UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K



(Mark One)
[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________

Commission File Number – 001-31610

FIRST BANKS, INC.

(Exact name of registrant as specified in its charter)



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

135 North Meramec, Clayton, Missouri 63105

(Address of principal executive offices) (Zip code)

(314) 854-4600

(Registrant’s telephone number, including area code)

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



Title of each class	Name of each exchange on which registered
8.15% Cumulative Trust Preferred Securities
(issued by First Preferred Capital Trust IV and	New York Stock Exchange
guaranteed by First Banks, Inc.)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [ X ] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. [ X ] Yes [ ] No

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

Indicate by check mark whether the registrant 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ X ] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:



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

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

None of the common stock of the Company is held by non-affiliates. All of the common stock of the Company is owned by various trusts, which were established by and for the benefit of Mr. James F. Dierberg, the Company’s Chairman of the Board of Directors, and members of his immediate family.

At March 24, 2015, there were 23,661 shares of the registrant’s common stock outstanding. There is no public or private market for such common stock.

FIRST BANKS, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS



		Page
Part I
Item 1.	Business	1
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	19
Item 4.	Mine Safety Disclosures	19

Part II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 8.	Financial Statements and Supplementary Data	50
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	50
Item 9A.	Controls and Procedures	51
Item 9B.	Other Information	51

Part III
Item 10.	Directors, Executive Officers and Corporate Governance	52
Item 11.	Executive Compensation	56
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	62
Item 13.	Certain Relationships and Related Transactions, and Director Independence	63
Item 14.	Principal Accounting Fees and Services	64

Part IV
Item 15.	Exhibits, Financial Statement Schedules	64

Signatures		119

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

AND FACTORS THAT COULD AFFECT FUTURE RESULTS

This Annual Report on Form 10-K contains certain forward-looking statements with respect to our financial condition, results of operations and business. Generally, forward-looking statements may be identified through the use of words such as: “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or words of similar meaning or future or conditional terms such as: “will,” “would,” “should,” “could,” “may,” “likely,” “probably,” or “possibly.” Examples of forward-looking statements include, but are not limited to, estimates or projections with respect to our future financial condition and earnings, including the ability of the Company to remain profitable, and expected or anticipated revenues with respect to our results of operations and our business. These forward-looking statements are subject to certain risks and uncertainties, not all of which can be predicted or anticipated. Factors that may cause our actual results to differ materially from those contemplated by the forward-looking statements herein include market conditions as well as conditions affecting the banking industry generally and factors having a specific impact on us, including but not limited to, the following factors whose order is not indicative of likelihood or significance of impact:


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


•	The risks associated with implementing our business strategy;


•	Regulatory actions that impact First Banks, Inc. and First Bank, including our ability to comply with the terms of the Memorandum of Understanding entered into between First Banks, Inc. and the Federal Reserve Bank of St. Louis, as further discussed under “Item 1. Business —Supervision and Regulation – Regulatory Agreements;”


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


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


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


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


•	Weakness in the residential real estate market and the potential impact on the value of collateral securing residential real estate loans held or originated for sale;


•	Credit risks associated with our home equity loan portfolio upon commencement of the loan amortization period;


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


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


•	Implementation of the Basel III regulatory capital reforms and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act includes significant changes to bank capital, leverage and liquidity requirements, as further discussed under “Item 1. Business —Supervision and Regulation – Capital Adequacy Requirements;”


•	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;


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


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


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


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


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


•	Changes in consumer spending, borrowing and savings habits;


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


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


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


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


•	Volatility and disruption in national and international financial markets;


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


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


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


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


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


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


•	The geographic dispersion of our offices;


•	The highly regulated environment in which we operate; and


•	Our ability to respond to changes in technology or an interruption or breach in security of our information systems, including potential cyber attacks.

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 further discussion under “Item 1A —Risk Factors.” We wish to caution readers of this Annual Report on Form 10-K that the foregoing list of important factors may not be all-inclusive and we specifically decline to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. We do not have a duty to and do not undertake any obligation to update these forward-looking statements. Readers of this Annual Report on Form 10-K should therefore consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on these statements.

PART I

Item 1. Business

General. First Banks, Inc., or we, or the Company, is 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. A list of First Bank’s subsidiaries at December 31, 2014 is included as Exhibit 21.1 and incorporated herein by reference. First Bank’s subsidiaries are wholly owned except FB Holdings, LLC, or FB Holdings, which is 53.23% owned by First Bank and 46.77% owned by First Capital America, Inc., or FCA, a corporation owned and operated by the Company’s Chairman of the Board and members of his immediate family, including Mr. Michael Dierberg, Vice Chairman of the Company, and Ms. Ellen Dierberg Milne, Director of the Company, as further described in Note 20 to our consolidated financial statements. At December 31, 2014, we had assets of $5.94 billion, loans, net of net deferred loan fees, or total loans, of $3.15 billion, deposits of $4.85 billion and stockholders’ equity of $512.4 million.

First Bank currently operates 129 branch offices in California, Florida, Illinois and Missouri, with 160 automated teller machines, or ATMs, across the four states. 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 client groups, including packaged accounts for more affluent clients, and sweep accounts, lock-box deposits and cash management products for commercial clients. 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, mobile banking, ATMs, telephone banking, safe deposit boxes, and trust and private banking services. The revenues generated by First Bank and its subsidiaries consist primarily of interest income generated from 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 clients primarily within our geographic areas, which presently include eastern Missouri, southern Illinois, southern and northern California, and Florida's Bradenton, Palmetto and Longboat Key communities. 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 client service.

Capital Structure.

Voting Stock. Various trusts, established by and administered by and for the benefit of Mr. James F. Dierberg and members of his immediate family, own all of our voting stock other than the Class C Preferred Stock and Class D Preferred Stock that have limited voting rights, as discussed below. Mr. Dierberg and his family, therefore, control our management and policies.

Trust Preferred Securities. We have formed numerous affiliated Delaware or Connecticut business or statutory trusts. These trusts operate as financing entities and were created for the sole purpose of issuing trust preferred securities. The sole assets of the trusts are our junior subordinated debentures. In conjunction with the formation of our financing entities and their issuance of the trust preferred securities, we issued junior subordinated debentures to each of our financing entities in amounts equivalent to the respective trust preferred securities plus the amount of the common securities of the individual trusts. The trust preferred securities have no voting rights except in certain limited circumstances. The trust preferred securities issued by First Preferred Capital Trust IV are publicly held and traded on the New York Stock Exchange, or NYSE. The remaining trust preferred securities were issued in private placements. See Note 12 to our consolidated financial statements for further discussion regarding our junior subordinated debentures relating to our trust preferred securities.

Class C Fixed Rate Cumulative Perpetual Preferred Stock and Class D Fixed Rate Cumulative Perpetual Preferred Stock. On December 31, 2008, the Company entered into a Letter Agreement, including a Securities Purchase Agreement – Standard Terms, or Purchase Agreement, with the United States Department of the Treasury, or the U.S. Treasury, pursuant to the Troubled Asset Relief Program’s Capital Purchase Program, or CPP. Under the terms of the Purchase Agreement, on December 31, 2008, we issued to the U.S. Treasury, 295,400 shares of senior preferred stock, or Class C Preferred Stock, and a warrant, or Warrant, to acquire up to 14,784.78478 shares of a separate series of senior preferred stock, or Class D Preferred Stock (at an exercise price of $1.00 per share), for an aggregate purchase price of $295.4 million, pursuant to the standard CPP terms and conditions for non-public companies as described and set forth in the Purchase Agreement and the Warrant. Pursuant to the terms of the Warrant, the U.S. Treasury exercised the Warrant on December 31, 2008 and paid the exercise price by having us withhold, from the shares of Class D Preferred Stock that would otherwise be delivered to the U.S. Treasury upon such exercise, shares of Class D Preferred Stock issuable upon exercise of the Warrant with an aggregate liquidation amount equal in value to the aggregate exercise price

of $14,784.78. The senior preferred stock and the Warrant were issued in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

During the third quarter of 2013, the U.S. Treasury completed two auctions that resulted in the sale of our Class C Preferred Stock and Class D Preferred Stock to unaffiliated third party investors. We did not receive any proceeds from the sale and the sale did not have any effect on the terms of the outstanding Class C Preferred Stock and Class D Preferred Stock, including our obligation to satisfy accrued and unpaid dividends prior to the payment of any dividend or other distribution to holders of junior or parity stock (including our common stock, Class A Preferred Stock and Class B Preferred Stock).

We suspended the payment of cash dividends on our Class C Preferred Stock and Class D Preferred Stock beginning with the regularly scheduled quarterly dividend payments on the preferred stock that would otherwise have been made in August 2009. We declared and accrued dividends on our Class C Preferred Stock and Class D Preferred Stock quarterly throughout the deferral period until the fourth quarter of 2013, when we ceased declaring dividends on our Class C Preferred Stock and Class D Preferred Stock. The aggregate amount of these deferred and accrued dividend payments was $77.8 million at December 31, 2014. See Note 13 to our consolidated financial statements for further discussion regarding our Class C Preferred Stock and Class D Preferred Stock.

Recent Developments and Other Matters.

Dividend from First Bank and Payment of Deferred Interest on Junior Subordinated Debentures. On January 31, 2014, the Company received regulatory approval from the Federal Reserve Bank of St. Louis, or FRB, under the then-existing Written Agreement and subject to certain conditions, which granted First Bank the authority to pay a dividend to the Company, and the authority to the Company to utilize such funds, for the sole purpose of paying the accumulated deferred interest payments on the Company's outstanding junior subordinated debentures issued in connection with the Company's $345.0 million of trust preferred securities. In February 2014, First Bank paid a dividend of $70.0 million to the Company.

On March 14, 2014, the Company paid interest on all of the junior subordinated debentures of $66.4 million to the respective trustees, which was subsequently distributed to the trust preferred securities holders on the respective interest payment dates in March and April, 2014. Since that time, the Company has continued to pay interest on its junior subordinated debentures to the respective trustees on the regularly scheduled quarterly payment dates. Such interest payments have been funded through additional dividends from First Bank. Pursuant to Missouri Revised Statutes, First Bank is required to obtain approval from the Missouri Division of Finance, or the MDOF, prior to paying any dividends to the Company. The MDOF has complete discretion to grant any such approval and therefore, it is not known whether the MDOF will approve any such future requests. See Note 12 to our consolidated financial statements for further discussion regarding our junior subordinated debentures relating to our trust preferred securities.

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 regulatory capital. A summary of the primary initiatives completed as of December 31, 2014 is shown in the table below.



(dollars in thousands)	Gain (Loss) on Sale			Decrease in Intangible Assets	Total
Sale of ABS line of business	$	28,615		18,000	46,615
Sale of Northern Florida Region	408			700	1,108
Total 2013 Capital Initiatives	$	29,023		18,700	47,723

Sale of Remaining Northern Illinois Region	$	425		1,558	1,983
Sale of Edwardsville Branch	263			500	763
Total 2011 Capital Initiatives	$	688		2,058	2,746

Partial Sale of Northern Illinois Region	$	6,355		9,683	16,038
Sale of Texas Region	4,984			19,962	24,946
Sale of MVP	(156		)	—	(156	)
Sale of Chicago Region	8,414			26,273	34,687
Sale of Lawrenceville Branch	168			1,000	1,168
Total 2010 Capital Initiatives	$	19,765		56,918	76,683

Sale of WIUS loans	$	(13,077	)	19,982	6,905
Sale of restaurant franchise loans	(1,149		)	—	(1,149	)
Sale of asset-based lending loans	(6,147		)	—	(6,147	)
Sale of Springfield Branch	309			1,000	1,309
Sale of ANB	120			13,013	13,133
Total 2009 Capital Initiatives	$	(19,944	)	33,995	14,051

Total Completed Capital Initiatives	$	29,532		111,671	141,203

Strategy. Our strategy emphasizes profitable growth within our market areas, aggressive management of asset quality risks, and preservation and enhancement of regulatory capital. We have developed several plans around these actions, including the previously discussed Capital Plan, in addition to actions intended to improve overall profitability and asset quality, including the following:


•	Developing new loan growth strategies, primarily within our commercial and industrial, commercial real estate and residential mortgage segments;

•

Strengthening our branch network through the continual assessment and realignment of the branch network to ensure we are delivering our products and services through appropriate market locations that best correspond to the individual needs of the communities that we serve, and preserving and enhancing a cost-effective deposit generating function that allow us to maintain our core funding position;


•	Expanding our wealth management and treasury management teams and related noninterest income opportunities;


•	Increasing the volume of loans sold in the secondary market in our mortgage division through an expanded sales force and enhanced marketing initiatives;


•	Evaluating opportunities to reduce noninterest expenses through several efficiency measures, including branch sales and/or consolidations; and


•	Accelerating the reduction of nonaccrual loans and other real estate to reduce noninterest expenses associated with these assets, including legal fees, other real estate write-downs and other real estate expenses related to property preservation, taxes, insurance and other items;

We believe the successful completion of the various components of these action items would substantially improve our financial performance. If we are not able to successfully complete a substantial portion of the action items, our business, financial condition, including our regulatory capital ratios, and results of operations may be materially and adversely affected and our ability to withstand continued adverse economic uncertainty could be threatened.

Lending Activities. As further discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Loans and Allowance for Loan Losses,” our business development efforts have historically been focused on the origination of the following general loan types: commercial, financial and agricultural loans; real estate construction and land development loans; commercial real estate mortgage loans and residential real estate mortgage loans. Our lending strategy emphasizes quality and diversification. Throughout our organization, we employ a common credit underwriting policy. In addition to underwriting based on estimates and projection of financial strength, collateral values and future cash flows, most loans to borrowing entities other than individuals require the guarantee of the parent company or entity sponsor, or in the case of smaller entities, the personal guarantees of the principals.

Commercial, Financial and Agricultural. Our commercial, financial and agricultural loan portfolio was $695.3 million, or 22.3% of total loans held for portfolio, at December 31, 2014, compared to $600.7 million, or 21.2% of total loans held for portfolio, at December 31, 2013. During recent years, we have attempted to diversify our loan portfolio by increasing our commercial, financial and agricultural lending opportunities. The primary component of commercial, financial and agricultural loans is commercial

loans, which are made based on the borrowers’ general credit strength and ability to generate cash flows for repayment from income sources. Most of these loans are made on a secured basis, generally involving the use of company equipment, inventory and/or accounts receivable, and, from time to time, real estate, as collateral. Regardless of collateral, primary emphasis is placed on the borrowers’ ability to generate cash flow sufficient to operate the business and provide coverage of debt servicing requirements. Commercial loans are frequently renewable annually, although some terms may be as long as five years. These loans typically require the borrower to satisfy certain operating covenants appropriate for the specific business, such as profitability, debt service coverage and current asset and leverage ratios, which are generally reported and monitored on a quarterly basis and subject to more detailed annual reviews. Commercial loans are made to clients primarily located in First Bank’s geographic trade areas of California, Missouri and Illinois that are engaged in manufacturing, retailing, wholesaling and service businesses. This portfolio is not concentrated in large specific industry segments that are characterized by sufficient homogeneity that would result in significant concentrations of credit exposure. Rather, it is a highly diversified portfolio that encompasses many industry segments. Within both our real estate and commercial lending portfolios, we strive for the highest degree of diversity that is practicable. We also emphasize the development of other service relationships, particularly deposit accounts, with our commercial borrowers.

Real Estate Construction and Development. Our real estate construction and land development loan portfolio was $89.9 million, or 2.9% of total loans held for portfolio, at December 31, 2014, compared to $121.7 million, or 4.3% of total loans held for portfolio, at December 31, 2013. Real estate construction and land development loans include commitments for construction of both residential and commercial properties. Commercial real estate projects often require commitments for permanent financing from other lenders upon completion of the project and, more typically, may include a short-term amortizing component of the initial financing. Commitments for construction of multi-tenant commercial and retail projects generally require lease commitments from a substantial primary tenant or tenants prior to commencement of construction. We typically engage in multi-phase, multi-tenant projects, as opposed to large vertical projects, that allow us to complete the financing for the projects in phases and limit the number of tenant building starts based upon successful lease and/or sale of the tenant units. We finance some projects for borrowers whose home office is located within our trade area but the particular project may be outside our normal trade area. Although we generally do not engage in developing commercial and residential construction lending business outside of our trade area, certain loans acquired in acquisitions from time to time and certain other loans have been related to projects outside of our trade area. Residential real estate construction and development loans are made based on the cost of land acquisition and development, as well as the construction of the residential units. Although we finance the cost of display units and units held for sale, in most instances a substantial portion of the loans for individual residential units have purchase commitments prior to funding. Residential condominium projects are funded as the building construction progresses, but funding of unit finishing is generally based on firm sales contracts.

