WashingtonFirst Bankshares, Inc. - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - WashingtonFirst Bankshares, Inc.	Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - 6.30.14 - WashingtonFirst Bankshares, Inc.	wfbi-06302014xexx321.htm
EX-31.1 - EXHIBIT 31.1 - 6.30.14 - WashingtonFirst Bankshares, Inc.	wfbi-06302014xexx311.htm
EX-31.2 - EXHIBIT 31.2 - 6.30.14 - WashingtonFirst Bankshares, Inc.	wfbi-06302014xexx312.htm

Table of Contents

As filed with the Securities and Exchange Commission on August 12, 2014

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

Commission File Number: 001-35768

_____________________________________________________________________________________________

WASHINGTONFIRST BANKSHARES, INC.

(Exact name of registrant as specified in its charter)



VIRGINIA		26-4480276
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

11921 Freedom Drive, Suite 250, Reston, Virginia 20190

(Address of principal executive offices) (Zip Code)

(703) 840-2410

(Registrant’s telephone number, including area code)

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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of August 8, 2014, the registrant had outstanding 6,633,840 shares of voting common stock and 1,096,359 shares of non-voting common stock.

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Table of Contents to Second Quarter 2014 Form 10-Q



Part I - Financial Information		3
Item 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to the Consolidated Financial Statements	8
	1. Organization	8
	2. Significant Accounting Policies	8
	3. Millennium Transaction	14
	4. Cash and Cash Equivalents	15
	5. Investment Securities	15
	6. Loans	18
	7. Allowance for Loan Losses	23
	8. Other Real Estate Owned	26
	9. Intangible Assets	27
	10. Deposits	27
	11. Other Borrowings	28
	12. Federal Home Loan Bank Advances	28
	13. Long-Term Borrowings	29
	14. Shareholders’ Equity	30
	15. Commitments and Contingencies	31
	16. Capital Requirements	32
	17. Earnings Per Share	33
	18. Other Operating Expenses	33
	19. Fair Value Disclosures	34
	20. Subsequent Events	38
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
	Cautionary Note Regarding Forward-Looking Statements	39
	Overview	40
	Critical Accounting Policies and Estimates	40
	Millennium Transaction	42
	Results of Operations	43
	Financial Condition	48
	Capital Resources	57
	Liquidity	58
	Concentrations	59
	Off-Balance Sheet Arrangements	59
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	59
PART II - Other Information		60
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	61

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PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

WashingtonFirst Bankshares, Inc.

Consolidated Balance Sheets

(unaudited)



	June 30, 2014			December 31, 2013
	(in thousands)
Assets:
Cash and cash equivalents:
Cash and due from bank balances	$	3,207		$	3,569
Federal funds sold	198,347			99,364
Interest bearing balances	20,000			6,231
Cash and cash equivalents	221,554			109,164
Investment securities, available-for-sale, at fair value	175,999			145,367
Other equity securities	3,737			3,530
Loans held for sale, at lower of cost or fair value	2,203			—
Loans held for investment:
Loans held for investment, at amortized cost	950,878			838,120
Allowance for loan losses	(8,332		)	(8,534		)
Total loans held for investment, net of allowance	942,546			829,586
Premises and equipment, net	5,901			5,395
Intangibles	6,980			3,943
Deferred tax asset, net	9,622			10,548
Accrued interest receivable	3,675			3,466
Other real estate owned	889			1,463
Bank-owned life insurance	12,951			10,283
Other assets	3,655			4,814
Total Assets	$	1,389,712		$	1,127,559
Liabilities and Shareholders' Equity:
Liabilities:
Non-interest bearing deposits	$	370,088		$	231,270
Interest bearing deposits	823,821			717,633
Total deposits	1,193,909			948,903
Other borrowings	13,338			10,157
FHLB advances	53,236			43,478
Long-term borrowings	9,940			9,854
Accrued interest payable	518			524
Other liabilities	5,377			7,039
Total Liabilities	1,276,318			1,019,955
Shareholders' Equity:
Preferred stock:
Series D, $5.00 par value, 17,796 shares issued and outstanding, 1% dividend	89			89
Additional paid-in capital - preferred	17,707			17,707
Common stock:
Common Stock Voting, $0.01 par value, 50,000,000 shares authorized, 6,633,240 and 6,552,136 shares issued and outstanding, respectively	67			66
Common Stock Non-Voting, $0.01 par value, 10,000,000 shares authorized, 1,096,359 and 1,096,359 shares issued and outstanding, respectively	10			10
Additional paid-in capital - common	86,386			85,636
Accumulated earnings	8,939			5,605
Accumulated other comprehensive income/(loss) related to available-for-sale securities	196			(1,509		)
Total Shareholders’ Equity	113,394			107,604
Total Liabilities and Shareholders' Equity	$	1,389,712		$	1,127,559

See accompanying notes to consolidated financial statements.

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WashingtonFirst Bankshares, Inc.

Consolidated Statements of Operations

(unaudited)



	For the Three Months Ended						For the Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands, except per share amounts)
Interest and dividend income:
Interest and fees on loans	$	12,993		$	10,895		$	24,194		$	21,943
Interest and dividends on investments:
Taxable	729			402			1,395			906
Tax-exempt	39			38			86			76
Dividends on other equity securities	42			36			70			54
Interest on Federal funds sold and other short-term investments	89			72			160			161
Total interest and dividend income	13,892			11,443			25,905			23,140
Interest expense:
Interest on deposits	1,381			1,287			2,603			2,446
Interest on borrowings	394			345			776			718
Total interest expense	1,775			1,632			3,379			3,164
Net interest income	12,117			9,811			22,526			19,976
Provision for loan losses	760			975			1,305			2,075
Net interest income after provision for loan losses	11,357			8,836			21,221			17,901
Non-interest income:
Service charges on deposit accounts	126			119			232			250
Earnings on bank-owned life insurance	85			53			168			99
Gain on sale of other real estate owned, net	5			137			69			227
Gain on sale of loans, net	56			—			73			—
Gain/(loss) on sale of available-for-sale investment securities, net	1			—			144			(20		)
Other operating income	131			138			282			236
Total non-interest income	404			447			968			792
Non-interest expense:
Compensation and employee benefits	4,529			3,412			8,597			6,655
Premises and equipment	1,417			1,412			2,925			2,769
Data processing	685			723			1,400			1,663
Professional fees	314			253			735			663
Other operating expenses	1,099			1,068			2,369			2,163
Total non-interest expense	8,044			6,868			16,026			13,913
Income before provision for income taxes	3,717			2,415			6,163			4,780
Provision for income taxes	1,287			865			2,125			1,777
Net income	2,430			1,550			4,038			3,003
Preferred stock dividends and accretion	(45		)	(45		)	(89		)	(89		)
Net income available to common shareholders	$	2,385		$	1,505		$	3,949		$	2,914

Earnings per common share:
Basic earnings per common share (1)	$	0.30		$	0.19		$	0.49		$	0.37
Fully diluted earnings per common share (1)	$	0.29		$	0.18		$	0.48		$	0.36
(1) Retroactively adjusted to reflect the effect of all stock dividends, including the 5% stock dividend declared on July 21, 2014.

See accompanying notes to consolidated financial statements.

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WashingtonFirst Bankshares, Inc.

Consolidated Statements of Comprehensive Income

(unaudited)



	For the Three Months Ended					For the Six Months Ended
	June 30, 2014		June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands)
Net income	$	2,430	$	1,550		$	4,038		$	3,003
Other comprehensive income, net of tax:
Net unrealized holding gains/(losses), net of tax	1,138		(1,478		)	1,714			(1,640		)
Reclassification adjustment for realized gains	11		(1		)	(9		)	(6		)
Net change from available-for-sale securities (1)	1,149		(1,479		)	1,705			(1,646		)
Comprehensive income	$	3,579	$	71		$	5,743		$	1,357

(1) Unrealized gains/(losses) on available for sale securities is shown net of income tax expense of $0.6 million and $0.9 million for the three and six months ended June 30, 2014, compared to income tax benefits of $1.0 million and $0.9 million for the three and six months ended June 30, 2013, respectively.

See accompanying notes to consolidated financial statements.

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WashingtonFirst Bankshares, Inc.

Consolidated Statements of Changes in Shareholders' Equity

(unaudited)



	For the Six Months Ended
	June 30, 2014				June 30, 2013
	Shares	Amount			Shares	Amount
	(in thousands, except share data)
Preferred stock:
Balance, beginning of period	17,796	$	89		17,796	$	89
Balance, end of period	17,796	$	89		17,796	$	89
Additional paid-in capital - preferred:
Balance, beginning of period		$	17,707			$	17,707
Balance, end of period		$	17,707			$	17,707
Common stock:
Balance, beginning of period	7,648,495	$	76		7,143,781	$	71
Exercise of stock options	81,104	1			—	—
Exercise of warrants	—	—			125,674	2
Issuance of common stock under restricted stock agreements	—	—			11,058	—
Common stock dividends	—	—			363,339	3
Balance, end of period	7,729,599	$	77		7,643,852	$	76
Additional paid-in capital - common:
Balance, beginning of period		$	85,636			$	80,460
Exercise of stock options		639				—
Exercise of warrants		—				1,434
Common stock dividends		—				3,469
Stock compensation expense		111				114
Balance, end of period		$	86,386			$	85,477
Accumulated earnings:
Balance, beginning of period		$	5,605			$	3,226
Net income		4,038				3,003
Preferred stock dividends		(89		)		(89		)
Common stock dividends		—				(3,472		)
Cash dividends declared		(615		)		—
Common stock cash-in-lieu dividends		—				(3		)
Balance, end of period		$	8,939			$	2,665
Accumulated other comprehensive loss:
Balance, beginning of period		$	(1,509	)		$	(33	)
Change in unrealized loss on available-for-sale securities, net of tax and reclassification adjustments		1,705				(1,646		)
Balance, end of period		$	196			$	(1,679	)
Total shareholders' equity		$	113,394			$	104,335

See accompanying notes to consolidated financial statements.

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WashingtonFirst Bankshares, Inc.

Consolidated Statements of Cash Flows

(unaudited)



	For the Six Months Ended
	June 30, 2014			June 30, 2013
	(in thousands)
Cash flows from operating activities:
Net income	$	4,038		$	3,003
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,107			185
Amortization of purchase accounting marks	(2,229		)	(1,809		)
(Gain)/loss on sale of available-for-sale investment securities	(144		)	20
Gain on sale of other real estate owned	(69		)	(227		)
Provision for loan losses	1,305			2,075
Write-down of other real estate owned	190			398
Earnings on bank-owned life insurance	(168		)	(99		)
Net amortization on available-for-sale investment securities	509			825
Stock based compensation	111			114
Originations of loans held for sale	(7,818		)	—
Proceeds from sales of loans held for sale	5,615			—
Net change in:
Accrued interest receivable	(209		)	77
Other assets	1,602			3,277
Accrued interest payable	(6		)	(1,427		)
Other liabilities	(1,720		)	(2,819		)
Net cash provided by operating activities	2,114			3,593
Cash flows from investing activities:
Net cash received in Millennium Transaction	59,047			—
Purchase of available-for-sale investment securities	(37,160		)	(20,643		)
Proceeds from repayment of available-for-sale investment securities	14,474			32,424
Proceeds from sale/call of available-for-sale investment securities	13,554			2,540
Net increase in loans loans held for investment	(61,430		)	(35,143		)
Purchase of bank-owned life insurance	(2,500		)	(5,000		)
Net decrease in FHLB stock	475			698
Proceeds from sale of real estate owned	453			2,065
Purchases of premises and equipment, net	(1,190		)	(411		)
Net cash used in investing activities	(14,277		)	(23,470		)
Cash flows from financing activities:
Net increase/(decrease) in deposits	123,615			(14,548		)
Net decrease in FHLB advances	(2,182		)	(10,350		)
Net increase in other borrowings	3,181			4,316
Proceeds from issuance of common stock, net	—			1,435
Proceeds from exercise of stock options	640			—
Cash dividends paid	(612		)	—
Dividends paid - cash portion for fractional shares on 5% dividend	—			(3		)
Preferred stock dividends paid	(89		)	(89		)
Net cash provided by/(used in) financing activities	124,553			(19,239		)
Net increase/(decrease) in cash and cash equivalents	112,390			(39,116		)
Cash and cash equivalents at beginning of period	109,164			224,207
Cash and cash equivalents at end of period	$	221,554		$	185,091

See accompanying notes to consolidated financial statements.

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WashingtonFirst Bankshares, Inc.

Notes to the Consolidated Financial Statements

(unaudited)

In this report, WashingtonFirst Bankshares Inc. is sometimes referred to as “WashingtonFirst,” the “Company,” “we,” “our” or “us” and these references include WashingtonFirst’s wholly owned subsidiary, WashingtonFirst Bank, unless the context requires otherwise. In this report, WashingtonFirst Bank is sometimes referred to as the “Bank.”

1. ORGANIZATION

WashingtonFirst Bankshares Inc. was organized in 2009 under the laws of the Commonwealth of Virginia as a bank holding company. WashingtonFirst is the parent company of WashingtonFirst Bank, which was organized in 2004 under the laws of Washington, D.C. to operate as a commercial bank. In 2007, WashingtonFirst Bank converted its charter to the Commonwealth of Virginia. WashingtonFirst Bank is headquartered in Reston, Virginia and serves the greater Washington, D.C. metropolitan area.

On February 28, 2014, WashingtonFirst entered into an agreement with the Federal Deposit Insurance Corporation (“FDIC”) to assume all the deposits and certain assets of Millennium Bank, NA (“Millennium”), a federally chartered commercial bank headquartered in Sterling, Virginia (“Millennium Transaction”). For more information regarding the Millennium Transaction, see Note 3 – Millennium Transaction.

2. SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of WashingtonFirst conform with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”). The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities (including, but not limited to, the allowance for loan losses, provision for loan losses, other-than-temporary impairment of investment securities and fair value measurements) as of the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following are the significant accounting policies that WashingtonFirst follows in preparing and presenting its consolidated financial statements:


(a)	Basis of Presentation

The accompanying consolidated financial statements include the accounts of WashingtonFirst Bankshares, Inc. and its wholly-owned subsidiary WashingtonFirst Bank. All significant inter-company accounts and transactions have been eliminated in consolidation. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to predominant practices within the banking industry.

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(b)	Cash and Cash Equivalents and Statements of Cash Flows

For purposes of the statements of cash flows, cash and cash equivalents consists of cash and due from banks, interest bearing balances and federal funds sold. The Bank maintains deposits with other commercial banks in amounts that may exceed federal deposit insurance coverage. Management regularly evaluates the credit risk associated with these transactions and believes that the Bank is not exposed to any significant credit risks on cash and cash equivalents. The Bank is required to maintain certain average reserve balances with the Federal Reserve Bank of Richmond. Those balances include usable vault cash and amounts on deposit with the Federal Reserve Bank of Richmond. The Bank had no compensating balance requirements or required cash reserves with correspondent banks as of June 30, 2014. The Bank maintains interest bearing balances at other banks to help ensure sufficient liquidity and provide additional return compared to overnight Federal Funds.



Table 2: Certain Cash and Non-Cash Transactions
	For the Six Months Ended
	June 30, 2014		June 30, 2013
	(in thousands)
Cash paid during the period for:
Interest paid on interest-bearing deposits	$	2,600	$	2,421
Income taxes paid	—		1,500
Non-cash activity:
Loans converted into other real estate owned	—		1,010
Non-cash activity resulting from the Millennium Transaction:
Fair value of assets acquired:
Investment securities	19,240		—
Other equity securities	683		—
Loans, net of unearned income	51,332		—
Core deposit intangibles	470		—
Other assets	440		—
Fair value of liabilities assumed:
Deposits	121,592		—
FHLB advances	12,209		—
Other liabilities	50		—


(c)	Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the fair values and impairments of financial instruments, the status of contingencies and the valuation of deferred tax assets and goodwill.


(d)	Investment Securities

The Bank maintains an investment securities portfolio to help ensure sufficient liquidity and provide additional return versus overnight Federal Funds and interest bearing balances. Securities that management has both the positive intent and ability to hold to maturity are classified as “held to maturity” and are recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of income taxes.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held to maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. All securities were classified as available-for-sale as of June 30, 2014 and December 31, 2013.

The estimated fair value of the portfolio fluctuates due to changes in market interest rates and other factors. Securities are monitored to determine whether a decline in their value is other-than-temporary. Management evaluates the investment portfolio on a quarterly basis to determine the collectibility of amounts due per the contractual terms of the investment security.

