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Note 7 - Loans Receivable and Allowance for Loan Losses
 12 Months Ended
Mar. 31, 2017
Notes to Financial Statements  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]
Note
7:
     
Loans Receivable and Allowance for Loan Losses
 
Loans receivable, excluding
no
loans held for sale at
March 31, 2017
and
$254,000
at
March 31, 2016,
consist of the following:
 
   
March 31, 2017
    
March 31, 2016
  
   
Legacy (1)
    
Acquired
    
Total Loans
    
% of Total
    
Legacy (1)
    
Acquired
    
Total Loans
    
% of Total
  
Real estate loans:
                                                                
One-to four-family:
                                                                
Residential (2)
   $
67,126,677
     $
83,892,389
     $
151,019,066
      
44
 %   $
46,263,709
     $
23,036,569
     $
69,300,278
      
31
 %
Residential construction
    
6,426,076
      
-
     
6,426,076
      
2
 %    
4,304,189
      
965,440
      
5,269,629
      
2
 %
Investor (3)
    
6,742,469
      
18,779,644
      
25,522,113
      
8
 %    
12,076,911
      
15,783,008
      
27,859,919
      
13
 %
Commercial
    
92,665,689
      
14,898,523
      
107,564,212
      
32
 %    
75,225,984
      
2,889,219
      
78,115,203
      
35
 %
Commercial construction
    
1,881,541
      
1,308,652
      
3,190,193
      
1
 %    
1,982,571
      
1,274,148
      
3,256,719
      
2
 %
Total real estate loans
    
174,842,452
      
118,879,208
      
293,721,660
      
87
 %    
139,853,364
      
43,948,384
      
183,801,748
      
83
 %
Commercial business
    
19,518,029
      
2,019,337
      
21,537,366
      
6
 %    
17,773,967
      
2,621,625
      
20,395,592
      
9
 %
Home equity loans
    
13,278,229
      
7,266,141
      
20,544,370
      
6
 %    
12,222,688
      
2,168,073
      
14,390,761
      
6
 %
Consumer
    
2,258,836
      
937,600
      
3,196,436
      
1
 %    
3,072,677
      
1,106,434
      
4,179,111
      
2
 %
Total Loans
    
209,897,546
      
129,102,286
      
338,999,832
      
100
 %    
172,922,696
      
49,844,516
      
222,767,212
      
100
 %
Net deferred loan origination fees and costs
    
(143,070
 )    
-
     
(143,070
 )    
 
      
(139,321
 )    
-
     
(139,321
 )    
 
  
Loan premium (discount)
    
619,846
      
(543,410
 )    
76,436
     
 
      
77,983
      
(846,818
 )    
(768,835
 )    
 
  
    $
210,374,322
     $
128,558,876
     $
338,933,198
      
 
     $
172,861,358
     $
48,997,698
     $
221,859,056
      
 
  
                                                                
(
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, 2017
includes
$23.4
million of loans purchased in
March 2017.
(
3
)
"Investor" loans are residential mortgage loans secured by non-owner occupied
one
-to
four
-family properties.
 
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 a small portfolio of equipment leases, which consists of leases for essential commercial equipment used by small to medium sized businesses.
 
The home equity loans consist of both conforming loans and revolving lines of credit to consumers which are secured by residential real estate. These loans are typically secured with
second
mortgages on the homes. Consumer loans include share loans, installment loans and, to a lesser extent, personal lines of credit.  Share loans represent loans that are collateralized by a certificate of deposit or other deposit product. Installment loans are used by customers to purchase primarily automobiles, but
may
be used to also purchase boats and recreational vehicles.
 
The following tables detail activity in the allowance for loan losses by portfolio segment for the fiscal years ended
March 31, 2017
and
2016.
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.
 
