Note 9 - Qualified Affordable Housing Project Investments

9 Months Ended

Sep. 30, 2014

Qualified Affordable Housing Project Investments [Abstract]

Qualified Affordable Housing Project Investments [Text Block]

NOTE 9. QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS

The Company’s investment in Qualified Affordable Housing Projects that generate Low Income Housing Tax Credits (“LIHTC”) at September 30, 2014 was $5.0 million recorded in other assets with a corresponding recorded liability in other liabilities of $3.0 million in funding obligations recorded in other liabilities. The Company has invested in three separate LIHTC projects which provide the Company with CRA credit. Additionally, the investment in LIHTC projects provides the Company with tax credits and with operating loss tax benefits over an approximately sixteen year period. None of the original investment will be repaid. The tax credits and the operating loss tax benefits that are generated by each of the properties are expected to exceed the total value of the investment made by the Company and provide a return on the investment between 4.76% and 7.18%. The investment in LIHTC projects is being accounted for using the proportional amortization method, under which the Company amortizes the initial cost of the investment in proportion to the amount of the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit).

The following table presents the Company’s original investment in the LIHTC projects accounted for using the proportional amortization method, the current recorded investment balance, and the unfunded liability balance of each investment at September 30, 2014 and December 31, 2013. In addition, the table reflects the tax credits and tax benefits recorded by the Company during 2014 and 2013, the amortization of the investment and the net impact to the Company’s income tax provision for 2014 and 2013:

(Dollars in thousands)	Original		Current		Unfunded		Tax Credits		Amortization		Net
Qualified Affordable Housing Projects at	Investment		Recorded		Liability		and		of		Income Tax
September 30, 2014	Value		Investment		Obligation		Benefits (1)		Investments (2)		Benefit
Raymond James California Housing Opportunities Fund II	$	2,000	$	1,892	$	1,119	$	120	$	107	$	23
WNC Institutional Tax Credit Fund 38, L.P.		1,000		906		364		98		94		24
Merritt Community Capital Corporation Fund XV, L.P.		2,500		2,185		1,548		255		315		44
Total – Investments in Qualified Affordable Housing Projects	$	5,500	$	4,983	$	3,031	$	473	$	516	$	91

(Dollars in thousands)	Original		Current		Unfunded		Tax Credits		Amortization		Net
Qualified Affordable Housing Projects at	Investment		Recorded		Liability		and		of		Income Tax
December 31, 2013	Value		Investment		Obligation		Benefits (1)		Investments (2)		Benefit
Raymond James California Housing Opportunities Fund II	$	2,000	$	2,000	$	1,858	$	30	$	-	$	6
WNC Institutional Tax Credit Fund 38, L.P.		1,000		1,000		592		49		-		12
Merritt Community Capital Corporation Fund XV, L.P.		2,500		2,500		2,346		203		-		35
Total – Investments in Qualified Affordable Housing Projects	$	5,500	$	5,500	$	4,796	$	282	$	-	$	53

(1) The amounts reflected in this column represent both the tax credits, as well as the tax benefits generated by the Qualified Affordable Housing Projects operating loss for the year.

(2) This amount reduces the tax credits and benefits generated by the Qualified Affordable Housing Projects.

The Company’s investments in affordable housing projects generated tax credits recorded by the Company of $120 thousand for the quarter ended September 30, 2014 and $0 for the quarter ended September 30, 2013. Additional tax benefits from the operating losses generated by the projects were $38 thousand and $0 for the quarter ended September 30, 2014 and 2013 respectively. The tax credits and benefits were partially offset by the amortization of the principal investment balances of $516 thousand and $0 for the nine months ended September 30, 2014 and 2013 respectively.

The following table reflects the anticipated net income tax benefit at September 30, 2014 that is expected to be recognized by the Company over the remaining life of the investment:

(Dollars in thousands)	Raymond James California Housing Opportunities		WNC Institutional Tax Credit		Merritt Community Capital Corporation		Total Net Income Tax
Qualified Affordable Housing Projects	Fund II		Fund 38, L.P.		Fund XV, L.P		Benefit
Anticipated net income tax benefit less amortization of investments:
2014	$	8	$	8	$	14	$	30
2015		45		35		47		127
2016		45		35		47		127
2017		44		34		45		123
2018 and thereafter		290		177		283		750
Total	$	432	$	289	$	436	$	1,157