Northrim Bank acquires Residential Mortgage
Northrim BanCorp will expand further into the residential mortgage market with its acquisition of Residential Mortgage LLC.
Northrim currently owns 23.5 percent of the mortgage company, and was an original investor. Now, Northrim Bank’s subsidiary Northrim Capital Investment Co. will purchase the remainder of the company in a transaction that is expected to close in the fourth quarter of 2014, the bank announced Aug. 7.
According to the bank’s announcement, Northrim will pay $22.4 million at closing, including $17.8 million in cash and assignment of life insurance policies. The bank will also pay the current owners proceeds estimated at $7.4 million over the next five years, assuming the company hits certain earnings thresholds.
Residential Mortgage is a company focused on single-family mortgages, and one of the largest originators in the state, according to information provided by Northrim. In 2013, Residential originated $792 million in loans for purchases and refinancing of single-family homes and condominiums, or about 20 percent of the Alaska market. So far in 2014, the company has originated $290 million in purchases and refinancing, or about 22 percent of the Alaska market.
During an Aug. 8 investor call, Northrim Bank President and CEO Joe Beedle said Northrim is already a market share leader in residential land acquisition and construction financing, but its balance sheet only contains about 6 percent consumer loans. This will increase that proportion.
Income from the new subsidiary will largely show up as noninterest income on the bank’s quarterly results, Beedle said, taking that proportion of Northrim’s revenue from 22 percent to 38 percent.
The purchase is expected to be accretive to earnings in 2014, with earnings growing in 2015. The bank expects to earn back the 9.5 percent dilution to its tangible book value within seven years.
Beedle said that alignment with a retail-based organization is “a perfect way to advance the bank.”
The move will also enhance other aspects of the bank’s business, according to Beedle, because home financing is often an entrance point for other banking services, and the bank expects to see enhanced wallet and household account growth as a result of the new subsidiary.
Residential Mortgage has nine branches, including Juneau and Sitka locations, and also owns 30 percent of Homestate Mortgage, said Northrim BanCorp Chief Operating Officer Joe Schierhorn during the call.
The transaction has been approved by Northrim Bank’s board of directors and Residental Mortgage’s owners; regulatory approval is pending.
Schierhorn said that operations at Residential Mortgage will not change, and the principals were offered contracts to continue working for the company.
“We are keeping key management in place,” he said.
Schierhorn said that the company has a good reputation for “excellent, responsive service,” and Northrim wants to preserve that.
Beedle said the bank would also look at other expansions and growth in the future, such as working with the Alaska Housing Finance Corp. on a possible in-house mortgage program, underwritten by Residential Mortgage.