HVBC 2016 Annual Report

4 Competition We face significant competition within our market both in making loans and attracting deposits. Our market area has a high concentration of financial institutions, including large money centers and regional banks, community banks and credit unions. Banks owned by large bank holding companies such as PNC Financial Services Group, Inc., Wells Fargo & Company, TD Bank, Santander and Citizens Financial Group, Inc. also operate in our market area. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. Our competition for loans and deposits comes principally from commercial banks, savings institutions, mortgage banking firms, consumer finance companies and credit unions. We face additional competition for deposits from short-term money market funds, brokerage firms, mutual funds and insurance companies. Lending Activities General. Our principal lending activity is the origination of one- to four-family residential real estate loans, commercial real estate loans, home equity loans and home equity lines of credit, and, to a lesser extent, commercial business loans, construction loans and consumer loans. Our primary business has been the origination and sale of one- to four-family residential real estate loans, most of which have been fixed-rate loans. We currently sell in the secondary market most of the fixed-rate conforming one- to four-family residential real estate loans that we originate, generally on a servicing-released, limited or no recourse basis, while retaining adjustable-rate one- to four- family residential real estate loans, primarily jumbo loans, in order to manage the duration and time to repricing of our loan portfolio. We intend to increase our emphasis on commercial real estate lending, in an effort to diversify our overall loan portfolio and increase the overall yield earned on our loans. Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio, by type of loan at the dates indicated, excluding loans held for sale. At June 30, 2017 2016 2015 Amount Percent Amount Percent Amount Percent (Dollars in thousands) Residential: One- to four-family $ 88,578 79.06% $ 71,980 76.75% $ 63,425 75.70% Home equity & HELOCs 5,466 4.88 6,448 6.87 6,662 7.95 Commercial real estate 12,191 10.88 11,620 12.39 12,662 15.11 Commercial business 3,801 3.39 558 0.59 634 0.76 Construction 2,004 1.79 3,179 3.39 365 0.44 Consumer 5 0.00 10 0.01 31 0.04 Total loans receivable 112,045 100.00% 93,795 100.00% 83,779 100.00% Deferred loan origination costs 359 142 54 Allowance for loan losses (593) (487) (514) Total loans receivable, net $111,811 $ 93,450 $ 83,319