UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]	Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~June~~September 30, 2018

[ ]	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission File No. 001-35693

Hamilton Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland	46-0543309
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

501 Fairmount Avenue, Suite 200, Towson, Maryland	21286
(Address of Principal Executive Offices)	Zip Code

(410) 823-4510

(Registrant’s telephone number)

N/A

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. YES [ X ] NO [ ]

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [ X ] NO [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ X ] Smaller reporting company [ X ] ~~(Do not check if smaller reporting company)~~ Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES [ ] NO [X]

The Registrant’s common stock, par value $0.01 per share, consisted of 3,416,414 shares issued and outstanding as of ~~August~~November 1314, 2018.

Table of Contents

Hamilton Bancorp, Inc. and Subsidiary

Form 10-Q

Index

		Page	~~Page~~
Part I. Financial Information
Item 1.	Financial Statements	~~Financial Statements~~
		Consolidated Statements of Financial Condition as of June 30, 2018 (unaudited) and March 31, 2018	1
	Consolidated Statements of Financial Condition as of September 30, 2018 (unaudited) and March 31, 2018	1
		Consolidated Statements of Operations for the Three Months Ended June 30, 2018 and 2017 (unaudited)	2
	Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2018 and 2017 (unaudited)	2
		Consolidated Statements of Comprehensive Income for the Three Months Ended June 30, 2018 and 2017 (unaudited)	3
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended September 30, 2018 and 2017 (unaudited)	3
		Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended June 30, 2018 and 2017 (unaudited)	4
	Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended September 30, 2018 and 2017 (unaudited)	4
		Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2018 and 2017 (unaudited)	5 - 6
	Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2018 and 2017 (unaudited)	5 - 6
	Notes to Consolidated Financial Statements (unaudited)	~~Notes~~7 to– ~~Consolidated Financial Statements (unaudited)~~41	~~7 – 42~~
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~Management’s~~42 ~~Discussion~~– ~~and Analysis of Financial Condition and Results of Operations~~66	~~43 – 61~~
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	~~Quantitative and Qualitative Disclosures about Market Risk~~66	6`
Item 4.	Controls and Procedures	~~Controls and Procedures~~66	6`
Part II. Other Information
Item 1.	Legal Proceedings	~~Legal Proceedings~~67	62
Item 1A.	Risk Factors	~~Risk Factors~~67	62
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~Unregistered Sales of Equity Securities and Use of Proceeds~~68	62
Item 3.	Defaults upon Senior Securities	~~Defaults upon Senior Securities~~68	62
Item 4.	Mine Safety Disclosures	~~Mine Safety Disclosures~~68	62
Item 5.	Other Information	~~Other Information~~68	62
Item 6.	Exhibits	~~Exhibits~~69	62
	Signatures	~~Signatures~~70	63

Table of Contents

Part I. – Financial Information

Item 1. Financial Statements

HAMILTON BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Financial Condition

~~June~~September 30, 2018 and March 31, 2018

	June 30,			March 31,
	September 30,			March 31,
	2018			2018
	(Unaudited)			(Audited)
Assets
Assets
Cash and due from banks	$	2814,~~820~~536,~~533~~572		$	15,488,396
Federal funds sold		7,~~238~~489,~~852~~263			7,880,019
Cash and cash equivalents		3622,~~059~~025,~~385~~835			23,368,415
Certificates of deposit held as investment		499,~~167~~144			499,189
Securities available for sale, at fair value		7268,~~638~~862,~~697~~989			75,404,136
Federal Home Loan Bank stock, at cost		2,~~994~~782,~~900~~400			3,122,400
Loans		~~381~~375,~~044~~939,~~039~~704			390,420,885
Allowance for loan losses		(23,~~836~~030,~~987~~929	)		(2,821,903	)
Net loans and leases		~~378~~372,~~207~~908,~~052~~775			387,598,982
Premises and equipment, net		3,~~928~~842,~~511~~489			3,945,825
Foreclosed real estate		~~457~~587,~~778~~978			457,778
Accrued interest receivable		1,~~470~~506,~~881~~290			1,468,382
Bank-owned life insurance		17,~~569~~684,~~375~~501			17,455,850
Income taxes refundable		40,000			40,000
Goodwill and other intangible assets		9,~~145~~113,~~248~~731			9,176,764
Other assets		2,~~264~~333,~~055~~117			2,995,741
Total Assets	$	~~525~~502,~~275~~187,~~049~~249		$	525,533,462
Liabilities and Shareholders' Equity
Liabilities
Noninterest-bearing deposits	$	2728,~~485~~816,~~033~~887		$	29,557,943
Interest-bearing deposits		~~376~~359,~~989~~653,~~028~~728			375,585,032
Total deposits		~~404~~388,~~474~~470,~~061~~615			405,142,975
Borrowings		5953,~~599~~551,~~093~~896			60,672,140
Advances by borrowers for taxes and insurance		21,~~707~~216,~~378~~584			1,962,665
Other liabilities		3,~~575~~488,~~171~~645			3,679,550
Total liabilities		~~470~~446,~~355~~727,~~703~~740			471,457,330
Commitments and contingencies		-			-
Shareholders' Equity
Common stock, $.01 par value, 100,000,000 shares authorized. Issued and outstanding: 3,416,414 shares at June 30, 2018 and 3,407,613 shares at March 31, 2018		34,164			34,076
Common stock, $.01 par value, 100,000,000 shares authorized. Issued and outstanding: 3,416,414 shares at September 30, 2018 and 3,407,613 shares at March 31, 2018		34,164			34,076
Additional paid in capital		32,~~239~~364,~~049~~652			32,113,534
Retained earnings		2627,~~799~~464,~~923~~461			25,920,490
Unearned ESOP shares		(2,073,680	)		(2,073,680	)
Accumulated other comprehensive loss		(2,~~080~~330,~~110~~088	)		(1,918,288	)
Total shareholders' equity		5455,~~919~~459,~~346~~509			54,076,132
Total Liabilities and Shareholders' Equity	$	~~525~~502,~~275~~187,~~049~~249		$	525,533,462

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

HAMILTON BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Operations (Unaudited)

Three and Six Months Ended ~~June~~September 30, 2018 and 2017

	Three Months Ended				Six Months Ended
	June 30,
	September 30,				September 30,
	2018		2017		2018		2017
Interest revenue
Loans, including fees	$	4,~~407~~403,~~943~~945	$	3,~~848~~938,~~013~~627	$	8,811,889	$	7,786,639
U.S. treasuries, government agencies and FHLB stock		5363,~~689~~214		3246,~~684~~513		116,903		79,198
Municipal and corporate bonds		94,~~411~~654		~~113~~112,~~969~~571		189,065		226,540
Mortgage-backed securities		~~275~~265,~~008~~395		~~338~~314,~~906~~572		540,403		653,478
Federal funds sold and other bank deposits		~~110~~113,~~719~~532		5426,~~408~~738		224,251		81,146
Total interest revenue		4,~~941~~940,~~770~~740		4,~~387~~439,~~980~~021		9,882,511		8,827,001
Interest expense
Deposits		~~875~~920,~~064~~018		~~660~~669,~~458~~605		1,795,082		1,330,063
Borrowed funds		~~258~~272,~~588~~439		~~134~~158,~~270~~634		531,028		292,904
Total interest expense		1,~~133~~192,~~652~~457		~~794~~828,~~728~~239		2,326,110		1,622,967
Net interest income		3,~~808~~748,~~118~~283		3,~~593~~610,~~252~~782		7,556,401		7,204,034
Provision for loan losses		60242,~~000~~496		~~160~~120,000		302,496		280,000
Net interest income after provision for loan losses		3,~~748~~505,~~118~~787		3,~~433~~490,~~252~~782		7,253,905		6,924,034
Noninterest revenue
Service charges		120,~~584~~966		~~119~~118,~~199~~851		241,549		238,050
Gain on sale of loans held for sale		9,542		-
Gain on sale of investment securities		-		10,381		-		10,381
Earnings on bank-owned life insurance		113,525		122,576
Gain on sale of loans held for sale		16,331		-		25,873		-
Other		47,123		24,717
Earnings on bank-owned life insurance		115,126		123,818		228,651		246,393
Total noninterest revenue		290,774		266,492
Other		43,793		41,394		90,917		66,112
Noninterest expenses
Total noninterest revenue		296,216		294,444		586,990		560,936
Salaries		1,467,581		1,459,998
Noninterest expenses
Employee benefits		411,842		393,174
Salaries		1,527,455		1,510,515		2,995,036		2,970,512
Occupancy		271,828		260,838
Employee benefits		334,301		348,313		746,144		741,487
Advertising		17,024		27,028
Occupancy		243,186		239,415		515,014		500,253
Furniture and equipment		90,299		83,984
Advertising		14,958		14,170		31,982		41,198
Data processing		192,654		164,850
Furniture and equipment		78,972		85,754		169,271		169,738
Legal services		56,338		101,890
Data processing		208,888		181,506		401,541		346,356
Other professional services		98,316		180,302
Legal services		67,623		119,104		123,962		220,994
Deposit insurance premiums		101,109		57,128
Other professional services		103,219		212,519		201,535		392,820
Foreclosed real estate expense and losses		-		1,186
Deposit insurance premiums		112,821		73,762		213,930		130,890
Other operating		452,468		422,647
Foreclosed real estate expense and losses		9,302		113		9,302		1,299
Total noninterest expense		3,159,459		3,153,025
Other operating		436,740		431,717		889,207		854,366
Income before income taxes		879,433		546,719
Total noninterest expense		3,137,465		3,216,888		6,296,924		6,369,913
Income tax expense		-		154,342
Income before income taxes		664,538		568,338		1,543,971		1,115,057
Net Income	$	879,433	$	392,377
Income tax expense		-		157,585		-		311,927
Net income per common share:
Net Income	$	664,538	$	410,753	$	1,543,971	$	803,130
Basic	$	0.27	$	0.12
Net income per common share:
Diluted	$	0.27	$	0.12
Basic	$	0.21	$	0.13	$	0.48	$	0.25
Diluted	$	0.21	$	0.13	$	0.48	$	0.25

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

HAMILTON BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income (Unaudited)

Three and Six Months Ended ~~June~~September 30, 2018 and 2017

	Three Months Ended						Six Months Ended
	June 30,
	September 30,						September 30,
	2018			2017			2018			2017
Net income	$	~~879~~664,~~433~~538		$	~~392~~410,~~377~~753		$	1,543,971		$	803,130
Other comprehensive (loss) income:
Unrealized (loss) gain on investment securities available for sale		(~~259~~345,~~861~~784	)		~~549~~87,~~343~~905			(605,645	)		637,248
Reclassification adjustment for realized loss (gain) on investment securities available for sale included in net income		-			-
Reclassification adjustment for realized gain on investment securities available for sale included in net income		-			(10,381	)		-			(10,381	)
Total unrealized (loss) gain on investment securities available for sale		(~~259~~345,~~861~~784	)		~~549~~77,~~343~~524			(605,645	)		626,867
Unrealized gain (loss) on derivative transactions		9895,~~039~~806			~~(209~~26,~~948~~710	)		193,845			(183,238	)
Income tax expense relating to investment securities available for sale and derivative transactions		-			~~133~~41,~~874~~114			-			174,990
Other comprehensive (loss) income		(~~161~~249,~~822~~978	)		~~205~~63,~~521~~120			(411,800	)		268,639
Total comprehensive income	$	~~717~~414,~~611~~560		$	~~597~~473,~~898~~873		$	1,132,171		$	1,071,769

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

HAMILTON BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

~~Three~~Six Months Ended ~~June~~September 30, 2018 and 2017

										Accumulated
			Additional				Unearned			other			Total
	Common		paid-in		Retained		ESOP			comprehensive			shareholders'
	stock		capital		earnings		shares			loss			equity
Balances at April 1, 2017	$	34,111	$	31,656,235	$	31,730,673	$	(2,221,800	)	$	(1,407,989	)	$	59,791,230
Net income		-		-		~~392~~803,~~377~~130		-			-			~~392~~803,~~377~~130
Unrealized gain on available for sale securities, net of tax effect of $ 216,688		-		-		-		-			332,655			332,655
Unrealized gain on available for sale securities, net of tax effect of $ 247,268		-		-		-		-			379,600			379,600
Unrealized loss on derivative transactions securities, net of tax effect of $(82,814)		-		-		-		-			(43,500	)		(43,500	)
Unrealized loss on derivative transactions securities, net of tax effect of $(72,278)		-		-		-		-			(27,326	)		(27,326	)
Stock based compensation - options		-		57114,~~392~~784		-		-			-			57114,~~392~~784
Stock based compensation - restricted stock		-		57,819		-		-			-			57,819
Restricted stock - compensation and activity		-		115,638		-		-			-			115,638
Balances at June 30, 2017	$	34,111	$	31,771,446	$	32,123,050	$	(2,221,800	)	$	(1,118,834	)	$	60,587,973
Balances at September 30, 2017	$	34,111	$	31,886,657	$	32,533,803	$	(2,221,800	)	$	(1,055,715	)	$	61,177,056
Balances at April 1, 2018	$	34,076	$	32,113,534	$	25,920,490	$	(2,073,680	)	$	(1,918,288	)	$	54,076,132
Net income		-		-		~~879~~1,~~433~~543,971		-			-			~~879~~1,~~433~~543,971
Unrealized loss on available for sale securities, net of tax effect of $ -0-		-		-		-		-			(~~259~~605,~~861~~645	)		(~~259~~605,~~861~~645	)
Unrealized gain on derivative transactions, net of tax effect of $ -0-		-		-		-		-			98193,~~039~~845			98193,~~039~~845
Stock based compensation - options		-		61123,~~514~~028		-		-			-			61123,~~514~~028
Restricted stock - compensation and activity		88		64128,~~001~~090		-		-			-			64128,~~089~~178
Balances at June 30, 2018	$	34,164	$	32,239,049	$	26,799,923	$	(2,073,680	)	$	(2,080,110	)	$	54,919,346
Balances at September 30, 2018	$	34,164	$	32,364,652	$	27,464,461	$	(2,073,680	)	$	(2,330,088	)	$	55,459,509

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

HAMILTON BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows (Unaudited)

~~Three~~Six Months Ended ~~June~~September 30, 2018 and 2017

	Three Months Ended
	Six Months Ended
	June 30,
	September 30,
	2018			2017
Cash flows from operating activities
Interest received	$	510,~~014~~055,~~653~~633		$	49,~~515~~265,~~279~~972
Fees and commissions received		~~167~~332,~~707~~677			~~143~~305,~~916~~462
Interest paid		(12,~~286~~590,~~649~~648	)		(12,~~066~~011,~~546~~560	)
Cash paid to suppliers and employees		(25,~~291~~354,~~909~~929	)		(25,~~393~~193,~~508~~587	)
Origination of loans held for sale		(~~453~~1,~~100~~280,300	)		-
Proceeds from sale of loans held for sale		~~462~~1,~~642~~306,173			-
Net cash provided by operating activities		12,~~613~~468,~~344~~606			12,~~199~~366,~~141~~287
Cash flows from investing activities
Proceeds from maturing and called securities available for sale, including principal pay downs		47,~~332~~618,~~019~~325			48,~~126~~524,~~059~~350
Purchase of investment securities available for sale		(1,985,000	)		-
Proceeds from sale of investment securities available for sale		-			4,243,760
Redemption of Federal Home Loan Bank stock		127,500			-
Purchase of investment securities available for sale		(1,985,000	)		(1,208,480	)
Loans made, net of principal repayments		9,415,130			(14,747,850	)
Purchase (redemption) of Federal Home Loan Bank stock		340,000			(701,200	)
Purchase of premises and equipment		(67,026	)		(121,649	)
Loans made, net of principal repayments		14,328,852			(29,464,001	)
Net cash provided (used) by investing activities		11,822,623			(10,743,440	)
Purchase of premises and equipment		(63,665	)		(349,306	)
Proceeds from sale of foreclosed real estate		19,641			35,896
Net cash provided (used) by investing activities		20,258,153			(18,918,981	)
Cash flows from financing activities
Net increase (decrease) in
Deposits		(~~587~~16,~~837~~517,191	)		(~~428~~18,~~522~~468,720	)
Advances by borrowers for taxes and insurance		~~744~~(746,~~713~~081	)		~~974~~(573,~~614~~435	)
Proceeds from borrowings		-24,000,000			1125,~~550~~000,000
Payments of borrowings		(131,000,000	)		(118,~~553~~004,~~111~~682	)
Interest rate swap on FHLB borrowings		98193,~~039~~845			(~~126~~99,~~314~~604	)
Issuance of restricted stock		88			-
Net cash (used) provided by financing activities		(~~744~~24,~~997~~069,339	)		~~416~~(2,~~667~~146,441	)
Net increase (decrease) in cash and cash equivalents		12(1,~~690~~342,~~970~~580	)		(918,~~127~~699,~~632~~135	)
Cash and cash equivalents at beginning of period		23,368,415			29,353,921
Cash and cash equivalents at end of period	$	3622,~~059~~025,~~385~~835		$	2010,~~226~~654,~~289~~786

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

HAMILTON BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows (Unaudited)

(Continued)