Commercial Real Estate. Our commercial real estate loan portfolio was $1.18 billion, or 37.9% of total loans held for portfolio, at December 31, 2014, compared to $1.05 billion, or 37.0% of total loans held for portfolio, at December 31, 2013. Commercial real estate loans include loans for which the intended source of repayment is rental and other income from the real estate. This includes commercial real estate developed for lease to third parties as well as the owner’s occupancy. The underwriting of owner-occupied commercial real estate loans generally follows the procedures for commercial lending described above, except that the collateral is real estate, and the loan term may be longer. The primary emphasis in underwriting loans for which the source of repayment is the performance of the collateral is the projected cash flow from the real estate and its adequacy to cover the operating costs of the project and the debt service requirements. Secondary emphasis is placed on the appraised value of the real estate, with the requirement that the appraised liquidation value of the collateral must be adequate to repay the debt and related interest in the event the cash flow becomes insufficient to service the debt. Generally, underwriting terms require the loan principal not to exceed 80% of the appraised value of the collateral and the loan maturity not to exceed ten years. Commercial real estate loans are made for commercial office space, retail properties, industrial and warehouse facilities and recreational properties. We typically only finance commercial real estate or rental properties that have lease commitments for a majority of the rentable space.

Residential Real Estate Mortgage. Our one-to-four-family residential real estate mortgage loan portfolio was $1.02 billion, or 32.6% of total loans held for portfolio, at December 31, 2014, compared to $921.5 million, or 32.5% of total loans held for portfolio, at December 31, 2013. Residential real estate mortgage loans are primarily loans secured by single-family, owner-occupied properties. These loans include both adjustable rate and fixed rate mortgage loans. We typically originate residential real estate mortgage loans for sale in the secondary mortgage market in the form of a mortgage-backed security or to various private third-party investors, although from time-to-time, we may purchase and/or retain certain originated residential mortgage loans, including home equity loans, in our loan portfolio as directed by management’s business strategies. Our residential real estate mortgage loans are generated through our branch office network as well as our mortgage division and are underwritten in accordance with conforming terms that allow the loans to be sold into the secondary market. We do not offer Alt A and Sub-prime mortgage loan products. Servicing rights may either be retained or released with respect to conventional, FHA and VA conforming fixed-rate and conventional adjustable rate residential mortgage loans.

Market Areas. As of December 31, 2014, First Bank’s 129 banking facilities were located in California, Florida, Illinois and Missouri. First Bank presently operates in the St. Louis metropolitan area, in eastern Missouri and throughout southern Illinois.

First Bank also operates in southern California, including San Diego and the greater Los Angeles metropolitan area, including Ventura County, Riverside County and Orange County; in Santa Barbara County; in northern California, including the greater San Francisco and Sacramento metropolitan areas; and in Florida's Bradenton, Palmetto and Longboat Key communities.

The following table lists the geographic market areas in which First Bank operates, total deposits, deposits as a percentage of total deposits and the number of locations as of December 31, 2014:



Geographic Area	Total Deposits (in millions)		Deposits as a Percentage of Total Deposits		Number of Locations
Southern California	$	1,632.7	33.7	%	37
St. Louis, Missouri metropolitan area	1,192.6		24.6		34
Northern California	757.6		15.6		18
Southern Illinois	756.9		15.6		20
Missouri (excluding the St. Louis metropolitan area)	357.9		7.4		12
Florida	151.8		3.1		8
Total Deposits	$	4,849.5	100.0	%	129

Competition and Branch Banking. The activities in which First Bank engages are highly competitive. Those activities and the geographic markets served primarily involve competition with other banks, some of which are affiliated with large regional or national holding companies, and other financial services companies. Financial institutions compete based upon interest rates offered on deposit accounts and other credit and service charges, the types of products and quality of services rendered, the convenience of branch facilities, interest rates charged on loans and, in the case of loans to large commercial borrowers, relative lending limits.

Our principal competitors include other commercial banks, savings banks, savings and loan associations, and finance companies, including trust companies, credit unions, mortgage companies, leasing companies, private issuers of debt obligations and suppliers of other investment alternatives, such as securities firms and financial holding companies. Many of our non-bank competitors are not subject to the same degree of regulation as that imposed on bank holding companies, federally insured banks and national or state chartered banks. As a result, such non-bank competitors have advantages over us in providing certain services. We also compete with major multi-bank holding companies, which are significantly larger than us and have greater access to capital and other resources.

Employees. We employed approximately 1,167 full-time equivalent employees at December 31, 2014. None of the employees are subject to a collective bargaining agreement. We consider our relationships with our employees to be good.

Supervision and Regulation.

General. Along with First Bank, we are extensively regulated by federal and state laws and regulations which are designed to protect depositors of First Bank and the safety and soundness of the U.S. banking system, not our debt holders or stockholders. To the extent this discussion refers to statutory or regulatory provisions, it is not intended to summarize all such provisions and is qualified in its entirety by reference to the relevant statutory and regulatory provisions. Changes in applicable laws, regulations or regulatory policies may have a material effect on our business and prospects. We are unable to predict the nature or extent of the effects on our business and earnings that new federal and state legislation or regulation may have. The enactment of the legislation described below has significantly affected the banking industry generally and is likely to have ongoing effects on First Bank and us in the future.

As a registered bank holding company under the Bank Holding Company Act of 1956, as amended, we are subject to regulation and supervision of the Board of Governors of the Federal Reserve System, or Federal Reserve. We file annual reports with the Federal Reserve and provide to the Federal Reserve additional information as it may require. Many of our subsidiaries are also subject to the laws and regulations of both the federal government and the various states in which they conduct business. As an originator of small business loans, we are also regulated by the U.S. Small Business Administration, or SBA.

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

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

Former Regulatory Agreements. On May 19, 2014, the FRB terminated the written agreement dated March 24, 2010, by and among the Company, SFC, First Bank and the FRB, or Written Agreement. The Written Agreement previously required the Company and First Bank to take certain steps intended to improve their overall financial condition. Pursuant to the Written Agreement, the Company prepared and filed with the FRB a number of specific plans designed to strengthen and/or address the following matters: (i) board oversight over the management and operations of the Company and First Bank; (ii) credit risk management practices; (iii) lending and credit administration policies and procedures; (iv) asset improvement; (v) capital; (vi) earnings and overall financial condition; and (vii) liquidity and funds management.

Bank Holding Company Regulation. The activities of bank holding companies are generally limited to the business of banking, managing or controlling banks, and other activities that the Federal Reserve has determined to be so closely related to banking or managing or controlling banks as to the proper incident thereto. In addition, under the Gramm-Leach-Bliley Act, or GLB Act, which was enacted in November 1999 and is further discussed below, a bank holding company, whose control depository institutions are “well-capitalized” and “well-managed” (as defined in Federal Banking Regulations), and which obtains “satisfactory” Community Reinvestment Act (discussed briefly below) ratings, may declare itself to be a “financial holding company” and engage in a broader range of activities. As of this date, we are not a “financial holding company.”

We are also subject to capital requirements applied on a consolidated basis, which are substantially similar to those required of First Bank (briefly summarized below). The Bank Holding Company Act also requires a bank holding company to obtain approval from the Federal Reserve before:


•	Acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls a majority of such shares);


•	Acquiring all or substantially all of the assets of another bank or bank holding company; or


•	Merging or consolidating with another bank holding company.

The Federal Reserve will not approve any acquisition, merger or consolidation that would have a substantially anti-competitive result, unless the anti-competitive effects of the proposed transaction are clearly outweighed by a greater public interest in meeting the convenience and needs of the community to be served. The Federal Reserve also considers capital adequacy and other financial and managerial factors in reviewing acquisitions and mergers.

Safety and Soundness and Similar Regulations. We are subject to various regulations and regulatory policies directed at the financial soundness of First Bank. These include, but are not limited to: the Federal Reserve’s source of strength policy, which obligates a bank holding company such as us to provide financial and managerial strength to its subsidiary banks; restrictions on the nature and size of certain affiliate transactions between a bank holding company and its subsidiary depository institutions; and restrictions on extensions of credit by its subsidiary banks to executive officers, directors, principal stockholders and the related interests of such persons. In addition, pursuant to the Dodd-Frank Act, the longstanding source of strength policy has been given the force of law and additional regulations promulgated by the Federal Reserve to further implement the intent of the statutory provision are possible. As in the past, such financial support from the Company may be required at times when, without this legal requirement, the Company may not be inclined to provide it or may not be able to do so.

Capital Adequacy Requirements. The Company and First Bank are each required to comply with applicable capital adequacy standards established by the Federal Reserve. The current risk-based capital standards applicable to the Company and First Bank, parts of which are currently in the process of being phased-in, are based on the December 2010 final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision, or the Basel Committee. Prior to January 1, 2015, the risk-based capital standards applicable to the Company and First Bank, or the General Risk-Based Capital Rules, were based on the 1988 Capital Accord, known as Basel I, of the Basel Committee.

General Risk-Based Capital Rules. The General Risk-Based Capital rules were intended to make regulatory capital requirements sensitive to differences in credit and market risk profiles among banks and bank holding companies, to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items were assigned to weighted risk categories. Capital was classified as Tier 1 (or core) capital or Tier 2 (or supplementary) capital depending on its characteristics. Under the General Risk-Based Capital Rules, Tier 1 capital included common equity, retained earnings, qualifying noncumulative perpetual preferred stock (including related surplus), non-controlling interests in equity accounts of consolidated subsidiaries, and a limited amount of certain restricted core capital elements (including subordinated debt and related trust preferred securities), less goodwill, most intangible assets and certain other assets, and Tier 2 capital included qualifying subordinated debt,

qualifying mandatorily convertible debt securities, perpetual preferred stock not included in the definition of Tier 1 capital, a limited amount of certain restricted core capital elements not eligible for inclusion in Tier 1 capital (including subordinated debt and related trust preferred securities), and a limited amount of the allowance for loan losses.

Under the General Risk-Based Capital Rules, the Company and First Bank were each required to maintain Tier 1 capital and Total capital (that is, the sum of Tier 1 and Tier 2 capital) equal to at least 4.0% and 8.0%, respectively, of total risk-weighted assets (including certain off-balance sheet items, such as unfunded loan commitments greater than one year and standby letters of credit).

In addition to the General Risk-Based Capital Rules, we are subject to minimum requirements with respect to the ratio of our Tier I capital to our average assets less goodwill and certain other intangible assets, or the Leverage Ratio. Applicable requirements provide for a minimum Leverage Ratio of 3% for bank holding companies that have the highest supervisory rating, while all other bank holding companies must maintain a minimum Leverage Ratio of at least 4% to 5%.

First Bank was categorized as well capitalized at December 31, 2014 and 2013 under the prompt corrective action provisions of the General Risk-Based Capital Rules. The Company was categorized as adequately capitalized under the regulatory capital standards established for bank holding companies by the Federal Reserve at December 31, 2014 and 2013, as further described in Note 14 to our consolidated financial statements.

Basel III and the Final Capital Rules. In July 2013, the federal bank regulators approved final rules, or the Final Capital Rules, implementing the Basel III framework as well as certain provisions of the Dodd-Frank Act. The Final Capital Rules also substantially revise the risk-based capital requirements applicable to bank holding companies and their depository institution subsidiaries, including the Company and First Bank, as compared to the General Risk-Based Capital Rules. The Final Capital Rules revise the components of capital and address other issues affecting the numerator in regulatory capital ratios. The Final Capital Rules also address asset risk weights and other issues affecting the denominator in regulatory capital ratios and replace the existing general risk-weighting approach based on Basel I with a more risk-sensitive approach. The Final Capital Rules became effective for the Company and First Bank on January 1, 2015 (subject to a phase-in period for certain provisions). The Final Capital Rules:


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

•

Require institutions to maintain a capital conservation buffer composed of common equity Tier 1 capital of 2.5% above the minimum risk-based capital requirements in order to avoid limitations on capital distributions, including dividend payments (unless a waiver is granted by the Federal Reserve) and certain discretionary bonus payments to executive officers (unless a waiver is granted by the Federal Reserve). In addition, institutions that do not maintain the required capital conservation buffer may also be limited in their ability to make payments on trust preferred securities. The capital conservation buffer is measured relative to risk-weighted assets and will be phased in over a four-year period beginning on January 1, 2016 with an initial requirement of 0.625%, that subsequently increases to 1.25%, 1.875% and 2.5% on January 1, 2017, 2018 and 2019, respectively;


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


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


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


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

The Final Capital Rules revise the capital levels for depository institutions under the prompt corrective action regulations for depository institutions, as discussed below under "—Prompt Corrective Action."

The calculation of common equity Tier 1 capital is different from the calculation of common equity under U.S. generally accepted accounting principles, or GAAP. Most significantly for the Company, the Company's deferred tax assets, which are included in the calculation of common equity under GAAP, will be substantially phased out over time from the required calculation of common equity Tier 1 capital for regulatory purposes. The deferred tax assets are scheduled to be substantially phased out from inclusion in the calculation of common equity Tier 1 capital in 2018. Absent a substantial increase in qualifying common equity, the Company will not meet the common equity Tier 1 requirement under the Final Capital Rules. The inability to remain adequately capitalized under the Final Capital Rules could materially adversely impact our financial condition, results of operations, ability to grow, and ability to make dividend payments and interest payments on capital stock and trust preferred securities.

Prompt Corrective Action. The FDIC Improvement Act, or FDICIA, requires the federal bank regulatory agencies to take prompt corrective action in respect to depository institutions that do not meet minimum capital requirements. A depository institution’s status under the prompt corrective action provisions depends upon how its capital levels compare to various relevant capital measures and other factors as established by regulation. FDICIA establishes five capital categories (“well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized”), and the federal banking agencies must take certain mandatory supervisory actions, and are authorized to take other discretionary actions, with respect to institutions which are undercapitalized, significantly undercapitalized or critically undercapitalized. The severity of these mandatory and discretionary supervisory actions depends upon the capital category in which the institution is placed. Generally, subject to a narrow exception, FDICIA requires the banking regulators to appoint a receiver or conservator for an institution that is critically undercapitalized. As of December 31, 2014, First Bank was well capitalized.

An institution that is classified as well-capitalized based on its capital levels may be treated as adequately capitalized, and an institution that is adequately capitalized or undercapitalized based upon its capital levels may be treated as though it were undercapitalized or significantly undercapitalized, respectively, if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment.

An institution that is categorized as undercapitalized, significantly undercapitalized or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking regulator. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except in accordance with an accepted capital restoration plan or with the approval of the FDIC. Institutions that are significantly undercapitalized or undercapitalized and either fail to submit an acceptable capital restoration plan or fail to implement an approved capital restoration plan may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized depository institutions failing to submit or implement an acceptable capital restoration plan are subject to appointment of a receiver or conservator.

Dividend Restrictions. Our primary source of funds is the dividends, if any, paid by First Bank. The ability of First Bank to pay dividends is limited by federal laws, by regulations promulgated by the bank regulatory agencies and by principles of prudent bank management. The dividend limitations are further described in Note 22 to our consolidated financial statements appearing elsewhere in this report. In addition, First Bank has agreed not to declare or pay any dividends, without the prior consent of the FRB, that would cause First Bank to pay dividends in excess of its earnings or make a capital distribution that would cause First Bank's Tier 1 Leverage Ratio to fall below 9.0% without the prior consent of the FRB. Furthermore, pursuant to Missouri Revised Statutes, First Bank is required to obtain approval from the MDOF prior to paying any dividends to the Company. The FRB and the MDOF have complete discretion to grant any such approvals and therefore, it is not known whether the FRB and/or the MDOF will approve any such requests in the future.

Deposit Insurance. The FDIC maintains the Deposit Insurance Fund, or the DIF, which was created in 2006. The deposit accounts of First Bank are insured by the DIF to the maximum amount provided by law. This insurance is backed by the full faith and credit of the United States Government. As insurer, the FDIC is authorized to conduct examinations of and to require reporting by DIF-insured institutions. It also may prohibit any DIF-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the DIF. The FDIC also has the authority to take enforcement actions against insured institutions. Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged or is engaging in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or written agreement entered into with the FDIC. We do not know of any practice, condition or violation that might lead to termination of our deposit insurance.

