Note

: Acquisition

Fraternity Community Bancorp, Inc.

May

13,

2016,

Hamilton Bancorp acquired Fraternity Community Bancorp, Inc. (“Fraternity”), the parent company of Fraternity Federal Savings and Loan. Under the terms of the Merger Agreement, shareholders of Fraternity received a cash payment equal to

nineteen

dollars and

twenty

five

cents

($19.25)

for each share of Fraternity common stock.

The total merger consideration was

$25.7

million.

In connection with the acquisition, Fraternity Federal Savings and Loan was merged with and into Hamilton Bank, with Hamilton Bank as the surviving bank. The results of the Fraternity acquisition are included with Hamilton’s results as of and from

May

13,

2016.

As required by the acquisition method of accounting, we have adjusted the acquired assets and liabilities of Fraternity to their estimated fair value on the date of acquisition and added them to those of Hamilton Bancorp. Based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which we have based on level

valuation estimates and assumptions that are subject to change, we have allocated the preliminary purchase price for Fraternity as follows:

	As recorded by
	Fraternity Community			Fair Value				As recorded by
	Bancorp, Inc.			Adjustments				Hamilton Bancorp, Inc.
Identifiable assets:
Cash and cash equivalents	$	15,196,058		$	-			$	15,196,058
Investment securities available for sale		17,570,712			-				17,570,712
FHLB Bank Stock		782,600			-				782,600
Loans		108,872,041			(126,757	)	A		108,745,284
Allowance For Loan Loss		(1,550,000	)		1,550,000		A		-
Premises and equipment		691,095			78,711		B		769,806
Bank-Owned Life Insurance		5,058,041			-				5,058,041
Deferred income taxes		2,743,481			(410,377	)	C		2,333,104
Other assets		2,877,665			-				2,877,665
Total identifiable assets	$	152,241,693		$	1,091,577			$	153,333,270

Identifiable liabilities:
Non-interest bearing deposits		1,242,187			-				1,242,187
Interest bearing deposits		107,648,792			1,098,131		D		108,746,923
Borrowings		15,000,000			793,537		E		15,793,537
Other liabilities		4,023,914			-				4,023,914
Total identifiable liabilities	$	127,914,893		$	1,891,668			$	129,806,561

Net tangible assets acquired		24,326,800			(800,091	)			23,526,709

Definite lived intangible assets acquired		-			242,020				242,020
Goodwill		-			1,936,142				1,936,142
Net intangible assets acquired		-			2,178,162				2,178,162

Total cash consideration	$	24,326,800		$	1,378,071			$	25,704,871

Explanation of fair value adjustments:

A -

Adjustment reflects the fair value adjustments based on Hamilton Bancorp’s evaluation of the acquired loan portfolio and

excludes the allowance for losses recorded by Fraternity Community Bancorp, Inc.

B - Adjustment reflects the fair value adjustments based on Hamilton Bancorp’s evaluation of the acquired premises and

equipment.

C - Adjustment to record deferred tax asset related to fair value adjustments at

39.45%

income tax rate.

D - Adjustment arises since the rates on interest-bearing deposits are higher than rates available on similar deposits as of the

acquisition date.

E - Adjustment reflects the fair value of Fraternity’s borrowings acquired on acquisition date.

Prior to the end of the measurement period, if information becomes available which indicates the purchase price allocations require adjustments, we will include such adjustments in the purchase price allocation retrospectively.

Of the total estimated purchase price, we have allocated

$23.5

million to net tangible assets acquired and we have allocated

$242,020

to the core deposit intangible which is a definite lived intangible asset. We have allocated the remaining purchase price to goodwill, which is deductible for income tax purposes. We will amortize the core deposit intangible on a straight-line basis over its estimated useful life of

eight

years. We will evaluate goodwill annually for impairment.

Pro forma Condensed Combined Financial Information.

The following schedule includes consolidated statements of operations data for the unaudited pro forma results for the

three

months ended

December

31,

2015

and

nine

-month periods ended

December

31,

2016

and

2015

as if the Fraternity acquisition had occurred as of the beginning of the periods presented.