 
  
March 31, 2017
  
 
  
Residential
Real
Estate
    
Investor
Real
Estate
    
Commercial
Real Estate
    
Commercial
Construction
    
Commercial
Business
    
Home Equity
    
Consumer
    
Total
  
Allowance for credit losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
259,895
 
 
$
168,132
 
 
$
901,768
 
 
$
42,377
 
 
$
228,199
 
 
$
82,012
 
 
$
19,982
 
 
$
1,702,365
 
Charge-offs
 
 
(34,578
)
 
 
(1,801,438
)
 
 
(1,111,320
)
 
 
-
 
 
 
(1,521
)
 
 
-
 
 
 
(4,073
)
 
 
(2,952,930
)
Recoveries
 
 
-
 
 
 
11,599
 
 
 
-
 
 
 
-
 
 
 
29,257
 
 
 
-
 
 
 
9,518
 
 
 
50,374
 
Provision for credit losses
 
 
328,222
 
 
 
1,656,982
 
 
 
1,585,446
 
 
 
(33,346
)
 
 
(106,474
)
 
 
(11,941
)
 
 
(23,883
)
 
 
3,395,006
 
Ending balance
 
$
553,539
 
 
$
35,275
 
 
$
1,375,894
 
 
$
9,031
 
 
$
149,461
 
 
$
70,071
 
 
$
1,544
 
 
$
2,194,815
 
                                                                 
Allowance allocated to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Legacy Loans:
                                                                
Individually evaluated for impairment
 
$
284,177
 
 
$
-
  
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
284,177
  
Collectively evaluated for impairment
 
 
269,362
 
 
 
34,093
 
 
 
1,375,894
 
 
 
9,031
 
 
 
149,461
 
 
 
70,071
 
 
 
1,544
 
 
 
1,909,456
 
                                                                 
Acquired Loans:
                                                                
Individually evaluated for impairment
 
$
-
 
 
$
1,182
  
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
1,182
  
Collectively evaluated for impairment
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
                                                                 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Legacy Loans:
                                                                
Individually evaluated for impairment
 
$
1,762,417
 
 
$
16,919
 
 
$
1,546,812
 
 
$
-
 
 
$
753,375
 
 
$
12,040
 
 
$
-
 
 
$
4,091,563
 
Collectively evaluated for impairment
 
 
71,790,336
 
 
 
6,725,550
 
 
 
91,118,877
 
 
 
1,881,541
 
 
 
18,764,654
 
 
 
13,266,189
 
 
 
2,258,836
 
 
 
205,805,983
 
Ending balance
 
$
73,552,753
 
 
$
6,742,469
 
 
$
92,665,689
 
 
$
1,881,541
 
 
$
19,518,029
 
 
$
13,278,229
 
 
$
2,258,836
 
 
$
209,897,546
 
                                                                 
Acquired Loans:
                                                                
individually evaluated for impairment
 
$
1,133,646
 
 
$
186,888
 
 
$
204,844
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
40,107
 
 
$
1,565,485
 
collectively evaluated for impairment
 
 
82,758,743
 
 
 
18,592,756
 
 
 
14,693,679
 
 
 
1,308,652
 
 
 
2,019,337
 
 
 
7,266,141
 
 
 
897,493
 
 
 
127,536,801
 
Ending balance
 
$
83,892,389
 
 
$
18,779,644
 
 
$
14,898,523
 
 
$
1,308,652
 
 
$
2,019,337
 
 
$
7,266,141
 
 
$
937,600
 
 
$
129,102,286
 
 
 
  
March 31, 2016
  
 
  
Residential Real Estate
    
Investor Real Estate
    
Commercial Real Estate
    
Commercial Construction
    
Commercial Business
    
Home Equity
    
Consumer
    
Total
  
Allowance for credit losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
319,565
 
 
$
114,005
 
 
$
585,817
 
 
$
67,835
 
 
$
503,304
 
 
$
98,983
 
 
$
727
 
 
$
1,690,236
 
Charge-offs
 
 
(69,500
)
 
 
(222,238
)
 
 
(567,901
)
 
 
-
 
 
 
(10,533
)
 
 
(6,000
)
 
 
(16,337
)
 
 
(892,509
)
Recoveries
 
 
848
 
 
 
24,835
 
 
 
-
 
 
 
236,904
 
 
 
192,336
 
 
 
-
 
 
 
9,715
 
 
 
464,638
 
Provision for credit losses
 
 
8,982
 
 
 
251,530
 
 
 
883,852
 
 
 
(262,362
)
 
 
(456,908
)
 
 
(10,971
)
 
 
25,877
 
 
 