The FDIC imposes assessments for deposit insurance on an insured institution on a quarterly basis. The Dodd-Frank Act (as defined and further described below) required the FDIC to establish rules setting insurance premium assessments based on an institution’s average total assets minus its average tangible equity instead of its deposits. These rules were finalized in February 2011 and set base assessment rates for institutions in one of four risk categories based upon supervisory and capital evaluations. The initial base assessment rates are adjusted to determine an institution’s final assessment rate based on its brokered deposits and unsecured debt. On November 18, 2014, the FDIC approved a final rule that revised the risk-based deposit insurance assessment system to reflect changes in the regulatory capital rules that went into effect on January 1, 2015 and go into effect on January 1, 2018. The final rule revises the ratios and ratio thresholds for capital evaluations used in the risk-based deposit insurance assessment system and revises the assessment base calculation for custodial banks.

In addition, all institutions with deposits insured by the FDIC are required to pay assessments to fund interest payments on bonds issued by the Financing Corporation, a mixed-ownership government corporation established to recapitalize a predecessor to the DIF. These assessments will continue until the Financing Corporation bonds mature in 2019. Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the designated reserve ratio, or DRR, that is, the ratio of the DIF to insured deposits. The FDIC has

adopted a plan under which it will meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act.

Consumer Protection. First Bank is also subject to consumer laws and regulations intended to protect consumers in transactions with depository institutions, as well as other laws or regulations affecting clients of financial institutions generally. These laws and regulations mandate various disclosure requirements and substantively regulate the manner in which financial institutions must deal with their clients. First Bank must comply with numerous regulations in this regard and is subject to periodic examinations with respect to its compliance with the requirements.

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

The Gramm-Leach-Bliley Act. The GLB Act, enacted in 1999, amended and repealed portions of the Glass-Steagall Act and other federal laws restricting the ability of bank holding companies, securities firms and insurance companies to affiliate with each other and to enter new lines of business. The GLB Act established a comprehensive framework to permit financial companies to expand their activities, including through such affiliations, and to modify the federal regulatory structure governing some financial services activities. The GLB Act also adopted consumer privacy safeguards requiring financial services providers to disclose their policies regarding the privacy of client information to their clients and, subject to some exceptions, allowing clients to “opt out” of policies permitting such companies to disclose confidential financial information to non-affiliated third parties.

The Sarbanes-Oxley Act. The Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, imposes a myriad of corporate governance and accounting measures designed to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of disclosures under securities laws. All public companies that file periodic reports with the SEC are affected by Sarbanes-Oxley. Sarbanes-Oxley addresses, among other matters: (i) the creation of an independent accounting oversight board to oversee the audit of public companies and auditors who perform such audits; (ii) auditor independence provisions which restrict non-audit services that independent accountants may provide to their audit clients; (iii) additional corporate governance and responsibility measures which require the chief executive officer and chief financial officer to certify financial statements, to forfeit salary and bonuses in certain situations, and protect whistleblowers and informants; (iv) expansion of the audit committee’s authority and responsibility by requiring that the audit committee have direct control of the outside auditor, be able to hire and fire the auditor, and approve all non-audit services; (v) requirements that audit committee members be independent; (vi) disclosure of a code of ethics; and (vii) enhanced penalties for fraud and other violations. The provisions of Sarbanes-Oxley also require that management assess the effectiveness of internal control over financial reporting and that the independent auditor issue an attestation report on management’s report on internal control over financial reporting. As we are a non-accelerated filer, management’s report on internal control over financial reporting was not subject to attestation by the Company’s Independent Registered Public Accounting Firm as of December 31, 2014, as further discussed under “Item 9A — Controls and Procedures.”

The USA Patriot Act. The USA Patriot Act, or Patriot Act, is intended to strengthen the ability of U.S. law enforcement agencies and the intelligence communities to work cohesively to combat terrorism on a variety of fronts. The impact of the Patriot Act on financial institutions is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and imposes various regulations, including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.

Reserve Requirements; Federal Reserve System and Federal Home Loan Bank System. First Bank is a member of the Federal Reserve System and the Federal Home Loan Bank System. As a member, First Bank is required to hold investments in those systems. First Bank was in compliance with these requirements at December 31, 2014, as further described in Note 1 to our consolidated financial statements.

The Federal Reserve requires all depository institutions to maintain reserves against their transaction accounts and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy liquidity requirements.

First Bank has established a borrowing relationship with the FRB, which is primarily secured by commercial loans, and provides an additional liquidity facility that may be utilized for contingency purposes. First Bank also has established a borrowing relationship with the FHLB of Des Moines. The borrowing relationship is secured by one-to-four-family residential, multi-family residential and commercial real estate loans. First Bank requests advances and/or repays advances from the FHLB based on its current and

future projected liquidity needs. See further discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity Management.”

Monetary Policy and Economic Control. The commercial banking business is affected by legislation, regulatory policies and general economic conditions as well as the monetary policies of the Federal Reserve. The instruments of monetary policy available to the Federal Reserve include the following: (i) changes in the discount rate on member bank borrowings and the targeted federal funds rate; (ii) the availability of credit at the discount window; (iii) open market operations; (iv) the imposition of and changes in reserve requirements against deposits of domestic banks; (v) the imposition of and changes in reserve requirements against deposits and assets of foreign branches; and (vi) the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates.

These monetary policies are used in varying combinations to influence overall growth and distributions of bank loans, investments and deposits, and this use may affect interest rates charged on loans or paid on liabilities. The monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial banks and are expected to do so in the future. Such policies are influenced by various factors, including inflation, unemployment, and short-term and long-term changes in the international trade balance and in the fiscal policies of the U.S. Government. We cannot predict the effect that changes in monetary policy or in the discount rate on member bank borrowings will have on our future business and earnings or those of First Bank.

United States Securities and Exchange Commission. We are also under the jurisdiction of the SEC and certain state securities commissions for matters relating to the offering and sale of our securities. We are subject to disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC. The securities issued by one of our affiliated trusts are registered under the Securities Exchange Act of 1934 and are listed on the NYSE under the trading symbol “FBSPrA,” and therefore, we are subject to certain rules and regulations of the NYSE.

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) made extensive changes in the regulation of financial institutions and their holding companies. The Dodd-Frank Act created a Consumer Financial Protection Bureau, or CFPB, as an independent bureau of the Federal Reserve Board. The CFPB assumed responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations, a function currently assigned to primary regulators, and has authority to impose new requirements. However, institutions of less than $10 billion in assets, such as First Bank, will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the enforcement authority of, their primary regulator. Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall impact on the operations and financial condition of the Company.

Incentive Compensation. In 2010, federal banking agencies issued comprehensive guidance on incentive compensation policies, or Incentive Compensation Guidance, intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. Any deficiencies in compensation practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to make acquisitions or perform other actions. The guidance provides that enforcement actions may be taken against a banking organization if its incentive compensation arrangements or related risk-management control or governance processes pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies. In 2011, the federal banking agencies issued a joint proposed rule pursuant to the Dodd-Frank Act that would prohibit incentive compensation arrangements that would encourage inappropriate risk for certain financial institutions with $1 billion or more in assets and heightened standards for the largest of these institutions. The final rules have not yet been adopted by the Federal Reserve. The scope and content of the federal banking agencies’ policies on executive compensation are continuing to develop. It cannot be determined at this time whether compliance with such policies will adversely affect our ability to hire, retain and motivate our key employees.

Other Future Legislation and Changes in Regulations. In addition to the specific proposals described above, from time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of

operations of the Company. A change in statutes, regulations or regulatory policies applicable to us or any of our subsidiaries could have a material effect on the Company’s business, financial condition or results of operations.

Item 1A. Risk Factors

Readers of our Annual Report on Form 10-K should consider the risk factors described below in conjunction with the other information included in this Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, our Selected Financial Data, our consolidated financial statements and the related notes thereto, and the financial and other data contained elsewhere in this report. See also “Special Note Regarding Forward-Looking Statements and Factors that Could Affect Future Results” appearing at the beginning of this report. The order of the risk factors described below is not indicative of likelihood or significance.

We could be compelled to seek additional capital in the future, but capital may not be available when it is needed or on acceptable terms. Our holding company, First Banks, Inc., was adequately capitalized and First Bank was well capitalized at December 31, 2014. Failure to continue to meet minimum capital requirements can initiate certain actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Our ability to raise additional capital in the future, if deemed necessary, will depend on conditions in the capital markets, economic conditions, our financial performance and a number of other factors, many of which are outside of our control. Accordingly, we cannot be assured of our ability to raise additional capital on terms acceptable to us. If we determine it is necessary to raise additional capital and are unable to do so, on terms satisfactory to us, our financial condition, results of operations, business prospects and our regulatory capital ratios and those of First Bank may be materially and adversely affected. We may also be subjected to increased regulatory supervision, which could result in the imposition of additional regulatory restrictions on our operations and/or regulatory enforcement actions and could also potentially limit our future growth opportunities. These restrictions could negatively impact our ability to manage or expand our operations in a manner that we may deem beneficial to our stockholders and could result in significant increases in our operating expenses or decreases in our revenues.

The Final Capital Rules may materially adversely affect our capital adequacy and the costs of conducting business. The Federal Reserve adopted Final Capital Rules in July, 2013 that substantially amended the regulatory risk-based capital rules applicable to the Company and First Bank, including significant changes to holding company and bank capital requirements, as further described in “Item 1 —Business – Supervision and Regulation – Capital Adequacy Requirements.” The Final Capital Rules include new risk-based capital and leverage ratios, which will be phased in from 2015 to 2019, and introduce a new common equity Tier 1 ratio.

The Company's common equity calculated under U.S. generally accepted accounting principles will diverge from the Company's common equity Tier 1 Capital as calculated for regulatory purposes. As further described under “Item 1. Business —Supervision and Regulation – Capital Adequacy Requirements,” the Federal Reserve, in July, 2013, promulgated regulations that impose a new common equity Tier 1 capital requirement that became effective for the Company on January 1, 2015. Absent a substantial increase in qualifying common equity, the Company will not meet the common equity Tier 1 capital requirement under the Final Capital Rules. The inability to remain adequately capitalized under the Final Capital Rules could materially adversely impact our financial condition, results of operations, ability to grow, and could prohibit the payment of dividends on our capital stock and interest on our junior subordinated debentures (and the related trust preferred securities).

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

The Company entered into an MOU with the Federal Reserve Bank of St. Louis. As further described under “Item 1. Business —Supervision and Regulation – Regulatory Agreements,” the Company entered into an MOU with the FRB on May 19, 2014. While we intend to take such actions as may be necessary to comply with the requirements of the MOU, there can be no assurance that such efforts will not have adverse effects on the operations and financial condition of the Company or First Bank. If we fail to comply with the terms of the MOU, further enforcement action could be taken by the FRB which could have a materially adverse effect on our business, financial condition, results of operations and cash flows. Furthermore, under the MOU, the Company must receive approval from the FRB prior to declaring or paying any dividends on its common or preferred stock, or prior to causing

First Bank to pay dividends in excess of its earnings or make a capital distribution that would cause First Bank's Tier 1 Leverage Ratio to fall below 9.0%. The FRB has complete discretion to grant any such approval and therefore, it is not known whether the FRB would approve any such request. If First Bank is unable to pay future dividends, we may not be able to make the interest payments on our outstanding junior subordinated debentures, which represent the source of distributions to holders of trust preferred securities. In addition, pursuant to Missouri Revised Statutes, First Bank is required to obtain approval from the MDOF prior to paying any dividends to the Company. The MDOF has complete discretion to grant any such approval and therefore, it is not known whether the MDOF will approve any such requests in the future.

We are subject to extensive government regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not security holders. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. The Dodd-Frank Act instituted major changes to the banking and financial institutions regulatory regimes in light of the ongoing performance of and government intervention in the financial services sector. Other changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our business, financial condition and results of operations. For a further discussion of these matters, see “Item 1. Business —Supervision and Regulation.”

It is possible that the Company may have to establish a valuation allowance against its net deferred tax assets. As further discussed in Note 17 to the consolidated financial statements, in the fourth quarter of 2013, the Company reversed substantially all of its existing valuation allowance against its net deferred tax assets. Deferred tax assets represent the tax effect of the difference between the book and tax basis of the Company's assets and liabilities and are assessed periodically by management to determine if they are realizable. Factors in management's determination of whether the deferred tax assets are realizable include the Company's performance, including the ability to generate taxable net income. If, based on available information, it is more likely than not that the deferred tax assets will not be realized in any subsequent period, then a valuation allowance must be established with a corresponding charge to income tax expense. Consequently, although the Company reversed substantially all of its valuation allowance against its net deferred tax assets in the fourth quarter of 2013, future facts and circumstances may require the Company to establish a valuation allowance. Charges to establish a valuation allowance with respect to the Company's deferred tax assets could have a material adverse effect on its financial condition and results of operations.

The Company and its subsidiaries may not be able to realize the benefit of the remaining deferred tax assets. The Company records deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. The deferred tax assets can be recognized in future periods dependent upon a number of factors, including the ability to realize the asset through carrybacks or carryforwards to taxable income in prior or future years, the future reversal of existing taxable temporary differences, future taxable income, and the possible application of future tax planning strategies. While substantially all of the Company's previously recorded valuation allowance against its net deferred tax assets was recovered in 2013, the remaining deferred tax assets may not be recoverable which could result in an adverse impact on the Company's financial condition and results of operations.

Changes in economic conditions could negatively and materially impact our business. Our business is directly affected by factors such as economic, political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government monetary and fiscal policies and inflation, all of which are beyond our control. A deterioration in economic conditions or lack of improvement in economic conditions may result in adverse consequences such as the following, any of which could negatively and materially impact or continue to negatively and materially impact our business:


•	Loan delinquencies may increase;


•	Problem assets and foreclosures may increase;


•	Demand for our products and services may decline;


•	Low cost or noninterest bearing deposits may decrease; and


•	Collateral pledged to us by our clients for loans made by us, especially residential and commercial real estate property, may decline, in turn reducing our clients’ borrowing power, and thereby reducing the value of the underlying assets and collateral associated with our existing loans.

Our emphasis on commercial real estate lending and real estate construction and development lending could increase our credit risk. A substantial portion of our loans are secured by commercial real estate. Commercial real estate and real estate construction

and development loans were $1.18 billion and $89.9 million, respectively, at December 31, 2014, representing 37.9% and 2.9%, respectively, of our total loans held for portfolio. Although we experienced improvement in asset quality levels in these portfolios during 2014, as discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Loans and Allowance for Loan Losses,” we have experienced high levels of nonperforming loans within our real estate construction and development portfolio and commercial real estate portfolio in recent years, reflective of weakened market conditions surrounding land acquisition and development loans as a result of increased developer inventories, slower lot and home sales, and declining market values. Adverse developments affecting real estate in one or more of our markets could increase the credit risk associated with our loan portfolio.

Weakness in the residential real estate market could adversely affect us. Our one-to-four-family residential real estate mortgage loans were $1.02 billion at December 31, 2014, representing 32.6% of our total loans held for portfolio. Weakness in the residential real estate market could result in price reductions in single family home values, adversely affecting the value of collateral securing mortgage loans held, mortgage loan originations and gains recognized on the sale of mortgage loans. In the event our allowance for loan losses is insufficient to cover such losses, our financial condition and results of operations may be adversely affected.

Our allowance for loan losses may not be sufficient to cover our actual loan losses, which could adversely affect our results of operations or financial condition. As a lender, we are exposed to the risk that our loan clients may not repay their loans according to their contractual terms and that the collateral securing the payment of these loans may be insufficient to assure repayment in full. Significant loan losses could have a material adverse effect on our results of operations. Management makes various assumptions and judgments about the collectability of our loan portfolio, which are based in part on:


•	Current economic conditions and their estimated effects on specific borrowers;


•	An evaluation of the existing relationships among loans, potential loan losses and the present level of the allowance for loan losses;


•	Management’s internal review of the loan portfolio, including existing compliance with established policies and procedures; and


•	Results of examinations of our loan portfolio by regulatory agencies.

We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, that represents management’s best estimate of probable incurred loan losses inherent in our loan portfolio. Additional loan losses will likely continue to occur in the future and may occur at a rate greater than we have experienced historically. In determining the amount of the allowance for loan losses, we rely on an analysis of our loan portfolio, experience, and evaluation of general economic, political and regulatory conditions, industry and geographic concentrations, and certain other factors. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and judgment and requires us to make significant estimates of current credit risk and future trends, all of which may undergo material changes. If our assumptions and analysis prove to be incorrect, our current allowance for loan losses may not be sufficient. In addition, adjustments may be necessary to allow for unexpected volatility or deterioration in the local or national economy or other factors such as changes in interest rates that may be beyond our control. In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs, based on judgments different than those of management. Any increase in our allowance for loan losses or loan charge-offs could have a material adverse effect on our results of operations.

