Management’s Discussion and Analysis Effects of Inflation and Changing Prices CURRENT ACCOUNTING DEVELOPMENTS page 21 • ASU 2011-11,  Disclosures about Offsetting Assets and Liabilities. • ASU 2011-08,  Testing Goodwill for Impairment;  and • ASU 2011-12,  Deferral of the Effective Date for Amendments to the Presentation of  Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting  Standards Update No. 2011-05; • ASU 2011-05,  Comprehensive Income: Presentation of Comprehensive Income; • ASU 2011-04,  Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement  and Disclosure; • ASU 2011-03,  Transfers and Servicing: Reconsideration of Effective Control for Repurchase  Agreements; The consolidated financial statements and related consolidated financial data presented herein have been prepared in  accordance with GAAP and practices within the banking industry which require the measurement of financial position and  operating results in terms of historical dollars without considering the changes in the relative purchasing power of money  over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are  monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the  effects of general levels of inflation.  The following accounting pronouncements have been issued by the FASB, but are not yet effective:  Information about these pronouncements are described in more detail below.  ASU 2011-03,  Transfers and Servicing: Reconsideration of Effective Control for Repurchase Agreements,  removes  from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed-upon terms, even if the transferee were to default. The requirement to demonstrate that the  transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement assets is also  eliminated. The amendments in this ASU are effective for interim and annual periods beginning after December 31, 2011,  with prospective application to transactions or modifications of existing transactions that occur on or after the effective  date. Early adoption is not permitted. The Company will adopt these amendments when required, and does not anticipate that  the ASU will have a material impact on its financial position or results of operations.  ASU 2011-04,  Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure  Requirements in U.S. GAAP and IFRS, outlines the collaborative effort of the FASB and the International Accounting  Standards Board (“IASB”) to consistently define fair value and to come up with a set of consistent disclosures for fair  value. The ASU changes certain fair value measurement principles and enhances the disclosure requirements particularly for  level 3 fair value measurements. This Update is effective for the Company in the first quarter of 2012 and will be applied  prospectively. The Company will expand its fair value disclosures as required by the Update, but the Company does not  expect the adoption of this guidance will have a material impact on the Company’s consolidated financial statements. ASU 2011-05,  Comprehensive Income: Presentation of Comprehensive Income, amends existing standards allowing  either a single continuous statement of comprehensive income or in two separate but consecutive statements. An entity is  required to present each component of net income along with total net income, each component of other comprehensive  income along with a total for other comprehensive income, and a total amount for comprehensive income in both  options. This Update also requires companies to present amounts reclassified out of other comprehensive income and into net  income on the face of the statement of income. In December 2011, the FASB issued ASU 2011-12,  Deferral of the Effective  Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in  Accounting Standards Update No. 2011-05,  which defers indefinitely the requirement to present reclassification adjustments  on the statement of income. The remaining provisions are effective for the Company in the first quarter of 2012 with  retrospective application. The Company does not expect the adoption of this Update will have a material impact on the  Company’s consolidated financial results as it amends only the presentation of comprehensive income.