Program’s Capital Purchase Program (CPP). The Class C Preferred Stock has a par value of $1.00 per share and a liquidation preference of $1,000 per share. The holders of the Class C Preferred Stock have no voting rights except in certain limited circumstances. The Class C Preferred Stock carries an annual dividend rate equal to 5% for the first five years and the annual dividend rate increases to 9% thereafter, payable quarterly in arrears beginning February 15, 2009. The Class D Preferred Stock has a par value of $1.00 per share and a liquidation preference of $1,000 per share. The holders of the Class D Preferred Stock have no voting rights except in certain limited circumstances. The Class D Preferred Stock carries an annual dividend rate equal to 9%, payable quarterly in arrears beginning February 15, 2009. The Class C Preferred Stock and the Class D Preferred Stock qualify as Tier 1 capital. Effective February 17, 2009, the Class C Preferred Stock and the Class D Preferred Stock may be redeemed at any time without penalty and without the need to raise new capital, subject to the U.S. Treasury’s consultation with the Company’s primary regulatory agency. The Class D Preferred Stock may not be redeemed until all of the outstanding shares of the Class C Preferred Stock have been redeemed. In addition, the U.S. Treasury has certain supervisory and oversight duties and responsibilities under the CPP and, pursuant to the terms of the agreement governing the issuance of the Class C Preferred Stock and the Class D Preferred Stock to the U.S. Treasury (Purchase Agreement), the U.S. Treasury is empowered to unilaterally amend any provision of the Purchase Agreement with the Company to the extent required to comply with any changes in applicable federal statutes. As a result of the Company’s deferral of dividends to the U.S. Treasury for an aggregate of six quarters, the U.S. Treasury has the right to elect two directors to the Company’s Board but has not elected to do so as of May 13, 2011.

The Company allocated the total proceeds received under the CPP of $295.4 million to the Class C Preferred Stock and the Class D Preferred Stock based on the relative fair values of the respective classes of preferred stock at the time of issuance. The discount on the Class C Preferred Stock of $17.3 million is being accreted to retained earnings on a level-yield basis over five years. Accretion of the discount on the Class C Preferred Stock was $855,000 and $833,000 for the three months ended March 31, 2011 and 2010, respectively.

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

On August 10, 2009, the Company 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, the Company may not, among other things and with limited exceptions, pay cash dividends on or repurchase its common stock or preferred stock nor make any payment on outstanding debt obligations that rank equally with or junior to the junior subordinated notes. Accordingly, the Company also suspended the payment of cash dividends on its outstanding common stock and preferred stock beginning with the regularly scheduled quarterly dividend payments on the preferred stock that would otherwise have been made in August and September 2009. The Company has declared and deferred $28.2 million and $24.1 million of its regularly scheduled dividend payments on its Class C Preferred Stock and Class D Preferred Stock, and has declared and accrued an additional $1.4 million and $990,000 of cumulative dividends on such deferred dividend payments at March 31, 2011 and December 31, 2010, respectively.

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

		Three Months Ended March 31,
		2011			2010
	(dollars expressed in thousands)

Net loss		$	(6,083	)		(28,006	)
Other comprehensive income (loss):
Unrealized gains on available-for-sale investment securities, net of tax			2,364			2,486
Reclassification adjustment for available-for-sale investment securities gains included in net loss, net of tax			(335	)		—
Reclassification adjustment for deferred tax asset valuation allowance on investment securities			1,093			1,256
Change in unrealized gains on derivative instruments, net of tax			—			(1,245	)
Reclassification adjustment for deferred tax asset valuation allowance on derivative instruments			—			(670	)
Amortization of net loss related to pension liability, net of tax			15			64
Reclassification adjustment for deferred tax asset valuation allowance on pension liability			11			47
Comprehensive loss			(2,935	)		(26,068	)
Comprehensive income (loss) attributable to noncontrolling interest in subsidiary			65			(437	)
Comprehensive loss attributable to First Banks, Inc.		$	(3,000	)		(25,631	)

Note 14 – Income Taxes

The realization of the Company’s net deferred tax assets is based on the expectation of future taxable income and the utilization of tax planning strategies. The Company has a full valuation allowance against its net deferred tax assets at March 31, 2011 and December 31, 2010. The deferred tax asset valuation allowance was recorded in accordance with ASC Topic 740, “Income Taxes.” Under ASC Topic 740, the Company is required to assess whether it is “more likely than not” that some portion or all of its deferred tax assets will not be realized. Pursuant to ASC Topic 740, concluding that a deferred tax asset valuation allowance is not required is difficult when there is significant evidence which is objective and verifiable, such as the lack of recoverable taxes, excess of reversing deductible differences over reversing taxable differences and cumulative losses in recent years. If, in the future, the Company generates taxable income on a sustained basis, management may conclude the deferred tax asset valuation allowance is no longer required, which would result in the reversal of a portion or all of the deferred tax asset valuation allowance, which would be reflected as a benefit for income taxes in the consolidated statements of operations.

A summary of the Company’s deferred tax assets and deferred tax liabilities at March 31, 2011 and December 31, 2010 is as follows:

	March 31,			December 31,
	2011			2010
	(dollars expressed in thousands)

Gross deferred tax assets	$	393,026			387,202
Valuation allowance		(373,919	)		(369,198	)
Deferred tax assets, net of valuation allowance		19,107			18,004
Deferred tax liabilities		26,289			25,186
Net deferred tax liabilities	$	(7,182	)		(7,182	)

The Company’s valuation allowance was $373.9 million and $369.2 million at March 31, 2011 and December 31, 2010, respectively. At March 31, 2011 and December 31, 2010, for federal income tax purposes, the Company had net operating loss carryforwards of approximately $499.6 million and $476.3 million, respectively, and for state income tax purposes, the Company had net operating loss carryforwards of approximately $600.9 million and $567.3 million, respectively, and a related deferred tax asset of $48.3 million and $43.7 million, respectively.

At March 31, 2011 and December 31, 2010, the Company’s unrecognized tax benefits for uncertain tax positions, excluding interest and penalties, were $1.3 million. At March 31, 2011 and December 31, 2010, the total amount of unrecognized tax benefits that would affect the provision for income taxes, prior to the consideration of the deferred tax asset valuation allowance, was $878,000 and $837,000, respectively. During the three months ended March 31, 2011 and 2010, the Company recorded additional liabilities for unrecognized tax benefits of $64,000 and $58,000, respectively.

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It is the Company’s policy to separately disclose any interest or penalties arising from the application of federal or state income taxes. Interest related to unrecognized tax benefits is included in interest expense and penalties related to unrecognized tax benefits are included in noninterest expense. At March 31, 2011 and December 31, 2010, interest accrued for unrecognized tax positions was $197,000 and $180,000, respectively. The Company recorded interest expense of $17,000 and $57,000 related to unrecognized tax benefits for the three months ended March 31, 2011 and 2010, respectively. There were no penalties for uncertain tax positions accrued at March 31, 2011 and December 31, 2010, nor did the Company recognize any expense for penalties during the three months ended March 31, 2011 and 2010.

The Company continually evaluates the unrecognized tax benefits associated with its uncertain tax positions. It is reasonably possible that the total unrecognized tax benefits as of March 31, 2011 could decrease by approximately $305,000 by December 31, 2011, as a result of the lapse of statutes of limitations or potential settlements with the federal and state taxing authorities, of which the impact to the provision for income taxes, prior to the consideration of the deferred tax asset valuation allowance, is estimated to be approximately $198,000. It is also reasonably possible that this decrease could be substantially offset by new matters arising during the same period.

The Company files consolidated and separate income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. Management of the Company believes the accrual for tax liabilities is adequate for all open audit years based on its assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter. This assessment relies on estimates and assumptions. The Company’s federal income tax returns through 2008 have been examined by the IRS. Years subsequent to 2008 could contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses. The Company has recorded a tax benefit only for those positions that meet the “more likely than not” standard. The Company’s current estimate of the resolution of various state examinations, none of which are in process, is reflected in accrued income taxes; however, final settlement of the examinations or changes in the Company’s estimate may result in future income tax expense or benefit.

The Company is no longer subject to U.S. federal, Florida, Illinois and Missouri income tax examination by the tax authorities for the years prior to 2007, and prior to 2006 for California and Texas. The Company had a federal tax examination for tax years through 2008, which was closed during 2010, and a California tax examination for the 2004 and 2005 tax years, which was closed during 2008. An Illinois tax examination of the 2007 and 2008 tax years is scheduled to begin during the second quarter of 2011.

Note 15 – Fair Value Disclosures

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

Level 1 Inputs –

Valuation is based on quoted prices in active markets for identical instruments in active markets.

Level 2 Inputs –

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

Level 3 Inputs –

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

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

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

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

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

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

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

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

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Items Measured on a Recurring Basis. Assets and liabilities measured at fair value on a recurring basis as of March 31, 2011 and December 31, 2010 are reflected in the following table:

	Fair Value Measurements
	Level 1		Level 2			Level 3		Fair Value
	(dollars expressed in thousands)
March 31, 2011:
Assets:
Available-for-sale investment securities:
U.S. Treasury	$	101,273		—			—		101,273
U.S. Government sponsored agencies		—		20,300			—		20,300
Residential mortgage-backed		—		1,581,160			—		1,581,160
Commercial mortgage-backed		—		871			—		871
State and political subdivisions		—		7,287			—		7,287
Corporate notes		—		24,183			—		24,183
Equity investments		—		10,678			—		10,678
Mortgage loans held for sale		—		17,914			—		17,914
Derivative instruments:
Customer interest rate swap agreements		—		662			—		662
Interest rate lock commitments		—		580			—		580
Forward commitments to sell mortgage – backed securities		—		(104	)		—		(104	)
Servicing rights		—		—			20,211		20,211
Total	$	101,273		1,663,531			20,211		1,785,015

Liabilities:
Derivative instruments:
Interest rate swap agreements	$	—		1,942			—		1,942
Customer interest rate swap agreements		—		529			—		529
Nonqualified deferred compensation plan		7,261		—			—		7,261
Total	$	7,261		2,471			—		9,732

	Fair Value Measurements
	Level 1		Level 2		Level 3		Fair Value
	(dollars expressed in thousands)
December 31, 2010:
Assets:
Available-for-sale investment securities:
U.S. Treasury	$	101,202		—		—		101,202
U.S. Government sponsored agencies		—		20,332		—		20,332
Residential mortgage-backed		—		1,341,578		—		1,341,578
Commercial mortgage-backed		—		1,008		—		1,008
State and political subdivisions		—		8,387		—		8,387
Equity investments		—		10,678		—		10,678
Mortgage loans held for sale		—		54,470		—		54,470
Derivative instruments:
Customer interest rate swap agreements		—		792		—		792
Interest rate lock commitments		—		276		—		276
Forward commitments to sell mortgage – backed securities		—		1,538		—		1,538
Servicing rights		—		—		19,582		19,582
Total	$	101,202		1,439,059		19,582		1,559,843

Liabilities:
Derivative instruments:
Interest rate swap agreements	$	—		2,402		—		2,402
Customer interest rate swap agreements		—		636		—		636
Nonqualified deferred compensation plan		7,790		—		—		7,790
Total	$	7,790		3,038		—		10,828

There were no transfers between Levels 1 and 2 of the fair value hierarchy for the three months ended March 31, 2011.

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

	Servicing Rights
	March 31, 2011			March 31, 2010
	(dollars expressed in thousands)

Balance, beginning of period	$	19,582			20,608
Total gains or losses (realized/unrealized):
Included in earnings (1)		(489	)		(749	)
Included in other comprehensive income		—			—
Issuances		1,118			817
Transfers in and/or out of level 3		—			—
Balance, end of period	$	20,211			20,676

_________________

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

Items Measured on a Nonrecurring Basis. From time to time, the Company measures certain assets at fair value on a nonrecurring basis. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis as of March 31, 2011 and December 31, 2010 are reflected in the following table:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Fair Value
	(dollars expressed in thousands)
March 31, 2011:
Assets:
Impaired loans:
Commercial, financial and agricultural	$	—		—		75,610		75,610
Real estate construction and development		—		—		119,168		119,168
Real estate mortgage:
Bank portfolio		—		—		12,695		12,695
Mortgage Division portfolio		—		—		99,315		99,315
Home equity portfolio		—		—		5,782		5,782
Multi-family residential		—		—		11,209		11,209
Commercial real estate		—		—		103,322		103,322
Consumer and installment		—		—		25		25
Other real estate		—		—		126,554		126,554
Total	$	—		—		553,680		553,680

December 31, 2010:
Assets:
Impaired loans:
Commercial, financial and agricultural	$	—		—		60,748		60,748
Real estate construction and development		—		—		126,784		126,784
Real estate mortgage:
Bank portfolio		—		—		14,107		14,107
Mortgage Division portfolio		—		—		107,969		107,969
Home equity portfolio		—		—		5,967		5,967
Multi-family residential		—		—		11,936		11,936
Commercial real estate		—		—		133,287		133,287
Consumer and installment		—		—		110		110
Other real estate		—		—		140,628		140,628
Total	$	—		—		601,536		601,536

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

Certain other real estate, upon initial recognition, was re-measured and reported at fair value through a charge-off to the allowance for loan losses based upon the estimated fair value of the other real estate. The fair value of other real estate, upon initial recognition, is estimated using Level 3 inputs based on third-party appraisals, and where applicable, discounted based on management’s judgment taking into account current market conditions, distressed or forced sale price comparisons and other factors in effect at the time of valuation. Other real estate measured at fair value upon initial recognition totaled $10.3 million and $33.7 million for the three months ended March 31, 2011 and 2010, respectively. In addition to other real estate measured at fair value upon initial recognition, the Company recorded write-downs to the balance of other real estate of $2.6 million and $4.5 million to noninterest expense for the three months ended March 31, 2011 and 2010, respectively. Other real estate was $126.6 million at March 31, 2011, compared to $140.6 million at December 31, 2010.

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

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

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

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

Loans: The fair value of loans held for portfolio uses an exit price concept and reflects discounts the Company believes are consistent with liquidity discounts in the market place. Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial and industrial, real estate construction and development, commercial real estate, one-to-four family residential real estate, home equity and consumer and installment. The fair value of loans is estimated by discounting the future cash flows, utilizing assumptions for prepayment estimates over the loans’ remaining life and considerations for the current interest rate environment compared to the weighted average rate of the loan portfolio. The fair value analysis also included other assumptions to estimate fair value, intended to approximate those factors a market participant would use in an orderly transaction, with adjustments for discount rates, interest rates, liquidity, and credit spreads, as appropriate.

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

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

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

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

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.

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The estimated fair value of the Company’s financial instruments at March 31, 2011 and December 31, 2010 were as follows:

	March 31, 2011						December 31, 2010
	Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value
	(dollars expressed in thousands)
Financial Assets:
Cash and cash equivalents	$	954,411			954,411			995,758			995,758
Investment securities:
Available for sale		1,745,752			1,745,752			1,483,185			1,483,185
Held to maturity		14,233			14,961			11,152			11,990
Loans held for portfolio		3,903,148			3,660,899			4,236,781			3,973,825
Loans held for sale		17,914			17,914			54,470			54,470
FHLB and Federal Reserve Bank stock		28,202			28,202			30,121			30,121
Derivative instruments		1,138			1,138			2,606			2,606
Accrued interest receivable		21,210			21,210			22,488			22,488
Assets held for sale		2,177			2,812			2,266			2,866
Assets of discontinued operations		40,215			40,215			43,532			43,532

Financial Liabilities:
Deposits:
Noninterest-bearing demand	$	1,118,906			1,118,906			1,167,206			1,167,206
Interest-bearing demand		947,519			947,519			919,973			919,973
Savings and money market		2,199,989			2,199,989			2,206,763			2,206,763
Time deposits		1,980,303			1,989,975			2,164,473			2,176,855
Other borrowings		39,404			39,404			31,761			31,761
Derivative instruments		2,471			2,471			3,038			3,038
Accrued interest payable		25,313			25,313			22,444			22,444
Subordinated debentures		354,000			202,298			353,981			202,298
Liabilities held for sale		12,740			12,610			23,406			23,276
Liabilities of discontinued operations		93,691			91,421			94,184			91,894

Off-Balance Sheet Financial Instruments:
Commitments to extend credit, standby letters of credit and financial guarantees	$	(2,913	)		(2,913	)		(3,148	)		(3,148	)

Note 16 – Derivative Financial Instruments

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

	March 31, 2011				December 31, 2010
	Notional Amount		Credit Exposure		Notional Amount		Credit Exposure
	(dollars expressed in thousands)

Cash flow hedges – subordinated debentures (1)	$	75,000		—		75,000		—
Customer interest rate swap agreements		52,430		735		53,696		869
Interest rate lock commitments		27,120		580		41,857		276
Forward commitments to sell mortgage-backed securities		34,750		—		84,100		1,538

__________________________

(1)

In August 2009, the Company discontinued hedge accounting following the announcement of the deferral of interest payments on the underlying trust preferred securities associated with its junior subordinated debentures. Consequently, effective August 2009, the net interest differential on these interest rate swap agreements is recorded as a reduction of noninterest income rather than an increase to interest expense on junior subordinated debentures.