Our nonperforming loans also impact the sufficiency of our allowance for loan losses. Nonperforming loans totaled $57.5 million as of December 31, 2014. In addition to those loans currently identified and classified as nonperforming loans, management is aware that other possible credit problems may exist with certain borrowers. These include loans that are migrating from grades with lower risks of loss probabilities into grades with higher risks of loss probabilities as performance and potential repayment issues surface. We monitor these loans and adjust the loss rates in our allowance for loan losses accordingly. The most severe of these loans are credits that are classified as substandard loans due to either less than satisfactory performance history, lack of borrower’s paying capacity, or potentially inadequate collateral. Substandard, or potential problem loans, totaled $25.2 million at December 31, 2014. We also make concessions to modify the contractual terms of certain loans when the borrower is experiencing financial difficulty. These modifications are generally made to either prevent a loan from being placed on nonaccrual status 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. These loans are classified as performing troubled debt restructurings and totaled $80.6 million at December 31, 2014.

We are subject to credit quality risks and our credit policies may not be sufficient to avoid losses. We are subject to the risk of losses resulting from the failure of borrowers, guarantors and related parties to pay interest and principal amounts on their loans. Our credit policies and credit underwriting and monitoring and collection procedures may not prevent losses, particularly during periods in which the local, regional or national economy suffers a general decline. If borrowers fail to repay their loans according to the contractual terms of the loans, our financial condition and results of operations will be adversely affected.

Our home equity lines of credit portfolio could expose us to additional credit risk and impact our results of operations. Home equity lines of credit were $395.5 million, or 12.7% of our total loans held for portfolio, at December 31, 2014. Our home equity lines of credit typically have a 10-year revolving period whereby the borrower is required to pay only interest on the loans during the draw period. After the revolving period, the loan converts to a fully-amortizing loan whereby the borrower is required to pay both interest, typically at a variable rate, and principal, typically a 15-year amortization period. As a result, the borrower's monthly payment could significantly increase upon the start of the amortization period, and increase further with a rise in interest rates. If the borrower is unable to make the required payments on the fully-amortizing loans, we could experience increased loan delinquencies and credit losses which could have an adverse affect on our financial condition and results of operations.

Mortgage loan repurchase obligations or claims from third parties could result in material losses. We have sold significant amounts of residential mortgage loans directly to government-sponsored enterprises, Fannie Mae (FNMA) and Freddie Mac (FHLMC) (collectively, the GSEs), and to investors other than GSEs as whole loans. In connection with these sales, we make or have made various representations and warranties, breaches of which may result in a requirement that we repurchase the mortgage loans, or otherwise make whole or provide other remedies to the counterparties. We have recorded an estimated liability related to possible mortgage repurchase losses of $2.4 million as of December 31, 2014. Our estimated liability for possible loss is based on then-currently available information and is dependent on various factors, including our historical claims and settlement experience, projections of future defaults, and significant judgment and assumptions that are subject to change. As such, the future possible loss related to our representations and warranties may materially change in the future based on factors beyond our control or if actual experiences are different from our assumptions, including, without limitation, estimated repurchase rates, economic conditions, estimated home prices, consumer and counterparty behavior, and a variety of other judgmental factors. Adverse developments with respect to one or more of the assumptions underlying the estimated liability and the corresponding estimated range of possible loss could result in significant increases to future provisions and/or the estimated range of possible loss. If future representations and warranties losses occur in excess of our recorded liability and estimated range of possible loss, such losses could have a material adverse effect on our cash flows, financial condition and results of operations.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition. Liquidity is essential to our business. An inability to raise funds through traditional deposits, brokered deposits, borrowings, the sale of securities or loans and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities and on terms which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent and ongoing turmoil faced by banking organizations and the continued deterioration and instability in credit markets.

We rely on commercial and retail deposits, advances from the FHLB of Des Moines and other borrowings to fund our operations. Although we have historically been able to replace maturing deposits and advances as necessary, we might not be able to replace such funds in the future if, among other things, our results of operations or financial condition or the results of operations or financial condition of the FHLB of Des Moines or overall market conditions were to change.

There can be no assurance these sources of funds will be adequate for our liquidity needs and we may be compelled to seek additional sources of financing in the future. Likewise, we may seek additional debt in the future to achieve our business objectives. There can be no assurance additional borrowings, if sought, would be available to us or, if available, would be on terms acceptable to us. If additional financing sources are unavailable or not available on reasonable terms, our financial condition, results of operations and future prospects could be materially adversely affected.

We actively monitor the depository institutions that hold our cash operating account balances. It is possible that access to our cash equivalents will be impacted by adverse conditions in the financial markets. Our emphasis is primarily on safety of principal and we seek to diversify our cash balances among counterparties to minimize exposure to any one of these entities. The financial statements and other relevant data of the counterparties are routinely reviewed as part of our asset/liability management process. Balances in our accounts with financial institutions in the U.S. may exceed the FDIC insurance limits. While we monitor and adjust the balances in our accounts as appropriate, these balances could be impacted if the financial institutions fail and could be subject to other adverse conditions in the financial markets. At December 31, 2014, our cash and cash equivalents totaled $205.4 million, of which $47.3 million was maintained in our cash operating account at the FRB.

We rely on dividends from our subsidiaries for most of our revenue. The Company is a separate and distinct legal entity from its subsidiaries. We receive substantially all of our revenue from dividends from our subsidiaries. These dividends are the principal source of funds to pay dividends on our preferred stock and interest and principal on our debt. Various federal and/or state laws and regulations limit the amount of dividends that First Bank and certain nonbank subsidiaries may pay to the Company. In the event First Bank is unable to pay future dividends, we may not be able to service our debt (including our junior subordinated debentures issued in connection with the issuance of our outstanding trust preferred securities), pay obligations or pay dividends

on our preferred stock. The inability to receive dividends from First Bank could have a material adverse effect on our business, financial condition and results of operations. As further described under “Item 1. Business —Supervision and Regulation,” First Bank has agreed not to declare or pay any dividends, without the prior consent of the FRB, that would cause First Bank to pay dividends in excess of its earnings or make a capital distribution that would cause First Bank's Tier 1 Leverage Ratio to fall below 9.0%. Furthermore, pursuant to Missouri Revised Statutes, First Bank is required to obtain approval from the MDOF prior to paying any dividends to the Company. We are unable to predict whether or when the FRB or the MDOF will grant such consent in the future. The MDOF has complete discretion to grant any such approval and therefore, it is not known whether the MDOF will approve any such requests in the future.

The Company’s ability to pay dividends on its capital stock may be limited under the terms of the Company’s debt. As of December 31, 2014, the Company had $345.0 million of junior subordinated debentures issued in connection with its outstanding trust preferred securities, as further described in Note 12 to the consolidated financial statements. Payments of principal and interest on the junior subordinated debentures (and the related payments on the trust preferred securities) are conditionally guaranteed by the Company. The rights of the holders of the Company’s junior subordinated debentures are senior in ranking to the rights of the holders of the Company’s common stock and preferred stock. As a result, the Company may only pay dividends on its common stock or preferred stock if the payments on its junior subordinated debentures (and the related trust preferred securities) are current and, in the event of its bankruptcy, dissolution or liquidation, the holders of the Company’s junior subordinated debentures must be satisfied before any distributions can be made to its stockholders.

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

Our ability to pay interest or meet dividend obligations on our junior subordinated debentures and our Class C Preferred Stock and Class D Preferred Stock, and our ability to redeem such securities, could be hindered by the completed initiatives associated with our Capital Plan. As further described under “Item 1. Recent Developments and Other Matters —Capital Plan,” we have completed a number of initiatives associated with our Capital Plan, including sales of branch offices, sales of certain loans and sales of nonbank subsidiaries. While these transactions were considered necessary by the Company to improve our regulatory capital ratios and preserve our regulatory capital in the short-term, these transactions have also decreased our sources of revenue and could hinder the probability and timing of future repayment of these obligations.

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

Markets have experienced, and may continue to experience, periods of high volatility accompanied by reduced liquidity. Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. Under these extreme conditions, hedging and other risk management strategies may not be as effective at mitigating losses as they would be under more normal market conditions. Moreover, under these conditions, market participants are particularly exposed to trading strategies employed by many market participants simultaneously and on a large scale, such as crowded trades. Our risk management and monitoring processes seek to quantify and mitigate risk to more extreme market moves. Severe market events have historically been difficult to predict, however, and we could realize significant losses if unprecedented extreme market events were to occur, such as the recent conditions experienced in the global financial markets and global economy.

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

Our controls and procedures may fail or be circumvented. Our management regularly reviews and updates the Company’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurance that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, financial condition and results of operations.

The Company’s deposit insurance premiums could be substantially higher in the future, which could have a material adverse effect on our future earnings. The Dodd-Frank Act established 1.35% as the minimum designated reserve ratio, or DRR (the ratio of the DIF to insured deposits). It is possible that our insurance premiums will increase in the future as a result of the required minimum DRR and/or an increase in our risk assessment rating.

Significant legal actions could subject us to substantial liabilities. We are from time to time subject to claims related to our operations. These claims and legal actions, including supervisory actions by our regulators, could involve monetary claims and significant defense costs. As a result, we may be exposed to substantial liabilities, which could adversely affect our results of operations and financial condition.

Geographic distance between our operations increases operating costs and makes efforts to standardize operations more difficult. We operate banking offices in California, Florida, Illinois and Missouri. The noncontiguous nature of many of our geographic markets increases operating costs and makes it more difficult for us to standardize our business practices and procedures. As a result of our geographic dispersion, we face the following challenges, among others: (a) familiarizing personnel with our business environment, banking practices and client requirements at geographically dispersed locations; (b) providing administrative support, including accounting, human resources, credit administration, loan servicing, internal audit and credit review at significant distances; and (c) establishing and monitoring compliance with our corporate policies and procedures in different areas.

Decreases in interest rates could have a negative impact on our profitability. Our earnings are principally dependent on our ability to generate net interest income. Net interest income is affected by many factors that are partly or completely beyond our control, including competition, general economic conditions and the policies of regulatory authorities, including the monetary policies of the Federal Reserve. Under our current interest rate risk profile, our net interest income has been and could be negatively affected by a further decline in interest rates, as further discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Interest Rate Risk Management.”

The financial services business is highly competitive, and we face competitive disadvantages because of our size and the nature of banking regulation. We encounter strong direct competition for deposits, loans and other financial services in all of our market areas. Our larger competitors, which have significantly greater resources, may have advantages over us in providing certain services. Our principal competitors include other commercial banks, savings banks, savings and loan associations, mutual funds, finance companies, trust companies, insurance companies, leasing companies, credit unions, mortgage companies, private issuers of debt obligations and suppliers of other investment alternatives, such as securities firms and financial holding companies. Many of our non-bank competitors are not subject to the same degree of regulation as that imposed on bank holding companies, federally insured banks and national or state chartered banks. As a result, such non-bank competitors may have advantages over us in providing certain services and may make it more difficult for us to achieve our objectives, such as increasing the size of our loan portfolio, attracting clients and implementing our business strategy and profit improvement initiatives.

Non-compliance with the USA Patriot Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions. The USA Patriot and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of clients seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions. Although we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in preventing violations of these laws and regulations.

We provide treasury management services to money services businesses, which include: check cashers, issuers/sellers of traveler’s checks, money orders and stored value cards, and money transmitters. Money services businesses pose a higher level of risk of compliance with regulatory guidance. We provide treasury management services to the check cashing industry, offering check clearing, monetary instrument, depository, and credit services. We also provide treasury management services to money transmitters. Financial institutions that open and maintain accounts for money services businesses are expected to apply the requirements of the USA Patriot Act and Bank Secrecy Act, as they do with all accountholders, on a risk-assessed basis. As with any category of accountholder, there will be money services businesses that pose little risk of money laundering or lack of compliance with other laws and regulations and those that pose a significant risk. Providing treasury management services to

money services businesses represents a significant compliance and regulatory risk, and failure to comply with all statutory and regulatory requirements could result in fines or sanctions.

We may not be able to implement technological change as effectively as our competitors. The financial services industry has undergone in the past and continues to undergo rapid technological change related to delivery and availability of new technology-driven products and services and operating efficiencies that enable financial institutions to better serve clients and to reduce costs. In many instances technological improvements require significant capital expenditures, and many of our larger competitors have significantly greater resources to absorb such capital expenditures than we may have available. As such, we may be at a competitive disadvantage in our ability to retain existing clients and compete for new clients in the marketplace.

We are subject to operational and financial risks associated with our reliance on employees, systems, and counterparties and certain failures. Our business operates in many diverse markets and relies on the ability of our employees and systems to process a high number of transactions. Operational risk is the risk of loss resulting from our operations, including, but not limited to, the risk of fraud by employees or persons outside of our Company, unauthorized access to our computer systems, the execution of unauthorized transactions by our employees, errors relating to transaction processing and technology, breaches in internal controls and data security, compliance requirements, and business continuation and disaster recovery. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and client attrition due to potential negative publicity. Third parties with whom we do business could also be sources of operational risk to us, including risks relating to breakdowns or failures of such parties’ own systems or employees. We could suffer significant regulatory action or consequences, damage to our reputation and financial loss in the event of a breakdown in the internal control system, improper operation of systems, improper employee actions, or if personal, confidential or proprietary client information in our possession were to be mishandled or misused, including situations in which the information is erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or where the information is intercepted or otherwise inappropriately taken by third parties.

A breach in the security of our systems, a breach in systems of our third party vendors or cyber attacks, could disrupt our business, result in the disclosure of confidential information, damage our reputation and create significant financial and legal exposure. Information security risks for financial institutions have generally increased in recent years, in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions and the increased sophistication and activities of organized crime, hackers, terrorists, activists and other external parties. Although we devote significant resources to maintain and regularly upgrade our systems and processes that are designed to protect the security of our computer systems, software, networks and other technology assets, and the confidentiality, integrity and availability of information belonging to the Company and our clients, there is no assurance that our security measures will provide absolute security. In fact, many other financial services institutions and companies engaged in data processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyberattacks and other means. Several financial institutions have experienced attacks from technically sophisticated and well-resourced third parties that were intended to disrupt normal business activities by making internet banking systems inaccessible to clients for extended time periods. Although these types of attacks have not breached our data security systems, they require substantial resources to defend and may affect client satisfaction and behavior.

Despite efforts to ensure the integrity of our systems, it is possible that we may not be able to anticipate or to implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently or are not recognized until launched, and because security attacks can originate from a wide variety of sources, including persons who are involved with organized crime or associated with external service providers or who may be linked to terrorist organizations or hostile foreign governments. Those parties may also attempt to fraudulently induce employees, clients or other users of our systems to disclose sensitive information in order to gain access to our data or that of our clients. These risks may increase in the future as we continue to increase our mobile payments and other internet-based product offerings and expand our internal usage of web-based products and applications.

If our security systems were penetrated or circumvented, it could cause serious negative consequences, including significant disruption of our operations, misappropriation of our confidential information or that of our clients, or damage to our computers or systems and those of our clients and counterparties, and could result in violations of applicable privacy and other laws, financial loss to us or to our clients, loss of confidence in our security measures, client dissatisfaction, significant litigation exposure, and harm to our reputation, all of which could have a material adverse effect on our business, financial condition and results of operations.

Cybersecurity and the continued development and enhancement of our internal controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a key focus for us. While our policies and procedures are designed to prevent or limit the impact of any such failure, interruption or security breach, there

can be no assurance that any such failure, interruption or security breach will not occur. While we closely monitor and evaluate the financial and operational risks associated with reliance on technology and information systems on an ongoing basis and maintain insurance coverage for such risks, any such failure, interruption or security breach could materially adversely affect our business, financial condition and results of operations, including a resulting loss in client business, damage to our reputation, misappropriation of sensitive information, corruption of data, disruption of internet banking activities or other operations, and possible exposure to regulatory scrutiny and litigation.

Severe weather, natural disasters, acts of war or terrorism, and other external events could significantly impact our business. Severe weather, natural disasters, acts of war or terrorism, and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause us to incur additional expenses. Changing climate conditions may increase the frequency of natural disasters such as hurricanes, windstorms and other severe weather conditions. Although we have established policies and procedures addressing these types of events, the occurrence of any such event could have a material adverse effect on our business, financial condition and results of operations.

The Company is subject to claims and litigation pertaining to fiduciary responsibility. From time to time, clients make claims and take legal action pertaining to the performance of our fiduciary responsibilities. Whether client claims and legal action related to the performance of our fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the market perception of us and our products and services as well as impact client demand for our products and services. Any financial liability or reputation damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition, results of operations and cash flows.

