2015 Annual Report

As of December 31, 2015, the FDIC had 446 active receiverships, including eight established in 2015. The DIF resolution entities held assets with a book value of $20.8 billion as of December 31, 2015, and $29.7 billion as of December 31, 2014 (including $16.0 billion and $22.0 billion, respectively, of cash, investments, receivables due from the DIF, and other receivables). Ninety-nine percent of the current asset book value of $20.8 billion is held by resolution entities established since the beginning of 2008.

Estimated cash recoveries from the management and disposition of assets that are used to determine the allowance for losses are based on asset recovery rates from several sources, including actual or pending institution-specific asset disposition data, failed institution-specific asset valuation data, aggregate asset valuation data on several recently failed or troubled institutions, sampled asset valuation data, and empirical asset recovery data based on failures since 1990. Methodologies for determining the asset recovery rates incorporate estimating future cash recoveries, net of applicable liquidation cost estimates, and discounting based on market-based risk factors applicable to a given asset’s type and quality. The resulting estimated cash recoveries are then used to derive the allowance for loss on the receivables from these resolutions.

For failed institutions resolved using a whole bank purchase and assumption transaction with an accompanying SLA, the projected future shared-loss payments on the covered residential and commercial loan assets sold to the acquiring institution under the agreement are considered in determining the allowance for loss on the receivables from these resolutions. The shared-loss cost projections are based on the covered assets’ intrinsic value, which is determined using financial models that consider the quality, condition and type of covered assets, current and future market conditions, risk factors, and estimated asset holding periods. For year-end 2015, the shared-loss cost estimates were updated for all 215 receiverships with active SLAs. The updated shared-loss cost projections for the larger residential shared-loss agreements were primarily based on new third-party valuations estimating the cumulative loss of covered assets. The updated shared-loss cost projections on the remaining residential shared-loss agreements were based on a stratified random sample of institutions selected for new third-party loss estimations, and valuation results from the sampled institutions were aggregated and extrapolated to the non-sampled institutions by asset type and performance status.

In 2015, the FDIC eliminated the use of third-party valuations for the remaining commercial covered assets. Instead, loss rates were based on the FDIC’s historical loss experience that also factors in the time period based on the life of the agreement. In addition, for all shared-loss agreements, the rate used for discounting the cash flows was changed in 2015 to the Treasury spot rate curve instead of the 3-year Constant Maturity Treasury rate. These changes were made to address the shift to a predominantly single-family asset mix and did not have a material impact on the shared-loss liability.

Also reflected in the allowance for loss calculation are end-of-agreement SLA “true-up” recoveries. True-up recoveries are projected to be received at expiration in accordance with the terms of the SLA, if actual losses at expiration are lower than originally estimated.

Note that estimated asset recoveries are regularly evaluated during the year, but remain subject to uncertainties because of potential changes in economic and market conditions, which may cause the DIF’s actual recoveries to vary significantly from current estimates.

WHOLE BANK PURCHASE AND ASSUMPTION TRANSACTIONS WITH SHARED-LOSS AGREEMENTS

Since the beginning of 2008 through 2013, the FDIC resolved 304 failures using whole bank purchase and assumption resolution transactions with accompanying SLAs on total assets of $216.5 billion purchased by the financial institution acquirers. The acquirer typically assumed all of the deposits and purchased essentially all of the assets of a failed institution. The majority of the commercial and residential loan assets were purchased under an SLA, where the FDIC agreed to share in future losses and recoveries experienced by the acquirer on those assets covered under the agreement.

Losses on the covered assets of failed institutions are shared between the acquirer and the FDIC, in its receivership capacity, when losses occur through the sale, foreclosure, loan modification, or charge-off of loans under the terms of the SLA. The majority of the agreements cover commercial and single-family loans over a five- to ten-year shared-loss period, respectively, with the receiver covering 80 percent of the losses incurred by the acquirer and the acquiring institution covering 20 percent. Prior to March 26, 2010, most SLAs included a threshold amount, above which the receiver covered 95 percent of the losses incurred by the acquirer. Recoveries by the acquirer on covered commercial and single-family SLA losses are also shared over an eight- to ten-year period, respectively. Note that future recoveries on SLA losses are not factored into the DIF allowance for loss calculation because the amount and timing of such receipts are not determinable.