The notional amounts of derivative financial instruments do not represent amounts exchanged by the parties and, therefore, are not a measure of the Company’s credit exposure through its use of these instruments. The credit exposure represents the loss the Company would incur in the event the counterparties failed completely to perform according to the terms of the derivative financial instruments and the collateral held to support the credit exposure was of no value. The Company’s credit exposure on interest rate swaps is limited to the net fair value and related accrued interest receivable reduced by the amount of collateral pledged by the counterparty. At March 31, 2011 and December 31, 2010, the Company had pledged cash of $602,000 and $1.1 million, respectively, as collateral in connection with its interest rate swap agreements on junior subordinated debentures. Collateral requirements are monitored on a daily basis and adjusted as necessary.

The Company realized net interest income on its derivative financial instruments of $1.9 million for the three months ended March 31, 2010. The Company also recorded net losses on derivative financial instruments, which are included in noninterest income in the statements of operations, of $56,000 and $1.3 million for the three months ended March 31, 2011 and 2010, respectively.

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Cash Flow Hedges – Subordinated Debentures. The Company 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 junior subordinated debentures to the respective call dates of certain junior subordinated debentures. These swap agreements provided for the Company to receive an adjustable rate of interest equivalent to the three-month 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 the Company to pay and receive interest on a quarterly basis. In December 2010, the Company terminated its $50.0 million notional interest rate swap agreement that provided for the Company to receive an adjustable rate of interest equivalent to the three-month LIBOR plus 1.85%, and pay a fixed rate of interest.

The amount receivable by the Company under these swap agreements was $147,000 and $149,000 at March 31, 2011 and December 31, 2010, respectively, and the amount payable by the Company under these swap agreements was $329,000 and $335,000 at March 31, 2011 and December 31, 2010, respectively.

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

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

Maturity Date	Notional Amount		Interest Rate Paid			Interest Rate Received			Fair Value
	(dollars expressed in thousands)

March 31, 2011:
July 7, 2011	$	25,000		4.40	%		1.95	%	$	(167	)
March 30, 2012		25,000		4.71			1.92			(672	)
December 15, 2012		25,000		5.57			2.56			(1,103	)
	$	75,000		4.89			2.14		$	(1,942	)

December 31, 2010:
July 7, 2011	$	25,000		4.40	%		1.94	%	$	(313	)
March 30, 2012		25,000		4.71			1.91			(822	)
December 15, 2012		25,000		5.57			2.55			(1,267	)
	$	75,000		4.89			2.13		$	(2,402	)

Cash Flow Hedges – Loans. The Company entered into the following interest rate swap agreements, which were 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:

In 2006, the Company entered into a $200.0 million notional amount three-year interest rate swap agreement and a $200.0 million notional amount four-year interest rate swap agreement. The underlying hedged assets were certain variable rate loans within the Company’s commercial loan portfolio. The swap agreements provided for the Company 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 the Company to pay and receive interest on a quarterly basis. In December 2008, the Company terminated these swap agreements. The pre-tax gain of $20.8 million, in the aggregate, was being amortized as an increase to interest and fees on loans in the consolidated statements of operations over the remaining terms of the respective interest rate swap agreements, which had contractual maturity dates of September 18, 2009 and September 20, 2010. For the three months ended March 31, 2010, the amount of the pre-tax gain amortized as an increase to interest and fees on loans was $1.9 million.

For interest rate swap agreements designated as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into interest income or interest expense in the same period the hedged transaction affects earnings. The ineffective portion of the change in the cash flow hedge’s gain or loss is recorded in noninterest income on each monthly measurement date.

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The Company did not recognize any ineffectiveness related to interest rate swap agreements that were designated as cash flow hedges during the three months ended March 31, 2011 and 2010.

Customer Interest Rate Swap Agreements. First Bank offers interest rate swap agreements to certain customers to assist in hedging their risks of adverse changes in interest rates. First Bank serves as an intermediary between its customers and the financial markets. Each interest rate swap agreement between First Bank and its customers is offset by an interest rate swap agreement between First Bank and various counterparties. These interest rate swap agreements do not qualify for hedge accounting treatment. Changes in the fair value are recognized in noninterest income on a monthly basis. Each customer contract is paired with an offsetting contract, and as such, there is no significant impact to net income (loss). The notional amount of these interest rate swap agreement contracts at March 31, 2011 and December 31, 2010 was $52.4 million and $53.7 million, respectively.

Interest Rate Lock Commitments / Forward Commitments to Sell Mortgage-Backed Securities. Derivative financial instruments issued by the Company consist of interest rate lock commitments to originate fixed-rate loans to be sold. Commitments to originate fixed-rate loans consist primarily of residential real estate loans. These net loan commitments and loans held for sale are hedged with forward contracts to sell mortgage-backed securities, which expire in June 2011. 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 $580,000 and $276,000 at March 31, 2011 and December 31, 2010, respectively. The fair value of the forward contracts to sell mortgage-backed securities, which is included in other assets in the consolidated balance sheets, was an unrealized loss of $104,000 at March 31, 2011 and an unrealized gain of $1.5 million at December 31, 2010. Changes in the fair value of interest rate lock commitments and forward commitments to sell mortgage-backed securities are recognized in noninterest income on a monthly basis.

The following table summarizes derivative financial instruments held by the Company, their estimated fair values and their location in the consolidated balance sheets at March 31, 2011 and December 31, 2010:

	March 31, 2011				December 31, 2010
	Balance Sheet Location	Fair Value Gain (Loss)			Balance Sheet Location	Fair Value Gain (Loss)
	(dollars expressed in thousands)

Derivative financial instruments not designated as hedging instruments under ASC Topic 815:

Customer interest rate swap agreements	Other assets	$	662		Other assets	$	792
Interest rate lock commitments	Other assets		580		Other assets		276
Forward commitments to sell mortgage-backed securities	Other assets		(104	)	Other assets		1,538
Total derivatives in other assets		$	1,138			$	2,606

Interest rate swap agreements – subordinated debentures	Other liabilities	$	(1,942	)	Other liabilities	$	(2,402	)
Customer interest rate swap agreements	Other liabilities		(529	)	Other liabilities		(636	)
Total derivatives in other liabilities		$	(2,471	)		$	(3,038	)

The following table summarizes amounts included in the consolidated statements of operations and in accumulated other comprehensive income (loss) in the consolidated balance sheets as of and for the three months ended March 31, 2011 and 2010 related to interest rate swap agreements designated as cash flow hedges:

		Three Months Ended March 31,
		2011	2010
	(dollars expressed in thousands)

Derivative financial instruments designated as hedging instruments under ASC Topic 815:

Cash flow hedges – loans:
Amount reclassified from accumulated other comprehensive income to interest income on loans	$	—	1,915

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

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The following table summarizes amounts included in the consolidated statements of operations for the three months ended March 31, 2011 and 2010 related to non-hedging derivative instruments:

		Three Months Ended March 31,
		2011			2010
	(dollars expressed in thousands)

Derivative financial instruments not designated as hedging instruments under ASC Topic 815:

Interest rate swap agreements – subordinated debentures:
Net loss on derivative instruments		$	(56	)		(1,328	)

Customer interest rate swap agreements:
Net loss on derivative instruments			—			1

Interest rate lock commitments:
Gain on loans sold and held for sale			304			131

Forward commitments to sell mortgage-backed securities:
Gain on loans sold and held for sale			(1,642	)		(612	)

Note 17 – Contingent Liabilities

In the ordinary course of business, the Company and its subsidiaries become involved in legal proceedings, including litigation arising out of the Company’s efforts to collect outstanding loans. It is not uncommon for collection efforts to lead to so-called “lender liability” suits in which borrowers may assert various claims against the Company. Management believes the ultimate resolution of these existing proceedings is not reasonably likely to have a material adverse effect on the business, financial condition or results of operations of the Company and/or its subsidiaries.

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

Note 18 – Subsequent Events

On April 29, 2011, First Bank completed the sale of its Edwardsville Branch to National Bank, which resulted in a gain of approximately $265,000, net of a reduction in goodwill of $500,000 allocated to the transaction, as further described in Note 2 to the consolidated financial statements. In conjunction with the transaction, National Bank assumed $10.4 million of deposits for a premium of $130,000, as well as certain other liabilities, and purchased $667,000 of loans at a premium of 0.5%, or $3,000, and premises and equipment at a premium of approximately $640,000, associated with First Bank’s Edwardsville Branch.

On May 13, 2011, First Bank completed the sale of its three remaining Northern Illinois branches located in Pittsfield, Roodhouse and Winchester, Illinois to United Community, which resulted in a preliminary gain of $400,000, net of a reduction in goodwill and intangible assets of $1.6 million allocated to the Northern Illinois Region, as further described in Note 2 to the consolidated financial statements. In conjunction with the transaction, United Community assumed approximately $92.5 million of deposits for a premium of approximately 2.4%, or $2.2 million, as well as certain other liabilities, and purchased approximately $37.9 million of loans as well as certain other assets at par value, including premises and equipment, associated with First Bank’s three remaining Northern Illinois Branches.

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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements and Factors that Could Affect Future Results

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

Ø	Our ability to raise sufficient capital, absent the successful completion of all or a significant portion of our Capital Plan, as further discussed under “¾Recent Developments and Other Matters – Capital Plan;”

Ø	Our ability to maintain capital at levels necessary or desirable to support our operations;

Ø	The risks associated with implementing our business strategy, including our ability to preserve and access sufficient capital to continue to execute our strategy;

Regulatory actions that impact First Banks, Inc. and First Bank, including the regulatory agreements entered into among First Banks, Inc., First Bank, the Federal Reserve Bank of St. Louis and the State of Missouri Division of Finance, as further discussed under “¾Recent Developments and Other Matters – Regulatory Agreements;”

Ø	Our ability to comply with the terms of an agreement with our regulators pursuant to which we have agreed to take certain corrective actions to improve our financial condition and results of operations;

The effects of and changes in trade and monetary and fiscal policies and laws, including, but not limited to, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board of Governors and the U.S. Treasury’s Capital Purchase Program and Troubled Asset Relief Program authorized by the Emergency Economic Stabilization Act of 2008;

Ø	The risks associated with the high concentration of commercial real estate loans in our loan portfolio;

Ø	The decline in commercial and residential real estate sales volume and the likely potential for continuing lack of liquidity in the real estate markets;

Ø	The uncertainties in estimating the fair value of developed real estate and undeveloped land in light of declining demand for such assets and continuing lack of liquidity in the real estate markets;

Ø	Negative developments and disruptions in the credit and lending markets, including the impact of the ongoing credit crisis on our business and on the businesses of our customers as well as other banks and lending institutions with which we have commercial relationships;

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

Ø	The accuracy of assumptions underlying the establishment of our allowance for loan losses and the estimation of values of collateral or cash flow projections and the potential resulting impact on the carrying value of various financial assets and liabilities;

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

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

Ø	Liquidity risks;

Ø	Inaccessibility of funding sources on the same or similar terms on which we have historically relied if we are unable to maintain sufficient capital ratios;

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

Ø	The effects of increased Federal Deposit Insurance Corporation deposit insurance assessments;

Ø	Changes in consumer spending, borrowings and savings habits;

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

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

Ø	High unemployment rates and the resulting impact on our customers’ savings rates and their ability to service debt obligations;

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

Ø	The impact of possible future goodwill and other material impairment charges;

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

Ø	Changes in the economic environment, competition, or other factors that may influence loan demand, deposit flows, the quality of our loan portfolio and loan and deposit pricing;

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

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

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

Ø	Volatility and disruption in national and international financial markets;

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

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

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

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

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

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

Ø	The geographic dispersion of our offices;

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

Ø	The highly regulated environment in which we operate; and

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

Actual events or our actual future results may differ materially from any forward-looking statement due to these and other risks, uncertainties and significant factors. For a discussion of these and other risk factors that may impact these forward-looking statements, please refer to our 2010 Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission on March 25, 2011. We wish to caution readers of this Quarterly Report on Form 10-Q that the foregoing list of important factors may not be all-inclusive and specifically decline to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. We do not have a duty to and will not update these forward-looking statements. Readers of this Quarterly Report on Form 10-Q should therefore consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on these statements.

Overview

We, or the Company, are a registered bank holding company incorporated in Missouri in 1978 and headquartered in St. Louis, Missouri. We operate through our wholly owned subsidiary bank holding company, The San Francisco Company, or SFC, headquartered in St. Louis, Missouri, and SFC’s wholly owned subsidiary bank, First Bank, also headquartered in St. Louis, Missouri. First Bank’s subsidiaries at March 31, 2011 were as follows:

Ø	First Bank Business Capital, Inc., or FBBC;

Ø	FB Holdings, LLC, or FB Holdings;

Ø	Small Business Loan Source LLC, or SBLS LLC;

Ø	ILSIS, Inc.;

Ø	FBIN, Inc.;

Ø	SBRHC, Inc.;

Ø	HVIIHC, Inc.;

Ø	FBSA Missouri, Inc.;

Ø	FBSA California, Inc.;

Ø	NT Resolution Corporation;

Ø	LC Resolution Corporation; and

Ø	WBI Resolution, LLC.

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First Bank’s subsidiaries are wholly owned except for FB Holdings, which was 53.23% owned by First Bank and 46.77% owned by First Capital America, Inc., or FCA, a corporation owned and operated by the Company’s Chairman of the Board and members of his immediate family, as of March 31, 2011, as further described in Note 8 to our consolidated financial statements.

At March 31, 2011, we had assets of $7.21 billion, loans, net of unearned discount, of $4.11 billion, deposits of $6.25 billion and stockholders’ equity of $300.0 million. We currently operate 149 branch banking offices in California, Florida, Illinois and Missouri.

Through First Bank, we offer a broad range of financial services, including commercial and personal deposit products, commercial and consumer lending, and many other financial products and services. Commercial and personal deposit products include demand, savings, money market and time deposit accounts. In addition, we market combined basic services for various customer groups, including packaged accounts for more affluent customers, and sweep accounts, lock-box deposits and cash management products for commercial customers. Commercial lending includes commercial, financial and agricultural loans, real estate construction and development loans, commercial real estate loans and small business lending. Consumer lending includes residential real estate, home equity and installment lending. Other financial services include mortgage banking, debit cards, brokerage services, internet banking, remote deposit, ATMs, telephone banking, safe deposit boxes, and trust and private banking services. The revenues generated by First Bank and its subsidiaries consist primarily of interest income, generated from our loan and investment security portfolios, service charges and fees generated from deposit products and services, and fees and commissions generated by our mortgage banking and trust and private banking business units. Our extensive line of products and services are offered to customers primarily within our geographic areas, which include eastern Missouri, Illinois, southern and northern California, and Florida, including Bradenton and the greater Tampa metropolitan area. Certain loan products are available nationwide.

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

Recent Developments and Other Matters

Successful Completion of Consent Solicitation. In October 2010, we, the holder of 100% of the outstanding common stock of First Preferred Capital Trust IV, or the Trust, began soliciting consents from the holders of the 8.15% cumulative trust preferred securities of the Trust, or the Trust Preferred Securities, to amend: (a) the Indenture, dated April 1, 2003, or the Indenture, relating to the 8.15% Subordinated Debentures due 2033 issued by the Company to the Trust, or the Debentures; (b) the Amended and Restated Trust Agreement, dated April 1, 2003, relating to the Trust, or the Trust Agreement; and (c) the Preferred Securities Guarantee, dated April 1, 2003, or the Guarantee Agreement, relating to the Trust Preferred Securities.

On January 25, 2011, we obtained the requisite consents from the holders of the Trust Preferred Securities approving the amendments. On January 26, 2011, we entered into the amendments that were approved in the consent solicitation, which: (i) allow the Company or a subsidiary or affiliate of the Company to issue its capital stock in exchange for or upon conversion of outstanding capital stock of the Company or any subsidiary or affiliate or for outstanding indebtedness of the Company ranking pari passu with or junior to the Debentures (as defined in the Indenture)(which would include any tranche of junior subordinated debentures relating to trust preferred securities) during a Deferral Period; (ii) permit the Company to exchange any of the Trust Preferred Securities that it beneficially owns for an equal principal amount of corresponding junior subordinated debentures and then cancel such indebtedness during a Deferral Period; and (iii) permit the Company to acquire less than all of any outstanding Debentures or any of the Trust Preferred Securities during a Deferral Period.

As a result of the successful completion of the consent solicitation, the Company believes it is better positioned to consider certain potential capital planning strategies to improve the regulatory capital ratios of First Banks, Inc. and further strengthen the Company’s overall financial position.

Capital Plan. We have been working since the beginning of 2008 to strengthen our capital ratios and improve our financial performance. Additionally, on August 10, 2009, we announced the adoption of our Capital Optimization Plan, or Capital Plan, designed to improve our capital ratios and financial performance through certain divestiture activities, asset reductions and expense reductions. We adopted our Capital Plan in order to, among other things, preserve our risk-based capital. We have completed, or are in the process of completing, a number of initiatives associated with our Capital Plan.