The Company is exposed to risk of environmental liabilities with respect to properties to which we take title. In the course of our business, we may own or foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or we may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, as the owner or former owner of a contaminated site, we may be subject to common law or contractual claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we ever become subject to significant environmental liabilities, our business, financial condition, cash flows, liquidity and results of operations could be materially and adversely affected.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We own our office building, which houses our principal place of business, located at 135 North Meramec, Clayton, Missouri 63105. The property is in good condition and consists of approximately 60,353 square feet, of which approximately 10,923 square feet is currently leased to others. Of our other 128 offices and two operations and administrative facilities at December 31, 2014, 72 are located in buildings that we own and 58 are located in buildings that we lease.

We consider the properties at which we do business to be in good condition generally and suitable for our business conducted at each location. To the extent our properties or those acquired in connection with our acquisition of other entities provide space in excess of that effectively utilized in the operations of First Bank, we seek to lease or sublease any excess space to third parties. Additional information regarding the premises and equipment utilized by First Bank appears in Note 5 to our consolidated financial statements appearing elsewhere in this report.

Item 3. Legal Proceedings

The information required by this item is set forth in Part II, Item 8 – Financial Statements and Supplementary Data, under Note 24, Contingent Liabilities, to our consolidated financial statements appearing elsewhere in this report and is incorporated herein by reference.

In the ordinary course of business, we and our subsidiaries become involved in legal proceedings, including litigation arising out of our efforts to collect outstanding loans. It is not uncommon for collection efforts to lead to so-called “lender liability” suits in which borrowers may assert various claims against us. From time to time, we are party to other legal matters arising in the normal course of business. While some matters pending against us specify damages claimed by plaintiffs, others do not seek a specified amount of damages or are at very early stages of the legal process. We record a loss accrual for all legal matters for which we deem a loss is probable and can be reasonably estimated. We are not presently party to any legal proceedings the resolution of which we believe is reasonably likely to have a material adverse effect on our business, financial condition or results of operations.

The Company entered into an MOU with the FRB, dated May 19, 2014, as further described under “Item 1. Business —Supervision and Regulation – Regulatory Agreements” and in Note 14 to our consolidated financial statements.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information. There is no established public trading market for our common stock. Various trusts, which were established by and are administered by and for the benefit of Mr. James F. Dierberg, our Chairman of the Board, and members of his immediate family, including Mr. Michael Dierberg, our Vice Chairman, and Ms. Ellen Dierberg Milne, Director of the Company, own all of our voting stock.

Dividends. We have not paid any dividends on our Common Stock.

In August 2009, we announced the suspension of the payment of cash dividends on our outstanding Class A Convertible Adjustable Rate Preferred Stock and our Class B Non-Convertible Adjustable Rate Preferred Stock beginning with the scheduled dividend payments that would have otherwise been made in September 2009. Prior to this time, we paid minimal dividends on our Class A Convertible Adjustable Rate Preferred Stock and our Class B Non-Convertible Adjustable Rate Preferred Stock.

In February 2009 and May 2009, we paid the regularly scheduled quarterly dividends on our Class C Preferred Stock and Class D Preferred Stock, which were pre-approved and authorized for payment by the FRB. In August 2009, we also announced the deferral of dividend payments on our Class C Preferred Stock and Class D Preferred Stock beginning with the regularly scheduled quarterly dividend payments that would otherwise have been made in August 2009, however, we continued to declare and accrue such dividends and the related additional cumulative dividends on our deferred dividend payments in our consolidated financial statements until the fourth quarter of 2013, when we ceased declaring dividends on our Class C Preferred Stock and Class D Preferred Stock, as further discussed in Note 13 to the Company's consolidated financial statements.

Our ability to pay dividends is limited by regulatory requirements and by the receipt of dividend payments from First Bank, which is also subject to regulatory requirements. As previously discussed under “Item 1. Business —Supervision and Regulation,” under the terms of the MOU, First Bank has agreed not to declare or pay any dividends, without the prior consent of the FRB, that would cause First Bank to pay dividends in excess of its earnings or make a capital distribution that would cause First Bank's Tier 1 Leverage Ratio to fall below 9.0%. Furthermore, pursuant to Missouri Revised Statutes, First Bank is required to obtain approval from the MDOF prior to paying any dividends to the Company. The FRB and/or the MDOF have complete discretion to grant any such approvals and therefore, it is not known whether the FRB and/or the MDOF will approve any such requests in the future. The dividend limitations are further described in Note 13 and Note 22 to our consolidated financial statements appearing elsewhere in this report.

Item 6. Selected Financial Data. The selected consolidated financial data set forth below are derived from our consolidated financial statements. This information is qualified by reference to our consolidated financial statements appearing elsewhere in this report. This information should be read in conjunction with such consolidated financial statements, the related notes thereto, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 1A —Risk Factors.”



	As of or For the Year Ended December 31, ⁽¹⁾
(dollars in thousands, except share and per share data)	2014			2013		2012		2011		2010
Income Statement Data:
Interest income	$	168,728		172,810		200,803		231,059		309,688
Interest expense	21,178			24,104		29,611		43,638		74,832
Net interest income	147,550			148,706		171,192		187,421		234,856
(Benefit) provision for loan losses	(7,000		)	(5,000	)	2,000		69,000		214,000
Net interest income after (benefit) provision for loan losses	154,550			153,706		169,192		118,421		20,856
Noninterest income	56,040			63,977		64,635		60,048		75,698
Noninterest expense	176,852			285,484		199,164		223,829		291,951
Income (loss) from continuing operations before provision (benefit) for income taxes	33,738			(67,801	)	34,663		(45,360	)	(195,397	)
Provision (benefit) for income taxes	12,159			(288,501	)	(139	)	(10,654	)	4,114
Income (loss) from continuing operations, net of tax	21,579			220,700		34,802		(34,706	)	(199,511	)
Income (loss) from discontinued operations, net of tax	—			21,223		(8,821	)	(9,394	)	1,260
Net income (loss)	21,579			241,923		25,981		(44,100	)	(198,251	)
Net (loss) income attributable to noncontrolling interest in subsidiary	(76		)	179		(297	)	(2,950	)	(6,514	)
Net income (loss) attributable to First Banks, Inc.	$	21,655		241,744		26,278		(41,150	)	(191,737	)

Dividends Declared:
Preferred stock	$	—		15,869		18,886		17,908		16,980
Common stock	—			—		—		—		—
Ratio of total dividends declared to net income (loss)	—		%	6.56	%	71.87	%	(43.52	)%	(8.86	)%

Earnings (Loss) Per Share and Other Share Data:
Basic earnings (loss) per common share - continuing operations	$	915.24		8,495.35		535.03		(2,245.44	)	(9,017.32	)
Basic earnings (loss) per common share - discontinued operations	—			896.96		(372.81	)	(397.02	)	53.25
Basic earnings (loss) per common share	$	915.24		9,392.31		162.22		(2,642.46	)	(8,964.07	)

Diluted earnings (loss) per common share - continuing operations	$	788.38		8,495.35		535.03		(2,245.44	)	(9,017.32	)
Diluted earnings (loss) per common share - discontinued operations	—			896.96		(372.81	)	(397.02	)	53.25
Diluted earnings (loss) per common share	$	788.38		9,392.31		162.22		(2,642.46	)	(8,964.07	)

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

Balance Sheet Data:
Investment securities	$	2,063,837		2,351,931		2,675,280		2,470,704		1,483,659
Total loans	3,149,243			2,857,095		2,930,747		3,284,279		4,492,284
Assets of discontinued operations	—			—		6,706		6,913		43,532
Total assets	5,935,519			5,918,983		6,509,126		6,608,913		7,378,128
Total deposits	4,849,504			4,813,895		5,492,847		5,623,055		6,458,415
Securities sold under agreements to repurchase	64,875			43,143		26,025		51,170		31,761
Subordinated debentures	354,286			354,210		354,133		354,057		353,981
Liabilities of discontinued operations	—			—		155,711		174,737		94,184
Total stockholders’ equity	512,444			488,256		299,959		263,671		307,295

Earnings Ratios:
Return on average assets	0.37		%	3.87	%	0.40	%	(0.59	)%	(2.20	)%
Return on average stockholders’ equity	4.29			84.66		9.22		(13.71	)	(42.36	)
Net interest margin ⁽²⁾	2.77			2.56		2.80		2.88		2.96
Noninterest expense to average assets	2.99			4.57		3.02		3.20		3.35
Tangible noninterest expense to average assets ⁽³⁾	2.99			2.85		3.02		3.16		3.32
Efficiency ratio ⁽⁴⁾	86.87			134.23		84.45		90.45		94.01
Tangible efficiency ratio ⁽⁴⁾	86.87			83.79		84.45		89.23		92.95

Asset Quality Ratios:
Allowance for loan losses to loans	2.12		%	2.84	%	3.13	%	4.19	%	4.48	%
Nonaccrual loans to loans	1.83			1.85		3.75		6.71		8.88
Allowance for loan losses to nonaccrual loans	116.35			153.02		83.37		62.52		50.40
Nonperforming assets to total assets ⁽⁵⁾	1.91			2.02		3.10		5.30		7.31
Net loan charge-offs to average loans	0.24			0.20		1.57		3.50		5.09

Selected Financial Data (continued):



	As of or For the Year Ended December 31, ⁽¹⁾
(dollars in thousands, except share and per share data)	2014		2013		2012		2011		2010
First Banks, Inc. Capital Ratios: ⁽⁶⁾
Average stockholders’ equity to average assets	8.54	%	4.57	%	4.33	%	4.29	%	5.20	%
Total risk-based capital ratio	12.25		11.13		2.57		1.88		6.29
Tier 1 risk-based capital ratio	7.33		6.58		1.28		0.94		3.15
Leverage ratio	5.01		4.12		0.73		0.56		1.99
First Bank Capital Ratios:
Total risk-based capital ratio	17.81	%	20.12	%	17.18	%	14.98	%	12.95	%
Tier 1 risk-based capital ratio	16.55		18.86		15.92		13.70		11.66
Leverage ratio	11.35		11.77		9.13		8.19		7.40


(1)	The selected data is presented on a continuing basis. Certain reclassifications of 2013, 2012, 2011 and 2010 amounts have been made to conform to the 2014 presentation.


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


(3)	Tangible noninterest expense to average assets is the ratio of noninterest expense (excluding goodwill impairment and amortization of intangible assets) to average assets.


(4)	Efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income. Tangible efficiency ratio is the ratio of noninterest expense (excluding goodwill impairment and amortization of intangible assets) to the sum of net interest income and noninterest income.


(5)	Nonperforming assets consist of nonaccrual loans and other real estate.


(6)	The capital ratios at December 31, 2014, 2013, 2012 and 2011 reflect the implementation of new Federal Reserve rules that became effective on March 31, 2011. See “Item 1 —Business – Supervision and Regulation – Capital Adequacy Requirements” for discussion of new rules that became effective on January 1, 2015.

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

The following presents management’s discussion and analysis of our financial condition and results of operations as of the dates and for the periods indicated. This discussion should be read in conjunction with our “Selected Financial Data,” our consolidated financial statements and the related notes thereto, and the other financial data appearing elsewhere in this report. This discussion set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements with respect to our financial condition, results of operations and business. These forward-looking statements are subject to certain risks and uncertainties, not all of which can be predicted or anticipated. Various factors may cause our actual results to differ materially from those contemplated by the forward-looking statements herein. We do not have a duty to and do not undertake any obligation to update these forward-looking statements. Readers of our Annual Report on Form 10-K should therefore consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on forward-looking statements. See “Special Note Regarding Forward-Looking Statements and Factors that Could Affect Future Results” appearing at the beginning of this report and “Item 1A —Risk Factors,” appearing elsewhere in this report.

RESULTS OF OPERATIONS

Overview

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

We recorded net income of $21.7 million for the year ended December 31, 2014, compared to net income, including discontinued operations, of $241.7 million for the year ended December 31, 2013 and net income, including discontinued operations, of $26.3 million for the year ended December 31, 2012. Our net income reflects the following:


•	Net interest income of $147.6 million for the year ended December 31, 2014, compared to $148.7 million in 2013 and $171.2 million in 2012, and a net interest margin of 2.77% for the year ended December 31, 2014, compared to 2.56% in 2013 and 2.80% in 2012;


•	A negative provision for loan losses of $7.0 million and $5.0 million for the years ended December 31, 2014 and 2013, respectively, compared to a provision for loan losses of $2.0 million in 2012;


•	Noninterest income of $56.0 million for the year ended December 31, 2014, compared to $64.0 million in 2013 and $64.6 million in 2012;


•	Noninterest expense of $176.9 million for the year ended December 31, 2014, compared to $285.5 million in 2013 (including goodwill impairment of $107.3 million) and $199.2 million in 2012;


•	A provision for income taxes of $12.2 million for the year ended December 31, 2014, compared to a benefit for income taxes of $288.5 million in 2013 (reflecting the reversal of substantially all of our valuation allowance against our net deferred tax assets) and a benefit for income taxes of $139,000 in 2012;


•	Net income from discontinued operations, net of tax, of $21.2 million in 2013 and a net loss from discontinued operations, net of tax, of $8.8 million in 2012; and


•	A net loss attributable to noncontrolling interest in subsidiary of $76,000 for the year ended December 31, 2014, compared to net income attributable to noncontrolling interest in subsidiary of $179,000 in 2013 and a net loss attributable to noncontrolling interest in subsidiary of $297,000 in 2012.

Net Interest Income and Average Balance Sheets

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.

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 years ended December 31, 2014, 2013 and 2012:



	Years Ended December 31,
	2014						2013						2012
(dollars in thousands)	Average Balance		Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate
ASSETS:
Interest-earning assets:
Loans: ^{(1) (2)}
Taxable	$	2,944,084	118,168		4.01	%	$	2,816,474	117,922		4.19	%	$	3,052,072	141,896		4.65	%
Tax-exempt ⁽³⁾	2,519		114		4.53		2,531		143		5.65		2,821		165		5.85
Investment securities:
Taxable	2,121,423		48,289		2.28		2,515,344		52,199		2.08		2,708,865		56,547		2.09
Tax-exempt ⁽³⁾	5,124		231		4.51		7,679		378		4.92		9,805		442		4.51
FRB and FHLB stock	30,618		1,442		4.71		27,422		1,216		4.43		26,603		1,146		4.31
Short-term investments	225,741		605		0.27		441,211		1,134		0.26		325,341		820		0.25
Total interest-earning assets	5,329,509		168,849		3.17		5,810,661		172,992		2.98		6,125,507		201,016		3.28
Nonearning assets	583,706						403,147						411,758
Assets of discontinued operations	—						39,407						49,492
Total assets	$	5,913,215					$	6,253,215					$	6,586,757
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand	$	691,992	418		0.06	%	$	660,845	368		0.06	%	$	623,066	437		0.07	%
Savings and money market	1,868,852		3,210		0.17		1,856,347		2,679		0.14		1,918,242		3,518		0.18
Time deposits of $100 or more	372,783		1,910		0.51		395,390		2,274		0.58		481,584		4,010		0.83
Other time deposits	615,235		2,713		0.44		714,863		3,738		0.52		865,870		6,817		0.79
Total interest-bearing deposits	3,548,862		8,251		0.23		3,627,445		9,059		0.25		3,888,762		14,782		0.38
Other borrowings	45,486		(8	)	(0.02	)	34,763		(9	)	(0.03	)	33,007		(18	)	(0.05	)
Subordinated debentures	354,248		12,935		3.65		354,172		15,054		4.25		354,096		14,847		4.19
Total interest-bearing liabilities	3,948,596		21,178		0.54		4,016,380		24,104		0.60		4,275,865		29,611		0.69
Noninterest-bearing liabilities:
Demand deposits	1,288,162						1,216,125						1,168,464
Other liabilities	171,394						191,161						161,131
Liabilities of discontinued operations	—						543,988						696,170
Total liabilities	5,408,152						5,967,654						6,301,630
Stockholders’ equity	505,063						285,561						285,127
Total liabilities and stockholders’ equity	$	5,913,215					$	6,253,215					$	6,586,757
Net interest income			147,671						148,888						171,405
Interest rate spread					2.63						2.38						2.59
Net interest margin ⁽⁴⁾					2.77	%					2.56	%					2.80	%


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


(2)	Interest income on loans includes loan fees.


(3)	Information is presented on a tax-equivalent basis assuming a tax rate of 35%. The tax-equivalent adjustments were $121,000, $182,000 and $213,000 for the years ended December 31, 2014, 2013 and 2012, respectively.


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

Our balance sheet is presently asset sensitive, and as such, exclusive of recent improvement over 2013 levels, our net interest margin has been negatively impacted by the low interest rate environment. Our asset-sensitive position, coupled with the high level of average lower-yielding short-term investments and investment securities as a percentage of our interest-earning assets, has negatively impacted our net interest income. We built a significant amount of available balance sheet liquidity since 2009 in anticipation of the completion of certain transactions associated with our Capital Plan, which while necessary to complete these transactions, has negatively impacted our net interest margin. We continue our efforts to re-define our overall strategy and business plans with respect to our loan portfolio, including focusing on loan growth initiatives to redeploy available funds into higher-yielding assets, as further discussed below.

