Note 14 – Restatement of Financial Information

Subsequent to the filing of the Company’s Form 10-Q for the third quarter of 2013, management determined that the regulatory capital ratios previously reported for the Company and Talbot Bank required modification due to a change in deferred income taxes. This adjustment to deferred income taxes was a result of a reclassification from income taxes receivable to reflect what the Company will receive through carryback claims. The change in deferred income taxes impacted the disallowed deferred tax assets (“DTA”) in the calculations of the regulatory capital ratios. The following tables provide information on the originally reported and restated amounts for income taxes receivable and deferred income taxes, and regulatory capital ratios at September 30, 2013.

	As originally
(Dollars in thousands)	reported		Adjustment		As restated
Income taxes receivable	$	12,698	$	(10,625)	$	2,073
Deferred income taxes		9,740		10,625		20,365

	As originally			Adjustment
	reported			(basis points)		As restated
The Company
Tier 1 risk-based capital ratio		11.21	%		(189)		9.32	%
Total risk-based capital ratio		12.44	%		(187)		10.57	%
Leverage ratio		8.25	%		(143)		6.82	%

Talbot Bank
Tier 1 risk-based capital ratio		8.44	%		(215)		6.29	%
Total risk-based capital ratio		9.70	%		(215)		7.55	%
Leverage ratio		6.59	%		(170)		4.89	%

The Company’s restated capital ratios remain well in excess of regulatory minimums. Per its consent order, Talbot Bank will submit a capital plan to the FDIC and Commissioner which describes the methods and timing by which it will increase its capital ratios up to or in excess of required minimums. These methods include earnings from operations, capital infusions from the Company, tax planning strategies to reduce disallowed DTA, and other capital-raising alternatives such as debt or equity issuances.