5. ACQUIRED SJB ASSETS AND FDIC LOSS SHARING ASSET

FDIC Assisted Acquisition

On October 16, 2009, the Bank acquired San Joaquin Bank (“SJB”) and entered into loss sharing agreements with the Federal Deposit Insurance Corporation (“FDIC”) that is more fully discussed in Note 3—Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2014. The acquisition has been accounted for under the purchase method of accounting. The assets and liabilities were recorded at their estimated fair values as of the October 16, 2009 acquisition date. The acquired loans were accounted for as Purchase Credit Impaired (“PCI”) loans. The application of the purchase method of accounting resulted in an after-tax gain of $12.3 million which was included in 2009 earnings. The gain is the negative goodwill resulting from the acquired assets and liabilities recognized at fair value.

At March 31, 2015, the remaining discount associated with the PCI loans approximated $6.6 million. Based on the Company’s regular forecast of expected cash flows from these loans, approximately $4.4 million of the related discount is expected to accrete into interest income over the remaining average lives of the respective pools and individual loans, which approximates 3.7 years and 0.8 years, respectively. The loss sharing agreement for commercial loans expired October 16, 2014. The following table provides a summary of PCI loans and lease finance receivables by type and their credit quality indicators for the periods indicated.


	March 31, 2015			December 31, 2014
	(Dollars in thousands)
Commercial and industrial	$	13,988		$	14,605
SBA		1,073			1,110
Real estate:
Commercial real estate		102,445			109,350
Construction		—			—
SFR mortgage		197			205
Dairy & livestock and agribusiness		330			4,890
Municipal lease finance receivables		—			—
Consumer and other loans		2,997			3,336

Gross PCI loans		121,030			133,496
Less: Purchase accounting discount		(6,612	)		(7,129	)

Gross PCI loans, net of discount		114,418			126,367
Less: Allowance for PCI loans losses		—			—

Net PCI loans	$	114,418		$	126,367

Credit Quality Indicators

The following table summarizes PCI loans by internal risk ratings for the periods indicated.


	March 31, 2015		December 31, 2014
	(Dollars in thousands)
Pass	$	25,483	$	26,706
Watch list		69,635		77,371
Special mention		7,148		8,203
Substandard		18,764		21,216
Doubtful & loss		—		—

Total PCI gross loans	$	121,030	$	133,496

Allowance for Loan Losses

The Company’s Credit Management Division is responsible for regularly reviewing the ALLL methodology for PCI loans. The ALLL for PCI loans is determined separately from total loans, and is based on expectations of future cash flows from the underlying pools of loans or individual loans in accordance with ASC 310-30, as more fully described in Note 3— Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2014. As of March 31, 2015 and December 31, 2014, there were no allowance for loan losses recorded for PCI loans.