	Three Months Ended
	Six Months Ended
	June 30,
	September 30,
	2018			2017
Reconciliation of net income to net cash provided by operating activities
Net income	$	~~879~~1,~~433~~543,971		$	~~392~~803,~~377~~130
Adjustments to reconcile net income to net cash provided by operating activities
Amortization of premiums on certificates of deposit		2245			2345
Amortization of premiums on securities		~~158~~302,~~560~~178			~~238~~466,~~628~~542
Write-down of foreclosed real estate		-			1,186
Gain on sale of investment securities		-			(10,380	)
Loan discount accretion		(75,104	)		(450	)
Loss on sale of foreclosed real estate		211			1,299
Deposit premium amortization		(81,077	)		(125,009	)
Gain on loans held for sale		(25,873	)		-
Borrowing premium amortization		(73,047	)		(146,560	)
Loan discount accretion		(72,593	)		121,389
Core deposit intangible asset amortization		31,516			31,516
Deposit premium amortization		(155,168	)		(231,196	)
Premises and equipment depreciation and amortization		84,340			79,517
Borrowing premium amortization		(120,244	)		(262,799	)
Stock based compensation		125,515			115,212
Core deposit intangible asset amortization		63,032			63,032
Provision for loan losses		60,000			160,000
Premises and equipment depreciation and amortization		167,001			158,784
Stock based compensation		251,118			230,422
Provision for loan losses		302,496			280,000
Decrease (increase) in
Accrued interest receivable		(237,~~499~~908	)		(~~108~~173,~~369~~469	)
Cash surrender value of life insurance		(113,525	)		(122,576	)
Loans held for sale		25,873			-
Income taxes refundable and deferred income taxes		-			154,342
Cash surrender value of life insurance		(228,651	)		(246,393	)
Other assets		731,685			229,464
Income taxes refundable and deferred income taxes		-			311,926
Other assets		662,624			224,291
Increase (decrease) in
Accrued interest payable		110,~~127~~874			~~(249~~105,402	)
Deferred loan origination fees		(818,~~096~~600	)		(224,~~533~~464	)
Other liabilities		(~~105~~201,~~506~~780	)		~~302~~499,~~622~~798
Net cash provided by operating activities	$	12,~~613~~468,~~344~~606		$	12,~~199~~366,~~141~~287
Noncash investing activity
Real estate acquired through foreclosure	$	-130,200		$	17,305

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

HAMILTON BANCORP, INC AND SUBSIDIARY

Form 10-Q

Notes to Consolidated Financial Statements (Unaudited)

~~June~~September 30, 2018

Note 1:

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Hamilton Bancorp, Inc. (the “Company”) was incorporated on June 7, 2012 to serve as the stock holding company for Hamilton Bank (the “Bank”), a federally chartered savings bank. On October 10, 2012, the Bank converted from a mutual savings bank to a stock savings bank and became the wholly owned subsidiary of the Company. In connection with the conversion, the Company sold 3,703,000 shares of common stock at a price of $10.00 per share, through which the Company received proceeds of approximately $35,580,000, net of offering expenses of approximately $1,450,000. The Bank’s employee stock ownership plan (the “ESOP”) purchased 8.0% of the shares sold in the offering, or 296,240 common shares. The purchase of shares by the ESOP was funded by a loan from the Company. The company’s common stock began trading on the NASDAQ Capital Market under the trading symbol “HBK” on October 12, 2012.

On December 21, 2017, the Bank converted its charter from a federal savings bank to a Maryland state-chartered commercial bank and now operates under the laws of the State of Maryland. In conjunction with the Bank’s charter conversion, Hamilton Bancorp converted from a savings and loan holding company to a bank holding company. The charter conversion is part of the Bank’s strategic plan which will allow it to continue to focus on growth opportunities in commercial, consumer and mortgage lending as well as small business and retail banking. The Maryland Office of the Commissioner of Financial Regulation will serve as the Bank's primary regulator with federal oversight provided by the Federal Deposit Insurance Corporation. Hamilton Bancorp will continue to be regulated by the Federal Reserve Board.

On October 23, 2018, the Company and Orrstown Financial Services, Inc. (“Orrstown”), the parent company of Orrstown Bank located in Shippensburg, Pennsylvania, signed a definitive agreement and plan of merger under which the Company will merge with and into Orrstown, with Orrstown as the surviving company. Immediately, thereafter, Hamilton Bank will merge with and into Orrstown Bank, with Orrstown Bank as the surviving institution. At the effective time of the merger, each share of Hamilton Bancorp’s common stock will be converted into the right to receive (1) $4.10 in cash, subject to adjustment as set forth in the Merger Agreement and (2) 0.54 shares of common stock of Orrstown. The Merger Agreement provides each party with specified termination rights. If the Merger is not consummated under specified circumstances, Hamilton Bancorp has agreed to pay Orrstown a termination fee of $2.2 million. The transaction is expected to close in the second quarter of calendar 2019.

On May 13, 2016, the Company completed its acquisition of Fraternity Community Bancorp, Inc. (“Fraternity”) through the merger of Fraternity, the parent company of Fraternity Federal Savings and Loan, with and into the Company pursuant to the Agreement and Plan of Merger dated as of October 12, 2015, by and between the Company and Fraternity. As a result of the merger, each shareholder of Fraternity received a cash payment equal to nineteen dollars and twenty-five cents ($19.25) for each share of Fraternity common stock, or an aggregate of approximately $25.7 million. Immediately following the merger of Fraternity into the Company, Fraternity Federal Savings and Loan was merged with and into the Bank, with the Bank as the surviving entity.

On September 11, 2015, the Company completed its acquisition of Fairmount Bancorp, Inc. (“Fairmount Bancorp”) through the merger of Fairmount Bancorp, the parent company of Fairmount Bank, with and into the Company pursuant to the Agreement and Plan of Merger dated as of April 15, 2015, by and between the Company and Fairmount Bancorp. As a result of the merger, each shareholder of Fairmount Bancorp received a cash payment equal to thirty dollars ($30.00) for each share of Fairmount Bancorp common stock, or an aggregate of approximately $15.4 million. Immediately following the merger of Fairmount Bancorp into the Company, Fairmount Bank was merged with and into the Bank, with the Bank as the surviving entity.

Hamilton Bancorp is a holding company that operates a community bank with seven branches in the Baltimore-metropolitan area. Its primary deposit products are certificates of deposit and demand, savings, NOW, and money market accounts. Its primary lending products consist of real estate mortgages, along with commercial and consumer loans. Hamilton Bancorp’s primary source of revenue is derived from loans to customers, who are predominately small and middle-market businesses and middle-income individuals.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and with instructions for Form 10–Q and Regulation S–X as promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the preceding unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. We derived the balances as of March 31, 2018 from audited financial statements. Operating results for the three months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2019, or any other period. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2018.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Hamilton Bancorp is a holding company that operates a community bank with seven branches in the Baltimore-metropolitan area. Its primary deposit products are certificates of deposit and demand, savings, checking, and money market accounts. Its primary lending products consist of real estate mortgages, along with commercial and consumer loans. Hamilton Bancorp’s primary source of revenue is derived from loans to customers, who are predominately small and middle-market businesses and middle-income individuals.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and with instructions for Form 10–Q and Regulation S–X as promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the preceding unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. We derived the balances as of March 31, 2018 from audited financial statements. Operating results for the three and six months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2019, or any other period. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2018.

Summary of Significant Accounting Policies

The accounting and reporting policies of Hamilton Bancorp, Inc. and Subsidiary (“Hamilton”) conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and to general practices in the banking industry. The more significant policies follow:

Principles of Consolidation. The accompanying consolidated financial statements include the accounts of the parent company and its wholly owned subsidiary, Hamilton Bank. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, deferred income tax valuation allowances, the fair value of investment securities and other than temporary impairment of investment securities.

Investment Securities. Management determines the appropriate classification of investment securities at the time of purchase. Securities that may be sold before maturity are classified as available for sale and carried at fair value. Investment securities that management has the intent and ability to hold to maturity are classified as held to maturity and carried at amortized cost. All investment securities held by Hamilton at ~~June~~September 30, 2018 and March 31, 2018 were classified as available for sale.

Investment securities designated as available for sale are stated at estimated fair value based on quoted market prices. They represent those securities which management may sell as part of its asset/liability strategy or that may be sold in response to changing interest rates or liquidity needs. Changes in unrealized gains and losses, net of related deferred taxes, for available-for-sale securities are recorded in other comprehensive income. Realized gains (losses) on available-for-sale securities are included in noninterest revenue and, when applicable, are reported as a reclassification adjustment in other comprehensive income. Realized gains and losses on the sale of available-for-sale securities are recorded on the trade date and are determined by the specific identification method. The amortization of premiums and the accretion of discounts are recognized in interest revenue using methods approximating the interest method over the term of the security.

In estimating other-than-temporary impairment losses, management considers the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Loans Held For Sale. Mortgage loans originated and intended for sale are carried at the lower of aggregate cost or estimated fair value. Fair value is determined based on outstanding investor commitments, or in the absence of such commitments, based on current investor yield requirements. Gains and losses on loan sales are determined by the specific-identification method.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Loans Held For Sale. Mortgage loans originated and intended for sale are carried at the lower of aggregate cost or estimated fair value. Fair value is determined based on outstanding investor commitments, or in the absence of such commitments, based on current investor yield requirements. Gains and losses on loan sales are determined by the specific-identification method.

Loans Receivable. The Bank makes mortgage, commercial, and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout the Baltimore metropolitan area. The ability of the Bank’s debtors to repay their loans is dependent upon the real estate and general economic conditions in this area.

Loans are reported at their outstanding unpaid principal balance adjusted for the allowance for loan loss, premiums on loans acquired, and/or any deferred fees or costs on originated loans. Interest revenue is accrued on the unpaid principal balance. Loan origination fees and the direct costs of underwriting and closing loans are recognized over the life of the related loan as an adjustment to yield using a method that approximates the interest method. Any differences that arise from prepayment will result in a recalculation of the effective yield.

Loans are generally placed on nonaccrual status when they are 90 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual status at an earlier date if the collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual status are reversed against interest revenue. The interest on nonaccrual loans is accounted for on the cash basis method, until the loans qualify for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and, in management’s judgment, future payments are reasonably assured.

Loans are considered impaired when, based on current information, management considers it unlikely that collection of principal and interest payments will be made according to contractual terms. If collection of principal is evaluated as doubtful, all payments are applied to principal. Impaired loans are measured: (i) at the present value of expected cash flows discounted at the loan’s effective interest rate; (ii) at the observable market price; or (iii) at the fair value of the collateral if the loan is collateral dependent. If the measure of the impaired loan is less than the recorded investment in the loan, an impairment is recognized through an allocation of the allowance for loan losses and corresponding provision for loan losses. Generally, identified impairments are charged-off against the allowance for loan losses.

Troubled debt restructurings are loans for which Hamilton, for legal or economic reasons related to a debtor’s financial difficulties, has granted a concession to the debtor that it otherwise would not have considered. Concessions that result in the categorization of a loan as a troubled debt restructuring include:

●

Reduction of the stated interest rate;

●

Extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk;

●

Reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement; or

●

Reduction of accrued interest.

Allowance for Loan Losses. The allowance for loan losses represents an amount which, in management’s judgment, will be adequate to absorb probable future losses on existing loans. The allowance for loan losses is established, as loan losses are estimated to have occurred, through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Recoveries on previously charged-off loans are credited to the allowance for loan losses.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Allowance for Loan Losses. The allowance for loan losses represents an amount which, in management’s judgment, will be adequate to absorb probable future losses on existing loans. The allowance for loan losses is established, as loan losses are estimated to have occurred, through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Recoveries on previously charged-off loans are credited to the allowance for loan losses.

The allowance for loan losses is increased by provisions charged to income and reduced by charge-offs, net of recoveries. Management’s periodic evaluation of the adequacy of the allowance is based on the Bank’s past loan loss experience, known and inherent risks in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and current economic conditions. The look back period for historical losses consists of reviewing a 48 month look back period for net charge-offs. Prior to September 30, 2018, we reviewed both a 36 and 48 month look back period individually for net charge-offs to develop a range in which the allowance for loan losses should be within. The range has grown smaller over the past year to a point where the difference in the two calculations of the allowance for loan loss is deemed immaterial. As a result, and for efficiency purposes, we began to only utilize a historical charge-off period of 48 months in determining the necessary allowance for loan losses. We believe, although similar in amount, that a 48-month period is more representative of our charge-off history. This period may change in the future depending on the performance of the loan portfolio. In addition, we also adjusted the environmental factors of the legacy and acquired loan portfolios so that they are not the same for each loan portfolio going forward. The environmental factors for each acquired loan portfolio and the legacy loan portfolio will be evaluated on their own merits so as to stand on their own characteristics. These changes at September 30, 2018 resulted in additional provisions of $294,000 and were primarily related to the acquired loan portfolios and the adjustment of their environmental factors.

Management considers a number of factors in estimating the required level of the allowance. These factors include: historical loss experience in the loan portfolios; the levels and trends in past-due and nonaccrual loans; the status of nonaccrual loans and other loans identified as having the potential for further deterioration; credit risk and industry concentrations; trends in loan volume; the effects of any changes in lending policies and procedures or underwriting standards; and a continuing evaluation of the economic environment. As part of the estimation process, management keeps the net charge-off history as a percentage of loans, as it pertains to each loan segment, constant across all risk ratings and alters the qualitative factors either up or down based upon the respective risk rating for each loan segment.

Foreclosed Real Estate. Real estate acquired through foreclosure or other means is recorded at the lower of its carrying value or the fair value of the related real estate collateral less estimated selling costs. Losses in estimated fair value incurred at the time of acquisition of the property are charged to the allowance for loan losses. Subsequent reductions in the estimated fair value of the property are included in noninterest expense. Costs to maintain foreclosed real estate are expensed as incurred.

Goodwill and Other Intangible Assets. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Intangible assets, consisting of core deposit intangibles, represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset may be sold or exchanged on its own or in combination with a related contract, asset, or liability. Core deposit intangibles are amortized on an accelerated basis over an eight-year period. Goodwill is not amortized but is evaluated on an annual basis to determine impairment, if any. Any impairment of goodwill would be recognized against income in the period of impairment.

Derivative Financial Instruments and Hedging Activities. Derivatives are initially recognized at fair value on the date the derivative contract is entered into and subsequently re-measured at their fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions.

For derivatives qualifying as cash flow hedges, the Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The effective portion of changes in fair value of derivatives that are designated and qualify as cash flow hedges is recognized in the consolidated statement of comprehensive income (loss). The gain or loss relating to the ineffective portion is recognized immediately in the consolidated statement of operations as a gain or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the consolidated statement of operations. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the consolidated statement of operations as a gain or loss to income.

For derivative instruments designated as fair-value hedges, the change in fair value of the derivative is recognized in the consolidated statement of operations under the same heading as the change in fair value of the hedged item for the portion attributable to the hedged risk. For accounting purposes, if the derivative is highly effective, the change in fair values relating to the asset or liability and the hedged item will offset one another and result in no impact to overall income.

Gains (losses) on derivatives representing either hedge components excluded from the assessment of effectiveness or hedge ineffectiveness are recognized in earnings.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Gains (losses) on derivatives representing either hedge components excluded from the assessment of effectiveness or hedge ineffectiveness are recognized in earnings.

Revenue from Contracts with Customers. We record revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, we must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) we satisfy a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods. Our primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of Topic 606. We have evaluated the nature of our contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Operation was not necessary. Contracts with customers are generally fully satisfied in regard to performance obligations as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

Stock Based Compensation. Compensation cost is recognized for stock options and restricted stock awards issued to employees and directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Income Taxes. The Bank recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that all or some portion of the deferred tax assets will not be realized.

Earnings Per Common Share. Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Weighted average shares exclude unallocated ESOP shares. Diluted earnings per share includes additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares relate to outstanding stock options, restricted stock, and warrants and are determined using the treasury stock method.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Note 2:

New Accounting Pronouncements

Recent Accounting Pronouncements

ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. This ASU’s objectives are to: (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities; and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. The ASU is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The Company does not expect the adoption of ASU 2017-12 to have a material impact on the Company’s consolidated financial statements.

ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company will evaluate the guidance in this update but does not expect it to have a significant impact on the Company’s consolidated financial statements.

Table of Contents

HAMILTON BANCORP INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. This update removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under the ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The ASU is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This guidance clarifies the definition of a business and assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under this guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or group of similar assets), the assets acquired would not represent a business. In addition, in order to be considered a business, an acquisition would have to include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The amended guidance also narrows the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition. This guidance was effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this guidance effective April 1, 2018 and it did not have a material impact on our consolidated financial statements.

ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This update addresses diversity on how certain cash receipts and payments are reflected in the statement of cash flows. The update made the following changes that may affect the Company: (1) Debt Prepayment or Debt Extinguishment Costs: Cash payments for debt prepayment or debt extinguishment costs should be classified as cash flows for financing activities. (2) Proceeds from the settlement of Bank-Owned Life Insurance Policies: Cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash flows from investing activities. The cash payments for premiums on bank-owned policies may be classified as cash flows from investing activities, operating activities, or a combination of investing and operating activities. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and is required to be applied retrospectively to all periods presented. The company adopted this guidance April 1, 2018, which did not result in a change in the classification in the statement of cash flows and did not have a material impact on our consolidated financial statements.

ASU 2016-13, Financial Instruments – Credit Losses. The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the guidance in this update replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The guidance in this update for public business entities is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Hamilton Bancorp is in the process of implementing a committee and has begun to gather loan information and consider acceptable methodologies to comply with this ASU. The implementation team will meet periodically to discuss the latest developments and updates via webcasts, publications, and conferences. We are currently evaluating and in the process of selecting a third-party vendor solution to assist us in the application of ASU 2016-13. Hamilton Bancorp’s evaluation indicates that the provisions of ASU No. 2016-13 are expected to impact its consolidated financial statements, in particular the level of the reserve for loan losses. We are, however, continuing to evaluate the extent of the potential impact.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

ASU 2016-13, Financial Instruments – Credit Losses. The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the guidance in this update replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The guidance in this update for public business entities is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact adoption will have on its consolidated financial statements. Hamilton Bancorp is in the process of implementing a committee and has begun to gather loan information and consider acceptable methodologies to comply with this ASU. The implementation team will meet periodically to discuss the latest developments and updates via webcasts, publications, and conferences. Due to the pending merger with Orrstown, we will not be entering into a contract with an outside vendor as originally planned to assist with implementing CECL due to the timing of required adoption and the pending merger. If the merger agreement is terminated for any reason, the Company will engage an outside vendor at that time to assist with the implementation of this pronouncement utilizing information we have continued to gather.