440,000
 
Ending balance
 
$
259,895
 
 
$
168,132
 
 
$
901,768
 
 
$
42,377
 
 
$
228,199
 
 
$
82,012
 
 
$
19,982
 
 
$
1,702,365
 
                                                                 
Allowance allocated to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Legacy Loans:
                                                                
Individually evaluated for impairment
 
$
59,571
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
59,571
 
Collectively evaluated for impairment
 
 
200,324
 
 
 
168,132
 
 
 
901,768
 
 
 
42,377
 
 
 
228,199
 
 
 
82,012
 
 
 
19,982
 
 
 
1,642,794
 
                                                                 
Acquired Loans:
                                                                
Individually evaluated for impairment
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
-
 
Collectively evaluated for impairment
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
                                                                 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Legacy Loans:
                                                                
Individually evaluated for impairment
 
$
1,891,602
 
 
$
26,925
 
 
$
2,717,144
 
 
$
-
 
 
$
1,279,233
 
 
$
59,169
 
 
$
-
 
 
$
5,974,073
 
Collectively evaluated for impairment
 
 
48,676,296
 
 
 
12,049,986
 
 
 
72,508,840
 
 
 
1,982,571
 
 
 
16,494,734
 
 
 
12,163,519
 
 
 
3,072,677
 
 
 
166,948,623
 
Ending balance
 
$
50,567,898
 
 
$
12,076,911
 
 
$
75,225,984
 
 
$
1,982,571
 
 
$
17,773,967
 
 
$
12,222,688
 
 
$
3,072,677
 
 
$
172,922,696
 
                                                                 
Acquired Loans:
                                                                
individually evaluated for impairment
 
$
412,934
 
 
$
797,372
 
 
$
211,239
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
42,488
 
 
$
1,464,033
 
collectively evaluated for impairment
 
 
23,589,075
 
 
 
14,985,636
 
 
 
2,677,980
 
 
 
1,274,148
 
 
 
2,621,625
 
 
 
2,168,073
 
 
 
1,063,946
 
 
 
48,380,483
 
Ending balance
 
$
24,002,009
 
 
$
15,783,008
 
 
$
2,889,219
 
 
$
1,274,148
 
 
$
2,621,625
 
 
$
2,168,073
 
 
$
1,106,434
 
 
$
49,844,516
 
 
Past due loans, segregated by age and class of loans, as
March 31, 2017
and
2016,
were as follows:
 
 
 
March 31, 2017
 
 
March 31, 2016
 
 
 
Legacy
 
 
Acquired
 
 
Total
 
 
Legacy
 
 
Acquired
 
 
Total
 
Current
 
$
207,328,184
 
 
$
128,769,860
 
 
$
336,098,044
 
 
$
168,814,175
 
 
$
48,317,673
 
 
$
217,131,848
 
Accruing past due loans:
                                                
30-59 days past due:
                                                
Real estate loans:
                                                
Residential
 
 
69,618
 
 
 
-
 
 
 
69,618
 
 
 
468,887
 
 
 
-
 
 
 
468,887
 
Investor
 
 
320,971
 
 
 
-
 
 
 
320,971
 
 
 
-
 
 
 
42,800
 
 
 
42,800
 
Commercial
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial construction
 
 
113,603
 
 
 
-
 
 
 
113,603
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Home equity loans
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
20,753
 
 
 
-
 
 
 
20,753
 
Total 30-59 days past due
 
 
504,192
 
 
 
-
 
 
 
504,192
 
 
 
489,640
 
 
 
42,800
 
 
 
532,440
 
                                                 
60-89 days past due:
                                                
Real estate loans:
                                                
Residential
 
 
74,631
 
 
 
-
 
 
 
74,631
 
 
 
52,875
 
 
 
-
 
 
 
52,875
 
Investor
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Home equity loans
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Total 60-89 days past due
 
 
74,631
 
 
 
-
 
 
 
74,631
 
 
 
52,875
 
 
 
-
 
 
 
52,875
 
                                                 
90 or more days past due:
                                                
Real estate loans:
                                                
Residential
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Investor
 
 
-
 
 
 
21,030
 
 
 
21,030
 
 
 
165,701
 
 
 
542,236
 
 
 
707,937
 
Commercial
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Home equity loans
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Total 90 or more days past due
 
 
-
 
 
 
21,030
 
 
 
21,030
 
 
 