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A summary of the primary initiatives completed as of March 31, 2011 with respect to our Capital Plan is as follows:

	Gain (Loss) on Sale			Decrease in Intangible Assets		Decrease in Risk- Weighted Assets		Total Risk- Based Capital Benefit(1)
	(dollars expressed in thousands)

Reduction in Risk-Weighted Assets	$	—			—		341,100		29,800
Total 2011 Capital Initiatives	$	—			—		341,100		29,800

Partial Sale of Northern Illinois Region	$	6,355			9,683		141,800		28,500
Sale of Texas Region		4,984			19,962		116,300		35,100
Sale of MVP		(156	)		—		800		(100	)
Sale of Chicago Region		8,414			26,273		342,600		64,700
Sale of Lawrenceville Branch		168			1,000		11,400		2,200
Reduction in Other Risk-Weighted Assets		—			—		2,111,400		184,700
Total 2010 Capital Initiatives	$	19,765			56,918		2,724,300		315,100

Sale of WIUS loans	$	(13,077	)		19,982		146,700		19,700
Sale of restaurant franchise loans		(1,149	)		—		64,400		4,500
Sale of asset-based lending loans		(6,147	)		—		119,300		4,300
Sale of Springfield Branch		309			1,000		900		1,400
Sale of ANB		120			13,013		1,300		13,200
Reduction in Other Risk-Weighted Assets		—			—		1,580,400		138,300
Total 2009 Capital Initiatives	$	(19,944	)		33,995		1,913,000		181,400

Total Completed Capital Initiatives	$	(179	)		90,913		4,978,400		526,300

_________________

(1)	Calculated as the sum of the gain (loss) on sale plus the reduction in intangible assets plus 8.75% of the reduction in risk-weighted assets.

During the first three months of 2011, we have completed, or are in the process of completing, the following initiatives associated with our Capital Plan:

The sale of certain assets and the transfer of certain liabilities of our three retail branches in Pittsfield, Roodhouse and Winchester, Illinois to United Community Bank, or United Community, under a Branch Purchase and Assumption Agreement dated December 21, 2010. Under the terms of the agreement, United Community assumed approximately $92.5 million of deposits associated with these branches for a weighted average premium of approximately 2.4%, or $2.2 million. United Community also purchased approximately $37.9 million of loans as well as certain other assets at par value, including premises and equipment, associated with these branches. We completed the transaction on May 13, 2011 which resulted in a preliminary gain of approximately $400,000, net of a reduction in goodwill and intangible assets of $1.6 million allocated to the Northern Illinois Region (defined below), as further described in Note 18 to our consolidated financial statements.

The sale of the three branches in the transaction with United Community, along with the sale of 10 of our retail branches in Peoria, Galesburg, Quincy, Bartonville, Knoxville and Bloomington, Illinois to First Mid-Illinois Bank & Trust, N.A. on September 10, 2010, and the sale of our retail branch in Jacksonville, Illinois to Bank of Springfield on September 24, 2010, are collectively defined as the Northern Illinois Region.

The sale of certain assets and the transfer of certain liabilities of our branch banking office located in Edwardsville, Illinois, or the Edwardsville Branch, to National Bank, under a Branch Purchase and Assumption Agreement dated January 28, 2011. Under the terms of the agreement, National Bank assumed $10.4 million of deposits associated with our Edwardsville Branch for a premium of $130,000. National Bank also purchased $667,000 of loans associated with our Edwardsville Branch at a premium of 0.5%, or $3,000, and premises and equipment associated with our Edwardsville Branch at a premium of approximately $640,000. We completed the transaction on April 29, 2011 which resulted in a gain of approximately $265,000, net of a reduction in goodwill of $500,000 allocated to the transaction, as further described in Note 18 to our consolidated financial statements.

The reduction of our net risk-weighted assets to $4.50 billion at March 31, 2011, representing decreases of $341.1 million from $4.85 billion at December 31, 2010, $3.07 billion from $7.56 billion at December 31, 2009, $4.98 billion from $9.48 billion at December 31, 2008 and $5.74 billion from $10.25 billion at December 31, 2007. The decline in our net risk-weighted assets primarily resulted from our planned divestures and a shift in the mix of our assets during these periods, particularly reduced loan balances and increased short-term investments and investment securities balances, as further described under “—Financial Condition.”

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In addition to the action items identified above with respect to our Capital Plan, we are also focused on the following actions which, if consummated, would further improve our regulatory capital ratios and/or result in a reduction of our risk-weighted assets:

Ø	Reduction of our concentration in real estate lending and further diversification of our loan portfolio from real estate lending to commercial and industrial lending;

Ø	Reduction in the overall level of our nonperforming assets and potential problem loans;

Ø	Reduction of our unfunded loan commitments with an original maturity greater than one year;

Ø	Sale, merger or closure of individual branches or selected branch groupings;

Ø	Sale and/or aggressive reduction of the retained assets and liabilities associated with our Chicago, Texas and Northern Illinois Regions; and

Ø	Exploration of possible capital planning strategies to increase the overall level of Tier 1 risk-based capital at our holding company permitted by the successful consent solicitation.

We believe the successful completion of our Capital Plan would substantially improve our capital position. However, no assurance can be made that we will be able to successfully complete all, or any portion, of our Capital Plan, or that our Capital Plan will not be materially modified in the future. Our decision to implement the Capital Plan reflects the adverse effect that the severe downturn in the commercial and residential real estate markets has had on our financial condition and results of operations. If we are not able to successfully complete substantially all of our Capital Plan, our business, financial condition and results of operations may be materially and adversely affected and our ability to withstand continued adverse economic uncertainty could be threatened.

Discontinued Operations. We have applied discontinued operations accounting in accordance with Accounting Standards CodificationTM, or ASC, Topic 205-20, “Presentation of Financial Statements – Discontinued Operations,” to the assets and liabilities being sold related to our Northern Illinois Region as of March 31, 2011 and December 31, 2010, and to the operations of our Northern Illinois Region, our 24 Chicago retail branches, or Chicago Region, and our 19 Texas retail branches, or Texas Region, in addition to the operations of WIUS, Inc., and its wholly owned subsidiary, WIUS of California, Inc., collectively WIUS, and Missouri Valley Partners, Inc., or MVP, for the three months ended March 31, 2011 and 2010, as applicable. All financial information in this Quarterly Report on Form 10-Q is reported on a continuing operations basis, unless otherwise noted. See Note 2 and Note 18 to our accompanying consolidated financial statements for further discussion regarding discontinued operations and subsequent events associated with discontinued operations.

Regulatory Agreements. On March 24, 2010, the Company, SFC and First Bank entered into a Written Agreement, or Agreement, with the Federal Reserve Bank of St. Louis, or the FRB, requiring the Company and First Bank to take certain steps intended to improve their overall financial condition. Pursuant to the Agreement, the Company prepared and filed with the FRB a number of specific plans designed to strengthen and/or address the following matters: (i) board oversight over the management and operations of the Company and First Bank; (ii) credit risk management practices; (iii) lending and credit administration policies and procedures; (iv) asset improvement; (v) capital; (vi) earnings and overall financial condition; and (vii) liquidity and funds management.

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Prior to entering into the Agreement, the Company and First Bank had entered into a memorandum of understanding and an informal agreement, respectively, with the FRB and the State of Missouri Division of Finance, or the MDOF. Each of the agreements were characterized by regulatory authorities as informal actions that were neither published nor made publicly available by the agencies and are used when circumstances warrant a milder form of action than a formal supervisory action, such as a written agreement or cease and desist order. The informal agreement with the MDOF is still in place and there have not been any modifications thereto since its inception in September 2008.

Regulatory Capital. In March 2005, the Board of Governors of the Federal Reserve System, or Federal Reserve, adopted a final rule, Risk-Based Capital Standards: Trust Preferred Securities and the Definition of Capital, which allows for the continued limited inclusion of trust preferred securities in Tier 1 capital. The Federal Reserve’s final rule limits restricted core capital elements to 25% of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability. Amounts of restricted core capital elements in excess of these limits may generally be included in Tier 2 capital. Specifically, amounts of qualifying trust preferred securities and cumulative perpetual preferred stock in excess of the 25% limit may be included in Tier 2 capital, but will be limited, together with subordinated debt and limited-life preferred stock, to 50% of Tier 1 capital. In addition, the final rule provides that in the last five years before the maturity of the underlying subordinated note, the outstanding amount of the associated trust preferred securities is to be excluded from Tier 1 capital and included in Tier 2 capital, subject to one-fifth amortization per year. The final rule provided for a five-year transition period, ending March 31, 2009, for the application of the quantitative limits. In March 2009, the Federal Reserve adopted a final rule that delayed the effective date for the application of the quantitative limits to March 31, 2011. Until March 31, 2011, the aggregate amount of qualifying cumulative perpetual preferred stock and qualifying trust preferred securities that may be included in Tier 1 capital was limited to 25% of the sum of the following core capital elements: qualifying common stockholders’ equity, qualifying noncumulative and cumulative perpetual preferred stock, qualifying noncontrolling interest in the equity accounts of consolidated subsidiaries and qualifying trust preferred securities.

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

	March 31,			December 31,
	2011 (1)			2010 (1)

First Bank:
Total capital (to risk-weighted assets)		13.78	%	12.95	%
Tier 1 capital (to risk-weighted assets)		12.49		11.66
Tier 1 capital (to average assets)		7.89		7.40

First Banks, Inc.:
Total capital (to risk-weighted assets)		4.29		6.29
Tier 1 capital (to risk-weighted assets)		2.14		3.15
Tier 1 capital (to average assets)		1.35		1.99

_________________

(1)

The Company’s regulatory capital ratios at March 31, 2011 reflect the implementation of new Federal Reserve rules that became effective on March 31, 2011. The Federal Reserve’s final rules that were effective on March 31, 2011, if implemented as of December 31, 2010, would have reduced the Company’s total capital (to risk-weighted assets), Tier 1 capital (to risk-weighted assets) and Tier 1 capital (to average assets) to 4.53%, 2.27% and 1.44%, respectively, at December 31, 2010. The Federal Reserve’s final rules, if implemented as of December 31, 2010, would not have an impact on First Bank’s regulatory capital ratios at December 31, 2010.

First Bank was categorized as well capitalized at March 31, 2011 and December 31, 2010 under the prompt corrective action provisions of the regulatory capital standards. The Company did not meet the minimum regulatory capital standards established for bank holding companies by the Federal Reserve at March 31, 2011 and December 31, 2010. First Bank’s and our actual and required capital ratios are further described in Note 9 to our consolidated financial statements. First Bank’s Tier 1 capital to total assets ratio of 7.83% and 7.68% at March 31, 2011 and December 31, 2010, respectively, exceeded the 7.00% minimum level required under the terms of the informal agreement with the MDOF. As previously discussed under “—Capital Plan,” we believe the successful completion of our Capital Plan, which was initiated in 2008 to, among other things, preserve our risk-based capital, would substantially improve our capital position; however, the successful completion of all or any portion of our Capital Plan is not assured, and no assurance can be made that we will be able to successfully complete all or any portion of our Capital Plan, or that our Capital Plan will not be materially modified in the future.

Financial Condition

Total assets decreased $168.7 million to $7.21 billion at March 31, 2011, from $7.38 billion at December 31, 2010. The decrease in our total assets was primarily attributable to decreases in our cash and short-term investments, loans, net of unearned discount, Federal Home Loan Bank, or FHLB, and FRB stock, bank premises and equipment, goodwill and other intangible assets, other real estate, and assets held for sale and assets of discontinued operations; partially offset by increases in our investment securities portfolio.

Cash and cash equivalents, which are comprised of cash and short-term investments, decreased $41.3 million to $954.4 million at March 31, 2011, compared to $995.8 million at December 31, 2010. The decrease in our cash and cash equivalents was primarily attributable to the following:

Ø	The sale of our San Jose Branch on February 11, 2011, resulting in a cash outflow of $7.8 million;

Ø	A net increase in our investment securities portfolio of $218.9 million, excluding the impact of investment security purchases of $46.7 million traded in March 2011 but not settled until April 2011; and

Ø	A decrease in our deposit balances of approximately $211.7 million, excluding the impact of the divestiture of the San Jose Branch.

These decreases in cash and cash equivalents were partially offset by:

Ø	A decrease in loans of $344.0 million, exclusive of loan charge-offs and transfers to other real estate;

Ø	Recoveries of loans previously charged off of $9.8 million;

Ø	Sales of other real estate properties resulting in the receipt of cash proceeds from these sales of approximately $20.7 million;

Ø	A net increase in our other borrowings of $7.6 million, consisting of changes in our daily repurchase agreements utilized by customers as an alternative deposit product; and

Ø	The redemption of $1.9 million of FRB stock associated with the reduction in our total assets during 2011.

The majority of funds in our short-term investments at March 31, 2011 and December 31, 2010 were maintained in our correspondent bank account with the FRB, as further discussed under “—Liquidity Management.”

Investment securities increased $265.6 million to $1.76 billion at March 31, 2011, from $1.49 billion at December 31, 2010. The increase in our investment securities during 2011 reflects the utilization of excess cash and cash equivalents to fund gradual and planned increases in our investment securities portfolio in an effort to maximize our net interest income and net interest margin while maintaining appropriate liquidity levels.

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Loans, net of unearned discount, decreased $387.2 million to $4.11 billion at March 31, 2011, from $4.49 billion at December 31, 2010. The decrease reflects loan charge-offs of $36.9 million, transfers of loans to other real estate of $10.3 million and $344.0 million of other net loan activity, including significant principal repayments and overall continual reduced loan demand within our markets, as further discussed under “—Loans and Allowance for Loan Losses.”

FHLB and FRB stock decreased $1.9 million to $28.2 million at March 31, 2011, from $30.1 million at December 31, 2010. During the first quarter of 2011, we redeemed $1.9 million of FRB stock associated with the reduction in our total assets during the first quarter of 2011.

Bank premises and equipment, net of depreciation and amortization, decreased $2.7 million to $158.7 million at March 31, 2011, from $161.4 million at December 31, 2010, primarily attributable to depreciation and amortization of $3.7 million, partially offset by purchases of premises and equipment of $1.1 million.

Goodwill and other intangible assets decreased $799,000 to $128.3 million at March 31, 2011, from $129.1 million at December 31, 2010, reflecting amortization of $799,000 during the first quarter of 2011.

Other real estate decreased $14.1 million to $126.6 million at March 31, 2011, from $140.6 million at December 31, 2010. The decrease in other real estate during the first quarter of 2011 was primarily attributable to the sale of other real estate properties with a carrying value of $21.5 million at a net loss of $825,000 and write-downs of other real estate of $2.6 million, attributable to declining real estate values on certain properties, partially offset by foreclosures of real estate construction and development, commercial real estate, multi-family residential loans and one-to-four family residential real estate loans aggregating $10.3 million, as further discussed under “—Loans and Allowance for Loan Losses.”

Other assets were $70.7 million and $71.8 million at March 31, 2011 and December 31, 2010, respectively, and are primarily comprised of accrued interest receivable, servicing rights, derivative financial instruments and miscellaneous other receivables.

Assets held for sale decreased to $2.2 million at March 31, 2011, from $2.3 million at December 31, 2010, reflecting the completion of the sale of our San Jose Branch on February 11, 2011 and a decrease in assets associated with the sale of our Edwardsville Branch, which was completed on April 29, 2011. See Note 2 and Note 18 to our consolidated financial statements for further discussion of assets held for sale.

Assets of discontinued operations were $40.2 million and $43.5 million at March 31, 2011 and December 31, 2010, respectively, reflecting a decrease in assets associated with the sale of our Northern Illinois Region, which was completed on May 13, 2011. See Note 2 and Note 18 to our consolidated financial statements for further discussion of discontinued operations.

Deposits decreased $211.7 million to $6.25 billion at March 31, 2011, from $6.46 billion at December 31, 2010. The decrease was primarily attributable to anticipated reductions of higher rate certificates of deposit. Time deposits decreased $184.2 million, reflecting our efforts to exit unprofitable certificate of deposit relationships in an effort to reduce overall deposit costs and improve First Bank’s leverage ratio. Noninterest-bearing demand deposits decreased $48.3 million, reflecting a decrease in commercial deposit relationships as a result of the corresponding decrease in the overall level of commercial loans. Savings and money market deposits decreased $6.8 million. These decreases were partially offset by an increase in interest-bearing demand deposits of $27.5 million, reflecting organic growth through our deposit development programs.

Other borrowings, which are comprised of daily securities sold under agreements to repurchase (in connection with cash management activities of our commercial deposit customers), increased $7.6 million to $39.4 million at March 31, 2011, from $31.8 million at December 31, 2010, reflecting changes in customer balances associated with this product segment.