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(e)	Other-than-Temporary Impairments

The Company evaluates all securities in its investment portfolio for other- than-temporary impairments. A security is generally defined to be impaired if the carrying value of such security exceeds its estimated fair value. Based on the provisions of FASB Accounting Standards Codification (“ASC”) 320, a security is considered to be other-than- temporarily impaired if the present value of cash flows expected to be collected is less than the security’s amortized cost basis (the difference being defined as the credit loss) or if the fair value of the security is less than the security’s amortized cost basis and the investor intends, or more-likely-than-not will be required to sell the security before recovery of the security’s amortized cost basis. The charge to earnings is limited to the amount of credit loss if the investor does not intend, and more-likely-than-not will not be required, to sell the security before recovery of the security’s amortized cost basis. Any remaining difference between fair value and amortized cost is recognized in other comprehensive income, net of applicable taxes. In certain instances, as a result of the other-than-temporary impairment analysis, the recognition or accrual of interest will be discontinued and the security will be placed on non-accrual status.


(f)	Restricted Stock

As a member of the Federal Home Loan Bank of Atlanta (FHLB), the Bank is required to purchase and maintain stock in the FHLB in an amount equal to 4.5 percent of aggregate outstanding advances in addition to the membership stock requirement of 0.2 percent of the Bank’s total assets. Unlike other types of stock, FHLB stock and the stock of correspondent banks (“Banker’s Bank Stock”) is acquired primarily for the right to receive advances and loan participations rather than for the purpose of maximizing dividends or stock growth. No ready market exists for the FHLB stock and Bankers’ Bank stock, and they have no quoted market value. Restricted stock, such as FHLB stock and Banker’s Bank Stock, is carried at cost.


(g)	Loans Held for Sale

Loans held for sale are carried at the lower of cost or market, determined in the aggregate. Market value considers commitment agreements with investors and prevailing market prices. Loans originated by the Company’s mortgage banking unit and held for sale to outside investors, are made on a pre-sold basis with servicing rights released. Gains and losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold.


(h)	Loans Held for Investment

The Bank grants real estate, including construction and development, commercial, and residential, commercial and industrial, and consumer loans to customers primarily in the greater Washington, D.C. metropolitan area. The loan portfolio is well diversified and generally is collateralized by assets of the customers. The loans are expected to be repaid from cash flow or proceeds from the sale of selected assets of the borrowers. The ability of the Bank’s debtors to honor their loan contracts is dependent upon the real estate and general economic conditions in the Bank’s market area. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances less the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Consumer loans and other loans typically are charged off no later than 180 days past due. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on non-accrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

(i) Allowance for Loan Losses

The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (i) ASC 450-10, which requires that losses be accrued when they are probable of occurring and estimable and (ii) ASC 310-10, which requires that losses be accrued based on the differences between the net realizable value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.

An allowance is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance represents an amount that, in management’s judgment will be adequate to absorb any losses on existing loans that may become uncollectible. Management’s judgment in determining the adequacy of the allowance is based on evaluations of the collectibility of loans while taking into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions which may affect a borrower’s ability to repay, overall portfolio quality, and review of specific potential losses. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of specific, general and unallocated components.

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The specific component relates to loans that are classified as doubtful, substandard or special mention. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of the expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer loans for impairment disclosures.

(j) Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Premises and equipment are depreciated over their estimated useful lives; leasehold improvements are amortized over the lives of the respective leases or the estimated useful life of the leasehold improvement, whichever is less. Depreciation is computed using the straight-line method over the lesser of the estimated useful life or the remaining term of the lease for leasehold improvements; and 3 to 15 years for furniture, fixtures, and equipment. Costs of maintenance and repairs are expensed as incurred; improvements and betterments are capitalized. When items are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the accounts and any resulting gains or losses are included in the determination of net income.

(k) Leases

The Bank leases certain buildings under operating leases with terms greater than one year and with minimum lease payments associated with these agreements. Rent expense is recognized on a straight-line basis over the expected lease term in accordance with ASC 840. Within the provisions of certain leases, there are predetermined fixed escalations of the minimum rental payments over the base lease term. The effects of the escalations have been reflected in rent expense on a straight-line basis over the lease term, and the difference between the recognized rental expense and the amounts payable under the lease is recorded as deferred lease payments. The amortization period for leasehold improvements is the term used in calculating straight-line rent expense or their estimated economic life, whichever is shorter.

(l) Other Real Estate Owned

Real estate properties acquired through loan foreclosures are recorded initially at the lower of the specific loan amount or fair value, less expected sales costs, each as determined by management. Subsequent valuations are performed by management, and the carrying amount of a property is adjusted by a charge to expense to reflect any subsequent declines in estimated fair value. Fair value estimates are based on recent appraisals and current market conditions. Gains or losses on sales of real estate owned are recognized upon disposition.

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(m) Income Taxes

The provision for income taxes is based on the results of operations, adjusted primarily for (1) tax-exempt income and (2) the earnings from BOLI and stock-based compensation which are in excess of the tax-exempt income amounts. Certain items of income and expense are reported in different periods for financial reporting and tax return purposes. Deferred tax assets and liabilities are determined based on the differences between the consolidated financial statement and income tax basis of assets and liabilities measured by using the enacted tax rates and laws expected to be in effect when the timing differences are expected to reverse. Deferred tax expense or benefit is based on the difference between deferred tax asset or liability from period to period. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income and tax planning strategies in making this assessment. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. A tax position is recognized as a benefit only if it is “more likely than not” (i.e., more than 50% likely) that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is more likely than not to be realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company and the Bank are subject to U.S. federal income tax, the District of Columbia income tax, the State of Maryland income tax and the State of Virginia franchise tax, in lieu of income tax. The Company is no longer subject to examination by Federal or State taxing authorities for the years before 2010. As of June 30, 2014 and December 31, 2013 the Company did not have any unrecognized tax benefits. The Company does not expect the amount of any unrecognized tax benefits to significantly increase in the next twelve months. The Company recognizes interest related to income tax matters as interest expense and penalties related to income tax matters as other non-interest expense. As of June 30, 2014 and December 31, 2013, the Company does not have any amounts accrued for interest and/or penalties.

(n) Stock-Based Compensation Plans

Under ASC 718, the Company recognizes compensation costs related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides services in exchange for the award. Compensation cost is measured based on the fair value of the equity instrument issued at the date of grant.

(o) Valuation of Long-Lived Assets

The Company accounts for the valuation of long-lived assets under ASC 205-20, which requires that long-lived assets and certain identifiable intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed of are reportable at the lower of the carrying amount or the fair value, less costs to sell.

(p) Transfer of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

(q) Earnings Per Common Share

Basic earnings per common share is computed by dividing net income applicable to common shares by the weighted average number of common shares outstanding, which includes both voting and non-voting common shares outstanding. Diluted earnings per common share is computed by dividing applicable net income by the weighted average number of common shares outstanding and any dilutive potential common shares and dilutive stock options. It is assumed that all dilutive stock options were exercised at the beginning of each period and that the proceeds were used to purchase shares of the Company’s common stock at the average market price during the period. Prior years per share information has been retroactively adjusted to date in order to give effect to all stock dividends declared.

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(r) Goodwill

Goodwill represents the excess of purchase price over fair value of net assets and liabilities acquired. Under ASC 350-10, goodwill is not amortized over an estimated life, but rather it is evaluated at least annually for impairment by comparing its fair value with its recorded amount and is written down when appropriate. Projected net operating cash flows are compared to the carrying amount of the goodwill recorded and if the estimated net operating cash flows are less than the carrying amount, a loss is recognized to reduce the carrying amount to fair value. In the first quarter 2014, the Company recorded $2.6 million of additional goodwill related to the Millennium Transaction. For more information regarding this addition, see Note 3—Millennium Transaction. There was no impairment of goodwill in the six months ended June 30, 2014 and June 30, 2013. For more information regarding goodwill, see Note 9—Intangible Assets.

(s) Recent Accounting Pronouncements

In January 2014, the FASB issued new guidance related to Troubled Debt Restructurings, which clarifies the timing of when an in substance repossession or foreclosure of collateralized residential real property is deemed to have occurred. The guidance also requires new disclosures related to the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure. This guidance is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of this guidance is not expected to be material to the consolidated financial position, results of operations or cash flows.

In January 2014, the FASB issued new guidance related to Investments in Qualified Affordable Housing Projects. The new guidance allows an entity, provided certain criteria are met, to elect the proportional amortization method to account for these investments. The proportional amortization method allows an entity to amortize the initial cost of the investment in proportion to the amount of tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of the provision for income taxes. This guidance is effective for interim and annual reporting periods beginning after December 15, 2014. WashingtonFirst is currently evaluating this guidance to determine the impact on its consolidated financial position, results of operations and cash flows.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 660): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40). The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2016. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company's consolidated financial statements.

(t) Reclassifications

Certain reclassifications of prior year information were made to conform to the 2014 presentation. These reclassifications had no material impact of the Company’s financial position or results of operations.

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3. MILLENNIUM TRANSACTION

On February 28, 2014, the Company entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”) to assume all of the deposits and certain assets of Millennium Bank, NA (“Millennium”), a federally chartered commercial bank headquartered in Sterling, Virginia. Millennium operated two branches in Virginia – Sterling and Herndon. These branches reopened Monday, March 3, 2014 as branches of WashingtonFirst.

The Millennium Transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the merger date. The excess of fair value of net liabilities assumed exceeded cash received in the transaction resulting in goodwill or $2.6 million being recorded. The Company also recorded $0.5 million in core deposit intangibles which will be amortized over five to eight years, depending on the underlying instrument.

The consideration paid, and the fair value of identifiable assets acquired and liabilities assumed, as of the purchase and assumption agreement date are summarized in the following table:



Table 3: Goodwill on Millennium Transaction
	Amount
	(in thousands)
Assets acquired:
Cash and cash equivalents	$	43,235
Investment securities	19,240
Other equity securities	683
Loans, net of unearned income	51,332
Core deposit intangibles	470
Other assets	440
Total assets	115,400
Liabilities assumed:
Deposits	121,592
FHLB advances	12,209
Other liabilities	50
Total liabilities	133,851
Net liabilities acquired	18,451
Consideration received:
Cash paid to WashingtonFirst Bank by the FDIC	15,812
Goodwill	$	2,639

In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating the cash flows expected to result from those assets and liabilities and discounting them at appropriate market rates. The most significant category of assets for which this procedure was used was the acquired loans. The excess of expected cash flows above the fair value of the performing portion of loans will be accreted to interest income over the remaining lives of the loans in accordance with ASC 310-20.

Those loans for which specific credit-related deterioration since origination was identified were recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral indeterminate, remain on non-accrual status and have no accretable yield.

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4. CASH AND CASH EQUIVALENTS

Regulation D of the Federal Reserve Act requires that banks maintain non-interest reserve balance with the Federal Reserve Bank based principally on the type and amount of their deposits. During the first six months of 2014 and 2013, the Bank maintained balances at the Federal Reserve Bank of Richmond (in addition to vault cash) to meet the reserve requirements as well as balances to partially compensate for services provided by the Federal Reserve Bank of Richmond. The Bank has an interest bearing account with the FHLB and maintains eight non-interest bearing accounts with domestic correspondents to off-set the cost of services they provide to the Bank for maintaining an account with them.

In addition, the Bank has short term investments in the form of certificates of deposits with banks insured by the Federal Deposit Insurance Corporation (“FDIC”), classified as interest bearing balances, as of June 30, 2014 and December 31, 2013. All balance are fully insured up to the applicable limits by the FDIC.

5. INVESTMENT SECURITIES



Table 5.1: Available-For-Sale Investment Securities Summary
	As of June 30, 2014
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
	(in thousands)
U.S. Treasuries	$	2,998	$	19	$	—		$	3,017
U.S. Government agencies	53,795		234		(155		)	53,874
Mortgage-backed securities	53,093		440		(198		)	53,335
Collateralized mortgage obligations	47,708		127		(804		)	47,031
Taxable state and municipal securities	12,173		674		(10		)	12,837
Tax-exempt state and municipal securities	5,929		4		(28		)	5,905
Total available-for-sale investment securities	$	175,696	$	1,498	$	(1,195	)	$	175,999



	As of December 31, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
	(in thousands)
U.S. Treasuries	$	2,998	$	—	$	(2	)	$	2,996
U.S. Government agencies	38,548		81		(590		)	38,039
Mortgage-backed securities	44,240		158		(544		)	43,854
Collateralized mortgage obligations	44,262		76		(1,621		)	42,717
Taxable state and municipal securities	11,711		541		(82		)	12,170
Tax-exempt state and municipal securities	5,935		—		(344		)	5,591
Total available-for-sale investment securities	$	147,694	$	856	$	(3,183	)	$	145,367

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The estimated fair value of securities pledged to secure public funds, securities sold under agreements to repurchase and for other purposes amounted to $75.4 million and $80.1 million as of June 30, 2014 and December 31, 2013, respectively.

WashingtonFirst did not recognize in earnings any other-than-temporary impairment losses on available-for-sale investment securities during the three and six months ended June 30, 2014 or 2013. During the three months ended June 30, 2014, WashingtonFirst received proceeds of $0.1 million from the call or sale of securities from its available-for-sale investment portfolio resulting in immaterial gross realized gains, compared to no call or sale of securities in the same period in 2013. During the six months ended June 30, 2014, WashingtonFirst received proceeds of $13.7 million from the call or sale of securities from its available-for-sale investment portfolio, resulting in gross realized gains of $0.2 million and gross realized losses of $48,000, compared to proceeds of $2.5 million from the call or sale of securities resulting in gross realized gains of $4,000 and gross realized losses of $24,000 for the same periods in 2013.



Table 5.2: Gross Unrealized Loss and Fair Value of Available-for-Sale Securities
	As of June 30, 2014
	Unrealized loss position for less than 12 months					Unrealized loss position for more than 12 months
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
U.S. Government agencies	$	11,974	$	(16	)	$	8,872	$	(139	)
Mortgage-backed securities	7,871		(44		)	4,818		(154		)
Collateralized mortgage obligations	11,784		(73		)	20,871		(731		)
Taxable state and municipal securities	594		(3		)	1,570		(7		)
Tax-exempt state and municipal securities	2,010		(2		)	3,209		(26		)
Total	$	34,233	$	(138	)	$	39,340	$	(1,057	)



	As of December 31, 2013
	Unrealized loss position for less than 12 months					Unrealized loss position for more than 12 months
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
U.S. Treasuries	$	2,996	$	(2	)	$	—	$	—
U.S. Government agencies	28,335		(590		)	—		—
Mortgage-backed securities	25,735		(306		)	3,056		(238		)
Collateralized mortgage obligations	32,648		(1,483		)	3,139		(138		)
Taxable state and municipal securities	2,387		(82		)	—		—
Tax-exempt state and municipal securities	5,591		(344		)	—		—
Total	$	97,692	$	(2,807	)	$	6,195	$	(376	)

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The temporary unrealized losses presented above are principally due to a general increase in market rates and a widening of credit spreads from the dates of acquisition to June 30, 2014 and December 31, 2013, as applicable. The resulting increases in fair values reflect a decrease in the perceived risk by the financial markets related to those securities. As of June 30, 2014, all U.S. Treasuries and U.S. Government Agencies are AAA/AA+ rated and any fluctuations in their fair value are caused by changes in interest rates and are not considered credit related as the contractual cash flows of these investments are either explicitly or implicitly backed by the full faith and credit of the U.S. Government. Unrealized losses that are related to the prevailing interest rate environment will decline over time and recover as these securities approach maturity. As of 2014, the fair market value of U.S. Treasuries and U.S. Government Agencies were $3.0 million and $53.9 million, respectively. The mortgage-backed securities portfolio at June 30, 2014, is composed of GNMA, FNMA or FHLMC mortgage-backed securities reported at fair value of $53.3 million and GNMA collateralized mortgage obligations reported at fair value of $47.0 million. Any associated unrealized losses are caused by changes in interest rates and are not considered credit related as the contractual cash flows of these investments are either explicitly or implicitly backed by the full faith and credit of the U.S. Government. Unrealized losses that are related to the prevailing interest rate environment will decline over time and recover as these securities approach maturity. As of June 30, 2014, the fair value of the taxable state and municipal securities portfolio totaled $12.8 million, while the tax-exempt state and municipal securities portfolio totaled $5.9 million. The municipal bond portfolio has no concentration in any state greater than 20 percent and carries bond ratings of A or higher.

As of June 30, 2014 and December 31, 2013, thirty and five, respectively, of the securities in loss positions had been in loss positions for more than 12 months and had a total unrealized loss of $1.1 million and $0.4 million, respectively.

The amortized cost and fair value of investments by remaining contractual maturity for available-for-sale investment securities as of June 30, 2014 are set forth below. Mortgage-backed securities and collateralized mortgage obligations are included based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets or mortgages.