The estimated shared-loss liability is accounted for by the receiver and is included in the calculation of the DIF’s allowance for loss against the corporate receivable from the resolution. As shared-loss claims are asserted and proven, DIF receiverships satisfy these shared-loss payments using available liquidation funds and/or by drawing on amounts due from the DIF for funding the deposits assumed by the acquirer (see Note 6). Shared-loss transactions are summarized as follows (in thousands).

The $23.1 billion reduction in the remaining shared-loss covered assets from 2014 to 2015 is primarily due to the liquidation of covered assets from active SLAs, expiration of loss coverage for 113 commercial loan SLAs, and early termination of 66 SLAs during 2015.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the DIF to concentrations of credit risk are receivables from resolutions. The repayment of these receivables is primarily influenced by recoveries on assets held by DIF receiverships and payments on the covered assets under SLAs. The majority of the remaining assets in liquidation ($4.8 billion) and current shared-loss covered assets ($31.5 billion), which together total $36.3 billion, are concentrated in commercial loans ($5.8 billion), residential loans ($25.7 billion), and structured transaction-related assets ($3.5 billion) as described in Note 8. Most of the assets originated from failed institutions located in California ($13.8 billion), Puerto Rico ($5.2 billion), Florida ($4.2 billion), Ohio ($2.8 billion), Texas ($1.9 billion), and Alabama ($1.7 billion).

5. PROPERTY AND EQUIPMENT, NET

Depreciation expense was $52 million and $60 million for 2015 and 2014, respectively. The “Property and equipment, net” line item on the Balance Sheet consisted of the following components (in thousands).

6. LIABILITIES DUE TO RESOLUTIONS

As of December 31, 2015 and 2014, the DIF recorded liabilities totaling $4.4 billion and $7.8 billion, respectively, to resolution entities representing the agreed-upon value of assets transferred from the receiverships, at the time of failure, to the acquirers/bridge institutions for use in funding the deposits assumed by the acquirers/bridge institutions. Eighty-seven percent of these liabilities are due to failures resolved under whole-bank purchase and assumption transactions, most with an accompanying SLA. The DIF satisfies these liabilities either by sending cash directly to a receivership to fund shared-loss and other expenses or by offsetting receivables from resolutions when a receivership declares a dividend.

7. CONTINGENT LIABILITIES FOR:

Anticipated Failure of Insured Institutions

The DIF records a contingent liability and a loss provision for DIF-insured institutions that are likely to fail when the liability is probable and reasonably estimable, absent some favorable event such as obtaining additional capital or merging. The contingent liability is derived by applying expected failure rates and loss rates to the institutions based on supervisory ratings, balance sheet characteristics, and projected capital levels.

The banking industry’s financial condition and performance continued to improve in 2015. According to the quarterly financial data submitted by DIF-insured institutions, the industry reported total net income of $123.4 billion for the first nine months of 2015, an increase of 6.2 percent over the comparable period one year ago. The industry’s capital levels also continued to improve, and noncurrent loans declined, as the industry’s ratio of noncurrent loans-to-total loans fell to its lowest level since year-end 2007.

Losses to the DIF from failures that occurred in 2015 were lower than the contingent liability at the end of 2014, as the aggregate number and cost of institution failures were less than anticipated. The removal of the liability from institutions that failed in 2015, as well as favorable trends in bank supervisory downgrade and failure rates, all contributed to a decline in the contingent liability from $1.8 billion at December 31, 2014 to $395 million at December 31, 2015.

In addition to the recorded contingent liabilities, the FDIC has identified risks in the financial services industry that could result in additional losses to the DIF, should potentially vulnerable insured institutions ultimately fail. As a result of these risks, the FDIC believes that it is reasonably possible that the DIF could incur additional estimated losses of approximately $800 million as of December 31, 2015, as compared to $1.7 billion as of year-end 2014. The actual losses, if any, will largely depend on future economic and market conditions and could differ materially from this estimate.

