News Column

BAY BANKS OF VIRGINIA INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 11, 2014

The following discussion is intended to assist in understanding the results of operations and the financial condition of Bay Banks of Virginia, Inc. (the "Company"). This discussion should be read in conjunction with the above consolidated financial statements and the notes thereto.

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains statements concerning the Company's expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements may constitute "forward-looking statements" as defined by federal securities laws. These statements may address issues that involve estimates and assumptions made by management, risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements. Factors that could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to, changes in interest rates, general economic conditions, the legislative/regulatory climate, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, expansion activities, demand for financial services in the Company's market area and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance on such statements, which speak only as of the date they are made.



EXECUTIVE SUMMARY

Results through June 30, 2014 are highlighted by growth in loans, plus continued improvements in margin, earnings and asset quality. The capital position remains solid. Core earnings and growth remain priorities. The Bank's new loan production office in Richmond has been upgraded to a branch office and is generating loan growth and a substantial pipeline of loan production. Start-up expenses for this office have been absorbed by improvements in core earnings, allowing for increased year-over-year earnings of 93.5% through June 30th. Total assets have grown by $10.0 million, or 3.0%, during the first six months of 2014. Management anticipates the announcement of a major new deposit program in the coming months, and continues to seek prudent expansion into new markets. The in-house loan portfolio grew by $8.5 million, or 3.4%, in the first six months of 2014. It also grew by $25.2 million, or 10.7%, during the 12 months ended June 30, 2014. Loans originated and sold to Fannie Mae generated growth of $2.0 million in the portfolio of loans serviced for Fannie Mae since December 31, 2013. That portfolio now totals $60.9 million as of June 30, 2014 compared to $58.9 million as of December 31, 2013 and $53.2 million as of June 30, 2013. The net interest margin increased to 3.92% for the second quarter of 2014 compared to 3.51% for the same period in 2013. As this historic low-rate climate continues, loan yields continue to decline, but increased loan balances have resulted in increased interest income. The refinance of our $10 million FHLB advance in April 2013, plus the maturity and replacement of a $5 million FHLB advance in May 2014, resulted in an average FHLB advance cost of 2.13% for the second quarter of 2014 compared to 2.83% for the second quarter of 2013. Two new $5 million advances acquired in June 2014, during this low-rate environment, will further reduce the average cost of FHLB advances and cost of funds going forward. Scheduled maturities of time deposits continue to reduce both costs of funds and interest expense. Maturities of time deposits are typically renewed at lower rates, leave the Bank or transfer into lower-cost checking or savings accounts. These margin improvements were a major contributor to the 93.5% increase in earnings for the six months ended June 30, 2014 compared to the same period in 2013, and the 12.1% increase for the second quarter of 2014 compared to the second quarter of 2013. Net interest income improved by $519 thousand and $383 thousand for the year over year six-month and three-month comparisons, respectively, ended June 30, 2014 compared to June 30, 2013. Asset quality improved, with nonperforming assets down to 1.37% of total assets as of June 30, 2014 from 2.01% as of December 31, 2013. OREO balances are down to $2.9 million as of June 30, 2014 compared to $3.9 million as of December 31, 2013. Non-accruing loan balances are down to $1.7 million as of June 30, 2014 as compared to $2.8 million at December 31, 2013.



Annualized net loan charge-offs against the ALL are down to 0.17% of total loans during the first six months of 2014 compared to 0.32% during the first six months of 2013.

During the first quarter of 2014, the Company sold a troubled investment for which an impairment loss was recognized in 2013. In addition, during the first quarter of 2014, the Company sold its former Heathsville, Virginia, branch office recognizing a gain of approximately $138 thousand. Finally, the Company's core capital levels and regulatory ratios remain well above what is considered "well capitalized" by the Company's regulators. The Company took no Troubled Asset Relief Program ("TARP") or Small Business Lending Fund investments ("SBLF") from the U.S. Treasury.



For more information, visit the Company's website at www.baybanks.com. Information contained on the Company's website is not a part of this report.

