NOTE

3—LOANS

Major classifications of loans were as follows as of

June

30:

	2017			2016
Commercial	$	46,380		$	43,207
Commercial real estate:
Construction		5,604			7,783
Other		158,225			153,097
1 – 4 Family residential real estate:
Owner occupied		41,411			31,012
Non-owner occupied		14,415			14,471
Construction		1,988			1,256
Consumer		5,138			5,812
Subtotal		273,161			256,638
Less: Deferred loan fees and costs		(294	)		(360	)
Allowance for loan losses		(3,086	)		(3,566	)
Net loans	$	269,781		$	252,712

The following table presents the activity in the allowance for loan losses by portfolio segment for the year ending

June 30, 2017:

							1-4 Family
				Commercial			Residential
				Real			Real
	Commercial			Estate			Estate			Consumer			Total

Allowance for loan losses:
Beginning balance	$	505		$	2,518		$	402		$	141		$	3,566
Provision for loan losses		18			581			77			(80	)		596
Loans charged-off		(6	)		(1,061	)		(44	)		(37	)		(1,148	)
Recoveries		1			—			38			33			72
Total ending allowance balance	$	518		$	2,038		$	473		$	57		$	3,086

The following table presents the activity in the allowance for loan losses by portfolio segment for the year ending

June 30, 2016:

						1-4 Family
			Commercial			Residential
			Real			Real
	Commercial		Estate			Estate			Consumer			Total

Allowance for loan losses:
Beginning balance	$	316	$	1,660		$	289		$	167		$	2,432
Provision for loan losses		189		862			414			33			1,498
Loans charged-off		—		(4	)		(311	)		(80	)		(395	)
Recoveries		—		—			10			21			31
Total ending allowance balance	$	505	$	2,518		$	402		$	141		$	3,566

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of

June 30, 2017.

Included in the recorded investment in loans is

$581

of accrued interest receivable.

					1-4 Family
			Commercial		Residential
			Real		Real
	Commercial		Estate		Estate		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	42	$	2	$	—	$	44
Collectively evaluated for impairment		518		1,996		471		57		3,042

Total ending allowance balance	$	518	$	2,038	$	473	$	57	$	3,086

Recorded investment in loans:
Loans individually evaluated for impairment	$	444	$	1,587	$	203	$	—	$	2,234
Loans collectively evaluated for impairment		45,993		162,176		57,901		5,144		271,214

Total ending loans balance	$	46,437	$	163,763	$	58,104	$	5,144	$	273,448

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of

June 30, 2016.

Included in the recorded investment in loans is

$549

of accrued interest receivable.

					1-4 Family
			Commercial		Residential
			Real		Real
	Commercial		Estate		Estate		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	868	$	6	$	—	$	874
Collectively evaluated for impairment		505		1,650		396		141		2,692

Total ending allowance balance	$	505	$	2,518	$	402	$	141	$	3,566

Recorded investment in loans:
Loans individually evaluated for impairment	$	1,029	$	5,105	$	758	$	—	$	6,892
Loans collectively evaluated for impairment		42,219		155,734		46,166		5,816		249,935

Total ending loans balance	$	43,248	$	160,839	$	46,924	$	5,816	$	256,827

The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the year ended

June 30, 2017:

	Unpaid				Allowance for		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized

With no related allowance recorded:
Commercial	$	482	$	444	$	—	$	207	$	80	$	80
Commercial real estate:
Construction		—		—		—		87		6		6
Other		1,928		1,039		—		951		105		105
1-4 Family residential real estate:
Owner occupied		104		103		—		119		—		—
Non-owner occupied		—		—		—		183		—		—
With an allowance recorded:
Commercial real estate:
Other		548		548		42		1,884		21		21
1-4 Family residential real estate:
Owner occupied		99		100		2		120		6		6
Total	$	3,161	$	2,234	$	44	$	3,551	$	218	$	218

The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the year ended

June 30, 2016:

	Unpaid				Allowance for		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized

With no related allowance recorded:
Commercial	$	1,033	$	1,029	$	—	$	95	$	—	$	—
Commercial real estate:
Construction		386		384		—		52		—		—
Other		2,121		2,106		—		2,344		—		—
1-4 Family residential real estate:
Owner occupied		175		174		—		357		2		2
Non-owner occupied		722		407		—		435		—		—
With an allowance recorded:
Commercial real estate:
Other		2,802		2,615		868		1,103		8		8
1-4 Family residential real estate:
Owner occupied		177		177		6		149		—		—
Non-owner occupied		—		—		—		115		—		—
Total	$	7,416	$	6,892	$	874	$	4,650	$	10	$	10

The following table presents the recorded investment in non-accrual and loans past due over

days still on accrual by class of loans as of

June 30, 2017

and

2016:

	June 30, 2017				June 30, 2016
			Loans Past Due				Loans Past Due
			Over 90 Days				Over 90 Days
			Still				Still
	Non-accrual		Accruing		Non-accrual		Accruing
Commercial	$	368	$	—	$	1,009	$	—
Commercial real estate:
Construction		—		—		384		—
Other		729		—		4,000		—
1 – 4 Family residential:
Owner occupied		90		—		234		—
Non-owner occupied		—		—		407		—
Consumer		—		—		—		—
Total	$	1,187	$	—	$	6,034	$	—

Non-accrual loans and loans past due

days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following table presents the aging of the recorded investment in past due loans as of

June 30, 2017

by class of loans:

	Days Past Due
	30 - 59		60 - 89		90 Days or		Total		Loans Not
	Days		Days		Greater		Past Due		Past Due		Total
Commercial	$	—	$	—	$	35	$	35	$	46,402	$	46,437
Commercial real estate:
Construction		—		—		—		—		5,596		5,596
Other		—		—		130		130		158,037		158,167
1-4 Family residential:
Owner occupied		13		—		74		87		41,605		41,692
Non-owner occupied		—		—		—		—		14,416		14,416
Construction		—		—		—		—		1,996		1,996
Consumer		22		—		—		22		5,122		5,144
Total	$	35	$	—	$	239	$	274	$	273,174	$	273,448

The above table of past due loans includes the recorded investment in non-accrual loans of

$239

in the

days or greater category and

$948

in the loans

not

past due category.

