Business Combinations

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Business Combinations

Business Combinations

On April 1, 2014, the Company completed the acquisition of 100% of of the outstanding shares of Alaska Pacific for a total purchase price of $13.9 million, which was comprised of the issuance of 290,212 shares of the Company’s common stock (at a volume weighted average closing price of $25.66 per share) and $6.4 million in cash. The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting and were recorded at their estimated fair values as of the April 1, 2014 acquisition date. Estimated fair values recorded in the transaction are subject to change for up to one year after the closing date of the acquisition. The primary reason for the acquisition was to expand the Company's geographic footprint in Alaska.

The application of the acquisition method of accounting resulted in the recognition of a bargain purchase gain of $168,000 and a core deposit intangible of $623,000, or 0.5% of core deposits. The bargain purchase gain represents the excess of the estimated fair value of the net assets acquired in excess of the purchase price and is included in Other Income in the Consolidated Statements of Net Income in this Form 10-Q. This acquisition resulted in a bargain purchase gain primarily due to the inclusion of certain adjustments to the purchase price for potential risks identified by the Company during the due diligence and price negotiation stages of the acquisition that were concluded in October of 2013. The Company has concluded that the potential risks identified at that time do not represent a liability to the Company and, accordingly, they have not been allocated any value in the application of the acquisition method of accounting. The bargain purchase gain increased from April 1, 2014 to September 30, 2014, due to an adjustment to the fair value of accrued liabilities acquired.

A summary of the net assets acquired and the estimated fair value adjustments of Alaska Pacific are presented below:  

	Alaska Pacific
(In Thousands)	April 1, 2014
Cost basis net assets		$14,733
Cash payment made	(6,423		)
Common stock issued	(7,446		)
Fair value adjustments:
Net loans	(1,137		)
Premises and equipment	547
Other intangible assets	623
Mortgage servicing rights	(119		)
Deposits	(844		)
Other	234
Bargain purchase gain		$168

A summary of assets acquired and liabilities assumed at their estimated fair values are presented below:  

	Alaska Pacific
(In Thousands)	April 1, 2014
Assets Acquired:
Cash and equivalents		$12,956
Investment securities	7,240
Net loans	138,432
Premises and equipment	3,436
Other intangibles	623
Mortgage servicing rights	1,170
Other real estate owned	1,709
Other assets	1,643
Total assets acquired		$167,209
Liabilities Assumed:
Deposits		$151,438
Other liabilities	1,734
Total liabilities assumed		$153,172

Alaska Pacific purchased loans not subject to the requirements of FASB ASC  310-30 Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30") are presented below at acquisition:

(In Thousands)	April 1, 2014
Contractually required principal payments		$133,921
Purchase adjustment for credit, interest rate, and liquidity	612
Fair value of purchased non-credit impaired loans		$134,533

Alaska Pacific purchased loans subject to the requirements of FASB ASC  310-30 Loans and Debt Securities Acquired with Deteriorated Credit Quality. The Company identified eighteen purchased credit impaired loans as of April 1, 2014. This group of loans consists primarily of commercial and commercial real estate loans, and unlike a pool of consumer mortgages, it is not practicable for the Company to analyze the accretable yield of these loans. As such, the Company has elected the cost recovery method of income recognition for these loans, and thus no accretable difference has been identified for these loans.

Purchased credit impaired loans at acquisition are presented below:

(In Thousands)	April 1, 2014
Contractually required principal payments		$7,553
Nonaccretable difference	(3,654		)
Fair value of purchased credit impaired loans		$3,899

The acquisition of Alaska Pacific is not considered significant to the Company’s financial statements. The operations of Alaska Pacific are included in our operating results from April 1, 2014, and added revenue of $4.4 million, non-interest expense of $2.7 million, and net income of $1.8 million, before taxes, for the quarter ended September 30, 2014. Alaska Pacific’s results of operations prior to the acquisition are not included in our operating results. Additionally, merger-related costs of $1.3 million for the nine months ended September 30, 2014 have been incurred and expensed in connection with the acquisition of Alaska Pacific and recognized within the merger and acquisition expense on the Consolidated Statements of Income.

The following table presents unaudited pro forma results of operations for the nine month periods ended September 30, 2014 and 2013 as if the acquisition of Alaska Pacific had occurred on January 1, 2013. The proforma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2013.

(In Thousands, except earnings per share data)	September 30, 2014
						Pro Forma				Pro Forma
	Company		Alaska Pacific1			Adjustments				Combined
Net interest and other income		$50,143		$2,095			$—		2		$52,238
Net income attributable to Northrim BanCorp, Inc.	10,734		(1,282		)	(181		)	3	9,271
Earnings Per Share, Basic		$1.59									$1.38
Earnings Per Share, Diluted		$1.57									$1.36
Weighted Average Shares Outstanding, Basic	6,733,175									6,733,175
Weighted Average Shares Outstanding, Diluted	6,822,288									6,822,288
(In Thousands, except earnings per share data)	September 30, 2013
						Pro Forma				Pro Forma
	Company		Alaska Pacific1			Adjustments				Combined
Net interest and other income		$42,597		$7,468			($28	)	2		$50,037
Net income attributable to Northrim BanCorp, Inc.	9,644		281			101			3	10,026
Earnings Per Share, Basic		$1.48									$1.54
Earnings Per Share, Diluted		$1.46									$1.52
Weighted Average Shares Outstanding, Basic	6,514,441									6,514,441
Weighted Average Shares Outstanding, Diluted	6,594,482									6,594,482

¹ Alaska Pacific represents results from January 1 to March 31 for 2014 and represents results from January 1 to September 30 for 2013.

² Amount of amortization/ accretion of the fair value adjustments on loans and certificates of deposit.

³ Amount of amortization/accretion of the fair value adjustments on loans and certificates of deposit, bargain purchase gain, amortization of cored deposit intangible, and the change in the provision for income taxes.