Accrued expenses and other liabilities increased $52.7 million to $136.6 million at March 31, 2011, from $83.9 million at December 31, 2010. The increase was primarily attributable to an increase of $46.7 million related to an obligation for investment securities that were purchased in March 2011 but not settled until April 2011. The increase was also attributable to an increase in dividends payable on our Class C and Class D Preferred Stock and accrued interest payable on our junior subordinated debentures of $4.4 million and $3.3 million, respectively, as further discussed in Note 13 to our consolidated financial statements and under “—Recent Developments and Other Matters – Other.”

Liabilities held for sale decreased $10.7 million to $12.7 million at March 31, 2011, from $23.4 million at December 31, 2010, reflecting the completion of the sale of our San Jose Branch on February 11, 2011 and changes in liabilities associated with the sale of our Edwardsville Branch, which was completed on April 29, 2011. See Note 2 and Note 18 to our consolidated financial statements for further discussion of liabilities held for sale.

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Liabilities of discontinued operations were $93.7 million and $94.2 million at March 31, 2011 and December 31, 2010, respectively, reflecting a decrease in liabilities associated with the sale of our Northern Illinois Region, which was completed on May 13, 2011. See Note 2 and Note 18 to our consolidated financial statements for further discussion of discontinued operations.

Stockholders’ equity, including noncontrolling interest in subsidiary, was $300.0 million and $307.3 million at March 31, 2011 and December 31, 2010, respectively, reflecting a decrease of $7.3 million. The decrease during the first quarter of 2011 reflects:

Ø	A net loss, including discontinued operations, of $6.1 million; and

Ø	Dividends declared of $4.4 million on our Class C and Class D Preferred Stock; partially offset by

Ø	An increase in noncontrolling interest in subsidiary of $65,000 associated with net income in FB Holdings; and

Ø	A net increase in accumulated other comprehensive income of $3.1 million primarily associated with changes in unrealized gains and losses on available-for-sale investment securities.

Results of Operations

Net Income. We recorded a net loss, including discontinued operations, of $6.1 million for the three months ended March 31, 2011, compared to a net loss, including discontinued operations, of $27.6 million for the comparable period in 2010. Our results of operations levels reflect the following:

Ø	A provision for loan losses of $10.0 million for the three months ended March 31, 2011, compared to $42.0 million for the comparable period in 2010;

Ø	Net interest income of $48.5 million for the three months ended March 31, 2011, compared to $62.3 million for the comparable period in 2010;

Ø	Noninterest income of $14.1 million for the three months ended March 31, 2011, compared to $15.4 million for the comparable period in 2010;

Ø	Noninterest expense of $58.8 million for the three months ended March 31, 2011, compared to $65.9 million for the comparable period in 2010;

Ø	A provision for income taxes of $52,000 for the three months ended March 31, 2011, compared to $105,000 for the comparable period in 2010;

Ø	Net income from discontinued operations, net of tax, of $194,000 for the three months ended March 31, 2011, compared to $2.3 million for the comparable period in 2010; and

Ø	Net income attributable to noncontrolling interest in subsidiary of $65,000 for the three months ended March 31, 2011, compared to a net loss attributable to noncontrolling interest in subsidiary of $437,000 for the comparable period in 2010.

The decrease in the provision for loan losses in the first quarter of 2011, as compared to the same period in 2010, was primarily driven by a decrease in the overall level of nonaccrual loans and potential problem loans and a decrease in net charge-offs, in addition to less severe asset migration to classified asset categories than the migration levels experienced during the first quarter of 2010, as further discussed under “—Provision for Loan Losses” and “—Loans and Allowance for Loan Losses.”

The decline in our net interest income in the first quarter of 2011, as compared to the comparable period in 2010, was primarily attributable to a substantially lower average balance of interest-earning assets, specifically average loan balances, partially offset by a significant decrease in deposit and other borrowing costs, as further discussed under “—Net Interest Income.”

The decrease in our noninterest income in the first quarter of 2011, as compared to the comparable period in 2010, was primarily attributable to reduced service charges on deposit accounts and customer service fees, lower gains on loans sold and held for sale and decreased other income, primarily attributable to increased losses on sales of other real estate; partially offset by increased gains on sales of investment securities, lower net losses on derivative financial instruments and lower declines in the fair value of servicing rights, as further discussed under “—Noninterest Income.”

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The decrease in our noninterest expense in the first quarter of 2011, as compared to the comparable period in 2010, was primarily attributable to reductions in write-downs and expenses on other real estate properties, salaries and employee benefits expense, occupancy and furniture and equipment expenses, postage, printing and supplies expenses, information technology fees, legal, examination and professional fees, amortization of intangible assets and other expense; partially offset by increased FDIC insurance expense and advertising and business development expenses, as further discussed under “¾Noninterest Expense.”

The low level of our provision for income taxes reflects our ongoing deferred tax asset valuation allowance, as further discussed under “¾Provision for Income Taxes” and in Note 14 to our consolidated financial statements.

The decrease in income from discontinued operations, net of tax, primarily reflects an $8.4 million gain recognized on the sale of our Chicago Region during the first quarter of 2010 and other net activity, as further discussed under “¾Income from Discontinued Operations, Net of Tax” and in Note 2 to our consolidated financial statements.

The increase in net income attributable to noncontrolling interest in subsidiary reflects reduced expenses in FB Holdings related to lower balances of nonperforming assets in addition to increased gains recognized on the sale of certain other real estate properties, as further discussed under “¾Net Income (Loss) Attributable to Noncontrolling Interest in Subsidiary.”

Net Interest Income. Net interest income, expressed on a tax-equivalent basis, decreased to $48.6 million for the three months ended March 31, 2011, compared to $62.4 million for the comparable period in 2010. Our net interest margin increased to 2.89% for the three months ended March 31, 2011, compared to 2.83% for the comparable period in 2010.

The primary source of our income is net interest income. Net interest income is the difference between the interest earned on our interest-earning assets, such as loans and investment securities, and the interest paid on our interest-bearing liabilities, such as deposits and borrowings. Net interest income is affected by the level and composition of assets, liabilities and stockholders’ equity, as well as the general level of interest rates and changes in interest rates. Interest income on a tax-equivalent basis includes the additional amount of interest income that would have been earned if our investment in certain tax-exempt interest-earning assets had been made in assets subject to federal, state and local income taxes yielding the same after-tax income. Net interest margin is determined by dividing net interest income on a tax-equivalent basis by average interest-earning assets. The interest rate spread is the difference between the average equivalent yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities.

Our balance sheet is presently asset sensitive, and as such, our net interest margin has been negatively impacted by the low interest rate environment as our loan portfolio re-prices on an immediate basis; whereas we are unable to immediately re-price our deposit portfolio to current market interest rates, thereby resulting in a compression of our net interest margin. Our asset-sensitive position, coupled with the level of our nonperforming assets, the increased level of average lower-yielding short-term investments and investment securities, the lower level of average loans and the expiration of the amortization period of the unrealized gain on certain terminated interest rate swap agreements in September 2010, as further discussed below, have negatively impacted our net interest income and are expected to continue to negatively impact the level of our net interest income in the near future.

We attribute the increase in our net interest margin to a significant decrease in deposit and other borrowing costs, contributing to a decrease in the average rate paid on our interest-bearing liabilities of 41 basis points to 0.99% for the three months ended March 31, 2011, compared to 1.40% for the comparable period in 2010, partially offset by a decrease in the yield on our interest-earning assets of 14 basis points to 3.71% for the three months ended March 31, 2011, compared to 3.85% for the comparable period in 2010. Average interest-earning assets decreased $2.12 billion to $6.82 billion for the three months ended March 31, 2011, compared to $8.94 billion for the comparable period in 2010. Average interest-bearing liabilities decreased $892.9 million to $5.62 billion for the three months ended March 31, 2011, compared to $6.51 billion for the comparable period in 2010.

Interest income on our loan portfolio, expressed on a tax-equivalent basis, decreased to $52.6 million for the three months ended March 31, 2011, compared to $77.8 million for the comparable period in 2010. Average loans, net of unearned discount, decreased $1.93 billion to $4.32 billion for the three months ended March 31, 2011, from $6.25 billion for the comparable period in 2010. The decrease in average loans primarily reflects a substantial level of loan payoffs and principal payments, a decline in loan production and reduced loan demand within our markets, loan charge-offs, transfers of loans to other real estate, and the exit of certain of our problem credit relationships. The yield on our loan portfolio decreased 11 basis points to 4.94% for the three months ended March 31, 2011, compared to 5.05% for the comparable period in 2010. The yield on our loan portfolio continues to be adversely impacted by the historically low prime and London Interbank Offered Rate, or LIBOR, interest rates, as a significant portion of our loan portfolio is priced to these indices. Furthermore, the yield on our loan portfolio continues to be adversely impacted by the higher levels of average nonaccrual loans, as further discussed under “—Loans and Allowance for Loan Losses.” Our nonaccrual loans decreased our average yield on loans by approximately 58 basis points during the three months ended March 31, 2011, compared to approximately 51 basis points during the comparable period in 2010. Interest income on our loan portfolio was positively impacted by income associated with our interest rate swap agreements of $1.9 million for the three months ended March 31, 2010. The income ceased during the third quarter of 2010 with the expiration of the amortization period of the unrealized pre-tax gain associated with the termination of our interest rate swap agreements designated as cash flow hedges, as further discussed under “—Interest Rate Risk Management.” Partially offsetting the impact of the nonaccrual loans and lower interest income related to interest rate swap agreements was an improvement in pricing on existing loan relationships. We have been re-pricing our loan portfolio, in particular our commercial real estate and real estate construction and development loans, over the last several quarters 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. However, competitive conditions within our market areas may impact our ability to improve pricing in certain sectors.

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Interest income on our investment securities, expressed on a tax-equivalent basis, was $8.8 million for the three months ended March 31, 2011, compared to $5.3 million for the comparable period in 2010. Average investment securities increased to $1.61 billion for the three months ended March 31, 2011, compared to $676.4 million for the comparable period in 2010. We continue to utilize a portion of our cash and cash equivalents to fund gradual and planned increases in our investment securities portfolio in an effort to maximize our net interest income and net interest margin while maintaining appropriate liquidity levels and appropriate diversification within our investment securities portfolio. The yield earned on our investment portfolio was 2.22% for the three months ended March 31, 2011, compared to 3.17% for the comparable period in 2010, reflecting significant purchases of investment securities at lower market rates.

Dividends on our FHLB and FRB stock were $396,000 for the three months ended March 31, 2011, compared to $583,000 for the comparable period in 2010. Average FHLB and FRB stock was $29.0 million for the three months ended March 31, 2011, compared to $62.1 million for the comparable period in 2010. The decrease in the average balance reflects the redemption of FRB stock during 2010 and the first quarter of 2011 associated with the reduction in our total assets, in addition to the redemption of FHLB stock during 2010 associated with the prepayment of $600.0 million of FHLB advances during 2010. The yield earned on our FHLB and FRB stock was 5.54% for the three months ended March 31, 2011, compared to 3.81% for the comparable period in 2010.

Interest income on our short-term investments was $532,000 for the three months ended March 31, 2011, compared to $1.2 million for the comparable period in 2010. Average short-term investments were $861.1 million for the three months ended March 31, 2011, compared to $1.95 billion for the comparable period in 2010. The yield earned on our short-term investments was 0.25% for the three months ended March 31, 2011 and 2010, reflecting the investment of the majority of funds in our short-term investments in our correspondent bank account with the FRB, which currently earns 0.25%. We built a significant amount of available balance sheet liquidity throughout 2009, 2010 and the first quarter of 2011 in anticipation of the expected completion of certain transactions associated with our Capital Plan, as further discussed under “—Liquidity Management” and in Note 2 to our consolidated financial statements. The high level of short-term investments, while necessary to complete certain transactions associated with our Capital Plan and to maintain significant balance sheet liquidity in light of economic conditions, has negatively impacted our net interest margin.

Interest expense on our interest-bearing deposits decreased to $10.4 million for the three months ended March 31, 2011, from $16.0 million for the comparable period in 2010. Average interest-bearing deposits were $5.23 billion for the three months ended March 31, 2011, compared to $5.40 billion for the comparable period in 2010. The decrease in our average interest-bearing deposits reflects anticipated reductions of higher rate certificates of deposits and a shift in the mix of our deposit portfolio volumes from time deposits to interest-bearing demand and savings and money market deposits. Decreases in our average time deposits and noninterest-bearing demand deposits of $299.5 million and $22.2 million, respectively, for the first three months of 2011, as compared to the comparable period in 2010, were partially offset by increases in interest-bearing demand deposits and savings and money market deposits of $80.8 million and $48.7 million, respectively. The aggregate weighted average rate paid on our interest-bearing deposit portfolio decreased to 0.81% for the three months ended March 31, 2011, from 1.20% for the comparable period in 2010, reflecting the re-pricing of certificates of deposit accounts to current market interest rates upon maturity and our efforts to reduce deposit costs across our deposit portfolio. The weighted average rate paid on our time deposit portfolio declined to 1.42% for the three months ended March 31, 2011, from 1.97% for the comparable period in 2010; the average rate paid on our savings and money market deposit portfolio declined to 0.53% for the three months ended March 31, 2011, from 0.77% for the comparable period in 2010; and the average rate paid on our interest-bearing demand deposits declined to 0.13% for the three months ended March 31, 2011, from 0.17% for the comparable period in 2010. Assuming that the prevailing interest rate environment remains relatively stable, we anticipate continued reductions in our deposit costs as certain of our certificates of deposit accounts continue to re-price to current market interest rates upon maturity, as money market accounts re-price from promotional rates to current market interest rates and as we implement certain product modifications designed to enhance overall product offerings to our customer base.

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Interest expense on our other borrowings was $26,000 for the three months ended March 31, 2011, compared to $3.4 million for the comparable period in 2010. Average other borrowings were $35.2 million for the three months ended March 31, 2011, compared to $758.1 million for the comparable period in 2010. Average other borrowings for the first quarter of 2011 were comprised solely of daily repurchase agreements utilized by customers as an alternative deposit product. The decrease in average other borrowings for the three months ended March 31, 2011, as compared to the comparable period in 2010, reflects the repayment of all of our $600.0 million outstanding FHLB advances and the early termination of our $120.0 million term repurchase agreement during 2010, in addition to a decrease in daily repurchase agreements. The aggregate weighted average rate paid on our other borrowings was 0.30% for the three months ended March 31, 2011, compared to 1.81% for the comparable period in 2010, reflecting the repayment of our higher cost secured borrowings during 2010.

Interest expense on our junior subordinated debentures was $3.3 million for the three months ended March 31, 2011, compared to $3.1 million for the comparable period in 2010. Average junior subordinated debentures were $354.0 million for the three months ended March 31, 2011, compared to $353.9 million for the comparable period in 2010. The aggregate weighted average rate paid on our junior subordinated debentures was 3.78% for the three months ended March 31, 2011, compared to 3.55% for the comparable period in 2010. The aggregate weighted average rates and the level of interest expense reflect the LIBOR rates and the impact to the related spreads to LIBOR during the periods as approximately 79.4% of our junior subordinated debentures are variable rate. The aggregate weighted average rates also reflect additional interest expense accrued on the regularly scheduled deferred interest payments on our junior subordinated debentures, as further described in Note 12 to our consolidated financial statements.

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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 months ended March 31, 2011 and 2010.

		Three Months Ended March 31,
		2011							2010
				Interest							Interest
		Average		Income/		Yield/			Average		Income/		Yield/
		Balance		Expense		Rate			Balance		Expense		Rate
	(dollars expressed in thousands)
ASSETS
Interest-earning assets:
Loans (1) (2) (3) (4)		$	4,321,682		52,606		4.94	%	$	6,248,503		77,814		5.05	%
Investment securities (4)			1,609,743		8,824		2.22			676,395		5,290		3.17
FHLB and FRB stock			28,995		396		5.54			62,132		583		3.81
Short-term investments			861,119		532		0.25			1,952,830		1,220		0.25
Total interest-earning assets			6,821,539		62,358		3.71			8,939,860		84,907		3.85
Nonearning assets			412,098							458,130
Assets of discontinued operations			40,038							589,284
Total assets		$	7,273,675						$	9,987,274

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand		$	943,847		307		0.13	%	$	863,040		366		0.17	%
Savings and money market			2,204,360		2,866		0.53			2,155,701		4,067		0.77
Time deposits of $100 or more			789,561		2,825		1.45			894,054		4,353		1.97
Other time deposits			1,291,643		4,445		1.40			1,486,656		7,225		1.97
Total interest-bearing deposits			5,229,411		10,443		0.81			5,399,451		16,011		1.20
Other borrowings			35,172		26		0.30			758,132		3,388		1.81
Subordinated debentures			353,991		3,302		3.78			353,915		3,100		3.55
Total interest-bearing liabilities			5,618,574		13,771		0.99			6,511,498		22,499		1.40
Noninterest-bearing liabilities:
Demand deposits			1,135,764							1,157,993
Other liabilities			117,405							99,246
Liabilities of discontinued operations			96,160							1,702,554
Total liabilities			6,967,903							9,471,291
Stockholders’ equity			305,772							515,983
Total liabilities and stockholders’ equity		$	7,273,675						$	9,987,274
Net interest income					48,587							62,408
Interest rate spread							2.72							2.45
Net interest margin (5)							2.89	%						2.83	%

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(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 $90,000 and $136,000 for the three months ended March 31, 2011 and 2010, respectively.