ASU 2016-02, Leases (Topic 842). From the lessee’s perspective, the new ASU standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for lessees. The guidance also eliminates the current real estate-specific provision and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs. With respect to lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. All entities will classify leases to determine how to recognize lease-related revenue and expense. In applying this guidance entities will also need to determine whether an arrangement contains a lease or service agreement. Disclosures are required by lessees and lessors to meet the objective of enabling users of financials statements to assess the amount, timing, and uncertainty of cash flows arising from leases. For public entities, this guidance is effective for the first interim or annual period beginning after December 15, 2018. Early adoption is permitted. Entities are required to use a modified retrospective transition method for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.

In July 2018, as a follow-up to ASU 2016-02 (Topic 842), the Board issued ASU No. 2018-10 – Codification Improvements to Topic 842, Leases to clarify the codification associated with ASU 2016-02 or to correct unintended application of guidance. The amendments in this Update are of a similar nature to the items typically addressed in the Codification improvements project and affect narrow aspects of the guidance issued in the amendments in Update 2016-02. The Update addresses sixteen separate issues under the guidance that provide a clearer understanding as to intent and application of the guidance. The Company is assessing the guidance under ASU 2016-02 and 2018-10 to determine its impact on the Company’s consolidated financial statements.

ASU No. 2018-11, Leases (Topic 842) – Targeted Improvements. The purpose of this ASU is to update ASU 2016-02 to address stakeholders concerns regarding comparative reporting and separating components of a lease contract for lessors. For comparative reporting, entities are required under ASU 2016-02 to use a modified retrospective transition method. Due to issues in implementing, the Board decided to provide another transition method that allows companies to initially apply the new leases standard at the adoption date versus retrospectively and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments in this update also provides lessors a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component, similar to the expedient provided by lessees. However, the lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise would be accounted for under the new revenue guidance and both (1) the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component and (2) the lease component, if accounted for separately, would be classified as an operating lease. The Company is assessing this guidance in conjunction with ASU 2016-02 to determine its impact on the Company’s consolidated financial statements.

ASU No. 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Liabilities. This ASU requires equity investments to be measured at fair value with changes in fair value recognized in net income, excluding equity investments that are consolidated or accounted for under the equity method of accounting. The amendment allows equity investments without readily determinable fair values to be measured at cost minus impairment, with a qualitative assessment required to identify impairment. The amendment also requires public companies to use exit prices to measure the fair value of financial instruments purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statement; it eliminates the disclosure requirements related to measurement assumptions for the fair value of instruments measured at amortized cost. In addition, for liabilities measured at fair value under the fair value option, to present in other comprehensive income changes in fair value due to changes in instrument specific credit risk. The Company’s management engaged a third-party expert in the field of valuation and reporting to assist management and ensure adequate documentation of financial controls and analysis performed in its review of “exit pricing” of the fair values of loans, deposits, and other financial instruments. This ASU is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We adopted this ASU effective April 1, 2018. With the adoption of this ASU, equity securities can no longer be classified as available for sale, and as such marketable equity securities are disclosed as a separate line item on the Consolidated Statement of Financial Condition with changes in the fair value of equity securities reflected in net income. At June 30, 2018 the Company did not have any equity securities. During the first quarter of fiscal 2019, we began using an exit price notion when measuring the fair value of our loan portfolio, excluding loans held for sale, for disclosure purposes. The adoption of this ASU did not have a significant impact on our consolidated financial statements.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

ASU No. 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Liabilities. This ASU requires equity investments to be measured at fair value with changes in fair value recognized in net income, excluding equity investments that are consolidated or accounted for under the equity method of accounting. The amendment allows equity investments without readily determinable fair values to be measured at cost minus impairment, with a qualitative assessment required to identify impairment. The amendment also requires public companies to use exit prices to measure the fair value of financial instruments purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statement; it eliminates the disclosure requirements related to measurement assumptions for the fair value of instruments measured at amortized cost. In addition, for liabilities measured at fair value under the fair value option, to present in other comprehensive income changes in fair value due to changes in instrument specific credit risk. The Company’s management engaged a third-party expert in the field of valuation and reporting to assist management and ensure adequate documentation of financial controls and analysis performed in its review of “exit pricing” of the fair values of loans, deposits, and other financial instruments. This ASU is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We adopted this ASU effective April 1, 2018. With the adoption of this ASU, equity securities can no longer be classified as available for sale, and as such marketable equity securities are disclosed as a separate line item on the Consolidated Statement of Financial Condition with changes in the fair value of equity securities reflected in net income. At September 30, 2018 the Company did not have any equity securities. During the first quarter of fiscal 2019, we began using an exit price notion when measuring the fair value of our loan portfolio, excluding loans held for sale, for disclosure purposes. The adoption of this ASU did not have a significant impact on our consolidated financial statements.

ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The guidance in this ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. This ASU does not apply to revenue associated with financial instruments including loans and securities that are accounted for under U.S. GAAP. Consequently, adoption of the ASU did not have a significant impact on the Company’s consolidated financial statements and related disclosures since the primary source of revenue for the Company is derived from interest and dividends earned on loans, investment securities and other financial instruments that are outside the scope of the ASU. The Company has assessed its revenue streams and reviewed its contracts with customers that are affected by the new guidance. This includes fees on deposits, gains and losses on the sale of foreclosed real estate, credit and debit card interchange fees, merchant card services, and administrative services for customer deposit account such as ATM and wire transfer transactions. The Company’s revenue recognition pattern for revenue streams within the scope of the ASU has not changed significantly from current practice and is immaterial to our financial statements. This guidance was effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted this guidance effective April 1, 2018 and it did not have a material impact on our consolidated financial statements.

Note 3: Earnings per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Weighted average shares exclude unallocated ESOP shares. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Both the basic and diluted earnings per share for the three months ended June 30, 2018 and 2017 are summarized below:

	Three Months Ended		Three Months Ended
	June 30, 2018		June 30, 2017
Net income	$	879,433	$	392,377
Weighted average common shares outstanding - basic		3,209,046		3,188,895
Weighted average common shares outstanding - diluted		3,230,287		3,198,999
Income per common share - basic and diluted	$	0.27	$	0.12
Anti-dilutive shares		159,019		121,686

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Note 3:

Earnings per Share

Both the basic and diluted earnings per share for the three and six months ended September 30, 2018 and 2017 are summarized below:

	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017

Net income	$	664,538	$	410,753	$	1,543,971	$	803,130
Weighted average common shares outstanding - basic		3,209,046		3,188,895		3,209,046		3,188,895
Weighted average common shares outstanding - diluted		3,214,841		3,196,516		3,214,841		3,196,516
Income per common share - basic and diluted	$	0.21	$	0.13	$	0.48	$	0.25

Anti-dilutive shares		174,465		124,169		174,465		124,169

Note 4:

Investment Securities Available for Sale

The amortized cost and fair value of securities at ~~June~~September 30, 2018 and March 31, 2018, are summarized as follows:

Gross

Amortized

unrealized

Fair

June 30, 2018

cost

gains

losses

value

September 30, 2018

cost

gains

losses

value

U.S. government agencies

2,~~750~~746,~~087~~829

3435,~~435~~162

2,~~715~~711,~~652~~667

Municipal bonds

12,~~405~~376,~~766~~464

~~772~~884,~~923~~033

11,~~632~~492,~~843~~431

Corporate bonds

2,000,000

1650,~~750~~868

1,~~983~~949,~~250~~132

Mortgage-backed securities

5855,~~605~~208,~~648~~284

43,~~212~~390

2,~~302~~501,~~908~~915

5652,~~306~~709,~~952~~759

7572,~~761~~331,~~501~~577

43,~~212~~390

3,~~127~~471,~~016~~978

7268,~~638~~862,~~697~~989

			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2018	cost		gains		losses		value

U.S. government agencies	$	2,753,346	$	-	$	34,697	$	2,718,649
Municipal bonds		12,435,068		-		729,077		11,705,991
Corporate bonds		2,000,000		-		45,924		1,954,076
Mortgage-backed securities		61,078,665		12,993		2,066,238		59,025,420
	$	78,267,079	$	12,993	$	2,875,936	$	75,404,136

There were no sales of investment securities during the three and six months ended ~~June~~September 30, 2018. orProceeds from the sale of investment securities were $4,243,760 during the three and six months ended September 30, 2017, with gains of $23,352 and losses of $12,971.

As of ~~June~~September 30, 2018, and March 31, 2018, all mortgage-backed securities are backed by U.S. Government-Sponsored Enterprises (GSE’s), except one private label mortgage-backed security that was acquired in the Fraternity acquisition in May 2016 with a book value of $5338,~~850~~258 and fair value of $5438,~~709~~858 as of ~~June~~September 30, 2018.

As of ~~June~~September 30, 2018, and March 31, 2018, the Company had one security pledged to the Federal Reserve Bank with a book value of $744,186 at both dates and a fair value of $~~719~~713,~~728~~599 and $723,023, respectively.

The amortized cost and estimated fair value of debt securities by contractual maturity at June 30, 2018 and March 31, 2018 follow. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations.

	Available for Sale
	June 30, 2018				March 31, 2018
	Amortized		Fair		Amortized		Fair
	cost		value		cost		value
Maturing
Within one year	$	2,005,901	$	1,995,924	$	2,009,160	$	1,995,625
Over one to five years		1,230,371		1,190,018		1,231,928		1,196,368
Over five to ten years		3,576,063		3,524,030		3,578,827		3,500,641
Over ten years		10,343,518		9,621,773		10,368,499		9,686,082
Mortgage-backed securities, in monthly installments		58,605,648		56,306,952		61,078,665		59,025,420
	$	75,761,501	$	72,638,697	$	78,267,079	$	75,404,136

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

The ~~following~~amortized ~~table~~cost ~~presents~~and ~~the~~estimated ~~Company's~~fair ~~investments'~~value ~~gross~~of ~~unrealized~~debt ~~losses~~securities ~~and~~by ~~the~~contractual ~~corresponding~~maturity ~~fair~~at ~~values~~September by30, ~~investment~~2018 ~~category~~ and ~~length~~March of31, ~~time~~2018 ~~that~~follow. ~~the~~Actual ~~securities~~maturities ~~have~~may ~~been~~differ infrom acontractual ~~continuous~~maturities ~~unrealized~~because ~~loss~~borrowers ~~position~~may athave ~~June~~the ~~30,~~right ~~2018~~to ~~and~~call ~~March~~or ~~31,~~prepay ~~2018~~obligations.

	Less than 12 months				12 months or longer				Total
	Available for Sale
	Gross unrealized		Fair		Gross unrealized		Fair		Gross unrealized		Fair
	September 30, 2018				March 31, 2018
June 30, 2018	losses		value		losses		value		losses		value
	Amortized		Fair		Amortized		Fair
U.S. government agencies	$	24,458	$	719,728	$	9,977	$	1,995,924	$	34,435	$	2,715,652
	cost		value		cost		value
Municipal bonds		-		-		772,923		11,632,843		772,923		11,632,843
Maturing
Corporate bonds		-		-		16,750		1,983,250		16,750		1,983,250
Within one year	$	2,002,643	$	1,998,068	$	2,009,160	$	1,995,625
Mortgage-backed securities		494,184		18,259,112		1,808,724		37,779,118		2,302,908		56,038,230
Over one to five years		1,228,815		1,180,880		1,231,928		1,196,368
	$	518,642	$	18,978,840	$	2,608,374	$	53,391,135	$	3,127,016	$	72,369,975
Over five to ten years		3,573,299		3,476,232		3,578,827		3,500,641
Over ten years		10,318,536		9,498,050		10,368,499		9,686,082
Mortgage-backed securities, in monthly installments		55,208,284		52,709,759		61,078,665		59,025,420
	$	72,331,577	$	68,862,989	$	78,267,079	$	75,404,136

The following table presents the Company's investments' gross unrealized losses and the corresponding fair values by investment category and length of time that the securities have been in a continuous unrealized loss position at September 30, 2018 and March 31, 2018.

Less than 12 months

12 months or longer

Total

Gross unrealized

Fair

Gross unrealized

Fair

Gross unrealized

Fair

September 30, 2018

losses

value

losses

value

losses

value

U.S. government agencies

35,162

2,711,667

35,162

2,711,667

Municipal bonds

884,033

11,492,431

884,033

11,492,431

Corporate bonds

50,868

1,949,132

50,868

1,949,132

Mortgage-backed securities

185,975

6,707,755

2,315,940

45,756,778

2,501,915

52,464,533

185,975

6,707,755

3,286,003

61,910,008

3,471,978

68,617,763

	Less than 12 months				12 months or longer				Total
	Gross unrealized		Fair		Gross unrealized		Fair		Gross unrealized		Fair
March 31, 2018	losses		value		losses		value		losses		value

U.S. government agencies	$	21,163	$	723,023	$	13,534	$	1,995,625	$	34,697	$	2,718,648
Municipal bonds		-		-		729,077		11,705,991		729,077		11,705,991
Corporate bonds		-		-		45,924		1,954,076		45,924		1,954,076
Mortgage-backed securities		383,987		15,880,948		1,682,251		40,684,836		2,066,238		56,565,784
	$	405,150	$	16,603,971	$	2,470,786	$	56,340,528	$	2,875,936	$	72,944,499

The unrealized losses that exist are a result of market changes in interest rates since the original purchase. Management systematically evaluates investment securities for other-than-temporary declines in fair value on an annual basis from the date of purchase if the respective security is in a loss position. This analysis requires management to consider various factors, which include (1) duration and magnitude of the decline in value, (2) the financial condition of the issuer or issuers and (3) structure of the security.

An impairment loss is recognized in earnings if any of the following are true: (1) the Company intends to sell the debt security; (2) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) the Company does not expect to recover the entire amortized cost basis of the security. In situations where the Company intends to sell or when it is more likely than not that the Company will be required to sell the security, the entire impairment loss must be recognized in earnings. In all other situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in shareholders’ equity as a component of other comprehensive income, net of deferred tax.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Note 5:

Loans Receivable and Allowance for Loan Losses

Loans receivable, excluding loans held for sale, consist of the following at ~~June~~September 30, 2018 and March 31, 2018:

	June 30, 2018												March 31, 2018
	September 30, 2018												March 31, 2018
	Legacy (1)			Acquired			Total Loans			% of Total			Legacy (1)			Acquired			Total Loans			% of Total
Real estate loans:
One-to four-family:
Residential (2)	$	8483,~~252~~090,~~950~~271		$	7068,~~509~~932,~~208~~853		$	~~154~~152,~~762~~023,~~158~~124			4140	%	$	85,248,184		$	72,749,066		$	157,997,250			41	%
Residential construction		53,~~636~~639,~~504~~139			-			53,~~636~~639,~~504~~139			1	%		5,450,827			-			5,450,827			1	%
Investor (3)		87,~~822~~880,~~670~~161			17,~~210~~002,~~983~~668			2624,~~033~~882,~~653~~829			7	%		9,275,031			17,460,809			26,735,840			7	%
Commercial		~~102~~105,~~659~~679,~~016~~013			10,~~486~~017,~~192~~465			~~113~~115,~~145~~696,~~208~~478			3031	%		100,403,769			11,762,485			112,166,254			29	%
Commercial construction		2,~~550~~529,~~462~~160			~~854~~928,~~370~~008			3,~~404~~457,~~832~~168			1	%		5,763,784			1,352,019			7,115,803			2	%
Total real estate loans		~~203~~202,~~921~~817,~~602~~744			9996,~~060~~880,~~753~~994			~~302~~299,~~982~~698,~~355~~738			80	%		206,141,595			103,324,379			309,465,974			80	%
Commercial business (4)		3736,~~061~~134,~~370~~376			1,~~905~~755,~~770~~200			3837,~~967~~889,~~140~~576			10	%		38,302,739			1,841,226			40,143,965			10	%
Home equity loans		1314,~~735~~183,~~464~~532			5,~~475~~184,~~308~~176			19,~~210~~367,~~772~~708			5	%		13,956,327			6,039,462			19,995,789			5	%
Consumer (5)		1716,~~861~~973,~~626~~316			~~739~~719,~~300~~527			1817,~~600~~692,~~926~~843			5	%		18,849,448			766,063			19,615,511			5	%
Total Loans		~~272~~270,~~580~~108,~~062~~968			~~107~~104,~~181~~539,~~131~~897			~~379~~374,~~761~~648,~~193~~865			100	%		277,250,109			111,971,130			389,221,239			100	%
Net deferred loan origination fees and costs		(~~204~~194,~~650~~146	)		-			(~~204~~194,~~650~~146	)					(212,746	)		-			(212,746	)
Loan premium (discount)		1,~~844~~773,~~408~~078			(~~356~~288,~~912~~093	)		1,~~487~~484,~~496~~985						1,922,428			(510,036	)		1,412,392
	$	~~274~~271,~~219~~687,~~820~~900		$	~~106~~104,~~824~~251,~~219~~804		$	~~381~~375,~~044~~939,~~039~~704					$	278,959,791		$	111,461,094		$	390,420,885

(1)	As a result of the acquisition of Fraternity Community Bancorp, Inc., the parent company of Fraternity Federal Savings and Loan, in May 2016 and Fairmount Bancorp, Inc., the parent company of Fairmount Bank, in September 2015, we have segmented the portfolio into two components, loans originated by Hamilton Bank "Legacy" and loans acquired from Fraternity Community Bancorp, Inc. and Fairmount Bancorp, Inc. "Acquired".
(2)	"Legacy" one-to four-family residential real estate loans at March 31, 2018 includes $19.2 million of various loan pools purchased in the second half of fiscal 2018.
(3)	"Investor" loans are residential mortgage loans secured by non-owner occupied one-to four-family properties.
(4)	"Legacy" commercial business loans at March 31, 2018 includes a $15.5 million pool of commercial lease loans purchased in June 2017 and $3.2 million in guaranteed SBA loans purchased in second half of fiscal 2018.
(5)	"Legacy" consumer loans at March 31, 2018 includes $19.9 million of purchased loan pools consisting of recreational vehicles that were purchased in August and December 2017.

