10-Q 1 a062015fcfp10-q.htm 06 2015 FCFP 10-Q 06 2015 FCFP 10-Q


 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2015
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                          to                         
001-37505
Commission file number

FIRST COMMUNITY FINANCIAL PARTNERS, INC.
(Exact name of registrant as specified in its charter)
 
Illinois
 
20-4718752
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
2801 Black Road, Joliet, IL
 
60435
(Address of Principal Executive Offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code:  (815) 725-0123

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  x No o 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
 
Accelerated filer o
 
 
 
Non-accelerated filer o
(Do not check if a smaller reporting company)
 
Smaller reporting company x
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o No x

There were outstanding 16,986,471 shares of the Registrant’s common stock as of August 4, 2015.








FIRST COMMUNITY FINANCIAL PARTNERS, INC.

FORM 10-Q

June 30, 2015

INDEX
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
First Community Financial Partners, Inc. and Subsidiaries
 
 
Consolidated Balance Sheets
 
 
 
June 30, 2015
December 31, 2014
Assets
 (in thousands, except share data)(June 30, 2015 data is unaudited)
Cash and due from banks
$
9,669

$
13,329

Interest-bearing deposits in banks
38,390

19,667

Securities available for sale
182,982

168,687

Non-marketable equity securities
1,367

1,367

Mortgage loans held for sale
1,449

738

Loans, net of allowance for loan losses of $12,420 in 2015; $13,905 in 2014
715,377

675,288

Premises and equipment, net
18,847

19,369

Foreclosed assets
4,248

2,530

Cash surrender value of life insurance
4,387

4,323

Deferred tax asset, net
12,490

14,233

Accrued interest receivable and other assets
5,263

4,544

Total assets
$
994,469

$
924,075

 
 
 
Liabilities and Shareholders’ Equity


Liabilities


Deposits


Noninterest bearing
$
174,527

$
158,329

Interest bearing
659,861

611,081

Total deposits
834,388

769,410

Other borrowed funds
44,098

29,529

Subordinated debt
15,300

29,133

Accrued interest payable and other liabilities
4,513

3,950

Total liabilities
898,299

832,022

 
 
 
Concentrations, Commitments and Contingencies (Note 9 to Unaudited Consolidated Financial Statements)




 
 
 
First Community Financial Partners, Inc. Shareholders’ Equity
 
 
Common stock, $1.00 par value; 60,000,000 shares authorized; 16,984,221 issued and outstanding at June 30, 2015 and 16,668,002 issued and outstanding at December 31, 2014
16,984

16,668

Additional paid-in capital
81,707

81,648

Accumulated deficit
(3,069
)
(7,019
)
Accumulated other comprehensive income
548

756

Total shareholders' equity
96,170

92,053

Total liabilities and shareholders' equity
$
994,469

$
924,075

 
 
 
See Notes to Unaudited Consolidated Financial Statements.
 
 

3



First Community Financial Partners, Inc. and Subsidiaries
 
 
 
 
Consolidated Statements of Operations
 
 
 
 

Three months ended June 30,
Six months ended June 30,

2015
2014
2015
2014
Interest income:
(dollars in thousands, except share data)(unaudited)
Loans, including fees
$
8,090

$
8,086

$
15,906

$
15,751

Securities
962

737

1,913

1,413

Federal funds sold and other
15

19

28

37

Total interest income
9,067

8,842

17,847

17,201

Interest expense:




Deposits
987

1,133

1,964

2,269

Federal funds purchased and other borrowed funds
17

17

31

34

Subordinated debt
603

432

1,206

863

Total interest expense
1,607

1,582

3,201

3,166

Net interest income
7,460

7,260

14,646

14,035

Provision for loan losses
(749
)
667

(749
)
2,667

Net interest income after provision for loan losses
8,209

6,593

15,395

11,368

Noninterest income:




Service charges on deposit accounts
194

152

377

283

Gain on sale of loans

28


32

Gain on sale of securities

38

21

38

Gain on foreclosed assets, net



19

Mortgage fee income
153

83

257

140

Other
174

544

313

953


521

845

968

1,465

Noninterest expenses:




Salaries and employee benefits
2,810

2,785

5,694

5,640

Occupancy and equipment expense
505

577

997

1,102

Data processing
237

249

462

478

Professional fees
411

372

792

697

Advertising and business development
227

213

417

341

Losses on sale and writedowns of foreclosed assets, net
20

369

20

369

Foreclosed assets, net of rental income
70

55

141

135

Other expense
919

791

1,834

1,309


5,199

5,411

10,357

10,071

Income before income taxes
3,531

2,027

6,006

2,762

Income taxes
1,189

557

2,056

788

Net income attributable to First Community Financial Partners
2,342

1,470

3,950

1,974

Dividends and accretion on preferred shares

(144
)

(288
)
Net income applicable to common shareholders
$
2,342

$
1,326

$
3,950

$
1,686

 
 
 
 
 
Common share data
 
 
 
 
Basic earnings per common share
$
0.14

$
0.08

$
0.23

$
0.10

Diluted earnings per common share
0.14

0.08

0.23

0.10

 
 
 
 
 
Weighted average common shares outstanding for basic earnings per common share
16,970,721

16,548,399

16,870,372

16,474,053

Weighted average common shares outstanding for diluted earnings per common share
17,088,102

16,740,390

17,009,399

16,692,163

 
 
 
 
 
See Notes to Unaudited Consolidated Financial Statements.
 
