Derivative and Other Financial Instruments with Off-Balance Sheet Risks

12 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative and Other Financial Instruments with Off-Balance Sheet Risks

Note 15: Derivative and Other Financial Instruments with Off-Balance Sheet Risks

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit in the form of originating loans or providing funds under existing lines of credit, loan sale commitments to third parties and option contracts.  These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the accompanying Consolidated Statements of Financial Condition.  The Corporation’s exposure to credit loss, in the event of non-performance by the counterparty to these financial instruments, is represented by the contractual amount of these instruments.  The Corporation uses the same credit policies in entering into financial instruments with off-balance sheet risk as it does for on-balance sheet instruments.  As of June 30, 2019 and 2018, the Corporation had commitments to extend credit (on loans to be held for investment and loans to be held for sale) of $4.3 million and $66.3 million, respectively.

The following table provides information at the dates indicated regarding undisbursed funds to borrowers on existing lines of credit with the Corporation as well as commitments to originate loans to be held for investment at the dates indicated below:

	June 30,
Commitments	2019		2018
(In Thousands)
Undisbursed loan funds – Construction loans	$	6,592	$	4,302
Undisbursed lines of credit – Commercial business loans		1,003		495
Undisbursed lines of credit – Consumer loans		479		503
Commitments to extend credit on loans to be held for investment		4,254		9,352
Total	$	12,328	$	14,652

The following table provides information regarding the allowance for loan losses for the undisbursed funds and commitments to extend credit on loans to be held for investment for the years ended June 30, 2019 and 2018:

	Year Ended June 30,
(In Thousands)	2019			2018
Balance, beginning of the year	$	157		$	277
Provision (recovery)		(16	)		(120	)
Balance, end of the year	$	141		$	157

Consistent with the Corporation’s announcement on February 4, 2019 to scale back the origination of saleable single-family mortgage loans and improve on its efforts to increase the volume of portfolio single-family mortgage loan originations, the Corporation does not have any outstanding derivative and other financial instruments as of June 30, 2019.

In accordance with ASC 815, “Derivatives and Hedging,” and interpretations of the Derivatives Implementation Group of the FASB, the fair value of the commitments to extend credit on loans to be held for sale, loan sale commitments, TBA MBS trades, put option contracts and call option contracts are recorded at fair value on the Consolidated Statements of Financial Condition.  At June 30, 2019, there were no fair value derivative balances included in other assets and other liabilities. At June 30, 2018, $849,000 was included in other assets and $464,000 was included in other liabilities.  The Corporation does not apply hedge accounting to its derivative financial instruments; therefore, all changes in fair value are recorded in the Consolidated Statements of Operations.

The net impact of derivative financial instruments on the gain on sale of loans contained in the Consolidated Statements of Operations for the years ended June 30, 2019 and 2018 was as follows:

	Year Ended June 30,
Derivative Financial Instruments	2019			2018
Commitments to extend credit on loans to be held for sale	$	(825	)	$	16
Mandatory loan sale commitments and TBA MBS trades		440			(1,026	)
Option contracts		—			(37	)
Total net loss	$	(385	)	$	(1,047	)

 The outstanding derivative financial instruments at the dates indicated were as follows:

(In Thousands)	June 30, 2019				June 30, 2018
Derivative Financial Instruments	Amount		Fair Value		Amount			Fair Value
Commitments to extend credit on loans to be held for sale(1)	$	—	$	—	$	56,906		$	825
Best efforts loan sale commitments		—		—		(29,502	)		—
Mandatory loan sale commitments and TBA MBS trades		—		—		(117,759	)		(440	)
Option contracts		—		—		—			—
Total	$	—	$	—	$	(90,355	)	$	385

⁽¹⁾ Net of 24.7% at June 30, 2018, which management has estimated may not fund.