Business Combinations

12 Months Ended

Dec. 31, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

On October 31, 2024, the Company completed the acquisition of 100% of the equity interest in SCF in a cash transaction that is valued at approximately $53.9 million. The primary reason for the acquisition was to expand the Company's presence in the specialty finance industry. SCF provides factoring, asset based lending, and alternative working capital solutions to small and medium sized enterprises in the United States, and, to a lessor extent, in Canada and the United Kingdom through its subsidiaries. SCF will operate as a wholly-owned subsidiary, and is expected to complement the products currently offered by Northrim Funding Services, a factoring division of Northrim Bank.

The consideration transferred or transferable to the former owners of SCF and 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 October 31, 2024 acquisition date. The Company paid $47.9 million in cash on October 31, 2024 when the acquisition was completed. The Company had pre-existing loans to SCF which totaled $12 million. The fair value of these loans approximate their carrying value, and as a result of the acquisition, the loans were effectively settled at their carrying value, resulting in no gain or loss. The fair value of the loans were considered as part of the total purchase consideration in the transaction. Estimated fair values recorded in the transaction are subject to change for up to one year after the closing date of the acquisition. The application of the acquisition method of accounting resulted in the recognition of goodwill in the amount of $35.0 million. No other intangibles were identified.

The former owners of SCF (the “sellers”) will receive additional cash proceeds (the “earn-out payments”) of up to $6 million. The earn-out payments of $2 million per year are payable on each of the first three anniversaries of the closing date. The purchase agreement provides for the these earn-out payments to be paid to the sellers in future periods, provided that certain principal employees of SCF, including certain of the sellers, have not been terminated for cause or terminated their employment for good reason. The earn-out payments have not been included in acquisition consideration and will be expensed when incurred as compensation expense in future periods.

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


(In Thousands)			October 31, 2024

Cost basis net assets			$29,638
Cash payment made			(47,855)
Pre-existing debt effectively settled			(12,000)
Fair value adjustments:
Net loans			(1,260)
Net purchased receivables			(3,524)
Goodwill			($35,001)

The $35.0 million of goodwill recorded in connection with the acquisition represents the excess purchase price over the estimated fair value of the net assets acquired, and resulted from the expected decrease in funding costs and, to a lesser extent, expected operational efficiencies. All of the goodwill is expected to be deductible for tax purposes.

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


(In Thousands)			October 31, 2024

Assets Acquired:
Cash and equivalents			$7,197
Loans, net			9,158
Purchased receivables, net			48,034
Premises and equipment, net			54
Right-of-use assets			44
Other assets			1,642
Total assets acquired			$66,129

Liabilities Assumed:
Borrowings			$40,207
Lease liability			47
Other liabilities			1,021
Total liabilities assumed			$41,275

The fair value of assets acquired and liabilities assumed approximates book value as of the acquisition date as all loans and borrowings have variable interest rates. Purchased receivables have an average life of less than 45 days. Some of the assets acquired exhibited evidence of credit deterioration at the acquisition date. These assets were designated as PCD assets in accordance with U.S. GAAP. The following table presents PCD loan and purchased receivable activity at the date of acquisition:


(In Thousands)	Loans	Purchased Receivables
Unpaid principal balance	$10,418	$51,558
ACL at acquisition	(1,260)	(3,524)
Total	$9,158	$48,034

Based on an evaluation in accordance with Rule 3-05 and Rule 11-01(b) of Regulations S-X, the acquisition of SCF does not meet the significance thresholds requiring separate financial statement disclosure.

The operations of SCF are included in our operating results from October 31, 2024, and added revenue of $2.6 million, non-interest expense of $1.5 million, and net income of $943,000, before taxes, for the year ended December 31, 2024. SCF’s results of operations prior to the acquisition are not included in our operating results. Additionally, deal-related costs of $1.1 million for the year ended December 31, 2024 have been incurred and expensed in connection with the acquisition of Sallyport and recognized within professional and outside services expense on the Consolidated Statements of Income.

The following table presents unaudited pro forma results of operations for the years ended December 31, 2024 and 2023 as if the acquisition of SCF had occurred on January 1, 2023. 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, 2023, primarily due to the Company's lower cost of funding as compared to SCF.


(In Thousands, except per share data)	December 31, 2024
	(Unaudited)
	Company	SCF1	Pro Forma Adjustments2	Pro Forma Combined
Net interest and other income	$155,224	$12,900		$168,124
Net income	36,971	4,224	(1,201)	39,994
Earnings Per Share, Basic	$6.72			$7.27
Earnings Per Share, Diluted	$6.62			$7.16
Weighted Average Shares Outstanding, Basic	5,502,797			5,502,797
Weighted Average Shares Outstanding, Diluted	5,583,983			5,583,983

	December 31, 2023
	(Unaudited)
Net interest and other income	$129,631	$15,399		$145,030
Net income	25,394	7,258	(2,063)	30,589
Earnings Per Share, Basic	$4.53			$5.46
Earnings Per Share, Diluted	$4.49			$5.40
Weighted Average Shares Outstanding, Basic	5,601,471			5,601,471
Weighted Average Shares Outstanding, Diluted	5,661,460			5,661,460

1SCF represents results from January 1 to October 31 for 2024 and represents results from January 1 to December 31, for 2023.

2Proforma adjustments include a provision for income taxes using the Company's statutory rate.