_________________________________________________

(1)

As a result of the acquisition of Fraternity Community Bancorp, Inc., the parent company of Fraternity Federal Savings and Loan, in May 2016 and Fairmount Bancorp, Inc., the parent company of Fairmount Bank, in September 2015, we have segmented the portfolio into two components, loans originated by Hamilton Bank "Legacy" and loans acquired from Fraternity Community Bancorp, Inc. and Fairmount Bancorp, Inc. "Acquired".

(2)	"Legacy" one-to four-family residential real estate loans at March 31, 2018 includes $19.2 million of various loan pools purchased in the second half of fiscal 2018.

(3)	"Investor" loans are residential mortgage loans secured by non-owner occupied one-to four-family properties.

(4)	"Legacy" commercial business loans at March 31, 2018 includes a $15.5 million pool of commercial lease loans purchased in June 2017 and $3.2 million in guaranteed SBA loans purchased in second half of fiscal 2018.

(5)	"Legacy" consumer loans at March 31, 2018 includes $19.9 million of purchased loan pools consisting of recreational vehicles that were purchased in August and December 2017.

Residential lending is generally considered to involve less risk than other forms of lending, although payment experience on these loans is dependent on economic and market conditions in the Bank's lending area. Construction loan repayments are generally dependent on the related properties or the financial condition of its borrower or guarantor. Accordingly, repayment of such loans can be more susceptible to adverse conditions in the real estate market and the regional economy.

A substantial portion of the Bank's loan portfolio is real estate loans secured by residential and commercial real estate properties located in the Baltimore metropolitan area. Loans are extended only after evaluation of a customer's creditworthiness and other relevant factors on a case-by-case basis. The Bank generally does not lend more than 75% - 95% of the appraised value of a property, depending on the type of loan, and requires private mortgage insurance on residential mortgages with loan-to-value ratios in excess of 80%. In addition, the Bank generally obtains personal guarantees of repayment from borrowers and/or others for construction loans and disburses the proceeds of those and similar loans only as work progresses on the related projects.

Commercial business loans are made to provide funds for equipment and general corporate needs. Repayment of a loan primarily uses the funds obtained from the operation of the borrower’s business. Commercial loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory. The Company’s loan portfolio also includes equipment leases, which consists of leases for essential commercial equipment used by small to medium sized businesses.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

~~The~~Commercial ~~home~~business ~~equity~~ loans ~~consist~~are ofmade ~~both conforming loans and revolving lines of credit~~ to ~~consumers~~provide ~~which~~funds ~~are~~for ~~secured~~equipment byand ~~residential~~general ~~real~~corporate ~~estate~~needs. Repayment ~~These~~of ~~loans~~a ~~are~~loan ~~typically~~primarily ~~secured~~uses ~~with~~the ~~second~~funds ~~mortgages~~obtained onfrom the ~~homes.~~operation ~~Consumer~~of ~~loans~~the ~~include~~borrower’s ~~share~~business. Commercial loans, ~~installment~~also ~~loans~~include ~~and,~~lines toof acredit ~~lesser~~that ~~extent,~~are ~~personal~~utilized ~~lines~~to offinance ~~credit. Share~~a ~~loans~~borrower’s ~~represent~~short-term ~~loans~~credit ~~that~~needs ~~are~~and/or ~~collateralized~~to byfinance a ~~certificate~~percentage of ~~deposit~~eligible orreceivables ~~other~~and ~~deposit product~~inventory. ~~Installment~~The ~~loans~~Company’s ~~are~~loan ~~used~~portfolio byalso ~~customers~~includes toequipment ~~purchase~~leases, ~~primarily~~which ~~automobiles,~~consists ~~but~~of ~~may~~leases befor ~~used~~essential tocommercial ~~also~~equipment ~~purchase~~used ~~boats~~by ~~and~~small ~~recreational~~to ~~vehicles~~medium sized businesses.

The ~~following~~home ~~table~~equity ~~details~~loans ~~activity~~consist inof ~~the~~both ~~allowance~~conforming ~~for~~loans ~~loan~~and ~~losses~~revolving lines of credit to consumers which are secured by ~~portfolio~~residential ~~segment~~real ~~for~~estate. These loans are typically secured with second mortgages on the ~~three~~homes. ~~months~~Consumer ~~ended~~loans ~~June~~include 30share loans, ~~2018~~installment loans and, ~~2017.~~to ~~The~~a ~~allowance~~lesser ~~for~~extent, ~~loan~~personal ~~losses~~lines ~~allocated~~of tocredit. Share ~~each~~loans ~~portfolio~~represent ~~segment~~loans isthat ~~not~~are ~~necessarily~~collateralized ~~indicative~~by a certificate of ~~future~~deposit ~~losses~~or inother ~~any~~deposit ~~particular~~product. ~~portfolio~~Installment ~~segment~~loans ~~and~~are ~~does~~used ~~not~~by ~~restrict~~customers ~~the~~to ~~use~~purchase ofprimarily ~~the~~automobiles; ~~allowance~~but may be used to ~~absorb~~also ~~losses~~purchase inboats ~~other~~and ~~portfolio~~recreational ~~segments~~vehicles.

	June 30, 2018
Three Months Ended June 30, 2018	Residential Real Estate			Investor Real Estate			Commercial Real Estate			Commercial Construction			Commercial Business			Home Equity			Consumer			Total
Allowance for credit losses:
Beginning balance	$	608,723		$	51,690		$	1,253,383		$	33,430		$	673,982		$	69,459		$	131,236		$	2,821,903
Charge-offs		(8,047	)		(5,580	)		(31,320	)		-			-			-			(2,465	)		(47,412	)
Recoveries		767			65			-			-			-			-			1,664			2,496
Provision for credit losses		(232	)		17,331			133,823			(18,637	)		(64,610	)		(1,192	)		(6,483	)		60,000
Ending balance	$	601,211		$	63,506		$	1,355,886		$	14,793		$	609,372		$	68,267		$	123,952		$	2,836,987
Allowance allocated to:
Legacy Loans:
Individually evaluated for impairment	$	261,902		$	-		$	-		$	-		$	-		$	-		$	-		$	261,902
Collectively evaluated for impairment		339,309			63,506			1,355,886			14,793			609,372			68,267			123,952			2,575,085
Acquired Loans:
Individually evaluated for impairment	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Collectively evaluated for impairment		-			-			-			-			-			-			-			-

The following table details activity in the allowance for loan losses by portfolio segment for the three and six-month periods ended September 30, 2018 and 2017. The allowance for loan losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.

Three Months Ended September 30, 2018

Residential Real Estate

Investor

Real Estate

Commercial Real Estate

Commercial Construction

Commercial Business

Home

Equity

Consumer

Unallocated

Total

Allowance for credit losses:

Beginning balance

601,211

63,506

1,355,886

14,793

609,372

68,267

123,952

2,836,987

Charge-offs

(5,722

)

(2,531

)

(75,000

)

(83,253

)

Recoveries

1,475

31,320

1,904

34,699

Provision for credit losses

68,712

253,596

(74,765

)

(2,403

)

(1,761

)

4,564

(27,180

)

21,733

242,496

Ending balance

665,676

314,571

1,312,441

12,390

532,611

72,831

98,676

21,733

3,030,929

Six Months Ended September 30, 2018	Residential Real Estate			Investor Real Estate			Commercial Real Estate			Commercial Construction			Commercial Business			Home Equity		Consumer			Unallocated		Total
Allowance for credit losses:
Beginning balance	$	608,723		$	51,690		$	1,253,383		$	33,430		$	673,982		$	69,459	$	131,236		$	-	$	2,821,903
Charge-offs		(13,769	)		(8,111	)		(31,320	)		-			(75,000	)		-		(2,465	)		-		(130,665	)
Recoveries		2,242			64			31,320			-			-			-		3,569			-		37,195
Provision for credit losses		68,480			270,928			59,058			(21,040	)		(66,371	)		3,372		(33,664	)		21,733		302,496
Ending balance	$	665,676		$	314,571		$	1,312,441		$	12,390		$	532,611		$	72,831	$	98,676		$	21,733	$	3,030,929

Allowance allocated to:
Legacy Loans:
Individually evaluated for impairment	$	257,866		$	1,857		$	-		$	-		$	-		$	-	$	-		$	-	$	259,723
Collectively evaluated for impairment		260,437			50,278			1,272,762			11,381			528,363			57,845		98,491			21,733		2,301,290

Acquired Loans:
Individually evaluated for impairment	$	-		$	-		$	-		$	-		$	-		$	-	$	-		$	-	$	-
Collectively evaluated for impairment		147,373			262,436			39,679			1,009			4,248			14,986		185			-		469,916

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

	June 30, 2017
Three Months Ended September 30, 2017	Residential Real Estate			Investor Real Estate			Commercial Real Estate			Commercial Construction			Commercial Business			Home Equity			Consumer			Unallocated		Total
Three Months Ended June 30, 2017	Residential Real Estate				Investor Real Estate				Commercial Real Estate				Commercial Construction				Commercial Business				Home Equity			Consumer			Total
Allowance for credit losses:
Allowance for credit losses:
Beginning balance	$	544,557		$	64,471		$	1,312,158		$	26,987		$	343,094		$	64,661		$	1,600		$	-	$	2,357,528
Beginning balance	$	553,539			$	35,275			$	1,375,894			$	9,031			$	149,461			$	70,071		$	1,544		$	2,194,815
Charge-offs		(8,907	)		(11,044	)		-			-			-			-			(486	)		-		(20,437	)
Charge-offs		-				(4,078	)			-				-				-				-			-			(4,078	)
Recoveries		-			12,822			-			-			206			-			872			-		13,900
Recoveries		-				5,307				-				-				175				-			1,309			6,791
Provision for credit losses		(7,362	)		(13,994	)		48,275			(14,913	)		(16,170	)		(2,091	)		126,255			-		120,000
Provision for credit losses		(8,982	)			27,967				(63,736	)			17,956				193,458				(5,410	)		(1,253	)		160,000
Ending balance	$	528,288		$	52,255		$	1,360,433		$	12,074		$	327,130		$	62,570		$	128,241		$	-	$	2,470,991
Ending balance	$	544,557			$	64,471			$	1,312,158			$	26,987			$	343,094			$	64,661		$	1,600		$	2,357,528
Allowance allocated to:
Legacy Loans:
Individually evaluated for impairment	$	278,573			$	-			$	-			$	-			$	-			$	-		$	-		$	278,573
Collectively evaluated for impairment		265,984				64,471				1,312,158				26,987				343,094				64,661			1,600			2,078,955
Acquired Loans:
Individually evaluated for impairment	$	-			$	-			$	-			$	-			$	-			$	-		$	-		$	-
Collectively evaluated for impairment		-				-				-				-				-				-			-			-

Our recorded investment in loans at June 30, 2018 and 2017 related to each balance in the allowance for probable loan losses by portfolio segment and disaggregated on the basis of our impairment methodology was as follows:

Six Months Ended September 30, 2017	Residential Real Estate			Investor Real Estate			Commercial Real Estate			Commercial Construction		Commercial Business		Home Equity			Consumer			Unallocated		Total
Allowance for credit losses:
Beginning balance	$	553,539		$	35,275		$	1,375,894		$	9,031	$	149,461	$	70,071		$	1,544		$	-	$	2,194,815
Charge-offs		(8,907	)		(15,122	)		-			-		-		-			(486	)		-		(24,515	)
Recoveries		-			18,129			-			-		381		-			2,181			-		20,691
Provision for credit losses		(16,344	)		13,973			(15,461	)		3,043		177,288		(7,501	)		125,002			-		280,000
Ending balance	$	528,288		$	52,255		$	1,360,433		$	12,074	$	327,130	$	62,570		$	128,241		$	-	$	2,470,991

Allowance allocated to:
Legacy Loans:
Individually evaluated for impairment	$	270,329		$	-		$	-		$	-	$	-	$	-		$	-		$	-	$	270,329
Collectively evaluated for impairment		257,959			52,255			1,360,433			12,074		327,130		62,570			128,241			-		2,200,662

Acquired Loans:
Individually evaluated for impairment	$	-		$	-		$	-		$	-	$	-	$	-		$	-		$	-	$	-
Collectively evaluated for impairment		-			-			-			-		-		-			-			-		-

	June 30, 2018
	Residential Real Estate		Investor Real Estate		Commercial Real Estate		Commercial Construction		Commercial Business		Home Equity		Consumer		Total
Loans:
Legacy Loans:
Individually evaluated for impairment	$	1,784,758	$	58,599	$	7,505,365	$	-	$	858,762	$	7,408	$	19,853	$	10,234,745
Collectively evaluated for impairment		88,104,696		8,764,071		95,153,651		2,550,462		36,202,608		13,728,056		17,841,773		262,345,317
Ending balance	$	89,889,454	$	8,822,670	$	102,659,016	$	2,550,462	$	37,061,370	$	13,735,464	$	17,861,626	$	272,580,062
Acquired Loans:
Individually evaluated for impairment	$	892,087	$	433,174	$	197,259	$	-	$	-	$	-	$	58,706	$	1,581,226
Collectively evaluated for impairment		69,617,121		16,777,808		10,288,933		854,370		1,905,770		5,475,308		680,595		105,599,905
Ending balance	$	70,509,208	$	17,210,982	$	10,486,192	$	854,370	$	1,905,770	$	5,475,308	$	739,301	$	107,181,131

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

	June 30, 2017
	Residential Real Estate		Investor Real Estate		Commercial Real Estate		Commercial Construction		Commercial Business		Home Equity		Consumer		Total
Loans:
Legacy Loans:
Individually evaluated for impairment	$	1,762,599	$	7,772	$	1,546,811	$	-	$	723,753	$	10,980	$	-	$	4,051,915
Collectively evaluated for impairment		73,656,157		7,803,689		91,081,612		2,326,457		34,615,330		14,105,667		2,135,569		225,724,481
Ending balance	$	75,418,756	$	7,811,461	$	92,628,423	$	2,326,457	$	35,339,083	$	14,116,647	$	2,135,569	$	229,776,396
Acquired Loans:
Individually evaluated for impairment	$	1,177,729	$	183,728	$	203,215	$	-	$	-	$	-	$	68,772	$	1,633,444
Collectively evaluated for impairment		79,118,824		18,249,669		14,196,187		1,191,507		2,037,264		6,668,685		859,928		122,322,064
Ending balance	$	80,296,553	$	18,433,397	$	14,399,402	$	1,191,507	$	2,037,264	$	6,668,685	$	928,700	$	123,955,508

Our recorded investment in loans at September 30, 2018 and 2017 related to each balance in the allowance for probable loan losses by portfolio segment and disaggregated on the basis of our impairment methodology was as follows:

September 30, 2018

Residential Real Estate

Investor

Real Estate

Commercial Real Estate

Commercial Construction

Commercial Business

Home

Equity

Consumer

Total

Legacy Loans:

Individually evaluated for impairment

1,710,906

59,426

4,251,209

769,307

7,254

7,208

6,805,310

Collectively evaluated for impairment

85,018,504

7,820,735

101,427,804

2,529,160

35,365,069

14,176,278

16,966,108

263,303,658

Ending balance

86,729,410

7,880,161

105,679,013

2,529,160

36,134,376

14,183,532

16,973,316

270,108,968

Acquired Loans:

Individually evaluated for impairment

1,002,307

499,838

196,697

57,772

1,756,614

Collectively evaluated for impairment

67,930,546

16,502,829

9,820,768

928,008

1,755,200

5,184,176

661,756

102,783,283

Ending balance

68,932,853

17,002,667

10,017,465

928,008

1,755,200

5,184,176

719,528

104,539,897

September 30, 2017	Residential Real Estate		Investor Real Estate		Commercial Real Estate		Commercial Construction		Commercial Business		Home Equity		Consumer		Total
Legacy Loans:
Individually evaluated for impairment	$	1,684,871	$	5,294	$	4,707,655	$	-	$	702,352	$	22,564	$	-	$	7,122,736
Collectively evaluated for impairment		73,121,605		9,622,035		90,250,315		2,081,647		33,340,191		13,641,850		20,178,064		242,235,707
Ending balance	$	74,806,476	$	9,627,329	$	94,957,970	$	2,081,647	$	34,042,543	$	13,664,414	$	20,178,064	$	249,358,443

Acquired Loans:
Individually evaluated for impairment	$	1,260,264	$	210,988	$	201,573	$	-	$	-	$	-	$	64,237	$	1,737,062
Collectively evaluated for impairment		76,403,162		18,212,904		11,912,984		1,058,534		1,668,783		6,459,424		838,003		116,553,794
Ending balance	$	77,663,426	$	18,423,892	$	12,114,557	$	1,058,534	$	1,668,783	$	6,459,424	$	902,240	$	118,290,856