During 2015, eight institutions failed with combined assets of $5.7 billion at the date of failure. Recent trends in supervisory ratings and market data suggest that the financial performance and condition of the banking industry should continue to improve over the coming year. However, exposure to interest rate risk, credit risk, reliance on short-term sources of funding, and limited opportunities for revenue growth will continue to stress the industry. Additionally, key risks continue to weigh on the economic outlook as well, including the impact of rising interest rates as they return to more normal levels; fiscal challenges at federal, state, and local levels; and global economic risks. The FDIC continues to evaluate ongoing risks to affected institutions in light of existing economic and financial conditions, and the extent to which
such risks may put stress on the resources of the insurance fund.

Litigation Losses

The DIF records an estimated loss for unresolved legal cases to the extent that those losses are considered probable and reasonably estimable. The FDIC recorded probable litigation losses of $386 thousand and $950 thousand for the DIF as of December 31, 2015 and 2014, respectively. In addition, the FDIC has determined that there are $555 thousand of reasonably possible losses from unresolved cases as of December 31, 2015, compared to none at year-end 2014.

8. OTHER CONTINGENCIES

IndyMac Federal Bank Representation and Indemnification Contingent Liability

On March 19, 2009, the FDIC as receiver for IndyMac Federal Bank (IMFB) and certain subsidiaries (collectively, Sellers) sold substantially all of the assets, which included mortgage loans and servicing rights, to OneWest Bank (following a merger is now known as CIT Bank) and its affiliates (collectively, Acquirers). The Sellers made certain representations customarily made by commercial parties in similar transactions. Under the sale agreements, the Acquirers have rights to assert claims to recover losses incurred as a result of third-party claims and breaches of representations. The FDIC, in its corporate capacity, guaranteed the Sellers’ indemnification obligations under the sale agreements. Until all indemnification claims are asserted, quantified and paid, losses could continue to be incurred by the receivership and in turn, the DIF.

The unpaid principal balances of loans in the servicing portfolios sold subject to representation and warranty indemnification totaled $171.6 billion at the time of sale. The IndyMac receivership has paid cumulative claims totaling $21 million through December 31, 2015 and 2014. Quantified claims asserted and under review have been accrued in the amount of $1 million and $6 million as of December 31, 2015 and 2014, respectively.

Fannie Mae has demanded the repurchase of $87 million of conventional and reverse mortgage loans. However, the Sellers do not anticipate repurchasing any mortgage loans from Fannie Mae. Instead, the Sellers and the Acquirers are negotiating the terms of a financial settlement for the Fannie Mae portfolio. It is anticipated this settlement would resolve indemnification obligations of the Sellers to the Acquirers and Fannie Mae. As a result, it is probable the Sellers will incur losses. The impact of this receivership estimated loss is reflected in the “Receivables from resolutions, net” line item on the Balance Sheet.

The FDIC is evaluating the likelihood of additional losses that may arise as a result of indemnification claims based upon breaches or third party claims. As the Acquirers or Government Sponsored Entities (GSEs) – Fannie Mae, Freddie Mac and Ginnie Mae incur or expect to incur losses, they will assert claims. These claims will be reviewed to determine whether there is a basis for indemnification or reimbursement and, if so, whether any Acquirer may have liability for any portion of the claimed loss as a result of its acts or omissions. While many loans are subject to notices of alleged breaches and a number of third party claims have been asserted, not all breach allegations or third party claims will result in a loss and certain losses may be allocable to the Acquirers. As a result, potential losses, and the Sellers’ share of such losses, cannot be estimated. However, it is probable that future losses will be incurred given the following:

• The Acquirers’ ability to submit breach notices was subject to contractual bar dates that have passed. In addition, their entitlement to reimbursement for certain third party claims is dependent upon those claims having been submitted prior to other contractual dates, some of which have also passed. However, the Acquirers retain the right to assert indemnification claims for losses over the life of those loans for which breach notices were timely submitted.
  
