NOTE 10: COMMITMENTS AND CONTINGENCIES

Pledged Assets

The Company pledges securities to serve as collateral for its repurchase agreements, among other purposes. At December 31, 2016 and 2015, the Company had pledged mortgage-related securities held to maturity with a carrying value of $1.6 billion and $967.4 million, respectively . The Company also had pledged other securities held to maturity with a carrying value of $346.7 million and $1.2 billion at the corresponding dates. There were no pledged available-for-sale securities at December 31, 2016 or 2015. In addition, the Company had $29.4 billion and $21.5 billion of loans pledged to the FHLB-NY to serve as collateral for its wholesale borrowings at the respective year-ends.

Loan Commitments and Letters of Credit

At December 31, 2016 and 2015, the Company had commitments to originate loans, including unused lines of credit, of $2.1 billion and $2.8 billion, respectively. The majority of the outstanding loan commitments at those dates were expected to close within 90 days. In addition, the Company had commitments to originate letters of credit totaling $324.3 million and $296.5 million at December 31, 2016 and 2015.

The following table summarizes the Company’s off-balance sheet commitments to originate loans and letters of credit at December 31, 2016:


(in thousands)
Mortgage Loan Commitments:
Multi-family and commercial real estate	$	316,709
One-to-four family		271,230
Acquisition, development, and construction		317,234

Total mortgage loan commitments	$	905,173
Other loan commitments		1,171,002

Total loan commitments	$	2,076,175
Commercial, performance stand-by, and financial stand-by letters of credit		324,288

Total commitments	$	2,400,463

Lease Commitments

At December 31, 2016, the Company was obligated under various non-cancelable operating lease and license agreements with renewal options on properties used primarily for branch operations. The Company currently expects to renew such agreements upon their expiration in the normal course of business. The agreements contain periodic escalation clauses that provide for increases in the annual rents, commencing at various times during the lives of the agreements, which are primarily based on increases in real estate taxes and cost-of-living indices.

The remaining projected minimum annual rental commitments under these agreements, exclusive of taxes and other charges, are summarized as follows:


(in thousands)
2017	$	29,639
2018		26,281
2019		23,201
2020		17,099
2021 and thereafter		64,038

Total minimum future rentals	$	160,258

The rental expense under these leases, which is included in “Occupancy and equipment expense” in the Consolidated Statements of Operations and Comprehensive Income (Loss), amounted to $32.6 million, $32.8 million, and $35.2 million, respectively, in the years ended December 31, 2016, 2015, and 2014. Rental income on Company-owned properties, netted in occupancy and equipment expense, was approximately $7.1 million, $3.7 million, and $3.6 million in the corresponding periods. There was no minimum future rental income under non-cancelable sub-lease agreements at December 31, 2016.

Financial Guarantees

The Company provides guarantees and indemnifications to its customers to enable them to complete a variety of business transactions and to enhance their credit standings. These guarantees are recorded at their respective fair values in “Other liabilities” in the Consolidated Statements of Condition. The Company deems the fair value of the guarantees to equal the consideration received.

The following table summarizes the Company’s guarantees and indemnifications at December 31, 2016:


(in thousands)	Expires Within One Year		Expires After One Year		Total Outstanding Amount		Maximum Potential Amount of Future Payments
Financial stand-by letters of credit	$	25,574	$	51,279	$	76,853	$	237,870
Performance stand-by letters of credit		8,891		—		8,891		7,880
Commercial letters of credit		3,828		52		3,880		78,538

Total letters of credit	$	38,293	$	51,331	$	89,624	$	324,288

The maximum potential amount of future payments represents the notional amounts that could be funded under the guarantees and indemnifications if there were a total default by the guaranteed parties or if indemnification provisions were triggered, as applicable, without consideration of possible recoveries under recourse provisions or from collateral held or pledged.

The Company collects fees upon the issuance of commercial and stand-by letters of credit. Fees for stand-by letters of credit fees are initially recorded by the Company as a liability, and are recognized as income periodically through the respective expiration dates. Fees for commercial letters of credit are collected and recognized as income at the time that they are issued and upon payment of each set of documents presented. In addition, the Company requires adequate collateral, typically in the form of cash, real property, and/or personal guarantees upon its issuance of Irrevocable Stand-by Letters of Credit. Commercial letters of credit are primarily secured by the goods being purchased in the underlying transaction and are also personally guaranteed by the owner(s) of the applicant company.