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Past due loans, segregated by age and class of loans, as of ~~June~~and for the six months ended September 30, 2018 and as of and for the year ended March 31, 2018, were as follows:

	June 30, 2018						March 31, 2018
	September 30, 2018						March 31, 2018
	Legacy		Acquired		Total		Legacy		Acquired		Total
Current	$	~~263~~264,~~581~~810,~~744~~304	$	~~105~~102,~~746~~404,~~394~~079	$	~~369~~367,~~328~~214,~~138~~383	$	270,807,643	$	109,972,473	$	380,780,116
Accruing past due loans:
30-59 days past due:
Real estate loans:
Residential		7485,~~733~~928		82234,~~995~~284		~~157~~320,~~728~~212		63,618		689,364		752,982
Investor		-		-		-		-		-		-
Commercial		-		-		-		-		-		-
Commercial construction		-		-160,000		-160,000		-		-		-
Commercial business		~~14,573~~-		-		~~14,573~~-		135,502		-		135,502
Home equity loans		-		-33,031		-33,031		-		-		-
Consumer		2867,~~161~~955		2854,~~005~~050		56122,~~166~~005		148,876		-		148,876
Total 30-59 days past due		~~117~~153,~~467~~883		~~111~~481,~~000~~365		~~228~~635,~~467~~248		347,996		689,364		1,037,360
60-89 days past due:
Real estate loans:
Residential		269,~~172~~330		-678,017		26687,~~172~~347		70,291		-		70,291
Investor		-		-		-		-		-		-
Commercial		-		-		-		-		-		-
Commercial construction		-		-		-		-		-		-
Commercial business		-		-		-		134,524		-		134,524
Home equity loans		-		-		-		-		-		-
Consumer		-28,773		-		-28,773		28,300		-		28,300
Total 60-89 days past due		2638,~~172~~103		-678,017		26716,~~172~~120		233,115		-		233,115
90 or more days past due:
Real estate loans:
Residential		-		-		-		-		-		-
Investor		~~515~~224,~~243~~296		~~517~~113,~~040~~449		1337,~~032,283~~745		734,818		471,423		1,206,241
Commercial		-		~~197,259~~-		~~197,259~~-		-		-		-
Commercial construction		-		-		-		-		-		-
Commercial business		-		-		-		-		-		-
Home equity loans		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total 90 or more days past due		~~515~~224,~~243~~296		~~714~~113,~~299~~449		1337,~~229,542~~745		734,818		471,423		1,206,241
Total accruing past due loans		~~658~~416,~~882~~282		~~825~~1,~~299~~272,831		1,~~484~~689,~~181~~113		1,315,929		1,160,787		2,476,716
Non-accruing loans:
Real estate loans:
Residential		~~515~~397,~~611~~300		~~315~~305,~~038~~198		~~830~~702,~~649~~498		526,584		338,060		864,644
Investor		5859,~~599~~426		~~294~~361,~~400~~092		~~352~~420,~~999~~518		60,949		300,872		361,821
Commercial		74,~~505~~251,~~364~~209		-196,697		74,~~505~~447,~~364~~906		4,356,264		198,938		4,555,202
Commercial construction		-		-		-		-		-		-
Commercial business		~~240~~167,~~009~~239		-		~~240~~167,~~009~~239		165,285		-		165,285
Home equity loans		-		-		-		12,605		-		12,605
Consumer		197,~~853~~208		-		197,~~853~~208		4,850		-		4,850
Non-accruing loans:		84,~~339~~882,~~436~~382		~~609~~862,~~438~~987		85,~~948~~745,~~874~~369		5,126,537		837,870		5,964,407
Total Loans	$	~~272~~270,~~580~~108,~~062~~968	$	~~107~~104,~~181~~539,~~131~~897	$	~~379~~374,~~761~~648,~~193~~865	$	277,250,109	$	111,971,130	$	389,221,239
Nonaccrual interest not accrued:
Real estate loans:
Residential	$	2,~~248~~068	$	45,~~308~~797	$	67,~~556~~865	$	8,250	$	53,120	$	61,370
Investor		~~969~~1,475		48,~~138~~256		59,~~107~~731		8,513		15,604		24,117
Commercial		~~184~~245,~~891~~071		-959		~~184~~246,~~891~~030		294,619		-		294,619
Commercial construction		-		-		-		-		-		-
Commercial business		713,~~462~~166		-		713,~~462~~166		12,891		-		12,891
Home equity loans		-		-		-		436		-		436
Consumer		~~446~~147		-		~~446~~147		385		-		385
Total nonaccrual interest not accrued	$	~~196~~261,~~016~~927	$	815,~~446~~012	$	~~204~~276,~~462~~939	$	325,094	$	68,724	$	393,818

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Impaired ~~Loans~~loans as of and for the three and six months ended ~~June~~September 30, 2018 and 2017, and the year ended March 31, 2018, was as follows:

	Impaired Loans at June 30, 2018						Three Months Ended June 30, 2018
	Impaired Loans at September 30, 2018						Three months ended September 30, 2018				Six months ended September 30, 2018
	Unpaid
	Contractual						Average		Interest		Average		Interest
	Principal		Recorded		Related		Recorded		Income		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized
Legacy:	Balance		Investment		Allowance		Investment		Recognized		Investment		Recognized
Legacy:
With no related allowance recorded:
With no related allowance recorded:
Real estate loans:
Real estate loans:
Residential	$	631,126	$	467,785	$	-	$	470,171	$	3,309	$	477,820	$	4,100
Residential	$	630,805	$	484,375	$	-	$	490,726	$	10,492
Investor		69,151		27,869		-		29,105		-		29,690		-
Investor		124,696		58,599		-		59,355		1,312
Commercial		6,399,358		4,251,209		-		4,251,209		-		4,265,903		53,278
Commercial		9,565,282		7,505,365		-		5,957,014		53,278
Commercial construction		-		-		-		-		-		-		-
Commercial construction		-		-		-
Commercial business		1,595,928		769,307		-		821,814		23,022		850,675		44,937
Commercial business		1,619,151		858,762		-		827,871		8,863
Home equity loans		7,254		7,254		-		7,279		54		12,148		133
Home equity loans		34,472		7,408		-		17,016		953
Consumer		7,208		7,208		-		7,234		75		7,392		159
Consumer		22,382		19,853		-		19,577		-
With an allowance recorded:
With an allowance recorded:
Real estate loans:
Real estate loans:
Residential	$	1,257,297	$	1,243,121	$	257,866	$	1,245,847	$	12,419	$	1,250,755	$	24,918
Residential		1,327,589		1,300,383		261,902		1,312,130		13,834
Investor		53,596		31,557		1,857		31,257		-		30,479		-
Investor		-		-		-		-		-
Commercial		-		-		-		-		-		-		-
Commercial		-		-		-		-		-
Commercial construction		-		-		-		-		-		-		-
Commercial construction		-		-		-		-		-
Commercial business		-		-		-		-		-		-		-
Commercial business		-		-		-		-		-
Home equity loans		-		-		-		-		-		-		-
Home equity loans		-		-		-		-		-
Consumer		-		-		-		-		-		-		-
Consumer		-		-		-		-		-
Total legacy impaired		10,020,918		6,805,310		259,723		6,863,916		38,879		6,924,862		127,525
Total legacy impaired		13,324,377		10,234,745		261,902		8,683,689		88,732
Acquired (1):
Acquired (1):
With no related allowance recorded:
With no related allowance recorded:
Real estate loans:
Real estate loans:
Residential		1,096,210		1,002,307		-		1,005,999		5,856		1,008,837		16,979
Residential		1,052,825		892,087		-		936,819		10,156
Investor		769,766		499,838		-		501,079		4,944		500,429		9,137
Investor		755,381		433,174		-		437,401		9,184
Commercial		246,697		196,697		-		196,697		618		197,398		2,481
Commercial		247,259		197,259		-		198,098		1,863
Commercial construction		-		-		-		-		-		-		-
Commercial construction		-		-		-		-		-
Commercial business		-		-		-		-		-		-		-
Commercial business		-		-		-		-		-
Home equity loans		38,310		-		-		-		329		-		650
Home equity loans		39,418		-		-		-		419
Consumer		91,462		57,772		-		58,052		1,134		58,812		2,581
Consumer		93,577		58,706		-		59,571		2,418
With an allowance recorded:
With an allowance recorded:
Real estate loans:
Real estate loans:
Residential		-		-		-		-		-		-		-
Residential		-		-		-		-		-
Investor		-		-		-		-		-		-		-
Investor		-		-		-		-		-
Commercial		-		-		-		-		-		-		-
Commercial		-		-		-		-		-
Commercial construction		-		-		-		-		-		-		-
Commercial construction		-		-		-		-		-
Commercial business		-		-		-		-		-		-		-
Commercial business		-		-		-		-		-
Home equity loans		-		-		-		-		-		-		-
Home equity loans		-		-		-		-		-
Consumer		-		-		-		-		-		-		-
Consumer		-		-		-		-		-
Total acquired impaired		2,242,445		1,756,614		-		1,761,827		12,881		1,765,476		31,828
Total acquired impaired		2,188,460		1,581,226		-		1,631,889		24,040
Total impaired	$	12,263,363	$	8,561,924	$	259,723	$	8,625,743	$	51,760	$	8,690,338	$	159,353
Total impaired	$	15,512,837	$	11,815,971	$	261,902	$	10,315,578	$	112,772

(1)

Generally accepted accounting principles require that we record acquired loans at fair value at acquisition, which includes a discount for loans with credit impairment. These purchased credit impaired loans are not performing according to their contractual terms and meet the definition of an impaired loan. Although we do not accrue interest income at the contractual rate on these loans, we do recognize an accretable yield as interest income to the extent such yield is supported by cash flow analysis of the underlying loans.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

	Impaired Loans at June 30, 2017						Three Months Ended June 30, 2017
	Impaired Loans at September 30, 2017						Three months ended September 30, 2017				Six months ended September 30, 2017
	Unpaid
	Contractual						Average		Interest		Average		Interest
	Principal		Recorded		Related		Recorded		Income		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized
Legacy:	Balance		Investment		Allowance		Investment		Recognized		Investment		Recognized
Legacy:
With no related allowance recorded:
With no related allowance recorded:
Real estate loans:
Real estate loans:
Residential	$	515,922	$	379,988	$	-	$	384,968	$	321	$	387,950	$	967
Residential	$	581,380	$	449,473	$	-	$	453,305	$	288
Investor		9,909		5,294				5,344		-		5,451		-
Investor		50,947		7,772		-		7,847		-
Commercial		6,594,464		4,707,655		-		4,707,655		-		4,712,233		1,077
Commercial		3,433,621		1,546,811		-		1,546,812		-
Commercial construction		-		-		-		-		-		-		-
Commercial construction		-		-		-		-		-
Commercial business		1,109,333		702,352		-		710,139		24,086		725,401		49,238
Commercial business		1,138,939		723,753		-		740,966		25,151
Home equity loans		48,781		22,564		-		22,997		77		23,611		240
Home equity loans		36,734		10,980		-		11,510		93
Consumer						-		-		-		-		-
Consumer		-		-		-		-		-
With an allowance recorded:
With an allowance recorded:
Real estate loans:
Real estate loans:
Residential		1,332,333		1,304,883		270,329		1,316,635		12,748		1,317,648		25,550
Residential		1,340,394		1,313,126		278,573		1,317,495		12,802
Investor		-		-		-		-		-		-		-
Investor		-		-		-		-		-
Commercial		-		-		-		-		-		-		-
Commercial		-		-		-		-		-
Commercial construction		-		-		-		-		-		-		-
Commercial construction		-		-		-		-		-
Commercial business		-		-		-		-		-		-		-
Commercial business		-		-		-		-		-
Home equity loans		-		-		-		-		-		-		-
Home equity loans		-		-		-		-		-
Consumer		-		-		-		-		-		-		-
Consumer		-		-		-		-		-
Total legacy impaired		9,610,742		7,122,736		270,329		7,147,738		37,232		7,172,294		77,072
Total legacy impaired		6,582,015		4,051,915		278,573		4,077,935		38,334
Acquired (1):
Acquired (1):
With no related allowance recorded:
With no related allowance recorded:
Real estate loans:
Real estate loans:
Residential		1,447,903		1,260,264		-		1,271,653		14,444		1,277,955		27,264
Residential		1,370,261		1,177,729		-		1,184,445		11,221
Investor		210,983		210,988		-		213,788		2,999		206,636		6,810
Investor		333,362		183,728		-		168,815		3,102
Commercial		251,573		201,573		-		202,395		1,900		203,121		3,813
Commercial		253,215		203,215		-		203,870		1,912
Commercial construction		-		-		-		-		-		-		-
Commercial construction		-		-		-		-		-
Commercial business		-		-		-		-		-		-		-
Commercial business		-		-		-		-		-
Home equity loans		42,927		-		-		-		313		-		600
Home equity loans		44,852		-		-		-		288
Consumer		101,550		64,237		-		64,832		1,356		65,271		3,126
Consumer		107,670		68,772		-		70,988		1,927
With an allowance recorded:
With an allowance recorded:
Real estate loans:
Real estate loans:
Residential		-		-		-		-		-		-		-
Residential		-		-		-		-		-
Investor		-		-		-		-		-		-		-
Investor		-		-		-		-		-
Commercial		-		-		-		-		-		-		-
Commercial		-		-		-		-		-
Commercial construction		-		-		-		-		-		-		-
Commercial construction		-		-		-		-		-
Commercial business		-		-		-		-		-		-		-
Commercial business		-		-		-		-		-
Home equity loans		-		-		-		-		-		-		-
Home equity loans		-		-		-		-		-
Consumer		-		-		-		-		-		-		-
Consumer		-		-		-		-		-
Total acquired impaired		2,054,936		1,737,062		-		1,752,668		21,012		1,752,983		41,613
Total acquired impaired		2,109,360		1,633,444		-		1,628,118		18,450
Total impaired	$	11,665,678	$	8,859,798	$	270,329	$	8,900,406	$	58,244	$	8,925,277	$	118,685
Total impaired	$	8,691,375	$	5,685,359	$	278,573	$	5,706,053	$	56,784

(1)

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

	Impaired Loans at March 31, 2018						For the Year Ended March 31, 2018
	Unpaid
	Contractual						Average		Interest
	Principal		Recorded		Related		Recorded		Income
	Balance		Investment		Allowance		Investment		Recognized
Legacy:	Balance		Investment		Allowance		Investment		Recognized
Legacy:
With no related allowance recorded:
Real estate loans:
Residential	$	665,051	$	517,600	$	-	$	548,636	$	9,257
Investor		126,389		60,949		-		118,175		3,772
Commercial		6,487,088		4,356,264		-		4,634,504		1,077
Commercial construction		-		-		-		-		-
Commercial business		1,562,756		795,410		-		1,082,773		103,474
Home equity loans		47,650		20,595		-		22,604		392
Consumer		48,115		34,266		-		38,514		1,576
With an allowance recorded:
Real estate loans:
Residential		1,336,078		1,309,440		266,256		1,328,919		51,928
Investor		-		-		-		-		-
Commercial		-		-		-		-		-
Commercial construction		-		-		-		-		-
Commercial business		-		-		-		-		-
Home equity loans		-		-		-		-		-
Consumer		-		-		-		-		-
Total legacy impaired		10,273,127		7,094,524		266,256		7,774,125		171,476
Acquired (1):
With no related allowance recorded:
Real estate loans:
Residential		1,082,484		922,252		-		945,602		26,437
Investor		682,045		444,254		-		659,246		37,368
Commercial		248,938		198,938		-		201,519		7,336
Commercial construction		-		-		-		-		-
Commercial business		-		-		-		-		-
Home equity loans		40,473		-		-		-		1,329
Consumer		95,986		60,371		-		64,013		6,062
With an allowance recorded:
Real estate loans:
Residential		-		-		-		-		-
Investor		-		-		-		-		-
Commercial		-		-		-		-		-
Commercial construction		-		-		-		-		-
Commercial business		-		-		-		-		-
Home equity loans		-		-		-		-		-
Consumer		-		-		-		-		-
Total acquired impaired		2,149,926		1,625,815		-		1,870,380		78,532
Total impaired	$	12,423,053	$	8,720,339	$	266,256	$	9,644,505	$	250,008

(1)

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

The following table documents changes in the carrying amount of acquired impaired loans (Purchased Credit Impaired or “PCI”) for the ~~three~~six months ended ~~June~~September 30, 2018 and 2017, along with the outstanding balance at the end of the period:

	June 30, 2018			June 30, 2017
	September 30, 2018			September 30, 2017
Recorded investment at beginning of period	$	1,021,424		$	1,341,935
Accretion		12,~~526~~089			~~(360~~725	)
Reductions for payments		(21101,~~493~~846	)		(46113,~~664~~688	)
Recorded investment at end of period	$	1921,~~001,457~~667		$	1,~~294~~228,~~911~~972
Oustanding principal balance at end of period	$	1,~~247~~122,~~145~~792		$	1,~~630~~549,~~658~~586

A summary of changes in the accretable yield for PCI loans for the ~~three~~six months ended ~~June~~September 30, 2018 and 2017 is as follows:

	June 30, 2018			June 30, 2017
	September 30, 2018			September 30, 2017
Accretable yield, beginning of period	$	31,895		$	59,639
Accretion		(12,~~526~~089	)		~~360~~(725	)
Reclassification from nonaccretable difference		-			-
Accretable yield, end of period	$	3029,~~369~~806		$	5958,~~999~~914

Impaired loans also include certain loans that have been modified in troubled debt restructurings (TDRs) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Bank's loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Generally, nonaccrual loans that are modified and considered TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower's sustained repayment performance for a reasonable period, generally six months.