 
 
 

4




First Community Financial Partners, Inc. and Subsidiaries
 
 
 
 
Consolidated Statements of Comprehensive Income
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
Six months ended June 30,
 
2015
2014
2015
2014
 
(in thousands)(unaudited)
Net income
$
2,342

$
1,470

$
3,950

$
1,974

 
 
 
 
 
Unrealized holding gains (losses) on investment securities
(2,026
)
460

(321
)
1,203

Reclassification adjustments for gains included in net income

(38
)
(21
)
(38
)
Tax effect of realized and unrealized gains and losses on investment securities
792

(141
)
134

(430
)
Other comprehensive income (loss), net of tax
(1,234
)
281

(208
)
735

 
 
 
 
 
Comprehensive income
$
1,108

$
1,751

$
3,742

$
2,709

 
 
 
 
 
See Notes to Unaudited Consolidated Financial Statements.
 
 
 
 


5



 
First Community Financial Partners, Inc. and Subsidiaries
 
 
 
Consolidated Statements of Changes in Shareholders’ Equity
 
 
Three and Six Months Ended June 30, 2015 and 2014
 
 
 
 
 
 
 
 
 
 
 
 
Series B Preferred Stock
Series C Preferred Stock
Common Stock
Additional Paid-In Capital
Accumulated Deficit
Accumulated Other Comprehensive Income
 Total
 
 
 
 
 (in thousands, except share data) (unaudited)
 
Balance, December 31, 2013
$
5,176

$
892

$
16,334

$
81,241

$
(12,381
)
$
325

$
91,587

 
Net income




1,974


1,974

 
Other comprehensive loss, net of tax





735

735

 
Discount accretion on preferred shares

109



(109
)


 
Dividends on preferred shares




(179
)

(179
)
 
Issuance of 214,731 shares of common stock for restricted stock awards and amortization


215

(259
)


(44
)
 
Stock based compensation expense



193



193

 
Balance, June 30, 2014
5,176

1,001

16,549

81,175

(10,695
)
1,060

94,266

 








 
Balance, December 31, 2014


16,668

81,648

(7,019
)
756

92,053

 
Net income




3,950


3,950

 
Other comprehensive income, net of tax





(208
)
(208
)
 
Issuance of 302,719 shares of common stock for restricted stock awards and amortization


303

(297
)


6

 
Issuance of 13,500 shares of common stock for exercise of warrants


13

45



58

 
Reclass of warrants upon redemption of preferred stock



(237
)


(237
)
 
Stock based compensation expense



548



548

 
Balance, June 30, 2015
$

$

$
16,984

$
81,707

$
(3,069
)
$
548

$
96,170

 








 
See Notes to Unaudited Consolidated Financial Statements.






6



First Community Financial Partners, Inc. and Subsidiaries
 
 
Consolidated Statements of Cash Flows
 
 
 
Six months ended June 30,
 
2015
2014
 
(in thousands)(unaudited)
Cash Flows From Operating Activities
 
 
Net income applicable to First Community Financial Partners, Inc.
$
3,950

$
1,974

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Net amortization of securities
893

292

Provision for loan losses
(749
)
2,667

Gain on sale of foreclosed assets, net
(46
)
(19
)
Writedown of foreclosed assets
67

369

Net accretion of deferred loan fees
(16
)
(44
)
Warrant accretion
6

14

Depreciation and amortization of premises and equipment
567

606

Realized gains on sales of available for sale securities, net
(21
)
(38
)
Increase (decrease) in cash surrender value of life insurance
(64
)
255

Deferred income taxes
1,877

141

Proceeds from sale of loans

8,897

Gain on sale of loans

(32
)
Decrease (increase) in accrued interest receivable and other assets
(719
)
375

Increase in accrued interest payable and other liabilities
611

8,257

Restricted stock compensation expense
511

193

Stock option compensation expense
37


Net cash provided by operating activities
6,904

23,907

Cash Flows From Investing Activities
 
 
Net change in interest bearing deposits in banks
(18,723
)
(9,355
)
Activity in available for sale securities:
 