165,701
 
 
 
542,236
 
 
 
707,937
 
Total accruing past due loans
 
 
578,823
 
 
 
21,030
 
 
 
599,853
 
 
 
708,216
 
 
 
585,036
 
 
 
1,293,252
 
                                                 
Non-accruing loans:
                                                
Real estate loans:
                                                
Residential
 
 
426,354
 
 
 
248,663
 
 
 
675,017
 
 
 
474,877
 
 
 
300,301
 
 
 
775,178
 
Investor
 
 
13,976
 
 
 
57,131
 
 
 
71,107
 
 
 
37,062
 
 
 
637,971
 
 
 
675,033
 
Commercial
 
 
1,546,812
 
 
 
-
 
 
 
1,546,812
 
 
 
2,717,144
 
 
 
-
 
 
 
2,717,144
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
-
 
 
 
-
 
 
 
-
 
 
 
121,760
 
 
 
-
 
 
 
121,760
 
Home equity loans
 
 
3,397
 
 
 
-
 
 
 
3,397
 
 
 
49,462
 
 
 
-
 
 
 
49,462
 
Consumer
 
 
-
 
 
 
5,602
 
 
 
5,602
 
 
 
-
 
 
 
3,535
 
 
 
3,535
 
Non-accruing loans:
 
 
1,990,539
 
 
 
311,396
 
 
 
2,301,935
 
 
 
3,400,305
 
 
 
941,807
 
 
 
4,342,112
 
Total Loans
 
$
209,897,546
 
 
$
129,102,286
 
 
$
338,999,832
 
 
$
172,922,696
 
 
$
49,844,516
 
 
$
222,767,212
 
                                                 
                                                 
Nonaccrual interest not accrued:
                                                
Real estate loans:
                                                
Residential
 
$
6,460
 
 
$
35,177
 
 
$
41,637
 
 
$
10,666
 
 
$
32,572
 
 
$
43,238
 
Investor
 
 
6,982
 
 
 
23,293
 
 
 
30,275
 
 
 
7,828
 
 
 
85,809
 
 
 
93,637
 
Commercial
 
 
109,818
 
 
 
-
 
 
 
109,818
 
 
 
47,646
 
 
 
-
 
 
 
47,646
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Home equity loans
 
 
66
 
 
 
-
 
 
 
66
 
 
 
1,007
 
 
 
-
 
 
 
1,007
 
Consumer
 
 
-
 
 
 
317
 
 
 
317
 
 
 
-
 
 
 
178
 
 
 
178
 
Total nonaccrual interest not accrued
 
$
123,326
 
 
$
58,787
 
 
$
182,113
 
 
$
67,147
 
 
$
118,559
 
 
$
185,706
 
 
Impaired Loans as of
March 31, 2017
and
2016
were as follows:
 
 
  
Impaired Loans at March 31, 2017
  
   
Unpaid
                                  
   
Contractual
                    
Average
    
Interest
  
   
Principal
    
Recorded
    
Related
    
Recorded
    
Income
  
Legacy:
  
Balance
    
Investment
    
Allowance
    
Investment
    
Recognized
  
With no related allowance recorded:
                                        
Real estate loans:
                                        
Residential
 
$
491,249
 
 
$
360,590
 
 
$
-
 
 
$
373,618
 
 
$
11,901
 
Investor
 
 
107,710
 
 
 
16,919
 
 
 
 
 
 
 
16,306
 
 
 
-
 
Commercial
 
 
3,433,621
 
 
 
1,546,812
 
 
 
-
 
 
 
2,485,299
 
 
 
987
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
1,177,632
 
 
 
753,375
 
 
 
-
 
 
 
832,437
 
 
 
107,063
 
Home equity loans
 
 
37,365
 
 
 
12,040
 
 
 
-
 
 
 
14,102
 
 
 
257
 
Consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
With an allowance recorded:
                                        
Real estate loans:
                                        
Residential
 
 
1,432,212
 
 
 
1,401,827
 
 
 
284,177
  
 
 
1,428,128
 
 
 
54,121
 
Investor
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Home equity loans
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Total legacy impaired
 
 
6,679,789
 
 
 
4,091,563
 
 
 
284,177
  
 
 
5,149,890
 
 
 