Visa Inc.

In October 2007, Visa U.S.A., a subsidiary of Visa Inc. (“Visa”) completed a reorganization in contemplation of its initial public offering, which was subsequently completed in March 2008. As part of that reorganization, the Community Bank and the former Synergy Bank, along with many other banks across the nation, received shares of common stock of Visa. In accordance with GAAP, the Company did not recognize any value for this common stock ownership interest.

Visa claims that all Visa U.S.A. member banks are obligated to share in its losses stemming from certain litigation against it and certain other named member banks (the “Covered Litigation”). Visa continues to set aside amounts in an escrow account to fund any judgments or settlements that may arise from the Covered Litigation, and has reduced the amount of shares allocated to the Visa U.S.A. member banks by the amounts necessary to cover such liability. Nevertheless, Visa U.S.A. member banks were required to record a liability for the fair value of their related contingent obligation to Visa U.S.A., based on the percentage of their membership interest. The Company has a $443,000 liability based on its best estimate of the combined membership interest of the Community Bank and the former Synergy Bank with regard to both the settled and pending litigation in which Visa is involved.

Derivative Financial Instruments

The Company uses various financial instruments, including derivatives, in connection with its strategies to mitigate or reduce price risk resulting from changes in interest rates. The Company’s derivative financial instruments consist of financial forward and futures contracts, interest rate lock commitments (“IRLCs”), swaps, and options, and relate to mortgage banking operations, MSRs, and other risk management activities. These instruments vary in scope based on the level and volatility of interest rates, the types of assets held, and other changing market conditions. See Note 15, “Derivative Financial Instruments” for further information about our use of derivative financial instruments.

Legal Proceedings

Following the announcement on October 29, 2015 of the execution of the Company’s merger agreement with Astoria Financial Corporation (“Astoria Financial”), six putative class action lawsuits were filed in the Supreme Court of the State of New York, County of Nassau, challenging the proposed merger between Astoria Financial and New York Community Bancorp, Inc. (the “Company”). 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) Firemen’s Ret. Sys. 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 Actions under the caption In re Astoria Financial Corporation Shareholders Litigation, Index No. 607132/2015 (the “New York Action”), and a consolidated amended complaint was filed on January 29, 2016. 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), which was dismissed voluntarily on September 26, 2016.

The New York Action is a putative class action filed on behalf of the stockholders of Astoria Financial and names as defendants Astoria Financial, its directors, and the Company. The consolidated amended complaint alleges, among other things, that the directors of Astoria Financial breached their fiduciary duties in connection with their approval of the merger agreement, including by: agreeing to an allegedly unfair price for Astoria Financial; approving the transaction notwithstanding alleged conflicts of interest; agreeing to deal protection devices that plaintiffs allege are unreasonable; and by failing to disclose certain facts about the process that led to the merger and financial analyses performed by Astoria Financial’s financial advisors. Plaintiffs also allege that the Company aided and abetted those alleged fiduciary breaches. The action seeks, among other things, an order enjoining completion of the proposed merger.

On April 6, 2016, the parties to the New York Action entered into a Memorandum of Understanding (“MOU”) setting out the terms of an agreement in principle to settle all claims alleged on behalf of the putative class relating to the merger, which were disclosed on April 8, 2016. The MOU provides, among other things, that Astoria Financial will make certain supplemental disclosures relating to the merger. The settlement is subject to, among other things, the execution of definitive documentation, the completion of the merger, and the approval by the court of the proposed settlement. In view of the termination of the proposed merger, the Company expects the settlement and the related MOU to be terminated.

The Company believes that the factual allegations in the lawsuits are without merit and, in the event that plaintiffs seek to pursue those claims, would intend to defend vigorously against the allegations made by the plaintiffs.

In addition to the lawsuits noted above, the Company is involved in various other legal actions arising in the ordinary course of its business. All such actions in the aggregate involve amounts that are believed by management to be immaterial to the financial condition and results of operations of the Company.