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VARIABLE INTEREST ENTITIES | 12 Months Ended
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Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
VARIABLE INTEREST ENTITIES | VARIABLE INTEREST ENTITIES We hold ownership interests in alternative energy partnerships and qualified affordable housing partnerships, and held an interest in the SECT prior to the termination of the SECT. Refer to Note 1 for additional detail on variable interest entities. Unconsolidated VIEs Multifamily Securitization During the third quarter of 2019, we transferred $573.5 million of multifamily loans, through a two-step process, to a third-party depositor which placed the multifamily loans into a third-party trust (a VIE) that issued structured pass-through certificates to investors. The transfer of these loans was accounted for as a sale for financial reporting purposes, in accordance with ASC 860. We determined that we are not the primary beneficiary of this VIE as we do not have the power to direct the activities that will have the most significant economic impact on the entity. Our continuing involvement in this securitization is limited to customary obligations associated with the securitization of loans, including the obligation to cure, repurchase or substitute loans in the event of a material breach in representations. Additionally, we have the obligation to guarantee credit losses up to 12 percent of the aggregate unpaid principal balances at cut-off date of the securitization. This obligation is supported by a $68.8 million letter of credit between Freddie Mac and the FHLB. The maximum loss exposure that would be absorbed by us in the event that all of the assets in the securitization trust are deemed worthless is $68.8 million, which represents the aforementioned obligation to guarantee credit losses up to 12 percent. We believe that the loss exposure on our multifamily securitization is reduced by both loan-to-value ratios of the underlying collateral balances and the overcollateralization that exists within the securitization trust. At December 31, 2019, we have a $4.4 million repurchase liability related to this VIE which is available to absorb losses. Alternative Energy Partnerships We invest in certain alternative energy partnerships (limited liability companies) formed to provide sustainable energy projects that are designed to generate a return primarily through the realization of federal tax credits (energy tax credits). These entities were formed to invest in newly installed residential and commercial solar leases and power purchase agreements. As a result of our investments, we have the right to certain investment tax credits and tax depreciation benefits (recognized on the flow through and income statement method in accordance with ASC 740), and to a lesser extent, cash flows generated from the installed solar systems leased to individual consumers for a fixed period of time. While our interest in the alternative energy partnerships meets the definition of a VIE in accordance with ASC 810, we have determined that we are not the primary beneficiary because we do 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 we are not the primary beneficiary, we did not consolidate the entities. We use the Hypothetical Liquidation at Book Value (HLBV) method to account for these investments in energy tax credits as an equity investment under ASC 970-323-25-17. Under the HLBV method, an equity method investor determines its share of an investee's earnings by comparing its claim on the investee's book value at the beginning and end of the period, assuming the investee were to liquidate all assets at their U.S. GAAP amounts and distribute the resulting cash to creditors and investors under their respective priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is our share of the earnings or losses from the equity investment for the period. To account for the tax credits earned on investments in alternative energy partnerships, we use the flow-through income statement method. Under this method, the tax credits are recognized as a reduction to income tax expense and the initial book-tax differences in the basis of the investments are recognized as additional tax expense in the year they are earned. During the years ended December 31, 2019, 2018 and 2017, we funded $806 thousand, $0 and $55.4 million, respectively, and recognized a loss on investment of $1.7 million, $5.0 million and $30.8 million, respectively, through our HLBV application. As a result, the balance of our investments was $29.3 million and $29.0 million at December 31, 2019 and 2018. During the year ended December 31, 2017, we completed the funding on one of our investments. While we had committed $100.0 million to the investment, the amount that was drawn down and funded by us was $62.8 million and the remaining $37.2 million of the commitment was canceled. During the three months ended June 30, 2018, we reached the completion deadline of a second investment. While we had committed $100.0 million to that investment, the amount that was drawn down and funded by us was $49.9 million, of which $1.0 million was unused and returned to us, and the remaining $50.1 million of commitment was canceled. During the year ended 2019, we funded $806 thousand of our $4.0 million aggregate funding commitment into a third alternative energy partnership. From an income tax benefit perspective, we recognized investment tax credits of $3.4 million, $9.6 million and $38.2 million, as well as income tax benefits relating to the recognition of our loss through our HLBV application during the years ended December 31, 2019, 2018 and 2017, respectively. The following table represents the carrying value of the associated assets and liabilities and the associated maximum loss exposure for the alternative energy partnerships as of the dates indicated:
|  | December 31,
($ in thousands) |  | 2019 |  | 2018
Cash |  | $ | 4,224 |  |  | $ | 3,012 |
Equipment, net of depreciation |  | 248,920 |  |  | 259,464 |
Other assets |  | 6,301 |  |  | 4,470 |
Total unconsolidated assets |  | $ | 259,445 |  |  | $ | 266,946 |
Total unconsolidated liabilities |  | $ | 7,143 |  |  | $ | 6,269 |
Maximum loss exposure |  | $ | 32,525 |  |  | $ | 28,988 |
The maximum loss exposure that would be absorbed by us in the event that all of the assets in the alternative energy partnerships are deemed worthless is $32.5 million, which is our recorded investment amount at December 31, 2019. We believe that the loss exposure on our investments is reduced considering our return on our investment is provided not only by the cash flows of the underlying client leases and power purchase agreements, but also through the significant tax benefits, including federal tax credits generated from the investments. In addition, the arrangements include a transition manager to support any transition of the solar company sponsor whose role includes that of the servicer and operation and maintenance provider, in the event the sponsor would be required to be removed from its responsibilities (e.g., bankruptcy, breach of contract, etc.), thereby further limiting our exposure. Qualified Affordable Housing Partnerships We invest in limited partnerships that operate qualified affordable housing projects. The returns on these investments are generated primarily through allocated Federal tax credits and other tax benefits. In addition, these investments contribute to our compliance with the Community Reinvestment Act. These limited partnerships are considered to be VIEs, because either (i) they do not have sufficient equity investment at risk or (ii) the limited partners with equity at risk do not have substantive kick-out rights through voting rights or substantive participating rights over the general partner. As a limited partner, we are not the primary beneficiary because the general partner has the ability to direct the activities of the VIEs that most significantly impact their economic performance. Therefore, we do not consolidate these partnerships. We funded $9.1 million, $4.1 million and $4.5 million into these partnerships during the years ended December 31, 2019, 2018 and 2017 and recognized proportional amortization expense of $3.5 million, $2.0 million and $1.4 million during the years ended December 31, 2019, 2018 and 2017. As a result, the balance of these investments was $36.5 million and $20.0 million at December 31, 2019 and 2018. As of December 31, 2019, we had funded $26.9 million of our $49.3 million aggregated funding commitments. We had an unfunded commitment of $22.4 million at December 31, 2019. From an income tax benefit perspective, we recognized low income housing tax credits of $2.4 million, $1.9 million and $849 thousand during the years ended December 31, 2019, 2018 and 2017. The maximum loss exposure that would be absorbed by us in the event that all of the assets in this investment are deemed worthless is $36.5 million, which is our recorded investment amount at December 31, 2019. The recorded investment amount is included in Other Assets on the Consolidated Statements of Financial Condition and the proportional amortization expense is recorded in Income Tax (Benefit) Expense on the Consolidated Statements of Operations. As the investments in alternative energy partnerships and qualified affordable housing partnerships represent unconsolidated VIEs to us, the assets and liabilities of the investments themselves are not recorded on our statements of financial condition.

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- Definition The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI http://asc.fasb.org/topic&trid=2197479 + Details
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