 
     Purchases
(27,443
)
(45,671
)
     Maturities, prepayments and calls
9,671

12,727

     Sales
2,263

8,504

Purchases of non-marketable equity securities

(400
)
Net decrease (increase) in loans held for sale
(711
)
629

Net increase in loans
(41,129
)
(25,280
)
Purchases of premises and equipment
(45
)
(4,002
)
Proceeds from sale of foreclosed assets
66

234

Net cash used in investing activities
(76,051
)
(62,614
)
Cash Flows From Financing Activities
 
 
Net increase in deposits
64,978

38,231

Cash paid on redemption of subordinated debt
(14,060
)

Net increase in other borrowings
14,569

5,327

Dividends paid on preferred shares

(179
)
Net cash provided by financing activities
65,487

43,379

Net change in cash and due from banks
(3,660
)
4,672

Cash and due from banks:
 
 
  Beginning
13,329

10,815

  Ending
$
9,669

$
15,487

Supplemental Disclosures of Cash Flow Information
 
 
Cash payments for interest
$
2,915

$
3,441

Supplemental Schedule of Noncash Investing and Financing Activities
 
 
Transfer of loans to foreclosed assets
1,805


 
 
 
See Notes to Unaudited Consolidated Financial Statements.
 
 

7



Notes to Unaudited Consolidated Financial Statements

Note 1.
Basis of Presentation

These are the unaudited consolidated financial statements of First Community Financial Partners, Inc. (the “Company” or “First Community”), and its subsidiaries, including its wholly owned bank subsidiary, First Community Financial Bank (the “Bank”), based in Plainfield, Illinois. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods have been made. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results to be expected for the entire fiscal year.

These unaudited interim financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and industry practice.  Certain information in footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP and industry practice has been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”).  These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2014.
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the reported periods.  Actual results could differ from those estimates.
 
Certain prior period amounts have been reclassified to conform to current period presentation.  These reclassifications did not result in any changes to previously reported net income or shareholders’ equity.

Emerging Growth Company Critical Accounting Policy Disclosure
 
The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company elected to take advantage of the benefits of this extended transition period.



8



Note 2.
Earnings Per Share

Earnings per common share is computed using the two-class method. Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the applicable period. Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings
per common share (in thousands, except share data).
 
Three months ended June 30,
Six months ended June 30,
 
2015
2014
2015
2014
 
 
 
 
 
Undistributed earnings allocated to common shareholders
$
2,342

$
1,470

$
3,950

$
1,974

Preferred stock dividends and discount accretion

(144
)

(288
)
Net income allocated to common shareholders
$
2,342

$
1,326

$
3,950

$
1,686

 
 
 
 
 
Weighted average shares outstanding for basic earnings per common share
16,970,721

16,548,399

16,870,372

16,474,053

Dilutive effect of stock-based compensation
117,381

191,991

139,027

218,110

Weighted average shares outstanding for diluted earnings per common share
17,088,102

16,740,390

17,009,399

16,692,163

 
 
 
 
 
Basic earnings per common share
$
0.14

$
0.08

$
0.23

$
0.10

Diluted earnings per common share
0.14

0.08

0.23

0.10



9




Note 3.
Securities Available for Sale

The amortized cost and fair value of securities available for sale, with gross unrealized gains and losses, follows (in thousands):
June 30, 2015
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Government sponsored enterprises
$
27,802

$
196

$

$
27,998

Residential collateralized mortgage obligations
40,898

234

64

41,068

Residential mortgage backed securities
38,344

269

97

38,516

State and political subdivisions
75,040

1,054

694

75,400

 
$
182,084

$
1,753

$
855

$
182,982

December 31, 2014
 
 
 
 
Government sponsored enterprises
$
30,904

$
83

$
36

$
30,951

Residential collateralized mortgage obligations
44,095

241

62

44,274

Residential mortgage backed securities
27,208

137

128

27,217

State and political subdivisions
65,240

1,096

91

66,245

 
$
167,447

$
1,557

$
317

$
168,687



Securities with a fair value of $44.1 million and $40.5 million were pledged as collateral on public funds, securities sold under agreements to repurchase or for other purposes as required or permitted by law as of June 30, 2015 and December 31, 2014, respectively.

The amortized cost and fair value of debt securities available for sale as of June 30, 2015, by contractual maturity are shown below (in thousands). Maturities may differ from contractual maturities in residential collateralized mortgage obligations and residential mortgage backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Therefore, these securities are segregated in the following maturity summary:
 
Amortized
Fair
 
Cost
Value
Within 1 year
$
9,055

$
9,085

Over 1 year through 5 years
44,040

44,557

Over 5 years through 10 years
33,368

33,332

Over 10 years
16,379

16,424

Residential collateralized mortgage obligations and mortgage backed securities
79,242

79,584

 
$
182,084

$
182,982


Gains on the sales of securities were $21,000 and $38,000 during the six months ended June 30, 2015 and 2014, respectively.

