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 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 were 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 is the negative goodwill resulting from the acquired assets and liabilities recognized at fair value.

At December 31, 2016, the remaining discount associated with the PCI loans approximated $1.5 million. Based on the Company’s regular forecast of expected cash flows from these loans, approximately $1.0 million of the related discount is expected to accrete into interest income over the remaining average lives of the respective pools, which approximates 2.5 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 by internal risk ratings (credit quality indicators) for the periods presented.


	December 31,
	2016		2015
	(Dollars in thousands)

Commercial and industrial	$	2,309	$	7,473
SBA		327		393
Real estate:
Commercial real estate		67,594		81,786
Construction		-		-
SFR mortgage		178		193
Dairy & livestock and agribusiness		1,216		1,429
Municipal lease finance receivables		-		-
Consumer and other loans		1,469		2,438

Gross PCI loans		73,093		93,712
Less: Purchase accounting discount		(1,508)		(3,872)

Gross PCI loans, net of discount		71,585		89,840
Less: Allowance for PCI loan losses		(1,219)		-

Net PCI loans	$	70,366	$	89,840

Credit Quality Indicators

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


	December 31,
	2016		2015
	(Dollars in thousands)
Pass	$	59,409	$	76,401
Special mention		1,162		11,142
Substandard		12,522		6,169
Doubtful & loss		-		-

Total gross PCI loans	$	73,093	$	93,712

FDIC Loss Sharing Liability

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


	For the Year Ended December 31,
	2016		2015
	(Dollars in thousands)
Balance, beginning of period	$	(229)	$	299
FDIC share of recoveries, net of charge-offs		(5)		(902)
Cash paid to (received from) FDIC, net		514		1,089
Net amortization (1)		-		-
Other		(782)		(715)

Balance, end of period	$	(502)	$	(229)

(1)

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

Through December 31, 2016, the Bank has submitted claims to the FDIC for net losses on PCI loans totaling $119.1 million.