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

$4.0

million at

March

31,

2017.

These investments are recorded in other assets with a corresponding funding obligation of

$478

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

8%.

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.

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table presents our original investment in LIHTC partnerships, the current recorded investment balance, and the unfunded liability balance of each investment at

March

31,

2017

and

December

31,

2016.

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

three

months ended

March

31,

2017

and the year ended

December

31,

2016.

							For the Three Months Ended
	At March 31, 2017						March 31, 2017
(Amounts in thousands)	Original		Current		Unfunded		Tax Credits		Amortization		Net
Qualified Affordable Housing Partnerships at	Investment		Recorded		Liability		and		of		Income Tax
March 31, 2017	Value		Investment		Obligation		Benefits		Investments		Benefit
Raymond James California Housing Opportunities Fund II	$	2,000	$	1,317	$	45	$	56	$	45	$	11
WNC Institutional Tax Credit Fund 38, L.P.		1,000		671		66		35		26		9
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,657		367		68		56		12
California Affordable Housing Fund		2,454		401		—		44		44		—
Total	$	7,954	$	4,046	$	478	$	203	$	171	$	32

	At December 31, 2016						For the Year Ended December 31, 2016
(Amounts in thousands)	Original		Current		Unfunded		Tax Credits		Amortization		Net
Qualified Affordable Housing Partnerships at	Investment		Recorded		Liability		and		of		Income Tax
December 31, 2016	Value		Investment		Obligation		Benefits		Investments		Benefit
Raymond James California Housing Opportunities Fund II	$	2,000	$	1,361	$	45	$	227	$	192	$	35
WNC Institutional Tax Credit Fund 38, L.P.		1,000		698		73		140		100		40
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,713		367		274		106		168
California Affordable Housing Fund		2,454		445		—		202		200		2
Total	$	7,954	$	4,217	$	485	$	843	$	598	$	245

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

three

months ended

March

31,

2017

and

2016.

	For the Three Months Ended
	March 31, 2017				March 31, 2016
(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	$	44	$	12	$	44	$	12
WNC Institutional Tax Credit Fund 38, L.P.		28		7		28		7
Merritt Community Capital Corporation Fund XV, L.P.		54		14		55		14
California Affordable Housing Fund		32		12		40		12
Total	$	158	$	45	$	167	$	45

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

$171

thousand and

$180

thousand for the

three

months ended

March

31,

2017

and

March

31,

2016,

respectively.

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table reflects the anticipated net income tax benefit at

March

31,

2017

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

(Amounts in thousands)	Raymond James California Housing		WNC Institutional		Merritt Community Capital		California Affordable			Total Net I ncome
Qualified Affordable Housing Partnerships	Opportunities Fund II		Tax Credit Fund 38, L.P.		Corporation Fund XV, L.P		Housing Fund			Tax Benefit
Anticipated net income tax benefit less amortization of investments:
2017	$	34	$	27	$	36	$	(1	)	$	96
2018		45		35		46		(1	)		125
2019		45		30		45		(1	)		119
2020		44		29		45		—			118
2021 and thereafter		171		102		183		(1	)		455
Total	$	339	$	223	$	355	$	(4	)	$	913