Table 5.3: Amortized Cost and Fair Value by Contractual Maturity of Available-For-Sale Securities
	As of June 30, 2014
	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	754	$	770
Due after one year through five years	45,828		46,399
Due after five years through ten years	45,916		46,059
Due after ten years	83,198		82,771
Total	$	175,696	$	175,999

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6. LOANS



Table 6.1: Composition of Loans Held for Investment by Loan Class
	June 30, 2014		December 31, 2013
	(in thousands)
Construction and development	$	127,401	$	97,324
Commercial real estate	567,917		521,760
Residential real estate	115,238		95,428
Real estate loans	810,556		714,512
Commercial and industrial	131,116		120,833
Consumer	9,206		2,775
Total loans	950,878		838,120
Less: allowance for loan losses	8,332		8,534
Net loans	$	942,546	$	829,586

As of June 30, 2014, $414.4 million of loans were pledged as collateral for FHLB advances.



Table 6.2: Loans Held for Investment Aging Analysis by Loan Class
	As of June 30, 2014
	Current Loans (1)		30-59 Days Past Due		60-89 Days Past Due		Non- Accrual		Total Past Due		Total Loans
	(in thousands)
Construction and development	$	126,602	$	545	$	—	$	254	$	799	$	127,401
Commercial real estate	554,019		7,622		220		6,056		13,898		567,917
Residential real estate	112,760		949		161		1,368		2,478		115,238
Commercial and industrial	125,637		3,231		711		1,537		5,479		131,116
Consumer	9,198		4		—		4		8		9,206
Balance at end of period	$	928,216	$	12,351	$	1,092	$	9,219	$	22,662	$	950,878



	As of December 31, 2013
	Current Loans (1)		30-59 Days Past Due		60-89 Days Past Due		Non- Accrual		Total Past Due		Total Loans
	(in thousands)
Construction and development	$	95,271	$	—	$	—	$	2,053	$	2,053	$	97,324
Commercial real estate	510,043		613		2,771		8,333		11,717		521,760
Residential real estate	93,338		97		101		1,892		2,090		95,428
Commercial and industrial	117,531		250		381		2,671		3,302		120,833
Consumer	2,532		100		5		138		243		2,775
Balance at end of period	$	818,715	$	1,060	$	3,258	$	15,087	$	19,405	$	838,120

(1) For the purpose of this table, loans 1-29 days past due are included in the balance of current loans

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WashingtonFirst divides its loans into the following categories based on credit quality: pass, watch, special mention, substandard, doubtful and loss. WashingtonFirst reviews the characteristics of each rating at least annually, generally during the first quarter of each year.

The characteristics of these ratings are as follows:

•

Pass and watch rated loans (risk ratings 1 to 6) are to persons or business entities with an acceptable financial condition, specified collateral margins, specified cash flow to service the existing loans, and a specified leverage ratio. The borrower has paid all obligations as agreed and it is expected that the borrower will maintain this type of payment history. Acceptable personal guarantors routinely support these loans.

•

Special mention loans (risk rating 7) have a specifically defined weakness in the borrower’s operations and/or the borrower’s ability to generate positive cash flow on a sustained basis. For example, the borrower’s recent payment history may be characterized by late payments. WashingtonFirst’s risk exposure to special mention loans is mitigated by collateral supporting the loan. Loans in this category have collateral that is considered to be well-managed, well maintained, accessible and readily marketable.

•

Substandard loans (risk rating 8) are considered to have specific and well-defined weaknesses that jeopardize the viability of WashingtonFirst’s credit extension. The payment history for the loan may have been inconsistent and the expected or projected primary repayment source may be inadequate to service the loan, or the estimated net liquidation value of the collateral pledged and/or ability of the personal guarantors to pay the loan may not adequately protect WashingtonFirst. For loans in this category, there is a distinct possibility that WashingtonFirst will sustain some loss if the deficiencies associated with the loan are not corrected in the near term. A substandard loan would not automatically meet WashingtonFirst’s definition of an impaired loan unless the loan is significantly past due and the borrower’s performance and financial condition provide evidence that it is probable WashingtonFirst will be unable to collect all amounts due. Substandard non-accrual loans have the same characteristics as substandard loans. However these loans have a non-accrual classification generally because the borrower’s principal or interest payments are 90 days or more past due.


•	Doubtful rated loans (risk rating 9) have all the weakness inherent in a loan that is classified as substandard but with the added characteristic that the weakness makes collection or liquidation in full highly questionable and improbable based upon current existing facts, conditions, and values. The possibility of loss related to doubtful rated loans is extremely high.


•	Loss (risk rating 10) rated loans are not considered collectible under normal circumstances and there is no realistic expectation for any future payment on the loan. Loss rated loans are fully charged off.

Internal risk ratings of pass (rating numbers 1 to 5) and watch (rating number 6) are deemed to be unclassified assets. Internal risk ratings of special mention (rating number 7), substandard (rating number 8), doubtful (rating number 9) and loss (rating number 10) are deemed to be classified assets.

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Table 6.3: Risk Categories of Loans Held for Investment by Loan Class
	As of June 30, 2014
Internal risk rating grades	Pass		Watch		Special Mention		Substandard		Doubtful		Total
Risk rating number	1 to 5		6		7		8		9
	(in thousands)
Construction and development	$	127,147	$	—	$	—	$	254	$	—	$	127,401
Commercial real estate	527,764		14,567		8,821		16,245		520		567,917
Residential real estate	111,133		1,706		1		2,398		—		115,238
Commercial and industrial	115,647		6,207		3,304		5,958		—		131,116
Consumer	9,070		128		—		8		—		9,206
Balance at end of period	$	890,761	$	22,608	$	12,126	$	24,863	$	520	$	950,878



	As of December 31, 2013
Internal risk rating grades	Pass		Watch		Special Mention		Substandard		Doubtful		Total
Risk rating number	1 to 5		6		7		8		9
	(in thousands)
Construction and development	$	95,271	$	—	$	—	$	2,053	$	—	$	97,324
Commercial real estate	488,373		11,511		6,308		15,568		—		521,760
Residential real estate	91,616		1,722		163		1,927		—		95,428
Commercial and industrial	110,122		4,851		2,945		2,915		—		120,833
Consumer	2,239		398		—		138		—		2,775
Balance at end of period	$	787,621	$	18,482	$	9,416	$	22,601	$	—	$	838,120



Table 6.4: Non-Accrual Loans by Loan Class
	June 30, 2014		December 31, 2013
	(in thousands)
Construction and development	$	254	$	2,053
Commercial real estate	6,056		8,333
Residential real estate	1,368		1,892
Commercial and industrial	1,537		2,671
Consumer	4		138
Total non-accrual loans	$	9,219	$	15,087

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Table 6.5: Changes in Troubled Debt Restructurings
	June 30, 2014
	Construction and Development			Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer			Total
	(in thousands)
For the Three Months Ended:
Beginning Balance	$	260		$	4,657		$	2,134		$	1,818		$	—		$	8,869
New TDRs	—			—			297			—			—			297
Increases to existing TDRs	—			—			1			—			—			1
Charge-offs post modification	—			—			—			—			—			—
Sales, principal payments, or other decreases	(6		)	(2,599		)	(980		)	(1,421		)	—			(5,006		)
Ending Balance	$	254		$	2,058		$	1,452		$	397		$	—		$	4,161

For the Six Months Ended:
Beginning Balance	$	266		$	4,886		$	1,167		$	1,844		$	95		$	8,258
New TDRs	—			—			1,268			—			—			1,268
Increases to existing TDRs	—			251			2			—			—			253
Charge-offs post modification	—			—			—			—			(95		)	(95		)
Sales, principal payments, or other decreases	(12		)	(3,079		)	(985		)	(1,447		)	—			(5,523		)
Ending Balance	$	254		$	2,058		$	1,452		$	397		$	—		$	4,161



	June 30, 2013
	Construction and Development			Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer			Total
	(in thousands)
For the Three Months Ended:
Beginning Balance	$	409		$	3,894		$	2,040		$	459		$	120		$	6,922
New TDRs	—			—			—			—			—			—
Increases to existing TDRs	—			—			1			—			—			1
Charge-offs post modification	—			—			(864		)	—			—			(864		)
Sales, principal payments, or other decreases	(102		)	(45		)	(4		)	(6		)	(20		)	(177		)
Ending Balance	$	307		$	3,849		$	1,173		$	453		$	100		$	5,882

For the Six Months Ended:
Beginning Balance	$	409		$	3,913		$	1,539		$	274		$	20		$	6,155
New TDRs	—			—			503			167			100			770
Increases to existing TDRs	—			2			3			18			—			23
Charge-offs post modification	—			—			(864		)	—			—			(864		)
Sales, principal payments, or other decreases	(102		)	(66		)	(8		)	(6		)	(20		)	(202		)
Ending Balance	$	307		$	3,849		$	1,173		$	453		$	100		$	5,882

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Table 6.6: New Troubled Debt Restructurings Details
	For the Six Months Ended
	June 30, 2014					June 30, 2013
	Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance		Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
	(dollars in thousands)
Residential real estate	4	$	1,268	$	1,268	2	$	576	$	503
Commercial and industrial	—	—		—		1	163		167
Consumer	—	—		—		1	100		100
Total loans	4	$	1,268	$	1,268	4	$	839	$	770

A modification to the contractual terms of a loan that results in granting a concession to a borrower experiencing financial difficulties is considered a troubled debt restructuring (“TDR”). When the Company has granted a concession, as a result of the restructuring, it does not expect to collect all amounts due in a timely manner, including interest accrued at the original contract rate. In making its determination of whether a borrower is experiencing financial difficulties, the Company considers several factors, including whether (1) the borrower has declared or is in the process of declaring bankruptcy, (2) there is substantial doubt as to whether the borrower will continue to be a going concern, and (3) the borrower can obtain funds from other sources at an effective interest rate at or near a current market interest rate for debt with similar risk characteristics. The Company evaluates TDRs similarly to other impaired loans for purposes of the allowance for losses.

In some situations a borrower may be experiencing financial distress, but the Company does not provide a concession. These modifications are not considered TDRs. In other cases, the Company might provide a concession, such as a reduction in interest rate, but the borrower is not experiencing financial distress. This could be the case if the Company is matching a competitor’s interest rate. These modifications would also not be considered TDRs. Finally, any renewals at existing terms for borrowers not experiencing financial distress would not be considered TDRs.



Table 6.7: Troubled Debt Restructuring in Default in Past Twelve Months
	June 30, 2014					June 30, 2013
	Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance		Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
	(dollars in thousands)
Construction and development	1	$	409	$	253	1	$	434	$	307
Commercial real estate	2	2,071		2,058		—	—		—
Total loans	3	$	2,480	$	2,311	1	$	434	$	307



Table 6.8: Non-Performing Assets
	June 30, 2014		December 31, 2013
	(in thousands)
Non-accrual loans	$	9,219	$	15,087
Troubled debt restructurings still accruing	1,850		5,715
Other real estate owned	889		1,463
Total non-performing assets	$	11,958	$	22,265

As of June 30, 2014 and December 31, 2013, there were no loans past due more than 90 days that were still accruing. If interest had been earned on the non-accrual loans, interest income on these loans would have been approximately $0.2 million and $0.5 million for the three and six months ended June 30, 2014, respectively, compared to $0.2 million and $0.4 million for three and six months ended June 30, 2013, respectively.

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7. ALLOWANCE FOR LOAN LOSSES



Table 7.1: Changes in Allowance for Loan Losses
	For the Three Months Ended						For the Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands)
Balance at beginning of period	$	7,881		$	6,176		$	8,534		$	6,260
Provision for loan losses	760			975			1,305			2,075
Charge-offs	(421		)	(1,252		)	(1,734		)	(2,470		)
Recoveries	112			39			227			73
Balance at end of period	$	8,332		$	5,938		$	8,332		$	5,938



Table 7.2: Changes in Allowance for Loan Losses by Loan Class
	June 30, 2014
	Construction and Development			Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer			Total
	(in thousands)
For the Three Months Ended:
Beginning Balance	$	827		$	4,063		$	563		$	2,411		$	17		$	7,881
Provision for/(release of) loan losses	274			553			81			(112		)	(36		)	760
Charge-offs	(100		)	(210		)	(153		)	—			42			(421		)
Recoveries	—			1			108			3			—			112
Ending Balance	$	1,001		$	4,407		$	599		$	2,302		$	23		$	8,332

For the Six Months Ended:
Beginning Balance	$	681		$	5,027		$	920		$	1,801		$	105		$	8,534
Provision for/(release of) loan losses	420			69			101			565			150			1,305
Charge-offs	(100		)	(791		)	(541		)	(70		)	(232		)	(1,734		)
Recoveries	—			102			119			6			—			227
Ending Balance	$	1,001		$	4,407		$	599		$	2,302		$	23		$	8,332



	June 30, 2013
	Construction and Development			Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer			Total
	(in thousands)
For the Three Months Ended:
Beginning Balance	$	969		$	2,392		$	760		$	2,028		$	27		$	6,176
(Release of)/provision for loan losses	(227		)	887			132			200			(17		)	975
Charge-offs	—			—			(461		)	(790		)	(1		)	(1,252		)
Recoveries	7			7			10			15			—			39
Ending Balance	$	749		$	3,286		$	441		$	1,453		$	9		$	5,938

For the Six Months Ended:
Beginning Balance	$	899		$	2,499		$	597		$	2,238		$	27		$	6,260
(Release of)/provision for loan losses	(161		)	1,044			285			924			(17		)	2,075
Charge-offs	—			(265		)	(461		)	(1,743		)	(1		)	(2,470		)
Recoveries	11			8			20			34			—			73
Ending Balance	$	749		$	3,286		$	441		$	1,453		$	9		$	5,938

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Table 7.3: Loan Held for Investment and Related Allowance for Loan Losses by Impairment Method and Loan Class
	As of June 30, 2014
	Construction and Development		Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer		Total
	(in thousands)
Ending Balance:
Evaluated collectively for impairment	$	127,147	$	543,837	$	111,387	$	122,067	$	9,198	$	913,636
Evaluated individually for impairment	254		24,080		3,851		9,049		8		37,242
	$	127,401	$	567,917	$	115,238	$	131,116	$	9,206	$	950,878

Allowance for Losses:
Evaluated collectively for impairment	$	999	$	3,072	$	306	$	844	$	19	$	5,240
Evaluated individually for impairment	2		1,335		293		1,458		4		3,092
	$	1,001	$	4,407	$	599	$	2,302	$	23	$	8,332



	As of December 31, 2013
	Construction and Development		Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer		Total
	(in thousands)
Ending Balance:
Evaluated collectively for impairment	$	95,271	$	498,345	$	92,335	$	114,903	$	2,543	$	803,397
Evaluated individually for impairment	2,053		23,415		3,093		5,930		232		34,723
	$	97,324	$	521,760	$	95,428	$	120,833	$	2,775	$	838,120

Allowance for Losses:
Evaluated collectively for impairment	$	676	$	2,770	$	292	$	792	$	7	$	4,537
Evaluated individually for impairment	5		2,257		628		1,009		98		3,997
	$	681	$	5,027	$	920	$	1,801	$	105	$	8,534

The following tables show the allocation of the allowance for loan losses among various categories of loans and certain other information as of the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to absorb losses from any loan category.



