4.	Investment in Historic Tax Credit Entity

On October 15, 2014, the Bank entered into an agreement to participate in the rehabilitation of a certified historic structure located in Louisville, Kentucky with a regional commercial developer. As part of the agreement, the Bank committed to invest $4.2 million into a limited liability company organized in the state of Kentucky by the commercial developer, for which it received a 99% equity interest in the entity and will receive an allocation of 99% of the operating profit and losses and any historic tax credits generated by the entity. The tax credits initially expected to be allocated to the Bank include federal rehabilitation investment credits totaled $4.7 million available under Internal Revenue Code Section 47. Subsequently, during the quarter ended March 31, 2017, the estimate of tax credits increased to $5.0 million and the Company’s investment in equity increased to $4.5 million, or 90% of the anticipated credits to be received.

The Bank’s investment in the historic tax credit entity is accounted for using the equity method of accounting. In conjunction with receipts of certificates of occupancy for the project and estimates of historic tax credits to be received, the Company recognized losses in noninterest income of $4.3 million for the three months ended June 30, 2016 and $226,000 and $4.3 million for the nine months ended June 30, 2017 and 2016, respectively. The Company recorded historic tax credits in income tax (benefit) expense of $4.8 million for the quarter ended June 30, 2016 and $249,000 and $4.8 million in the nine months ended June 30, 2017 and 2016, respectively.

At June 30, 2017, there were no unfunded capital contribution commitments. At September 30, 2016, the Bank’s remaining unfunded capital contribution commitment of $118,000 was included in other liabilities in the accompanying consolidated balance sheet.