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 were subject to change through the measurement date of

May 2017,

we have allocated the 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			(67,858	)	A		108,804,183
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		$	1,150,476			$	153,392,169

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			(741,192	)			23,585,608

Definite lived intangible assets acquired		-			242,020				242,020
Goodwill		-			1,877,243				1,877,243
Net intangible assets acquired		-			2,119,263				2,119,263

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; the statutory income tax rate of the Company on the acquisition date.
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

May 13, 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.

Of the total estimated purchase price, we have allocated

$23.6

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. 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.

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	$	301,672		$	107,776,665

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	$	246,626		$	108,804,183

At our acquisition of Fraternity, we recorded all loans acquired at the estimated fair value on the purchase date with

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 assist us to 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

$301,672

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.

Fraternity

Pro forma Condensed Combined Financial Information.

The consolidated statements of operations data for the unaudited pro forma results for the fiscal year periods ending

March 31, 2018

and

2017

as if the Fraternity acquisition had occurred at the beginning of these fiscal periods are deemed immaterial and

not

presented. Due to the fact the acquisition of Fraternity occurred on

May 13, 2016,

the fiscal year period ending

March 31, 2018,

as reported in this

-K, already include the impact of Fraternity in the consolidated statements of operations as though the acquisition occurred at the beginning of fiscal

2018.

The fiscal period ending

March 31, 2017

does

not

reflect the full impact to the consolidated statements of operations for those

twelve

months since the acquisition occurred in

May 2016

or close to the beginning of that respective fiscal period, however, that amount is deemed to be immaterial to the consolidated statement of operations for that period.

Fraternity

acquisition expenses.

In connection with the acquisition of Fraternity, the Company incurred merger related costs in fiscal

2017.

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 period shown.

	Fiscal Year Ending
	March 31, 2017
Legal	$	55,500
Professional services		157,567
Data processing		-
Advertising		-
Other		6,350
Total meger related expenses	$	219,417

In addition, included in other professional service expense in the Consolidated Statements of Operations for the period ended

March 31, 2018

and

2017

$305,000

and

$532,000

relating to the amortization of non-compete agreements that have been paid to former executives in the acquisition. The non-compete agreements are for a term of

one

and

two

years that end or ended in

April 2017

and

2018.