Note 13 – Recent Developments

On July 2, 2013, the Federal Reserve Board approved final rules that implement changes to the regulatory capital framework for financial institutions. The new rules include, among other things, the following elements:

	1)	a new regulatory capital component referred to as “Common Equity Tier 1 capital”, and threshold ratios for this new component;
	2)	a “capital conservation buffer” above the minimum required level of Common Equity Tier 1 capital, and restrictions on dividend payments, share buybacks, and certain discretionary bonus payments to executive officers if a capital conservation buffer of at least 2.5% of risk-weighted assets is not achieved;
	3)	the inclusion of accumulated other comprehensive income (AOCI) in Tier 1 capital, although banks with less than $250 billion in total assets will be allowed a one-time opt-out from this requirement;
	4)	additional constraints on the inclusion of minority interests, mortgage servicing assets, and deferred tax assets in regulatory capital;
	5)	increased risk-weightings for certain assets, including equity exposures, certain acquisition/development and construction loans, and certain loans that are more than 90-days past due or are on non-accrual status; and
	6)	an increase in minimum required risk-based capital ratios over a phase-in period, and an increase in the threshold for a “well-capitalized” classification for the Tier 1 Risk-Based Capital Ratio.

These changes will be phased in beginning January 2015, and our preliminary estimates indicate that we are well-positioned to absorb the impact without constraining organic growth plans, although no assurance can be provided in that regard.

Allowance for Credit Losses and Recorded Investment in Financing Receivables

(dollars in thousands, unaudited)

	For the Three Months Ended June 30, 2013
	Real Estate		Agricultural Products		Commercial and Industrial		Small Business Administration		Direct Finance Leases		Consumer		Total

Allowance for credit losses:
Beginning Balance	$	6,488	$	404	$	3,084	$	1,410	$	85	$	1,728	$	13,199
Charge-offs		(1,138)		-		(424)		(7)		(86)		(298)		(1,953)
Recoveries		139		-		291		1		4		49		484
Provision		1,368		(342)		(805)		246		36		(53)		450

Ending Balance	$	6,857	$	62	$	2,146	$	1,650	$	39	$	1,426	$	12,180

	For the Six Months Ended June 30, 2013
	Real Estate		Agricultural Products		Commercial and Industrial		Small Business Administration		Direct Finance Leases		Consumer		Total

Allowance for credit losses:
Beginning Balance	$	8,034	$	258	$	2,797	$	1,246	$	165	$	1,373	$	13,873
Charge-offs		(2,560)		(28)		(1,315)		(44)		(106)		(605)		(4,658)
Recoveries		304		-		529		1		5		76		915
Provision		1,079		(168)		135		447		(25)		582		2,050

Ending Balance	$	6,857	$	62	$	2,146	$	1,650	$	39	$	1,426	$	12,180

Reserves:
Specific	$	4,445	$	-	$	744	$	1,147	$	30	$	784	$	7,150
General		2,412		62		1,402		503		9		642		5,030

Ending Balance	$	6,857	$	62	$	2,146	$	1,650	$	39	$	1,426	$	12,180

Loans evaluated for impairment:
Individually	$	54,302	$	20	$	4,253	$	3,027	$	60	$	3,954	$	65,616
Collectively		501,581		23,425		178,589		16,466		3,429		21,088		744,578

Ending Balance	$	555,883	$	23,445	$	182,842	$	19,493	$	3,489	$	25,042	$	810,194

	For the Year Ended December 31, 2012
	Real Estate		Agricultural Products		Commercial and Industrial		Small Business Administration		Direct Finance Leases		Consumer		Total

Allowance for credit losses:
Beginning Balance	$	8,260	$	19	$	4,638	$	1,447	$	311	$	2,608	$	17,283
Charge-offs		(11,108)		(634)		(4,283)		(753)		(198)		(1,802)		(18,778)
Recoveries		302		-		589		95		-		172		1,158
Provision		10,580		873		1,853		457		52		395		14,210

Ending Balance	$	8,034	$	258	$	2,797	$	1,246	$	165	$	1,373	$	13,873

Reserves:
Specific	$	4,180	$	28	$	934	$	1,038	$	67	$	878	$	7,125
General		3,854		230		1,863		208		98		495		6,748

Ending Balance	$	8,034	$	258	$	2,797	$	1,246	$	165	$	1,373	$	13,873

Loans evaluated for impairment:
Individually	$	66,133	$	663	$	3,656	$	3,227	$	135	$	4,348	$	78,162
Collectively		479,656		21,819		255,022		17,296		4,098		23,742		801,633

Ending Balance	$	545,789	$	22,482	$	258,678	$	20,523	$	4,233	$	28,090	$	879,795