• The Acquirers’ retain the right to seek reimbursement for losses incurred as a result of claims alleging breaches of loan seller representations asserted by Fannie Mae or Ginnie Mae on or prior to March 19, 2019, for their reverse mortgage servicing portfolios (unpaid principal balance of $12.9 billion at December 31, 2015, compared to $14.2 billion at December 31, 2014).
• The GSEs have the right to assert certain claims directly against the Sellers for the mortgage servicing portfolios without regard to any contractual claims bar date.
• Potential losses could be incurred for failures by the Sellers to initiate and pursue foreclosure within prescribed timeframes for certain government guaranteed loans, resulting in the refusal of the guarantor to pay interest owed to the investors. Fannie Mae has asserted a claim for $64 million of interest curtailments with respect to reverse loans. Any amounts paid to Fannie Mae will be allocated between the Sellers and the Acquirers. A review of the causes of this claimed loss as well as an allocation of this loss between the Sellers and the Acquirers is in the initial stages.
  

For all these reasons, the FDIC believes it is likely that additional losses will be incurred. However, quantifying the contingent liability associated with the liabilities to investors and the Acquirers is subject to a number of uncertainties, including market conditions, the occurrence of borrower defaults and resulting foreclosures and losses, and the allocation of liability between the Sellers and the Acquirers. Because of the uncertainties the FDIC has determined that, while additional losses are probable, the amount is not currently estimable.

Purchase and Assumption Indemnification

In connection with purchase and assumption agreements for resolutions, the FDIC, in its receivership capacity, generally indemnifies the purchaser of a failed institution’s assets and liabilities in the event a third party asserts a claim against the purchaser unrelated to the explicit assets purchased or liabilities assumed at the time of failure. The FDIC, in its corporate capacity, is a secondary guarantor if a receivership is unable to pay. These indemnifications generally extend for a term of six years after the date of institution failure. The FDIC is unable to estimate the maximum potential liability for these types of guarantees as the agreements do not specify a maximum amount and any payments are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. During 2015 and 2014, the FDIC, in its corporate capacity, made no indemnification payments under such agreements, and no amount has been accrued in the accompanying financial statements with respect to these indemnification guarantees.

FDIC Guaranteed Debt of Structured Transactions

The FDIC, as receiver, uses three types of structured transactions to dispose of certain performing and
non-performing residential mortgage loans, commercial loans, construction loans, and mortgage-backed securities held by the receiverships. The three types of structured transactions are limited liability companies (LLCs), securitizations, and structured sale of guaranteed notes (SSGNs).

Under the LLC structure, the FDIC, in its receivership capacity, contributed a pool of assets to a newly formed LLC and offered for sale, through a competitive bid process, some of the equity in the LLC. Since 2009, private investors purchased a 40- to 50-percent ownership interest in the LLC structures for $1.6 billion in cash. The LLCs issued notes of $4.4 billion to the receiverships to partially fund the purchase of the assets; these notes were guaranteed by the FDIC, in its corporate capacity. As of December 31, 2015, no guaranteed LLC notes remain. The $10 million outstanding guaranteed LLC note balance as of December 31, 2014 was fully paid during 2015.

Securitizations and SSGNs (collectively, trusts) are transactions in which certain assets or securities from failed institutions are pooled and transferred into a trust structure. The trusts issue senior and/or subordinated debt instruments and owner trust or residual certificates collateralized by the underlying mortgage-backed securities or loans.

Since 2010, private investors purchased the senior notes issued by the trusts for $6.2 billion in cash and the receiverships hold the subordinated debt instruments and owner trust or residual certificates. In exchange for a fee, the FDIC, in its corporate capacity, guarantees the timely payment of principal and interest due on the senior notes, the latest maturity of which is 2050. If the FDIC is required to perform under its guarantees, it acquires an interest in the cash flows of the trust equal to the amount of guarantee payments made plus accrued interest. The subordinated note holders and owner trust or residual certificate holders receive cash flows from the entity only after all expenses have been paid, the guaranteed notes have been satisfied, and the FDIC has been reimbursed for any guarantee payments.

