6. Acquired SJB ASSETS AND FDIC LOSS SHARING ASSET

FDIC Assisted Acquisition

On October 16, 2009, the Bank acquired SJB and entered into a loss sharing agreements with the FDIC that is more fully discussed in the Note 3 — Summary of Significant Accounting Policies included herein. 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 are accounted for as 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 was the negative goodwill resulting from the acquired assets and liabilities recognized at fair value.

At December 31, 2015, the remaining discount associated with the PCI loans approximated $3.9 million. Based on the Company’s regular forecast of expected cash flows from these loans, approximately $2.1 million of the related discount is expected to accrete into interest income over the remaining average lives of the respective pools, which approximates 3 years. 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 presented.


	December 31,
	2015			2014
	(Dollars in thousands)
Commercial and industrial	$	7,473		$	14,605
SBA		393			1,110
Real estate:
Commercial real estate		81,786			109,350
Construction		—			—
SFR mortgage		193			205
Dairy & livestock and agribusiness		1,429			4,890
Municipal lease finance receivables		—			—
Consumer and other loans		2,438			3,336

Gross PCI loans		93,712			133,496
Less: Purchase accounting discount		(3,872	)		(7,129	)

Gross PCI loans, net of discount		89,840			126,367
Less: Allowance for PCI loan losses		—			—

Net PCI loans	$	89,840		$	126,367

Credit Quality Indicators

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


	December 31,
	2015		2014
	(Dollars in thousands)
Pass	$	24,210	$	26,706
Watch list		52,191		77,371
Special mention		11,142		8,203
Substandard		6,169		21,216
Doubtful & loss		—		—

Total PCI gross loans	$	93,712	$	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 discussed in Note 3 — Summary of Significant Accounting Policies, included herein. As of December 31, 2015 and 2014, there were no allowances for loan losses recorded for PCI loans.

FDIC Loss Sharing (Liability) Asset

The following table summarizes the activity related to the FDIC loss sharing (liability) asset for the periods presented.


	For the Year Ended December 31,
	2015			2014
	(Dollars in thousands)
Balance, beginning of period	$	299		$	4,764
FDIC share of additional losses, net of recoveries		(902	)		342
Cash paid to FDIC, net		1,089			1,134
Net amortization (1)		—			(3,932	)
Other reductions, net		(715	)		(2,009	)

Balance, end of period	$	(229	)	$	299

(1)	Net amortization included accelerated amortization as a result of loans being paid off in full, sold, or transferred to OREO.

Through December 31, 2015, the Bank has submitted claims to the FDIC for net losses on PCI loans totaling $120.1 million.