	Three Months Ended
	December 31,			Nine Months Ended December 31,
	2015			2016		2015
Net interest income	$	3,978,170		$	10,862,778	$	10,589,458
Other non-interest revenue		236,691			862,502		1,245,048
Total revenue		4,214,861			11,725,279		11,834,506
Provision expense		70,000			1,040,006		190,000
Other non-interest expense		3,775,757			9,420,767		11,044,009
Income before income taxes		369,104			1,264,507		600,497
Income tax expense		389,641			385,181		534,920
Net (loss) income	$	(20,537	)	$	879,325	$	65,577

Basic (loss) earnings per share	$	(0.01	)	$	0.28	$	0.02
Diluted (loss) earnings per share	$	(0.01	)	$	0.28	$	0.02

We have not included any provision for loan losses during the period for loans acquired from Fraternity. In accordance with accounting for business combinations, we included the credit losses evident in the loans in the determination of the fair value of loans at the date of acquisition and eliminated the allowance for loan losses maintained by Fraternity at acquisition date. Also excluded are an estimated

$3.0

million in merger related expenses associated with completing the actual acquisition. This expense includes expenses incurred by both the buyer and the seller. For the

three

and

nine

months ending

December

31,

2015,

acquisition costs of

$196,000

and

$828,000,

respectively, associated with the acquisition of Fairmount are included in non-interest expense. For the

nine

months ending

December

31,

2016

there were no acquisition costs attributable to Fairmount because that acquisition had been completed at that time. The acquisition expenses are non-deductible and the reasoning for income tax expense being higher in those periods relative to pre-tax income.

We have presented the pro forma financial information for illustrative purposes only and it is not necessarily indicative of the financial results of the combined companies had we actually completed the acquisition at the beginning of the periods presented, nor does it indicate future results for any other interim or full year period. Pro forma basic and diluted earnings per common share were calculated using Hamilton Bancorp’s actual weighted average shares outstanding for the periods presented, assuming the acquisition occurred at the beginning of the periods presented.

The following table outlines the contractually required payments receivable, cash flows we expect to receive, non-accretable credit adjustments and the accretable yield for all Fraternity loans as of the acquisition date.

	Contractually
	Required		Non-Accretable			Cash Flows					Carrying Value
	Payments		Credit			Expected To Be		Accretable FMV			of Loans
	Receivable		Adjustments			Collected		Adjustments			Receivable

Performing loans acquired	$	107,474,993	$	-		$	107,474,993	$	242,773		$	107,717,766

Impaired loans acquired		1,397,048		(314,484	)		1,082,564		(55,046	)		1,027,518

Total	$	108,872,041	$	(314,484	)	$	108,557,557	$	187,727		$	108,745,284

At our acquisition of Fraternity, we recorded all loans acquired at the estimated fair value on the purchase date with no carryover of the related allowance for loan losses. On the acquisition date, we segregated the loan portfolio into

two

loan pools, performing and nonperforming loans, to be retained in our portfolio.

We had an independent

third

party determine the fair value of cash flows on

$107,474,993

of performing loans. The valuation took into consideration the loans' underlying characteristics, including account types, remaining terms, annual interest rates, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan to value ratios, loss exposures, and remaining balances. These performing loans were segregated into pools based on loan and payment type and in some cases, risk grade. The effect of this fair valuation process was a net accretable premium adjustment of

$242,773

at acquisition.

We also individually evaluated

impaired loans totaling

$1,397,048

to determine the fair value as of the

May

13,

2016

measurement date. In determining the fair value for each individually evaluated impaired loan, we considered a number of factors including the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral and net present value of cash flows we expect to receive, among others.

We established a credit risk related non-accretable difference of

$314,484

relating to these acquired, credit impaired loans, reflected in the recorded net fair value. We further estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount adjustment of

$55,046

at acquisition relating to these impaired loans.

Fairmount Bancorp, Inc.

September

11,

2015,

Hamilton Bancorp acquired Fairmount Bancorp, Inc. (“Fairmount”), the parent company of Fairmount Bank. Under the terms of the Merger Agreement, shareholders of Fairmount received a cash payment equal to

thirty

dollars

($30.00)

for each share of Fairmount common stock.

The total merger consideration was

$14.2

million.

In connection with the acquisition, Fairmount Bank was merged with and into Hamilton Bank, with Hamilton Bank as the surviving bank. The results of the Fairmount acquisition are included with Hamilton’s results as of and from

September

11,

2015.

As required by the acquisition method of accounting, we have adjusted the acquired assets and liabilities of Fairmount to their estimated fair value on the date of acquisition and added them to those of Hamilton Bancorp. Based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which we have based on level

valuation estimates and assumptions that are subject to change, we have allocated the preliminary purchase price for Fairmount as follows:

	As recorded by			Fair Value				As recorded by
	Fairmount Bancorp, Inc.			Adjustments				Hamilton Bancorp, Inc.
Identifiable assets:
Cash and cash equivalents	$	1,468,499		$	-			$	1,468,499
Certificates of deposit		4,467,825			27,772		A		4,495,597
Investment securities available for sale		9,729,405			-				9,729,405
Loans		55,454,414			(1,876,502	)	B		53,577,912
Allowance For Loan Loss		(591,070	)		591,070		B		-
Premises and equipment		2,975,587			(726,997	)	C		2,248,590
Core Deposit Intangible		22,802			(22,802	)	D		-
Deferred income taxes		965,256			596,675		E		1,561,931
Other assets		1,031,755			-				1,031,755
Total identifiable assets	$	75,524,473		$	(1,410,784	)		$	74,113,689