All Structured Transactions with FDIC Guaranteed Debt

Through December 31, 2015, the receiverships have transferred a portfolio of loans with an unpaid principal balance of $16.4 billion and mortgage-backed securities with a book value of $8.8 billion to 14 LLCs and 11 trusts. The LLCs and trusts subsequently issued notes guaranteed by the FDIC in an original principal amount of $10.6 billion. Since March 2013, there have been no new guarantee transactions. As of December 31, 2015 and 2014, the DIF collected guarantee fees totaling $265 million and $250 million, respectively, and recorded a receivable for additional guarantee fees of $26 million and $42 million, respectively, included in the “Interest receivable on investments and other assets, net” line item on the Balance Sheet. All guarantee fees are recorded as deferred revenue, included in the “Accounts payable and other liabilities” line item on the Balance Sheet, and recognized as revenue primarily on a straight-line basis over the term of the notes. As of December 31, 2015 and 2014, the amount of deferred revenue recorded was $26 million and $42 million, respectively. The DIF records no other structured transaction-related assets or liabilities on its balance sheet.

The estimated loss to the DIF from the guarantees is derived from an analysis of the net present value (using a discount rate of 3.7 percent) of the expected guarantee payments by the FDIC, reimbursements to the FDIC for guarantee payments, and guarantee fee collections. As of December 31, 2015, it is reasonably possible that the DIF could be required to make guarantee payments totaling $25 million for an SSGN transaction beginning in November 2019 through note maturity in December 2020, compared to $29 million estimated as of December 31, 2014. Any guarantee payment made would be fully reimbursed from the proceeds of the liquidation of the SSGN’s underlying collateral. For all of the remaining transactions, the estimated cash flows from the trust assets provide sufficient coverage to fully pay the debts. To date, the FDIC, in its corporate capacity, has not provided, and does not intend to provide, any form of financial or other type of support for structured transactions that it was not previously contractually required to provide.

As of December 31, 2015 and 2014, the maximum loss exposure was zero and $10 million for LLCs and $1.6 billion and $2.1 billion for trusts, respectively, representing the sum of all outstanding debt guaranteed by the FDIC.

9. ASSESSMENTS

The FDIC deposit insurance assessment system is mandated by section 7 of the FDI Act and governed by part 327 of title 12 of the Code of Federal Regulations. The risk-based system requires the payment of quarterly assessments by all IDIs.

In response to the Dodd-Frank Act, the FDIC implemented several changes to the assessment system and developed a comprehensive, long-term fund management plan. The plan is designed to restore and maintain a positive fund balance for the DIF even during a banking crisis and achieve moderate, steady assessment rates throughout any economic cycle. Summarized below are actions taken to implement reforms of the assessment system and provisions of the comprehensive plan.

• The FDIC adopted a Restoration Plan to ensure that the ratio of the DIF fund balance to estimated insured deposits (reserve ratio) reaches 1.35 percent by September 30, 2020, in lieu of the previous target of 1.15 percent by the end of 2016. The FDIC updates, at least semiannually, its loss and income projections for the fund and, if needed, increases or decreases assessment rates, following notice-and-comment rulemaking, if required.
• The FDIC Board of Directors designates a reserve ratio for the DIF and publishes the designated reserve ratio (DRR) before the beginning of each calendar year, as required by the FDI Act. Accordingly, in October 2015, the FDIC adopted a final rule maintaining the DRR at 2 percent for 2016. The DRR is an integral part of the FDIC’s comprehensive, long-term management plan for the DIF and is viewed as a long-range, minimum target for the reserve ratio.
• The FDIC adopted a final rule that suspends dividends indefinitely, and, in lieu of dividends, adopts lower assessment rate schedules when the reserve ratio reaches 1.15 percent, 2 percent, and 2.5 percent.