174,329
 
                                         
Acquired (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
                                        
Real estate loans:
                                        
Residential
 
 
1,320,985
 
 
 
1,133,646
 
 
 
-
 
 
 
1,017,399
 
 
 
51,442
 
Investor
 
 
503,920
  
 
 
148,506
  
 
 
-
 
 
 
230,757
  
 
 
12,229
 
Commercial
 
 
254,844
 
 
 
204,844
 
 
 
-
 
 
 
208,057
 
 
 
7,770
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Home equity loans
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Consumer
 
 
88,276
 
 
 
40,107
 
 
 
-
 
 
 
44,079
 
 
 
6,049
 
With an allowance recorded:
                                        
Real estate loans:
                                        
Residential
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Investor
 
 
66,446
  
 
 
38,382
  
 
 
1,182
  
 
 
34,448
  
 
 
-
 
Commercial
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Home equity loans
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Total acquired impaired
 
 
2,234,471
 
 
 
1,565,485
 
 
 
1,182
  
 
 
1,534,740
 
 
 
77,490
 
Total impaired
 
$
8,914,260
 
 
$
5,657,048
 
 
$
285,359
 
 
$
6,684,630
 
 
$
251,819
 
 
(
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. 
 
 
  
Impaired Loans at March 31, 2016
  
   
Unpaid
                                  
   
Contractual
                    
Average
    
Interest
  
   
Principal
    
Recorded
    
Related
    
Recorded
    
Income
  
Legacy:
  
Balance
    
Investment
    
Allowance
    
Investment
    
Recognized
  
With no related allowance recorded:
                                        
Real estate loans:
                                        
Residential
 
$
690,915
 
 
$
599,794
 
 
$
-
 
 
$
544,000
 
 
$
7,857
 
Investor
 
 
119,822
 
 
 
26,925
 
 
 
-
 
 
 
14,586
 
 
 
2,437
 
Commercial
 
 
3,433,621
 
 
 
2,717,144
 
 
 
-
 
 
 
3,298,855
 
 
 
99,599
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
1,884,258
 
 
 
1,279,233
 
 
 
-
 
 
 
1,557,871
 
 
 
147,101
 
Home equity loans
 
 
82,740
 
 
 
59,169
 
 
 
-
 
 
 
18,817
 
 
 
331
 
Consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
With an allowance recorded:
                                        
Real estate loans:
                                        
Residential
 
 
1,306,083
 
 
 
1,291,808
 
 
 
59,571
 
 
 
1,306,414
 
 
 
53,204
 
Investor
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Home equity loans
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Total legacy impaired
 
 
7,517,439
 
 
 
5,974,073
 
 
 
59,571
 
 
 
6,740,543
 
 
 
310,529
 
                                         
Acquired (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
                                        
Real estate loans:
                                        
Residential
 
 
549,388
 
 
 
412,934
 
 
 
-
 
 
 
360,962
 
 
 
15,891
 
Investor
 
 
1,894,614
 
 
 
797,372
 
 
 
-
 
 
 
1,026,391
 
 
 
70,696
 
Commercial
 
 
261,239
 
 
 
211,239
 
 
 
-
 
 
 
212,806
 
 
 
9,978
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Home equity loans
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Consumer
 
 
72,358
 
 
 
42,488
 
 
 
-
 
 
 
43,233
 
 
 
7,086
 
With an allowance recorded:
                                        
Real estate loans:
                                        
Residential
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Investor
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Home equity loans
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Total acquired impaired
 
 
2,777,599
 
 
 
1,464,033
 
 
 
-
 
 
 
1,643,392
 
 
 
103,651
 
Total impaired
 
$
10,295,038
 
 
$
7,438,106
 
 
$
59,571
 
 
$
8,383,935
 
 
$
414,180
 
 
(
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. 
 
