Goodwill, Intangible and Other Assets

A summary of intangible assets and other assets is as follows:



(In Thousands)	2013		2012
Intangible assets:
Goodwill		$7,525		$7,525
Core deposit intangible	214		328
NBG customer relationships	203		317
Total		$7,942		$8,170
Other assets:
Investment in Low Income Housing Partnerships		$15,681		$5,974
Deferred taxes, net	8,776		9,991
Investment in RML Holding Company	5,953		6,153
Bank owned life insurance	2,678		2,726
Taxes receivable	1,526		1,432
Investment in PWA	1,484		1,575
Prepaid expenses	1,393		4,388
Note receivable from ECCM	339		339
Investment in ECCM	74		36
Investment in ECIA	61		56
Other assets	2,701		2,219
Total		$40,666		$34,889

Prepaid expenses were $1.4 million and $4.4 million at December 31, 2013 and 2012, respectively. Prepaid expenses included $0 and $3.5 million in prepaid FDIC assessments at December 31, 2013 and 2012, respectively. In accordance with FDIC regulations, the Company prepaid its FDIC insurance premiums for the fiscal year ending Decembers 31, 2012.

As part of the stock acquisition of Alaska First in October 2007, the Company recorded $1.8 million of goodwill and $1.3 million of CDI for the acquisition of Alaska First stock. The Company is amortizing the CDI related to the Alaska First acquisition using the sum of years’ digits method over the estimated useful life of 10 years.

The Company performed its annual goodwill impairment testing at December 31, 2013 and 2012 in accordance with the policy described in Note 1 to the financial statements. At December 31, 2013, the Company performed its annual impairment test using the qualitative assessment. Significant positive inputs to the qualitative assessment included the Company’s capital position; the Company’s increasing historical trends and budget-to-actual results of operations; the Company’s decreasing trends in, and current level of nonperforming assets; results of regulatory examinations; peer comparisons of net interest margin; and trends in the Company’s cash flows. Significant negative inputs to the qualitative assessment included the Company's trend of decreasing net interest margin, decreased income from our mortgage affiliate, and, while there has been a recovery in recent years, the general decline in stock prices for financial institutions as compared to pre-2008 stock prices. We believe that the positive inputs to the qualitative assessment noted above outweigh the negative inputs, and we therefore concluded that it is more likely than not that the fair value of the Company exceeds the carrying value at December 31, 2013 and that no potential impairment existed at that time.

The Company recorded amortization expense of its intangible assets of $228,000, $252,000, and $275,000 for the years ended December 31, 2013, 2012, and 2011, respectively. Accumulated amortization for intangible assets was $6.2 million and $5.9 million at December 31, 2013 and 2012, respectively.

The future amortization expense required on these assets is as follows:



(In Thousands)
2014		$204
2015	153
2016	42
2017	18
2018	—
Thereafter	—
Total		$417

Affiliates: The Company applies the equity method of accounting for the following affiliates:

•

The Company owns a 43% equity interest in ECCM, an investment advisory services company. ECCM began active operations in the fourth quarter of 2002 and had operating losses since that time through 2012. In 2013, ECCM had net income of $100,000. In addition to its ownership interest, the Company provides ECCM with a line of credit that has a committed amount of $500,000 and an outstanding balance of $339,000 as of December 31, 2013.


•	The Company owns a 23% interest in PWA, an investment advisory, trust, and wealth management business located in Seattle, Washington.


•	The Company owns a 43% interest in ECIA, an insurance agency that offers annuity and other insurance products.

•

The Company owns a 24% interest in the profits of RML, a residential mortgage holding company. In addition to its ownership interest, the Company provides RML with two lines of credit that have committed amounts of $18.0 million and outstanding balances of $9.6 million as of December 31, 2013. Additionally, the Company purchased $156.5 million and $242.5 million in loans from RML in 2013 and 2012.

Below is summary balance sheet and income statement information for RML.