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

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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 months ended March 31, 2011, as compared to the three months ended March 31, 2010. 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 March 31, 2011 Compared to 2010
								Net
		Volume			Rate			Change
	(dollars expressed in thousands)

Interest earned on:
Loans: (1) (2) (3)
Taxable		$	(23,481	)		(1,659	)	(25,140	)
Tax-exempt (4)			(40	)		(28	)	(68	)
Investment securities:
Taxable			5,419			(1,822	)	3,597
Tax-exempt (4)			(55	)		(8	)	(63	)
FHLB and FRB stock			(387	)		200		(187	)
Short-term investments			(688	)		—		(688	)
Total interest income			(19,232	)		(3,317	)	(22,549	)
Interest paid on:
Interest-bearing demand deposits			32			(91	)	(59	)
Savings and money market deposits			91			(1,292	)	(1,201	)
Time deposits			(1,338	)		(2,970	)	(4,308	)
Other borrowings			(1,793	)		(1,569	)	(3,362	)
Subordinated debentures			1			201		202
Total interest expense			(3,007	)		(5,721	)	(8,728	)
Net interest income		$	(16,225	)		2,404		(13,821	)

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(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%.

Provision for Loan Losses. We recorded a provision for loan losses of $10.0 million for the three months ended March 31, 2011, compared to $42.0 million for the comparable period in 2010. The decrease in the provision for loan losses during the three months ended March 31, 2011, as compared to the comparable period in 2010, was primarily driven by the significant decrease in the overall level of nonaccrual loans and potential problem loans and a decrease in net charge-offs, in addition to less severe asset migration to classified asset categories than the migration levels experienced during the first quarter of 2010.

Our nonaccrual loans were $382.0 million at March 31, 2011, compared to $398.9 million at December 31, 2010 and $657.9 million at March 31, 2010. The decrease in the overall level of nonaccrual loans was driven by gross loan charge-offs, transfers to other real estate and resolution of certain nonaccrual loans exceeding net additions to nonaccrual loans, as further discussed under “—Loans and Allowance for Loan Losses,” and reflects our continued progress with respect to the implementation of our Asset Quality Improvement Plan initiatives, designed to reduce the overall balance of nonaccrual and other potential problem loans and assets.

Our net loan charge-offs were $27.1 million for the three months ended March 31, 2011, compared to $58.1 million for the comparable period in 2010. The decrease in net loan charge-offs was primarily attributable to decreases in net charge-offs in our real estate construction and development, commercial real estate and one-to-four family residential real estate portfolios, partially offset by an increase in net charge-offs in our commercial, financial and agricultural portfolio.

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

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Noninterest Income. Noninterest income was $14.1 million for the three months ended March 31, 2011, compared to $15.4 million for the comparable period in 2010. 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. The decrease in our noninterest income was primarily attributable to lower service charges on deposit accounts and customer service fees, lower gains on loans sold and held for sale and decreased other income, primarily due to increased losses on sales of other real estate; partially offset by gains on sales of investment securities, lower net losses on derivative financial instruments and lower declines in the fair value of servicing rights.

Service charges on deposit accounts and customer service fees were $9.7 million for the three months ended March 31, 2011, compared to $10.2 million for the comparable period in 2010, primarily reflecting reduced non-sufficient funds and returned check fee income on retail and commercial accounts.

The gain on loans sold and held for sale was $386,000 for the three months ended March 31, 2011, compared to $920,000 for the comparable period in 2010. The decrease was primarily attributable to a decrease in the volume of mortgage loans originated for sale in the secondary market during the first quarter of 2011 associated with the rise in mortgage interest rates and the resulting decline in refinancing volume in our mortgage banking division in addition to lower margins on the loans originated for sale in the secondary market. The gain on sale of mortgage loans was $459,000 for the three months ended March 31, 2011, compared to $977,000 for the comparable period in 2010. For the three months ended March 31, 2011 and 2010, we originated residential mortgage loans held for sale totaling $57.5 million and $61.6 million, respectively. The decrease in gains on loans sold and held for sale also reflects losses on the sale of SBA loans of $73,000 for the three months ended March 31, 2011, compared to gains of $35,000 for the comparable period in 2010.

We recorded net gains on investment securities of $527,000 for the three months ended March 31, 2011. During the first quarter of 2011, we reduced our overall number of smaller-valued investment securities holdings, many of which were acquired in previous acquisitions, in an effort to reduce the operational requirements and overall costs associated with maintaining these securities. There were no sales of investment securities during the three months ended March 31, 2010.

We recorded net losses on derivative instruments of $56,000 and $1.3 million for the three months ended March 31, 2011 and 2010, respectively, primarily attributable to changes in fair value and the net interest differential on our interest rate swap agreements previously designated as cash flow hedges on our junior subordinated debentures, as further described under “—Interest Rate Risk Management” and in Note 16 to our consolidated financial statements.

We recorded net losses associated with changes in the fair value of mortgage and SBA servicing rights of $489,000 and $749,000 for the three months ended March 31, 2011 and 2010, respectively. The changes in the fair value of mortgage and SBA servicing rights during the periods reflect changes in mortgage interest rates and the related changes in estimated prepayment speeds, as well as changes in cash flow assumptions on the underlying SBA loans in the serviced portfolio.

Loan servicing fees were $2.3 million for the three months ended March 31, 2011 and 2010, and 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 originated to small business concerns. The level of fees is primarily impacted by the balance of loans serviced and interest shortfall on serviced residential mortgage loans. Interest shortfall represents the difference between the interest collected from a loan servicing customer upon prepayment of the loan and the full month of interest that is required to be remitted to the security owner.

Other income was $1.8 million and $4.1 million for the three months ended March 31, 2011 and 2010, respectively. We primarily attribute the decrease in other income to:

Ø	A loss of $334,000 recognized in the first quarter of 2011 on the sale of our San Jose Branch, as further described in Note 2 to our consolidated financial statements;

Ø	A gain of $168,000 recognized in the first quarter of 2010 on the sale of our Lawrenceville Branch; and

Net losses on sales of other real estate of $825,000 for the first quarter of 2011 associated with sales of other real estate properties with a carrying value of $21.5 million, compared to net gains of $878,000 for the first quarter of 2010 associated with sales of other real estate properties with a carrying value of $19.2 million.

Noninterest Expense. Noninterest expense decreased $7.1 million, or 10.7%, to $58.8 million for the three months ended March 31, 2011, from $65.9 million for the comparable period in 2010. The decrease in our noninterest expense was primarily attributable to reductions in write-downs and expenses on other real estate properties, salaries and employee benefits expense, occupancy and furniture and equipment expenses, postage, printing and supplies expenses, information technology fees, legal, examination and professional fees and amortization of intangible assets; partially offset by increased FDIC insurance expense and advertising and business development expenses.

Salaries and employee benefits expense decreased $1.1 million, or 5.1% to $20.8 million for the three months ended March 31, 2011, in comparison to $22.0 million for the comparable period in 2010. The overall decrease in salaries and employee benefits expense is reflective of the completion of certain staff reductions in 2010 and 2011. Our total full-time equivalent employees (FTEs), excluding discontinued operations, decreased to 1,357 at March 31, 2011, from 1,393 at December 31, 2010 and 1,552 at March 31, 2010, representing decreases of 2.6% and 12.6%, respectively. The overall reduction in salaries and employee benefits expense was partially offset by an increase in our 401(k) matching contribution, resulting from the reinstatement of our 401(k) matching contribution in the first quarter of 2011, following the elimination of our matching contribution in April 2009.

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Occupancy, net of rental income, and furniture and equipment expense decreased $792,000, or 7.2%, to $10.2 million for the three months ended March 31, 2011, from $10.9 million for the comparable period in 2010. The decrease reflects reduced furniture, fixture and technology equipment expenditures associated with prior expansion and branch renovation activities and certain branch closures completed in conjunction with profit improvement initiatives.

Postage, printing and supplies expense decreased $306,000, or 27.3%, to $814,000 for the three months ended March 31, 2011, from $1.1 million for the comparable period in 2010, primarily reflecting decreases in office supplies expenses as a result of profit improvement initiatives.

Information technology and item processing fees decreased $877,000, or 11.9%, to $6.5 million for the three months ended March 31, 2011, from $7.4 million for the comparable period in 2010. The decrease in information technology fees is primarily due to the implementation of certain profit improvement initiatives and negotiated fee reductions with First Services, L.P. As more fully described in Note 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, trust and small business lending divisions as well as our payroll processing department.

Legal, examination and professional fees decreased $391,000, or 11.3%, to $3.1 million for the three months ended March 31, 2011, compared to $3.5 million for the comparable period in 2010. The decrease in legal, examination and professional fees primarily reflects lower legal expenses associated with divestiture activities and litigation matters than those experienced during the first quarter of 2010, in addition to lower fees related to collection and foreclosure efforts associated with the decrease in the average balance of our nonperforming assets. While legal fees have declined as compared to the first quarter of 2010, we anticipate legal, examination and professional fees to remain at higher-than-historical levels during 2011, primarily as a result of higher legal and professional fees associated with ongoing foreclosure efforts on problem loans, other collection efforts, ongoing litigation matters and ongoing matters associated with our Capital Plan, as further described under “—Recent Developments and Other Matters – Capital Plan.”

Amortization of intangible assets was $799,000 and $925,000 for the three months ended March 31, 2011 and 2010, respectively, reflecting a decrease in the amortization of core deposit intangibles associated with prior acquisitions.

Advertising and business development expense increased $84,000, or 20.1%, to $501,000 for the three months ended March 31, 2011, from $417,000 for the comparable period in 2010, reflecting increased advertising and deposit product campaigns during the first quarter of 2011 as compared to the same period in the prior year.

FDIC insurance expense increased $352,000, or 7.1%, to $5.3 million for the three months ended March 31, 2011, in comparison to $4.9 million for the comparable period in 2010. The increase in FDIC insurance expense was primarily attributable to the increase in premiums related to our increased risk assessment rating. Prior to April 1, 2011, the FDIC’s assessment base for the calculation of insurance premium assessments was an institution’s average deposits. The Dodd-Frank Act required the FDIC to establish rules setting insurance premium assessments based on an institution's average consolidated assets minus its average tangible equity instead of its deposits. These rules were finalized on February 7, 2011 and set base assessment rates for institutions in Risk Categories II, III and IV at annual rates of 14, 23 and 35 basis points, respectively, beginning April 1, 2011. The base assessment rate for a Risk Category I institution was set at a range of five to nine basis points. These initial base assessment rates are adjusted to determine an institution’s final assessment rate based on its brokered deposits and unsecured debt. Total base assessment rates after adjustments range from 2.5 to 9 basis points for Risk Category I, 9 to 24 basis points for Risk Category II, 18 to 33 basis points for Risk Category III, and 30 to 45 basis points for Risk Category IV. We expect the level of our future FDIC insurance expense to be reduced as a result of the implementation of the changes in the assessment methodology.

Write-downs and expenses on other real estate decreased $3.0 million, or 37.7%, to $4.9 million for the three months ended March 31, 2011, from $7.9 million for the comparable period in 2010, and include write-downs related to the revaluation of certain properties of $2.6 million for the three months ended March 31, 2011 as compared to $4.5 million for the three months ended March 31, 2010. Write-downs during the three months ended March 31, 2011 include a single write-down of $1.7 million on a Southern California real estate property. Write-downs of other real estate for the three months ended March 31, 2010 include a write-down of $3.0 million on a single property located in Northern California. Other real estate expenses, exclusive of write-downs, such as taxes, insurance, and repairs and maintenance, were $2.4 million for the three months ended March 31, 2011, compared to $3.5 million for the comparable period in 2010. The overall higher-than-historical level of expenses on other real estate is primarily due to expenses associated with ongoing foreclosure activity, including current and delinquent real estate taxes paid on other real estate properties, as well as other property preservation related expenses. The balance of our other real estate properties was $126.6 million at March 31, 2011, as compared to $140.6 million at December 31, 2010 and $134.2 million at March 31, 2010. 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 high level of our other real estate balances and the expected future transfer of certain of our nonaccrual loans into our other real estate portfolio.

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Other expense decreased $922,000, or 13.4%, to $6.0 million for the three months ended March 31, 2011, compared to $6.9 million for the comparable period in 2010. Other expense encompasses numerous general and administrative expenses including communications, insurance, freight and courier services, correspondent bank charges, loan expenses, miscellaneous losses and recoveries, memberships and subscriptions, transfer agent fees, sales taxes, travel, meals and entertainment, overdraft losses and other nonrecurring expenses. The decrease in other expense reflects the following:

Ø	A decrease in loan expenses associated with collection efforts related to asset quality matters to $1.2 million for the three months ended March 31, 2011, as compared to $1.9 million for the comparable period in 2010; and

Ø	Overdraft losses, net of recoveries, of $298,000 for the three months ended March 31, 2011, compared to $324,000 for the comparable period in 2010.

Provision for Income Taxes. We recorded a provision for income taxes of $52,000 and $105,000 for the three months ended March 31, 2011 and 2010, respectively. The provision for income taxes during 2011 and 2010 reflects the establishment of a full deferred tax asset valuation allowance during 2008 and the resulting inability to record tax benefits on our net loss due to existing federal and state net operating loss carryforwards on which the realization of the related tax benefits is not “more likely than not,” as further described in Note 14 to our consolidated financial statements. The deferred tax asset valuation allowance was primarily established as a result of our three-year cumulative operating loss for the years ended December 31, 2008, 2007 and 2006, after considering all available objective evidence and potential tax planning strategies related to the amount of the deferred tax assets that are more likely than not to be realized.

The level of our provision for income taxes and the deferred tax asset valuation allowance are more fully described in Note 14 to our consolidated financial statements.

Income from Discontinued Operations, Net of Tax. We recorded income from discontinued operations, net of tax, of $194,000 for the three months ended March 31, 2011, compared to income from discontinued operations, net of tax, of $2.3 million for the comparable period in 2010. Income from discontinued operations, net of tax, for the three months ended March 31, 2011 and 2010, is primarily reflective of the following:

Ø	A gain of $8.4 million during the first quarter of 2010 associated with the sale of our Chicago Region on February 19, 2010 net of a reduction in goodwill and intangible assets allocated to the Chicago Region of approximately $26.3 million; and

Ø	Other net income (loss) from all discontinued operations during the respective periods, as further described in Note 2 to our consolidated financial statements.

Net Income (Loss) Attributable to Noncontrolling Interest in Subsidiary. Net income attributable to noncontrolling interest in subsidiary was $65,000 for the three months ended March 31, 2011, compared to a net loss attributable to noncontrolling interest in subsidiary of $437,000 for the comparable period in 2010, and was comprised of the noncontrolling interest in the net income (losses) of FB Holdings. The net income attributable to noncontrolling interest in subsidiary in 2011, as compared to the net loss in 2010, is primarily reflective of reduced expenses associated with lower balances of other real estate properties in FB Holdings coupled with increased gains recognized on the sale of other real estate properties for the three months ended March 31, 2011, as compared to the comparable period in 2010. Noncontrolling interest in subsidiary is more fully described in Note 1 and Note 8 to our consolidated financial statements.

Interest Rate Risk Management

The maintenance of a satisfactory level of net interest income is a primary factor in our ability to achieve acceptable income levels. However, the maturity and repricing characteristics of our loan and investment portfolios may differ significantly from those within our deposit structure. The nature of the loan and deposit markets within which we operate, and our objectives for business development within those markets at any point in time, influence these characteristics. In addition, the ability of borrowers to repay loans and the possibility of depositors withdrawing funds prior to stated maturity dates introduces divergent option characteristics that fluctuate as interest rates change. These factors cause various elements of our balance sheet to react in different manners and at different times relative to changes in interest rates, potentially leading to increases or decreases in net interest income over time. Depending upon the direction and magnitude of interest rate movements and their effect on the specific components of our balance sheet, the effects on net interest income can be substantial. Consequently, it is critical that we establish effective control over our exposure to changes in interest rates. We strive to manage our interest rate risk by:

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Ø	Maintaining an Asset Liability Committee, or ALCO, responsible to our Board of Directors and Executive Management, to review the overall interest rate risk management activity and approve actions taken to reduce risk;

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

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

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

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

The ALCO has overall responsibility for the effective management of interest rate risk and the approval of policy guidelines. The ALCO includes our President and Chief Executive Officer, Chief Financial Officer, Chief Investment Officer, Executive Vice President of Retail Banking, Director of Risk Management and Audit, and certain other senior officers. The Asset Liability Management Group, which monitors interest rate risk, supports the ALCO, prepares analyses for review by the ALCO and implements actions that are either specifically directed by the ALCO or established by policy guidelines.

