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Note 5 - Qualified Affordable Housing Partnership Investments

9 Months Ended

Sep. 30, 2020

Qualified Affordable Housing Project Investments [Text Block]

NOTE 5. QUALIFIED AFFORDABLE HOUSING PARTNERSHIP INVESTMENTS

We have invested in five 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 23-year period. 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 2% and 6% over the life of the investment.

Our investments in Qualified Affordable Housing Partnerships totaled $3.1 million at September 30, 2020. These investments are recorded in Other Assets with a corresponding funding obligation of $1.3 million recorded in Other Liabilities in our Consolidated Balance Sheets. None of the original investments will be repaid. 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. During the first quarter of 2020, we invested $1.0 million in an additional LIHTC partnership, Boston Capital.

The following tables present our original investment in LIHTC partnerships, the current recorded investment balance, and the unfunded liability balance of each investment at September 30, 2020 and December 31, 2019. In addition, the tables reflect the tax credits and tax benefits, amortization of the investment and the net impact to our income tax provision for the nine months ended September 30, 2020 and 2019.

	At September 30, 2020						For the Nine Months Ended September 30, 2020
	Original		Current		Unfunded		Tax Credits		Amortization		Net
	Investment		Recorded		Liability		and		of		Income Tax
(Amounts in thousands)	Value		Investment		Obligation		Benefits		Investments		Benefit (Expense)
Qualified Affordable Housing Partnerships:
Raymond James California Housing Opportunities Fund II	$	2,000	$	717	$	22	$	149	$	135	$	14
WNC Institutional Tax Credit Fund 38, L.P.		1,000		335		—		78		65		13
Merritt Community Capital Corporation Fund XV, L.P.		2,500		903		316		167		164		3
California Affordable Housing Fund		2,454		181		—		18		29		(11	)
Boston Capital		1,000		962		987		49		38		11
Total	$	8,954	$	3,098	$	1,325	$	461	$	431	$	30

	At December 31, 2019						For the Nine Months Ended September 30, 2019
	Original		Current		Unfunded		Tax Credits		Amortization		Net
	Investment		Recorded		Liability		and		of		Income Tax
(Amounts in thousands)	Value		Investment		Obligation		Benefits		Investments		Benefit (Expense)
Qualified Affordable Housing Partnerships:
Raymond James California Housing Opportunities Fund II	$	2,000	$	852	$	22	$	150	$	135	$	15
WNC Institutional Tax Credit Fund 38, L.P.		1,000		400		—		81		68		13
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,067		316		168		165		3
California Affordable Housing Fund		2,454		210		—		18		29		(11	)
Total	$	7,954	$	2,529	$	338	$	417	$	397	$	20

The following tables present our generated tax credits and tax benefits from investments in qualified affordable housing partnerships for the three and nine months ended September 30, 2020 and 2019.

	For the Three Months Ended
	September 30, 2020				September 30, 2019
	Generated		Tax Benefits From		Generated		Tax Benefits from
(Amounts in thousands)	Tax Credits		Taxable Losses		Tax Credits		Taxable Losses
Qualified Affordable Housing Partnerships:
Raymond James California Housing Opportunities Fund II	$	43	$	7	$	43	$	7
WNC Institutional Tax Credit Fund 38, L.P.		22		4		23		4
Merritt Community Capital Corporation Fund XV, L.P.		48		8		48		8
California Affordable Housing Fund		1		6		—		6
Boston Capital		11		5		—		—
Total	$	125	$	30	$	114	$	25

	For the Nine Months Ended
	September 30, 2020				September 30, 2019
	Generated		Tax Benefits From		Generated		Tax Benefits from
(Amounts in thousands)	Tax Credits		Taxable Losses		Tax Credits		Taxable Losses
Qualified Affordable Housing Partnerships:
Raymond James California Housing Opportunities Fund II	$	128	$	21	$	128	$	22
WNC Institutional Tax Credit Fund 38, L.P.		66		12		70		11
Merritt Community Capital Corporation Fund XV, L.P.		144		23		144		24
California Affordable Housing Fund		—		18		—		18
Boston Capital		34		15		—		—
Total	$	372	$	89	$	342	$	75

The following table reflects the anticipated net income tax benefit and (expense) at September 30, 2020 that is expected to be recognized over the remaining lives of the investments.

(Amounts in thousands)
Qualified Affordable Housing Partnerships:													2024
Anticipated income tax benefit, net less													and
amortization of investments	2020			2021			2022			2023			thereafter		Total
Raymond James California Housing Opportunities Fund II	$	4		$	19		$	19		$	18		$	16	$	76
WNC Institutional Tax Credit Fund 38, L.P.		4			16			14			13			14		61
Merritt Community Capital Corporation Fund XV, L.P.		1			3			3			3			4		14
California Affordable Housing Fund		(3	)		(14	)		(13	)		(35	)		—		(65	)
Boston Capital		4			23			24			23			171		245
Total income tax benefit, net	$	10		$	47		$	47		$	22		$	205	$	331