Table 7.4: Allocation of Allowance for Loan Losses by Loan Class
	June 30, 2014				December 31, 2013
	Amount		% Total		Amount		% Total
	(dollars in thousands)
Construction and development	$	1,001	12.0	%	$	681	8.0	%
Commercial real estate	4,407		52.9	%	5,027		58.9	%
Residential real estate	599		7.2	%	920		10.8	%
Commercial and industrial	2,302		27.6	%	1,801		21.1	%
Consumer	23		0.3	%	105		1.2	%
Total allowance for loan losses	$	8,332	100.0	%	$	8,534	100.0	%

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Table 7.5: Specific Allocation for Impaired Loans by Loan Class
	As of June 30, 2014						As of December 31, 2013
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
	(in thousands)
With no related allowance:
Construction and development	$	—	$	—	$	—	$	1,787	$	1,787	$	—
Commercial real estate	4,035		3,722		—		3,663		3,650		—
Residential real estate	2,246		2,157		—		1,395		1,313		—
Commercial and industrial	1,008		838		—		1,159		865		—
Consumer	—		—		—		96		95		—
Total with no related allowance	7,289		6,717		—		8,100		7,710		—
With an allowance recorded:
Construction and development	409		254		2		422		266		5
Commercial real estate	21,363		20,358		1,335		20,347		19,765		2,257
Residential real estate	1,721		1,694		293		1,788		1,780		628
Commercial and industrial	8,618		8,211		1,458		5,415		5,065		1,009
Consumer	9		8		4		137		137		98
Total with an allowance recorded	32,120		30,525		3,092		28,109		27,013		3,997
Total impaired loans	$	39,409	$	37,242	$	3,092	$	36,209	$	34,723	$	3,997



Table 7.6: Average Impaired Loan Balance by Loan Class - 3 Months
	For the Three Months Ended
	June 30, 2014				June 30, 2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(in thousands)
With no related allowance:
Construction and development	$	—	$	—	$	1,822	$	—
Commercial real estate	4,447		—		6,201		44
Residential real estate	2,162		26		603		—
Commercial and industrial	854		—		1,663		21
Consumer	—		—		7		—
Total with no related allowance	7,463		26		10,296		65
With an allowance recorded:
Construction and development	258		—		414		—
Commercial real estate	20,386		217		12,445		161
Residential real estate	1,690		4		1,263		6
Commercial and industrial	8,510		98		4,362		28
Consumer	8		—		135		2
Total with an allowance recorded	30,852		319		18,619		197
Total impaired loans	$	38,315	$	345	$	28,915	$	262

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Table 7.7: Average Impaired Loan Balance by Loan Class - 6 Months
	For the Six Months Ended
	June 30, 2014				June 30, 2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(in thousands)
With no related allowance:
Construction and development	$	—	$	—	$	1,838	$	—
Commercial real estate	2,859		—		6,467		89
Residential real estate	1,771		51		602		—
Commercial and industrial	851		—		1,648		41
Consumer	—		—		8		—
Total with no related allowance	5,481		51		10,563		130
With an allowance recorded:
Construction and development	261		—		411		—
Commercial real estate	19,429		434		12,397		322
Residential real estate	1,308		9		1,242		11
Commercial and industrial	8,387		195		4,334		56
Consumer	9		—		135		5
Total with an allowance recorded	29,394		638		18,519		394
Total impaired loans	$	34,875	$	689	$	29,082	$	524

8. OTHER REAL ESTATE OWNED

As of June 30, 2014, WashingtonFirst had $0.9 million classified as other real estate owned (“OREO”) on the balance sheet, compared to $1.5 million as of December 31, 2013 and $2.1 million as of June 30, 2013. During the three months ended June 30, 2014, WashingtonFirst sold one OREO property resulting in immaterial gain. During the six months ended June 30, 2014, WashingtonFirst sold four OREO properties collecting cash proceeds of $0.5 million, realizing net gains of $0.1 million. During the three and six months ended June 30, 2014, WashingtonFirst did not acquire any properties that were classified as OREO through foreclosure or the Millennium Transaction. During the three months ended June 30, 2013, WashingtonFirst sold one OREO property collecting cash proceeds of $0.6 million, realizing net gains of $0.1 million. During the six months ended June 30, 2013, WashingtonFirst sold five OREO properties collecting cash proceeds of $2.1 million, realizing net gains of $0.2 million. In addition, during the six months ended June 30, 2013, WashingtonFirst acquired two properties with a fair value of $1.0 million. No OREO properties were acquired in the second quarter 2013.



Table 8.1: Changes in OREO
	For the Three Months Ended						For the Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands)
Balance at beginning of period	$	1,016		$	2,569		$	1,463		$	3,294
Properties acquired at foreclosure	—			—			—			1,010
Sales of foreclosed properties	—			(422		)	(384		)	(1,838		)
Valuation adjustments	(127		)	(79		)	(190		)	(398		)
Balance at end of period	$	889		$	2,068		$	889		$	2,068



Table 8.2: OREO Expenses
	For the Three Months Ended				For the Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
	(in thousands)
Write-downs	$	127	$	79	$	190	$	398
Operating expenses, net of rental income	11		16		43		39
Total OREO expense	$	138	$	95	$	233	$	437

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9. INTANGIBLE ASSETS

Intangible assets includes goodwill and core deposit intangibles. Goodwill is tested for impairment annually or more frequently if events or circumstances indicate a possible impairment. Core deposit intangibles arise when an acquired bank or branch has a stable deposit base comprised of funds associated with long-term customer relationships. The intangible asset value derives from customer relationships that provide a low-cost source of funding. In the Millennium Transaction in February 2014, the Company recorded additional goodwill of $2.6 million. The Company also recorded $0.5 million of core deposit intangibles which consists of $0.3 million related to non-interest bearing deposits and interest-bearing NOW accounts which is being amortized over a five year period and $0.1 million related to savings accounts which is being amortized over a eight year period. See Note 3 for further details on the Millennium Transaction. In the acquisition of Alliance in December 2012, the Company recorded $0.4 million of core deposit intangibles, which is being amortized over a five year period. The Company performs annual impairment tests on goodwill in the fourth quarter of each year using the fair value approach.



Table 9: Goodwill and Core Deposit Intangibles
	June 30, 2014		December 31, 2013
	(in thousands)
Goodwill	$	6,241	$	3,601
Core deposit intangible	739		342
Total intangibles	$	6,980	$	3,943

10. DEPOSITS



Table 10.1: Composition of Deposits
	June 30, 2014		December 31, 2013
	(in thousands)
Demand deposit accounts	$	370,088	$	231,270
NOW accounts	116,978		91,107
Money market accounts	212,723		188,170
Savings accounts	129,687		113,987
Time deposits under $100,000	109,405		116,055
Time deposits $100,000 and over	255,028		208,314
Total deposits	$	1,193,909	$	948,903



Table 10.2: Scheduled Maturities of Time Deposits
	June 30, 2014		December 31, 2013
	(in thousands)
Within 1 Year	$	200,421	$	191,470
1 - 2 years	85,751		67,888
2 - 3 years	41,955		38,098
3 - 4 years	18,227		8,493
4 - 5 years	17,372		18,420
5+ years	707		—
Total	$	364,433	$	324,369

Time deposits include Certificate of Deposit Account Registry Service (“CDARS”) balances and brokered deposits. The CDARS deposits are customer deposits that are placed in the CDARS network to maximize the FDIC insurance coverage. These CDARS balances were $46.0 million and $33.2 million as of June 30, 2014 and December 31, 2013, respectively. Brokered deposits were $10.1 million and $32.6 million as of June 30, 2014 and December 31, 2013, respectively.

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11. OTHER BORROWINGS

Other borrowings consist of $13.3 million and $10.2 million of customer repurchase agreements as of June 30, 2014 and December 31, 2013, respectively. Customer repurchase agreements are standard commercial banking transactions that involve a Bank customer instead of a wholesale bank or broker.

12. FEDERAL HOME LOAN BANK ADVANCES

As a member of the FHLB, the Bank has access to numerous borrowing programs with total credit availability established at 20 percent of total quarter-end assets. FHLB advances are fully collateralized by pledges of certain qualifying real estate secured loans (see Note 4 - Cash and Cash Equivalents). As of June 30, 2014, the Bank had pledged a total of $414.4 million in qualifying home equity lines of credit, commercial real estate loans, multifamily real estate loans, and residential real estate secured loans as security for FHLB advances. As of June 30, 2014, the Bank had $205.1 million in remaining credit available with the FHLB.



Table 12.1: Composition of FHLB Advances
	June 30, 2014			December 31, 2013
	(dollars in thousands)
As of period ended:
FHLB advances	$	53,236		$	43,478
Weighted average outstanding effective interest rate	1.87		%	1.30		%



Table 12.2: FHLB Advances Average Balances
	For the Three Months Ended						For the Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(dollars in thousands)
Averages for the period:
FHLB advances	$	46,056		$	32,772		$	46,094		$	36,523
Average effective interest rate paid during the period	1.82		%	1.97		%	1.79		%	2.12		%
Maximum month-end balance outstanding	$	53,236		$	35,369		$	53,236		$	40,689



Table 12.3: Contractual Maturities of FHLB Advances
	June 30, 2014		December 31, 2013
	(in thousands)
Within one year	$	—	$	15,000
3 - 4 years	7,500		—
4+ years	45,736		28,478
Total FHLB advances	$	53,236	$	43,478

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13. LONG-TERM BORROWINGS



Table 13: Long-term Borrowings Detail
	June 30, 2014		December 31, 2013
	(in thousands)
Subordinated debt	$	2,264	$	2,247
Trust preferred capital notes	7,676		7,607
Long-term borrowings	$	9,940	$	9,854

On June 15, 2012, the Bank issued $2.5 million in subordinated debt (the “Bank Subordinated Debt”) to Community Bancapital LP (“CBC”). The Bank Subordinated Debt has a maturity of nine (9) years, is due in full on June 14, 2021, and bears interest at 8.00 percent per annum, payable quarterly. In connection with the issuance of the Bank Subordinated Debt, the Company issued warrants to CBC that would allow it to purchase 57,769 shares of Company common stock at a share price equal to $10.82. These warrants expire if not exercised on or before June 15, 2020. In recording this transaction, the warrants were valued at $0.3 million, which was treated as an increase in additional paid-in capital, and the liability associated with the Bank Subordinated Debt was recorded at $2.2 million. The $0.3 million discount on the Bank Subordinated Debt is being expensed monthly over the life of the debt.

On June 30, 2003, Alliance invested $0.3 million as common equity into a wholly-owned Delaware statutory business trust (the “Trust”). Simultaneously, the Trust privately issued $10.0 million face amount of thirty-year floating rate trust preferred capital securities (the “Trust Preferred Capital Notes”) in a pooled trust preferred capital securities offering. The Trust used the offering proceeds, plus the equity, to purchase $10.3 million principal amount of Alliance’s floating rate junior subordinated debentures due 2033 (the “Subordinated Debentures”). Both the Trust Preferred Capital Notes and the Subordinated Debentures are callable at any time, without penalty. The interest rate associated with the Trust Preferred Capital Notes is three month LIBOR plus 3.15 percent subject to quarterly interest rate adjustments. The interest rates as of June 30, 2014 and December 31, 2013 were 3.38 percent and 3.39 percent, respectively. The Trust Preferred Capital Notes are guaranteed by WashingtonFirst on a subordinated basis, and were recorded on WashingtonFirst’s books at the time of the Alliance acquisition at a discounted amount of $7.5 million, which was the fair value of the instruments at the time of the acquisition. The $2.5 million discount is being expensed monthly over the life of the obligation. Under the indenture governing the Trust Preferred Capital Notes, WashingtonFirst has the right to defer payments of interest for up to twenty consecutive quarterly periods.

Under current regulatory guidelines, the Trust Preferred Capital Notes may constitute no more than 25 percent of total Tier 1 Capital. Any amount not eligible to be counted as Tier 1 Capital is considered to be Tier 2 Capital. As of June 30, 2014, the entire amount of Trust Preferred Capital Notes was considered Tier 1 Capital.

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14. SHAREHOLDERS’ EQUITY

In August 2011, WashingtonFirst elected to participate in the Small Business Lending Fund, or “SBLF,” and issued 17,796 shares of its Series D Preferred Stock to the United States Treasury for $17.8 million. Under the terms of the SBLF transaction, during the first ten quarters (ending December 31, 2013) in which the Series D Preferred Stock was outstanding, the preferred shares earned dividends at a rate that could fluctuate on a quarterly basis. From the eleventh dividend period (ending March 31, 2014) through the year 4.5 years after the closing of the SBLF transaction, because WashingtonFirst Bank’s qualified small business lending, or “QSBL,” as of December 31, 2013 and had increased sufficiently as compared with the QSBL baseline, the annual dividend rate will be fixed at a rate of 1%.

In connection with the issuance of the Bank Subordinated Debt on June 15, 2012, the Company issued warrants to Community Bancapital LP (“CBC”) that would allow it to purchase 57,769 shares of common stock at a share price equal to $10.82. These warrants expire if not exercised on or before June 15, 2020. The warrants were valued at $0.3 million using the Black-Scholes option pricing model and are being expensed monthly over the life of the debt.

In connection with the Alliance acquisition, the Company issued 1,812,933 shares of its common stock to former stockholders of Alliance. In addition, pursuant to a private placement in 2012, the Company issued 1,351,656 shares of its common stock and 1,044,152 shares of its Series A non-voting common stock at $11.30 per share.

The Company had 158,745 warrants outstanding as of December 31, 2012, expiring February, 2013 with a weighted average exercise price of $11.42 per share, that were issued in connection with the acquisition of First Liberty Bancorp in 2006. In February 2013, 125,674 of these warrants were exercised generating $1.4 million in additional common equity and the remaining 33,048 warrants expired.

The Board of Directors has declared three (3) stock dividends, on the Company’s outstanding shares of common stock and Series A non-voting common stock, in the amount of five percent (5%) each: on January 23, 2012 (paid February 29, 2012), on April 5, 2013 (paid May 17, 2013), and on July 21, 2014 (payable September 2, 2014, to shareholders of record on August 12, 2014). All per share amounts in this report have been retroactively adjusted to reflect these stock dividends.

The Company commenced paying cash dividends in 2014 and has paid a dividend of four cents ($0.04) per share -- on the Company’s outstanding shares of common stock and Series A non-voting common stock -- on January 2, April 1, and July 1, 2014. Although the Company expects to declare and pay quarterly cash dividends in the future, any such dividend would be at the discretion of the Board of Directors of the Company and would be subject to various federal and state regulatory limitations.

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15. COMMITMENTS AND CONTINGENCIES

Credit Extension Commitments

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit and unfunded loan commitments. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer. Unfunded commitments under lines of credit, revolving credit lines, and overdraft protection are agreements for possible future extensions of credit to existing customers. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral, if any, deemed necessary by the Bank upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral normally consists of real property, liquid assets or business assets.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The Bank had $191.6 million and $160.3 million in outstanding commitments to extend credit as of June 30, 2014 and December 31, 2013, respectively.

Litigation

In the ordinary course of business, the Company has various outstanding commitments and contingent liabilities that are not reflected in the accompanying financial statements. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the financial condition of the Company.

Other Contractual Arrangements

The Bank is party to a contract dated October 7, 2010, with Fiserv, for core data processing and item processing services integral to the operations of the Bank. Under the terms of the agreement, the Bank may cancel the agreement subject to a substantial cancellation penalty based on the current monthly billing and remaining term of the contract. The initial term of services provided shall end seven years following the date services are first used. Services were first provided beginning May 16, 2011 and will expire on May 15, 2018. The Bank expects to pay Fiserv approximately $3.6 million over the remaining life of the contract.

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16. CAPITAL REQUIREMENTS

The Company is subject to regulatory capital requirements of federal banking agencies. Failure to meet minimum capital requirements can result in mandatory—and possibly additional discretionary—actions by regulators that could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital requirements that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets, in each case as those terms are defined in the regulations. Management believes the Company satisfied all capital adequacy requirements to which it was subject as of June 30, 2014.

As of June 30, 2014, the Company was “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios, as set forth in the table below.



Table 16: Capital Amounts, Ratios and Regulatory Requirements Summary
	Actual				To Be Well Capitalized Under Prompt Corrective Action Provisions			For Minimum Capital Adequacy Purposes
	Amount		Ratio		Amount		Ratio	Amount		Ratio
	(dollars in thousands)
As of June 30, 2014:
Total risk-based capital ratio	$	124,726	12.33	%	$	101,157	>10.0%	$	80,925	>8.0%
Tier 1 risk-based capital ratio	113,894		11.26	%	60,690		>6.0%	40,460		>4.0%
Tier 1 leverage ratio	113,894		9.12	%	62,442		>5.0%	49,954		>4.0%

As of December 31, 2013:
Total risk-based capital ratio	$	123,811	14.05	%	$	88,122	>10.0%	$	70,497	>8.0%
Tier 1 risk-based capital ratio	112,777		12.80	%	52,864		>6.0%	35,243		>4.0%
Tier 1 leverage ratio	112,777		10.53	%	53,550		>5.0%	42,840		>4.0%

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17. EARNINGS PER SHARE

The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average number of shares of diluted potential common stock. Potential dilutive common stock has no effect on income available to common shareholders.



Table 17: Basic and Dilutive Earnings Per Share
	For the Three Months Ended						For the Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(dollars in thousands, except for per share amounts)
Net income	$	2,430		$	1,550		$	4,038		$	3,003
Less: SBLF dividends	(45		)	(45		)	(89		)	(89		)
Net income available to common shareholders	$	2,385		$	1,505		$	3,949		$	2,914

Weighted average number of shares outstanding (1)	8,096,932			8,015,345			8,071,391			7,967,661
Effect of dilutive securities:
Restricted stock, stock options and warrants (1)	197,105			57,990			125,379			63,752
Diluted weighted average number of shares outstanding (1)	8,294,037			8,073,335			8,196,770			8,031,413

Basic earnings per share (1)	$	0.30		$	0.19		$	0.49		$	0.37
Diluted earnings per share (1)	$	0.29		$	0.18		$	0.48		$	0.36
(1) Retroactively adjusted to reflect the effect of all stock dividends, including the 5% stock dividend declared on July 21, 2014.

18. OTHER OPERATING EXPENSES



Table 18: Consolidated Statement of Operations - Other Operating Expenses Detail
	For the Three Months Ended					For the Six Months Ended
	June 30, 2014		June 30, 2013			June 30, 2014		June 30, 2013
	(in thousands)
Other real estate owned expenses	$	138	$	95		$	233	$	437
Business and franchise tax	197		137			392		303
Advertising and promotional expenses	146		152			295		291
FDIC premiums	238		323			439		421
Postage, printing and supplies	54		40			113		95
Directors' fees	72		63			135		113
Insurance	23		20			47		45
Merger related expenses	18		(2		)	186		6
Other	213		240			529		452
Other expenses	$	1,099	$	1,068		$	2,369	$	2,163

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19. FAIR VALUE DISCLOSURES

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as an exit price). In determining fair value, WashingtonFirst uses various valuation approaches, including market and income approaches. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. When available, the fair value of WashingtonFirst’s financial instruments is based on quoted market prices, valuation techniques that use observable market-based inputs or unobservable inputs that are corroborated by market data. Pricing information obtained from third parties is internally validated for reasonableness prior to use in the consolidated financial statements.