There were no securities with material unrealized losses existing longer than 12 months, and no securities with unrealized losses which management believed were other-than-temporarily impaired, at June 30, 2015 and December 31, 2014.

The unrealized losses in the portfolio at June 30, 2015 resulted from fluctuations in market interest rates and not from deterioration in the creditworthiness of the issuers. Because the Company does not intend to sell and does not believe it will be required to sell these securities until market price recovery or maturity, these investment securities are not considered to be other-than-temporarily impaired.


10




Note 4.
Loans

A summary of the balances of loans follows (in thousands):
 
June 30, 2015
December 31, 2014
Construction and Land Development
$
19,612

$
18,700

Farmland and Agricultural Production
8,604

9,350

Residential 1-4 Family
109,819

100,773

Multifamily
29,829

24,426

Commercial Real Estate
363,575

353,973

Commercial
187,780

171,452

Consumer and other
8,564

10,706

 
727,783

689,380

Net deferred loan fees
14

(187
)
Allowance for loan losses
(12,420
)
(13,905
)
 
$
715,377

$
675,288


The following table presents the contractual aging of the recorded investment in past due and non-accrual loans by class of loans as of June 30, 2015 and December 31, 2014 (in thousands):
June 30, 2015
Current
30-59 Days Past Due
60-89 Days Past Due
90+ Days Past Due and Still Accruing
Total Accruing Loans
Non-accrual Loans
Total Loans
Construction and Land Development
$
19,612

$

$


$
19,612

$

$
19,612

Farmland and Agricultural Production
8,604




8,604


8,604

Residential 1-4 Family
109,688

69



109,757

62

109,819

Multifamily
29,829




29,829


29,829

Commercial Real Estate







   Retail
88,610




88,610


88,610

   Office
46,185




46,185


46,185

   Industrial and Warehouse
66,808




66,808

1,907

68,715

   Health Care
27,898




27,898


27,898

   Other
131,404


277


131,681

486

132,167

Commercial
185,876


121

55

186,052

1,728

187,780

Consumer and other
8,532

30



8,562

2

8,564

      Total
$
723,046

$
99

$
398

55

$
723,598

$
4,185

$
727,783


December 31, 2014
Current
30-59 Days Past Due
60-89 Days Past Due
90+ Days Past Due and Still Accruing
Total Accruing Loans
Non-accrual Loans
Total Loans
Construction and Land Development
$
18,619

$

$
81

$

$
18,700

$

$
18,700

Farmland and Agricultural Production
9,350




9,350


9,350

Residential 1-4 Family
100,285


109


100,394

379

100,773

Multifamily
24,426




24,426


24,426

Commercial Real Estate








 
 
 
   Retail
91,725




91,725


91,725

   Office
44,255




44,255


44,255

   Industrial and Warehouse
57,410




57,410

1,907

59,317

   Health Care
26,974




26,974


26,974

   Other
128,940




128,940

2,762

131,702

Commercial
169,395


118

50

169,563

1,889

171,452

Consumer and other
10,695

1



10,696

10

10,706

      Total
$
682,074

$
1

$
308

$
50

$
682,433

$
6,947

$
689,380



11



As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt and comply with various terms of their loan agreements. The Company considers current financial information, historical payment experience, credit documentation, public information and current economic trends. Generally, all sizable credits receive a financial review no less than annually to monitor and adjust, if necessary, the credit’s risk profile. Credits classified as watch generally receive a review more frequently than annually. For special mention, substandard, and doubtful credit classifications, the frequency of review is increased to no less than quarterly in order to determine potential impact on credit loss estimates.

The Company categorizes loans into the following risk categories based on relevant information about the ability of borrowers to service their debt:

Pass - A pass asset is well protected by the current worth and paying capacity of the borrower (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner. Pass assets also include certain assets considered watch, which are still protected by the worth and paying capacity of the borrower but deserve closer attention and a higher level of credit monitoring.

Special Mention - A special mention asset, or risk rating of 5, has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard - A substandard asset, or risk rating of 6 or 7, is an asset with a well-defined weakness that jeopardizes repayment, in whole or in part, of the debt. These credits are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. These assets are characterized by the distinct possibility that the Company will or has sustained some loss of principal and/or interest if the deficiencies are not corrected.

Doubtful - An asset that has all the weaknesses, or risk rating of 8, inherent in the substandard classification, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. These credits have a high probability for loss, yet because certain important and reasonably specific pending factors may work toward the strengthening of the asset, its classification of loss is deferred until its more exact status can be determined.

