(7)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:

	June 30,		December 31,
	2016		2015
	(In thousands)
Commitments to originate loans for portfolio	$	18,955	$	14,905
Commitments to originate loans to be sold	29,907		13,142
Commitments to purchase loans from third parties	5,195		5,988
Unfunded commitments under home equity lines of credit	52,102		51,639
Unfunded commitments under commercial lines of credit	13,300		11,542
Unfunded commitments under SBA lines of credit	4,243		4,340
Unfunded commitments under overdraft lines of credit	176		181
Unadvanced funds on construction loans	4,009		7,225

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.

Mortgage Banking

At June 30, 2016, the Bank had $29.9 million of interest rate lock commitments to borrowers and loans held for sale of $23.5 million with $47.8 million of forward commitments for the future delivery of residential mortgage loans. Included in the forward commitments total are open To Be Announced securities (“TBAs”) with a notional amount of $18.5 million, mandatory delivery contracts with a notional amount of $2.5 million, and best efforts contracts with a notional amount of $26.8 million. The Bank has $2.8 million of closed hedge instruments that are not settled at June 30, 2016.

At December 31, 2015, the Bank had $13.1 million of interest rate lock commitments to borrowers and loans held for sale of $19.0 million with $31.3 million of forward commitments for the future delivery of residential mortgage loans. Included in the forward commitments total are open TBAs with a notional amount of $4.0 million, mandatory delivery contracts with a notional amount of $2.8 million, and best efforts contracts with a notional amount of $24.5 million. The Bank had $4.8 million of closed hedge instruments that are not settled at December 31, 2015.

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

	Assets			Liabilities
	Balance			Balance
	Sheet	Fair		Sheet	Fair
	Location	Value		Location	Value
	(In thousands)
June 30, 2016

Derivative loan commitments
Commitments hedged with best efforts	Other assets	$	612	N/A	$	—
Commitments hedged with TBA	Other assets	390		N/A	—

Total derivative commitments		1,002		N/A	—


Forward loan sale commitments
Best efforts contracts	N/A	—		Other liabilities	554
Mandatory delivery contracts	N/A	—		Other liabilities	13
TBA securities	N/A	—		Other liabilities	226

Total forward loans sale commitments		—			793

Total derivative loan and forward loan sale commitments		$	1,002		$	793


December 31, 2015

Derivative loan commitments
Commitments hedged with best efforts	Other assets	$	162	N/A	$	—
Commitments hedged with TBA	Other assets	55		N/A	—

Total derivative commitments		217		N/A	—


Forward loan sale commitments
Best efforts contracts	N/A	—		Other liabilities	175
Mandatory delivery contracts	Other assets	3		N/A	—
TBA securities	N/A	—		Other liabilities	5

Total forward loans sale commitments		3			180

Total derivative loan and forward loan sale commitments		$	220		$	180

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:

		Three Months Ended June 30,					Six Months Ended June 30,
	Location of Gain/(Loss)	2016			2015		2016			2015
		(In thousands)					(In thousands)
Derivative loan commitments	Net gain on sales of loans and other mortgage banking income	$	235		$	100	$	785		$	161
Best efforts contracts	Net gain on sales of loans and other mortgage banking income	(141		)	196		(379		)	256
Mandatory delivery contracts	Net gain on sales of loans and other mortgage banking income	(8		)	—		(16		)	—
TBA securities	Net gain on sales of loans and other mortgage banking income	(160		)	—		(221		)	—

		$	(74	)	$	296	$	169		$	417