When observable market prices are not readily available, WashingtonFirst estimates fair value using techniques that rely on alternate market data or internally-developed models using significant inputs that are generally less readily observable. Market data includes prices of financial instruments with similar maturities and characteristics, interest rate yield curves, measures of volatility and prepayment rates. If market data needed to estimate fair value is not available, WashingtonFirst estimates fair value using internally-developed models that employ a discounted cash flow approach. Even when market assumptions are not readily available, WashingtonFirst’s assumptions reflect those that market participants would likely use in pricing the asset or liability at the measurement date.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The standard describes the following three levels used to classify fair value measurements:



	Level 1		Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

	Level 2		Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

	Level 3		Prices or valuations that require unobservable inputs that are significant to the fair value measurement.

WashingtonFirst performs a detailed analysis of the assets and liabilities carried at fair value to determine the appropriate level based on the transparency of the inputs used in the valuation techniques. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. WashingtonFirst’s assessment of the significance of a particular input to the fair value measurement of an instrument requires judgment and consideration of factors specific to the instrument. While WashingtonFirst believes its valuation methods are appropriate and consistent with those of other market participants, using different methodologies or assumptions to determine fair value could result in a materially different estimate of fair value for some financial instruments.

The following is a description of the fair value techniques used for instruments measured at fair value as well as the general classification of such instruments pursuant to the valuation hierarchy described above. Fair value measurements related to financial instruments that are reported at fair value in the consolidated financial statements each period are referred to as recurring fair value measurements. Fair value measurements related to financial instruments that are not reported at fair value each period but are subject to fair value adjustments in certain circumstances are referred to as non-recurring fair value measurements.

Recurring Fair Value Measurements and Classification

Available-for-Sale Investment Securities

The fair value of investments in U.S. Treasuries is based on unadjusted quoted prices in active markets. WashingtonFirst classifies these fair value measurements as level 1.

For a significant portion of WashingtonFirst’s investment portfolio, including most asset-backed securities, corporate debt securities, senior agency debt securities, and Government/GSE guaranteed mortgage-backed securities, fair value is determined using a reputable and nationally recognized third party pricing service. The prices obtained are non-binding and generally representative of recent market trades. WashingtonFirst corroborates its primary valuation source by obtaining a secondary price from another independent third party pricing service. WashingtonFirst classifies these fair value measurements as level 2.

For certain investment securities that are thinly traded or not quoted, WashingtonFirst estimates fair value using internally-developed models that employ a discounted cash flow approach. WashingtonFirst maximizes the use of observable market data, including prices of financial instruments with similar maturities and characteristics, interest rate yield curves, measures of volatility and prepayment rates. WashingtonFirst generally considers a market to be thinly traded or not quoted if the following conditions exist: (1) there are few transactions for the financial instruments; (2) the prices in the market are not current; (3) the price quotes vary significantly either

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over time or among independent pricing services or dealers; or (4) there is a limited availability of public market information. WashingtonFirst classifies these fair value measurements as level 3.

Net transfers in and/or out of the different levels within the fair value hierarchy are based on the fair values of the assets and liabilities as of the beginning of the reporting period. There were no transfers within the fair value hierarchy for fair value measurements of WashingtonFirst’s investment securities during the six months ended June 30, 2014 or 2013.

Nonrecurring Fair Value Measurements and Classification

Loans

Certain loans in WashingtonFirst’s loan portfolio are measured at fair value when they are determined to be impaired. Impaired loans are reported at fair value less estimated cost to sell. The fair value of the loan generally is based on the fair value of the underlying property, which is determined by third-party appraisals when available. When third-party appraisals are not available, fair value is estimated based on factors such as prices for comparable properties in similar geographical areas and/or assessment through observation of such properties. WashingtonFirst classifies these fair values as level 3 measurements.

Other Real Estate Owned

WashingtonFirst initially records OREO properties at fair value less estimated costs to sell and subsequently records them at the lower of carrying value or fair value less estimated costs to sell. The fair value of OREO is determined by third-party appraisals when available. When third-party appraisals are not available, fair value is estimated based on factors such as prices for comparable properties in similar geographical areas and/or assessment through observation of such properties. WashingtonFirst classifies the OREO fair values as level 3 measurements.

Fair Value Classification and Transfers

As of June 30, 2014, WashingtonFirst’s assets and liabilities recorded at fair value included financial instruments valued at $38.1 million whose fair values were estimated by management in the absence of readily determinable fair values (i.e., level 3). These financial instruments measured as level 3 represented 2.7 percent of total assets and 17.8 percent of financial instruments measured at fair value as of June 30, 2014. As of December 31, 2013, WashingtonFirst’s assets and liabilities recorded at fair value included financial instruments valued at $36.2 million whose fair values were estimated by management in the absence of readily determinable fair values. These financial instruments measured as level 3 represented 3.2 percent of total assets and 19.9 percent of financial instruments measured at fair value as of December 31, 2013.

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The following tables present information about WashingtonFirst’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of June 30, 2014 and December 31, 2013, respectively, and indicates the fair value hierarchy of the valuation techniques used by WashingtonFirst to determine such fair value:



Table 19.1: Summary of Assets and Liabilities Measured at Fair Value
As of June 30, 2014
	Level 1		Level 2		Level 3		Total
	(in thousands)
Recurring:
Assets:
U.S. Treasuries	$	3,017	$	—	$	—	$	3,017
U.S. Government agencies	—		53,874		—		53,874
Mortgage-backed securities	—		53,335		—		53,335
Collateralized mortgage obligations	—		47,031		—		47,031
Taxable state and municipal securities	—		12,837		—		12,837
Tax-exempt state and municipal securities	—		5,905		—		5,905
Total recurring assets at fair value	$	3,017	$	172,982	$	—	$	175,999

Nonrecurring:
Assets:
Impaired loans (1)	$	—	$	—	$	37,242	$	37,242
Other real estate owned (2)	—		—		889		889
Total nonrecurring assets at fair value	$	—	$	—	$	38,131	$	38,131



As of December 31, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Recurring:
Assets:
U.S. Treasuries	$	2,996	$	—	$	—	$	2,996
U.S. Government agencies	—		38,039		—		38,039
Mortgage-backed securities	—		43,854		—		43,854
Collateralized mortgage obligations	—		42,717		—		42,717
Taxable state and municipal securities	—		12,170		—		12,170
Tax-exempt state and municipal securities	—		5,591		—		5,591
Total recurring assets at fair value	$	2,996	$	142,371	$	—	$	145,367

Nonrecurring:
Assets:
Impaired loans (1)	$	—	$	—	$	34,723	$	34,723
Other real estate owned (2)	—		—		1,463		1,463
Total nonrecurring assets at fair value	$	—	$	—	$	36,186	$	36,186


(1)	Includes loans that have been measured for impairment at the fair value of the loans’ collateral.


(2)	Other real estate owned is transferred from loans to OREO at the lower of cost or market.

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The following table presents additional information about assets and liabilities measured at fair value on a recurring basis for which WashingtonFirst has used significant level 3 inputs to determine fair value. Net transfers in and/or out of level 3 are based on the fair values of the assets and liabilities as of the beginning of the reporting period.



Table 19.2: Change in Level 3 Fair Value Assets
	For the Three Months Ended				For the Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
	(in thousands)
Balance at beginning of period	$	—	$	51	$	—	$	106
Unrealized gains	—		4		—		(51		)
Balance at end of period	$	—	$	55	$	—	$	55

Fair Value of Financial Instruments



Table 19.3: Estimated Fair Values and Carrying Values for Financial Assets, Liabilities and Commitments
	June 30, 2014				December 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in thousands)
Cash and cash equivalents	$	221,554	$	221,554	$	109,164	$	109,164
Investment securities	175,999		175,999		145,367		145,367
Other equity securities	3,737		3,737		3,530		3,530
Loans held for sale	2,203		2,203		—		—
Loans held for investment, net	942,546		937,571		829,586		824,881
Bank-owned life insurance	12,951		12,951		10,283		10,283
Time deposits	364,433		366,757		324,369		325,946
Other borrowings	13,338		13,338		10,157		10,157
FHLB advances	53,236		53,651		43,478		43,681
Long-term borrowings	9,940		9,940		9,854		9,854

The following methods and assumptions were used in estimating the fair value of the financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis:

Cash and cash equivalents. The carrying amount of cash and cash equivalents approximates fair value. As such they are classified as level 1 for non-interest-bearing deposits and level 2 for interest-bearing deposits due from banks or federal funds sold.

Investment securities. The fair value techniques and classification within the fair value hierarchy are discussed above under “Recurring Fair Value Measurements and Classification.”

Other equity securities. The fair value of other equity securities is not practical to determine due to the restrictions placed on transferability. Therefore, in the table above the fair value reported is the carrying amount.

Loans held for sale. The fair value of loans held for sale is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale.

Loans, net. For variable rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. For all other loans, fair values are calculated by discounting the contractual cash flows using estimated market discount rates which reflect the credit and interest rate risk inherent in the loans, or by using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Therefore, the loans reported at fair value result in a level 2 classification.

Bank-owned life insurance. The fair value of bank-owned life insurance is based on the cash surrender value provide by the insurance provider, resulting in a level 3 classification.

Deposits. The fair value of deposits with no stated maturity, such as demand, interest checking and money market, and savings accounts, is equal to the amount payable on demand at year-end, resulting in a level 1 classification. The fair value of certificates of deposit is based on the discounted value of contractual cash flows using the rates currently offered for deposits of similar remaining maturities thereby resulting in a level 2 classification.

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Other borrowings. The carrying value of other borrowing, which consists of customer repurchase agreements, approximates the fair value as of the reporting date, therefore resulting in a level 2 classification.

FHLB advances. The fair value of FHLB advances is based on the discounted value of future cash flows using interest rates currently being offered for FHLB advances with similar terms and characteristics thereby resulting in a level 2 classification.

Long-term borrowings. The fair value of long-term borrowing, which consists of subordinated debt and trust preferred securities are based on the discounted value of future cash flows using interest rates currently being offered for FHLB advances with similar terms and characteristics thereby resulting in a level 2 classification.

20. SUBSEQUENT EVENTS

On July 21, 2014, the Board of Directors declared a five percent (5%) stock dividend on the Company's outstanding shares of common stock and Series A non-voting common stock. The dividend shares will be distributed on or about September 2, 2014 to stockholders of record at the close of business on August 12, 2014. The Company will pay cash in lieu of fractional shares.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of financial condition and results of operations should be read together with: (1) the interim unaudited consolidated financial statements and the related notes that appear elsewhere in this report; and (2) WashingtonFirst’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 19, 2014.

The discussion below and the other sections to which WashingtonFirst has referred you contains management’s comments on WashingtonFirst’s business strategy and outlook, such discussions contain forward-looking statements. These forward-looking statements reflect the expectations, beliefs, plans and objectives of management about future financial performance and assumptions underlying management’s judgment concerning the matters discussed, and accordingly, involve estimates, assumptions, judgments and uncertainties. WashingtonFirst’s actual results could differ materially from those discussed in the forward-looking statements and the discussion below is not necessarily indicative of future results. Factors that could cause or contribute to any differences include, but are not limited to, those discussed below and elsewhere in this report, particularly in Item 1A “Risk Factors” in WashingtonFirst’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 19, 2014 and below in “Cautionary Note Regarding Information Regarding Forward-Looking Statements.”

Cautionary Note Regarding Forward-Looking Statements

This report, as well as other periodic reports filed with the SEC, and written or oral communications made from time to time by or on behalf of WashingtonFirst, may contain statements relating to future events or future results and their effects that are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “intend” and “potential,” or words of similar meaning, or future or conditional verbs such as “should,” “could,” or “may” or the negative of those terms or other variations of them or comparable terminology. Forward-looking statements include statements of WashingtonFirst’s goals, intentions and expectations; statements regarding its business plans, prospects, growth and operating strategies; statements regarding the quality of its loan and investment portfolios; and estimates of its risks and future costs and benefits.

Forward-looking statements reflect our expectation or prediction of future conditions, events or results based on information currently available. These forward-looking statements are subject to significant risks and uncertainties that may cause actual results to differ materially from those in such statements. These risk and uncertainties include, but are not limited to, the risks identified in Item 1A “Risk Factors” in WashingtonFirst’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 19, 2014 and the following:


•	competition among financial services companies may increase and adversely affect operations of WashingtonFirst;


•	changes in the level of nonperforming assets and charge-offs;


•	changes in the availability of funds resulting in increased costs or reduced liquidity;


•	changes in accounting policies, rules and practices;


•	changes in the assumptions underlying the establishment of reserves for possible loan losses and other estimates;


•	impairment concerns and risks related to WashingtonFirst’s investment portfolio, and the impact of fair value accounting, including income statement volatility;


•	changes in the interest rate environment and market prices may reduce WashingtonFirst’s net interest margins, asset valuations and expense expectations;


•	general business and economic conditions in the markets WashingtonFirst serves change or are less favorable than expected;


•	legislative or regulatory changes adversely affect WashingtonFirst’s businesses;


•	reactions in financial markets related to potential or actual downgrades in the sovereign credit rating of the United States and the budget deficit or national debt of the United States government;


•	changes in the way the FDIC insurance premiums are assessed;


•	increase in personal or commercial bankruptcies or defaults; and


•	technology-related changes are harder to make or more expensive than expected.

Forward-looking statements included herein speak only as of the date of this report. WashingtonFirst does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of this report or to reflect the occurrence of unanticipated events except as required by federal securities laws.

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Overview

WashingtonFirst generates the majority of its revenues from interest income on loans, income from investment securities, and service charges on customer accounts. Revenues are partially offset by interest expense paid on deposits and other borrowings, and non-interest expenses such as compensation and employee benefits, other operating costs and occupancy expenses. Net interest income is the difference between interest income on earning assets such as loans and securities and interest expense on liabilities such as the deposits and borrowings used to fund those assets. Net interest income is the Company’s largest source of revenue. Net interest income for the three and six months ended June 30, 2014 was $12.1 million and $22.5 million, respectively, compared to $9.8 million and $20.0 million for the same periods in 2013. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and margin.

Net income available to common shareholders was $2.4 million and $3.9 million for the three and six months ended June 30, 2014, compared to $1.5 million and $2.9 million for the same periods in 2013, respectively. Diluted earnings per share were $0.29 per common share and $0.48 per common share for the three and six months ended June 30, 2014, compared to $0.18 per common shares and $0.36 per common share for the same periods in 2013. The increase in net income available to common shareholders during the first six months of 2014 compared to the first six months of 2013 is primarily the result of an increased average balance in interest earning assets due to organic growth of the Bank (notably the loan portfolio showed strong growth during the second quarter of 2014) and the Millennium Transaction at the end of February 2014. In addition to the increased revenues earned as a result of the larger loan portfolio, increased costs were incurred during the first six months of 2014 compared to the same period in 2013. Compensation and employee benefit expenses for the six months ended June 30, 2014 increased by $1.9 million compared to same period in 2013 primarily due to an increase in the number of employees as the bank continues to grow. Premises and equipment expenses increased by $0.2 million for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 primarily due to the increase in number of branches. The Company’s other operating expenses, which encompass multiple other necessary business and operational expenditures, also increased by 0.2 million for the six months ended June 30, 2014, compared to the six months ended June 30, 2013.

As of June 30, 2014 and December 31, 2013, total assets were $1.4 billion and $1.1 billion, respectively. Total net loans increased $113.0 million from December 31, 2013 to June 30, 2014. Tier 1 capital increased by $1.1 million to $113.9 million as of June 30, 2014, compared to $112.8 million as of December 31, 2013.

As of June 30, 2014, WashingtonFirst had $12.0 million in nonperforming assets, a decrease of $10.3 million from December 31, 2013. Allowance for loan losses decreased by 0.2 million during the six months ended June 30, 2014 compared to December 31, 2013. The decrease in the allowance was driven by $1.7 million in charge-offs, partially offset by provision for loan losses of $1.3 million and recoveries of $0.2 million. This resulted in a $8.3 million allowance for loan losses as of June 30, 2014, compared to $8.5 million as of December 31, 2013.

A further discussion of WashingtonFirst’s financial condition and results of operations is contained in the following sections.

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments. Certain policies inherently rely to a greater extent on the use of estimates, assumptions, and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary for assets and liabilities that are required to be recorded at fair value. A decline in the value of assets required to be recorded at fair value will warrant an impairment write-down or valuation allowance to be established. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when readily available. Management believes the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results:


•	allowance for loan losses;


•	goodwill and other intangible asset impairment;


•	accounting for income taxes; and,


•	fair value measurements.