Comparison of 2014 and 2013. Net interest income, expressed on a tax-equivalent basis, decreased $1.2 million to $147.7 million for the year ended December 31, 2014, compared to $148.9 million in 2013. Our net interest margin increased 21 basis points to 2.77% for the year ended December 31, 2014, from 2.56% in 2013.

We attribute the increase in our net interest margin to a change in the mix of our interest-earning assets to reflect loan growth and a decline in our lower-yielding cash and cash equivalents, in addition to an increase in the average yield on our investment securities and a decrease in the cost of our interest-bearing liabilities, partially offset by a decrease in the average yield on our loan portfolio due to the lower interest rate environment and competitive markets with respect to loan originations. We attribute the decrease in our net interest income to a lower average balance of interest-earning assets, primarily resulting from the sale of First Bank's Association Bank Services, or ABS, line of business during the fourth quarter of 2013, partially offset by a decrease in interest expense on our junior subordinated debentures. The average yield earned on our interest-earning assets increased 19 basis points to 3.17% for the year ended December 31, 2014, compared to 2.98% in 2013, while the average rate paid on our interest-bearing liabilities decreased six basis points to 0.54% for the year ended December 31, 2014, compared to 0.60% in 2013. Average interest-earning assets decreased $481.2 million to $5.33 billion for the year ended December 31, 2014, compared to $5.81 billion in 2013. Average interest-bearing liabilities decreased $67.8 million to $3.95 billion for the year ended December 31, 2014, compared to $4.02 billion in 2013.

Interest income on our loan portfolio, expressed on a tax-equivalent basis, increased $217,000 for the year ended December 31, 2014, as compared to 2013. Average loans increased $127.6 million to $2.95 billion for the year ended December 31, 2014, from $2.82 billion in 2013, while the yield on our loan portfolio decreased 18 basis points to 4.01% for the year ended December 31, 2014, compared to 4.19% in 2013. The increase in average loans primarily reflects continued growth in our production loan volumes, partially offset by the exit of certain of our problem credit relationships, as further discussed under “—Loans and Allowance for Loan Losses.” The yield on our loan portfolio continues to be adversely impacted by the lower levels of prime and LIBOR interest rates, as a significant portion of our loan portfolio is priced to these indices, as well as significant competitive pressure on interest rates throughout our markets regarding new loan originations. However, continued growth in loan volumes is expected to positively impact the level of earnings on our loan portfolio in the future.

Interest income on our investment securities, expressed on a tax-equivalent basis, decreased $4.1 million for the year ended December 31, 2014, as compared to 2013. Average investment securities decreased $396.5 million for the year ended December 31, 2014, as compared to 2013. The yield earned on our investment securities portfolio increased 20 basis points to 2.28% for the year ended December 31, 2014, compared to 2.08% in 2013. During 2014, we sold certain investment securities to fund loan growth and to pay all of the cumulative deferred interest on our junior subordinated debentures relating to the Company's trust preferred securities in March 2014. We continue to maintain a high level of investment securities in an effort to support future loan growth opportunities.

Interest income on our short-term investments decreased $529,000 for the year ended December 31, 2014, as compared to 2013. Average short-term investments decreased $215.5 million for the year ended December 31, 2014, as compared to 2013. During 2013, we held a higher level of average short-term investments in preparation for the sales of our ABS line of business during the fourth quarter of 2013 and our Northern Florida Region during the second quarter of 2013. The yield on our short-term investments was 0.27% for the year ended December 31, 2014, compared to 0.26% in 2013, reflecting the investment of a significant portion of funds in our short-term investments in our correspondent bank account with the FRB, which currently earns 0.25%.

Interest expense on our interest-bearing deposits decreased $808,000 for the year ended December 31, 2014, as compared to 2013. Average total deposits decreased $6.5 million to $4.84 billion for the year ended December 31, 2014, from $4.84 billion in 2013. A decrease in average interest-bearing deposits of $78.6 million was partially offset by an increase in average noninterest-bearing deposits of $72.0 million for the year ended December 31, 2014, as compared to 2013. The decrease in average interest-bearing deposits primarily reflects anticipated reductions of higher rate certificates of deposit, partially offset by organic growth in demand deposits and money market deposits through deposit development programs, including marketing campaigns and enhanced product and service offerings. The mix in our deposit portfolio volumes for 2014, as compared to 2013, primarily reflects a shift from time deposits to interest-bearing and noninterest-bearing demand deposits and savings and money market deposits. Decreases in our average time deposits of $122.2 million for 2014 as compared to 2013, were partially offset by increases in average interest-bearing and noninterest-bearing demand deposits of $31.1 million and $72.0 million, respectively, and an increase in average savings and money market deposits of $12.5 million for 2014, as compared to 2013. The aggregate weighted average rate paid on our interest-bearing deposit portfolio decreased two basis points to 0.23% for the year ended December 31, 2014, as compared to 0.25% in 2013. The weighted average rate paid on our time deposit portfolio decreased seven basis points to 0.47% in 2014, from 0.54% in 2013; the weighted average rate paid on our savings and money market deposit portfolio increased three basis points to 0.17% in 2014, from 0.14% in 2013; and the weighted average rate paid on our interest-bearing demand deposits remained unchanged at 0.06% in 2014 and 2013.

Interest expense on our junior subordinated debentures decreased $2.1 million for the year ended December 31, 2014, as compared to 2013. The aggregate weighted average rate paid on our junior subordinated debentures decreased 60 basis points to 3.65% for the year ended December 31, 2014, from 4.25% in 2013. The aggregate weighted average rates reflect additional interest expense accrued on the regularly scheduled deferred interest payments on our junior subordinated debentures until March 2014, when we paid all of the cumulative deferred interest, as further discussed in Note 12 to our consolidated financial statements. The additional

interest expense accrued on the regularly scheduled deferred interest payments of $796,000 and $2.8 million for the years ended December 31, 2014 and 2013, respectively, increased the weighted average rate paid on our junior subordinated debentures by 22 and 79 basis points in 2014 and 2013, respectively. The aggregate weighted average rates also reflect a decline in LIBOR rates during the periods, as approximately 79.4% of our junior subordinated debentures are variable rate.

Comparison of 2013 and 2012. Net interest income, expressed on a tax-equivalent basis, decreased $22.5 million to $148.9 million for the year ended December 31, 2013, compared to $171.4 million in 2012. Our net interest margin decreased 24 basis points to 2.56% for the year ended December 31, 2013, from 2.80% in 2012.

We attribute the decrease in our net interest margin and net interest income to a lower average balance of interest-earning assets, a change in the mix of our interest-earning assets, which shifted from loans and investment securities to low-yielding cash and cash equivalents in anticipation of the completion of certain of our capital initiatives during 2013, and a decrease in the average yield on loans due to the low interest rate environment during these periods. The decrease was partially offset by a decrease in interest-bearing liabilities and the average rate paid on our interest-bearing liabilities resulting from the continued change in the mix of our average deposits and the continued re-pricing of certificates to current market interest rates upon maturity. The average yield earned on our interest-earning assets decreased 30 basis points to 2.98% for the year ended December 31, 2013, compared to 3.28% in 2012, while the average rate paid on our interest-bearing liabilities decreased nine basis points to 0.60% for the year ended December 31, 2013, compared to 0.69% in 2012. Average interest-earning assets decreased $314.8 million to $5.81 billion for the year ended December 31, 2013, compared to $6.13 billion in 2012. Average interest-bearing liabilities decreased $259.5 million to $4.02 billion for the year ended December 31, 2013, compared to $4.28 billion in 2012.

Interest income on our loan portfolio, expressed on a tax-equivalent basis, decreased $24.0 million for the year ended December 31, 2013, as compared to 2012. Average loans decreased $235.9 million to $2.82 billion for the year ended December 31, 2013, from $3.05 billion in 2012. The decrease in average loans primarily reflects a substantial level of loan payoffs and principal payments and the exit of certain of our problem credit relationships. The yield on our loan portfolio decreased 46 basis points to 4.19% for the year ended December 31, 2013, compared to 4.65% in 2012. The yield on our loan portfolio continues to be adversely impacted by the lower levels of prime and LIBOR interest rates, as a significant portion of our loan portfolio is priced to these indices.

Interest income on our investment securities, expressed on a tax-equivalent basis, decreased $4.4 million for the year ended December 31, 2013, as compared to 2012. Average investment securities decreased $195.6 million for the year ended December 31, 2013, as compared to 2012. The decrease in average investment securities primarily reflects the reinvestment of proceeds from sales and maturities of certain investment securities into cash and cash equivalents to build liquidity in anticipation of the sale of our ABS line of business, which was completed during the fourth quarter of 2013. The yield earned on our investment securities portfolio decreased two basis points to 2.08% for the year ended December 31, 2013, compared to 2.10% in 2012.

Interest income on our short-term investments increased $314,000 for the year ended December 31, 2013, as compared to 2012. Average short-term investments increased $115.9 million for the year ended December 31, 2013, as compared to 2012. The increase in our average short-term investments reflects the utilization of funds available from the decline in our loan portfolio and sales and maturities of investment securities to increase our liquidity position in anticipation of the sale of our ABS line of business, which was completed during the fourth quarter of 2013, partially offset by a decline in average deposit balances. The yield on our short-term investments was 0.26% for the year ended December 31, 2013, compared to 0.25% in 2012, reflecting the investment of a significant portion of funds in our short-term investments in our correspondent bank account with the FRB, which currently earns 0.25%.

Interest expense on our interest-bearing deposits decreased $5.7 million for the year ended December 31, 2013, as compared to 2012. Average total deposits decreased $213.7 million to $4.84 billion for the year ended December 31, 2013, from $5.06 billion in 2012. Average interest-bearing deposits decreased $261.3 million for the year ended December 31, 2013, as compared to 2012. The decrease in average interest-bearing deposits primarily reflects anticipated reductions of higher rate certificates of deposit and promotional money market deposits, partially offset by organic growth through deposit development programs, including marketing campaigns and enhanced product and service offerings. The mix in our deposit portfolio volumes for 2013, as compared to 2012, primarily reflects a shift from time deposits and savings and money market deposits to interest-bearing and noninterest-bearing demand deposits. Decreases in our average time deposits and savings and money market deposits of $237.2 million and $61.9 million, respectively, for 2013 as compared to 2012, were partially offset by increases in average interest-bearing and noninterest-bearing demand deposits of $37.8 million and $47.7 million, respectively, for 2013 as compared to 2012. The aggregate weighted average rate paid on our interest-bearing deposit portfolio decreased 13 basis points to 0.25% for the year ended December 31, 2013, as compared to 0.38% in 2012, reflecting the re-pricing of certificate 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 26 basis points to 0.54% in 2013, from 0.80% in 2012; the weighted average rate paid on our savings and money market deposit portfolio declined four basis points to 0.14% in 2013, from 0.18% in 2012; and the weighted average rate paid on our interest-bearing demand deposits declined to 0.06% in 2013, from 0.07% in 2012.

Interest expense on our junior subordinated debentures increased $207,000 for the year ended December 31, 2013, as compared to 2012. The aggregate weighted average rate paid on our junior subordinated debentures increased to 4.25% for the year ended December 31, 2013, compared to 4.19% in 2012. The aggregate weighted average rates also reflect additional interest expense accrued on the regularly scheduled deferred interest payments on our junior subordinated debentures of $2.8 million and $2.0 million for the years ended December 31, 2013 and 2012, respectively. The additional interest expense accrued on the regularly scheduled deferred interest payments increased the weighted average rate paid on our junior subordinated debentures by approximately 79 and 58 basis points in 2013 and 2012, respectively. The increase in additional interest expense accrued on the regularly scheduled deferred interest payments was partially offset by a decline in LIBOR rates during the periods.

Rate / Volume

The following table indicates, on a tax-equivalent basis, the changes in interest income and interest expense on a continuing basis that are attributable to changes in average volume and changes in average rates, in comparison with the preceding year. The change in interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the dollar amounts of the change in each.



	Increase (Decrease) Attributable to Change in:
	2014 Compared to 2013							2013 Compared to 2012
(dollars in thousands)	Volume			Rate		Net Change		Volume		Rate		Net Change
Interest earned on:
Loans: ^{(1) (2)}
Taxable	$	5,331		(5,085	)	246		(10,508	)	(13,466	)	(23,974	)
Tax-exempt ⁽³⁾	(1		)	(28	)	(29	)	(17	)	(5	)	(22	)
Investment securities:
Taxable	(8,656		)	4,746		(3,910	)	(4,075	)	(273	)	(4,348	)
Tax-exempt ⁽³⁾	(118		)	(29	)	(147	)	(102	)	38		(64	)
FRB and FHLB stock	147			79		226		37		33		70
Short-term investments	(572		)	43		(529	)	282		32		314
Total interest income	(3,869		)	(274	)	(4,143	)	(14,383	)	(13,641	)	(28,024	)
Interest paid on:
Interest-bearing demand deposits	50			—		50		17		(86	)	(69	)
Savings and money market deposits	16			515		531		(106	)	(733	)	(839	)
Time deposits	(638		)	(751	)	(1,389	)	(1,692	)	(3,123	)	(4,815	)
Other borrowings	(3		)	4		1		—		9		9
Subordinated debentures	3			(2,122	)	(2,119	)	3		204		207
Total interest expense	(572		)	(2,354	)	(2,926	)	(1,778	)	(3,729	)	(5,507	)
Net interest income	$	(3,297	)	2,080		(1,217	)	(12,605	)	(9,912	)	(22,517	)


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


(2)	Interest income on loans includes loan fees.


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

Provision for Loan Losses

Comparison of 2014 and 2013. We recorded a negative provision for loan losses of $7.0 million for the year ended December 31, 2014. We recorded a negative provision for loan losses of $5.0 million for the year ended December 31, 2013. We primarily attribute the negative provision for loan losses of $7.0 million during the year ended December 31, 2014 to continued improvement in most asset quality metrics, as further discussed below, in addition to improving economic trends in our markets and in our loan portfolio. We attribute the negative provision for loan losses of $5.0 million during the year ended December 31, 2013 to significant improvement in asset quality metrics such as the decline in nonaccrual loans of $56.9 million, of which $27.2 million was in the real estate construction and development portfolio, which incurred substantial net charge-offs from 2008 through 2011.

Our potential problem loans were $25.2 million at December 31, 2014, compared to $109.5 million at December 31, 2013, reflecting a decrease in potential problem loans of $84.3 million, or 77.0%. The significant decrease in our potential problem loans primarily reflects the aggregate payoff of $54.1 million of potential problem real estate construction and development loans in a single credit relationship in our Southern California region and an upgrade of a related credit from potential problem to pass classification in the third quarter of 2014. Our nonaccrual loans were $57.5 million at December 31, 2014, compared to $53.0 million at December 31, 2013, reflecting an increase in nonaccrual loans of $4.5 million, or 8.5%. During the fourth quarter of 2014, we downgraded a single $19.1 million multi-family residential loan relationship from performing troubled debt restructuring, or performing TDR, to nonaccrual classification, after recording loan charge-offs of $8.4 million on this loan relationship during 2014. Despite the addition of this $19.1 million loan to nonaccrual loans, the total balance of nonaccrual loans increased only $4.5

million during 2014, reflecting the resolution of several other nonaccrual loans. The improvement in our overall asset quality levels at December 31, 2014, as compared to December 31, 2013, which was primarily driven by resolution of certain potential problem and nonaccrual loans, is further discussed under “—Loans and Allowance for Loan Losses.”

Our net loan charge-offs were $7.2 million for the year ended December 31, 2014, compared to $5.6 million in 2013. Our net loan charge-offs were 0.24% of average loans in 2014, compared to 0.20% of average loans in 2013. Loan charge-offs were $21.9 million for 2014, compared to $25.8 million in 2013, and loan recoveries were $14.8 million for 2014, compared to $20.3 million in 2013.

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

Comparison of 2013 and 2012. We recorded a negative provision for loan losses of $5.0 million for the year ended December 31, 2013. We recorded a provision for loan losses of $2.0 million for the year ended December 31, 2012. We attribute the negative provision for loan losses of $5.0 million during the year ended December 31, 2013 to significant improvement in asset quality metrics such as the decline in nonaccrual loans of $56.9 million, of which $27.2 million was in the real estate construction and development portfolio, which incurred substantial net charge-offs from 2008 through 2011.

