HVBC 2016 Annual Report

45 Rate/Volume Analysis The following table presents the effects of changing rates and volumes on our net interest income for the years indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume. For the Years Ended June 30, 2017 vs 2016 For the Years Ended June 30, 2016 vs 2015 Increase (Decrease) Due to Total Increase Increase (Decrease) Due to Total Increase Volume Rate (Decrease) Volume Rate (Decrease) (In thousands) Interest-earning assets: Loans $ 431 $ (354) $ 77 $ 339 $ (74) $ 265 Cash and cash equivalents 196 54 250 (14) 50 36 Investment securities 50 37 87 9 (44) (35) Restricted investment in bank stock 9 9 18 (2) (19) (21) Total interest-earning assets 686 (254) 432 332 (87) 245 Interest-bearing liabilities: NOW accounts 15 137 152 3 — 3 Money market deposit accounts (1) 22 21 (3) — (3) Passbook and statement savings accounts 1 (3) (2) 6 2 8 Checking accounts 22 (14) 8 (3) (2) (5) Certificates of deposit (56) (31) (87) (61) (14) (75) Total deposits (19) 111 92 (58) (14) (72) Federal Home Loan Bank advances 56 (3) 53 18 16 34 Securities sold under agreements to repurchase — — — (1) — (1) Total interest-bearing liabilities 37 108 145 (41) 2 (39) Change in net interest income $ 649 $ (362) $ 287 $ 373 $ (89) $ 284 Provision for Loan Losses We establish a provision for loan losses, which is charged to operations, in order to maintain the allowance for loan losses at a level we consider necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimated at the balance sheet date. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of non-performing loans. The amount of the allowance is based on estimates, and actual losses may vary from such estimates as more information becomes available or economic conditions change. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as circumstances change as more information becomes available. The allowance for loan losses is assessed on a quarterly basis and provisions are made for loan losses as required in order to maintain the allowance. Provision for loan losses increased by $192,000 to $201,000 for the year ended June 30, 2017, from $9,000 for the year ended June 30, 2016 primarily as the result of a home equity loan charge-off of $125,000 and an increase in loans outstanding of $18.3 million for the year ended June 30, 2017 compared to the year ended June 30, 2016. During the year ended June 30, 2017, total charge-offs of $129,000 were recorded and $34,000 of recoveries were received. During the year ended June 30, 2016, total charge-offs of $37,000 were recorded and $1,000 of recoveries were received.