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

$3.3

million at

June 30, 2018.

These investments are recorded in

Other Assets

with a corresponding funding obligation of

$330

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

over the life of the investment. 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, 2018

and

December 31, 2017.

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, 2018

and

2017.

	At June 30, 2018						For the Six Months Ended June 30, 2018
	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 (expense)
Raymond James California Housing Opportunities Fund II	$	2,000	$	1,093	$	14	$	100	$	89	$	11
WNC Institutional Tax Credit Fund 38, L.P.		1,000		537		—		63		53		10
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,365		316		113		111		2
California Affordable Housing Fund		2,454		257		—		15		24		(9	)
Total	$	7,954	$	3,252	$	330	$	291	$	277	$	14

	At December 31, 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	$	1,182	$	20	$	112	$	94	$	18
WNC Institutional Tax Credit Fund 38, L.P.		1,000		589		—		70		53		17
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,476		341		136		100		36
California Affordable Housing Fund		2,454		282		—		88		88		—
Total	$	7,954	$	3,529	$	361	$	406	$	335	$	71

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

three

and

six

months ended

June 30, 2018

and

2017.

	For the Three Months Ended
	June 30, 2018				June 30, 2017
(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	$	43	$	8	$	44	$	12
WNC Institutional Tax Credit Fund 38, L.P.		28		4		28		7
Merritt Community Capital Corporation Fund XV, L.P.		48		8		54		14
California Affordable Housing Fund		1		6		32		12
Total	$	120	$	26	$	158	$	45

	For the Six Months Ended
	June 30, 2018				June 30, 2017
(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	$	85	$	15	$	88	$	24
WNC Institutional Tax Credit Fund 38, L.P.		56		7		57		13
Merritt Community Capital Corporation Fund XV, L.P.		96		17		108		28
California Affordable Housing Fund		2		13		63		25
Total	$	239	$	52	$	316	$	90

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

$138

thousand and

$277

thousand for the

three

and

six

months ended

June 30, 2018

respectively, compared to

$164

thousand and

$335

thousand for the comparable periods of

2017.

The following table reflects the anticipated net income tax benefit and expense at

June 30, 2018

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

(Amounts in thousands)
Qualified Affordable Housing Partnerships:	Raymond James		WNC Institutional		Merritt Community		California			Total Net
Anticipated net income tax benefit (expense)	California Housing		Tax Credit		Capital Corporation		Affordable			Income Tax
less amortization of investments	Opportunities Fund II		Fund 38, L.P.		Fund XV, L.P		Housing Fund			Benefit
2018	$	11	$	10	$	2	$	(8	)	$	15
2019		23		18		3		(14	)		30
2020		23		17		3		(14	)		29
2021		22		16		4		(14	)		28
2022 and thereafter		41		42		9		(43	)		49
Total	$	120	$	103	$	21	$	(93	)	$	151