Our nonaccrual loans were $53.0 million at December 31, 2013, compared to $109.9 million at December 31, 2012, reflecting a decrease in nonaccrual loans of $56.9 million, or 51.8%. The decrease in the overall level of nonaccrual loans during 2013 was primarily driven by resolution of certain nonaccrual loans, gross loan charge-offs, and transfers to other real estate exceeding net additions to nonaccrual loans.

Our net loan charge-offs decreased to $5.6 million for the year ended December 31, 2013, compared to $48.1 million in 2012. Our net loan charge-offs were 0.20% of average loans in 2013, compared to 1.57% of average loans in 2012. Loan charge-offs were $25.8 million for 2013, compared to $78.1 million in 2012, and loan recoveries were $20.3 million for 2013, compared to $30.0 million in 2012.

Noninterest Income

Comparison of 2014 and 2013. Noninterest income decreased $7.9 million to $56.0 million for the year ended December 31, 2014, from $64.0 million in 2013. The decrease in our noninterest income was primarily attributable to reduced gains on sale of other real estate, declines in the fair value of servicing rights and a decline in other income, partially offset by increased net gains on investment securities and gains on loans sold and held for sale. The following table summarizes noninterest income for the years ended December 31, 2014 and 2013:



	December 31,				Increase (Decrease)
(dollars in thousands)	2014			2013	Amount		%
Noninterest income:
Service charges on deposit accounts and client service fees	$	34,530		34,320	210		0.6	%
Gain on loans sold and held for sale	5,839			5,041	798		15.8
Net gain on investment securities	1,686			36	1,650		4,583.3
Net gain on sale of other real estate	1,640			6,005	(4,365	)	(72.7	)
(Decrease) increase in fair value of servicing rights	(3,568		)	439	(4,007	)	(912.8	)
Loan servicing fees	6,644			6,948	(304	)	(4.4	)
Other	9,269			11,188	(1,919	)	(17.2	)
Total noninterest income	$	56,040		63,977	(7,937	)	(12.4	)

The increase in gains on residential mortgage loans sold and held for sale was primarily attributable to an increase in loan production volumes associated with an increase in refinancing activity in our mortgage banking division.

Net gains on investment securities for 2014 reflect the sale of certain investment securities to reposition the balance sheet and to fund loan growth and other corporate transactions. Net gains on investment securities for 2013 reflect the sale of certain investment securities in anticipation of corporate transactions, partially offset by other-than-temporary impairment of $407,000 on a single municipal investment security classified as held-to-maturity. Proceeds from sales of available-for-sale investment securities were $343.5 million for the year ended December 31, 2014, as compared to $143.7 million for 2013.

The decrease in net gains on sales of other real estate reflects sales of other real estate properties with an aggregate carrying value of $15.2 million at a net gain of $1.6 million during the year ended December 31, 2014, as compared to sales of other real estate properties with an aggregate carrying value of $27.9 million at a net gain of $6.0 million in 2013, including a gain of $2.7 million on the sale of a single property in the second quarter of 2013.

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

The decrease in other income primarily reflects income of $1.2 million recognized on the call of an SBA loan securitization in the first quarter of 2013 and income from two litigation settlements aggregating $815,000 in the fourth quarter of 2013, partially offset by a gain of $1.1 million on the sale of a former branch facility in the fourth quarter of 2014.

Comparison of 2013 and 2012. Noninterest income decreased $658,000 to $64.0 million for the year ended December 31, 2013, from $64.6 million in 2012. The decrease in our noninterest income was primarily attributable to lower service charges on deposit accounts and client service fees, reduced gains on loans sold and held for sale and decreased net gains on investment securities, partially offset by increased gains on sales of other real estate and reduced declines in the fair value of servicing rights. The following table summarizes noninterest income for the years ended December 31, 2013 and 2012:



	December 31,				Increase (Decrease)
(dollars in thousands)	2013		2012		Amount		%
Noninterest income:
Service charges on deposit accounts and client service fees	$	34,320	36,078		(1,758	)	(4.9	)%
Gain on loans sold and held for sale	5,041		12,931		(7,890	)	(61.0	)
Net gain on investment securities	36		1,306		(1,270	)	(97.2	)
Net gain on sale of other real estate	6,005		2,626		3,379		128.7
Increase (decrease) in fair value of servicing rights	439		(5,475	)	5,914		108.0
Loan servicing fees	6,948		7,403		(455	)	(6.1	)
Other	11,188		9,766		1,422		14.6
Total noninterest income	$	63,977	64,635		(658	)	(1.0	)

The decrease in service charges on deposit accounts and client service fees primarily reflects reduced non-sufficient funds and returned check fee income on retail and commercial accounts coupled with changes in our deposit mix during the periods.

The decrease in gains on residential mortgage loans sold and held for sale was primarily attributable to a decline in loan production volume in our mortgage banking division associated with a decrease in refinancing activity. New interest rate lock commitments were $316.6 million for 2013, as compared to $608.7 million for 2012.

Net gains on investment securities for 2013 reflect the sale of certain investment securities in anticipation of the sale of our ABS line of business, which was completed during the fourth quarter of 2013, partially offset by other-than-temporary impairment of $407,000 recorded during the first quarter of 2013. Net gains on investment securities for 2012 reflect the sale of certain investment securities to partially fund the purchase of certain residential real estate loans in 2012 and to reposition the investment securities portfolio based on our ongoing evaluation of liquidity requirements and overall market and economic conditions during the periods. Proceeds from sales of available-for-sale investment securities were $143.7 million for the year ended December 31, 2013, as compared to $315.2 million for 2012.

The increase in net gains on sales of other real estate reflects sales of other real estate properties with an aggregate carrying value of $27.9 million at a net gain of $6.0 million in 2013, including a gain of $2.7 million on the sale of a single property in the second quarter of 2013, as compared to sales of other real estate properties with an aggregate carrying value of $45.9 million at a net gain of $2.6 million in 2012.

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

The increase in other income primarily reflects the following:


•	Income of $1.2 million recognized on the call of an SBA loan securitization in the first quarter of 2013;


•	Income from two litigation settlements aggregating $815,000 in the fourth quarter of 2013; and


•	A loss on the sale of certain bank-owned properties of $1.1 million during 2012; partially offset by


•	Income from a litigation settlement of $561,000 in the first quarter of 2012; and


•	A gain on the sale of a Community Reinvestment Act, or CRA, investment of $402,000 during the first quarter of 2012 .

Noninterest Expense

Comparison of 2014 and 2013. Noninterest expense decreased $108.6 million to $176.9 million for the year ended December 31, 2014, from $285.5 million in 2013. The decrease in our noninterest expense during 2014, as compared to 2013, was primarily attributable to goodwill impairment of $107.3 million in 2013, decreased FDIC insurance expense, a lower level of expenses associated with our nonperforming assets and potential problem loans, and a reduction of other operating expenses, partially offset by an increase in salaries and employee benefits expense and information technology fees. The following table summarizes noninterest expense for the years ended December 31, 2014 and 2013:



	December 31,			Increase (Decrease)
(dollars in thousands)	2014		2013	Amount		%
Noninterest expense:
Salaries and employee benefits	$	82,205	78,141	4,064		5.2	%
Occupancy, net of rental income, and furniture and equipment	33,509		34,253	(744	)	(2.2	)
Postage, printing and supplies	2,300		2,470	(170	)	(6.9	)
Information technology fees	21,670		20,236	1,434		7.1
Legal, examination and professional fees	5,534		7,177	(1,643	)	(22.9	)
Goodwill impairment	—		107,267	(107,267	)	(100.0	)
Advertising and business development	2,750		2,542	208		8.2
FDIC insurance	5,004		6,609	(1,605	)	(24.3	)
Write-downs and expenses on other real estate	4,322		5,676	(1,354	)	(23.9	)
Other	19,558		21,113	(1,555	)	(7.4	)
Total noninterest expense	$	176,852	285,484	(108,632	)	(38.1	)

The overall increase in salaries and employee benefits expense primarily reflects normal compensation increases, increases in staffing levels in certain key revenue-generating functions and an increase in incentive compensation.

The decrease in occupancy, net of rental income, and furniture and equipment expense primarily resulted from profit improvement initiatives and reduced expenditures associated with branch closures in 2013.

The increase in information technology fees is primarily associated with a planned investment in the expansion of certain of our information technology programs resulting in an increase in fees paid to First Services, L.P. As more fully described in Note 20 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.

The decrease in legal, examination and professional fees reflects a decline in legal expenses associated with loan collection activities, divestiture activities and litigation matters in 2014, in comparison to the level of such expenses during 2013.

We recorded a goodwill impairment charge of $107.3 million in the fourth quarter of 2013, as further described in Note 6 to our consolidated financial statements.

The decrease in FDIC insurance expense is reflective of reduced average assets levels at First Bank and changes in assessment rates for 2014, as compared to 2013.

The decrease in write-downs and expenses on other real estate for 2014, as compared to 2013, reflects a reduction in the overall number and balance of our other real estate properties, which declined to $55.7 million at December 31, 2014, from $66.7 million at December 31, 2013. Other real estate expenses, exclusive of write-downs, such as taxes, insurance, and repairs and maintenance, decreased $1.1 million to $2.2 million in 2014, from $3.3 million in 2013. Write-downs related to the revaluation of certain other real estate properties decreased to $2.1 million in 2014, from $2.4 million in 2013.

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 the overall level of other expense during 2014, as compared to 2013, is reflective of a decrease in loan expenses related to collection and other matters to $2.2 million in 2014, as compared to $2.8 million in 2013; and a provision for estimated mortgage repurchase losses of $1.2 million in 2013, as further described in Note 24 to our consolidated financial statements. We did not record a provision for estimated mortgage repurchase losses in 2014.

Comparison of 2013 and 2012. Noninterest expense increased $86.3 million to $285.5 million for the year ended December 31, 2013, from $199.2 million in 2012. The increase in our noninterest expense during 2013, as compared to 2012, was primarily attributable to goodwill impairment of $107.3 million and an increase in salaries and employee benefits expense, partially offset

by a lower level of expenses associated with our nonperforming assets and potential problem loans, decreased FDIC insurance expense and the implementation of certain measures intended to improve efficiency through the reduction of operating expenses. The following table summarizes noninterest expense for the years ended December 31, 2013 and 2012:



	December 31,			Increase (Decrease)
(dollars in thousands)	2013		2012	Amount		%
Noninterest expense:
Salaries and employee benefits	$	78,141	75,205	2,936		3.9	%
Occupancy, net of rental income, and furniture and equipment	34,253		33,308	945		2.8
Postage, printing and supplies	2,470		2,586	(116	)	(4.5	)
Information technology fees	20,236		21,103	(867	)	(4.1	)
Legal, examination and professional fees	7,177		8,828	(1,651	)	(18.7	)
Amortization of intangible assets	107,267		—	107,267		100.0
Advertising and business development	2,542		1,994	548		27.5
FDIC insurance	6,609		11,313	(4,704	)	(41.6	)
Write-downs and expenses on other real estate	5,676		18,672	(12,996	)	(69.6	)
Other	21,113		26,155	(5,042	)	(19.3	)
Total noninterest expense	$	285,484	199,164	86,320		43.3

The overall increase in salaries and employee benefits expense reflects normal compensation increases, increases in staffing levels in certain key revenue-generating functions, an increase in incentive compensation as a result of our improved financial performance and an increase in severance expense associated with the sale of our ABS line of business, partially offset by a decrease in benefits expenses, including medical claims and prescription expenses.

The increase in occupancy, net of rental income, and furniture and equipment expense primarily resulted from a $787,000 decrease in rent expense during the first quarter of 2012 associated with the transfer of a lease obligation to an unaffiliated third party and the related reversal of the corresponding straight-line rent liability.

The decrease in information technology fees is primarily due to the implementation of certain profit improvement initiatives and related fee reductions with First Services, L.P. 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.

The decrease in legal, examination and professional fees reflects a decline in legal expenses associated with loan collection activities, divestiture activities and litigation matters in comparison to the level of such expenses during 2012.

We recorded a goodwill impairment charge of $107.3 million in the fourth quarter of 2013.

The increase in advertising and business development expense is reflective of increased advertising during 2013 as compared to 2012 to further market our products and services throughout our geographic market areas.

The decrease in FDIC insurance expense is reflective of a reduction in our assessment rate, effective October 2, 2012, in addition to reduced asset levels during 2013, as compared to 2012.

The decrease in write-downs and expenses on other real estate for 2013, as compared to 2012, reflects a decline in the overall number and balance of our other real estate properties to $66.7 million at December 31, 2013, from $92.0 million at December 31, 2012. Write-downs related to the revaluation of certain other real estate properties decreased $12.1 million to $2.4 million in 2013, from $14.5 million in 2012. Other real estate and repossessed asset expenses, exclusive of write-downs, such as taxes, insurance, and repairs and maintenance, decreased to $3.3 million in 2013, from $4.2 million in 2012.

The decrease in the overall level of other expense during 2013, as compared to 2012, is reflective of the following:


•	Loan expenses related to collection and other matters of $2.8 million during 2013, as compared to $3.6 million in 2012;


•	Amortization expense and losses associated with CRA investments of $654,000 during 2013, as compared to $1.2 million in 2012;


•	Provision for estimated mortgage repurchase losses of $1.2 million during 2013, as compared to $2.3 million in 2012, as previously discussed; and


•	An expense of $2.3 million associated with a fair value adjustment on bank-owned facilities of eight of our Florida branches previously reported as discontinued operations that were reclassified to continuing operations during the fourth quarter of 2012.

Provision (Benefit) for Income Taxes.

Comparison of 2014 and 2013. We recorded a provision for income taxes of $12.2 million for the year ended December 31, 2014, compared to a benefit for income taxes of $288.5 million for the year ended December 31, 2013. During the fourth quarter of 2013, we reversed substantially all of the valuation allowance against our net deferred tax assets, previously established in 2008, as further discussed below. As such, interim periods beginning January 1, 2014 and the year ended December 31, 2014 reflect the initial periods in which a provision for income taxes is recorded in the statements of income without a related deferred tax asset valuation allowance.

Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expenses. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations and changes in accounting policies and incorporate assumptions including the amount of future state and federal pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts and future taxable income and are consistent with the plans and estimates we are using to manage the underlying business.

After analysis of all available positive and negative evidence, we reversed substantially all of our valuation allowance against our net deferred tax assets. We concluded that, as of December 31, 2013, it was more likely than not that substantially all of our net deferred tax assets would be realized in future years. This conclusion was primarily based on eight consecutive quarters of profitability, in addition to the significant improvement in our asset quality metrics and regulatory capital ratios over the last few years and certain other relevant factors.

Comparison of 2013 and 2012. We recorded a benefit for income taxes of $288.5 million for the year ended December 31, 2013, compared to a benefit for income taxes of $139,000 for the year ended December 31, 2012. The benefit for income taxes during 2013 reflects the reversal of substantially all of our valuation allowance against our net deferred tax assets, as previously discussed. The benefit for income taxes during 2012 reflects the establishment of the full deferred tax asset valuation allowance during 2008. 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 benefit for income taxes and the deferred tax asset valuation allowance are more fully described in Note 17 to our consolidated financial statements.

Income (Loss) from Discontinued Operations, Net of Tax

We recorded income from discontinued operations, net of tax, of $21.2 million for the year ended December 31, 2013, compared to a loss from discontinued operations, net of tax, of $8.8 million in 2012. The income (loss) from discontinued operations, net of tax, for 2013 and 2012 is reflective of the following:


•	A gain of $28.6 million associated with the sale of our ABS line of business on November 22, 2013, after the write-off of goodwill allocated to the transaction of $18.0 million;


•	A gain of $408,000 associated with the sale of eight of our retail branches in our Northern Florida Region on April 19, 2013, after the write-off of goodwill allocated to the Northern Florida Region of $700,000; and


•	Other income (loss) from all discontinued operations during the respective periods.

See Note 2 to our consolidated financial statements for further discussion of discontinued operations.

Net (Loss) Income Attributable to Noncontrolling Interest in Subsidiary

Net (loss) income attributable to noncontrolling interest in subsidiary, comprised of the noncontrolling interest in the net (losses) income of FB Holdings, was $(76,000) for the year ended December 31, 2014, compared to $179,000 in 2013. The net loss attributable to noncontrolling interest in subsidiary for 2014, as compared to the net income for 2013, is reflective of lower income and reduced gains on the sale of other real estate properties.

Net income (loss) attributable to noncontrolling interest in subsidiary was $179,000 for the year ended December 31, 2013, compared to $(297,000) in 2012. The net income attributable to noncontrolling interest in subsidiary for 2013, as compared to the net loss for 2012, is reflective of reduced expenses and write-downs on other real estate properties associated with the reduction of loans and other real estate balances in FB Holdings, partially offset by lower gains on the sale of other real estate properties.