A summary of TDRs at ~~June~~September 30, 2018 and March 31, 2018 follows:

	Number of
June 30, 2018	contracts		Performing		Nonperforming		Total
September 30, 2018	contracts		Performing		Nonperforming		Total
Real estate loans:
Residential		16	$	1,~~242~~304,~~975~~276	$	~~306~~230,~~235~~953	$	1,~~549~~535,~~210~~229
Investor		-		-		-		-
Commercial		2		-		1,195,421		1,195,421
Commercial construction		-		-		-		-
Commercial business		1		~~604~~602,~~181~~067		-		~~604~~602,~~181~~067
Home equity loans		-		-		-		-
Consumer		-		-		-		-
		19	$	1,~~847~~906,~~156~~343	$	1,~~501~~426,~~656~~374	$	3,~~348~~332,~~812~~717

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

	Number of
March 31, 2018	contracts		Performing		Nonperforming		Total
Real estate loans:
Residential		15	$	1,230,166	$	312,964	$	1,543,130
Investor		-		-		-		-
Commercial		2		-		1,195,421		1,195,421
Commercial construction		-		-		-		-
Commercial business		1		605,488		-		605,488
Home equity loans		-		-		-		-
Consumer		-		-		-		-
		18	$	1,835,654	$	1,508,385	$	3,344,039

The following table presents the number of contracts and the dollar amount of TDRs that were added during the ~~three~~six-month period ended ~~June~~September 30, 2018 and 2017. There were no TDRs added during the three-month period ended September 30, 2018 and 2017. The amount shown reflects the outstanding loan balance at the time of the modification. There are no commitments to extend credit under existing TDRs as of ~~June~~September 30, 2018.

Loans Modified as a TDR for the Three Months Ended

Loans Modified as a TDR for the six months ended

June 30, 2018

June 30, 2017

September 30, 2018

September 30, 2017

Troubled Debt Restructurings

Number of contracts

Outstanding recorded investment

Number of contracts

Outstanding recorded investment

Number of

Outstanding recorded

Number of

Outstanding recorded

Troubled Debt Restructurings

contracts

investment

contracts

investment

Real estate loans:

Residential

20,866

1,931

One-to four-family

20,866

1,931

There were no TDRs that defaulted in the three or six months ended ~~June~~September 30, 2018 and 2017. Payment default under a TDR is defined as any TDR that is 90 days or more past due following the time that the loan was modified or the inability of the TDR to make the required payment subsequent to the modification.

In calculating the allowance for loan losses, individual TDRs are evaluated for impairment. TDRs are evaluated for impairment based upon either the present value of cash flows or, if collateral dependent, the lower of cost or fair value of the underlying collateral. If it is determined that the cash flows or underlying collateral is less than the carrying amount of the loan, the difference in value will be charged-off through earnings, unless the TDR is performing, in which case a specific reserve may be set-up for that TDR.

Credit quality indicators

As part of the ongoing monitoring of the credit quality of the Bank's loan portfolio, management tracks certain credit quality indicators including trends related to the risk grade of loans, the level of classified loans, net charge offs, nonperforming loans, and the general economic conditions in the Bank's market.

The Bank utilizes a risk grading matrix to assign a risk grade to each of its loans. A description of the general characteristics of loans characterized as watch list or classified is as follows:

Pass

A pass loan is considered of sufficient quality to preclude a special mention or an adverse rating. Pass assets generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Special Mention

A special mention loan has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank's credit position at some future date. Special mention loans are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

Loans that would primarily fall into this notational category could have been previously classified adversely, but the deficiencies have since been corrected. Management should closely monitor recent payment history of the loan and value of the collateral.

Borrowers may exhibit poor liquidity and leverage positions resulting from generally negative cash flow or negative trends in earnings. Access to alternative financing may be limited to finance companies for business borrowers and may be unavailable for commercial real estate borrowers.

Substandard

A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness, or weaknesses, that jeopardize the collection or liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. This will be the measurement for determining if a loan is impaired.

Borrowers may exhibit recent or unexpected unprofitable operations, an inadequate debt service coverage ratio, or marginal liquidity and capitalization. These loans require more intense supervision by Bank management.

Doubtful

A doubtful loan has all the weaknesses inherent as a substandard loan with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. A loan classified as doubtful exhibits loss potential. However, there is still sufficient reason to permit the loan to remain on the books. A doubtful classification could reflect the deterioration of the primary source of repayment and serious doubt exists as to the quality of the secondary source of repayment.

Doubtful classifications should be used only when a distinct and known possibility of loss exists. When identified, adequate loss should be recorded for the specific assets. The entire asset should not be classified as doubtful if a partial recovery is expected, such as liquidation of the collateral or the probability of a private mortgage insurance payment is likely.

Loss

Loans classified as loss are considered uncollectable and of such little value that their continuance as loans is unjustified. A loss classification does not mean a loan has absolutely no value; partial recoveries may be received in the future. When loans or portions of a loan are considered a loss, it will be the policy of the Bank to write-off the amount designated as a loss. Recoveries will be treated as additions to the allowance for loan losses.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

The following tables present the ~~June~~September 30, 2018 and March 31, 2018, balances of classified loans based on the risk grade. Classified loans include Special Mention, Substandard, Doubtful, and Loss loans. The Bank had no loans classified as Doubtful or Loss as of ~~June~~September 30, 2018 or March 31, 2018.

	June 30, 2018						March 31, 2018
	September 30, 2018						March 31, 2018
	LEGACY		ACQUIRED		TOTAL		LEGACY		ACQUIRED		TOTAL
Risk Rating:
Rating - Pass:
Real estate loans:
Residential	$	8783,~~092~~998,~~026~~596	$	6866,~~580~~964,~~711~~649	$	~~155~~150,~~672~~963,~~737~~245	$	87,863,805	$	70,901,293	$	158,765,098
Investor		87,~~764~~820,~~071~~735		16,~~487~~224,~~657~~450		2524,~~251~~045,~~728~~185		9,214,082		16,719,346		25,933,428
Commercial		95101,~~153~~427,~~651~~804		109,~~288~~820,~~933~~768		~~105~~111,~~442~~248,~~584~~572		92,955,370		11,563,547		104,518,917
Commercial construction		2,~~550~~529,~~462~~160		~~854~~928,~~370~~008		3,~~404~~457,~~832~~168		5,763,784		1,352,019		7,115,803
Commercial Business		3635,~~806~~967,~~789~~137		1,~~905~~755,~~770~~200		3837,~~712~~722,~~559~~337		37,978,293		1,841,226		39,819,519
Home Equity		1314,~~728~~176,~~056~~278		5,~~367~~046,~~653~~158		19,~~095~~222,~~709~~436		13,935,732		5,928,787		19,864,519
Consumer		1716,~~841~~962,~~773~~733		~~707~~688,~~772~~356		1817,~~549~~651,~~545~~089		18,733,489		733,669		19,467,158
Total Pass		~~261~~262,~~936~~882,~~828~~443		~~104~~101,~~192~~427,~~866~~589		~~366~~364,~~129~~310,~~694~~032		266,444,555		109,039,887		375,484,442
Rating - Special Mention:
Real estate loans:
Residential		2,~~370~~324,~~659~~604		1965,~~036,410~~897		3,~~407~~290,~~069~~501		2,365,652		925,521		3,291,173
Investor		-		~~291~~279,~~458~~685		~~291~~279,~~458~~685		-		297,209		297,209
Commercial		-		-		-		3,092,135		-		3,092,135
Commercial construction		-		-		-		-		-		-
Commercial Business		-		-		-		134,524		-		134,524
Home Equity		-		~~107~~138,~~655~~018		~~107~~138,~~655~~018		-		110,675		110,675
Consumer		-10,583		-		-10,583		96,474		-		96,474
Total Special Mention		2,~~370~~335,~~659~~187		1,~~435~~383,~~523~~600		3,~~806~~718,~~182~~787		5,688,785		1,333,405		7,022,190
Rating - Substandard:
Real estate loans:
Residential		~~426~~406,~~769~~210		~~892~~1,~~087~~002,307		1,~~318~~408,~~856~~517		469,554		922,252		1,391,806
Investor		5859,~~599~~426		~~431~~498,~~868~~533		~~490~~557,~~467~~959		60,949		444,254		505,203
Commercial		74,~~505~~251,~~365~~209		~~197~~196,~~259~~697		74,~~702~~447,~~624~~906		4,356,264		198,938		4,555,202
Commercial construction		-		-		-		-		-		-
Commercial Business		~~254~~167,~~581~~239		-		~~254~~167,~~581~~239		189,922		-		189,922
Home Equity		7,~~408~~254		-		7,~~408~~254		20,595		-		20,595
Consumer		~~19,853~~-		31,~~528~~171		5131,~~381~~171		19,485		32,394		51,879
Total - Substandard		84,~~272~~891,~~575~~338		1,~~552~~728,~~742~~708		96,~~825~~620,~~317~~046		5,116,769		1,597,838		6,714,607
Rating - Doubtful		-		-		-		-		-		-
Rating - Loss		-		-		-		-		-		-
TOTAL LOANS	$	~~272~~270,~~580~~108,~~062~~968	$	~~107~~104,~~181~~539,~~131~~897	$	~~379~~374,~~761~~648,~~193~~865	$	277,250,109	$	111,971,130	$	389,221,239

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

In the normal course of business, the Bank has various outstanding commitments and contingent liabilities that are not reflected in the accompanying financial statements. Loan commitments and lines of credit are agreements to lend to a customer as long as there is no violation of any condition to the contract. Mortgage loan commitments generally have fixed interest rates, fixed expiration dates, and may require payment of a fee. Other loan commitments generally have fixed interest rates. Lines of credit generally have variable interest rates. Such lines do not represent future cash requirements because it is unlikely that all customers will draw upon their lines in full at any time.

The Bank’s maximum exposure to credit loss in the event of nonperformance by the customer is the contractual amount of the credit commitment. Loan commitments, lines of credit, and letters of credit are made on the same terms, including collateral, as outstanding loans. The Bank has established an off-balance sheet reserve for potential losses associated with any outstanding commitment or unused line of credit. The off-balance sheet reserve is a percentage of the outstanding commitment or unused line of credit that is based upon a discounted charge-off history associated with each respective loan segment. The reserve at ~~June~~September 30, 2018 and March 31, 2018 totaled $52,000 and $50,000, respectively. At ~~June~~September 30, 2018, management is not aware of any accounting loss to be incurred by funding these loan commitments at this time.

The Bank had the following outstanding commitments and unused lines of credit as of ~~June~~September 30, 2018 and March 31, 2018:

Outstanding Commitment and	June 30,		March 31,
	September 30,		March 31,
Used Lines of Credit	2018		2018
Outstanding Commitment and Used Lines of Credit	2018		2018
Unused commercial lines of credit	$	11,~~325~~536,~~807~~470	$	9,187,810
Unused home equity lines of credit		2423,~~296~~299,~~445~~018		22,560,376
Unused consumer lines of credit		~~185~~26,~~417~~845		29,331
Residential construction loan commitments		57,~~600~~814,~~272~~167		4,234,076
Commercial construction loan commitments		82,~~147~~535,~~129~~935		8,968,416
Home equity loan commitments		~~696~~353,000		389,600
Commercial loan commitments		43,~~490~~359,~~151~~375		5,125,000
Standby letter of credit		~~415~~416,~~607~~449		250,224

Note 6:

Goodwill and Other Intangible Asset

The Company’s intangible assets (goodwill and core deposit intangible) at ~~June~~September 30, 2018 ~~consists~~consisted of assets recorded in December 2009 associated with the acquisition of a branch office in Pasadena, Maryland and the acquisition of Fairmount and Fraternity in September 2015 and May 2016, respectively. Only the goodwill related to the branch office acquisition in the amount of $2.7 million is deductible for tax purposes. We conducted our annual impairment test of goodwill as of December 31, 2017. In addition, due to the significant increase in tax expense resulting from the recording of a valuation allowance on our net deferred tax assets in the fourth quarter of fiscal 2018, we concluded that a triggering event had occurred. Therefore, we performed an additional goodwill impairment analysis ~~during~~as ~~the~~of ~~quarter ending~~ March 31, 2018. Based upon the impairment tests performed as of December 31, 2017 and March 31, 2018, the fair values exceeded the carrying values of our only reporting unit. As a result, no impairment to goodwill was recorded for the ~~period~~2018 ~~ended~~fiscal ~~March 31, 2018~~year. The core deposit intangible assets are being amortized straight-line over a life of eight years.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

The following table presents the changes in the net book value of intangible assets for the ~~three~~six months ended ~~June~~September 30, 2018 and 2017:

			Core deposit
	Goodwill		intangible
Balance April 1, 2017	$	8,563,530	$	739,298
Amortization		-		(3163,~~516~~032	)
Balance June 30, 2017		8,563,530		707,782
Balance September 30, 2017		8,563,530		676,266

			Core deposit
	Goodwill		intangible
Balance April 1, 2018	$	8,563,530	$	613,234
Amortization		-		(3163,~~516~~033	)
Balance June 30, 2018	$	8,563,530	$	581,718
Balance September 30, 2018	$	8,563,530	$	550,201

At ~~June~~September 30, 2018, future expected annual amortization associated with the core deposit intangible is as follows:

Year ending March 31,	Amount
2019		9463,~~554~~035
2020		123,737
2021		98,070
2022		98,070
2023		98,070
2024		64,~~174~~177
2025		5,~~043~~042
	$	~~581~~550,~~718~~201

Note 7:

Derivative – Interest Rate Swap Agreement

The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. The Company posted $~~754~~758,000 and $751,000 under collateral arrangements as of ~~June~~September 30, 2018 and March 31, 2018, respectively, to satisfy collateral requirements associated with the risk exposure associated with all interest rate swap agreements.

Interest Rate SWAPS Designated as Cash Flow Hedges

During fiscal 2017, the Company entered into several interest rate swaps that were designated as cash flow hedges. The interest rate swaps have notional amounts totaling $11.6 million as of ~~June~~September 30, 2018 and were designated as cash flow hedges of certain Federal Home Loan Bank advances. The purpose of the cash flow hedges is to match-fund longer-term assets with longer-term borrowings to reduce potential interest rate risk and cost by swapping a variable rate borrowing for a fixed rate borrowing. The aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value associated with the effective portion recorded in other comprehensive income (loss) and the ineffective portion recorded in other non-interest income (expense). The cash flow hedges were determined to be ineffective beginning with the quarter ended September 30, 2017. As such, a ~~total~~gain of $~~381~~540 and $921 of ineffectiveness has been reported in ~~net~~noninterest ~~income~~revenue for the three and six-month ~~period~~periods ended ~~June~~September 30, 2018, respectively, compared to a loss of $3,679 reported as an offset to noninterest revenue for the three and six-month period ended September 30, 2017.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Summary information about the interest rate swaps designated as cash flow hedges is as follows:

Notional

Effective

Pay Fixed

Receive

~~Receive~~

Interest Rate Swap

Amount

Start Date

Maturity Date

Rate

Floating Rate

~~Floating Rate~~

FHLB Advance Swap 1

1,850,000

March 9, 2017

March 9, 2022

2.24%

3-Month LIBOR

~~3-Month LIBOR~~

FHLB Advance Swap 2

1,850,000

March 9, 2017

March 9, 2024

2.41%

3-Month LIBOR

~~3-Month LIBOR~~

FHLB Advance Swap 3

1,850,000

March 9, 2017

March 9, 2027

2.57%

3-Month LIBOR

~~3-Month LIBOR~~

FHLB Advance Swap 4

2,000,000

March 29, 2017

March 29, 2022

2.08%

3-Month LIBOR

~~3-Month LIBOR~~

FHLB Advance Swap 5

2,000,000

March 29, 2017

March 29, 2024

2.24%

3-Month LIBOR

~~3-Month LIBOR~~

FHLB Advance Swap 6

2,000,000

March 29, 2017

March 29, 2027

2.40%

3-Month LIBOR

~~3-Month LIBOR~~

Total Notional Amount

11,550,000

Interest revenue/(expense) recorded on the swap transactions totaled $2906 and ($1,~~738~~832) for the three and six months ended ~~June~~September 30, 2018 and is reported as a component of interest expense on FHLB Advances.