Loss - An asset, or portion thereof, classified as loss, or risk rated 9, is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted. This classification does not necessarily mean that an asset has no recovery or salvage value but that it is not practical or desirable to defer writing off this basically worthless asset even though a partial recovery may occur in the future. There was no balance to report at June 30, 2015 and December 31, 2014.

Residential 1-4 family, consumer and other loans are assessed for credit quality based on the contractual aging status of the loan and payment activity. In certain cases, based upon payment performance, the loan being related with another commercial type loan or for other reasons, a loan may be categorized into one of the risk categories noted above. Such assessment is completed at the end of each reporting period.


12



The following tables present the risk category of loans evaluated by internal asset classification based on the most recent analysis performed and the contractual aging as of June 30, 2015 and December 31, 2014 (in thousands):
June 30, 2015
Pass
Special Mention
Substandard
Doubtful
Total
Construction and Land Development
$
15,966

$
3,646

$

$

$
19,612

Farmland and Agricultural Production
8,604




8,604

Multifamily
29,142

687



29,829

Commercial Real Estate





   Retail
80,608

8,002



88,610

   Office
46,185




46,185

   Industrial and Warehouse
65,949

859


1,907

68,715

   Health Care
27,898




27,898

   Other
125,685

2,820

3,267

395

132,167

Commercial
179,139

6,653

404

1,584

187,780

      Total
$
579,176

$
22,667

$
3,671

$
3,886

$
609,400

June 30, 2015
Performing
Non-performing
Total
Residential 1-4 Family
$
109,757

$
62

$
109,819

Consumer and other
8,562

2

8,564

      Total
$
118,319

$
64

$
118,383


December 31, 2014
Pass
Special Mention
Substandard
Doubtful
Total
Construction and Land Development
$
14,900

$
3,800

$


$
18,700

Farmland and Agricultural Production
9,350




9,350

Multifamily
24,426




24,426

Commercial Real Estate










   Retail
78,258

13,467



91,725

   Office
44,255




44,255

   Industrial and Warehouse
56,316

1,094


1,907

59,317

   Health Care
26,974




26,974

   Other
121,526

4,185

3,329

2,662

131,702

Commercial
159,648

8,706

2,116

982

171,452

      Total
$
535,653

$
31,252

$
5,445

5,551

$
577,901

December 31, 2014
Performing
Non-performing
Total
Residential 1-4 Family
$
100,394

$
379

$
100,773

Consumer and other
10,696

10

10,706

      Total
$
111,090

$
389

$
111,479


Non-performing loans include those on non-accrual status and those past due 90 days or more and still on accrual.


13



The following table provides additional detail of the activity in the allowance for loan losses, by portfolio segment, for the three months ended June 30, 2015 and 2014 (in thousands):
June 30, 2015
Construction and Land Development
Farmland and Agricultural Production
Residential 1-4 Family
Multifamily
Commercial Real Estate
Commercial
Consumer and other
Total
Allowance for loan losses:








Beginning balance
$
731

$
439

$
1,146

$
97

$
7,162

$
3,917

$
286

$
13,778

Provision for loan losses
49

(412
)
3

(2
)
(672
)
410

(125
)
(749
)
Loans charged-off


(123
)

(105
)
(507
)
(2
)
(737
)
Recoveries of loans previously charged-off
18


21


9

75

5

128

Ending balance
$
798

$
27

$
1,047

$
95

$
6,394

$
3,895

$
164

$
12,420










June 30, 2014








Allowance for loan losses:








Beginning balance
$
1,455

$
404

$
1,540

$
306

$
8,624

$
3,757

$
265

$
16,351

Provision for loan losses
(334
)
49

(266
)
(202
)
1,327

66

27

667

Loans charged-off


(88
)

(2,494
)
(264
)

(2,846
)
Recoveries of loans previously charged-off
18


5


149

39


211

Ending balance
$
1,139

$
453

$
1,191

$
104

$
7,606

$
3,598

$
292

$
14,383


The following table provides additional detail of the activity in the allowance for loan losses, by portfolio segment, for the six months ended June 30, 2015 and 2014 (in thousands):

June 30, 2015
Construction and Land Development
Farmland and Agricultural Production
Residential 1-4 Family
Multifamily
Commercial Real Estate
Commercial
Consumer and other
Total
Allowance for loan losses:
 
 
 
 
 
 


Beginning balance
$
758

$
459

$
1,199

$
67

$
6,828

$
4,296

$
298

$
13,905

Provision for loan losses
5

(432
)
(128
)
28

(347
)
263

(138
)
(749
)
Loans charged-off


(195
)

(104
)
(770
)
(3
)
(1,072
)
Recoveries of loans previously charged-off
35


171


17

106

7

336

Ending balance
$
798

$
27

$
1,047

$
95

$
6,394

$
3,895

$
164

$
12,420

June 30, 2014
 
 
 
 
 
