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JM Associates Federal Credit Union Notes to the Financial Statements For the Year Ending September 30, 2016 Residential Real Estate Consumer Total Allowance for Loan Losses: Beginning balance $ 5,338 $ 451,115 $ 456,453 Provision for loan losses - 535,000 535,000 Recoveries on previous loan losses 116,722 72,117 188,839 Loans receivable charged off - (563,756) (563,756) Other transfers (121,823) 121,823 - Ending Balance $ 237 $ 616,299 $ 616,536 Allowance for Loan Losses: Individually evaluated for impairment $ 237 $ 114,338 $ 114,575 Collectively evaluated for impairment - 501,961 501,961 Total Allowance for Loan Losses $ 237 $ 616,299 $ 616,536 Loans Receivable: Individually evaluated for impairment $ 193,048 $ 343,981 $ 537,029 Collectively evaluated for impairment 8,758,202 34,601,452 43,359,654 Total Loans Receivable $ 8,951,250 $ 34,945,433 $ 43,896,683 Impaired Loans The Credit Union considers a loan to be impaired when, based on current information and events, it is determined the collection of all amounts due according to the loan contract, including scheduled interest payments, is unlikely. Determination of impairment is treated the same across all classes of loans. When a loan is identified as impaired, impairment is measured based on the present value of expected future cash flows, discounted at the loan's effective interest rate, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases, impairment is based on the current fair value of the collateral, less estimated selling costs when foreclosure is probable, instead of discounted cash flows. If the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), an impairment is recognized through an allowance estimate or a charge- off to the allowance for loan losses account. 21 The Way We Do Things Has Changed. Who We Are Has Not! • 2017 Annual Report