The following table reflects cash flow hedges included in the Consolidated Statements of Financial Condition as of ~~June~~September 30, 2018 and March 31, 2018:

6/30/2018

3/31/2018

September 30, 2018

March 31, 2018

Notional

Amount

Fair Value

Amount

Fair Value

Included in assets:

Interest rate swaps related to FHLB Advances

11,550,000

~~315~~412,~~884~~230

11,550,000

217,464

The following tables present the net gain (loss) recorded in accumulated other comprehensive income (loss) and the Consolidated Statements of Operations relating to the cash flow derivative instruments for the three and six-month periods ended ~~June~~September 30, 2018 and 2017:

	Three Month and Period Ended June 30, 2018
	Three Month and Period Ended September 30, 2018							Three Month and Period Ended September 30, 2017
	Amount of Gain		Amount of Gain		Amount of Gain			Amount of Gain		Amount of Gain		Amount of Gain
	(Loss) Recognized		(Loss) Reclassified		(Loss) Recognized in			(Loss) Recognized		(Loss) Reclassified		(Loss) Recognized in
	in OCI		from OCI to		Other Noninterest ~~Income~~Revenue			in OCI		from OCI to		Other Noninterest Revenue
	(Effective Portion)		Interest Income		(Ineffective Portion)			(Effective Portion)		Interest Income		(Ineffective Portion)
Interest Rate Contracts	$	98,039	$	-	$	(381	)
Interest Rate Contract	$	95,806	$	-	$	540		$	26,710	$	-	$	(3,679	)

	Three Month and Period Ended June 30, 2017
	Six Month and Period Ended September 30, 2018							Six Month and Period Ended September 30, 2017
	Amount of Gain			Amount of Gain		Amount of Gain		Amount of Gain			Amount of Gain		Amount of Gain
	(Loss) Recognized			(Loss) Reclassified		(Loss) Recognized in		(Loss) Recognized			(Loss) Reclassified		(Loss) Recognized in
	in OCI			from OCI to		Other Noninterest ~~Income~~Revenue		in OCI			from OCI to		Other Noninterest Revenue
	(Effective Portion)			Interest Income		(Ineffective Portion)		(Effective Portion)			Interest Income		(Ineffective Portion)
Interest Rate Contracts	$	(126,314	)	$	-	$	-
Interest Rate Contract	$	193,845		$	-	$	921	$	(183,238	)	$	-	$	(3,679	)

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Interest Rate SWAPS Designated as Fair Value Hedges

The derivative position relates to a transaction in which the Bank entered into an interest rate swap with another financial institution using a fixed rate commercial real estate loan as an offset. The Bank agrees to pay the other financial institution a fixed interest rate on a notional amount based upon the commercial real estate loan and in return receive a variable interest rate on the same notional amount. This transaction allows the Bank to effectively convert a fixed rate loan to a variable rate. Because the terms of the swap with the other financial institution and the commercial real estate loan offset each other, with the only difference being credit risk associated with the loan, changes in the fair value of the underlying derivative contract and the commercial real estate loan are not materially different and do not significantly impact the Bank’s results of operations.

During the second quarter of fiscal 2016, the Company entered into the interest rate swap agreement with a $3.3 million notional amount to convert a fixed rate commercial real estate loan at 3.99% into a variable rate for a term of approximately 10 years. The notional amount of the interest rate swap and the offsetting commercial real estate loan were $3.10 million at ~~June~~September 30, 2018. The derivative is designated as a fair value hedge.

Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. The Bank’s exposure is limited to the replacement value of the contract rather than the notional amount, principal, or contract amount. There are provisions in the agreement with the counterparty that allow for certain unsecured credit exposure up to an agreed threshold. Exposures in excess of the agreed threshold are collateralized. In addition, the Bank minimizes credit risk through credit approvals, limits, and monitoring procedures.

The fair value hedge is summarized below:

	June 30, 2018						March 31, 2018
	September 30, 2018						March 31, 2018
	Notional Amount		Principal Amount		Fair Value		Notional Amount		Principal Amount		Fair Value
Included in Loans and Leases:
Commercial real estate loan	$	-	$	3,~~070~~049,~~825~~540	$	2,~~973~~927,~~514~~163	$	-	$	3,091,892	$	3,022,744
Included in Other Assets:
Interest Rate Swap	$	3,~~070~~049,~~825~~540	$	-	$	97122,~~311~~377	$	3,091,892		-	$	69,148

No gain or loss was recognized in earnings with respect to the interest rate swap for the three or six months ended ~~June~~September 30, 2018 and 2017 due to the fact the gain or increase in the fair value of the commercial real estate loan was offset by the loss or decrease in the fair value of the interest rate swap.

Note 8:

Deposits

The following table details the composition of deposits and the related percentage mix of total deposits, respectively:

	June 30, 2018					March 31, 2018
	September 30, 2018					March 31, 2018
	Amount		% of Total			Amount		% of Total
Savings	$	4038,~~965~~539,~~710~~878		109.19	%	$	42,499,381		10.6	%
Noninterest-bearing checking		2728,~~485~~816,~~033~~887		67.84	%		29,557,943		7.3	%
Interest-bearing checking		2928,~~482~~727,~~021~~675		7.34	%		27,219,286		6.7	%
Money market accounts		6657,~~235~~641,~~735~~094		1614.48	%		58,466,228		14.4	%
Time deposits		~~239~~234,~~974~~488,~~615~~724		5960.4	%		246,988,613		61.0	%
	$	~~404~~388,~~143~~214,~~114~~258		100.0	%	$	404,731,451		100.0	%
Premium on deposits asssumed		~~330~~256,~~947~~357					411,524
Total deposits	$	~~404~~388,~~474~~470,~~061~~615				$	405,142,975

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Note 9:

Lines of Credit and Federal Home Loan Bank Advances

The Bank may borrow up to $5.0 million from a correspondent bank under a secured federal funds line of credit and $1.0 million under an unsecured federal funds line of credit. The Bank would be required to pledge investment securities to draw upon the secured line of credit. There were no borrowings under these lines of credit at ~~June~~September 30, 2018 and March 31, 2018.

Borrowings consist of advances from the Federal Home Loan Bank (FHLB). The Bank may borrow up to 25 percent of its assets under a line of credit agreement with the FHLB. Advances under the line of credit are secured by certain loans owned by the Bank. As of ~~June~~September 30, 2018, and March 31, 2018, the Bank had $7276.07 million and $68.3 million, respectively, of available credit from the FHLB. Advances are limited by the balance of loans available for pledge. The amount of loans that were deemed eligible to pledge as collateral totaled $~~116~~117.75 million at ~~June~~September 30, 2018 and $~~122~~127.61 million at March 31, 2018. As a condition of obtaining the line of credit from the FHLB, the FHLB also requires the Bank purchase shares of capital stock in the FHLB. Information relating to borrowings at ~~June~~September 30, 2018 and March 31, 2018 is presented below.

	June 30, 2018									March 31, 2018
	September 30, 2018							March 31, 2018
	Amount		Rate			Maturity Date	~~Maturity Date~~	Amount		~~Amount~~		Rate	~~Rate~~Maturity Date			~~Maturity Date~~
FHLB advance (1)	$	5,550,000	2.27%	~~2.08~~	%	12/10/2018	~~9/10/2018~~	$	5,550,000	$	~~5,550,000~~	1.84%	6/11/2018	~~1.84~~	%	~~6/11/2018~~
FHLB advance (2)		6,000,000	2.36%	~~2.07~~	%	12/29/2018	~~10/1/2018~~		6,000,000		~~6,000,000~~	1.90%	6/29/2018	~~1.90~~	%	~~6/29/2018~~
FHLB advance		1,000,000	2.43%	~~2.60~~	%	12/31/2018	~~7/2/2018~~		1,000,000		~~1,000,000~~	2.60%	7/2/2018	~~2.60~~	%	~~7/2/2018~~
FHLB advance		13,000,000	2.33%	~~3.05~~	%	8/26/2019	~~7/3/2018~~		1,000,000		~~1,000,000~~	3.05%	7/3/2018	~~3.05~~	%	~~7/3/2018~~
FHLB advance		53,000,000	1.59%	~~3.94~~	%	8/26/2019	~~7/23/2018~~		5,000,000		~~5,000,000~~	3.94%	7/23/2018	~~3.94~~	%	~~7/23/2018~~
FHLB advance		1,~~000~~500,000	1.95%	~~1.74~~	%	11/25/2019	~~7/31/2018~~		1,000,000		~~1,000,000~~	1.74%	7/31/2018	~~1.74~~	%	~~7/31/2018~~
FHLB advance		1,~~000~~500,000	1.78%	~~1.40~~	%	11/27/2019	~~8/21/2018~~		1,000,000		~~1,000,000~~	1.40%	8/21/2018	~~1.40~~	%	~~8/21/2018~~
FHLB advance		43,000,000	2.31%	~~1.94~~	%	2/3/2020	~~8/27/2018~~		4,000,000		~~4,000,000~~	1.94%	8/27/2018	~~1.94~~	%	~~8/27/2018~~
FHLB advance		31,000,000	2.86%	~~1.41~~	%	8/4/2020	~~8/27/2018~~		3,000,000		~~3,000,000~~	1.41%	8/27/2018	~~1.41~~	%	~~8/27/2018~~
FHLB advance		52,000,000	2.56%	~~3.38~~	%	8/27/2020	~~9/19/2018~~		5,000,000		~~5,000,000~~	3.38%	9/19/2018	~~3.38~~	%	~~9/19/2018~~
FHLB advance		-1,000,000	2.15%	-		11/30/2020	-		1,000,000		~~1,000,000~~	2.60%	10/2/2018	~~2.60~~	%	~~10/2/2018~~
FHLB advance		12,000,000	2.28%	~~1.95~~	%	12/28/2020	~~12/31/2018~~		1,000,000		~~1,000,000~~	1.95%	12/31/2018	~~1.95~~	%	~~12/31/2018~~
FHLB advance		32,000,000	2.49%	~~1.38~~	%	2/1/2021	~~7/31/2019~~		3,000,000		~~3,000,000~~	1.38%	7/31/2019	~~1.38~~	%	~~7/31/2019~~
FHLB advance		3,000,000	2.93%	~~1.96~~	%	7/26/2021	~~8/26/2019~~		3,000,000		~~3,000,000~~	1.96%	8/26/2019	~~1.96~~	%	~~8/26/2019~~
FHLB advance		32,000,000	3.01%	~~1.59~~	%	8/4/2021	~~8/26/2019~~		3,000,000		~~3,000,000~~	1.59%	8/26/2019	~~1.59~~	%	~~8/26/2019~~
FHLB advance		31,000,000	2.88%	~~1.42~~	%	8/23/2021	~~8/26/2019~~		3,000,000		~~3,000,000~~	1.42%	8/26/2019	~~1.42~~	%	~~8/26/2019~~
FHLB advance		13,~~500~~000,000	1.48%	~~1.95~~	%	8/25/2021	~~11/25/2019~~		1,500,000		~~1,500,000~~	1.95%	11/25/2019	~~1.95~~	%	~~11/25/2019~~
FHLB advance		12,~~500~~000,000	2.68%	~~1.78~~	%	8/27/2021	~~11/27/2019~~		1,500,000		~~1,500,000~~	1.78%	11/27/2019	~~1.78~~	%	~~11/27/2019~~
FHLB advance		3,000,000	2.79%	~~2.31~~	%	8/29/2022	~~2/3/2020~~		3,000,000		~~3,000,000~~	2.31%	2/3/2020	~~2.31~~	%	~~2/3/2020~~
FHLB advance		12,000,000	3.14%	~~2.15~~	%	9/19/2022	~~11/30/2020~~		1,000,000		~~1,000,000~~	2.15%	11/30/2020	~~2.15~~	%	~~11/30/2020~~
FHLB advance		23,000,000	2.70%	~~2.28~~	%	8/28/2023	~~12/28/2020~~		2,000,000		~~2,000,000~~	2.28%	12/28/2020	~~2.28~~	%	~~12/28/2020~~
FHLB advance		2,000,000	3.20%	~~2.49~~	%	9/19/2023	~~2/1/2021~~		2,000,000		~~2,000,000~~	2.49%	2/1/2021	~~2.49~~	%	~~2/1/2021~~
FHLB advance		~~3,000,000~~-	-	~~1.48~~	%	-	~~8/25/2021~~		3,000,000		~~3,000,000~~	1.48%	8/25/2021	~~1.48~~	%	~~8/25/2021~~
		59,550,000									60,550,000
		53,550,000							60,550,000
Premium on FHLB advances assumed		491,~~093~~896							122,140		~~122,140~~
Total borrowings	$	5953,~~599~~551,~~093~~896						$	60,672,140	$	~~60,672,140~~

(1) -

FHLB Advance is tied to three derivative cash flow hedges in increments of $1.85 million each. The three individual cash flow hedges are for a term of five, seven and ten years, respectively and are tied to the 3-month LIBOR rate. In order for the cash flow hedges to remain effective, the corresponding FHLB Advance will have to be renewed every three months until the respective cash flow hedge matures.

(2) -

FHLB Advance is tied to three derivative cash flow hedges in increments of $2.0 million each. The three individual cash flow hedges are for a term of five, seven and ten years, respectively and are tied to the 3-month LIBOR rate. In order for the cash flow hedges to remain effective, the corresponding FHLB Advance will have to be renewed every three months until the respective cash flow hedge matures.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Note 10:

Regulatory Capital Ratios

Banks and bank holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.

The Basel III Capital Rules became effective for Hamilton Bank on January 1, 2015 (subject to a phase-in period for certain provisions). Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1 capital, Tier 1 capital and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to adjusted quarterly average assets (as defined).

In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include accumulated other comprehensive income in Common Equity Tier 1. Common Equity Tier 1 for Hamilton Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities and subject to transition provisions.

Under the revised prompt corrective action requirements, as of January 1, 2015, insured depository institutions are required to meet the following in order to qualify as “well capitalized:” (1) a common equity Tier 1 risk-based capital ratio of 6.5%; (2) a Tier 1 risk-based capital ratio of 8%; (3) a total risk-based capital ratio of 10% and (4) a Tier 1 leverage ratio of 5%. As of ~~June~~September 30, 2018, the Bank met all capital adequacy requirements under the Basel III Capital Rules to be considered “well capitalized” under prompt corrective action rules.

The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and is being phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019). The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to Hamilton Bank.

The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”), banking regulatory agencies must adopt a revised definition of “well capitalized” for financial institutions and holding companies with assets of less than $10 billion and that are not determined to be ineligible by their primary federal regulator due to their risk profile (a “qualifying community bank”). The new definition will expand the ways that a qualifying community bank may meet its capital requirements and be deemed “well qualified.” The new rule will establish a “community bank leverage ratio” equal to the tangible equity capital divided by the average total consolidated assets. A qualifying community bank that exceeds a to-be-determined threshold for this new leverage ratio, which regulators must set at between 8% and 10%, will be considered to be well capitalized and to have met generally applicable leverage capital requirements, generally applicable risk-based capital requirements, and any other capital or leverage requirements to which such financial institution or holding company is subject.

In addition, as a result of the Act, the Federal Reserve Board amended its small bank holding company and savings and loan holding company policy statement to provide that holding companies with consolidated assets of less than $3 billion that are (i) not engaged in significant nonbanking activities, (ii) do not conduct significant off-balance sheet activities, and (iii) do not have a material amount of SEC-registered debt or equity securities, other than trust preferred securities, that contribute to an organization’s complexity, are no longer subject to regulatory capital requirements.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

InThe ~~addition,~~following astable apresents ~~result~~actual and required capital ratios as of ~~the~~September ~~Act~~30, ~~the~~2018 ~~Federal~~and ~~Reserve~~March ~~Board~~31, is2018 ~~required~~for toHamilton ~~amend~~Bank ~~its~~and ~~small~~the ~~bank~~Company ~~holding~~under ~~company~~the ~~and~~Basel ~~savings~~III ~~and~~Capital ~~loan~~Rules. ~~holding~~The ~~company~~minimum ~~policy~~required ~~statement~~capital toamounts ~~provide~~presented ~~that~~include ~~holding~~the ~~companies~~minimum ~~with~~required ~~consolidated~~capital ~~assets~~levels as of ~~less~~January ~~than~~1, $32015 ~~billion~~based ~~that~~on ~~are~~the ~~(i)~~phase-in ~~not~~provisions ~~engaged~~of inthe ~~significant~~Basel ~~nonbanking~~III ~~activities,~~Capital ~~(ii)~~Rules doand ~~not~~the ~~conduct~~minimum ~~significant~~required ~~off-balance~~capital ~~sheet~~levels ~~activities~~as of January 1, ~~and~~2019 ~~(iii)~~when dothe ~~not~~Basel ~~have~~III aCapital ~~material~~Rules ~~amount~~are offully ~~SEC~~phased-~~registered~~in. ~~debt~~Capital orlevels ~~equity~~required ~~securities,~~to ~~other~~be ~~than~~considered ~~trust~~well ~~preferred~~capitalized ~~securities,~~are ~~that~~based ~~contribute~~upon toprompt ancorrective ~~organization’s~~action ~~complexity~~regulations, ~~will~~as noamended ~~longer be subject~~ to ~~regulatory~~reflect ~~capital~~the ~~requirements,~~changes ~~effective~~under nothe ~~later~~Basel ~~than~~III ~~November~~Capital ~~2018~~Rules.