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Allowance for Loan Losses

Management believes that the allowance is adequate to absorb losses inherent in the loan portfolio. However, its determination of the allowance requires significant judgment, and estimates of probable losses in the lending portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize probable losses, future additions or reductions to the allowance may be necessary based on changes in the loans comprising the portfolio and changes in the financial condition of borrowers, resulting from changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, and independent consultants engaged by the Company periodically review the loan portfolio and the allowance. Such reviews may result in additional provisions based on their judgments of information available at the time of each examination.

The Company’s allowance for loan and lease losses has two basic components: a general allowance reflecting historical losses by loan category, as adjusted by several factors the effects of which are not reflected in historical loss ratios, and specific allowances for individually identified loans. Each of these components, and the allowance methodology used to establish them, are described in detail in Note 2 of the Notes to the Consolidated Financial Statements included in this report. The amount of the allowance is reviewed monthly by the board of directors.

General allowances are based upon historical loss experience by portfolio segment measured over the prior 12 quarters. The historical loss experience is supplemented to address various risk characteristics of the Company’s loan portfolio including:


•	trends in delinquencies and other non-performing loans;


•	changes in the risk profile related to large loans in the portfolio;


•	changes in the categories of loans comprising the loan portfolio;


•	concentrations of loans to specific industry segments;


•	changes in economic conditions on both a local and national level;


•	changes in the Company’s credit administration and loan portfolio management processes; and


•	quality of the Company’s credit risk identification processes.

The general allowance constituted 62.9 percent of the total allowance at June 30, 2014 and 53.2 percent percent at December 31, 2013. The general allowance is calculated in two parts based on an internal risk classification of loans within each portfolio segment. Allowances on loans considered to be impaired under regulatory guidance are calculated separately from loans considered to be “pass” rated under the same guidance. This segregation allows the Company to monitor the allowance applicable to higher risk loans separate from the remainder of the portfolio in order to better manage risk and ensure the sufficiency of the allowance for loan losses. The loans acquired in the Millennium Transaction were recorded at fair value, and the original credit marks from purchase accounting are not affecting the allowance for loan losses as of June 30, 2014. Allowances on those loans subsequent to the acquisition have been recorded in the allowance for loan losses.

As of June 30, 2014, the specific allowance accounted for 37.1 percent percent of the total allowance as compared to 46.8 percent percent at December 31, 2013. The estimated losses on impaired loans can differ substantially from actual losses. The portion of the allowance representing specific allowances is established on individually impaired loans. As a practical expedient, for collateral dependent loans, the Company measures impairment based on the net realizable value of the underlying collateral. For loans on which the Company has not elected to use a practical expedient to measure impairment, the Company will measure impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate. In determining the cash flows to be included in the discount calculation the Company considers the following factors that combine to estimate the probability and severity of potential losses:


•	the borrower’s overall financial condition;


•	resources and payment record;


•	demonstrated or documented support available from financial guarantors; and


•	the adequacy of collateral value and the ultimate realization of that value at liquidation.

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Goodwill and Other Intangible Asset Impairment

Goodwill represents the excess purchase price paid over the fair value of the net assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Impairment testing requires that the fair value be compared to the carrying amount of net assets, including goodwill. If the net fair value exceeds the net book value, no write-down of recorded goodwill is required. If the fair value is less than book value, an expense may be required to write-down the related goodwill to the proper carrying value. The Company tests for impairment of goodwill as of each fiscal year end and again at any quarter-end if any triggering events occur during a quarter that may affect goodwill. Examples of such events include, but are not limited to, a significant deterioration in future operating results, adverse action by a regulator or a loss of key personnel. Determining the fair value requires the Company to use a degree of subjectivity. Washington First recognized approximately $2.6 million of goodwill as a part of the Millennium Transaction. No goodwill impairment was recognized for the six months ended June 30, 2014 and 2013.

Core deposit intangible assets arise when a bank has a stable deposit base comprised of funds associated with long-term customer relationships. The intangible asset value derives from customer relationships that provide a low-cost source of funding. In connection with the Millennium Transaction in 2014 and the acquisition of Alliance in 2012, the Company recorded $0.5 million and $0.4 million of core deposit intangibles, respectively, which is presented in the intangibles line item on the consolidated balance sheet. These are being amortized over a five year or eight year period, depending on the nature of the deposits underlying the intangible.

Accounting for Income Taxes

The Company accounts for income taxes by recording deferred income taxes that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Management exercises significant judgment in the evaluation of the amount and timing of the recognition of the resulting tax assets and liabilities. The judgments and estimates required for the evaluation are updated based upon changes in business factors and the tax laws. If actual results differ from the assumptions and other considerations used in estimating the amount and timing of tax recognized, there can be no assurance that additional expenses will not be required in future periods. The Company’s accounting policy follows the prescribed authoritative guidance that a minimal probability threshold of a tax position must be met before a financial statement benefit is recognized. The Company recognized, when applicable, interest and penalties related to unrecognized tax benefits in other non-interest expenses in its consolidated statements of income. Assessment of uncertain tax positions requires careful consideration of the technical merits of a position based on management’s analysis of tax regulations and interpretations. Significant judgment may be involved in applying the applicable reporting and accounting requirements.

Management expects that the Company’s adherence to the required accounting guidance may result in increased volatility in quarterly and annual effective income tax rates due to the requirement that any change in judgment or measurement of a tax position taken in a prior period be recognized as a discrete event in the period in which it occurs. Factors that could impact management’s judgment include changes in income, tax laws and regulations, and tax planning strategies.

Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value in accordance with applicable accounting standards. Significant financial instruments measured at fair value on a recurring basis are investment securities available-for-sale, residential mortgages held for sale and commercial loan interest rate swap agreements. Loans where it is probable that the Company will not collect all principal and interest payments according to the contractual terms are considered impaired loans and are measured on a nonrecurring basis.

The Company conducts a quarterly review for all investment securities that have potential impairment to determine whether unrealized losses are other-than-temporary. Valuations for the investment portfolio are determined using quoted market prices, where available. If quoted market prices are not available, valuations are based on pricing models, quotes for similar investment securities, and, where necessary, an income valuation approach based on the present value of expected cash flows. In addition, the Company considers the financial condition of the issuer, the receipt of principal and interest according to the contractual terms and the intent and ability of the Company to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value. See Note 5 of the Notes to the Consolidated Financial Statements included in this report.

Millennium Transaction

On February 28, 2014, the Company entered into a purchase and assumption agreement with the FDIC to assume all of the deposits and certain assets of Millennium Bank, NA, a federally chartered commercial bank headquartered in Sterling, Virginia. Millennium operated two branches in Virginia – Sterling and Herndon. These branches reopened Monday, March 3, 2014 as branches of WashingtonFirst.

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value of net liabilities assumed exceeded cash received in the transaction resulting in goodwill or $2.6 million being recorded. The Company also recorded $0.5 million in core deposit intangibles which will be amortized over five to eight years, depending on the underlying instrument.

Results of Operations

WashingtonFirst’s net income available to common shareholders for the second quarter 2014 was $2.4 million or $0.29 per fully diluted common share, compared to $1.5 million or $0.18 per fully diluted common share for second quarter 2013. For the six months ended June 30, 2014, WashingtonFirst’s net income available to common shareholders was $3.9 million or $0.48 per fully diluted common share, compared to $2.9 million or $0.36 per fully diluted common share for the six months ended June 30, 2013. Basic net income per common share for the three and six months ended June 30, 2014 was $0.30 per common share and $0.49 per common share, respectively, compared to $0.19 per common share and $0.37 per common share for the same periods in 2013. The increase in net income during the first six months of 2014 as compared to the same period in 2013 is primarily the result of the overall increased average balance of interest earning assets and the Millennium Transaction at the end of February 2014. The following sections provide more detail regarding specific components of WashingtonFirst’s results of operations.



Table M1: Selected Performance Ratios
	For the Three Months Ended						For the Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(dollars in thousands)
Average total assets	$	1,256,503		$	1,052,252		$	1,210,423		$	1,050,054
Average shareholders' equity	112,984			105,297			111,475			104,455
Net income	2,430			1,550			4,038			3,003
Return on average assets (1)	0.78		%	0.59		%	0.67		%	0.58		%
Return on average shareholders' equity (1)	8.63		%	5.90		%	7.30		%	5.80		%
Return on average common equity (1)	10.05		%	6.90		%	8.50		%	6.78		%
Average shareholders' equity to average total assets	8.99		%	10.01		%	9.21		%	9.95		%
Efficiency ratio	64.24		%	66.95		%	68.21		%	66.99		%
Dividend payout ratio	13.33		%	—		%	16.33		%	—		%
(1) Annualized

Net Interest Income.

Net interest income for the three and six months ended June 30, 2014 was $12.1 million and $22.5 million, respectively, compared to $9.8 million and $20.0 million for the same periods in 2013, respectively. The overall net interest margin was 3.93 percent and 3.81 percent for the three and six months ended June 30, 2014 compared to 3.81 percent and 3.90 percent for the three and six months ended June 30, 2013. The decrease in net interest margin for the six months ended June 30, 2014 compared to the same period in 2013 is primarily the result of a lower yield on the loan portfolio in the first half of 2014 compared to the first half of 2013, however, yield on loans improved during the three months ended June 30, 2014, and was 8 basis points higher than the yield on loans during the three months ended June 30, 2013.

The following tables provide information regarding interest-earning assets and funding for the three and six months ended June 30, 2014 and 2013. The balance of non-accruing loans is included in the average balance of loans presented, though the related income is accounted for on a cash basis. Therefore, as the balance of non-accruing loans and the income received increases or decreases, the net interest yield will fluctuate accordingly. The lower average rate on interest-bearing demand deposits, money market deposit accounts and savings accounts is consistent with general trends in average short-term rates during the periods presented. The downward trend in the average rate on time deposits reflects the maturity of older time deposits and the issuance of new time deposits at lower market rates.

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Table M2: Average Balances, Interest Income and Expense and Average Yield and Rates - 3 Months
	For the Three Months Ended
	June 30, 2014							June 30, 2013
	Average Balance			Income/ Expense		Yield/ Rate (6)		Average Balance			Income/ Expense		Yield/ Rate (6)
	(dollars in thousands)
Assets
Interest-earning assets:
Loans (1)	$	910,596		$	12,993	5.64	%	$	774,894		$	10,895	5.56	%
Investment securities - taxable	166,625			729		1.73	%	111,960			402		1.42	%
Investment securities - tax-exempt (2)	5,861			39		3.31	%	5,942			38		3.23	%
Other equity securities	3,411			42		4.80	%	3,047			36		4.70	%
Interest-bearing balances	13,447			21		0.62	%	9,963			14		0.55	%
Federal funds sold	119,386			68		0.23	%	113,071			58		0.21	%
Total interest earning assets	1,219,326			13,892		4.51	%	1,018,877			11,443		4.45	%
Non-interest earning assets:
Cash and due from banks	3,755							4,784
Premises and equipment	5,861							3,383
Other real estate owned	991							2,249
Other assets (3)	34,573							29,365
Less: allowance for loan losses	(8,003		)					(6,406		)
Total non-interest earning assets	37,177							33,375
Total Assets	$	1,256,503						$	1,052,252

Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	94,253		$	48	0.20	%	$	95,789		$	44	0.18	%
Money market deposit accounts	218,346			265		0.49	%	116,812			146		0.50	%
Savings accounts	124,660			218		0.70	%	101,207			$	151	0.60	%
Time deposits	365,784			850		0.93	%	358,238			946		1.06	%
Total interest-bearing deposits	803,043			1,381		0.69	%	672,046			$	1,287	0.77	%
FHLB advances	46,056			212		1.82	%	32,772			163		1.97	%
Other borrowings and long-term borrowings	19,252			182		3.77	%	26,664			$	182	2.73	%
Total interest-bearing liabilities	868,351			1,775		0.82	%	731,482			1,632		0.89	%
Non-interest-bearing liabilities:
Demand deposits	270,023							210,076
Other liabilities	5,145							5,397
Total non-interest-bearing liabilities	275,168							215,473
Total Liabilities	1,143,519							946,955
Shareholders’ Equity	112,984							105,297
Total Liabilities and Shareholders’ Equity	$	1,256,503						$	1,052,252

Interest Spread (4)						3.69	%						3.56	%
Net Interest Margin (2)(5)				$	12,117	3.93	%				$	9,811	3.81	%


(1)	Includes loans held for sale and loans placed on non-accrual status.


(2)	Interest income and yield are presented on a fully taxable equivalent basis using a federal statutory rate of 35 percent.


(3)	Includes intangibles, deferred tax asset, accrued interest receivable, bank-owned life insurance and other assets.


(4)	Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities.


(5)	Net interest margin is net interest income, expressed as a percentage of average earning assets.


(6)	Annualized income/expense is used for the yield/rate.

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Table M3: Average Balances, Interest Income and Expense and Average Yield and Rates - 6 Months
	For the Six Months Ended
	June 30, 2014							June 30, 2013
	Average Balance			Income/ Expense		Yield/ Rate (6)		Average Balance			Income/ Expense		Yield/ Rate (6)
	(dollars in thousands)
Assets
Interest-earning assets:
Loans (1)	$	886,006		$	24,194	5.43	%	$	764,036		$	21,943	5.71	%
Investment securities - taxable	158,450			1,395		1.75	%	114,927			906		1.57	%
Investment securities - tax-exempt (2)	5,845			86		3.74	%	5,944			76		3.26	%
Other equity securities	3,532			70		3.91	%	3,317			54		3.23	%
Interest-bearing balances	11,226			34		0.62	%	10,022			28		0.57	%
Federal funds sold	109,570			126		0.23	%	119,538			133		0.22	%
Total interest earning assets	1,174,629			25,905		4.39	%	1,017,784			23,140		4.53	%
Non-interest earning assets:
Cash and due from banks	3,709							4,485
Premises and equipment	5,764							3,423
Other real estate owned	1,177							2,653
Other assets (3)	33,406							28,092
Less: allowance for loan losses	(8,262		)					(6,383		)
Total non-interest earning assets	35,794							32,270
Total Assets	$	1,210,423						$	1,050,054

Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	90,404		$	95	0.21	%	$	87,583		$	89	0.20	%
Money market deposit accounts	207,275			505		0.49	%	111,858			292		0.53	%
Savings accounts	120,283			449		0.75	%	99,498			374		0.76	%
Time deposits	360,958			1,554		0.87	%	360,076			1,691		0.95	%
Total interest-bearing deposits	778,920			2,603		0.67	%	659,015			2,446		0.75	%
FHLB advances	46,094			415		1.79	%	36,523			389		2.12	%
Other borrowings and long-term borrowings	18,649			361		3.88	%	25,857			329		2.55	%
Total interest-bearing liabilities	843,663			3,379		0.81	%	721,395			3,164		0.88	%
Non-interest-bearing liabilities:
Demand deposits	250,174							217,992
Other liabilities	5,111							6,212
Total non-interest-bearing liabilities	255,285							224,204
Total Liabilities	1,098,948							945,599
Shareholders’ Equity	111,475							104,455
Total Liabilities and Shareholders’ Equity	$	1,210,423						$	1,050,054

Interest Spread (4)						3.58	%						3.65	%
Net Interest Margin (2)(5)				$	22,526	3.81	%				$	19,976	3.90	%


(1)	Includes loans held for sale and loans placed on non-accrual status.


(2)	Interest income and yield are presented on a fully taxable equivalent basis using a federal statutory rate of 35 percent.


(3)	Includes intangibles, deferred tax asset, accrued interest receivable, bank-owned life insurance and other assets.


(4)	Interest spread is the average yield earned on earning assets, less the average rate incurred on interest bearing liabilities.


(5)	Net interest margin is net interest income, expressed as a percentage of average earning assets.


(6)	Annualized income/expense is used for the yield/rate.

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The following tables set forth information regarding the changes in the components of WashingtonFirst’s net interest income for the periods indicated. For each category, information is provided for changes attributable to changes in volume (change in volume multiplied by old rate) and changes in rate (change in rate multiplied by old volume). Combined rate/volume variances, the third element of the calculation, are allocated based on their relative size. The decreases in income due to changes in rate reflect the reset of variable rate investments, variable rate deposit accounts and adjustable rate mortgages to lower rates and the acquisition of new lower yielding investments and loans, as described above. The decreases in expense reflects the decreased cost of funding due to lower interest rates available in the debt markets. The increases due to changes in volume reflect the increase in on-balance sheet assets during the three and six months ended June 30, 2014 and 2013.