The following table presents the aging of the recorded investment in past due loans as of

June 30, 2016

by class of loans:

	Days Past Due
	30 - 59		60 - 89		90 Days or		Total		Loans Not
	Days		Days		Greater		Past Due		Past Due		Total
Commercial	$	123	$	—	$	—	$	123	$	43,125	$	43,248
Commercial real estate:
Construction		—		—		—		—		7,764		7,764
Other		59		—		2,110		2,169		150,906		153,075
1-4 Family residential:
Owner occupied		15		—		218		233		30,947		31,180
Non-owner occupied		—		—		196		196		14,278		14,474
Construction		—		—		—		—		1,270		1,270
Consumer		7		—		—		7		5,809		5,816
Total	$	204	$	—	$	2,524	$	2,728	$	254,099	$	256,827

The above table of past due loans includes the recorded investment in non-accrual loans of

$2,524

in the

days or greater category and

$3,510

in the loans

not

past due category.

Troubled Debt Restructurings:

As of

June 30, 2017,

the recorded investment of loans classified as troubled debt restructurings was

$1,740

with

$33

of specific reserves allocated to these loans. As of

June 30, 2016,

the recorded investment of loans classified as troubled debt restructurings was

$3,529

with

$43

of specific reserves allocated to these loans.

During the fiscal year ended

June 30, 2017,

the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included a combination of an extension of the maturity date and the extension of additional credit to provide operating funds. The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended

June 30, 2017:

			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Loans		Investment		Investment
Commercial		2	$	518	$	518
Commercial real estate:
Other		1		512		512
Total		3	$	1,030	$	1,030

The troubled debt restructurings described above did

not

increase the allowance for loan losses or result in any charge-offs during the

twelve

months ended

June 30, 2017.

As of

June 30, 2017,

the Corporation had committed to lend an additional

$175

as part of the restructurings described above. There were

loans classified as troubled debt restructurings that were modified within the last

twelve

months for which there was a payment default.

During the fiscal year ended

June 30, 2016,

the terms of certain loans to

one

borrower were modified as troubled debt restructurings. The modification of the terms of such loans included a combination of a reduction in the monthly payment amounts, an extension of the maturity date on

one

loan, and the extension of additional credit to provide operating funds to the borrower. The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended

June 30, 2016:

			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Loans		Investment		Investment
Commercial		3	$	1,058	$	1,029
Commercial real estate:
Other		3		1,294		1,487
Total		6	$	2,352	$	2,516

The troubled debt restructurings described above did

not

increase the allowance for loan losses or result in any charge-offs during the

twelve

months ended

June 30, 2016.

As of

June 30, 2016,

the Corporation had committed to lend an additional

$207

as part of the restructuring described above. There were

loans classified as troubled debt restructurings that were modified within the last

twelve

months for which there was a payment default.

Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with a total outstanding loan relationship greater than

$100

and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a monthly basis. The Corporation uses the following definitions for risk ratings:

Special Mention.

Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses

may

result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard.

Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are

not

corrected.

Doubtful.

Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, 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.

Loans

not

meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as

not

rated are either less than

$100

or are included in groups of homogeneous loans. These loans are evaluated based on delinquency status, which was discussed previously.

As of

June 30, 2017,

and based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans is as follows:

			Special						Not
	Pass		Mention		Substandard		Doubtful		Rated
Commercial	$	44,435	$	907	$	642	$	—	$	453
Commercial real estate:
Construction		4,514		1,035		—		4		43
Other		150,460		5,110		1,566		470		561
1-4 Family residential real estate:
Owner occupied		2,668		—		11		30		38,983
Non-owner occupied		13,633		210		261		187		125
Construction		1,223		—		—		—		773
Consumer		145		—		—		—		4,999
Total	$	217,078	$	7,262	$	2,480	$	691	$	45,937

As of

June 30, 2016,

and based on the most recent analysis performed, the recorded investment by risk category of loans by class of loans is as follows:

			Special						Not
	Pass		Mention		Substandard		Doubtful		Rated
Commercial	$	35,243	$	6,190	$	1,162	$	—	$	653
Commercial real estate:
Construction		7,305		—		384		—		75
Other		144,101		2,482		4,026		2,150		316
1-4 Family residential real estate:
Owner occupied		3,506		72		349		47		27,206
Non-owner occupied		12,999		406		486		196		387
Construction		235		—		—		—		1,035
Consumer		210		—		6		—		5,600
Total	$	203,599	$	9,150	$	6,413	$	2,393	$	35,272

The Bank has granted loans to certain of its executive officers, directors and their affiliates. A summary of activity during the year ended

June

30,

2017

of related party loans were as follows:

Principal balance, July 1	$	4,724
New loans		1,620
Effect of changes in composition of related parties		3,565
Repayments		(422	)
Principal balance, June 30	$	9,487