The following table documents changes in the carrying amount of acquired impaired loans (Purchase Credit Impaired of “PCI”) for the years ended
March 31,
along with the outstanding balance at the end of the period:
 
   
2017
    
2016
  
                 
Recorded investment at beginning of period
   $
919,729
    $
-
 
Fair value of loans acquired during the year
    
1,027,518
     
980,943
 
Accretion
    
28,036
     
25,937
 
Reductions for payments
    
(633,348
 )    
(87,151
 )
Recorded investment at end of period
   $
1,341,935
    $
919,729
 
Oustanding principal balance at end of period
   $
1,691,004
    $
1,260,429
 
 
A summary of changes in the accretable yield for PCI loans for the years ended
March 31,
is as follows:
 
   
2017
    
2016
  
                 
Accretable yield, beginning of period
   $
32,629
    $
-
 
Addition from acquisition
    
55,046
     
59,142
 
Accretion
    
(28,036
 )    
(25,937
 )
Reclassification from nonaccretable difference
    
-
     
-
 
Other changes, net
    
-
     
(576
 )
Accretable yield, end of period
   $
59,639
    $
32,629
 
 
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
March 31, 2017
and
2016
follows:
 
   
Number of
                          
March 31, 2017
  
contracts
    
Performing
    
Nonperforming
    
Total
  
Real estate loans:
                                
Residential
 
 
13
 
 
$
1,261,603
 
 
$
294,968
 
 
$
1,556,571
 
Investor
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial
 
 
2
 
 
 
-
 
 
 
1,546,812
 
 
 
1,546,812
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
1
 
 
 
643,999
 
 
 
-
 
 
 
643,999
 
Home equity loans
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
 
16
 
 
$
1,905,602
 
 
$
1,841,780
 
 
$
3,747,382
 
 
   
Number of
                          
March 31, 2016
  
contracts
    
Performing
    
Nonperforming
    
Total
  
Real estate loans:
                                
Residential
 
 
12
 
 
$
1,457,552
 
 
$
101,449
 
 
$
1,559,001
 
Investor
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial
 
 
2
 
 
 
-
 
 
 
2,717,144
 
 
 
2,717,144
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
2
 
 
 
647,654
 
 
 
-
 
 
 
647,654
 
Home equity loans
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
 
16
 
 
$
2,105,206
 
 
$
2,818,593
 
 
$
4,923,799
 
 
The following table presents the number of contracts and the dollar amount of TDRs that were added during the years ended
March 31, 2017
and
2016.
The amount shown reflects the outstanding loan balance at the time of the modification.
 
 
  
Loans Modified as a TDR for the fiscal year ended
  
 
  
March 31, 2017
    
March 31, 2016
  
 
  
Number of
   
Outstanding recorded
    
Number of
   
Outstanding recorded
  
Troubled Debt Restructurings
  
contracts
    
investment
    
contracts
    
investment
  
                                 
Real estate loans:
                                
Residential
 
 
3
 
 
$
97,401
 
 
 
7
 
 
$
147,578
 
 
There are
no
TDRs outstanding that defaulted over the
twelve
month period ended
March 31, 2017
and
2016.
Earlier in fiscal
2017,
there were
11
newly added TDR loans to
one
borrower for non-owner occupied residential real estate properties that had subsequently defaulted within
twelve
months. However, these loans have since been sold as part of a larger pool of loans in
October 2016
and are
no
longer being reflected in the these financial statements. 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. There are
no
commitments to extend credit under existing TDRs as of
March 31, 2017.
 
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.
 
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.
 
The following tables present the
March 31, 2017
and
2016
balances of classified loans based on the risk grade. Classified loans include Special Mention, Substandard, and Doubtful loans. The Bank had
no
loans classified as Doubtful or Loss as of
March 31, 2017
or
2016.
 
 
  
March 31, 2017
    
March 31, 2016
  
 
  
LEGACY
    
ACQUIRED
    
TOTAL
    
LEGACY
    
ACQUIRED
    
TOTAL
  
Risk Rating:
                                                
Rating - Pass:
                                                
Real estate loans:
                                                
Residential
 
$
71,721,341
 
 
$
81,228,457
 
 
$
152,949,798
    $
48,271,948
    $
23,799,344
    $
72,071,292
 
Investor
 
 
6,728,493
  
 
 
18,151,533
  
 
 
24,880,026
      
11,697,157
      
14,240,219
      
25,937,376
  
Commercial
 
 
84,789,748
  
 
 
13,387,987
  
 
 
98,177,735
      
66,824,956
      
2,677,980
      
69,502,936
  
Commercial construction
 
 
1,881,541
  
 
 
1,308,652
  
 
 
