Commitments and Contingencies

Lease Commitments

At December 31, 2015, we were obligated through 2035 under various non-cancelable operating leases on buildings and land used for office space and banking purposes. These operating leases contain escalation clauses which provide for increased rental expense, based primarily on increases in real estate taxes and cost-of-living indices. Rent expense under the operating leases totaled $12.9 million for the year ended December 31, 2015, $12.5 million for the year ended December 31, 2014 and $13.5 million for the year ended December 31, 2013.

The minimum rental payments due under the terms of the non-cancelable operating leases at December 31, 2015, which have not been reduced by minimum sublease rentals of $2.3 million due in the future under non-cancelable subleases, are summarized below.



Year		Amount
	(In Thousands)
2016		$	12,704
2017		11,256
2018		9,924
2019		9,045
2020		8,458
2021 and thereafter		30,695
Total		$	82,082

Outstanding Commitments

The following table summarizes our outstanding commitments at the dates indicated.



	At December 31,
(In Thousands)	2015		2014
Mortgage loans:
Commitments to extend credit – adjustable rate	$	227,966	$	289,086
Commitments to extend credit – fixed rate (1)	131,641		74,157
Commitments to purchase – adjustable rate	3,339		10,334
Commitments to purchase – fixed rate	19,685		27,818
Commitments to extend credit on consumer and other loans	16,157		12,345
Unused lines of credit:
Home equity and other consumer loans	79,119		101,329
Commercial and industrial loans	107,625		64,074
Commitments to sell loans	29,754		20,904

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(1)	Includes commitments to originate loans held-for-sale totaling $15.4 million at December 31, 2015 and $14.8 million at December 31, 2014.

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 some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate creditworthiness on a case-by-case basis. Our maximum exposure to credit risk is represented by the contractual amount of the instruments.

Assets Sold with Recourse

We are obligated under various recourse provisions associated with certain first mortgage loans we sold in the secondary market. Generally the loans we sell in the secondary market are subject to recourse for fraud and adherence to underwriting or quality control guidelines. We repurchased one loan during 2015 as a result of these recourse provisions. The principal balance of loans sold in the secondary market with recourse provisions in addition to fraud and adherence to underwriting or quality control guidelines amounted to $344.2 million at December 31, 2015 and $355.0 million at December 31, 2014. We estimate the liability for such loans sold with recourse based on an analysis of our loss experience related to similar loans sold with recourse. The carrying amount of this liability was immaterial at December 31, 2015 and 2014.

On July 31, 2014, we completed a bulk sale transaction of certain non-performing residential mortgage loans that had a carrying value of $173.7 million. On September 12, 2014, we completed a second sale transaction, with the same counterparty as the bulk sale transaction, in which we sold additional non-performing residential mortgage loans with a carrying value of $4.0 million. The loan sale agreements governing the sale transactions contained usual and customary document cure provisions and indemnification provisions protecting the purchaser from breaches of our representations, warranties and covenants. These provisions expired in 2015 without any material claims presented. Accordingly, there were no adjustments to the purchase price for such loans, repurchases or indemnification payments during 2015 and 2014. See Notes 4 and 5 for additional information regarding these loan sales.

Guarantees

Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. The guarantees generally extend for a term of up to one year and are fully collateralized. For each guarantee issued, if the customer defaults on a payment or performance to the third party, we would have to perform under the guarantee. Outstanding standby letters of credit totaled $3.3 million at December 31, 2015 and $1.2 million at December 31, 2014. The fair values of these obligations were immaterial at December 31, 2015 and 2014.

Litigation

In the ordinary course of our business, we are routinely made a defendant in or a party to pending or threatened legal actions or proceedings which, in some cases, seek substantial monetary damages from or other forms of relief against us. In our opinion, after consultation with legal counsel, we believe it unlikely that such actions or proceedings will have a material adverse effect on our financial condition, results of operations or liquidity.

City of New York Notice of Determination

By “Notice of Determination” dated September 14, 2010 and August 26, 2011, or the 2010 and 2011 Notices, the City of New York notified us of alleged tax deficiencies in the amount of $13.3 million, including interest and penalties, related to our 2006 through 2008 tax years. The deficiencies related to our operation of Fidata Service Corp., or Fidata, and Astoria Federal Mortgage Corp., or AF Mortgage, subsidiaries of Astoria Bank. We disagree with the assertion of the tax deficiencies. Hearings on the 2010 and 2011 Notices were held before the New York City Tax Appeals Tribunal, or the NYC Tax Appeals Tribunal, in March and April 2013. On October 29, 2014, the NYC Tax Appeals Tribunal issued a decision favorable to us canceling the 2010 and 2011 Notices. The City of New York appealed the decision of the NYC Tax Appeals Tribunal. The parties have submitted briefs to the NYC Tax Appeals Tribunal and presented oral arguments on November 19, 2015. At this time, management believes it is more likely than not that we will succeed in defending against the City of New York’s appeal. Accordingly, no liability or reserve has been recognized in our consolidated statement of financial condition at December 31, 2015 with respect to this matter.