In managing sensitivity, we strive to reduce the adverse impact on earnings by managing interest rate risk within internal policy constraints. Our policy is to manage exposure to potential risks associated with changing interest rates by maintaining a balance sheet posture in which annual net interest income is not significantly impacted by reasonably possible near-term changes in interest rates. To measure the effect of interest rate changes, we project our net income over a two-year horizon on a pro forma basis. The analysis assumes various scenarios for increases and decreases in interest rates including both instantaneous and gradual, and parallel and non-parallel, shifts in the yield curve, in varying amounts. For purposes of arriving at reasonably possible near-term changes in interest rates, we include scenarios based on actual changes in interest rates, which have occurred over a two-year period, simulating both a declining and rising interest rate scenario.

We are “asset-sensitive,” indicating that our assets would generally reprice with changes in interest rates more rapidly than our liabilities, and our simulation model indicates a loss of projected net interest income should interest rates decline. While a decline in interest rates of less than 50 basis points was projected to have a relatively minimal impact on our net interest income, an instantaneous parallel decline in the interest yield curve of 50 basis points indicates a pre-tax projected loss of approximately 5.0% of net interest income, based on assets and liabilities at March 31, 2011. At March 31, 2011, we remain in an asset-sensitive position and thus, remain subject to a higher level of risk in a declining interest rate environment. Although we do not anticipate that instantaneous shifts in the yield curve as projected in our simulation model are likely, these are indications of the effects that changes in interest rates would have over time. Our asset-sensitive position, coupled with the effect of significant declines in interest rates that began in late 2007 and continued throughout 2008 and 2009 to historically low levels, and the overall level of our nonperforming assets, has negatively impacted our net interest income and is expected to continue to impact the level of our net interest income throughout the near future.

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We also prepare and review a more traditional interest rate sensitivity position in conjunction with the results of our simulation model. The following table presents the projected maturities and periods to repricing of our rate sensitive assets and liabilities as of March 31, 2011, adjusted to account for anticipated prepayments:

	Three Months or Less			Over Three through Six Months			Over Six through Twelve Months			Over One through Five Years		Over Five Years		Total
	(dollars expressed in thousands)
Interest-earning assets:
Loans (1)	$	2,517,563			302,943			408,610			811,698		64,221		4,105,035
Investment securities		82,066			71,044			138,249			921,420		547,206		1,759,985
FHLB and FRB stock		28,202			—			—			—		—		28,202
Short-term investments		954,411			—			—			—		—		954,411
Total interest-earning assets	$	3,582,242			373,987			546,859			1,733,118		611,427		6,847,633
Interest-bearing liabilities:
Interest-bearing demand deposits	$	350,582			217,929			142,128			104,227		132,653		947,519
Money market deposits		1,953,503			—			—			—		—		1,953,503
Savings deposits		41,903			34,508			29,578			41,903		98,594		246,486
Time deposits		536,036			404,389			567,089			472,694		95		1,980,303
Other borrowings		39,404			—			—			—		—		39,404
Subordinated debentures		282,481			—			—			—		71,519		354,000
Total interest-bearing liabilities		3,203,909			656,826			738,795			618,824		302,861		5,521,215
Effect of interest rate swap agreements		(75,000	)		25,000			25,000			25,000		—		—
Total interest-bearing liabilities after the effect of interest rate swap agreements	$	3,128,909			681,826			763,795			643,824		302,861		5,521,215
Interest-sensitivity gap:
Periodic	$	453,333			(307,839	)		(216,936	)		1,089,294		308,566		1,326,418
Cumulative		453,333			145,494			(71,442	)		1,017,852		1,326,418
Ratio of interest-sensitive assets to interest-sensitive liabilities:
Periodic		1.14			0.55			0.72			2.69		2.02		1.24
Cumulative		1.14			1.04			0.98			1.20		1.24

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(1)	Loans are presented net of unearned discount.

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

Ø	Loans will repay at projected repayment rates;

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

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

Ø	Fixed maturity deposits will not be withdrawn prior to maturity.

A significant variance in actual results from one or more of these assumptions could materially affect the results reflected in the foregoing table.

We were in an overall asset-sensitive position of $1.33 billion, or 18.4% of our total assets, and $1.26 billion, or 17.1% of our total assets, at March 31, 2011 and December 31, 2010, respectively. We were in an overall liability-sensitive position on a cumulative basis through the twelve-month time horizon of $71.4 million, or 1.0% of our total assets, and $21.0 million, or 0.3% of our total assets at March 31, 2011 and December 31, 2010, respectively.

The interest-sensitivity position is one of several measurements of the impact of interest rate changes on net interest income. Its usefulness in assessing the effect of potential changes in net interest income varies with the constant change in the composition of our assets and liabilities and changes in interest rates. For this reason, we place greater emphasis on our simulation model for monitoring our interest rate risk exposure.

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

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The derivative financial instruments we held as of March 31, 2011 and December 31, 2010 are summarized as follows:

	March 31, 2011				December 31, 2010
	Notional Amount		Credit Exposure		Notional Amount		Credit Exposure
	(dollars expressed in thousands)

Cash flow hedges – subordinated debentures (1)	$	75,000		—		75,000		—
Customer interest rate swap agreements		52,430		735		53,696		869
Interest rate lock commitments		27,120		580		41,857		276
Forward commitments to sell mortgage-backed securities		34,750		—		84,100		1,538

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(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 junior subordinated debentures. Consequently, effective August 2009, the net interest differential on these interest rate swap agreements is recorded as a reduction of noninterest income rather than an increase to interest expense on junior subordinated debentures.

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

The earnings associated with our derivative financial instruments reflect the interest rate environment during these periods as well as the overall level of our derivative instruments throughout these periods. We realized net interest income on our derivative financial instruments of $1.9 million for the three months ended March 31, 2010, comprised entirely of amortization associated with a deferred gain on the previous termination of certain of our interest rate swap agreements. In December 2008, we terminated certain of our interest rate swap agreements that were designated as cash flow hedges on certain of our loans, and recorded a gain of $20.8 million, in aggregate, which was being amortized as an increase to interest and fees on loans in the consolidated statements of operations over the remaining terms of the respective interest rate swap agreements, which had contractual maturity dates of September 2009 and September 2010. Consequently, the conclusion of the amortization period associated with the aggregate gain in September 2010 resulted in a negative impact to our first quarter 2011 and future net interest income and net interest margin.

We recorded net losses on derivative instruments, which are included in noninterest income in the consolidated statements of operations, of $56,000 and $1.3 million for the three months ended March 31, 2011 and 2010, respectively, attributable to changes in the fair value and the net interest differential on our interest rate swap agreements previously designated as cash flow hedges on our junior subordinated debentures. In conjunction with 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 net interest differential on these interest rate swap agreements, which was recorded as interest expense on junior subordinated debentures in the consolidated statements of operations, was recorded as a net reduction of noninterest income effective August 2009.

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

Loans and Allowance for Loan Losses

Loan Portfolio Composition. Loans, net of unearned discount, represented 56.9% of our assets as of March 31, 2011, compared to 60.9% of our assets at December 31, 2010. Loans, net of unearned discount, decreased $387.2 million to $4.11 billion at March 31, 2011 from $4.49 billion at December 31, 2010. The following table summarizes the composition of our loan portfolio by category at March 31, 2011 and December 31, 2010:

	March 31,		December 31,
	2011		2010
	(dollars expressed in thousands)

Commercial, financial and agricultural	$	947,219		1,045,832
Real estate construction and development		439,449		490,766
Real estate mortgage:
One-to-four family residential		987,742		1,050,895
Multi-family residential		176,112		178,289
Commercial real estate		1,511,869		1,642,920
Consumer and installment, net of unearned discount		24,730		29,112
Loans held for sale		17,914		54,470
Loans, net of unearned discount	$	4,105,035		4,492,284

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

	March 31, 2011		December 31, 2010
	(dollars expressed in thousands)

Mortgage Division	$	415,422		466,735
Florida		103,968		114,061
Northern California		608,307		633,867
Southern California		1,172,053		1,268,960
Chicago		227,767		244,277
Missouri		810,050		879,200
Texas		245,463		292,609
First Bank Business Capital, Inc.		52,528		56,212
Northern and Southern Illinois		315,386		350,208
Other		154,091		186,155
Total	$	4,105,035		4,492,284

We attribute the net decrease in our loan portfolio during the first three months of 2011 primarily to:

Ø	A decrease of $98.6 million in our commercial, financial and agricultural portfolio, reflecting gross loan charge-offs of $5.6 million and portfolio runoff associated with a decline in internal production and reduced loan demand within our markets;

A decrease of $51.3 million in our real estate construction and development portfolio primarily attributable to gross loan charge-offs of $10.3 million, transfers to other real estate of $4.2 million and other loan activity. The following table summarizes the composition of our real estate construction and development portfolio by region as of March 31, 2011 and December 31, 2010:

	March 31, 2011		December 31, 2010
	(dollars expressed in thousands)

Northern California	$	65,367		64,647
Southern California		143,015		157,306
Chicago		39,720		44,166
Missouri		49,610		62,012
Texas		107,604		128,794
Florida		2,247		3,799
Northern and Southern Illinois		23,459		28,721
Other		8,427		1,321
Total	$	439,449		490,766

We have experienced significant asset quality deterioration within all geographic areas of our real estate construction and development portfolio. As a result of the asset quality deterioration, we focused on reducing our exposure to this portfolio segment and decreased the portfolio balance by $1.70 billion, or 79.5%, from $2.14 billion at December 31, 2007 to $439.4 million at March 31, 2011. Of the remaining portfolio balance of $439.4 million, $126.6 million, or 28.8%, of loans were in a nonaccrual status as of March 31, 2011 and $94.4 million, or 21.5%, of loans were considered potential problem loans, as further discussed below;

A decrease of $63.2 million in our one-to-four family residential real estate loan portfolio primarily attributable to gross loan charge-offs of $9.7 million, transfers to other real estate of $2.6 million and principal payments. The following table summarizes the composition of our one-to-four family residential real estate loan portfolio as of March 31, 2011 and December 31, 2010:

	March 31, 2011		December 31, 2010
	(dollars expressed in thousands)

One-to-four family residential real estate:
Bank portfolio	$	210,371		239,363
Mortgage Division portfolio, excluding Florida		280,743		286,584
Florida Mortgage Division portfolio		109,531		125,369
Home equity portfolio		387,097		399,579
Total	$	987,742		1,050,895

Our Bank portfolio consists of prime mortgage loans originated to customers from our retail branch banking network. As of March 31, 2011, approximately $13.0 million, or 6.2%, of this portfolio is on nonaccrual status. The decrease in this portfolio of $29.0 million, or 12.1%, during the first three months of 2011 is primarily attributable to principal payments, including the payoff of a single $10.0 million loan relationship.

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Our Mortgage Division portfolio, excluding Florida, consists of both prime mortgage loans and Alt A and sub-prime mortgage loans that were originated prior to our discontinuation of these loan products in 2007. This portfolio of one-to-four family residential real estate loans has decreased $213.5 million, or 43.2%, from $494.2 million at December 31, 2007. As of March 31, 2011, approximately $99.9 million, or 35.6%, of this portfolio is considered impaired, consisting of performing troubled debt restructurings of $77.8 million, including those loans modified in the Home Affordable Modification Program, or HAMP, of $63.1 million, and nonaccrual loans of $22.1 million.

Our Florida portfolio, the majority of which was acquired in November 2007 through our acquisition of Coast Bank of Florida, consists primarily of prime and Alt A mortgage loans. This portfolio of one-to-four family residential real estate loans has decreased $150.6 million, or 57.9%, from $260.1 million at December 31, 2007. As of March 31, 2011, approximately $14.5 million, or 13.2%, of this portfolio is considered impaired, consisting of performing troubled debt restructurings of $7.6 million, including those loans modified in HAMP of $4.2 million, and nonaccrual loans of $6.9 million. Our Mortgage Division portfolio, excluding Florida, and our Florida Mortgage Division Portfolio are collectively defined as our Mortgage Division portfolio unless otherwise noted.

Our home equity portfolio consists of prime loans originated to customers from our retail branch banking network. As of March 31, 2011, approximately $7.2 million, or 1.9%, of this portfolio is on nonaccrual status The decrease in this portfolio of $12.5 million, or 3.1%, during the first three months of 2011 is primarily attributable to gross loan charge-offs of $2.4 million and principal payments;

Ø	A decrease of $2.2 million in our multi-family residential real estate due to portfolio runoff associated with a decline in internal production and reduced loan demand within our markets;

A decrease of $131.1 million in our commercial real estate portfolio primarily attributable to gross loan charge-offs of $11.1 million, transfers to other real estate of $3.0 million and our efforts to reduce our exposure to commercial real estate in the current economic environment. The following table summarizes the composition of our commercial real estate portfolio by loan type as of March 31, 2011 and December 31, 2010:

	March 31, 2011		December 31, 2010
	(dollars expressed in thousands)

Farmland	$	31,932		36,735
Owner occupied		772,218		798,842
Non-owner occupied		707,719		807,343
Total	$	1,511,869		1,642,920

Within our commercial real estate portfolio, we have experienced the most distress in our non-owner occupied portfolio. As of March 31, 2011, $68.7 million, or 9.7%, of this segment of our commercial real estate portfolio is on nonaccrual status. The following table summarizes the composition of our non-owner occupied loan portfolio by region as of March 31, 2011 and December 31, 2010:

	March 31, 2011		December 31, 2010
	(dollars expressed in thousands)

Northern California	$	192,778		208,127
Southern California		272,712		305,287
Chicago		20,531		27,907
Missouri		124,502		149,106
Texas		42,429		61,258
Florida		12,141		13,338
Northern and Southern Illinois		25,631		24,990
Other		16,995		17,330
Total	$	707,719		807,343

Our Southern California region accounts for $37.4 million, or 54.5%, of the total nonaccrual loans in this portfolio segment at March 31, 2011, and includes a single credit relationship in the amount of $29.0 million which was subsequently paid off in April 2011 at our recorded investment of $29.0 million;

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Ø	A decrease of $4.4 million in our consumer and installment portfolio, net of unearned discount, reflecting a decrease in unearned discount of $392,000, gross charge-offs of $218,000 and portfolio runoff associated with a decline in internal production and reduced loan demand within our markets; and

Ø	A decrease of $36.6 million in our loans held for sale portfolio primarily resulting from the timing of loan originations and subsequent sales into the secondary mortgage and small business markets.

Nonperforming Assets. Nonperforming assets include nonaccrual loans, other real estate and repossessed assets. The following table presents the categories of nonperforming assets and certain ratios as of March 31, 2011 and December 31, 2010:

		March 31, 2011			December 31, 2010
	(dollars expressed in thousands)

Nonperforming Assets:
Nonaccrual loans:
Commercial, financial and agricultural		$	81,709			67,365
Real estate construction and development			126,589			134,244
One-to-four family residential real estate:
Bank portfolio			13,023			14,479
Mortgage Division portfolio			29,038			33,386
Home equity portfolio			7,228			7,122
Multi-family residential			12,462			12,960
Commercial real estate			111,915			129,187
Consumer and installment			42			165
Total nonaccrual loans			382,006			398,908
Other real estate			126,554			140,628
Other repossessed assets			71			37
Total nonperforming assets		$	508,631			539,573

Loans, net of unearned discount		$	4,105,035			4,492,284

Performing troubled debt restructurings		$	89,712			112,903

Loans past due 90 days or more and still accruing		$	2,432			5,523

Ratio of:
Allowance for loan losses to loans			4.48	%		4.48	%
Nonaccrual loans to loans			9.31			8.88
Allowance for loan losses to nonaccrual loans			48.16			50.40
Nonperforming assets to loans, other real estate and repossessed assets			12.02			11.65

Our nonperforming assets, consisting of nonaccrual loans, other real estate owned and repossessed assets, were $508.6 million and $539.6 million at March 31, 2011 and December 31, 2010, respectively. Our nonperforming assets at March 31, 2011 included $20.1 million, comprised of $7.5 million of nonaccrual loans and $12.6 million of other real estate owned, held by FB Holdings, a subsidiary of First Bank which is 46.77% owned by FCA, an entity owned by our Chairman of the Board and members of his immediate family.

We attribute the $16.9 million net decrease in our nonaccrual loans during the three months ended March 31, 2011 primarily to the following:

A decrease in nonaccrual loans of $7.7 million in our real estate construction and development loan portfolio driven by gross loan charge-offs of $10.3 million, transfers to other real estate of $4.2 million and payments received, partially offset by additions to nonaccrual loans during the three months ended March 31, 2011. Although the level of deterioration in this portfolio is slowing due in part to the decline in the total portfolio balance, as previously discussed, we continue to experience deterioration as a result of weak economic conditions and significant declines in real estate values, and we expect these trends to continue until market conditions stabilize in our primary market areas;

A decrease in nonaccrual loans of $4.3 million in our one-to-four family residential real estate Mortgage Division loan portfolio primarily driven by gross loan charge-offs of $6.6 million, transfers to other real estate of $2.0 million and payments received, partially offset by additions to nonaccrual loans during the three months ended March 31, 2011 driven by current market conditions and the overall deterioration of Alt A and sub-prime residential mortgage loan products experienced throughout the mortgage banking industry. We continue to modify loans under HAMP where deemed economically advantageous to our borrowers and us; and

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A decrease in nonaccrual loans of $17.3 million in our commercial real estate portfolio primarily driven by gross loan charge-offs of $11.1 million, transfers to other real estate of $3.0 million and payments received, partially offset by new additions resulting from continued weak economic conditions and significant declines in real estate values. There was a single $29.0 million nonaccrual credit relationship in our Southern California region at March 31, 2011, which comprised 25.9% of our total commercial real estate nonaccrual loans. This loan was subsequently paid off in April 2011 at our recorded investment balance of $29.0 million.

