(10) Commitments and Contingencies

Lease Commitments

At December 31, 2012, 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 $11.1 million for the year ended December 31, 2012, $9.7 million for the year ended December 31, 2011 and $8.7 million for the year ended December 31, 2010.

The minimum rental payments due under the terms of the non-cancelable operating leases at December 31, 2012, which have not been reduced by minimum sublease rentals of $7.7 million due in the future under non-cancelable subleases, are summarized below.

Year		Amount
		(In Thousands)
2013		$ 9,035
2014		9,817
2015		9,705
2016		9,419
2017		8,009
2018 and thereafter		41,802
Total		$ 87,787

Outstanding Commitments

We had outstanding commitments as follows:

	At December 31,
(In Thousands)	2012	2011
Mortgage loans:
Commitments to extend credit – adjustable rate	$ 80,691	$ 287,484
Commitments to extend credit – fixed rate (1)	253,290	263,957
Commitments to purchase – adjustable rate	18,309	126,206
Commitments to purchase – fixed rate	33,363	96,390
Home equity loans – unused lines of credit	138,232	182,443
Consumer and commercial loans – unused lines of credit	59,335	56,725
Commitments to sell loans	121,932	64,850

(1) Includes commitments to originate loans held-for-sale totaling $63.0 million at December 31, 2012 and $48.6 million at December 31, 2011.

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 are subject to recourse for fraud and adherence to underwriting or quality control guidelines. We were required to repurchase one loan in the amount of $190,000 during 2012 as a result of these recourse provisions. The principal balance of loans sold with recourse provisions in addition to fraud and adherence to underwriting or quality control guidelines amounted to $342.2 million at December 31, 2012 and $305.9 million at December 31, 2011. 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, 2012 and 2011.

We had a collateralized repurchase obligation due to the sale of certain long-term fixed rate municipal revenue bonds to an investment trust fund for proceeds that approximated par value. The trust fund had a put option that required us to repurchase the securities for specified amounts prior to maturity under certain specified circumstances, as defined in the agreement. The outstanding option balance on the agreement totaled $5.8 million at December 31, 2011. The trust fund was liquidated on December 28, 2012 and there was no remaining option balance on the agreement as of December 31, 2012. Various GSE mortgage-backed securities, with an amortized cost of $7.8 million and a fair value of $8.2 million, which were pledged as collateral under this agreement as of December 31, 2012 were released on January 14, 2013.

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 $213,000 at December 31, 2012 and $265,000 at December 31, 2011. The fair values of these obligations were immaterial at December 31, 2012 and 2011.

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, the City of New York has 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 relate to our operation of two subsidiaries of Astoria Federal, Fidata Service Corp., or Fidata, and Astoria Federal Mortgage Corp., or AF Mortgage. Fidata is a passive investment company which maintains offices in Connecticut. AF Mortgage is an operating subsidiary through which Astoria Federal engages in lending activities primarily outside the State of New York through our third party loan origination program. We disagree with the assertion of the tax deficiencies and we filed Petitions for Hearings with the City of New York on December 6, 2010 and October 5, 2011 to oppose the Notices of Determination and to consolidate the hearings. A hearing in this matter is scheduled to begin on March 6, 2013. At this time, management believes it is more likely than not that we will succeed in refuting the City of New York’s position, although defense costs may be significant. Accordingly, no liability or reserve has been recognized in our consolidated statement of financial condition at December 31, 2012 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 2008, that this matter will not be costly to oppose, that this matter will not have an impact on our financial condition or results of operations or that, ultimately, any such impact will not be material.

Automated Transactions LLC Litigation

On November 20, 2009, an action entitled Automated Transactions LLC v. Astoria Financial Corporation and Astoria Federal Savings and Loan Association was commenced in the U.S. District Court for the Southern District of New York, or the Southern District Court, against us by Automated Transactions LLC, alleging patent infringement involving integrated banking and transaction machines, including automated teller machines, that we utilize. We were served with the summons and complaint in such action on March 2, 2010. The plaintiff also filed a similar suit on the same day against another financial institution and its holding company. The plaintiff seeks unspecified monetary damages and an injunction preventing us from continuing to utilize the allegedly infringing machines. We filed an answer and counterclaims to the plaintiff’s complaint on March 23, 2010.

