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

12 Months Ended

Dec. 31, 2023

Investments in Qualified Affordable Housing Partnerships, Net [Abstract]

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, particularly low- and moderate-income individuals and neighborhoods. The Company invests in certain affordable housing projects in the form of ownership interests in limited partnerships or limited liability companies that qualify for CRA consideration and tax credits. These entities are formed to develop and operate apartment complexes designed as high-quality affordable housing for lower income tenants throughout the U.S. To fully utilize the available tax credits, each of these entities must meet the regulatory affordable housing requirements for a 15-year minimum compliance period. In addition to affordable housing projects, the Company invests in small business investment companies and new market tax credit projects that qualify for CRA consideration, as well as 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, and investments in historic tax credits promote the rehabilitation of historic buildings and economic revitalization of the surrounding areas. For the Company’s accounting policies on tax credit investments, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Securities and Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net in this Form 10-K. For discussion on the Company’s impairment evaluation and monitoring process of tax credit investments, refer to Note 2 — Fair Value Measurement and Fair Value of Financial Instruments — Investments in Qualified Affordable Housing Partnerships, Tax Credit and Other Investments, Net to the Consolidated Financial Statements in this Form 10-K.

The following table presents the investments and unfunded commitments of the Company’s qualified affordable housing partnerships, tax credit, and other investments, net as of December 31, 2023 and 2022:



	December 31,
	2023				2022
($ in thousands)	Assets		Liabilities - Unfunded Commitments (1)		Assets		Liabilities - Unfunded Commitments (1)

Investments in qualified affordable housing partnerships, net	$	419,785	$	251,746	$	413,253	$	266,654
Investments in tax credit and other investments, net	485,251		298,990		350,003		185,797
Total	$	905,036	$	550,736	$	763,256	$	452,451

(1)Included in Accrued expenses and other liabilities on the Consolidated Balance Sheet.

Investments in tax credit and other investments, net presented in the table above include equity securities that are mutual funds with readily determinable fair values of $25 million and $24 million, as of December 31, 2023 and 2022, respectively. The Company invests in these mutual funds for CRA purposes.

The following table presents additional information related to the investments in qualified affordable housing partnerships, tax credit and other investments for the years ended December 31, 2023, 2022 and 2021:



	Year Ended December 31,
($ in thousands)	2023		2022		2021
Investments in qualified housing partnerships, net
Tax credits and other tax benefits recognized	$	60,939	$	52,132	$	50,643
Amortization expense included in income tax expense	$	43,041	$	38,759	$	33,248
Investments in tax credit and other investments, net
Amortization of tax credit and other investments (1)	$	120,299	$	113,358	$	122,457
Unrealized gains (losses) on equity securities with readily determinable values	$	255	$	(2,958)	$	(746)

(1)Includes net impairment recoveries of $1 million, $469 thousand and $1 million for the years ended December 31, 2023, 2022 and 2021, respectively. The activity was primarily related to historic and/or energy tax credits.

As of December 31, 2023, the Company’s unfunded commitments related to investments in qualified affordable housing partnerships, tax credit and other investments, net are estimated to be funded as follows:



($ in thousands)	Amount
2024	$	339,628
2025	178,171
2026	17,882
2027	2,527
2028	2,115
Thereafter	10,413
Total	$	550,736

Variable Interest Entities

The majority of both the investments in affordable housing partnerships and tax credit and other investments discussed above are variable interest entities where the Company is a limited partner in these partnerships, and an unrelated third party is typically the general partner or managing member who has control over the significant activities of these 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 investments due to the general partner’s or managing member’s ability to manage the entity, which is indicative of the general partner’s or managing member’s power over the entity. The Company’s maximum exposure to loss in connection with these partnerships consists of the unamortized investment balance and any tax credits claimed that may become subject to recapture.

Other Investments

The Company acquired a 49.99% equity interest in Rayliant during the third quarter of 2023. Rayliant is an asset manager specializing in asset allocation and investment in developed and emerging markets. This investment will expand the Bank’s wealth management business and provide its customers with additional access to institutional-quality investment management products and services. The investment in Rayliant is accounted for under the equity method of accounting and is included in Other assets on the Consolidated Balance Sheet. The Company paid $95 million in cash and granted performance-based RSUs that are contingently issuable at vesting. The performance-based RSUs will vest on September 1, 2028 into a variable number of the Company’s shares of common stock, ranging from 20% to 200% of the 349,138 shares initially underlying such performance-based RSUs, based on Rayliant’s achievement of certain financial performance targets during the future performance period. For additional information related to these equity contracts accounted for as derivative liability, refer to Note 2 — Fair Value Measurement and Fair Value of Financial Instruments and Note 5 — Derivatives to the Consolidated Financial Statements in this Form 10-K. The carrying value of the Company's investment in Rayliant was $109 million as of December 31, 2023, of which $101 million was comprised of equity method goodwill.

The Company also held equity securities without readily determinable fair values totaling $146 million and $37 million as of December 31, 2023 and 2022, respectively. These equity securities without readily determinable fair values are included in Other Assets on the Consolidated Balance Sheet.