By “Notice of Determination” dated November 19, 2014, or the 2014 Notice, the City of New York notified us of an alleged tax deficiency in the amount of $6.1 million, including interest and penalties, related to our 2009 and 2010 tax years, and by "Notice of Determination" dated August 5, 2015, or the 2015 Notice, the City of New York notified us of an alleged tax deficiency in the amount of $2.1 million, including interest and penalties, related to our 2011 through 2013 tax years. These deficiencies related to our operation of Fidata and AF Mortgage and the bases of the 2014 Notice and the 2015 Notice are substantially the same as that of the 2010 and 2011 Notices. We disagree with the assertion of the tax deficiencies, and we filed Petitions for Hearing with the City of New York on February 13, 2015 and September 9, 2015 to oppose the 2014 Notice and the 2015 Notice, respectively. By notice dated June 4, 2015, the NYC Tax Appeals Tribunal informed the parties that the proceedings relating to the 2014 Notice were adjourned pending the resolution of the proceedings with respect to the 2010 and 2011 Notices, the outcome of which may be determinative of some or all of the issues in this matter. On September 17, 2015, the NYC Tax Appeals Tribunal informed the parties that, barring the filing of an objection, the September 2015 Petition for Hearing would be consolidated with the February 2015 Petition and thus also adjourned pending resolution of the proceedings related to the 2010 and 2011 Notices. At this time, management believes it is more likely than not that we will succeed in refuting the City of New York’s position asserted in the 2014 Notice and the 2015 Notice. Accordingly, no liability or reserve has been recognized in our consolidated statement of financial condition at December 31, 2015 with respect to this matter.

No assurance can be given as to whether or to what extent we will be required to pay the amount of the tax deficiencies asserted by the City of New York, whether additional tax will be assessed for years subsequent to 2013, that these matters will not be costly to oppose, that these matters will not have an impact on our financial condition or results of operations or that, ultimately, any such impact will not be material.

Merger-related Litigation

Following the announcement of the execution of the Merger Agreement, six lawsuits challenging the proposed Merger were filed in the Supreme Court of the State of New York, County of Nassau. These actions are captioned: (1) Sandra E. Weiss IRA v. Chrin, et al., Index No. 607132/2015 (filed November 4, 2015); (2) Raul v. Palleschi, et al., Index No. 607238/2015 (filed November 6, 2015); (3) Lowinger v. Redman, et al., Index No. 607268/2015 (filed November 9, 2015); (4) Minzer v. Astoria Fin. Corp., et al., Index No. 607358/2015 (filed November 12, 2015); (5) MSS 12-09 Trust v. Palleschi, et al., Index No. 607472/2015 (filed November 13, 2015); and (6) The Firemen’s Retirement System of St. Louis v. Keegan, et al., Index No. 607612/2015 (filed November 23, 2015). On January 15, 2016, the court consolidated the New York lawsuits under the caption In re Astoria Financial Corporation Shareholders Litigation, Index No. 607132/2015, and on January 29, 2016 the lead plantiffs filed an amended consolidated complaint. In addition, a seventh lawsuit was filed challenging the proposed transaction in the Delaware Court of Chancery, captioned O’Connell v. Astoria Financial Corp., et al., Case No. 11928 (filed January 22, 2016). The plaintiff in this case filed an amended complaint on February 17, 2016. Each of the lawsuits is a putative class action filed on behalf of the stockholders of Astoria and names as defendants Astoria, its directors and NYCB.

The various complaints generally allege that the directors of Astoria breached their fiduciary duties in connection with their approval of the Merger Agreement because they failed to properly value Astoria and to take steps to maximize value to Astoria’s public stockholders, resulting in inadequate merger consideration. The complaints further allege that the directors of Astoria approved the Merger through a flawed and unfair sales process, alleging the absence of a competitive sales process and that the process was tainted by certain alleged conflicts of interest on the part of the Astoria directors regarding certain personal and financial benefits they will receive upon consummation of the proposed transaction that public stockholders of Astoria will not receive. The complaints also variously allege that the Astoria directors breached their fiduciary duties because they improperly agreed to deal protection devices that allegedly preclude other bidders from making a successful competing offer for Astoria, including a no solicitation provision that allegedly prevents other buyers from participating in discussions which may lead to a superior proposal, a matching rights provision that allows NYCB to match any competing proposal in the event one is made and a provision that requires Astoria to pay NYCB a termination fee of $69.5 million under certain circumstances. In addition, the lawsuit filed in Delaware also alleges that Astoria’s directors breached their fiduciary duties by causing a false and materially misleading Form S-4 Registration Statement to be filed with the SEC. Each of the complaints further alleges that NYCB aided and abetted the alleged fiduciary breaches by the Astoria directors.

Each of the actions seek, among other things, an order enjoining completion of the proposed Merger and an award of costs and attorneys’ fees. Certain of the actions also seek compensatory damages arising from the alleged breaches of fiduciary duty. The defendants believe these actions are without merit. Accordingly, no liability or reserve has been recognized in our consolidated statement of financial condition at December 31, 2015 with respect to these matters.

Other potential plaintiffs may also file additional lawsuits challenging the proposed Merger. The outcome of the pending and any additional future litigation is uncertain. If the cases are not resolved, these lawsuits could result in substantial costs to Astoria, including any costs associated with the indemnification of Astoria’s directors and officers. No assurance can be given at this time that the litigation against us will be resolved in our favor, that this litigation will not be costly to defend, that this litigation will not have an impact on our financial condition or results of operations or that, ultimately, any such impact will not be material.