(6)Off-Balance Sheets Activities and Derivatives

In the normal course of business, there are outstanding commitments and contingencies which are not reflected in the accompanying consolidated financial statements.

Loan Commitments

The Bank is a party to conditional commitments to lend funds in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit which include commercial lines of credit and home equity lines that involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Bank’s exposure to credit loss is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

The following financial instruments were outstanding whose contract amounts represent credit risk:

	March 31,		December 31,
	2015		2014
	(In thousands)
Commitments to grant loans	$	19,878	$	8,583
Commitments to originate loans to be sold	15,616		10,751
Unfunded commitments under home equity lines of credit	47,078		47,106
Unfunded commitments under commercial lines of credit	13,530		11,922
Unfunded commitments under SBA lines of credit	4,011		3,668
Unadvanced funds on construction loans	3,095		2,793

The commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for lines-of-credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based upon management’s credit evaluation of the counterparty. Collateral held generally consists of real estate.

Interest Rate Risk Management — Derivative Instruments Not Designated As Hedging Instruments

Certain derivative instruments do not meet the requirements to be accounted for as hedging instruments. These undesignated derivative instruments are recognized on the balance sheet at fair value, with changes in fair value recorded in other non-interest income.

Derivative Loan Commitments

Mortgage loan commitments are considered derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. The Bank enters into commitments to fund residential mortgage loans at specified times in the future, with the intention that these loans will subsequently be sold in the secondary market.

Outstanding derivative loan commitments expose the Bank to the risk that the price of the loans arising from exercise of the loan commitment might decline from inception of the rate lock to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increases.

Forward Loan Sale Commitments

To protect against the price risk inherent in derivative loan commitments, the Bank utilizes best efforts forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. Best efforts forward loan sale commitments are accounted for at fair value.

With a best efforts contract, the Bank commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower). Forward commitments to sell loans totaled $24.9 million and $21.5 million at March 31, 2015 and December 31, 2014, respectively.

The following table presents the fair values of derivative loan commitments and forward sale commitments in the consolidated balance sheets:

	Assets			Liabilities
	Balance			Balance
	Sheet	Fair		Sheet	Fair
(In thousands)	Location	Value		Location	Value

March 31, 2015

Derivative loan commitments	Other assets	$	158	N/A	$	—
Forward loan sale commitments	N/A	—		Other liabilities	36

Total derivatives not designated as hedging instruments		$	158		$	36

December 31, 2014

Derivative loan commitments	Other assets	$	98	N/A	$	—
Forward loan sale commitments	N/A	—		Other liabilities	96

Total derivatives not designated as hedging instruments		$	98		$	96

The following table presents information pertaining to the gains and losses on Bank’s derivative loan commitments not designated as hedging instruments and forward loan sale commitments:

	Location of Gain/(Loss)	Three Months Ended March 31,
		2015		2014
		(In thousands)
Derivative loan commitments	Net gain on sales of loans and other mortgage banking income	$	61	$	(14	)

Forward loan sale commitments	Net gain on sales of loans and other mortgage banking income	60		3
		$	121	$	(11	)