 


Allowance for loan losses:
 
 
 
 
 
 
 
 
Beginning balance
$
2,711

$
427

$
1,440

$
97

$
7,812

$
3,183

$
150

$
15,820

Provision for loan losses
(424
)
26

(112
)
7

1,646

1,372

152

2,667

Loans charged-off
(1,186
)

(156
)

(2,677
)
(1,067
)
(16
)
(5,102
)
Recoveries of loans previously charged-off
38


19


825

110

6

998

Ending balance
$
1,139

$
453

$
1,191

$
104

$
7,606

$
3,598

$
292

$
14,383




14



The following table presents the balance in the allowance for loan losses and the unpaid principal balance of loans by portfolio segment and based on impairment method as of June 30, 2015 and December 31, 2014 (in thousands):
June 30, 2015
Construction and Land Development
Farmland and Agricultural Production
Residential 1-4 Family
Multifamily
Commercial Real Estate
Commercial
Consumer and other
Total
Period-ended amount allocated to:
 
 
 

 
 
 
 
Individually evaluated for impairment
$

$

$
25

$

$

$
37

$

$
62

Collectively evaluated for impairment
798

27

1,022

95

6,394

3,858

164

12,358

Ending balance
$
798

$
27

$
1,047

$
95

$
6,394

$
3,895

$
164

$
12,420

Loans:
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

$

$
1,689

$

$
6,749

$
4,285

$
2

$
12,725

Collectively evaluated for impairment
19,612

8,604

108,130

29,829

356,826

183,495

8,562

715,058

Ending balance
$
19,612

$
8,604

$
109,819

$
29,829

$
363,575

$
187,780

$
8,564

$
727,783

 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
 
Period-ended amount allocated to:
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$


$
29

$

$

$
561

$

$
590

Collectively evaluated for impairment
758

459

1,170

67

6,828

3,735

298

13,315

Ending balance
$
758

$
459

$
1,199

$
67

$
6,828

$
4,296

$
298

$
13,905

Loans:
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$


$
2,020

$

$
9,084

$
4,495

$
11

$
15,610

Collectively evaluated for impairment
18,700

9,350

98,753

24,426

344,889

166,957

10,695

673,770

Ending balance
$
18,700

$
9,350

$
100,773

$
24,426

$
353,973

$
171,452

$
10,706

$
689,380



15



The following tables present additional detail of impaired loans, segregated by class, as of and for the three and six months ended June 30, 2015 and year ended December 31, 2014 (dollars in thousands). The unpaid principal balance represents the recorded balance prior to any partial charge-offs. The recorded investment represents customer balances net of any partial charge-offs recognized on the loans. The interest income recognized column represents all interest income reported after the loan became impaired.
June 30, 2015
 
 
 
 
 
 
Three Months Ended
Six Months Ended

Unpaid Principal Balance
Recorded Investment
Allowance for Loan Losses Allocated
Average Recorded Investment
Interest Income Recognized
Average Recorded Investment
Interest Income Recognized
With no related allowance recorded:
 
 
 
 
 
 
 
Construction and Land Development
$

$

$

$

$

$

$

Farmland and Agricultural Production







Residential 1-4 Family
1,255

1,216


1,230

16

1,335

31

Multifamily







Commercial Real Estate
 
 
 
 
 
 
 
   Retail







   Office
502

502


504

5

506

13

   Industrial and Warehouse
1,993

1,907


1,907


1,907


   Health Care







   Other
7,007

4,340


5,300

27

5,755

59

Commercial
4,782

4,185


3,812

33

3,719

66

Consumer and other
2

2


3


6


With an allowance recorded:
 
 
 
 
 
 
 
Construction and Land Development







Farmland and Agricultural Production







Residential 1-4 Family
473

473

25

474

5

474

11

Multifamily







Commercial Real Estate
 
 
 
 
 
 
 
   Retail







   Office







   Industrial and Warehouse







   Health Care







   Other



160


107


Commercial
100

100

37

375


570


Consumer and other







          Total
$
16,114

$
12,725

$
62

$
13,765

$
86

$
14,379

$
180


16



December 31, 2014

Unpaid Principal Balance
Recorded Investment
Allowance for Loan Losses Allocated
Average Recorded Investment
Interest Income Recognized
With no related allowance recorded:
 
 
 
 
 
Construction and Land Development
$

$

$

$

$

Farmland and Agricultural Production





Residential 1-4 Family
1,732

1,543


1,298

63

Multifamily



119


Commercial Real Estate
 
 
 
 
 
   Retail



707


   Office
511

510


779

25

   Industrial and Warehouse
1,994

1,907


1,550


   Health Care






   Other
9,658

6,667


6,126


Commercial
3,733

3,534


4,147


Consumer and other
20

11


14


With an allowance recorded:
 
