Affordable Housing Partnership, Tax Credit and Community Reinvestment Act Investments, Net

9 Months Ended

Sep. 30, 2024

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

Affordable Housing Partnership, Tax Credit and Community Reinvestment Act Investments, Net

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 affordable housing regulatory requirements for a 15-year minimum compliance period. The Company also invests in small business investment companies and new markets tax credit projects that qualify for CRA consideration, as well as eligible projects that qualify for production, historic and renewable energy tax credits. Investments in new markets tax credits promote development in low-income communities, investments in production and 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.

The majority of affordable housing partnership, tax credit and CRA investments discussed above are variable interest entities where the Company is a limited partner in these investments, 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.

The Company records its investments in qualifying affordable housing partnerships, net, using PAM. Following the adoption of ASU 2023-02 on January 1, 2024, the Company elects to account for its tax credit investments using PAM on a program-by-program basis if certain conditions are met. For the Company’s accounting policies on PAM, see Note 2 — Current Accounting Developments and Summary of Significant Accounting Policies — Significant Accounting Policies Update — Income Taxes to the Consolidated Financial Statements in this Form 10-Q. For discussion on the Company’s impairment evaluation and monitoring process for tax credit investments, refer to Note 3 — Fair Value Measurement and Fair Value of Financial Instruments — Affordable Housing Partnership, Tax Credit and CRA Investments, Net to the Consolidated Financial Statements in this Form 10-Q.

The following table presents the investments and unfunded commitments of the Company’s affordable housing partnership, tax credit, and CRA investments, net as of September 30, 2024 and December 31, 2023:



	September 30, 2024				December 31, 2023
($ in thousands)	Assets		Liabilities - Unfunded Commitments (1)		Assets		Liabilities - Unfunded Commitments (1)

PAM:
Affordable housing partnership investments	$	480,751	$	284,712	$	419,785	$	251,746
Tax credit and CRA investments	191,644		94,529		—		—
Equity method of accounting and other:
Tax credits and CRA investments	252,044		118,243		485,251		298,990
Total	$	924,439	$	497,484	$	905,036	$	550,736

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

The following table presents additional information related to the investments in affordable housing partnership, tax credit and CRA investments for the three and nine months ended September 30, 2024 and 2023:



	Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)	2024		2023		2024		2023
Tax credits and benefits (1):
PAM:
Affordable housing partnership investments	$	17,352	$	15,660	$	51,383	$	47,058
Tax credit and CRA investments	27,321		—		80,774		—
Equity method of accounting and other:
Tax credit and CRA investments	14,918		47,395		49,055		120,297
Total tax credits and benefits	$	59,591	$	63,055	$	181,212	$	167,355

Amortization:
PAM:
Affordable housing partnership investments (2)	$	11,245	$	11,587	$	34,888	$	34,759
Tax credit and CRA investments (3)	21,819		—		65,135		—
Equity method of accounting and other:
Tax credit and CRA investments (4) (5)	5,600		49,694		34,859		115,718
Total amortization	$	38,664	$	61,281	$	134,882	$	150,477

(1)Included in Income tax expense on the Consolidated Statement of Income for the three and nine months ended September 30, 2024 and 2023.

(2)Amortization related to investments in qualified affordable housing partnerships under PAM was recorded in Income tax expense on the Consolidated Statement of Income for the three and nine months ended September 30, 2024 and 2023.

(3)Due to the adoption of ASU 2023-02 on January 1, 2024, amortization related to qualifying tax credit investments under PAM was recorded in Income tax expense on the Consolidated Statement of Income for the three and nine months ended September 30, 2024.

(4)Amortization related to tax credit and CRA investments was recognized in Amortization of tax credit and CRA investments as part of noninterest expense on the Consolidated Statement Income for the three and nine months ended September 30, 2024 and 2023.

(5)Includes net impairment losses of $1 million for the three months ended September 30, 2023, and net impairment recoveries of $1 million for the nine months ended September 30, 2023. The activity for both periods was primarily related to historic tax credits. In comparison, there were no impairment recoveries or losses for the three and nine months ended September 30, 2024.

The Company also held equity securities without readily determinable fair values totaling $147 million and $146 million as of September 30, 2024 and December 31, 2023, respectively. Equity securities without readily determinable fair values are included in Other Assets and Affordable housing partnership, tax credit and CRA investments, net on the Consolidated Balance Sheet.