(In Thousands, Unaudited)	2013		2012
Assets
Cash		$11,852		$13,547
Loans held for sale	24,807		59,840
Other assets	14,084		15,777
Total Assets		$50,743		$89,164
Liabilities
Lines of credit		$21,949		$56,932
Other liabilities	5,652		7,481
Total Liabilities	27,601		64,413
Shareholders' Equity	23,142		24,751
Total Liabilities and Shareholders' Equity		$50,743		$89,164
Income/expense
Gross income		$22,224		$31,113
Total expense	18,313		20,033
Joint venture allocations	555		84
Net Income		$4,466		$11,164

The Company has analyzed all of its affiliate relationships in accordance with GAAP and determined that PWA, RML, and ECIA are not VIEs. The Company has determined that ECCM is a VIE. However, the Company does not have a controlling interest in ECCM. The Company determined that ECCM is a VIE based on the fact that the Company provides ECCM with a line of credit for which the majority owner of ECCM provides additional subordinated financial support in the form of a 50% guarantee. This line of credit has a committed amount of $500,000 and an outstanding balance of $339,000 as of December 31, 2013. Furthermore, ECCM does not have access to any other financial support through other institutions, nor is it likely that it would be able to obtain additional lines of credit based on its operational losses through 2012 and its resulting lack of equity. As such, it appears that ECCM cannot finance its activities without additional subordinated financial support and is therefore considered a VIE under GAAP. However, the Company has determined that it does not have a controlling interest in ECCM based on the following facts and circumstances:


a.	Neither the Company nor any members of the Company’s management have control over the budgeting or operational processes of ECCM.


b.	While the President, CEO and Chairman of the Company is a member of ECCM’s board, he does not exert influence on decisions beyond Northrim Investment Services Company’s ownership percentage in ECCM.


c.	The Company has no veto rights with respect to decisions affecting the operations of ECCM.

The Company has the obligation to absorb losses of ECCM up to its ownership percentage of 43%. There are no caps or guarantees on returns, and there are no protections to limit any investor’s share of losses. Additionally, the Company provides ECCM with a $500,000 line of credit. This line includes a 50% personal guarantee by the majority owner of ECCM. Therefore, the Company does have the obligation to absorb losses and the right to receive benefits that could be significant to ECCM and which, as a result of its exposure to 50% of any losses incurred on the line of credit that the Company has extended to ECCM, may be greater than the Company’s 43% ownership therein.

However, the applicable accounting guidance requires that the Company have both the power to control the activities of ECCM that most significantly impact its economic performance and the obligation to absorb losses or the right to receive benefits from Elliott Cove that could potentially be significant to ECCM. The Company has determined that the facts and circumstances of its relationship with ECCM including its overall involvement in the operations, decision-making capabilities, and proportionate share in earnings and losses do not satisfy the criteria for a controlling interest because it does not have the power to direct the activities of ECCM according to GAAP.

While the Company also provides a line of credit to RML, which is also guaranteed by the other owners of RML, RML has other available lines of credit with unrelated financial institutions which have been in place for many years. Additionally, RML has a history of profitability and has sufficient capital to support its operations. RML had $23.1 million in equity, $50.7 million in assets and net income of $4.5 million as of and for the year ended December 31, 2013. As such, the total equity investment in the entity, which is provided by the Company and the other owners, is adequate to finance the activities of RML. Therefore, the Company has concluded that RML is not a VIE.

Low Income Housing Partnerships: The table below shows the Company's commitments to invest in various low income housing tax credit partnerships. The Company earns a return on its investments in the form of tax credits and deductions that flow through to it as a limited partner in these partnerships. The Company recognized amortization expense of $969,000, $921,000, and $902,000 in 2013, 2012, and 2011, respectively. The Company expects to fund its remaining $11.0 million in commitments on these investments through 2029.



(In Thousands)	Date of original commitment	Years over which tax credits are earned	Original commitment amount		Less: life to date contributions			Remaining commitment amount
R4	March 2013	17		$10,675		($909	)		$9,766
WNC	December 2012	16	2,500		(1,219		)	1,281
USA 57	December 2006	15	3,000		(3,000		)	—
Centerline XXXIII	September 2006	18	3,000		(3,000		)	—
Centerline XXII	January 2003	18	3,000		(3,000		)	—
Total				$22,175		($11,128	)		$11,047