Noncontrolling interest in our subsidiaries is more fully described in Note 1 and Note 20 to our consolidated financial statements.

FINANCIAL CONDITION

Total assets increased $16.5 million to $5.94 billion at December 31, 2014, from $5.92 billion at December 31, 2013. The increase in our total assets was primarily attributable to an increase in our loan portfolio and our cash and cash equivalents, partially offset by a decrease in our investment securities portfolio and our other real estate, as further described below.

Cash and cash equivalents, which are comprised of cash and short-term investments, increased $15.0 million to $205.4 million at December 31, 2014, from $190.4 million at December 31, 2013. A significant portion of funds in our short-term investments are maintained in our correspondent bank account with the FRB, as further discussed under “—Liquidity Management.” The increase in our cash and cash equivalents was primarily attributable to the following:


•	A net decrease in our investment securities portfolio of $271.7 million, excluding amortization and the fair value adjustment on our available-for-sale investment securities;


•	An increase in our deposit balances of $35.6 million;


•	Sales of other real estate resulting in the receipt of cash proceeds from these sales of $16.9 million; and


•	Recoveries of loans previously charged off of $14.8 million;


•	A net increase in our securities sold under agreements to repurchase of $21.7 million; and


•	Cash generated by operating earnings; partially offset by


•	An increase in loans of $321.7 million, exclusive of loan charge-offs and transfers of loans to other real estate, as further discussed below;


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


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

Investment securities decreased $288.1 million to $2.06 billion at December 31, 2014, from $2.35 billion at December 31, 2013. We sold certain investment securities during 2014 to reposition the balance sheet and fund loan growth and other corporate transactions, including the payment of all of the cumulative deferred interest on our junior subordinated debentures relating to the Company's trust preferred securities in March 2014. Funds available from sales of available-for-sale investment securities of $343.5 million and maturities and/or calls of investment securities of $299.9 million were partially utilized to purchase investment securities of $370.0 million during 2014. The net decrease is partially offset by an increase in the fair value adjustment of $9.3 million on our available-for-sale investment securities resulting from a decrease in market interest rates during 2014. We continue to maintain a high level of investment securities in an effort to support future loan growth opportunities, maximize our net interest income and net interest margin, and maintain appropriate liquidity levels and appropriate diversification within our investment securities portfolio. Additional information regarding our investment securities portfolio is more fully described in Note 3 to our consolidated financial statements.

Total loans increased $292.1 million to $3.15 billion at December 31, 2014, from $2.86 billion at December 31, 2013. The increase primarily reflects new loan production as a result of successful efforts to expand existing loan relationships and develop new loan relationships, specifically in our commercial, financial and agricultural portfolio, which increased $94.6 million, and our real estate mortgage portfolio, which increased $224.2 million. These increases were partially offset by principal repayments and/or payoffs on nonperforming, potential problem and other loans, including the payoff of an aggregate of $54.1 million of potential problem real estate construction and development loans in a single credit relationship in the third quarter of 2014, as further discussed under “—Loans and Allowance for Loan Losses.”

Other real estate decreased $11.0 million to $55.7 million at December 31, 2014, from $66.7 million at December 31, 2013. The decrease primarily reflects sales of other real estate properties of $15.2 million and write-downs of $2.1 million primarily attributable to declining real estate values on certain properties, partially offset by additions to other real estate of $7.6 million. Other real estate at December 31, 2014 included a single property in our Southern California region with a carrying value of $37.6 million, which was subsequently sold in January 2015, resulting in a gain of $4.6 million during the first quarter of 2015.

Deposits increased $35.6 million to $4.85 billion at December 31, 2014, from $4.81 billion at December 31, 2013. The increase reflects growth in demand and savings and money market deposits of $91.4 million and $64.4 million, respectively, partially offset by a decrease in certificates of deposit of $120.2 million.

Securities sold under agreements to repurchase (in connection with daily cash management activities of our commercial deposit clients), increased $21.7 million to $64.9 million at December 31, 2014, from $43.1 million at December 31, 2013, reflecting changes in client balances associated with this product segment.

Accrued expenses and other liabilities decreased $77.4 million to $113.7 million at December 31, 2014, from $191.1 million at December 31, 2013. The decrease was primarily attributable to a decrease of $62.5 million in accrued interest payable on our junior subordinated debentures primarily associated with the payment of all of the cumulative deferred interest on our junior subordinated debentures relating to the Company's trust preferred securities in March 2014, as further described in Notes 12 and 13 to our consolidated financial statements. The decrease was also attributable to the final settlement amount of $15.5 million paid to Union Bank in January 2014 in conjunction with the sale of our ABS line of business in November 2013.

Stockholders’ equity, including noncontrolling interest in subsidiary, increased $24.2 million to $512.4 million at December 31, 2014, from $488.3 million at December 31, 2013. The increase primarily reflects net income of $21.7 million and a net increase in accumulated other comprehensive income of $2.6 million.

Loans and Allowance for Loan Losses

Loan Portfolio Composition. Total loans represented 53.1% of our assets as of December 31, 2014, compared to 48.3% of our assets at December 31, 2013. Total loans increased $292.1 million to $3.15 billion at December 31, 2014 from $2.86 billion at December 31, 2013. The following table summarizes the composition of our loan portfolio by portfolio segment and the percent of each portfolio segment to the total portfolio as of the dates presented:



	December 31,
	2014					2013					2012					2011					2010
(dollars in thousands)	Amount			%		Amount			%		Amount			%		Amount			%		Amount			%
Commercial, financial and agricultural	$	695,267		22.3	%	$	600,704		21.2	%	$	610,301		21.3	%	$	725,195		22.3	%	$	1,045,832		23.5	%
Real estate construction and development	89,851			2.9		121,662			4.3		174,979			6.1		249,987			7.7		490,766			11.1
Real estate mortgage:
One-to-four-family residential	1,016,710			32.6		921,488			32.5		986,767			34.4		902,438			27.7		1,050,895			23.7
Multi-family residential	115,434			3.7		121,304			4.3		103,684			3.6		127,356			3.9		178,289			4.0
Commercial real estate	1,183,042			37.9		1,048,234			37.0		969,680			33.9		1,225,538			37.7		1,642,920			37.0
Consumer and installment	18,950			0.6		18,681			0.7		19,262			0.7		23,596			0.7		33,623			0.8
Net deferred loan fees	(1,422		)	—		(526		)	—		(59		)	—		(942		)	—		(4,511		)	(0.1	)
Total loans, excluding loans held for sale	3,117,832			100.0	%	2,831,547			100.0	%	2,864,614			100.0	%	3,253,168			100.0	%	4,437,814			100.0	%
Loans held for sale	31,411					25,548					66,133					31,111					54,470
Total loans	$	3,149,243				$	2,857,095				$	2,930,747				$	3,284,279				$	4,492,284

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



	December 31,
(dollars in thousands)	2014		2013
Southern California	$	1,020,118	968,241
Missouri	713,543		565,043
Mortgage Division	586,177		513,225
Northern California	438,918		361,895
Northern and Southern Illinois	222,935		224,664
Chicago	65,411		91,048
Florida	51,459		58,525
Texas	12,509		23,705
Other	38,173		50,749
Total	$	3,149,243	2,857,095

We attribute the net increase in our loan portfolio in 2014 primarily to:


•	An increase of $94.6 million, or 15.7%, in our commercial, financial and agricultural portfolio, primarily attributable to an increase in new loan production within this portfolio segment;

•

A decrease of $31.8 million, or 26.1%, in our real estate construction and development portfolio, primarily attributable to the payoff of an aggregate of $54.1 million of potential problem loans in a single credit relationship in our Southern California region during the third quarter of 2014, as further discussed below, partially offset by new loan production within this portfolio segment. We have significantly reduced our exposure to our real estate construction and development portfolio over the past several years. Of the remaining portfolio balance, only $3.4 million, or 3.8%, of these loans were on nonaccrual status and no loans were considered potential problem loans as of December 31, 2014;


•	An increase of $95.2 million, or 10.3%, in our one-to-four-family residential real estate loan portfolio. The following table summarizes the composition of our one-to-four-family residential real estate loan portfolio as of December 31, 2014 and 2013:



	December 31,
(dollars in thousands)	2014		2013
One-to-four-family residential real estate:
Residential mortgage	$	621,168	572,164
Home equity	395,542		349,324
Total	$	1,016,710	921,488

Our residential mortgage loan portfolio consists of loans associated with our Mortgage Division in addition to loans originated to clients from our retail branch banking network. New loan production within this portfolio generally consists of jumbo adjustable rate and 10 and 15-year fixed rate mortgages. The increase in our residential mortgage loan portfolio of $49.0 million, or 8.6%, during 2014 is primarily attributable to the purchase of $52.7 million of performing one-to-four-family residential real estate loans from another financial institution in August 2014 in addition to new loan production from our Mortgage Division, partially offset by principal payments, loan refinancings and loan charge-offs. As of December 31, 2014, $90.1 million, or 14.5%, of our residential mortgage loan portfolio is considered impaired, consisting of nonaccrual loans of $13.9 million and performing TDRs of $76.2 million, including loans modified in the Home Affordable Modification Program, or HAMP, of $69.5 million.

Our home equity portfolio consists of loans originated to clients from our retail branch banking network. The increase in this portfolio of $46.2 million, or 13.2%, during 2014 is primarily attributable to new loan production within this loan product type;

•

A decrease of $5.9 million, or 4.8%, in our multi-family residential real estate portfolio, primarily attributable to principal payments and loan charge-offs of $8.8 million exceeding new loan production within this portfolio segment. As of December 31, 2014, $19.7 million, or 17.1%, of this portfolio is on nonaccrual status, including a single $19.1 million loan in our Chicago Region, as further described below;


•	An increase of $134.8 million, or 12.9%, in our commercial real estate portfolio primarily attributable to new loan production within this portfolio segment. The following table summarizes the composition of our commercial real estate portfolio by loan type as of December 31, 2014 and 2013:



	December 31,
(dollars in thousands)	2014		2013
Commercial real estate:
Owner occupied	$	638,441	568,035
Non-owner occupied	522,413		461,573
Farmland	22,188		18,626
Total	$	1,183,042	1,048,234


•	An increase of $5.9 million, or 22.9%, in our loans held for sale portfolio, primarily resulting from the origination of loans and the timing of subsequent sales into the secondary mortgage market.

We attribute the net decrease in our loan portfolio in 2013 primarily to:


•	A decrease of $9.6 million, or 1.6%, in our commercial, financial and agricultural portfolio, primarily reflecting the sale of $20.8 million of such loans at par value associated with our ABS line of business during the fourth quarter of 2013, partially offset by new loan production;

•

A decrease of $53.3 million, or 30.5%, in our real estate construction and development portfolio, primarily attributable to our continued efforts to reduce the overall level of our special mention, potential problem and nonaccrual loans within this portfolio segment. We received a payoff of $29.6 million during the third quarter of 2013 on a single credit relationship in our Northern California region, of which $19.6 million of the loan relationship was on nonaccrual status and $10.0 million was considered a performing TDR. The payoff of this loan relationship also resulted in a recovery to the allowance for loan losses of $2.2 million. Of the remaining portfolio balance of $121.7 million, $4.9 million, or 4.0%, of these loans were on nonaccrual status as of December 31, 2013 and $73.4 million, or 60.3%, of these loans were considered potential problem loans, including a $60.3 million loan relationship in our Southern California region, as further discussed below;


•	A decrease of $65.3 million, or 6.6%, in our one-to-four-family residential real estate loan portfolio primarily attributable to gross loan charge-offs of $12.7 million, transfers to other real estate of $6.2 million and principal payments; partially

offset by new loan production. The following table summarizes the composition of our one-to-four-family residential real estate loan portfolio as of December 31, 2013 and 2012:



	December 31,
(dollars in thousands)	2013		2012
One-to-four-family residential real estate:
Residential mortgage	$	572,164	632,309
Home equity	349,324		354,458
Total	$	921,488	986,767

The decrease in our residential mortgage portfolio of $60.1 million, or 9.5%, during 2013 is primarily attributable to principal payments resulting from loan refinancings, gross loan charge-offs and transfers to other real estate; partially offset by new loan production into this portfolio, consisting of jumbo adjustable rate and 10 and 15-year fixed rate mortgages. As of December 31, 2013, $98.2 million, or 17.2%, of this portfolio is considered impaired, consisting of nonaccrual loans of $20.1 million and performing TDRs of $78.2 million, including loans modified in the HAMP, of $69.9 million.

The decrease in our home equity portfolio of $5.1 million, or 1.4%, during 2013 is primarily attributable to principal payments, gross loan charge-offs, and ordinary and seasonal fluctuations experienced within this loan product type. As of December 31, 2013, $7.4 million, or 2.1%, of this portfolio is on nonaccrual status;

•

An increase of $17.6 million, or 17.0%, in our multi-family residential real estate portfolio primarily attributable to new loan production within this portfolio segment. As of December 31, 2013, $29.7 million, or 24.5%, of this portfolio is considered impaired, consisting of nonaccrual loans of $1.7 million and performing TDRs of $28.0 million, consisting solely of one loan relationship in our Chicago region restructured during the fourth quarter of 2012, as further described below under "Performing Troubled Debt Restructurings."

•

An increase of $78.6 million, or 8.1%, in our commercial real estate portfolio primarily attributable to new loan production within this portfolio segment, partially offset by our efforts to reduce the overall level of our special mention, potential problem and nonaccrual loans within this portfolio segment, including the payoff of a $13.7 million credit relationship in the fourth quarter of 2013 that was classified as a potential problem loan at December 31, 2012 and the payoff of a $5.2 million performing TDR in the second quarter of 2013. The following table summarizes the composition of our commercial real estate portfolio by loan type as of December 31, 2013 and 2012:



	December 31,
(dollars in thousands)	2013		2012
Farmland	$	18,626	17,784
Owner occupied	568,035		552,983
Non-owner occupied	461,573		398,913
Total	$	1,048,234	969,680


•	A decrease of $40.6 million, or 61.4%, in our loans held for sale portfolio primarily resulting from a decline in origination volumes and the timing of subsequent sales into the secondary mortgage market.

Loans at December 31, 2014 mature as follows:



			Over One Year Through Five Years		Over Five Years
(dollars in thousands)	One Year or Less		Fixed Rate	Floating Rate	Fixed Rate	Floating Rate	Total
Commercial, financial and agricultural	$	341,314	109,409	132,518	30,189	81,837	695,267
Real estate construction and development	65,580		9,009	9,977	197	5,088	89,851
Real estate mortgage:
One-to-four-family residential	12,049		29,811	12,985	244,840	717,025	1,016,710
Multi-family residential	34,373		23,489	8,992	38,078	10,502	115,434
Commercial real estate	171,980		329,074	186,296	367,793	127,899	1,183,042
Consumer and installment and net deferred loan fees	4,046		9,776	3,363	296	47	17,528
Loans held for sale	31,411		—	—	—	—	31,411
Total loans	$	660,753	510,568	354,131	681,393	942,398	3,149,243

The following table summarizes the components of changes in our total loan portfolio for the five years ended December 31, 2014:



	Increase (Decrease) For the Year Ended December 31,
(dollars in thousands)	2014			2013		2012		2011		2010
Internal loan volume increase (decrease)	$	273,750		(8,571	)	(337,206	)	(868,141	)	(1,339,445	)
Loans purchased	52,658			—		141,048		—		—
Loans and leases sold	(4,739		)	(29,763	)	(55,081	)	(115,296	)	(245,420	)
Loans transferred to assets held for sale	—			—		—		—		(794	)
Loans transferred to discontinued operations	—			—		—		—		(40,265	)
Loans charged-off	(21,923		)	(25,835	)	(78,070	)	(154,627	)	(331,196	)
Loans transferred to other real estate	(7,598		)	(9,483	)	(24,223	)	(69,941	)	(158,889	)
Total increase (decrease) in loan portfolio	$	292,148		(73,652	)	(353,532	)	(1,208,005	)	(2,116,009	)

Nonperforming Assets. Nonperforming assets include nonaccrual loans and other real estate. The following table presents the categories of nonperforming assets and certain ratios as of the dates presented:



	December 31,
(dollars in thousands)	2014		2013	2012	2011	2010
Nonperforming Assets:
Nonaccrual loans:
Commercial, financial and agricultural	$	9,486	10,523	19,050	55,340	67,365
Real estate construction and development	3,393		4,914	32,152	71,244	134,244
One-to-four-family residential real estate:
Residential mortgage	13,890		20,063

FIRST BANKS, INC 10-K