Table M4: Changes in Rate and Volume Analysis
	For the Three Months Ended June 30, 2014 Compared to Same Period 2013								For the Six Months Ended June 30, 2014 Compared to Same Period 2013
	(Decrease)/Increase Due to								(Decrease)/Increase Due to
	Rate			Volume			Total		Rate			Volume			Total
	(in thousands)
Income from interest-earning assets:
Loans	$	159		$	1,939		$	2,098	$	(2,744	)	$	4,995		$	2,251
Investment securities - taxable	101			226			327		114			375			489
Investment securities - tax exempt	4			(3		)	1		15			(5		)	10
Other equity securities	1			5			6		12			4			16
Interest bearing balances	2			5			7		3			3			6
Federal funds sold	6			4			10		13			(20		)	(7		)
Total income from interest-earning assets	273			2,176			2,449		(2,587		)	5,352			2,765
Expense from interest-bearing liabilities:
Interest-bearing deposits	(669		)	763			94		(607		)	764			157
FHLB Advances	(75		)	124			49		(142		)	168			26
Borrowed funds	234			(234		)	—		260			(228		)	32
Total expense from interest-bearing liabilities	(510		)	653			143		(489		)	704			215
Increase in net interest income	$	783		$	1,523		$	2,306	$	(2,098	)	$	4,648		$	2,550

Interest Earning Assets

Average loan balances were $886.0 million for the six months ended June 30, 2014 compared to $764.0 million for the six months ended June 30, 2013. The related interest income from loans was $24.2 million for the six months ended June 30, 2014 resulting in an average yield of 5.43 percent, compared to $21.9 million for the six months ended June 30, 2013, resulting in an average yield of 5.71 percent. The decrease in average yield on loans reflects competitive pressure on loan pricing during the period (including the repricing of adjustable rate loans) and the effects of purchase accounting marks being fully recognized on loans paid off early during the first half of 2014. Interest rates are established for classes of loans that include variable rates based on the prime rate as reported by The Wall Street Journal or other identifiable bases while others carry fixed rates with terms as long as 15 years. Most variable rate originations include minimum initial rates and/or floors.

Taxable investment securities balances averaged $158.5 million for the six months ended June 30, 2014, compared to $114.9 million for the same period in 2013. Interest income generated on these investment securities for the six months ended June 30, 2014 totaled $1.4 million, or a 1.75 percent yield, compared to $0.9 million or a 1.57 percent yield for the six months ended June 30, 2013.

Tax-exempt investment securities balances averaged $5.8 million for the six months ended June 30, 2014, compared to $5.9 million for the same period in 2013. Interest income generated on these investment securities for the six months ended June 30, 2014 totaled $0.1 million, or a 3.74 percent yield, compared to $0.1 million or a 3.26 percent yield for the six months ended June 30, 2013. The yield for tax-exempt securities has been presented a a fully taxable equivalent.

Interest-bearing balances averaged $11.2 million for the six months ended June 30, 2014, compared to $10.0 million for the same period in 2013. The increase in the average investment securities was primarily a result of shifting excess cash reserves into the investment portfolio. Interest income generated on these investment securities for the six months ended June 30, 2014 totaled $34,000, or a 0.62 percent yield, compared to $28,000 or a 0.57 percent yield for the six months ended June 30, 2013.

Short-term investments in federal funds sold averaged $109.6 million as of June 30, 2014, compared to $119.5 million as of June 30, 2013. The decrease in average short-term investments as of June 30, 2014 compared to June 30, 2013 is primarily a result of the

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excess federal funds sold balances in the first quarter 2013 due to the Alliance acquisition in December 2012. Interest income generated on these assets for the six months ended June 30, 2014 totaled $0.1 million, or a 0.23 percent yield, compared to $0.1 million or a 0.22 percent yield for the same period in 2013.

Interest Bearing Liabilities

Average interest-bearing deposits were $778.9 million as of June 30, 2014 compared to $659.0 million as of June 30, 2013. The increase in the average interest-bearing deposits during the the first half of 2014 was the result of organic growth and the Millennium Transaction at the end of February 2014. The related interest expense from interest-bearing deposits was $2.6 million for the six months ended June 30, 2014, compared to $2.4 million for the six months ended June 30, 2013. The average rate on these deposits was 0.67 percent for the six months ended June 30, 2014, compared to 0.75 percent for the same period in 2013. The increase in interest expense is primarily attributable to an increase in the average balance of interest bearing liabilities as well as changes in the mix of deposit funding.

FHLB advances averaged $46.1 million as of June 30, 2014, compared to $36.5 million as of June 30, 2013. Interest expense incurred on these borrowing for the six months ended June 30, 2014 totaled $0.4 million, or a 1.79 percent rate, compared to $0.4 million, or a 2.12 percent rate, for the six months ended June 30, 2013.

Provision for Loan Losses. During the three months ended June 30, 2014, WashingtonFirst recorded provisions to its allowance for loan losses of $0.8 million, charge-offs of $0.4 million and recoveries of $0.1 million, compared to provisions to its allowance for loan losses of $1.0 million, charge-offs of $1.3 million and recoveries of $39,000 during the three months ended June 30, 2013. During the six months ended June 30, 2014, WashingtonFirst recorded provisions to its allowance for loan losses of $1.3 million, charge-offs of $1.7 million and recoveries of $0.2 million, compared to provisions to its allowance for loan losses of $2.1 million, charge-offs of $2.5 million and recoveries of $0.1 million during the six months ended June 30, 2013.

Service Charges on Deposit Accounts. Service charges on deposit accounts were $0.1 million for both the three months ended June 30, 2014 and 2013. For the six months ended June 30, 2014 and 2013, service charges on deposit accounts were $0.2 million and $0.3 million, respectively.

Earnings on bank-owned life insurance. Earnings on bank-owned life insurance was $0.1 million for both the three months ended June 30, 2014 and 2013. During the six months ended June 30, 2014 and 2013, earnings on bank-owned life insurance was $0.2 million and $0.1 million, respectively.

Gain on sale of other real estate owned. During the three and six months ended June 30, 2014, WashingtonFirst realized net gains of $5,000 and $0.1 million, respectively, on sale or OREO properties, compared to $0.1 million and $0.2 million for the same periods in 2013. See Note 8 - Other Real Estate Owned for further details.

Gain on Sale of Loans. During the three and six months ended June 30, 2014, WashingtonFirst realized gains on the sale of loans of $56,000 and $73,000, respectively, as a result of the newly created mortgage business. No loans were sold in the three and six months ended June 30, 2013.

Gain/Loss on Sale of Available-for-Sale Investment Securities. During the three and six months ended June 30, 2014, WashingtonFirst received proceeds of $0.1 million and $13.7 million, respectively, from the call or sale of securities from its available-for-sale investment portfolio resulting in gross realized gains of $1,000 and $0.1 million, respectively. During both the three and six months ended June 30, 2013, WashingtonFirst received proceeds of $2.5 million from the call or sale of securities from its available-for-sale investment portfolio, resulting in gross realized losses of $20,000.

Other Operating Income. During the three and six months ended June 30, 2014, WashingtonFirst recorded $0.1 million and $0.3 million, respectively, of other operating income compared to $0.1 million and $0.2 million, respectively, for the same period in 2013. This increase is primarily the result of the overall increased size of the Bank resulting in greater transaction fee income.

Compensation and Employee Benefits. Compensation and employee benefits were $4.5 million and $8.6 million for the three and six months ended June 30, 2014, respectively, compared to $3.4 million and $6.7 million, respectively, for the same periods in 2013. The increase in compensation and employee benefits in 2014 compared to 2013 is primarily the result of increased headcount as the bank continues to grow, specifically the staffing of its newly created mortgage division and the additional branch locations.

Premises and Equipment. Premises and equipment expenses were $1.4 million and $2.9 million for the three and six months ended June 30, 2014, respectively, compared to $1.4 million and $2.8 million, respectively, for the same periods in 2013. The increase was primarily due to the increase in rent expense associated with the addition of the new branches in Rockville, Maryland, and Herndon, Virginia.

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Data Processing. Data processing expenses were $0.7 million and $1.4 million for the three and six months ended June 30, 2014, respectively, compared to $0.7 million and $1.7 million, respectively, for the same periods in 2013. The decrease was primarily due to cost efficiencies related to the hiring of in-house IT employees leading to decreased reliance on more costly third party contracting.

Professional Fees. Professional fees, which includes legal, accounting and other professional services, were $0.3 million and $0.7 million for both the three and six months ended June 30, 2014 and 2013, respectively.

Other Operating Expenses. Other operating expenses were $1.1 million and $2.4 million for the three and six months ended June 30, 2014, respectively, compared to $1.1 million and $2.2 million during the same periods in 2013. See Note 18 - Other Expenses for further details.

Financial Condition

Total assets were $1.4 billion as of June 30, 2014, compared to $1.1 billion as of December 31, 2013. As of June 30, 2014, WashingtonFirst had $221.6 million of cash and cash equivalents, compared to $109.2 million as of December 31, 2013. As of June 30, 2014, WashingtonFirst had $942.5 million of loans held for investment, net of allowance for loan losses, compared to $829.6 million as December 31, 2013. As of June 30, 2014, WashingtonFirst had $176.0 million of investments, compared to $145.4 million as December 31, 2013.

As of June 30, 2014 and December 31, 2013, total deposits were $1.2 billion and $948.9 million, respectively.

As of June 30, 2014, WashingtonFirst had total equity of $113.4 million, compared to $107.6 million as of December 31, 2013. The increase in total equity during the six months ended June 30, 2014 is primarily the result of current earnings and stock related transactions, partially offset by dividends.

Loans Held for Sale

Loans in this category are originated by the Mortgage Division and comprised of residential mortgage loans extended to consumers and underwritten in accordance with standards set forth by an institutional investor to whom we expect to sell the loans. Loan proceeds are used for the purchase or refinance of the property securing the loan. Loans and servicing are sold concurrently. The LHFS loans are closed in our name and carried on our books until the loan is delivered to and purchased by an investor, generally within fifteen to forty-five days. WashingtonFirst’s Mortgage Division was recently created and commenced production in the first quarter of 2014. As of June 30, 2014, loans held for sale totaled $2.2 million. The amount of loans held for sale outstanding at the end of any given month fluctuates with the volume of loans closed during the month and the timing of loans purchased by investors.

Loans Held for Investment

In its lending activities, WashingtonFirst seeks to develop relationships with clients whose business and individual banking needs will grow with WashingtonFirst. WashingtonFirst has made significant efforts to be responsive to the lending needs in the markets served, while maintaining sound asset quality and credit practices. WashingtonFirst extends credit to construction and development, residential real estate, commercial real estate, commercial and industrial and consumer borrowers in the normal course of business. The loans held for investment portfolio totaled $950.9 million as of June 30, 2014, an increase of $112.8 million from the December 31, 2013 balance of $838.1 million.

The following table summarizes the composition of the loan portfolio by dollar amount and each segment as a percentage of the total loan portfolio as of June 30, 2014 and December 31, 2013:



Table M5: Loan Portfolio by Loan Class
	June 30, 2014				December 31, 2013
	Amount		Percent		Amount		Percent
	(dollars in thousands)
Construction and development	$	127,401	13.4	%	$	97,324	11.6	%
Commercial real estate	567,917		59.7	%	521,760		62.3	%
Residential real estate	115,238		12.1	%	95,428		11.4	%
Real estate loans	810,556		85.2	%	714,512		85.3	%
Commercial and industrial	131,116		13.8	%	120,833		14.4	%
Consumer	9,206		1.0	%	2,775		0.3	%
Total loans	$	950,878	100.0	%	$	838,120	100.0	%

Substantially all loans are initially underwritten based on identifiable cash flows and supported by appropriate advance rates on collateral, which is independently valued. Commercial and industrial loans are generally secured by accounts receivable, equipment

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and business assets. Commercial real estate loans are secured by owner-occupied or non-owner occupied commercial properties of all types. Construction and development loans are supported by projects which generally require an appropriate level of pre-sales or pre-leasing. Generally, all commercial and industrial loans and commercial real estate loans have full recourse to the owners and/or sponsors. Residential real estate loans are secured by first or second liens on both owner-occupied and investor-owned residential properties.

Loans secured by various types of real estate, which includes construction and development loans, commercial real estate loans, and residential real estate loans, constitute the largest portion of total loans. Of that portion, commercial real estate loans represent the largest dollar exposure. Substantially all of these loans are secured by properties in the greater Washington, D.C. metropolitan area with the heaviest concentration in Northern Virginia. Risk is managed through diversification by sub-market, property type, and loan size, and by seeking loans with multiple sources of repayment. The average outstanding loan balance in this portfolio is $0.4 million as of June 30, 2014.

Construction and development loans represented 13.4 percent and 11.6 percent of the total loan portfolio at June 30, 2014 and December 31, 2013, respectively. New originations in this segment are being underwritten in the context of current market conditions and are particularly focused in sub-markets which the Company believes to be relatively strong as compared to other markets in the region. Legacy loans, particularly in the land and speculative construction portion of this portfolio, have been largely converted to amortizing loans with regular principal and interest payments. WashingtonFirst expects any future reductions in its land and speculative construction exposure to be partially offset by increases in residential construction activities as market conditions improve.

Secured residential real estate loans represented 12.1 percent and 11.4 percent of total loans as of June 30, 2014 and December 31, 2013, respectively. In general, loans in these categories represent loans underwritten to customers who had or established a deposit relationship with the respective bank at the time the loan was originated. WashingtonFirst believes that its underwriting criteria reflect current market conditions.

The contractual maturity ranges or repricing schedules, as appropriate, of the loans in WashingtonFirst’s loan portfolio and the amount of such loans with predetermined interest rates and floating rates in each maturity range as of June 30, 2014 are summarized in the following table:



Table M6: Loan Portfolio Maturity Schedule by Loan Class
	As of June 30, 2014
	One Year or Less		One to Five Years		Over Five Years		Total
	(in thousands)
Construction and development	$	75,680	$	47,943	$	3,778	$	127,401
Commercial real estate	83,362		231,828		252,727		567,917
Residential real estate	10,081		27,154		78,003		115,238
Commercial and industrial	63,689		47,570		19,857		131,116
Consumer	1,003		6,086		2,117		9,206
Total loans	$	233,815	$	360,581	$	356,482	$	950,878

Loans with a predetermined interest rate	$	53,014	$	235,109	$	86,402	$	374,525
Loans with a floating or adjustable interest rate	180,801		125,472		270,080		576,353
Total loans	$	233,815	$	360,581	$	356,482	$	950,878

Asset Quality

WashingtonFirst separates its loans into the following categories, based on credit quality: pass; watch; special mention; substandard; doubtful; and loss. WashingtonFirst reviews the characteristics of each rating at least annually, generally during the first quarter of each year. For a discussion of the characteristics of these ratings, see Note 6 - Loans of WashingtonFirst’s Consolidated Financial Statements.

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Table M7: Held of Investment Loan Portfolio by Risk Rating and Loan Class
	As of June 30, 2014
Internal risk rating grades	Pass		Watch		Special Mention		Substandard		Doubtful		Total
Risk rating number	1 to 5		6		7		8		9
	(in thousands)
Construction and development	$	127,147	$	—	$	—	$	254	$	—	$	127,401
Commercial real estate	527,764		14,567		8,821		16,245		520		567,917
Residential real estate	111,133		1,706		1		2,398		—		115,238
Commercial and industrial	115,647		6,207		3,304		5,958		—		131,116
Consumer	9,070		128		—		8		—		9,206
Balance at end of period	$	890,761	$	22,608	$	12,126	$	24,863	$	520	$	950,878

As part of WashingtonFirst’s credit risk management practices, management regularly monitors the payment performance of its borrowers. A high percentage of all loans require some form of payment on a monthly basis, with a high percentage requiring regular amortization of principal. However, certain home equity lines of credit, commercial and industrial lines of credit, and construction loans generally require only monthly interest payments.

When payments are 90 days or more in arrears or when WashingtonFirst determines that it is no longer prudent to recognize current interest income on a loan, WashingtonFirst classifies the loan as non-accrual. Non-accrual loans decreased from $15.1 million as of December 31, 2013 to $9.2 million as of June 30, 2014. From time to time, a loan may be past due 90 days or more but is well secured and in the process of collection and thus warrants remaining on accrual status. As of June 30, 2014 and December 31, 2013, there were no loans past due more than 90 days that were still accruing.



