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, 2020 and 2019, the Corporation had commitments to extend credit on loans to be held for investment of $13.6 million and $4.3 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	2020		2019
(In Thousands)
Undisbursed loan funds – Construction loans	$	4,029	$	6,592
Undisbursed lines of credit – Commercial business loans		935		1,003
Undisbursed lines of credit – Consumer loans		448		479
Commitments to extend credit on loans to be held for investment		13,579		4,254
Total	$	18,991	$	12,328

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, 2020 and 2019:


	Year Ended
	June 30,
(In Thousands)	2020		2019
Balance, beginning of the year	$	141	$	157
Recovery		(15)		(16)
Balance, end of the year	$	126	$	141

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, 2020 and 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, 2020 and 2019, there were no fair value derivative balances included in other assets and 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 (loss) on sale of loans contained in the Consolidated Statements of Operations for the years ended June 30, 2020 and 2019 was as follows:


	Year Ended June 30,
Derivative Financial Instruments	2020		2019

Commitments to extend credit on loans to be held for sale	$	—	$	(825)
Mandatory loan sale commitments and TBA MBS trades		—		440
Total net loss	$	—	$	(385)