24



--------------------------------------------------------------------------------

Table of Contents

EARNINGS SUMMATION

For the three months ended June 30, 2014 and 2013, net income was $260 thousand and $232 thousand, respectively, an increase of $28 thousand or 12.1% from 2013 to 2014. Diluted earnings per average share for both the three months ended June 30, 2014 and 2013 were $0.05. Return on average assets was 0.31% for the three months ended June 30, 2014 compared to 0.28% for the three months ended June 30, 2013. The annualized return on average equity was 2.72% and 2.55% for the three months ended June 30, 2014 and 2013, respectively. For the six months ended June 30, 2014 and 2013, net income was $720 thousand and $372 thousand, respectively, an increase of $348 thousand or 93.5% from 2013 to 2014. Diluted earnings per average share for the six months ended June 30, 2014 and 2013 were $0.15 and $0.08, respectively. Annualized return on average assets was 0.44% at June 30, 2014 compared to 0.22% at June 30, 2013. The annualized return on average equity was 3.84% and 2.05% at June 30, 2014 and 2013, respectively. RESULTS OF OPERATIONS The principal source of earnings for the Company is net interest income. Net interest income is the amount by which interest income exceeds interest expense. The net interest margin is net interest income expressed as a percentage of interest-earning assets. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, the associated yields and rates, and the volume of non-performing assets have an effect on net interest income, the net interest margin, and net income. FOR THE THREE MONTHS ENDED JUNE 30, 2014 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2013 NET INTEREST INCOME Net Interest Income Analysis Average Balances, Income and Expense, Yields and Rates (Fully taxable equivalent basis) (Dollars in Thousands) Three months ended 6/30/2014 Three months ended 6/30/2013 Average Income/ Average Income/ Balance Expense Yield/Cost Balance Expense Yield/Cost INTEREST EARNING ASSETS: Taxable investments $ 20,042$ 85 1.70 % $ 25,015$ 118 1.89 % Tax-exempt investments (1) 18,719 144 3.08 % 14,203 105 2.96 % Total investments 38,761 229 2.36 % 39,218 223 2.27 % Gross loans (2) 257,575 3,279 5.09 % 233,212 3,135 5.38 % Interest-bearing deposits 6,676 4 0.24 % 29,305 17 0.23 % Federal funds sold 469 - 0.06 % 1,391 - 0.09 % Total Interest Earning Assets $ 303,481$ 3,512 4.63 % $ 303,126$ 3,375 4.45 % INTEREST-BEARING LIABILITIES: Savings deposits $ 43,510$ 17 0.16 % $ 46,762$ 23 0.20 % NOW deposits 42,905 16 0.15 % 40,594 21 0.21 % Time deposits => $100,000 44,155 193 1.75 % 45,894 255 2.23 % Time deposits < $100,000 50,489 197 1.57 % 57,079 263 1.85 % Money market deposit accounts 26,872 26 0.39 % 27,568 39 0.57 % Total Deposits 207,931 449 0.87 % 217,897 601 1.11 % Federal funds purchased 226 1 0.69 % 226 - 0.70 % Securities sold under repurchase agreements 8,231 2 0.10 % 8,418 6 0.29 % FHLB advances 16,000 85 2.13 % 15,000 106 2.83 % Total Interest-Bearing Liabilities $ 232,388$ 537 0.93 % $ 241,541$ 713 1.18 % Net interest income and net interest margin $ 2,975 3.92 % $ 2,662 3.51 % Non-interest-bearing deposits $ 58,274 - 0.00 % $ 52,386 - 0.00 % Total Cost of funds 0.74 % 0.97 % Net interest rate spread 3.89 % 3.48 % Notes:



(1) Income and yield assumes a federal tax rate of 34%.

(2) Includes Visa program and nonaccrual loans.

Interest income for the three months ended June 30, 2014, on a tax-equivalent basis, was $3.5 million, an increase of $137 thousand from the second quarter of 2013. Interest expense for the three months ended June 30, 2014, was $537 thousand, a decrease of $176 thousand from the second quarter of 2013, due mainly to reductions in both balances and costs of time deposits, but also from the reduced cost of the FHLB advances. Net interest income for the three months ended June 30, 2014, on a tax-equivalent basis, was $3.0 million, an increase of 25



--------------------------------------------------------------------------------

Table of Contents

$313 thousand from the second quarter of 2013. The annualized net interest margin was 3.92% and 3.51% for the three months ended June 30, 2014 and 2013, respectively. The deposit mix continues to improve as lower cost balances in checking accounts have increased while higher cost time deposit balances have declined. Further reductions in the cost of funds are anticipated as time deposits mature and are replaced at lower rates. As long as market rates remain low, this positive trend is expected to continue. The net interest spread, which is the difference between the annualized yield on earning assets and the total cost of funds, increased to 3.89% for the three months ended June 30, 2014, compared to 3.48% for the three months ended June 30, 2013.



