Goodwill, Intangible, and Other Assets

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



(In Thousands)	2014		2013
Intangible assets:
Goodwill		$22,334		$7,525
Core deposit intangible	663		214
Trade name intangible	950		—
NBG customer relationships	88		203
Total		$24,035		$7,942
Other assets:
Investment in Low Income Housing Partnerships		$22,862		$15,681
Deferred taxes, net	10,087		8,776
Bank owned life insurance	7,375		2,678
Investment in Homestate Mortgage	3,034		—
Prepaid expenses	2,217		1,393
Investment in PWA	1,511		1,484
Secondary markets	1,424		—
Taxes receivable	1,220		1,526
Mortgage servicing rights	1,010		—
Rate lock derivative	841		—
Investment in ECCM	176		74
Note receivable from ECCM	100		339
Investment in ECIA	46		61
Investment in RML Holding Company	—		5,953
Other assets	3,496		2,701
Total		$55,399		$40,666

Goodwill and Other Intangible Assets: The Company recorded $1.1 million in intangible assets related to customer relationships purchased in the acquisition of an additional 40.1% of NBG in December 2005. The Company amortizes this intangible over its estimated life of ten years. Accumulated amortization related to the NBG intangible asset was $943,000, $829,000, and $714,000 at December 31, 2013, 2012 and 2011, respectively. In 2007, the Company recorded $1.8 million of goodwill and $1.3 million of core deposit intangible ("CDI") as part of the acquisition of Alaska First Bank & Trust, N.A. (“Alaska First”) stock. The Company is amortizing the CDI related to the Alaska First acquisition over its estimated useful life of ten years using an accelerated method. Accumulated amortization related to the Alaska First CDI was $1.1 million, $983,000, and $846,000 at December 31, 2014, 2013 and 2012, respectively. On April 1, 2014, the Company recorded $623,000 of CDI as part of the acquisition of Alaska Pacific. The Company is amortizing the CDI related to the Alaska Pacific acquisition over its estimated useful life of ten years using an accelerated method. Accumulated depreciation related to the Alaska Pacific CDI was $85,000 at December 31, 2014. Finally, on December 1, 2014 the Company recorded $14.8 million of goodwill and $950,000 of trade name intangible as part of the acquisition of RML. These assets have indefinite useful lives and are not amortized.

The Company performed its annual goodwill impairment testing at December 31, 2014 and 2013 in accordance with the policy described in Note 1 to the financial statements. At December 31, 2014, 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, economic uncertainty related to the recent decline in oil prices, 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, 2014 and that no potential impairment existed at that time.

The Company recorded amortization expense of its intangible assets of $289,000, $228,000, and $252,000 for the years ended December 31, 2014, 2013, and 2012, respectively. Accumulated amortization for intangible assets was $6.2 million and $5.9 million at December 31, 2014 and 2013, respectively.

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



(In Thousands)
2015		$258
2016	135
2017	100
2018	71
2019	59
Thereafter	128
Total		$751

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 2014 and 2013, ECCM had net income of $239,000 and $100,000, respectively. 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 $100,000 as of December 31, 2014.


•	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 owned a 23.5% interest in the profits of RML, a residential mortgage holding company, in 2013 and through November 30, 2014. RML became a wholly-owned subsidiary of the Company on December 1, 2014. In addition to its ownership interest, the Company provides RML with two lines of credit that have committed amounts of $25.0 million and outstanding balances of $16.0 million as of December 31, 2014. Additionally, the Company purchased $132.0 million and $156.5 million in loans from RML in 2014 and 2013.

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



(In Thousands, Unaudited)	2014		2013
Assets
Cash		$11,434		$11,852
Loans held for sale	44,226		24,807
Other assets	12,226		14,084
Total Assets		$67,886		$50,743
Liabilities
Lines of credit		$40,167		$21,949
Other liabilities	6,346		5,652
Total Liabilities	46,513		27,601
Shareholders' Equity	21,373		23,142
Total Liabilities and Shareholders' Equity		$67,886		$50,743
Income/expense
Gross income		$19,371		$22,224
Total expense	15,072		18,313
Joint venture allocations	186		555
Net Income		$4,485		$4,466

The Company has analyzed all of its affiliate relationships in accordance with GAAP and determined that PWA 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 $100,000 as of December 31, 2014. 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.

Low Income Housing Partnerships: The table following 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 $1.3 million, $969,000, and $921,000 in 2014, 2013, and 2012, respectively. The Company expects to fund its remaining $17.3 million in commitments on these investments through 2030.



(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 - MVV	May 2014	17		$8,518		($804	)		$7,714
R4 - Coronado	March 2013	17	10,675		(1,686		)	8,989
WNC	December 2012	16	2,500		(1,932		)	568
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				$30,693		($13,422	)		$17,271