 
 
 
 
Construction and Land Development



887


Farmland and Agricultural Production





Residential 1-4 Family
477

477

29

637

31

Multifamily





Commercial Real Estate
 
 
 
 
 
   Retail



1,907


   Office





   Industrial and Warehouse





   Health Care





   Other



1,084


Commercial
1,312

961

561

453


Consumer and other





          Total
$
19,437

$
15,610

$
590

$
19,708

$
119


During the six months ended June 30, 2015, there were no troubled debt restructurings added. During the six months ended June 30, 2014, there were four contracts totaling $3.2 million in troubled debt restructurings added, two of which were the result of the payment of real estate taxes by the Bank on the behalf of the customer and the third was the result of a payment concession.

Troubled debt restructurings that were accruing were $2.8 million as of June 30, 2015 and December 31, 2014. Troubled debt restructurings that were non-accruing were $2.4 million as of June 30, 2015 and December 31, 2014.

The following presents a rollfoward activity of troubled debt restructurings (in thousands, except number of loans):
 
Six months ended
 
June 30, 2015
 
Recorded Investment
Number of Loans
Balance, beginning
$
5,621

10

Additions to troubled debt restructurings


Removal of troubled debt restructurings
(309
)
(1
)
Charge-off related to troubled debt restructurings


Transfers to other real estate owned


Repayments and other reductions
(139
)
(1
)
Balance, ending
$
5,173

8


17



Restructured loans are evaluated for impairment at each reporting date as part of the Company’s determination of the allowance for loan losses.

Note 5.
Deposits

The composition of interest-bearing deposits was as follows (in thousands):
 
June 30, 2015
December 31, 2014
NOW and money market accounts
$
326,592

$
269,977

Savings
33,567

30,211

Time deposit certificates of $250,000 or more
56,257

50,682

Time deposit certificates of $100,000 to $250,000
136,810

145,506

Other time deposit certificates
106,635

114,705

 
$
659,861

$
611,081


The composition of brokered deposits included in deposits was as follows (in thousands):
 
June 30, 2015
December 31, 2014
NOW and money market accounts
$
33,356

$

Time deposit certificates
9,404

9,145

 
$
42,760

$
9,145




Note 6.
Other Borrowed Funds

The composition of other borrowed funds was as follows (in thousands):
 
June 30, 2015
December 31, 2014
Securities sold under agreements to repurchase
$
30,038

$
29,059

Secured borrowings
14,060


Mortgage note payable

470

 
$
44,098

$
29,529


Securities sold under agreements to repurchase are agreements in which the Bank acquires funds by selling securities to another party under a simultaneous agreement to repurchase the same securities at a specified price and date.  These agreements represent a demand deposit account product to clients that sweep their balances in excess of an agreed upon target amount into overnight repurchase agreements.

The mortgage note payable was related to the purchase of a building in Burr Ridge, Illinois, the Bank, as successor in interest to Burr Ridge Bank and Trust, was the obligor to a $1.0 million mortgage note signed on February 28, 2012. During the second quarter of 2015 the remaining balance of this obligation was repaid in full.

On June 29, 2015, the Company entered into a credit facility with an unaffiliated bank for two credit facilities. The credit facilities include a $4.0 million revolving line of credit, which was fully drawn at June 30, 2015 and a $10.1 million term loan.  The revolving line matures in 2020 and the term loan matures in 2021. The credit facilities have an annual interest rate of 2.25% plus LIBOR, which is currently 2.4%.  The credit facilities are collateralized by the stock of the Company’s wholly-owned subsidiary, the Bank. 
A collateral pledge agreement exists whereby at all times, the Bank must keep on hand, free of all other pledges, liens, and encumbrances, commercial real estate loans, first mortgage loans, and home equity loans with unpaid principal balances aggregating no less than 133% for first mortgage loans and 200% for home equity loans of the outstanding secured advances from the Federal Home Loan Bank of Chicago (“FHLB”).  The Bank had $296.5 million and $267.2 million of loans pledged as collateral for FHLB advances as of June 30, 2015 and December 31, 2014, respectively. There were no advances outstanding at June 30, 2015 and December 31, 2014, respectively.

The Bank has entered into collateral pledge agreements whereby the Bank pledges commercial, commercial real estate, agricultural and consumer loans to the Federal Reserve Bank of Chicago Discount Window which allows the Bank to borrow on a short term basis, typically overnight.  The Bank had $101.3 million and $99.8 million of loans pledged as collateral under these agreements as of June 30, 2015 and December 31, 2014, respectively. There were no borrowings outstanding at June 30, 2015 and December 31, 2014.


