Acquired SJB Assets and FDIC Loss Sharing Asset

12 Months Ended

Dec. 31, 2014

Text Block [Abstract]

Acquired SJB Assets and FDIC Loss Sharing Asset

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 Significant Accounting Policies (Note 3) 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 was the negative goodwill resulting from the acquired assets and liabilities recognized at fair value.

At December 31, 2014, the remaining discount associated with the PCI loans approximated $7.1 million. Based on the Company’s regular forecast of expected cash flows from these loans, approximately $4.6 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 4 years and 0.3 years, respectively. The loss sharing agreement for commercial loans expired October 16, 2014. The FDIC loss sharing asset of $299,000 at December 31, 2014 reflects the amount for which we expect reimbursement from the FDIC.

The following tables provide a summary of PCI loans and lease finance receivables by type and their credit quality indicators as of December 31, 2014 and 2013, respectively:

	December 31, 2014			December 31, 2013
	(Dollars in thousands)
Commercial and industrial	$	14,605		$	19,047
SBA		1,110			1,414
Real estate:
Commercial real estate		109,350			141,141
Construction		—			644
SFR mortgage		205			313
Dairy & livestock and agribusiness		4,890			6,000
Municipal lease finance receivables		—			—
Consumer and other loans		3,336			4,545
Gross PCI loans		133,496			173,104
Less: Purchase accounting discount		(7,129	)		(12,789	)
Gross PCI loans, net of discount		126,367			160,315
Less: Allowance for PCI loan losses		—			—
Net PCI loans	$	126,367		$	160,315

Credit Quality Indicators

The following table summarizes PCI loans by internal risk ratings by loan class as of December 31, 2014 and 2013:

	December 31, 2014		December 31, 2013
	(Dollars in thousands)
Pass	$	26,706	$	38,961
Watch list		77,371		74,369
Special mention		8,203		15,492
Substandard		21,216		44,241
Doubtful & loss		—		41
Total PCI gross loans	$	133,496	$	173,104

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, 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. As of December 31, 2014 and 2013, the Company had zero allowance for loan losses recorded for PCI loans.

FDIC Loss Sharing Asset

The following table summarizes the activity related to the FDIC loss sharing asset for the years ended December 31, 2014 and 2013:

	For the Year Ended December 31,
	2014			2013
	(Dollars in thousands)
Balance, beginning of period	$	4,764		$	18,489
FDIC share of additional losses, net of recoveries		342			(81	)
Cash paid to (received from) FDIC, net		1,134			(4	)
Net amortization (1)		(3,932	)		(12,779	)
Other reductions, net		(2,009	)		(861	)
Balance, end of period	$	299		$	4,764

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

Through December 31, 2014, the Bank has submitted claims to the FDIC for net losses on PCI loans totaling $122.0 million.