These decreases were partially offset by:

An increase in nonaccrual loans of $14.3 million in our commercial, financial and agricultural portfolio primarily driven by new additions during the three months ended March 31, 2011, partially offset by gross loan charge-offs of $5.6 million and payments received. Additions to nonaccrual status during the first quarter of 2011 included two credits with outstanding balances of $8.9 million and $7.6 million, or $16.5 million in aggregate.

The decrease in other real estate of $14.1 million during the first three months of 2011 was primarily driven by the sale of other real estate properties with a carrying value of $21.5 million at a net loss of $825,000, and write-downs of other real estate of $2.6 million, attributable to declining real estate values on certain properties, including a single $1.7 million write-down on a Southern California real estate property; partially offset by foreclosures of real estate construction and development, commercial real estate, multi-family residential loans and one-to-four family residential real estate loans aggregating $10.3 million. At March 31, 2011, our other real estate consisted of properties with the most recent appraisal date being in 2011, 2010, 2009, 2008 and prior to 2008 of $3.0 million, $85.0 million, $24.5 million, $10.0 million and $2.8 million, respectively, in addition to $1.2 million with the fair value estimated by management or by broker’s price opinions. Other real estate with an appraisal date in 2010 includes a single $41.0 million property in Southern California.

We expect the declining and unstable market conditions associated with our one-to-four family residential mortgage 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 March 31, 2011 and December 31, 2010:

	March 31, 2011		December 31, 2010
	(dollars expressed in thousands)

Mortgage Division	$	35,848		41,686
Florida		12,301		15,243
Northern California		58,123		62,339
Southern California		134,371		143,522
Chicago		58,064		71,882
Missouri		108,176		99,161
Texas		55,195		60,967
Northern and Southern Illinois		24,441		21,372
Other		22,112		23,401
Total nonperforming assets	$	508,631		539,573

During the first quarter of 2011, we experienced a decline in nonperforming assets in most of our regions as a result of payment activity, sales of other real estate properties and charge-offs of loans or write-downs of other real estate properties. The increase in the Missouri region of $9.0 million is primarily due to two new nonaccrual commercial and industrial loans with outstanding balances of $8.9 million and $7.6 million, or $16.5 million in aggregate, during the first quarter of 2011.

Troubled Debt Restructurings. In the ordinary course of business, we modify loan terms across loan types, including both consumer and commercial loans, for a variety of reasons. Modifications to consumer loans may include, but are not limited to, changes in interest rate, maturity, amortization and financial covenants. In the original underwriting, loan terms are established that represent the then current and projected financial condition of the borrower. Over any period of time, modifications to these loan terms may be required due to changes in the original underwriting assumptions. These changes may include the financial requirements of the borrower as well as our underwriting standards. If the modified terms are consistent with competitive market conditions and representative of terms the borrower could otherwise obtain in the open market, the modified loan is not categorized as a troubled debt restructuring, or TDR.

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For a loan modification to be classified as a TDR, all of the following conditions must be present: (1) the borrower is experiencing financial difficulty, (2) we make a concession to the original contractual loan terms and (3) the concessions are for economic or legal reasons related to the borrower’s financial difficulty that we would not otherwise consider. Modifications of loan terms to borrowers experiencing financial difficulty are made in an attempt to protect as much of our investment in the loan as possible. These modifications are generally made to either prevent a loan from becoming nonaccrual or to return a nonaccrual loan to performing status based on the expectations that the borrower can adequately perform in accordance with the modified terms.

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

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

We refer to our TDRs that are accruing interest as performing TDRs. The following table presents the categories of performing TDRs as of March 31, 2011 and December 31, 2010:

	March 31,		December 31,
	2011		2010
	(dollars expressed in thousands)

Commercial, financial and agricultural	$	1,249		—
Real estate construction and development		3,145		3,145
Real estate mortgage:
One-to-four family residential		85,318		91,329
Commercial real estate		—		18,429
Total performing troubled debt restructurings	$	89,712		112,903

As of March 31, 2011 and December 31, 2010, $25.2 million and $26.2 million, respectively, of loans were identified by management as TDRs, were on nonaccrual status and were classified as nonperforming loans.

The decrease in one-to-four family residential performing TDRs was primarily attributable to certain loans being removed from TDR status as a result of compliance with the contractual terms of the respective modified loan agreements, the payoff of a $3.0 million TDR during the first quarter of 2011 and TDRs entering nonaccrual status; partially offset by an increase in TDRs under HAMP of $3.9 million to $67.3 million at March 31, 2011. One-to-four family residential loans restructured under HAMP will be considered TDRs for the life of the respective loans or modification periods as they are being restructured at interest rates lower than current market rates. The decrease in commercial real estate TDRs primarily resulted from the payoff of an $11.1 million TDR during the first quarter of 2011 and the removal from TDR status of a $6.3 million loan as a result of compliance with the contractual terms of the modified loan agreement for a sustained period.

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Potential Problem Loans. As of March 31, 2011 and December 31, 2010, $361.5 million and $373.1 million, respectively, of loans not included in the nonperforming assets and performing TDR tables above were identified by management as having potential credit problems, or potential problem loans. These loans are generally defined as loans having an internally assigned grade of substandard and loans in the Mortgage Division which are 30-89 days delinquent. The following table presents the categories of potential problem loans as of March 31, 2011 and December 31, 2010:

	March 31,		December 31,
	2011		2010
	(dollars expressed in thousands)

Commercial, financial and agricultural	$	82,503	100,383
Real estate construction and development		94,385	128,227
Real estate mortgage:
One-to-four family residential		42,971	43,013
Multi-family residential		47,845	5,584
Commercial real estate		93,818	95,933
Total nonperforming assets	$	361,522	373,140

The decrease in commercial, financial and agricultural potential problem loans of $17.9 million is primarily attributable to the transfer of two credits with outstanding balances of $8.9 million and $7.6 million, or $16.5 million in aggregate, to nonaccrual status during the first quarter of 2011. The decrease in real estate construction and development potential problem loans of $33.8 million is primarily attributable to the transfer of a $10.8 million credit in our Texas region to nonaccrual status during the first quarter of 2011 and the payoff of a $13.6 million credit in our Southern California region. The increase in multi-family residential potential problem loans of $42.3 million is primarily attributable to the transfers of a $26.7 million credit in our Chicago region and a $17.7 million credit in our Southern Illinois region to potential problem status from special mention status during the first quarter of 2011.

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

	March 31,		December 31,
	2011		2010
	(dollars expressed in thousands)

Mortgage Division	$	10,131		9,859
Florida		2,622		2,783
Northern California		58,609		64,601
Southern California		88,844		106,526
Chicago		39,738		15,030
Missouri		70,501		91,813
Texas		15,490		27,028
First Bank Business Capital, Inc.		26,385		18,992
Northern and Southern Illinois		44,618		32,548
Other		4,584		3,960
Total potential problem loans	$	361,522		373,140

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

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

Potential problem loans are regularly evaluated for impaired loan status by lenders, the credit administration department and the internal credit review department. When management makes the determination that a loan should be considered impaired, an initial specific reserve is allocated to the impaired loan, if necessary, until the loan is charged down to the appraised value of the underlying collateral, typically within 30 to 90 days of becoming impaired. In the current economic environment, management typically utilizes appraisals performed no earlier than 180 days prior to the charge-off, and in most cases, appraisals utilized are dated within 60 days of the charge-off. As such, management typically addresses collateral shortfalls through charge-offs as opposed to recording specific reserves on individual loans. Once a loan is charged down to the appraised value of the underlying collateral, management regularly monitors the carrying value of the loan for any additional deterioration and records additional reserves or charge-offs as necessary. As a general guideline, management orders new appraisals on any impaired loan or other real estate property in which the most recent appraisal is more than 18 months old; however, management also orders new appraisals on impaired loans or other real estate properties in the event circumstances change, such as a rapid change in market conditions in a particular region.

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

Allowance for Loan Losses. Our allowance for loan losses as a percentage of loans, net of unearned discount, was 4.48% at March 31, 2011 and December 31, 2010. Our allowance for loan losses as a percentage of nonperforming loans was 48.16% at March 31, 2011 and 50.40% at December 31, 2010. Our allowance for loan losses decreased to $184.0 million at March 31, 2011, compared to $201.0 million at December 31, 2010.

The decrease in our allowance for loan losses of $17.1 million during the first three months of 2011 was primarily attributable to the decrease in nonaccrual loans of $16.9 million, the decrease in potential problem loans of $11.6 million and the $387.2 million decrease in the overall level of our loan portfolio.

Our allowance for loan losses as a percentage of loans, net of unearned discount, increased to 4.48% at March 31, 2011 and December 31, 2010 from 4.03% at December 31, 2009 and 2.56% at December 31, 2008 primarily due 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;

Ø	An increase in historical loss ratios used to determine estimated credit losses by loan type as a result of an increase in recent charge-off experience;

Ø	The increase in our potential problem loans throughout 2009 and 2010, which generally resulted in a higher allowance for loan losses being applied to these loans; and

Ø	Significant payoffs of higher credit quality loans during 2009 and 2010 which carried lower allowance for loan loss allocations; partially offset by

Ø	The decrease in our nonaccrual loans during 2010.

Our allowance for loan losses as a percentage of loans, net of unearned discount, remained consistent at 4.48% during the first quarter of 2011 primarily due to the impact of the decrease in nonaccrual and potential problem loans being offset by the payoff of higher credit quality loans throughout the first quarter of 2011.

Our allowance for loan losses as a percentage of nonperforming loans decreased during the first three months of 2011 to 48.16% at March 31, 2011 from 50.40% at December 31, 2010. The decrease in this ratio was primarily attributable to a commercial real estate loan with a balance of $29.0 million being charged down to estimated fair value less selling costs during the first quarter of 2011 with no allocated allowance for loan losses. We received payment on the $29.0 million commercial real estate loan during April 2011.

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Changes in the allowance for loan losses for the three months ended March 31, 2011 and 2010 were as follows:

		Three Months Ended March 31,
		2011			2010
	(dollars expressed in thousands)

Allowance for loan losses, beginning of period		$	201,033			266,448
Allowance for loan losses allocated to loans sold			—			(257	)
			201,033			266,191
Loans charged-off:
Commercial, financial and agricultural			(5,554	)		(6,527	)
Real estate construction and development			(10,314	)		(39,073	)
Real estate mortgage:
One-to-four family residential loans:
Bank portfolio			(701	)		(1,572	)
Mortgage Division portfolio			(6,618	)		(20,683	)
Home equity portfolio			(2,406	)		(2,377	)
Multi-family residential loans			—			(2,698	)
Commercial real estate loans			(11,094	)		(15,083	)
Consumer and installment			(218	)		(369	)
Total			(36,905	)		(88,382	)
Recoveries of loans previously charged-off:
Commercial, financial and agricultural			2,890			27,268
Real estate construction and development			3,870			1,226
Real estate mortgage:
One-to-four family residential loans:
Bank portfolio			127			20
Mortgage Division portfolio			1,085			1,099
Home equity portfolio			70			102
Multi-family residential loans			—			—
Commercial real estate loans			1,719			437
Consumer and installment			84			103
Total			9,845			30,255
Net loans charged-off			(27,060	)		(58,127	)
Provision for loan losses			10,000			42,000
Allowance for loan losses, end of period		$	183,973			250,064

Our net loan charge-offs were $27.1 million and $58.1 million for the three months ended March 31, 2011 and 2010, respectively. Our annualized net loan charge-offs as a percentage of average loans was 2.54% for the three months ended March 31, 2011, compared to 3.77% for the three months ended March 31, 2010.

We attribute the net decrease in our net loan charge-offs for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 to the following:

A decrease in net loan charge-offs of $31.4 million associated with our real estate construction and development portfolio to $6.4 million for the three months ended March 31, 2011 as compared to $37.8 million for the three months ended March 31, 2010. Net loan charge-offs for the three months ended March 31, 2011 included a $5.7 million charge-off on a loan in the Missouri region. Net loan charge-offs for the three months ended March 31, 2010 included a $9.7 million charge-off on a loan in our Missouri region and an $8.0 million charge-off on a loan in our Southern California region. We continue to experience significant distress and unstable market conditions throughout our market areas, resulting in continued increased developer inventories, slower lot and home sales and declining real estate values;

A decrease in net loan charge-offs of $14.1 million associated with our one-to-four family residential Mortgage Division portfolio to $5.5 million for the three months ended March 31, 2011 as compared to $19.6 million for the three months ended March 31, 2010. The decrease in net loan charge-offs is reflective of the declining portfolio balance and the substantial decrease in nonaccrual loans throughout 2010 and the first quarter of 2011, in addition to improving delinquency trends;

Ø	A decrease in net loan charge-offs of $2.7 million associated with our multi-family residential real estate portfolio to zero for the three months ended March 31, 2011 as compared to $2.7 million for the three months ended March 31, 2010; and

A decrease in net loan charge-offs of $5.3 million associated with our commercial real estate portfolio to $9.4 million for the three months ended March 31, 2011 as compared to $14.6 million for the three months ended March 31, 2010. The decrease in net loan charge-offs is reflective of the declining portfolio balance and the decrease in nonaccrual loans; partially offset by

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An increase in net loan charge-offs associated with our commercial, financial and agricultural portfolio of $23.4 million to $2.7 million for the three months ended March 31, 2011 as compared to net recoveries of $20.7 million for the three months ended March 31, 2010. Specifically in this portfolio, during the three months ended March 31, 2010, we recorded a $25.0 million recovery on a single credit whereby we had previously recorded aggregate charge-offs of $30.0 million during 2009 on the same credit.

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

	Three Months Ended
	March 31,
	2011			2010
	(dollars expressed in thousands)

Mortgage Division	$	5,533			19,584
Florida		1,326			3,899
Northern California		3,048			3,926
Southern California		5,468			(9,307	)
Chicago		795			11,651
Missouri		7,493			22,933
Texas		1,683			858
First Bank Business Capital, Inc.		(462	)		500
Northern and Southern Illinois		1,294			466
Other		882			3,617
Total net loan charge-offs	$	27,060			58,127

As discussed above, the decrease in net loan charge-offs in our Mortgage Division is reflective of the declining portfolio balance and the substantial decrease in nonaccrual loans throughout 2010 and the first quarter of 2011, in addition to improving delinquency trends. The increase in net loan charge-offs in our Southern California region was primarily attributable to a $25.0 million recovery recorded during the three months ended March 31, 2010 on a commercial and industrial loan. The decrease in net loan charge-offs in our Chicago region is reflective of a declining portfolio balance and the decrease in nonaccrual loans throughout 2010 and the first quarter of 2011. The decrease in net loan charge-offs in our Missouri region was primarily attributable to charge-offs of $9.7 million and $3.5 million on two real estate construction and development loans and a charge-off of $3.7 million on a commercial real estate loan during the three months ended March 31, 2010. During the three months ended March 31, 2011, we recorded a $5.7 million charge-off on a real estate construction and development loan in the Missouri region.

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

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

We record charge-offs on nonperforming loans typically within 30 to 90 days of the credit relationship reaching nonperforming loan status. We measure impairment and the resulting charge-off amount based primarily on third party appraisals. As such, rather than carrying specific reserves on nonperforming loans, we generally recognize a loan loss through a charge to the allowance for loan losses once the credit relationship reaches nonperforming loan status.

The allocation of the allowance for loan losses by loan category is a result of the application of our risk rating system augmented by historical loss data by loan type and other qualitative analysis. Consequently, the distribution of the allowance for loan losses will change from period to period due to the following factors:

Ø	Changes in the aggregate loan balances by loan category;

Ø	Changes in the identified risk in individual loans in our loan portfolio over time, excluding those homogeneous categories of loans such as consumer and installment loans and residential real estate mortgage loans for which risk ratings are changed based on payment performance;

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

Ø	Changes in qualitative factors such as changes in economic conditions, the volume of nonaccrual and potential problem loans by loan category and geographical location and changes in the value of the underlying collateral for collateral-dependent loans.

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

	March 31,			December 31,
	2011			2010

Commercial, financial and agricultural		2.81	%		2.68	%
Real estate construction and development		11.91			11.91
Real estate mortgage:
One-to-four family residential loans		5.64			5.78
Multi-family residential loans		4.84			2.89
Commercial real estate loans		2.65			2.91
Consumer and installment		2.81			2.73
Total		4.48			4.48

The significant increase in the percentage of the allocated allowance for loan losses to multi-family residential loans is reflective of the increase in potential problem loans within this portfolio segment of $42.3 million to $47.8 million at March 31, 2011 as compared to $5.6 million at December 31, 2010.