3,190,193
      
1,982,571
      
1,274,148
      
3,256,719
  
Commercial Business
 
 
19,376,763
  
 
 
2,019,337
  
 
 
21,396,100
      
13,629,957
      
2,621,625
      
16,251,582
  
Home Equity
 
 
13,269,478
  
 
 
7,133,164
  
 
 
20,402,642
      
12,163,519
      
2,168,073
      
14,331,592
  
Consumer
 
 
2,258,836
  
 
 
896,022
  
 
 
3,154,858
      
3,072,677
      
1,063,946
      
4,136,623
  
Total Pass
 
 
200,026,200
 
 
 
124,125,152
 
 
 
324,151,352
     
157,642,785
      
47,845,335
      
205,488,120
  
                                                 
Rating - Special Mention:
                                                
Real estate loans:
                                                
Residential
 
 
1,499,436
  
 
 
1,724,987
 
 
 
3,224,423
     
1,920,315
      
-
     
1,920,315
 
Investor
 
 
-
 
 
 
408,803
 
 
 
408,803
     
351,835
     
535,148
     
886,983
 
Commercial
 
 
6,329,129
 
 
 
1,305,692
 
 
 
7,634,821
     
5,683,884
     
-
     
5,683,884
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
     
-
     
-
     
-
 
Commercial Business
 
 
-
 
 
 
-
 
 
 
-
     
3,477,579
     
-
     
3,477,579
 
Home Equity
 
 
-
 
 
 
132,977
 
 
 
132,977
     
-
     
-
     
-
 
Consumer
 
 
-
 
 
 
788
 
 
 
788
     
-
     
-
     
-
 
Total Special Mention
 
 
7,828,565
 
 
 
3,573,247
 
 
 
11,401,812
     
11,433,613
      
535,148
      
11,968,761
  
                                                 
Rating - Substandard:
                                                
Real estate loans:
                                                
Residential
 
 
331,976
  
 
 
938,945
 
 
 
1,270,921
     
375,635
      
306,345
     
681,980
 
Investor
 
 
13,976
 
 
 
219,308
 
 
 
233,284
     
27,919
     
903,961
     
931,880
 
Commercial
 
 
1,546,812
 
 
 
204,844
 
 
 
1,751,656
     
2,717,144
     
211,239
     
2,928,383
 
Commercial construction
 
 
-
 
 
 
-
 
 
 
-
     
-
     
-
     
-
 
Commercial Business
 
 
141,266
 
 
 
-
 
 
 
141,266
     
666,431
     
-
     
666,431
 
Home Equity
 
 
8,751
 
 
 
-
 
 
 
8,751
     
59,169
     
-
     
59,169
 
Consumer
 
 
-
 
 
 
40,790
 
 
 
40,790
     
-
     
42,488
     
42,488
 
Total - Substandard
 
 
2,042,781
 
 
 
1,403,887
 
 
 
3,446,668
     
3,846,298
      
1,464,033
      
5,310,331
  
                                                 
Rating - Doubtful
 
 
-
 
 
 
-
 
 
 
-
     
-
     
-
     
-
 
Rating - Loss
 
 
-
 
 
 
-
 
 
 
-
     
-
     
-
     
-
 
TOTAL LOANS
 
$
209,897,546
 
 
$
129,102,286
 
 
$
338,999,832
    $
172,922,696
    $
49,844,516
    $
222,767,212
 
 
 
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
March 31, 2017
and
2016
totaled
$55,000
and
$42,000,
respectively. At
March 31, 2017,
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
March 31, 2017
and
2016:
 
 
 
March 31,
 
  
March 31,
  
 
 
2017
 
  
2016
  
                 
Unused commercial lines of credit
 
$
10,733,345
 
   $
9,845,571
 
Unused home equity lines of credit
 
 
22,993,289
 
    
16,004,725
 
Unused consumer lines of credit
 
 
1,110,155
 
    
29,656
 
Residential construction loan commitments
 
 
8,047,156
 
    
8,166,473
 
Commercial construction loan commitments
 
 
7,091,564
 
    
1,384,932
 
Home equity loan commitments
 
 
84,000
 
    
536,000
 
Commercial loan commitments
 
 
1,089,218
 
    
411,500
 
Standby letter of credit
 
 
472,354
 
    
273,981