NON-INTEREST INCOME

Non-interest income for the three months ended June 30, 2014 decreased $398 thousand, or 38.9%, compared to the three months ended June 30, 2013. This decrease was primarily due to losses of $16 thousand compared to gains of $268 thousand on securities available-for- sale, VISA-related fees declined by $153 thousand due to assignment of merchant agreements to a third party, and the $100 thousand decrease in secondary lending fees was the result of lower mortgage origination activity for sale to Fannie Mae. These decreases were partially offset by an increase of $120 thousand due to an impairment loss recognized in 2013. NON-INTEREST EXPENSE For both the three months ended June 30, 2014 and 2013, non-interest expenses totaled $3.2 million. In the second quarter of 2014, Visa expense decreased $153 thousand due to assignment of merchant agreements to a third party. This decrease was partially offset by a $49 increase in consulting expense related to accounting services and lease expense for the Richmond office of $16 thousand. FOR THE SIX MONTHS ENDED JUNE 30, 2014 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2013 NET INTEREST INCOME Net Interest Income Analysis (Fully taxable equivalent basis) Average Balances, Income and Expense, Yields and Rates (Dollars in Thousands) Six months ended 6/30/2014 Six months ended 6/30/2013 Average Income/ Average Income/ Balance Expense



Yield/ Cost Balance Expense Yield/ Cost INTEREST EARNING ASSETS: Taxable investments

$ 20,918$ 179 1.71 % $ 25,875$ 242 1.87 % Tax-exempt investments (1) 19,017 294 3.09 % 12,989 189 2.91 % Total investments 39,935 473 2.37 % 38,864 431 2.22 % Gross loans (2) 254,625 6,440 5.06 % 234,117 6,289 5.37 % Interest-bearing deposits 6,303 8 0.25 % 30,982 36 0.23 % Federal funds sold 308 - 0.06 % 797 - 0.09 % Total Interest Earning Assets $ 301,171$ 6,921 4.60 % $ 304,760$ 6,756 4.43 % INTEREST-BEARING LIABILITIES: Savings deposits $ 43,948$ 34 0.16 % $ 46,397$ 52 0.23 % NOW deposits 42,361 31 0.15 % 40,795 44 0.22 % Time deposits => $100,000 44,103 394 1.80 % 46,567 514 2.23 % Time deposits < $100,000 50,688 395 1.57 % 57,614 541 1.89 % Money market deposit accounts 27,055 53 0.40 % 27,723 80 0.58 % Total Deposits 208,155 907 0.88 % 219,096 1,231 1.13 % Federal funds purchased 182 1 0.55 % 113 - 0.70 % Securities sold under repurchase agreements 7,805 4 0.10 % 7,663 10 0.26 % FHLB advances 15,500 185 2.41 % 15,000 245 3.29 % Total Interest-Bearing Liabilities $ 231,642$ 1,097 0.96 % $ 241,872$ 1,486 1.24 % Net interest income and net interest margin $ 5,824 3.87 % $ 5,270 3.46 % Non-interest-bearing deposits $ 57,733 - 0.00 % $ 50,758 - 0.00 % Total Cost of funds 0.76 % 1.02 % Net interest rate spread 3.84 % 3.41 % Notes:



(1) Income and yield assumes a federal tax rate of 34%.

(2) Includes Visa program and nonaccrual loans.

Interest income for the six months ended June 30, 2014, on a tax-equivalent basis, was $6.9 million, an increase of $165 thousand from the same period of 2013 due mainly to increased loan balances. Interest expense for the six months ended June 30, 2014 was $1.1 million, a decrease of $389 thousand from the same period of 2013, due mainly to reductions in both balances and costs of time deposits, but also from the reduced cost of the FHLB advances. Net interest income for the six months ended June 30, 2014, on a tax-equivalent basis, was $5.8 million, an increase of $554 thousand from the same period of 2013. The annualized net interest margin was 3.87% and 3.46% for 26



--------------------------------------------------------------------------------

Table of Contents

the six months ended June 30, 2014 and 2013, respectively. The deposit mix continues to improve as lower cost balances in checking accounts have increased while higher cost time deposit balances have declined. Further reductions in the cost of funds are anticipated as time deposits mature and are replaced at lower rates. As long as market rates remain low, this positive trend is expected to continue. The net interest spread, which is the difference between the annualized yield on earning assets and the total cost of funds, increased to 3.84% for the six months ended June 30, 2014, compared to 3.41% for the six months ended June 30, 2013. NON-INTEREST INCOME Non-interest income for the six months ended June 30, 2014 decreased $271 thousand, or 13.5%, compared to the six months ended June 30, 2013. This decrease was primarily due to losses of $17 thousand in 2014 compared to gains of $271 thousand in 2013 on sales of securities available-for-sale for the two six month periods. VISA-related fees declined by $256 thousand due to assignment of merchant agreements to a third party, and the $165 thousand decrease in secondary lending fees was a result of lower mortgage origination activity for sale to Fannie Mae. These decreases were partially offset by an increase of $120 thousand due to an impairment loss recognized in 2013 and a $138 thousand gain recognized on the sale of a former branch office in the first quarter of 2014.



NON-INTEREST EXPENSE

For the six months ended June 30, 2014, non-interest expenses totaled $6.3 million, a decrease of $172 thousand, or 2.7%, compared to the same period in 2013. This decrease is primarily the result of a reduction in salary and benefits of $154 thousand due to lower stock compensation costs and lending commissions and VISA expense decreasing $237 thousand due to assignment of merchant agreements to a third party. These decreases were partially offset by increases in consulting expense of $125 thousand primarily related to accounting services.



AVERAGE INTEREST-EARNINGS ASSETS AND AVERAGE INTEREST-BEARING LIABILITIES

Average interest-earning assets decreased 1.2% to $301.2 million for the six months ended June 30, 2014, as compared to $304.8 million for the six months ended June 30, 2013, as interest-bearing deposits were redeployed into higher yielding loans and bank-owned life insurance. Average interest-earning assets as a percent of total average assets were 91.2% for the six months ended June 30, 2014 as compared to 92.1% for the same period in 2013. The loan portfolio, with $254.6 million in average balances as of June 30, 2014, is the largest category of interest-earning assets. Average interest-bearing liabilities decreased 4.2% to $231.6 million for the six months ended June 30, 2014, as compared to $241.9 million for the six months ended June 30, 2013. The largest category of interest-bearing liabilities is time deposits, with combined average balances of $94.8 million for the six months ended June 30, 2014, down from $104.2 million for the similar period in 2013. ASSET QUALITY



In the first six months of 2014, asset quality improved. Non-performing assets, which include OREO and non-performing loans, declined $2.0 million to $4.7 million, or 1.37% of assets. This level also represents 1.79% of loans plus OREO.

Non-Performing Assets (Dollars in thousands) June 30, 2014 December 31, 2013 Loans past due 90 days or more and still accruing $ 43 $ 18 Non-accruing loans 1,742 2,754 Total non-performing loans 1,785 2,772 Other real estate owned 2,899 3,897 Total non-performing assets $ 4,684 $ 6,669 Allowance for loan losses $ 2,973 $ 2,925 Allowance to non-performing loans 166.6 % 105.5 % Non-performing assets to total assets 1.37 % 2.01 % Non-performing loans, which include loans past due 90 days or more and still accruing, plus non-accruing loans, as a percentage of total loans, decreased to 0.69% as of June 30, 2014 compared to 1.1% as of December 31, 2013. Non-accruing loans totaled $1.7 million as of June 30, 2014, down from $2.8 million at year-end 2013. Loans charged off during the first six months of 2014, net of recoveries, totaled $214 thousand compared to $372 thousand for the first six months of 2013. This represents a decline in the annualized net charge-off ratio to 0.17% for the first six months of 2014 compared to 0.32% for the first six months of 2013, reflecting an improvement in asset quality. The majority of the charge-offs were anticipated and specific reserves had been provided for them in the ALL. Management is maintaining an adequate level of the ALL at 1.15% and 1.17% of total loans for June 30, 2014 and December 31, 2013, respectively. Classified assets, which include loans with risk rating grades of substandard, doubtful and loss, plus OREO, decreased by $2.4 million during the first six months of 2014 to $9.1 million, or 22.6% of Tier 1 capital plus the allowance for loan losses. Risk rating grades are assigned conservatively, causing some homogenous loans, such as residential mortgages, to fall into the pool of adversely risk rated loans and thereby evaluated for impairment, even though they may be performing as agreed and therefore not impaired. 27



--------------------------------------------------------------------------------

Table of Contents

As of June 30, 2014, loans valued at $6.5 million were considered impaired, whereas $6.7 million were considered impaired as of December 31, 2013. Between December 31, 2013 and June 30, 2014, two loans were identified as impaired, one was dispensed through foreclosure and charged-off and one was moved into the pool of loans for collective evaluation of impairment due to a large paydown. Management has reviewed the impaired credits and the underlying collateral and expects no additional losses above those which are specifically reserved in ALL.



FINANCIAL CONDITION

Total assets increased to $341.2 million as of June 30, 2014 compared to $331.1 million at December 31, 2013. Cash and due from banks, which produces no income, remained stable at $6.8 million on both June 30, 2014 and December 31, 2013. Interest-bearing deposits at other banks, which is mainly the Bank's cash on deposit at the Federal Reserve Bank of Richmond, has increased by $1.9 million since year end 2013. During the six months ended June 30, 2014, gross loans increased by $8.5 million or 3.4%, to $259.3 million from $250.8 million at year-end 2013. The largest components of this increase were $7.2 million related to residential first mortgages and $2.0 million related to construction loans. The Bank had $2.9 million of OREO at June 30, 2014 and $3.9 million at December 31, 2013. As of June 30, 2014, OREO consists of 10 residences, 13 lots, two former convenience stores, one former restaurant and one commercial business property. During the six months of 2014, three properties with a total book value of $197 thousand from two borrowers were added through foreclosures, and six properties with a total book value of $1.1 million were sold. There were $127 thousand of write-downs of OREO properties during the first six months of 2014, compared to $16 thousand for the same period in 2013. All properties maintained as OREO are valued at the lesser of cost or fair value less estimated costs to sell and are actively marketed. In March 2014, the Company sold a former branch in Heathsville, Virginia for $311 thousand and recognized a gain of $138 thousand on the sale. The branch was included in other assets as of December 31, 2013. As of June 30, 2014, securities available-for-sale at fair value totaled $36.8 million as compared to $38.5 million on December 31, 2013. This represents a net decrease of $1.7 million or 4.4% for the six months. The decrease in securities available-for-sale is primarily the result of the sale of a troubled asset with a fair value of $912 thousand. An impairment loss was recognized on this asset in 2013 and therefore, no gain or loss was recognized on the sale of the asset as its carrying value equaled its fair value at the time of sale. As of June 30, 2014, available-for-sale securities represented 10.8% of total assets and 12.2% of earning assets. All securities in the Company's investment portfolio are classified as available-for-sale and marked to market on a monthly basis. These unrealized gains or losses, net of tax, are booked as an adjustment to shareholders' equity, and are not realized as an adjustment to earnings until the securities are actually sold or an other than temporary impairment occurs. In the second quarter of 2013, the Company purchased $5.0 million of bank owned life insurance in order to offset the cost of employee benefits. During the second quarter of 2014, the Company purchased an additional $2.0 million of such insurance. The bank owned life insurance's carrying value as of June 30, 2014 was $7.2 million. As of June 30, 2014, total deposits were $267.1 million compared to $268.3 million at year-end 2013. This represents a decrease in balances of $1.3 million or 0.5% during the six months. The decline consisted of $1.6 million of reductions in time deposit balances and $653 thousand in savings and interest-bearing demand deposits. These decreases were partially offset by an increase of $1.0 million in non-interest bearing deposits.



To support loan growth, $10.0 million of new FHLB advances were drawn during the second quarter of 2014.

As of June 30, 2014, securities sold under repurchase agreements decreased $128 thousand to $9.0 million from $9.1 million at December 31, 2013. This decrease was the result of normal seasonality for these customers.



LIQUIDITY

Liquidity represents an institution's ability to meet present and future financial obligations (such as commitments to fund loans) through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with other banks, federal funds sold and investments and loans maturing within one year. The Company's ability to obtain deposits and purchase funds at favorable rates are major factors for liquidity. Management believes that the Company maintains overall liquidity that is sufficient to satisfy its depositors' requirements and to meet its customers' credit needs. At June 30, 2014, cash totaled $6.8 million, federal funds sold totaled $204 thousand, interest-bearing deposits totaled $10.8 million, and securities and loans maturing in one year or less totaled $22.6 million. This results in a liquidity ratio as of June 30, 2014 of 11.9% as compared to 12.9% as of December 31, 2013. The Company determines this ratio by dividing the sum of cash and cash equivalents, investment securities maturing in one year or less, loans maturing in one year or less and federal funds sold, by total assets. The Bank has a formal liquidity management policy and contingency plan, which includes periodic evaluation of cash flow projections.



In addition, the Company has a line of credit with the FHLB of $65.5 million, plus federal funds lines of credit with correspondent banks totaling $20.3 million.

28



--------------------------------------------------------------------------------

Table of Contents

CAPITAL RESOURCES

Capital resources represent funds, earned or obtained, over which a financial institution can exercise greater long-term control in comparison with deposits and borrowed funds. The adequacy of the Company's capital is reviewed by management on an ongoing basis with reference to size, composition, and quality of the Company's resources and consistency with regulatory requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses, yet allows management to effectively leverage its capital to maximize return to shareholders. The Company's capital, also known as shareholders' equity, is comprised mainly of outstanding common stock and retained earnings. Capital can be increased with securities offerings or through earnings. Several factors impact shareholders' equity, including net income and regulatory capital requirements. The Company's capital resources are also impacted by net unrealized gains or losses on securities. The available-for-sale securities portfolio is marked to market monthly and unrealized gains or losses, net of taxes, are recognized as accumulated other comprehensive income (loss) on the balance sheets and statement of changes in shareholders' equity. Another factor affecting accumulated other comprehensive income (loss) is changes in the market value of the Company's pension and post-retirement benefit plans. The Company's shareholders' equity before accumulated other comprehensive loss was $39.0 million on June 30, 2014 compared to $38.3 million on December 31, 2013. Accumulated other comprehensive loss decreased $556 thousand between December 31, 2013 and June 30, 2014, primarily as a result of decreases in unrealized net losses in the investment portfolio. Book value per share, before accumulated other comprehensive loss, on June 30, 2014, compared to December 31, 2013, increased to $8.10 from $7.96. Book value per share, including accumulated other comprehensive loss, increased to $7.98 on June 30, 2014 from $7.71 on December 31, 2013. No cash dividends were paid for the six-month period ended June 30, 2014, nor for the comparable period ended June 30, 2013. The Bank is subject to minimum regulatory capital ratios as defined by Federal Financial Institutions Examination Council guidelines. These ratios continue to be well in excess of regulatory minimums. As of June 30, 2014, the Bank maintained Tier 1 capital of $31.2 million, net risk weighted assets of $242.0 million, and Tier 2 capital of $3.0 million. On June 30, 2014, the Tier 1 leverage ratio was 9.56%, the Tier 1 capital to risk weighted assets ratio was 12.88%, and the total capital ratio to risk weighted assets ratio was 14.11%. Management is evaluating Basel III capital rules which will begin a phase-in period on January 1, 2015, and expects no detrimental effects.



OFF BALANCE SHEET COMMITMENTS

In the normal course of business, the Company offers various financial products to its customers to meet their credit and liquidity needs. These instruments may involve elements of liquidity, credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby-letters of credit is represented by the contractual amount of these instruments. Subject to its normal credit standards and risk monitoring procedures, the Company makes contractual commitments to extend credit. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Conditional commitments are issued by the Company in the form of performance stand-by letters of credit, which guarantee the performance of a customer to a third-party. The credit risk of issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters