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Note 5 - Investments in Affordable Housing and Alternative Energy Partnerships

12 Months Ended

Dec. 31, 2021

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 ten 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 investment 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 $299.2 million and $309.0 million as of December 31, 2021, and 2020, respectively.

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

	As of December 31,
	2021		2020
	(In thousands)
Investments in affordable housing partnerships, net	$	287,517	$	279,981
Other borrowings for affordable housing limited partnerships	$	23,145	$	23,714
Investments in affordable housing and alternative energy partnerships, unfunded commitments	$	107,652	$	103,060
Investments in alternative energy tax credit partnerships, net	$	11,694	$	29,035

At December 31, 2021, 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 $31.1 million at December 31, 2021, and by $31.4 million at December 31, 2020. Recourse in other borrowings for affordable housing limited partnerships is limited to the assets of the limited partnerships. Investments in alternative energy partnerships were $11.7 million as of December 31, 2021. At December 31, 2021, $690 thousand of this investment is in an escrow account with a major bank. Unfunded commitments for affordable housing limited partnerships and alternative energy tax credit partnerships were recorded under other liabilities.

As of December 31, 2021, 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)
2022	$	49,206
2023		32,635
2024		17,722
2025		1,977
2026		1,489
Thereafter		4,623
Total unfunded commitments	$	107,652

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 $231.8 million for Federal and $4.5 million for state as of December 31, 2021. 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. 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 2021 and 2020, non-interest expense included $1.8 million and $1.4 million in impairment charges 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,
	2021		2020		2019
			(In thousands)
Affordable housing and other tax credits recognized	$	26,459	$	23,273	$	21,523
Alternative energy tax credits recognized	$	6,337	$	29,706	$	17,786