When the reserve ratio reaches 1.15 percent, lower regular assessment rates for all IDIs will go into effect. Additionally, upon reaching 1.15 percent, the Dodd-Frank Act requires that the FDIC offset the effect of increasing the minimum reserve ratio from 1.15 percent to 1.35 percent on IDIs with less than $10 billion in total consolidated assets. To implement the requirement, the FDIC issued a proposed rulemaking on October 22, 2015, to add a surcharge to the regular quarterly assessments of IDIs with $10 billion or more in assets. Under the proposed rule:

• The surcharge would generally equal an annual rate of 4.5 basis points applied to the assessment base (with certain adjustments), begin in the quarter after the reserve ratio first reaches or exceeds 1.15 percent, and continue for an estimated eight quarters.
• The FDIC would provide assessment credits to IDIs with total assets of less than $10 billion for the portion of their assessments that contributed to the growth in the reserve ratio between 1.15 percent and 1.35 percent to ensure that the effect of reaching 1.35 percent is fully borne by the larger institutions. Assessment credits would be available as an offset to an institution’s future regular assessment premiums.
• The FDIC would impose a shortfall assessment on the larger institutions in order to achieve the minimum reserve ratio of 1.35 percent by the September 30, 2020 statutory deadline, in the event the reserve ratio is greater than 1.15 percent but has not reached 1.35 percent by the end of 2018.
  

Assessment Revenue

Annual assessment rates averaged approximately 6.6 cents per $100 of the assessment base for 2015 and 2014, respectively. The assessment base is generally defined as the average consolidated total assets minus the average tangible equity (measured as Tier 1 capital) of the IDI during the assessment period.

The “Assessments receivable, net” line item on the Balance Sheet of $2.2 billion and $2.0 billion represents the estimated premiums due from IDIs for the fourth quarter of 2015 and 2014, respectively. The actual deposit insurance assessments for the fourth quarter of 2015 will be billed and collected at the end of the first quarter of 2016. During 2015 and 2014, $8.8 billion and $8.7 billion, respectively, were recognized as assessment revenue from institutions.

Reserve Ratio

As of September 30, 2015 and December 31, 2014, the DIF reserve ratio was 1.09 percent and 1.01 percent, respectively, of estimated insured deposits.

Assessments Related to FICO

Assessments continue to be levied on institutions for payments of the interest on obligations issued by the Financing Corporation (FICO). The FICO was established as a mixed-ownership government corporation to function solely as a financing vehicle for the former FSLIC. The annual FICO interest obligation of approximately $790 million is paid on a pro rata basis using the same rate for banks and thrifts. The FICO assessment has no financial impact on the DIF and is separate from deposit insurance assessments. The FDIC, as administrator of the DIF, acts solely as a collection agent for the FICO. As of December 31, 2015 and 2014, approximately $798 million and $793 million, respectively, was collected and remitted to the FICO.

10. OPERATING EXPENSES

The “Operating expenses” line item on the Statement of Income and Fund Balance consisted of the following components (in thousands).

11. PROVISION FOR INSURANCE LOSSES

The provision for insurance losses was a negative $2.3 billion for 2015, compared to negative $8.3 billion for 2014. The negative provision for 2015 primarily resulted from a decrease of $2.2 billion in the estimated losses for institutions that failed in current and prior years.

As described in Note 4, the estimated recoveries from assets held by receiverships and estimated payments related to assets sold by receiverships to acquiring institutions under shared-loss agreements (SLAs) are used to derive the loss allowance on the receivables from resolutions. The $2.2 billion decrease in the estimated losses from failures was primarily attributable to four components. The first component was unanticipated recoveries of $1.0 billion in litigation settlements, professional liability claims, and tax refunds by the receiverships. These are typically not recognized until the cash is received since significant uncertainties surround their recovery.

The second component of the reduction in the estimated losses from failures was a $1.4 billion decrease in the receiverships’ shared-loss liability. In 2015, covered asset balances decreased by $23.1 billion as a result of loan amortizations and pay-downs, as well as the expiration of 113 commercial shared-loss agreements and the early termination of 66 shared-loss agreements. Actual losses on this portion of covered assets were less than estimated at year-end 2014. The composition of the remaining covered asset portfolio primarily consists of performing single family assets, which have historically experienced significantly lower losses than commercial assets.