Note 7.
Income Taxes

Income tax expense recognized is as follows (in thousands):
 
Six months ended June 30,
 
2015
2014
Current
$
179

$
647

Deferred
1,877

141

 
$
2,056

$
788


The table below presents a reconciliation of the amount of income taxes determined by applying the U.S. federal income tax rate to pretax income (in thousands):
 
Six months ended June 30,

2015
2014
Federal income tax at statutory rate
$
2,102

$
967

Increase (decrease) due to:


Federal tax exempt
(254
)
(135
)
State income tax, net of federal benefit
307

173

Benefit of income taxed at lower rate
(60
)
28

Tax exempt income
(16
)
(10
)
Cash surrender value of life insurance
(22
)
(164
)
Other
(1
)
(71
)

$
2,056

$
788


Deferred tax assets and liabilities consist of (in thousands):

June 30, 2015
December 31, 2014

Deferred tax assets:


Allowance for loan losses
$
4,275

$
4,836

Merger expenses
146

156

Organization expenses
240

262

Net operating losses
6,865

8,320

Contribution carryforward
38

38

Restricted stock
159


Non-qualified stock options
631

860

Foreclosed assets
308

291

Tax Credits
416

374

Other

76


13,078

15,213

Deferred tax liabilities:




Depreciation
(233
)
(334
)
Unrealized gains on securities available for sale
(350
)
(484
)
Other
(5
)
(162
)

(588
)
(980
)
Net deferred tax asset
$
12,490

$
14,233


Under U.S. GAAP, a valuation allowance against a net deferred tax asset is required to be recognized if it is more-likely-than-not that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax asset is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, forecasts of future income, applicable tax planning strategies and assessments of current and future economic and business conditions.

18




The Company had a federal net operating loss carryforward of $17.3 million and $20.3 million at June 30, 2015 and December 31, 2014, respectively, which could be used to offset future regular corporate federal income tax as of June 30, 2015 and December 31, 2014. The net operating loss carryforward expires between the December 31, 2030 and December 31, 2033, fiscal tax years. The Company had an Illinois net operating loss carryforward of $14.0 million and $22.6 million at June 30, 2015 and December 31, 2014, respectively, that could be used to offset future regular corporate state income tax, as of June 30, 2015 and December 31, 2014. This Illinois net operating loss carryforward will expire between the December 31, 2025 and December 31, 2028, fiscal tax years.


Note 8.
Stock Compensation Plans

The Company maintains the First Community Financial Partners, Inc. Amended and Restated 2008 Equity Incentive Plan (the “2008 Equity Incentive Plan”), which assumed and incorporated all outstanding awards under previously adopted Company equity incentive plans. The 2008 Equity Incentive Plan allows for the granting of awards including stock options, restricted stock, restricted stock units, stock appreciation rights, stock awards and cash incentive awards. This plan was amended in December 2011 to increase the number of shares authorized for delivery by 1,000,000 shares. As a result, under the 2008 Equity Incentive Plan, 2,430,000 shares of Company common stock have been reserved for the granting of awards.

Under the 2008 Equity Incentive Plan, options are to be granted at the fair value of the stock at the date of the grant and generally vest at 33-1/3% as of the first anniversary of the grant date and an additional 33-1/3% as of each successive anniversary of the grant date. Options must be exercised within 10 years after the date of grant.

On August 15, 2013, the Company adopted the First Community Financial Partners, Inc. 2013 Equity Incentive Plan (the “2013 Equity Incentive Plan”). The 2013 Equity Incentive Plan allows for the granting of awards including stock options, restricted stock, restricted stock units, stock appreciation rights, stock awards and cash incentive awards. Under this plan, 1,000,000 shares of Company common stock have been reserved for the granting of awards.

The following table summarizes data concerning stock options (aggregate intrinsic value in thousands):
 
June 30, 2015
 
Shares
Weighted Average Exercise Price
Aggregate Intrinsic Value
Outstanding at beginning of year
1,089,404

$
7.00

$

Granted
217,500

5.20

294

Exercised



Canceled



Expired



Forfeited
(1,100
)
8.30


 
 
 
 
Outstanding at end of period
1,305,804

$
6.70

$
834

 
 
 
 
Exercisable at end of period
1,088,304

$
6.99

$
541


The aggregate intrinsic value of a stock option in the table above represents the total pre-tax amount by which the current market value of the underlying stock exceeds the price of the option that would have been received by the option holders had all option holders exercised their options on June 30, 2015. There was $834,000 and $0 in intrinsic value of the stock options outstanding at June 30, 2015 and December 31, 2014. The intrinsic value will change when the market value of the Company’s stock changes. The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.


19



The Company recognized $37,000 and $0 of compensation expense related to the stock options for the six months ended June 30, 2015 and 2014. At June 30, 2015, there was $230,000 in compensation expense to be recognized related to outstanding stock options.

Information pertaining to options outstanding at June 30, 2015 is as follows: