HVBC 2016 Annual Report

20 Sources of Funds General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We may also use borrowings, primarily Federal Home Loan Bank of Pittsburgh advances, to supplement cash flow needs, as necessary. In addition, we receive funds from scheduled loan payments, loan prepayments, retained income and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition. Deposits. Our deposits are generated primarily from residents, municipalities and businesses within our market area. We offer a selection of deposit accounts, including savings accounts, NOW accounts, money market accounts, certificates of deposit and checking accounts. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. We have not in the past used, and currently do not hold, any brokered deposits. At June 30, 2017, our core deposits, which are deposits other than certificates of deposit, were $142.6 million, representing 83.6% of total deposits. Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. The flow of deposits is influenced significantly by general economic conditions, changes in interest rates and competition. The variety of deposit accounts that we offer allows us to be competitive in generating deposits and to respond with flexibility to changes in our customers’ demands. Our ability to generate deposits is affected by the competitive market in which we operate, which includes numerous financial institutions of varying sizes offering a wide range of products. We believe that deposits are a stable source of funds, but our ability to attract and maintain deposits at favorable rates will be affected by market conditions, including competition and prevailing interest rates. The following table sets forth the distribution of total interest-bearing deposits by account type for the years indicated. For the Years Ended June 30, 2017 2016 2015 Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate (Dollars in thousands) Deposit type: NOW accounts – interest- bearing $ 39,375 25.67% 0.48% $ 30,178 22.55% 0.13% $ 27,798 20.06% 0.13% Money market deposit accounts 26,572 17.32% 0.33% 27,030 20.19% 0.25% 28,886 20.84% 0.25% Passbook and statement savings accounts 34,702 22.62% 0.30% 34,441 25.73% 0.30% 33,341 24.06% 0.29% Checking accounts 18,859 12.30% 0.11% 3,511 2.62% 0.34% 4,379 3.16% 0.39% Certificates of deposit 33,893 22.09% 1.00% 38,696 28.91% 1.10% 44,196 31.88% 1.13% Total interest-bearing deposits $ 153,401 100.00% 0.48% $ 133,856 100.00% 0.48% $ 138,600 100.00% 0.52%