NOTE

QUALIFIED AFFORDABLE HOUSING PARTNERSHIP INVESTMENTS

Our investments in Qualified Affordable Housing Partnerships that generate Low Income Housing Tax Credits (“LIHTC”) and deductible operating losses totaled

$3.9

million at

June 30, 2017.

These investments are recorded in

Other Assets

with a corresponding funding obligation of

$467

thousand recorded in

Other Liabilities

in our

Consolidated Balance Sheets

. We have invested in

four

separate LIHTC partnerships, which provide the Company with CRA credit. Additionally, the investments in LIHTC partnerships provide us with tax credits and with operating loss tax benefits over an approximately

-year period.

None

of the original investments 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 investments we made and provide returns on the investments of between

and

8%.

The investments in LIHTC partnerships are being accounted for using the proportional amortization method, under which we amortize the initial cost of an investment in proportion to the amount of the tax credits and other tax benefits received, and recognize the net investment performance in the

Consolidated Statements of Income

as a component of income tax expense.

The following table presents our original investment in LIHTC partnerships, the current recorded investment balance, and the unfunded liability balance of each investment at

June 30, 2017

and

December 31, 2016.

In addition, the table reflects the tax credits and tax benefits, amortization of the investment and the net impact to our income tax provision for the

six

months ended

June 30, 2017

and the year ended

December 31, 2016.

	At June 30, 2017						For the Six Months Ended June 30, 2017
	Original		Current		Unfunded		Tax Credits		Amortization		Net
(Amounts in thousands)	Investment		Recorded		Liability		and		of		Income Tax
Qualified Affordable Housing Partnerships	Value		Investment		Obligation		Benefits		Investments		Benefit
Raymond James California Housing Opportunities Fund II	$	2,000	$	1,267	$	45	$	112	$	94	$	18
WNC Institutional Tax Credit Fund 38, L.P.		1,000		644		55		70		53		17
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,614		367		136		100		36
California Affordable Housing Fund		2,454		357		—		87		88		(1	)
Total	$	7,954	$	3,882	$	467	$	405	$	335	$	70

	At December 31, 2016						For the Year Ended December 31, 2016
	Original		Current		Unfunded		Tax Credits		Amortization		Net
(Amounts in thousands)	Investment		Recorded		Liability		and		of		Income Tax
Qualified Affordable Housing Partnerships	Value		Investment		Obligation		Benefits		Investments		Benefit
Raymond James California Housing Opportunities Fund II	$	2,000	$	1,361	$	45	$	238	$	192	$	46
WNC Institutional Tax Credit Fund 38, L.P.		1,000		698		73		143		100		43
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,713		367		266		106		160
California Affordable Housing Fund		2,454		445		—		201		200		1
Total	$	7,954	$	4,217	$	485	$	848	$	598	$	250

The following table presents our generated tax credits and tax benefits from investments in qualified affordable housing partnerships for the

three

and

six

months ended

June 30, 2017

and

2016.

	For the Three Months Ended June 30, 2017				For the Three Months Ended June 30, 2016
(Amounts in thousands)	Generated		Tax Benefits From		Generated		Tax Benefits from
Qualified Affordable Housing Partnerships	Tax Credits		Taxable Losses		Tax Credits		Taxable Losses
Raymond James California Housing Opportunities Fund II	$	44	$	12	$	46	$	13
WNC Institutional Tax Credit Fund 38, L.P.		28		7		27		9
Merritt Community Capital Corporation Fund XV, L.P.		54		14		51		15
California Affordable Housing Fund		32		12		40		11
Total	$	158	$	45	$	164	$	48

	For the Six Months Ended June 30, 2017				For the Six Months Ended June 30, 2016
(Amounts in thousands)	Generated		Tax Benefits From		Generated		Tax Benefits from
Qualified Affordable Housing Partnerships	Tax Credits		Taxable Losses		Tax Credits		Taxable Losses
Raymond James California Housing Opportunities Fund II	$	88	$	24	$	92	$	27
WNC Institutional Tax Credit Fund 38, L.P.		57		13		53		18
Merritt Community Capital Corporation Fund XV, L.P.		108		28		103		30
California Affordable Housing Fund		63		24		79		21
Total	$	316	$	89	$	327	$	96

The tax credits and benefits were partially offset by the amortization of the principal investment balances of

$164

thousand and

$335

thousand for the

three

and

six

months ended

June 30, 2017

respectively, compared to

$180

thousand and

$360

thousand for the comparable periods of

2016.

The following table reflects the anticipated net income tax benefit at

June 30, 2017

that is expected to be recognized over the remaining life of the investments.

(Amounts in thousands)	Raymond James California Housing		WNC Institutional		Merritt Community Capital		California Affordable			Total Net Income
Qualified Affordable Housing	Opportunities		Tax Credit		Corporation		Housing			Tax
Partnerships	Fund II		Fund 38, L.P.		Fund XV, L.P		Fund			Benefit
Anticipated net income tax benefit less amortization of investments:
2017	$	23	$	18	$	23	$	(1	)	$	63
2018		46		35		44		(1	)		124
2019		46		30		43		—			119
2020		45		29		44		—			118
2021 and thereafter		173		103		176		(2	)		450
Total	$	333	$	215	$	330	$	(4	)	$	874