The remaining components consisted of an increase in the estimated losses from failures of $715 million that resulted from an increase in receivership legal and representation and warranty liabilities and projected future receivership expenses, as well as an adjustment of $501 million for lower-than-anticipated loss estimates at time of failure for all current year failures. The net effect of these two components was an increase of $214 million to estimated losses from failures.

12. EMPLOYEE BENEFITS

Pension Benefits and Savings Plans

Eligible FDIC employees (permanent and term employees with appointments exceeding one year) are covered by the federal government retirement plans, either the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). Although the DIF contributes a portion of pension benefits for eligible employees, it does not account for the assets of either retirement system. The DIF also does not have actuarial data for accumulated plan benefits or the unfunded liability relative to eligible employees. These amounts are reported on and accounted for by the U.S. Office of Personnel Management (OPM).

Under the Federal Thrift Savings Plan (TSP), the FDIC provides FERS employees with an automatic contribution of 1 percent of pay and an additional matching contribution up to 4 percent of pay. CSRS employees also can contribute to the TSP, but they do not receive agency matching contributions. Eligible FDIC employees may also participate in an FDIC-sponsored tax-deferred 401(k) savings plan with matching contributions up to 5 percent. The expenses for these plans are presented in the table below (in thousands).

Postretirement Benefits other than Pensions

The DIF has no postretirement health insurance liability since all eligible retirees are covered by the Federal Employees Health Benefits (FEHB) program. The FEHB is administered and accounted for by the OPM. In addition, OPM pays the employer share of the retiree’s health insurance premiums.

The FDIC provides certain life and dental insurance coverage for its eligible retirees, the retirees’ beneficiaries, and covered dependents. Retirees eligible for life and dental insurance coverage are those who have qualified due to (1) immediate enrollment upon appointment or five years of participation in the plan and (2) eligibility for an immediate annuity. The life insurance program provides basic coverage at no cost to retirees and allows converting optional coverage to direct-pay plans. For the dental coverage, retirees are responsible for a portion of the premium.

The FDIC has elected not to fund the postretirement life and dental benefit liabilities. As a result, the DIF recognized the underfunded status (the difference between the accumulated postretirement benefit obligation and the plan assets at fair value) as a liability. Since there are no plan assets, the plan’s benefit liability is equal to the accumulated postretirement benefit obligation.

Postretirement benefit obligation, gain and loss, and expense information included in the Balance Sheet and Statement of Income and Fund Balance are summarized as follows (in thousands).

The annual postretirement contributions and benefits paid are included in the table below (in thousands).

The expected contributions for the period ending December 31, 2016, are $7.1 million. Expected future benefit payments for each of the next 10 years are presented in the following table (in thousands).

Assumptions used to determine the amount of the accumulated postretirement benefit obligation and the net periodic benefit costs are summarized as follows (in thousands).

13. COMMITMENTS AND OFF-BALANCE-SHEET EXPOSURE

Commitments:

Leased Space

The DIF leased space expense totaled $47 million and $56 million for 2015 and 2014, respectively. The FDIC’s lease commitments total $206 million for future years. The lease agreements contain escalation clauses resulting in adjustments, usually on an annual basis. Future minimum lease commitments are as follows (in thousands).

Off-Balance-Sheet Exposure:

Deposit Insurance

Estimates of insured deposits are derived primarily from quarterly financial data submitted by IDIs to the FDIC and represent the accounting loss that would be realized if all IDIs were to fail and the acquired assets provided no recoveries. As of September 30, 2015 and December 31, 2014, estimated insured deposits for the DIF were $6.4 trillion and $6.2 trillion, respectively.

14. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial assets recognized and measured at fair value on a recurring basis at each reporting date include cash equivalents (see Note 2) and the investment in U.S. Treasury obligations (see Note 3). The DIF’s financial assets measured at fair value consisted of the following components (in thousands).