Note 22: Commitments, Credit Risk, and Contingencies

In the normal course of business the Company enters into funding commitments with customers who have applied for single and multi‑family residential loans. The customers must meet certain credit and underwriting criteria before the Company is required to fund the loans. The Company entered into commitments to fund loans pending closing of $221.3 million and $263.8 million at December 31, 2017 and 2016, respectively. Closing and funding of the majority of these loans is contingent upon various performance criteria by the potential borrower and the commitment may be rescinded by the Company. The Company enters into a corresponding sales commitment if it is the Company’s intent to close the loan and to sell the loan after closing.

The Company, through the Multi-family Mortgage Banking segment, has made commitments to fund construction loans that are drawn upon throughout the construction period. Undisbursed commitments on these loans were $101.1 million and $209.2 million at December 31, 2017 and 2016, respectively.

The Company, through the Warehouse Financing segment, has line of credit agreements with its non‑depository financial institution customers engaged in mortgage lending. Funds drawn on the lines of credit are used by the borrowers to fund the loans they originate. The customers’ loans must meet certain credit and underwriting criteria before the Company will fund the draw requests on the lines of credit, and the draw requests can be denied by the Company. The outstanding amounts available on these lines of credit totaled $613.8 million and $586.9 million at December 31, 2017 and 2016, respectively.

Additionally, in the normal course of business the Company has outstanding unfunded commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying financial statements. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making such commitments as it does for instruments that are included in the statement of financial condition.

Financial instruments, whose contract amount represents credit risk, were as follows at December 31, 2017 and 2016:


	December 31,
	2017		2016
	(In thousands)
Commitments to extend credit	$	437,585	$	307,944
Irrevocable standby letters of credit		26,000		26,000
Commitment letters of credit		31,031		32,669

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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case‑by‑case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income‑producing commercial properties.

Commitment letters of credit are conditional commitments issued by the Bank for a fee to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers. The Bank’s policy for obtaining collateral and/or guarantees and the nature thereof is generally the same as that involved extending commitments to its customers.

The Company has not been required to fund nor has incurred any losses on any letter of credit commitment during the years ended December 31, 2017 or 2016.

The Company has several noncancellable operating leases, primarily for office space, that expire over the next 4‑8 years. Rental expense for these leases was $764,000, $696,000, and 574,000 for the years ended December 31, 2017, 2016 and 2015, respectively.

Future minimum lease payments under operating leases as of December 31, 2017 are as follows:


	December 31,
	2017
	(In thousands)
Due within one year	$	874
Due in one year to two years		762
Due in two years to three years		763
Due in three years to four years		409
Due in four years to five years		231
Thereafter		470
Total minimum lease payments	$	3,509

The Company and its subsidiaries are parties to various claims and proceedings arising in the normal course of business. Currently, the Company and its subsidiaries are defendants in a litigation matter pending in Indiana state court for breach of contract related to a warehouse credit facility. Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such proceedings and claims will not be material to the Company’s consolidated financial position or results of operations.