Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net and Variable Interest Entities

The CRA encourages banks to meet the credit needs of their communities for housing and other purposes, particularly in low or moderate income neighborhoods. The Company invests in certain affordable housing projects in the form of ownership interests in limited partnerships or limited liability companies (“LLCs”) that qualify for CRA and tax credits. Such entities are formed to develop and operate apartment complexes designed as high-quality affordable housing for lower income tenants throughout the U.S. Each of the entities must meet the regulatory requirements for affordable housing for a minimum 15-year compliance period to fully utilize the tax credits. In addition to affordable housing projects, the Company also invests in New Market Tax Credit projects that qualify for CRA credits and eligible projects that qualify for renewable energy and historic tax credits. Investments in renewable energy tax credits help promote the development of renewable energy sources, while the investments in historic tax credits promote the rehabilitation of historic buildings and economic revitalization of the surrounding areas.

Investments in Qualified Affordable Housing Partnerships, Net

The Company records its investments in qualified affordable housing partnerships, net, using the proportional amortization method. Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received, and recognizes the amortization in Income tax expense on the Consolidated Statement of Income.

The following table presents the Company’s investments in qualified affordable housing partnerships, net, and related unfunded commitments as of December 31, 2018 and 2017:




($ in thousands)	December 31,
($ in thousands)	2018		2017
Investments in qualified affordable housing partnerships, net	$	184,873	$	162,824
Accrued expenses and other liabilities — Unfunded commitments	$	80,764	$	55,815

The following table presents additional information related to the Company’s investments in qualified affordable housing partnerships, net, for the years ended December 31, 2018, 2017 and 2016:




($ in thousands)	Year Ended December 31,
($ in thousands)	2018		2017		2016
Tax credits and other tax benefits recognized	$	39,262	$	46,698	$	37,252
Amortization expense included in income tax expense	$	28,046	$	38,464	$	28,206

Investments in Tax Credit and Other Investments, Net

Depending on the ownership percentage and the influence the Company has on the investments in tax credit and other investments, net, the Company applies the equity or cost method of accounting, or the measurement alternative as elected under ASU 2016-01 for equity investments without readily determinable fair value.

The following table presents the Company’s investments in tax credit and other investments, net, and related unfunded commitments as of December 31, 2018 and 2017:




($ in thousands)	December 31,
($ in thousands)	2018		2017
Investments in tax credit and other investments, net	$	231,635	$	224,551
Accrued expenses and other liabilities — Unfunded commitments	$	80,228	$	113,372

The following table presents additional information related to the Company’s investments in tax credit and other investments, net, for the years ended December 31, 2018, 2017 and 2016:




($ in thousands)	Year Ended December 31,
($ in thousands)	2018		2017		2016
Amortization expense included in noninterest expense	$	89,628	$	87,950	$	83,446

As a result of the adoption of ASU 2016-01 in the first quarter of 2018, $31.2 million of equity securities with readily determinable fair values were included in Investments in tax credit and other investments, net, on the Consolidated Balance Sheet as of December 31, 2018. These equity securities are CRA investments and were measured at fair value with changes in fair value recorded in net income. The unrealized losses recognized during the year ended December 31, 2018 on these equity securities totaled $547 thousand.

As of December 31, 2018, the Company’s unfunded commitments related to investments in qualified affordable housing partnerships, tax credit and other investments are estimated to be funded as follows:




Years Ending December 31,	Amount ($ in thousands)
2019	$	108,602
2020	30,400
2021	8,615
2022	6,224
2023	5,401
Thereafter	1,750
Total	$	160,992

Variable Interest Entities (“VIEs”)

The Company invests in unconsolidated limited partnerships and similar entities that construct, own and operate affordable housing, historic rehabilitation projects, wind and solar projects, of which the majority of such investments are variable interest entities. As a limited partner in these partnerships, these investments are designed to generate a return primarily through the realization of federal tax credits and tax benefits. An unrelated third party is typically the general partner or managing member who has control over the significant activities of such investments. While the Company’s interest in some of the investments may exceed 50% of the outstanding equity interests, the Company does not consolidate these structures due to the general partner or managing partner’s ability to manage the entity, which is indicative of power in them. The Company’s maximum exposure to loss in connection with these partnerships consist of the unamortized investment balance and any tax credits claimed subject to recapture.

Special purpose entities (“SPEs”) formed in connection with securitization transactions are generally considered VIEs. The Company is the servicer of the multifamily residential loans it has securitized in the first quarter of 2016. The Company does not consolidate the multifamily securitization entity because it does not have power and does not have a variable interest that could potentially be significant to the VIE.