Note 5 - Investments in Affordable Housing and Alternative Energy Partnerships

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Investments in Affordable Housing [Text Block]

5.      Investments in Affordable Housing and Alternative Energy Partnerships

The Company holds ownership interests in a number of limited partnerships that were formed to develop and operate housing for lower-income tenants throughout the United States and alternative energy partnerships that qualify for energy tax credits. The Company evaluates its interests in these partnerships to determine whether they meet the definition of a Variable Interest Entity (“VIE”) and whether the Company is required to consolidate these entities. A VIE is consolidated by its primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) a variable interest that could potentially be significant to the VIE. To determine whether or not a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size and form of the Company's involvement with the VIE. While the Company has determined that its interests in these entities meet the definition of a variable interest in accordance with ASC 810, the Company has determined that the Company is not the primary beneficiary in all but nine of these partnerships because the Company does not have the power to direct the activities that most significantly impact the economic performance of the entities including operational and credit risk management activities.  As the Company is not the primary beneficiary, the Company did not consolidate the entities.

The investments in these entities approximates the maximum exposure to loss as a result of the Company’s involvement with these unconsolidated entities. The balance of the Company’s investments in these entities was $308.7 million and $282.7 million as of December 31, 2019 and 2018, respectively.

The Company’s investments in these partnerships, net, are presented in the table below:

	As of December 31,
(In thousands)	2019		2018
Investments in affordable housing partnerships, net	$	276,506	$	259,046
Other borrowings for affordable housing limited partnerships	$	29,022	$	17,298
Investments in affordable housing and alternative energy partnerships, unfunded commitments	$	114,541	$	113,046
Investments in alternative energy tax credit partnerships, net	$	32,175	$	23,688

At December 31, 2019, ten of the limited partnerships in which the Company has an equity interest were determined to be variable interest entities for which the Company is the primary beneficiary. The consolidation of these limited partnerships in the Company’s Consolidated Financial Statements increased total assets and liabilities by $36.3 million at December 31, 2019, and by $23.8 million at December 31, 2018. Recourse in other borrowings for affordable housing limited partnerships is limited to the assets of the limited partnerships. Investments in alternative energy partnerships were $32.2 million as of December 31, 2019. At December 31, 2019, $18.9 million of this investment is in an escrow account with a major bank. These funds will be disbursed in 2020 for solar energy systems to be installed in 2020 and will be expected to generate solar tax credits of $14.9 million. Unfunded commitments for affordable housing limited partnerships and alternative energy tax credit partnerships were recorded under other liabilities.

As of December 31, 2019, the Company’s unfunded commitments related to investments in qualified affordable housing and alternative energy partnerships, net, are estimated to be paid as follows:

	Amount
Year Ending December 31,	(In thousands)
2020	$	64,137
2021		26,914
2022		17,382
2023		1,695
2024		770
Thereafter		3,643
Total unfunded commitments	$	114,541

Each of the partnerships must meet regulatory requirements for affordable housing and alternative energy projects, including long-term minimum compliance periods (such as a 15-year minimum compliance period for certain affordable housing tax credits) to fully utilize the tax credits. If the partnerships cease to qualify during the compliance period, the credits may be denied for any period in which the projects are not in compliance and a portion of the credits previously taken is subject to recapture with interest. The remaining tax credits to be utilized over a multiple-year period are $207.6 million for Federal and $1.5 million for state as of December 31, 2019. The possible inability to realize these tax credits and other returns from our investments in these partnerships can have a negative impact on our financial results. The risk of not being able to realize the tax credits and other returns depends on many factors, including changes in the applicable provisions of the tax code, the ability of the projects to be completed and properly managed and other factors that are outside of our control.  See “Item 1A. Risk Factors” for more information. Losses in excess of the Bank’s investment in three limited partnerships have not been recorded in the Company’s Consolidated Financial Statements because the Company had fully satisfied all capital commitments required under the respective limited partnership agreements. In 2019, non-interest expense included a $2.1 million impairment charge for investments in low income housing partnerships. In 2018, non-interest expense included a $4.5 million impairment charge for investments in low income housing partnerships.

The following table summarizes the Company’s usage of affordable housing and other tax credits including energy tax credits.

	As of December 31,
(In thousands)	2019		2018		2017
Affordable housing and other tax credits recognized	$	21,523	$	18,860	$	17,727
Alternative energy tax credit usage	$	17,786	$	15,013	$	3,301