Financial Transactions with Off-Balance-Sheet Risk and Concentrations of Credit Risk

The Company is a party to transactions with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers. These transactions consist of commitments to extend credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated statements of financial condition.

At December 31, 2018 and 2017, the following commitments existed which are not reflected in the consolidated statements of financial condition:



	December 31,
	2018		2017
	(In thousands)
Loan commitments:
Residential real estate	$	29,622	$	58,860
Commercial real estate	73,201		17,994
Commercial business	13,000		14,796
Construction loans	71,062		20,715
Consumer home equity loans and lines of credit	8,344		5,858
Total loan commitments	$	195,229	$	118,223

Unused lines of credit consisting of home equity lines, and undisbursed business and construction lines totaled approximately $714.6 million and $679.4 million as of December 31, 2018 and 2017, respectively. Amounts drawn on the unused lines of credit are predominantly assessed interest at rates that fluctuate with the base rate.

The Company uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet loans. Commitments to extend credit are agreements to lend customers 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 the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower.

The Company principally grants residential, multifamily and commercial real estate loans, construction loans, commercial and industrial loans, home equity loans and advances and other consumer loans to borrowers primarily throughout New Jersey, in New York and Pennsylvania, and to a much lesser extent in a few other east coast states. Its borrowers' abilities to repay their obligations are dependent upon various factors, including the borrowers' income and net worth, cash flows generated by the underlying collateral, if any, or from business operations, value of the underlying collateral and priority of the Company's lien on the property. These factors are dependent on various economic conditions and circumstances beyond the Company's control , and as a result, the Company is subject to the risk of loss. The Company believes that its lending policies and procedures adequately minimize the potential exposure to such risks and adequate provisions for loan losses are provided for all probable and estimable losses.

In the normal course of business, the Company sells residential real estate loans to third parties. These loan sales are subject to customary representations and warranties. In the event that the Company is found to be in breach of these representations and warranties, it may be obligated to repurchase certain of these loans.

The Company has entered into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected

cash receipts and its know or expected cash payments principally related to the Company's borrowings. These derivatives were used to hedge the variability in cash flows associated with certain short-term funding transactions. The fair value of the derivatives as of December 31, 2018 was a net liability of $2.6 million, inclusive of accrued interest and variation margin posted in accordance with the Chicago Mercantile Exchange.

(13) Financial Transactions with Off-Balance-Sheet Risk and Concentrations of Credit Risk (continued)

In connection with its mortgage banking activities, the Company at December 31, 2018, had commitments of approximately

$8.1 million to sell loans, with serving retained by the Bank.

In addition to the commitments noted above, the Company is party to standby letters of credit which are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The guarantees generally extend for a term of up to one year and may be secured or unsecured. Outstanding letters of credit totaled $7.0 million and $11.6 million at December 31, 2018 and 2017, respectively.

Certain bank facilities are occupied under non-cancelable operating leases on buildings and land used for office space and banking purposes, which expire at various dates through February 2030. Certain lease agreements provide for renewal options and increases in rental payments based upon increases in the consumer price index or the lessor's cost of operating the facility. Minimum aggregate lease payments for the remainder of the lease terms are as follows:



	December 31,
	2018
	(In thousands)

2019	$	3,596
2020	3,511
2021	3,288
2022	2,921
2023	2,590
Thereafter	5,209
Total lease commitments	$	21,115

Net occupancy expense, which represents rental expenses for Bank facilities, for the years ended December 31, 2018, September 30, 2017 and 2016, and the three months ended December 31, 2017, totaled $4.6 million, $4.3 million, $4.0 million, and $1.1 million, respectively.

In the normal course of business, there are outstanding various legal proceedings, claims, and contingent liabilities which are not included in the consolidated financial statements. In the opinion of management, the financial position of the Company will not be materially affected by the outcome of such legal proceedings and claims.