On May 18, 2010, the plaintiff filed an amended complaint at the direction of the Southern District Court, containing substantially the same allegations as the original complaint. On May 27, 2010, we moved to dismiss the amended complaint. On March 10, 2011, the Southern District Court entered an order on the record that dismissed all claims against Astoria Financial Corporation but denied the motion to dismiss the claims against Astoria Federal for alleged direct patent infringement. The order also dismissed in part the claims against Astoria Federal for alleged inducement of our customers to violate plaintiff’s patents and for Astoria Federal’s allegedly willful violation of the plaintiff’s patents, allowing claims to continue only for alleged inducement and willful infringement after our receiving notice of the pending suit from plaintiff’s counsel. Based on the Southern District Court’s ruling, on March 31, 2011, we answered the amended complaint substantially denying the allegations of the amended complaint.

On July 18, 2012, we filed a motion for summary judgment for non-infringement based on a recent ruling by the U.S. Court of Appeals for the Federal District affirming the Delaware District Court’s decision to grant summary judgment in favor of a defendant in an action involving the same plaintiff making substantially similar allegations with respect to identical and substantially similar patents as those involved in the action against us.

We have tendered requests for indemnification from the manufacturer and from the transaction processor utilized with respect to the integrated banking and transaction machines, and we served third party complaints against Metavante Corporation and Diebold, Inc. seeking to enforce our indemnification rights. These complaints are being defended by Metavante Corporation and Diebold, Inc. and we intend to pursue these complaints vigorously.

We intend to continue to vigorously defend this lawsuit. An adverse result in this lawsuit may include an award of monetary damages, on-going royalty obligations, and/or may result in a change in our business practice, which could result in a loss of revenue. We cannot at this time estimate the possible loss or range of loss, if any. No assurance can be given at this time that this litigation against us will be resolved amicably, that if this litigation results in an adverse decision that we will be successful in seeking indemnification, 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.

Lefkowitz Litigation

On February 27, 2012, a putative class action entitled Ellen Lefkowitz, individually and on behalf of all Persons similarly situated v. Astoria Federal Savings and Loan Association was commenced in the Supreme Court of the State of New York, County of Queens, or the Queens County Supreme Court, against us alleging that during the proposed class period, we improperly charged overdraft fees to customer accounts when accounts were not overdrawn, improperly reordered electronic debit transactions from the highest to the lowest dollar amount and processed debits before credits to deplete accounts and maximize overdraft fee income. The complaint contains the further assertion that we did not adequately inform our customers that they had the option to “opt-out” of overdraft services. We were served with the summons and complaint in such action on February 29, 2012 and were initially required to reply on or before April 30, 2012. By Stipulation between the parties, our time to answer was extended to May 7, 2012, at which time we moved to dismiss the complaint. On July 19, 2012, the Queens County Supreme Court issued an order dismissing the complaint in its entirety. On September 7, 2012, the plaintiff filed a notice of appeal with the Supreme Court of the State of New York, Appellate Division, Second Judicial Department.

We intend to continue to vigorously defend this lawsuit. We cannot at this time estimate the possible loss or range of loss, if any. No assurance can be given at this time that this litigation against us will be resolved amicably, 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.

2010 Litigation Settlements

We had been a party to an action entitled Astoria Federal Savings and Loan Association vs. United States, involving an assisted acquisition made in the early 1980’s and supervisory goodwill accounting utilized in connection therewith. On April 12, 2010, we entered into a final binding settlement with the U.S. Government in the amount of $6.2 million. The settlement was recognized in other non-interest income in our consolidated statement of income during the 2010 second quarter. On June 29, 2010, we reached a settlement agreement in an action entitled David McAnaney and Carolyn McAnaney, individually and on behalf of all others similarly situated vs. Astoria Financial Corporation, et al. in the amount of $7.9 million. We did not acknowledge any liability in the matter and further indicated that the settlement agreement is intended to resolve all claims arising from or related to the aforementioned case. The settlement was recognized in other non-interest expense in our consolidated statement of income during the 2010 second quarter. Legal expense related to these matters was recognized as it was incurred.