Note

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

$758,000

and

$751,000

under collateral arrangements as of

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

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 gain of

$540

and

$921

of ineffectiveness has been reported in noninterest revenue for the

three

and

six

-month periods ended

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.

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

Notional

Effective

Pay Fixed

Receive

Interest Rate Swap

Amount

Start Date

Maturity Date

Rate

Floating Rate

FHLB Advance Swap 1

1,850,000

March 9, 2017

March 9, 2022

2.24%

3-Month LIBOR

FHLB Advance Swap 2

1,850,000

March 9, 2017

March 9, 2024

2.41%

3-Month LIBOR

FHLB Advance Swap 3

1,850,000

March 9, 2017

March 9, 2027

2.57%

3-Month LIBOR

FHLB Advance Swap 4

2,000,000

March 29, 2017

March 29, 2022

2.08%

3-Month LIBOR

FHLB Advance Swap 5

2,000,000

March 29, 2017

March 29, 2024

2.24%

3-Month LIBOR

FHLB Advance Swap 6

2,000,000

March 29, 2017

March 29, 2027

2.40%

3-Month LIBOR

Total Notional Amount

11,550,000

Interest revenue/(expense) recorded on the swap transactions totaled

$906

and (

$1,832

) for the

three

and

six

months ended

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

September 30, 2018

and

March 31, 2018:

	September 30, 2018				March 31, 2018
	Notional				Notional
	Amount		Fair Value		Amount		Fair Value
Included in assets:
Interest rate swaps related to FHLB Advances	$	11,550,000	$	412,230	$	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

September 30, 2018

and

2017:

Three Month and Period Ended September 30, 2018

Three Month and Period Ended September 30, 2017

Amount of Gain

(Loss) Recognized

(Loss) Reclassified

(Loss) Recognized in

(Loss) Recognized

(Loss) Reclassified

(Loss) Recognized in

in OCI

from OCI to

Other Noninterest Revenue

in OCI

from OCI to

Other Noninterest Revenue

(Effective Portion)

Interest Income

(Ineffective Portion)

(Effective Portion)

Interest Income

(Ineffective Portion)

Interest Rate Contract

95,806

540

26,710

(3,679

)

Six Month and Period Ended September 30, 2018

Six Month and Period Ended September 30, 2017

Amount of Gain

(Loss) Recognized

(Loss) Reclassified

(Loss) Recognized in

(Loss) Recognized

(Loss) Reclassified

(Loss) Recognized in

in OCI

from OCI to

Other Noninterest Revenue

in OCI

from OCI to

Other Noninterest Revenue

(Effective Portion)

Interest Income

(Ineffective Portion)

(Effective Portion)

Interest Income

(Ineffective Portion)

Interest Rate Contract

193,845

921

(183,238

)

(3,679

)

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

years. The notional amount of the interest rate swap and the offsetting commercial real estate loan were

$3.0

million at

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:

	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	$	-	$	3,049,540	$	2,927,163	$	-	$	3,091,892	$	3,022,744

Included in Other Assets:
Interest Rate Swap	$	3,049,540	$	-	$	122,377	$	3,091,892		-	$	69,148

gain or loss was recognized in earnings with respect to the interest rate swap for the

three

six

months ended

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.