Identifiable liabilities:
Non-interest bearing deposits		909,669			-				909,669
Interest bearing deposits		52,123,868			433,429		F		52,557,297
Borrowings		10,500,000			389,147		G		10,889,147
Other liabilities		120,351			-				120,351
Total identifiable liabilities	$	63,653,888		$	822,576			$	64,476,464

Net tangible assets acquired		11,870,585			(2,233,360	)			9,637,225

Definite lived intangible assets acquired		-			542,540				542,540
Goodwill		-			4,012,605				4,012,605
Net intangible assets acquired		-			4,555,145				4,555,145

Total cash consideration	$	11,870,585		$	2,321,785			$	14,192,370

Explanation of fair value adjustments:

A -

Adjustment reflects marking the certificates of deposit portfolio to fair value as of the acquisition date.

B -

Adjustment reflects the fair value adjustments based on Hamilton Bancorp’s evaluation of the acquired loan portfolio and

excludes the allowance for losses recorded by Fairmount Bancorp, Inc.

C - Adjustment reflects the fair value adjustments based on Hamilton Bancorp’s evaluation of the acquired premises and

equipment.

D - Adjustment reflects the elimination of core deposit intangible recorded by Fairmount Bancorp, Inc. from an acquisition

prior.

E - Adjustment to record deferred tax asset related to fair value adjustments at

39.45%

income tax rate.

F - Adjustment arises since the rates on interest-bearing deposits are higher than rates available on similar deposits as of the

acquisition date.

G - Adjustment reflects the fair value of Fraternity’s borrowings acquired on acquisition date.

Prior to the end of the

September

11,

2016

measurement period, if information became available which indicated the purchase price allocations require adjustments, we included such adjustments in the purchase price allocation retrospectively. During this measurement period, we made a net adjustment of

$215,000

in the purchase price allocations. These adjustments included items relating to the valuation of loans, property and equipment, payables and deferred taxes.

Of the total estimated purchase price, we have allocated an estimate of

$9.6

million to net tangible assets acquired and we have allocated approximately

$543,000

eight

years. We will evaluate goodwill annually for impairment.

Pro forma Condensed Combined Financial Information.

The following schedule includes consolidated statements of operations data for the unaudited pro forma results for the

nine

month periods ended

December

31,

2016

and

2015

as if the Fairmount acquisition had occurred as of the beginning of the periods presented.

	Nine Months Ended December 31,
	2016			2015
Net interest income	$	10,258,714		$	8,323,913
Other non-interest revenue		840,079			1,214,209
Total revenue		11,098,793			9,538,122
Provision expense		1,040,006			180,000
Other non-interest expense		10,076,607			7,662,302
Income before income taxes		(17,820	)		1,695,820
Income tax expense		(65,466	)		624,593
Net income	$	47,646		$	1,071,226

Basic earnings per share	$	0.01		$	0.34
Diluted earnings per share	$	0.01		$	0.34

The pro forma condensed financial information in the table above for the

nine

months ending

December

31,

2016,

includes the revenue and expenses associated with the acquisition of Fraternity Community Bancorp, Inc. on

May

13,

2016

through the end of the period, including

$1.1

million in acquisition related and branch consolidation expenses.

We have not included any provision for loan losses during the period for loans acquired from Fairmount. In accordance with accounting for business combinations, we included the credit losses evident in the loans in the determination of the fair value of loans at the date of acquisition and eliminated the allowance for loan losses maintained by Fairmount at acquisition date. Also excluded are an estimated

$3.1

million in merger related expenses associated with completing the actual acquisition. This expense includes expenses incurred by both the buyer and the seller.

Fraternity and Fairmount acquisition expenses.

In connection with the acquisition of Fraternity and Fairmount, the Company incurred merger related costs. These expenses were primarily related to legal, other professional services and system conversions. The following table details the expenses included in the consolidated statements of operations for the periods shown.

	Three months ended December 31,				Nine Months Ended December 31,
	2016		2015		2016		2015
Legal	$	-	$	68,528	$	55,500	$	433,051
Professional services		-		128,117		157,567		316,959
Advertising		-		-		-		2,779
Data processing		-		-		-		48,745
Other		-		-		6,350		26,691
Total meger related expenses	$	-	$	196,645	$	219,417	$	828,225

In addition, included in other professional service expense in the Statement of Operations for the

three

and

nine

months ended

December

31,

2016

$145,000

and

$387,000

relating to non-compete agreements and

$26,800

and

$80,400

in consulting expense that has been paid to former executives in the acquisitions, respectively. The non-compete agreements are for a term of

one

and

two

years for various former executives, while the consulting contract was for a

six

-month period that ended

November

2016.