The following table presents actual and required capital ratios as of June 30, 2018 and March 31, 2018 for Hamilton Bank and the Company under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of January 1, 2015 based on the phase-in provisions of the Basel III Capital Rules and the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules are fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

				Minimum Capital			Minimum Capital			To be well
	Actual			Required - Basel III			Required - Basel III			capitalized (1)
				Phase-In Schedule			Fully Phased-In
	Amount		Ratio	Amount		Ratio	Amount		Ratio	Amount		Ratio
	(dollars in thousands)
September 30, 2018

Common equity tier 1 capital (to risk-weighted assets)
Hamilton Bank	$	42,984	12.20%	$	22,469	6.375%	$	24,672	7.00%	$	22,910	6.50%
Hamilton Bancorp		49,116	13.89%		22,537	6.375%		24,747	7.00%		22,979	6.50%
Total risk-based capital (to risk-weighted assets)
Hamilton Bank		46,067	13.07%		34,805	9.875%		37,008	10.50%		35,245	10.00%
Hamilton Bancorp		52,199	14.77%		34,910	9.875%		37,120	10.50%		35,352	10.00%
Tier 1 capital (to risk-weighted assets)
Hamilton Bank		42,984	12.20%		27,756	7.875%		29,959	8.50%		28,196	8.00%
Hamilton Bancorp		49,116	13.89%		27,840	7.875%		30,049	8.50%		28,282	8.00%
Tier 1 capital (to adjusted total assets)
Hamilton Bank		42,984	8.61%		19,962	4.000%		19,962	4.00%		24,952	5.00%
Hamilton Bancorp		49,116	9.62%		20,415	4.000%		20,415	4.00%		25,519	5.00%

March 31, 2018

Common equity tier 1 capital (to risk-weighted assets)
Hamilton Bank	$	39,126	10.61%	$	23,498	6.375%	$	25,802	7.00%	$	23,959	6.50%
Hamilton Bancorp		47,308	12.79%		23,582	6.375%		25,894	7.00%		24,044	6.50%
Total risk-based capital (to risk-weighted assets)
Hamilton Bank		41,998	11.39%		36,399	9.875%		38,703	10.50%		36,860	10.00%
Hamilton Bancorp		50,180	13.57%		36,529	9.875%		38,841	10.50%		36,992	10.00%
Tier 1 capital (to risk-weighted assets)
Hamilton Bank		39,126	10.61%		29,027	7.875%		31,331	8.50%		29,488	8.00%
Hamilton Bancorp		47,308	12.79%		29,131	7.875%		31,443	8.50%		29,593	8.00%
Tier 1 capital (to adjusted total assets)
Hamilton Bank		39,126	7.64%		20,497	4.000%		20,497	4.00%		25,621	5.00%
Hamilton Bancorp		47,308	9.15%		20,674	4.000%		20,674	4.00%		25,843	5.00%

	Actual					Minimum Capital Required - Basel III Phase-In Schedule					Minimum Capital Required - Basel III Fully Phased-In					To be well capitalized (1)
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
June 30, 2018
Common equity tier 1 capital (to risk-weighted assets)
Hamilton Bank	$	40,150		11.04	%	$	23,193		6.375	%	$	25,466		7.00	%	$	23,647		6.50	%
Hamilton Bancorp		48,320		13.24	%		23,582		6.375	%		25,894		7.00	%		24,044		6.50	%
Total risk-based capital (to risk-weighted assets)
Hamilton Bank		43,038		11.83	%		35,926		9.875	%		38,200		10.50	%		36,380		10.00	%
Hamilton Bancorp		51,208		14.03	%		36,529		9.875	%		38,841		10.50	%		36,992		10.00	%
Tier 1 capital (to risk-weighted assets)
Hamilton Bank		40,150		11.04	%		28,650		7.875	%		30,923		8.50	%		29,104		8.00	%
Hamilton Bancorp		48,320		13.24	%		29,131		7.875	%		31,443		8.50	%		29,593		8.00	%
Tier 1 capital (to adjusted total assets)
Hamilton Bank		40,150		7.82	%		20,528		4.000	%		20,528		4.00	%		25,660		5.00	%
Hamilton Bancorp		48,320		9.34	%		20,674		4.000	%		20,674		4.00	%		25,843		5.00	%
March 31, 2018
Common equity tier 1 capital (to risk-weighted assets)
Hamilton Bank	$	39,126		10.61	%	$	23,498		6.375	%	$	25,802		7.00	%	$	23,959		6.50	%
Hamilton Bancorp		47,308		12.79	%		23,582		6.375	%		25,894		7.00	%		24,044		6.50	%
Total risk-based capital (to risk-weighted assets)
Hamilton Bank		41,998		11.39	%		36,399		9.875	%		38,703		10.50	%		36,860		10.00	%
Hamilton Bancorp		50,180		13.57	%		36,529		9.875	%		38,841		10.50	%		36,992		10.00	%
Tier 1 capital (to risk-weighted assets)
Hamilton Bank		39,126		10.61	%		29,027		7.875	%		31,331		8.50	%		29,488		8.00	%
Hamilton Bancorp		47,308		12.79	%		29,131		7.875	%		31,443		8.50	%		29,593		8.00	%
Tier 1 capital (to adjusted total assets)
Hamilton Bank		39,126		7.64	%		20,497		4.000	%		20,497		4.00	%		25,621		5.00	%
Hamilton Bancorp		47,308		9.15	%		20,674		4.000	%		20,674		4.00	%		25,843		5.00	%

(1) - Under prompt corrective action

Tier 1 capital consists of total shareholders’ equity less goodwill, intangible assets, and deferred tax net operating loss carryforwards. Total capital includes a limited amount of the allowance for loan losses and a portion of any unrealized gain on equity securities. In calculating risk-weighted assets, specified risk percentages are applied to each category of asset and off-balance-sheet items.

In its regulatory report filed as of September 30, 2018, the Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines. Management is not aware of any events that would have caused this classification to change. Failure to meet the capital requirements could affect, among other things, the Bank's ability to accept brokered deposits and may significantly affect the operations of the Bank. Management has no plans that should change the classification of the capital adequacy.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

In its regulatory report filed as of June 30, 2018, the Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines. Management is not aware of any events that would have caused this classification to change. Failure to meet the capital requirements could affect, among other things, the Bank's ability to accept brokered deposits and may significantly affect the operations of the Bank. Management has no plans that should change the classification of the capital adequacy.

Note 11:

Stock Based Compensation

In November 2013, the Company’s shareholders approved a new Equity Incentive Plan (the “2013 Equity Incentive Plan’’). The 2013 Equity Incentive Plan allows for up to 148,120 shares to be issued to employees, executive officers or Directors in the form of restricted stock, and up to 370,300 shares to be issued to employees, executive officers or Directors in the form of stock options. At ~~June~~September 30, 2018, there were 92,701 restricted stock awards issued and outstanding and 268,204 stock option awards granted under the 2013 Equity Incentive Plan.

Stock Options:

Under the above plan, the exercise price for stock options is the market price at date of grant. The maximum option term is ten years and the options granted shall vest in five equal annual installments of 20% with the first installment becoming exercisable on the first anniversary of the date of grant and succeeding installments on each anniversary thereafter. The Company plans to issue new shares to satisfy share option exercises. The total cost that has been incurred for the stock option plan was $61,514 and $57123,~~392~~028 for the three and six months ended ~~June~~September 30, 2018 and $57,392 and $114,784 for the three and six months ended September 30, 2017, respectively.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical data. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury rate equal to the expected term of the option in effect at the time of the grant.

Table of Contents

HAMILTON BANCORP INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

The fair value of options granted to date was determined using the following weighted-average assumptions as of grant date.

Grant Date	Number of Options Granted		Risk Free Interest Rate			Expected Term (in years)		Expected Stock Price Volatility			Dividend Yield			Fair Value of Options Granted
February 3, 2014		225,150		2.07	%		7.0		27.30	%		0.00	%	$	4.65
November 1, 2016		19,000		1.61	%		7.0		27.17	%		0.00	%	$	4.35
February 3, 2017		3,700		2.27	%		7.0		27.26	%		0.00	%	$	5.18
April 1, 2018		20,354		2.67	%		7.0		19.61	%		0.00	%	$	4.05

The following tables summarize the Company’s stock option activity and related information for the periods ended:

June 30, 2018:	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)
September 30, 2018:	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)
Outstanding at April 1, 2018		242,350	$	13.84		6.1
Granted		20,354		14.25		9.85
Exercised		-		-		-
Forfeited, exchanged or expired		-		-		-
Outstanding at June 30, 2018		262,704	$	13.87		6.1
Outstanding at September 30, 2018		262,704	$	13.87		5.9
Vested at June 30, 2018		180,260	$	13.85		5.7
Vested at September 30, 2018		180,260	$	13.85		5.4

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

March 31, 2018:	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)
Outstanding at April 1, 2017		242,350	$	13.84		7.1
Granted		-		-		-
Exercised		-		-		-
Forfeited, exchanged or expired		-		-		-
Outstanding at March 31, 2018		242,350	$	13.84		6.1

Vested at March 31, 2018		180,260	$	13.84		5.8

As of ~~June~~September 30, 2018, there was $~~269~~207,~~191~~678 of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.20 years. The intrinsic value of a stock option is the amount that the market value of the underlying stock exceeds the exercise price of the option. Based upon a fair market value of $1514.7031 at ~~June~~September 30, 2018, the options outstanding had an intrinsic value of $~~450~~117,~~003~~650.

Restricted Stock:

The specific terms of each restricted stock award are determined by the Compensation Committee at the date of the grant. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at the grant date. Restricted stock awards granted shall vest in five equal annual installments of 20% with the first installment becoming vested on the first anniversary of the date of grant and succeeding installments on each anniversary thereafter.

The following table presents a summary of the activity in the Company’s restricted stock for the periods ended:

				Weighted-Average
September 30, 2018:	Shares			Fair Value
Nonvested shares at April 1, 2018		19,440		$	13.74
Granted		8,801			14.25
Vested		(80	)		14.00
Forfeited		-			-
Nonvested shares at September 30, 2018		28,161		$	13.90

Fair Value of shares vested at September 30, 2018	$	923,567

				Weighted-Average
March 31, 2018:	Shares			Fair Value
Nonvested shares at April 1, 2017		36,220		$	13.76
Granted		-			-
Vested		(16,780	)		13.78
Forfeited		-			-
Nonvested shares at March 31, 2018		19,440		$	13.74

Fair Value of shares vested at March 31, 2018	$	918,555

The Company recorded restricted stock awards expense of $64,089 and $128,178 during the three and six months ended September 30, 2018 and $57,819 and $115,638 during the three and six months ended September 30, 2017, respectively. As of September 30, 2018, there was $222,681 of total unrecognized compensation cost related to nonvested shares granted under the 2013 stock incentive plan. The cost is expected to be recognized over a weighted-average period of 1.9 years.

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

The following table presents a summary of the activity in the Company’s restricted stock for the periods ended:

			Weighted-Average
June 30, 2018:	Shares		Fair Value
Nonvested shares at April 1, 2018		19,440	$	13.74
Granted		8,801		14.25
Vested		-		-
Forfeited		-		-
Nonvested shares at June 30, 2018		28,241	$	13.90
Fair Value of shares vested at June 30, 2018	$	1,012,022

				Weighted-Average
March 31, 2018:	Shares			Fair Value
Nonvested shares at April 1, 2017		36,220		$	13.76
Granted		-			-
Vested		(16,780	)		13.78
Forfeited		-			-
Nonvested shares at March 31, 2018		19,440		$	13.74
Fair Value of shares vested at March 31, 2018	$	918,555

The Company recorded restricted stock awards expense of $64,089 and $57,819 during the three months ended June 30, 2018 and 2017, respectively. As of June 30, 2018, there was $286,770 of total unrecognized compensation cost related to nonvested shares granted under the 2013 stock incentive plan. The cost is expected to be recognized over a weighted-average period of 2.1 years.

Note 12:

Fair Value Measurements

Generally accepted accounting principles define fair value, establish a framework for measuring fair value, and establish a hierarchy for determining fair value measurement. The hierarchy includes three levels and is based upon the valuation techniques used to measure assets and liabilities. The three levels are as follows:

Level 1: Valuation is based on quoted prices (unadjusted) for identical assets or liabilities in active markets;

Level 2: Valuation is determined from quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market; and

Level 3: Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the Company’s own estimates about the assumptions that market participants would use to value the asset or liability.

Table of Contents

HAMILTON BANCORP INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

The following is a description of the valuation methods used for instruments measured at fair value as well as the general classification of such instruments pursuant to the applicable valuation method.

Fair value measurements on a recurring basis

Securities available for sale – If quoted prices are available in an active market for identical assets, securities are classified within Level 1 of the hierarchy. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. As of ~~June~~September 30, 2018, and March 31, 2018, the Bank has categorized its investment securities available for sale as follows:

Level 1

Level 2

Level 3

June 30, 2018

inputs

Total

September 30, 2018

inputs

Total

U.S. government agencies

2,~~715~~711,~~652~~667

Municipal bonds

11,~~632~~492,~~843~~431

Corporate bonds

1,~~983~~949,~~250~~132

Mortgage-backed securities

5652,~~306~~709,~~952~~759

Total investment securities available for sale

7066,~~655~~913,~~447~~857

1,~~983~~949,~~250~~132

7268,~~638~~862,~~697~~989

	Level 1		Level 2		Level 3
March 31, 2018	inputs		inputs		inputs		Total

U.S. government agencies	$	-	$	2,718,649	$	-	$	2,718,649
Municipal bonds		-		11,705,991		-		11,705,991
Corporate bonds				-		1,954,076		1,954,076
Mortgage-backed securities		-		59,025,404		16		59,025,420
Total investment securities available for sale	$	-	$	73,450,044	$	1,954,092	$	75,404,136

Derivative – Interest rate swap agreements – The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). The quantitative models that are used utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. As of June 30, 2018, and March 31, 2018, the bank has categorized its interest rate swaps and related loan as follows:38

	Level 1		Level 2		Level 3
June 30, 2018	inputs		inputs		inputs		Total
Loans - Commercial real estate loan	$	-	$	2,973,514	$	-	$	2,973,514
Derivative - Interest rate swap designated as fair value hedge		-		97,311		-		97,311
Derivatives - Interest rate swaps designated as cash flow hedge		-		315,884		-		315,884

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

Derivative – Interest rate swap agreements – The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). The quantitative models that are used utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. As of September 30, 2018, and March 31, 2018, the bank has categorized its interest rate swaps and related loan as follows:

	Level 1		Level 2		Level 3
September 30, 2018	inputs		inputs		inputs		Total

Loans - Commercial real estate loan	$	-	$	2,927,163	$	-	$	2,927,163
Derivative - Interest rate swap designated as fair value hedge		-		122,377		-		122,377
Derivatives - Interest rate swaps designated as cash flow hedge		-		412,230		-		412,230

	Level 1		Level 2		Level 3
March 31, 2018	inputs		inputs		inputs		Total

Loans - Commercial real estate loan	$	-	$	3,022,744	$	-	$	3,022,744
Derivative - Interest rate swap designated as fair value hedge		-		69,148		-		69,148
Derivatives - Interest rate swaps designated as cash flow hedge		-		217,464		-		217,464

The following table presents the valuation and unobservable inputs for Level 3 assets measured at fair value on a recurring basis at September 30, 2018:

Valuation

Unobservable

Range of

Description

Fair Value

Methodology

Inputs

Investment securities

1,949,132

3rd party valuation

Discount to reflect current market conditions

0.00%

10.00%

The following table presents a reconciliation of the investments which are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods presented:

	Six Months			Fiscal Year
	Ended			Ended
	September 30, 2018			March 31, 2018
Balance, beginning of year	$	1,954,092		$	1,930,786

Transfers in:
Corporate bonds		-			1,954,076
Mortgage-backed securities		-			16
Municipal bonds		-			-

Transfers out:
Corporate bonds		-			-
Mortgage-backed securities		16			2,473
Municipal bonds		-			1,928,313

Change in valuation		(4,944	)		-

Balance, end of year	$	1,949,132		$	1,954,092

Table of Contents

HAMILTON BANCORP, INC., AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)

The following table presents the valuation and unobservable inputs for Level 3 assets measured at fair value on a recurring basis at June 30, 2018:

Valuation

Unobservable

Range of

Description

Fair Value

Methodology

Inputs

Investment securities

1,983,250

3rd party valuation

Discount to reflect current market conditions

0.00%

10.00%

The following table presents a reconciliation of the investments which are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods presented:

	Three Months		Fiscal Year
	Ended		Ended
	June 30, 2018		March 31, 2018
Balance, beginning of year	$	1,954,092	$	1,930,786
Transfers in:
Corporate bonds		-		1,954,076
Mortgage-backed securities		-		16
Municipal bonds		-		-
Transfers out:
Corporate bonds		-		-
Mortgage-backed securities		16		2,473
Municipal bonds		-		1,928,313
Change in valuation		29,174		-
Balance, end of year	$	1,983,250	$	1,954,092

Fair value measurements on a nonrecurring basis

Impaired Loans - The Bank has measured impairment generally based on the fair value of the loan's collateral. Fair value is generally determined based upon independent appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values. As of ~~June~~September 30, 2018, and March 31, 2018, the fair values consist of loan balances of $118,~~815~~561,~~971~~924 and $8,720,339 that have been written down by $~~261~~259,~~902~~723 and $266,256, respectively, as a result of specific loan loss allowances.

Foreclosed real estate – The Bank's foreclosed real estate is measured at the lower of carrying value or fair value less estimated cost to sell. At ~~June~~September 30, 2018 and March 31, 2018, the fair value of foreclosed real estate was estimated to be $587,978 and $457,778, respectively. Fair value was determined based on offers and/or appraisals. Cost to sell the assets was based on standard market factors. The Company has categorized its foreclosed assets as Level 3.

	Level 1		Level 2		Level 3
	inputs		inputs		inputs		Total
September 30, 2018	inputs		inputs		inputs		Total
June 30, 2018
Impaired loans	$	-	$	-	$	8,302,201	$	8,302,201
Impaired loans	$	-	$	-	$	11,554,069	$	11,554,069
Foreclosed real estate		-		-		587,978		587,978
Foreclosed real estate		-		-		457,778		457,778

	Level 1		Level 2		Level 3
March 31, 2018	inputs		inputs		inputs		Total

Impaired loans	$	-	$	-	$	8,454,083	$	8,454,083
Foreclosed real estate		-		-		457,778		457,778

The following table presents the valuation and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis at September 30, 2018:

			Valuation	Unobservable	Range of
Description	Fair Value		Methodology	Inputs	Inputs

Impaired loans, net of allowance	$	8,302,201	Appraised value	Discount to reflect current market conditions	0.00%	-	25.00%
			Discounted cash flows	Discount rates	2.63%	-	7.25%

Foreclosed real estate	$	587,978	Appraised value	Discount to reflect current market conditions	0.00%	-	25.00%

The following table summarizes changes in foreclosed real estate for the periods shown, which is measured on a nonrecurring basis using significant unobservable, level 3, inputs.

		Six Months				Fiscal Year
		Ended				Ended
		September 30, 2018				March 31, 2018

Filing Compare · Hamilton Bancorp, Inc.