Liquidity Management

First Bank. Our liquidity is the ability to maintain a cash flow that is adequate to fund operations, service debt obligations and meet obligations and other commitments on a timely basis. First Bank receives funds for liquidity from customer deposits, loan payments, maturities of loans and investments, sales of investments and earnings before provision for loan losses. In addition, we may avail ourselves of other sources of funds by issuing certificates of deposit in denominations of $100,000 or more (including certificates issued through the CDARS program), selling securities under agreements to repurchase, and utilizing borrowings from the FHLB, the FRB and other borrowings.

As a financial intermediary, we are subject to liquidity risk. We closely monitor our liquidity position through our Liquidity Management Committee and we continue to implement actions deemed necessary to maintain an appropriate level of liquidity in light of unstable market conditions, changes in loan funding needs, operating and debt service requirements, current deposit trends and events that may occur in conjunction with our Capital Plan. We continue to seek opportunities to improve our overall liquidity position, and have expanded and implemented a more efficient collateral management process that allows us to maximize our overall collateral position related to our alternative borrowing sources. In conjunction with our liquidity management process, we analyze and manage short-term and long-term liquidity through an ongoing review of internal funding sources, projected cash flows from loans, securities and customer deposits, internal and competitor deposit pricing structures and maturity profiles of current borrowing sources. We utilize planning, management reporting and adverse stress scenarios to monitor sources and uses of funds on a daily basis to assess cash levels to ensure adequate funds are available to meet normal business operating requirements and to supplement liquidity needs to meet unusual demands for funds that may result from an unexpected change in customer deposit levels or potential planned or unexpected liquidity events that may arise from time to time.

First Bank built a significant amount of available balance sheet liquidity throughout 2009, 2010 and the first three months of 2011 in anticipation of the expected completion of certain transactions associated with our Capital Plan, as further described under “—Recent Developments and Other Matters – Capital Plan.” Our cash and cash equivalents were $954.4 million and $995.8 million at March 31, 2011 and December 31, 2010, respectively. The majority of funds were maintained in our correspondent bank account with the FRB. The decrease in our cash and cash equivalents of $41.3 million was primarily attributable to the following:

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Ø	The sale of our San Jose Branch on February 11, 2011, resulting in a cash outflow of $7.8 million;

Ø	A net increase in our investment securities portfolio of $218.9 million, excluding the impact of investment security purchases of $46.7 million traded in March 2011 but not settled until April 2011; and

Ø	A decrease in our deposit balances of approximately $211.7 million, excluding the impact of the divestiture of the San Jose Branch.

These decreases in cash and cash equivalents were partially offset by:

Ø	A decrease in loans of $344.0 million, exclusive of loan charge-offs and transfers to other real estate;

Ø	Recoveries of loans previously charged off of $9.8 million;

Ø	Sales of other real estate properties resulting in the receipt of cash proceeds from these sales of approximately $20.7 million;

Ø	A net increase in our other borrowings of $7.6 million, consisting of changes in our daily repurchase agreements utilized by customers as an alternative deposit product; and

Ø	The redemption of $1.9 million of FRB stock associated with the reduction in our total assets during 2011.

The sales of our remaining three branch offices in our Northern Illinois Region, completed on May 13, 2011, and our Edwardsville Branch, completed on April 29, 2011, resulted in cash outlays of approximately $50.7 million and $8.3 million, respectively, as further described in Note 18 to our consolidated financial statements. As such, approximately $59.0 million of our short-term investments of $954.4 million at March 31, 2011 were utilized in conjunction with the completion of these sale transactions during the second quarter of 2011.

We are actively increasing our unpledged investment securities portfolio in an effort to improve our net interest income and increase our available liquidity. Our unpledged investment securities increased $265.4 million to $1.49 billion at March 31, 2011, compared to $1.22 billion at December 31, 2010, and are mostly comprised of highly liquid and readily marketable available-for-sale securities. The combined level of cash and cash equivalents and unpledged investment securities provided us with total available liquidity in excess of $2.44 billion and $2.22 billion at March 31, 2011 and December 31, 2010, respectively. As such, despite significant cash outflows to support transactions associated with our Capital Plan and the prepayment of $720.0 million of secured term borrowings during 2010, we have maintained available liquidity in excess of $2.44 billion at March 31, 2011. Our ability to maintain strong liquidity was achieved by a substantial shift in our balance sheet from loans to short-term investments and investment securities while substantially maintaining our deposit levels, exclusive of transactions resulting from our Capital Plan. Our loan-to-deposit ratio decreased to 65.7% at March 31, 2011 from 69.6% at December 31, 2010, while the ratio of our cash and cash equivalents and investment securities to total assets increased to 37.7% at March 31, 2011 from 33.7% at December 31, 2010.

During the first quarter of 2011, we reduced the aggregate funds acquired from other sources of funds by $80.0 million to $780.4 million at March 31, 2011, from $860.4 million at December 31, 2010. These other sources of funds include certificates of deposit of $100,000 or more, and other borrowings, which are comprised of daily securities sold under agreements to repurchase. The decrease was attributable to a reduction in certificates of deposit of $100,000 or more of $87.7 million, partially offset by an increase in our daily repurchase agreements of $7.6 million. The reduction in certificates of deposit of $100,000 or more was primarily attributable to a planned reduction of higher rate single-service certificate of deposit relationships in an effort to utilize a portion of our current available liquidity and improve First Bank’s leverage ratio. The following table presents the maturity structure of these other sources of funds at March 31, 2011:

	Certificates of Deposit of $100,000 or More		Other Borrowings		Total
	(dollars expressed in thousands)

Three months or less	$	214,882		39,404		254,286
Over three months through six months		153,141		—		153,141
Over six months through twelve months		208,856		—		208,856
Over twelve months		164,099		—		164,099
Total	$	740,978		39,404		780,382

In addition to these sources of funds, First Bank has established a borrowing relationship with the FRB. This borrowing relationship, which is secured primarily by commercial loans, provides an additional liquidity facility that may be utilized for contingency liquidity purposes. Advances drawn on First Bank’s established borrowing relationship require the prior approval of the FRB. First Bank did not have any FRB borrowings outstanding at March 31, 2011 or December 31, 2010.

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In addition, First Bank’s borrowing capacity through its relationship with the FHLB was approximately $453.0 million and $475.1 million at March 31, 2011 and December 31, 2010, respectively. The borrowing relationship is secured by one-to-four family residential, multi-family residential and commercial real estate loans. The reduction in First Bank’s borrowing capacity with the FHLB during the first three months of 2011 primarily resulted from the corresponding decrease in the loan portfolio during this period, as further described under “—Loans and Allowance for Loan Losses.” First Bank requests advances and/or repays advances from the FHLB based on its current and future projected liquidity needs. All borrowing requests require approval from the FHLB. First Bank did not have any FHLB advances outstanding at March 31, 2011 or December 31, 2010.

As a means of further contingency funding, First Bank may use broker dealers to acquire deposits to fund both short-term and long-term funding needs, including brokered money market accounts, and has available funding, subject to certain limits, through the CDARS program.

We believe First Bank has sufficient liquidity to meet its current and future near-term liquidity needs; however, no assurance can be made that First Bank’s liquidity position will not be materially, adversely affected in the future.

First Banks, Inc. First Banks, Inc. is a separate and distinct legal entity from its subsidiaries. The Company’s liquidity position is affected by dividends received from our subsidiaries and the amount of cash and other liquid assets on hand, payment of interest and dividends on debt and equity instruments issued by the Company (all of which are presently suspended or deferred), capital contributions the Company makes into its subsidiaries, any redemption of debt for cash issued by the Company, proceeds we raise through the issuance of debt and/or equity instruments through the Company, if any. The Company’s unrestricted cash totaled $3.4 million and $3.6 million at March 31, 2011 and December 31, 2010, respectively.

On March 24, 2011, the Company entered into a Revolving Credit Note and a Stock Pledge Agreement with Investors of America Limited Partnership, or Investors of America, LP, as further described in Note 8 and Note 11 to our consolidated financial statements. The agreement provides for a $5.0 million secured revolving line of credit to be utilized for general working capital needs. This borrowing arrangement, which has a maturity date of December 31, 2012 and an interest rate of LIBOR plus 300 basis points, is intended to supplement, if necessary, the parent company’s overall level of unrestricted cash to cover the parent company’s projected operating expenses for the foreseeable future. We cannot be assured of our ability to access future liquidity through debt markets. The Company’s ability to access debt markets on terms satisfactory to us will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside of our control, and on our financial performance. There were no advances outstanding on this borrowing arrangement as of and for the three months ended March 31, 2011.

Additional long-term funding is provided by our junior subordinated debentures, as further described in Note 12 to our consolidated financial statements. As of March 31, 2011, we had 13 affiliated Delaware or Connecticut statutory and business trusts that were created for the sole purpose of issuing trust preferred securities. The sole assets of the statutory and business trusts are our junior subordinated debentures.

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

In August 2009, we announced the deferral of our regularly scheduled interest payments on our outstanding junior subordinated debentures relating to our $345.0 million of trust preferred securities beginning with the regularly scheduled quarterly interest payments that would otherwise have been made in September and October 2009. The terms of the junior subordinated debentures and the related trust indentures allow us to defer such payments of interest for up to 20 consecutive quarterly periods without 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 debentures. Accordingly, we also suspended the payment of cash dividends on our outstanding common stock and preferred stock beginning with the regularly scheduled quarterly dividend payments on our preferred stock that would otherwise have been made in August and September 2009, as further described in Note 13 to our consolidated financial statements.

The Company’s financial position may be adversely affected if it experiences increased liquidity needs if any of the following events occurs:

First Bank continues to experience net losses and, accordingly, is unable or prohibited by its regulators to pay a dividend to the Company sufficient to satisfy the Company’s operating cash flow needs. The Company’s ability to receive future dividends from First Bank to assist the Company in meeting its operating requirements, both on a short-term and long-term basis, is currently subject to regulatory approval, as further described above and under “—Recent Developments and Other Matters – Regulatory Agreements;”

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Ø	We deem it advisable, or are required by regulatory authorities, to use cash maintained by the Company to support the capital position of First Bank;

First Bank fails to remain “well-capitalized” and, accordingly, First Bank is required to pledge additional collateral against its borrowings and is unable to do so. As discussed above, First Bank has no outstanding borrowings at March 31, 2011 with the exception of $39.4 million of daily repurchase agreements; or

Ø	The Company has difficulty raising cash through the future issuance of debt or equity instruments or by accessing additional sources of credit.

The Company’s financial flexibility may be severely constrained if we are unable to maintain our access to funding or if adequate financing on terms acceptable to us is not available in the marketplace. If we are required to rely more heavily on more expensive funding sources to support our business, our revenues may not increase proportionately to cover our costs. In this case, our operating margins could be materially adversely affected. A lack of liquidity and/or cost-effective funding alternatives could materially adversely affect our business, financial condition and results of operations.

Other Commitments and Contractual Obligations. We have entered into long-term leasing arrangements and other commitments and contractual obligations in conjunction with our ongoing operating activities. The required payments under such leasing arrangements, other commitments and contractual obligations at March 31 2011 were as follows:

	Less Than 1 Year		1-3 Years		3-5 Years		Over 5 Years		Total (1)
	(dollars expressed in thousands)

Operating leases	$	12,883		20,925		12,629		32,351	78,788
Certificates of deposit (2)		1,506,189		458,408		15,611		95	1,980,303
Other borrowings (2)		39,404		—		—		—	39,404
Subordinated debentures (3)		—		—		—		354,000	354,000
Preferred stock issued under the CPP (3)(4)		—		—		—		310,170	310,170
Other contractual obligations (5)		47,512		290		7		1	47,810
Total	$	1,605,988		479,623		28,247		696,617	2,810,475

_________________

(1)	Amounts exclude ASC Topic 740 unrecognized tax liabilities of $1.3 million and related accrued interest expense of $197,000 for which the timing of payment of such liabilities cannot be reasonably estimated as of March 31, 2011.

(2)	Amounts exclude the related accrued interest expense on certificates of deposit and other borrowings of $1.5 million as of March 31, 2011.

(3)

Amounts exclude the accrued interest expense on subordinated debentures and the accrued dividends declared on preferred stock issued under the CPP of $22.8 million and $29.5 million, respectively, as of March 31, 2011. As further described under “¾Recent Developments and Other Matters – Regulatory Agreements,” 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 Preferred Stock and the Class D Preferred Stock issued under the CPP of $295.4 million and $14.8 million, respectively.

(5)	Amounts include $46.7 million related to an obligation for investment securities traded in March 2011 that subsequently settled in April 2011, as further described under “¾Financial Condition.”

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Effects of New Accounting Standards

In January 2010, the FASB issued ASU No. 2010-06 – Fair Value Measurements and Disclosures (ASC Topic 820) – Improving Disclosures about Fair Value Measurements. This ASU amends certain disclosure requirements of Subtopic 820-10, providing additional disclosures for transfers in and out of Levels I and II and for activity in Level III and clarifies certain other existing disclosure requirements including the level of disaggregation and disclosures around inputs and valuation techniques. The final amendments of this ASU were effective for annual or interim periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity for purchases, sales, issuances, and settlements on a gross basis. This requirement was effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The amended ASU does not require disclosures for earlier periods presented for comparative purposes at initial adoption. We implemented the disclosure requirements under this ASU on January 1, 2010, except for the requirement to provide the Level 3 activity for purchases, sales, issuances, and settlements on a gross basis. We implemented the disclosure requirements under this ASU to provide the Level 3 activity for purchases, sales, issuances, and settlements on a gross basis on January 1, 2011, which are reported in Note 15 to our consolidated financial statements. The implementation of the new disclosure requirements did not have a material impact on our consolidated financial statements or the disclosures presented in our consolidated financial statements.

In January 2011, the FASB issued ASU No. 2011-01 – Receivables (ASC Topic 310) – Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The provisions of ASU No. 2010-20 required the disclosure of more granular information on the nature and extent of troubled debt restructurings and their effect on the allowance for loan and lease losses effective for the Company’s reporting period ended March 31, 2011. The amendments in ASU No. 2011-01 defer the effective date related to these disclosures, enabling creditors to provide such disclosures after the FASB completes their project clarifying the guidance for determining what constitutes a troubled debt restructuring. As the provisions of this ASU only defer the effective date of disclosure requirements related to troubled debt restructurings, the adoption of this ASU will have no impact on the Company’s consolidated financial statements or results of operations.

In April 2011, the FASB issued ASU No. 2011-02 – Receivables (ASC Topic 310) – A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. The provisions of this ASU: provide additional guidance related to determining whether a creditor has granted a concession; include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant; prohibit creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower; and add factors for creditors to use in determining whether a borrower is experiencing financial difficulties. A provision in this ASU also ends the deferral of the additional disclosures about troubled debt restructurings as required by ASU No. 2010-20. The provisions of this ASU are effective for the Company’s reporting period ending September 30, 2011. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements or results of operations.

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Item 3 – Quantitative and Qualitative Disclosures about Market Risk

The quantitative and qualitative disclosures about market risk are included under “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Risk Management,” appearing on pages 57 through 60 of this report.

Item 4 – 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 as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports its files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter 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

Item 1 – 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. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, financial condition or results of operations.

The Company and First Bank entered into agreements with the FRB and MDOF, as further described under “Item 2 —Management’s Discussion and Analysis of Financial Condition and Results of Operations —Recent Developments and Other Matters – Regulatory Agreements” and in Note 1 to our consolidated financial statements.

Item 6 – Exhibits

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

Exhibit Number		Description

	4.1	First Supplemental Indenture, dated as of January 26, 2011, between the Company, as Issuer, and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated January 27, 2011).

	4.2	First Amendment to the Amended and Restated Trust Agreement of First Preferred Capital Trust IV, dated January 26, 2011, among the Company, The Bank of New York Mellon Trust Company, N.A., as Property Trustee, Wilmington Trust Company, as Delaware Trustee, and the Administrative Trustees named therein (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated January 27, 2011).

	4.3	First Amendment to Preferred Securities Guarantee Agreement, dated as of January 26, 2011, between the Company, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Guarantee Trustee (incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K dated January 27, 2011).

	10.1	Revolving Credit Note, dated as of March 24, 2011, by and between First Banks, Inc. and Investors of America Limited Partnership (incorporated herein by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010).

	10.2	Stock Pledge Agreement, dated as of March 24, 2011, by and between First Banks, Inc. and Investors of America Limited Partnership (incorporated herein by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010).

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

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

	32.1	Section 1350 Certifications of Chief Executive Officer – furnished herewith.

	32.2	Section 1350 Certifications of Chief Financial Officer – furnished herewith.

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SIGNATURES

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

Date: May 13, 2011
	FIRST BANKS, INC.


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

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

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