Table M8: Loan Portfolio Aging and Non-Accrual Loans by Loan Class
	As of June 30, 2014
	Current Loans (1)		30-59 Days Past Due		60-89 Days Past Due		Non- Accrual		Total Past Due		Total Loans
	(in thousands)
Construction and development	$	126,602	$	545	$	—	$	254	$	799	$	127,401
Commercial real estate	554,019		7,622		220		6,056		13,898		567,917
Residential real estate	112,760		949		161		1,368		2,478		115,238
Commercial and industrial	125,637		3,231		711		1,537		5,479		131,116
Consumer	9,198		4		—		4		8		9,206
Balance at end of period	$	928,216	$	12,351	$	1,092	$	9,219	$	22,662	$	950,878



	As of December 31, 2013
	Current Loans (1)		30-59 Days Past Due		60-89 Days Past Due		Non- Accrual		Total Past Due		Total Loans
	(in thousands)
Construction and development	$	95,271	$	—	$	—	$	2,053	$	2,053	$	97,324
Commercial real estate	510,043		613		2,771		8,333		11,717		521,760
Residential real estate	93,338		97		101		1,892		2,090		95,428
Commercial and industrial	117,531		250		381		2,671		3,302		120,833
Consumer	2,532		100		5		138		243		2,775
Balance at end of period	$	818,715	$	1,060	$	3,258	$	15,087	$	19,405	$	838,120

(1) For the purpose of this table, loans 1-29 days past due are included in the balance of current loans

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Allowance for Loan Losses

The allowance for loan losses is an estimate of the losses that are inherent in the loan portfolio at the balance sheet date. The allowance is based on the basic principle that a loss should be accrued when it is probable that the loss has occurred at the date of the financial statements and the amount of the loss can be reasonably estimated. The methodology that WashingtonFirst uses to determine the level of its allowance for loan losses is described in “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates - Allowance for Loan Losses.”

The allowance for loan losses was $8.3 million as of June 30, 2014, or approximately 0.88 percent of loans outstanding, compared to $8.5 million or approximately 1.02 percent of loans outstanding as of December 31, 2013. and $5.9 million or approximately 0.76 percent of loans outstanding, as of June 30, 2013. WashingtonFirst has allocated $3.1 million as of June 30, 2014 for specific non-performing loans. For the three months ended June 30, 2014, WashingtonFirst recorded $0.8 million in provisions for loan losses, $0.4 million in charge-offs and $0.1 million in recoveries, compared to $1.0 million in provision for loans losses, $1.3 million in charge-off and $39,000 in recoveries for the three months ended June 30, 2013. For the six months ended June 30, 2014, WashingtonFirst recorded $1.3 million in provisions for loan losses, $1.7 million in charge-offs and $0.2 million in recoveries, compared to $2.1 million in provision for loans losses, $2.5 million in charge-off and $73,000 in recoveries for the six months ended June 30, 2013.

In connection with the acquisition of Alliance in December 2012, as well as the Millennium Transaction in February 2014, the respective allowances for loan losses that had been on the books of Alliance and Millennium were eliminated and each loan was individually measured and recorded at fair value at the time of acquisition. At acquisition, the loan portfolio acquired from Alliance had a book value of $277.6 million, and was recorded at a fair value of $268.3 million. The Millennium loan portfolio had a book value of $57.2 million at the date of the transaction and was recorded at a fair value of $51.6 million.

Of the Bank’s $950.9 million in gross loans outstanding as of June 30, 2014, approximately $192.0 million or 20.2 percent were recorded on the books at fair value in connection with the acquisition of Alliance and the Millennium Transaction and have an aggregate discount on the books of $7.8 million as of June 30, 2014. This discount is a net amount consisting of credit-related mark-downs of $10.1 million and yield-related mark-ups of $2.3 million.

The adjustment required to reconcile GAAP allowance for loan losses with WashingtonFirst’s non-GAAP adjusted allowance for loan losses and adjusted allowance for loan losses to total loans ratios is the addition of the credit purchase accounting marks on purchased loans in the portfolio. Loans that were acquired under the purchase accounting method are carried at book value with certain accounting marks set up on them at the time of purchase. These accounting marks can be pricing marks or credit marks. Pricing marks account for the difference in current interest rates and the interest rate on the loan being acquired, and may be either positive or negative. Credit marks may only be negative and are similar to an allowance for loans losses based on credit quality. Therefore, in determining the adjusted allowance for loan losses and related ratio, the credit mark component is added to the allowance for loan losses and to the total loans held for investment. Below is a reconciliation of the allowance for loan losses and related ratios to the non-GAAP adjusted allowance for loan losses and related ratios as of June 30, 2014 and December 31, 2013:



Table M9: Reconciliation of Non-GAAP Adjusted Allowance for Loan Losses to Non-GAAP Total Loans
	June 30, 2014			December 31, 2013
	(dollars in thousands)
GAAP allowance for loan losses	$	8,332		$	8,534
GAAP loans held for investment, at amortized cost	950,878			838,120

GAAP allowance for loan losses to total loans	0.88		%	1.02		%

GAAP allowance for loan losses	$	8,332		$	8,534
Plus: Credit purchase accounting marks	10,076			6,716
Non-GAAP adjusted allowance for loan losses	$	18,408		$	15,250

GAAP loans held for investment, at amortized cost	$	950,878		$	838,120
Plus: Credit purchase accounting marks	10,076			6,716
Non-GAAP loans held for investment, at amortized cost	$	960,954		$	844,836

Non-GAAP adjusted allowance for loan losses to total loans	1.92		%	1.81		%

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As part of its routine credit administration process, WashingtonFirst periodically engages an outside consulting firm to review its loan portfolio and ALLL methodology. The information from these reviews is used to monitor individual loans as well as to evaluate the overall adequacy of the allowance for loan losses. In reviewing the adequacy of the allowance for loan losses at each period, management takes into consideration the historical loan losses experienced by WashingtonFirst, current economic conditions affecting the borrowers’ ability to repay, the volume of loans, trends in delinquent, non-accruing, and potential problem loans, and the quality of collateral securing loans. Loan losses are charged against the allowance when WashingtonFirst believes that the collection of the principal is unlikely. Subsequent recoveries of losses previously charged against the allowance are credited to the allowance. After charging off all known losses incurred in the loan portfolio, management considers on a quarterly basis whether the allowance for loan losses remains adequate to cover its estimate of probable future losses, and establishes a provision for loan losses as appropriate. Because the allowance for loan losses is an estimate, the composition of the loan portfolio changes and allowance for loan losses review process continues to evolve, there may be changes to this estimate and elements used in the methodology that may have an effect on the overall level of allowance maintained.

The allowance for loan losses model is reviewed and evaluated each quarter by the Bank’s management to insure its adequacy and applicability in relation to the Bank’s past and future experience with the loan portfolio, from a credit quality perspective.



Table M10: Analysis of the Allowance for Loan Losses
	For the Three Months Ended						For the Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands)
Balance at beginning of period	$	7,881		$	6,176		$	8,534		$	6,260
Provision for loan losses	760			975			1,305			2,075
Charge-offs:
Construction and development	(100		)	—			(100		)	—
Commercial real estate	(210		)	—			(791		)	(265		)
Residential real estate	(153		)	(461		)	(541		)	(461		)
Commercial and industrial	—			(790		)	(70		)	(1,743		)
Consumer loans	42			(1		)	(232		)	(1		)
Total charge-offs	(421		)	(1,252		)	(1,734		)	(2,470		)
Recoveries:
Construction and development	—			7			—			11
Commercial real estate	1			7			102			8
Residential real estate	108			10			119			20
Commercial and industrial	3			15			6			34
Consumer	—			—			—			—
Total recoveries	112			39			227			73
Net charge-offs	(309		)	(1,213		)	(1,507		)	(2,397		)
Balance at end of period	$	8,332		$	5,938		$	8,332		$	5,938

Allowance for loan losses to total loans	0.88		%	0.76		%	0.88		%	0.76		%
Non-GAAP adjusted allowance for loan losses to total loans	1.92		%	1.77		%	1.92		%	1.77		%
Allowance for loan losses to non-accrual loans	90.38		%	54.46		%	90.38		%	54.46		%
Allowance for loan losses to non-performing assets	69.68		%	27.70		%	69.68		%	27.70		%
Non-performing assets to total assets	0.86		%	1.91		%	0.86		%	1.91		%
Net charge-offs to average loans (1)	0.14		%	0.63		%	0.34		%	0.63		%
(1) Annualized

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Table M11: Changes in Allowance for Loan Losses by Loan Class
	June 30, 2014
	Construction and Development			Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer			Total
	(in thousands)
For the Three Months Ended:
Beginning Balance	$	827		$	4,063		$	563		$	2,411		$	17		$	7,881
Provision for/(release of) loan losses	274			553			81			(112		)	(36		)	760
Charge-offs	(100		)	(210		)	(153		)	—			42			(421		)
Recoveries	—			1			108			3			—			112
Ending Balance	$	1,001		$	4,407		$	599		$	2,302		$	23		$	8,332

For the Six Months Ended:
Beginning Balance	$	681		$	5,027		$	920		$	1,801		$	105		$	8,534
Provision for/(release of) loan losses	420			69			101			565			150			1,305
Charge-offs	(100		)	(791		)	(541		)	(70		)	(232		)	(1,734		)
Recoveries	—			102			119			6			—			227
Ending Balance	$	1,001		$	4,407		$	599		$	2,302		$	23		$	8,332



Table M12: Loan Held for Investment and Related Allowance for Loan Losses by Impairment Method and Loan Class
	As of June 30, 2014
	Construction and Development		Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer		Total
	(in thousands)
Ending Balance:
Evaluated collectively for impairment	$	127,147	$	543,837	$	111,387	$	122,067	$	9,198	$	913,636
Evaluated individually for impairment	254		24,080		3,851		9,049		8		37,242
	$	127,401	$	567,917	$	115,238	$	131,116	$	9,206	$	950,878

Allowance for Losses:
Evaluated collectively for impairment	$	999	$	3,072	$	306	$	844	$	19	$	5,240
Evaluated individually for impairment	2		1,335		293		1,458		4		3,092
	$	1,001	$	4,407	$	599	$	2,302	$	23	$	8,332

Non-performing Assets

Impaired Loans (Loans with a Specific Allowance Allocation). As of June 30, 2014, all loans with impairment allocations were on non-accrual status.

Non-accrual Loans. A loan may be placed on non-accrual status when the loan is specifically determined to be impaired or when principal or interest is delinquent 90 days or more. WashingtonFirst closely monitors individual loans, and relationship officers are charged with working with customers to resolve potential credit issues in a timely manner with minimum exposure to WashingtonFirst. WashingtonFirst maintains a policy of adding an appropriate amount to the allowance for loan losses to ensure an adequate reserve based on the portfolio composition, specific credit extended by it, general economic conditions and other factors and external circumstances identified during the process of estimating probable losses in its loan portfolio.

As of June 30, 2014, there was $9.2 million in loans on non-accrual status compared to $15.1 million as of December 31, 2013. The $9.2 million non-accrual loan balance consists primarily of loans secured by commercial real estate. The specific allowance for impaired loans as of June 30, 2014 was $3.1 million.

Total Non-performing Assets. As of June 30, 2014, WashingtonFirst had $12.0 million of non-performing assets compared to $22.3 million as of December 31, 2013, a decrease of $10.3 million. The ratio of non-performing assets to total assets decreased to 0.86 percent as of June 30, 2014 from 1.97 percent as of December 31, 2013, a 111 basis point decrease. The ratio of non-performing

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assets to total assets as of June 30, 2014 fell below WashingtonFirst’s historical trends primarily due to payoffs of loans that were on non-accrual status and reclassifications of loans out of TDR status.



Table M13: Non-Performing Assets
	June 30, 2014			December 31, 2013
	(dollars in thousands)
Non-accrual loans	$	9,219		$	15,087
90+ days past due still accruing	—			—
Troubled debt restructurings still accruing	1,850			5,715
Other real estate owned	889			1,463
Total non-performing assets	$	11,958		$	22,265

Non-performing assets to total assets	0.86		%	1.97		%

Other Real Estate Owned (OREO). As of June 30, 2014, WashingtonFirst had $0.9 million classified as OREO on the balance sheet, compared to $1.5 million as of December 31, 2013, and $2.1 million as of June 30, 2013. During the three months ended June 30, 2014, WashingtonFirst did not sell any OREO properties, and thus did not collect any cash proceeds or realize any net gains or losses during the second quarter of 2014. Comparatively, during the three months ended March 31, 2013, WashingtonFirst sold one OREO property collected cash proceeds of $0.6 million, and realized a gain of $0.1 million. During the six months ended June 30, 2014, WashingtonFirst sold four OREO properties collecting cash proceeds of $0.5 million, realizing net gains of $0.1 million, compared to the sale of five OREO properties collecting cash proceeds of $2.1 million, realizing net gains of $0.2 million for the six months ended June 30, 2013.

During the first half of 2014 WashingtonFirst did not acquire any properties that were classified as OREO through foreclosure. During the three and six months ended June 30, 2013, WashingtonFirst acquired two OREO properties with a fair value of $1.0 million.



Table M14: Changes in Other Real Estate Owned
	For the Three Months Ended						For the Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands)
Balance at beginning of period	$	1,016		$	2,569		$	1,463		$	3,294
Properties acquired at foreclosure	—			—			—			1,010
Sales of foreclosed properties	—			(422		)	(384		)	(1,838		)
Valuation adjustments	(127		)	(79		)	(190		)	(398		)
Balance at end of period	$	889		$	2,068		$	889		$	2,068

Investment Securities - Available-for-sale

WashingtonFirst actively manages its portfolio duration and composition in response to changing market conditions and changes in balance sheet risk management needs. Additionally, the securities are pledged as collateral for certain borrowing transactions, public funds and repurchase agreements. The total fair value of the amount of the investment securities accounted for under available-for-sale accounting was $176.0 million as of June 30, 2014 compared to $145.4 million as of December 31, 2013. The increase is primarily attributable to additional purchases of investment securities in excess of amounts that matured during the course of the year in order to increase the proportion of investments on the balance sheet and to increase interest income.

The investment portfolio contains U.S. Treasury securities, callable and non-callable U.S. Government corporation and agency securities, U.S. Government collateralized mortgage obligations (“CMOs”), U.S. Government mortgage backed securities (“MBS”) and municipal securities. When prepayments on various CMOs and MBS instruments occur at a faster rate than anticipated, premium amortization increases which adversely impacts the portfolio yield. As of June 30, 2014, U.S. Government and agency securities represented $56.9 million or 32.3 percent of the portfolio, while CMOs and MBS were $100.4 million, or 57.0 percent of the portfolio, and municipal securities were $18.7 million, or 10.6 percent of the portfolio.

The yield on the taxable available-for-sale investment securities portfolio for the three and six months ended June 30, 2014 was 1.73 percent and 1.75 percent, respectively, compared to 1.42 percent and 1.57 percent for the three and six months ended June 30, 2013. The tax equivalent yield on the tax-exempt available-for-sale investment securities portfolio for the three and six months ended June 30, 2014 was 3.31 percent and 3.74 percent, respectively, compared to 3.23 percent and 3.26 percent for the three and six months ended June 30, 2013.

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The amortized cost, fair value and yield of investments by remaining contractual maturity for available-for-sale investment securities as of June 30, 2014 are set forth below. Asset-backed and mortgage-backed securities are included based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets or mortgages.



Table M15: Available-for-Sale Investment Securities Contractual Maturity
	As of June 30, 2014
	Amortized Cost		Fair Value		Weighted-Average Yield
	(in thousands)
Due within one year	$	754	$	770	3.05	%
Due within one to five years	45,828		46,399		1.73	%
Due within five to ten years	45,916		46,059		1.90	%
Due after ten years	83,198		82,771		1.84	%
Total available-for-sale investment securities	$	175,696	$	175,999	1.83	%

Other Equity Securities

WashingtonFirst’s securities portfolio contains restricted stock investments that are required to be held as part of its banking operations. These include stock of the FHLB, Atlantic Central Bankers Bank (“ACBB”) and Community Bankers Bank (“CBB”).



Table M16: Composition of Other Equity Securities
	June 30, 2014		December 31, 2013
	(in thousands)
FHLB stock	$	3,381	$	3,174
ACBB	100		100
CBB	256		256
Total other equity securities	$	3,737	$	3,530

Deposits

WashingtonFirst seeks deposits within its market area by offering high-quality customer service, using technology to deliver deposit services effectively and paying competitive interest rates. A significant portion of its client base and deposits are directly related to home sales and refinancing activity, including those from title and escrow agency customers.

As of June 30, 2014, the deposit portfolio totaled $1.2 billion, comprising of $370.1 million of non-interest bearing deposits and $823.8 million of interest bearing deposits. As of December 31, 2013, the deposit portfolio totaled $948.9 million, which was composed of $231.3 million of non-interest bearing deposits and $717.6 million of interest bearing deposits. The $245.0 million increase in deposits during the six months ended June 30, 2014 is primarily the result of the Millennium Transaction during February 2014. For more information regarding the deposits acquired, see Note 3—Millennium Transaction.

The average balance of interest bearing deposits for the three and six months ended June 30, 2014 was $803.0 million and $778.9 million, respectively, compared to $672.0 million and $659.0 million for the three and six months ended June 30, 2013, respectively. This increase is also the result of the Millennium Transaction in February 2014, as well as organic growth of the deposit base. The average cost on these interest-bearing deposits for the three and six months ended June 30, 2014 was 0.69 percent and 0.67 percent, respectively, compared to 0.77 percent and 0.75 percent for the same period in 2013. During the period, some deposits reset at lower rates concurrent with market conditions and the mix of interest bearing balances changed, leading to a lower interest expense.

Average non-interest bearing demand deposits for the three and six months ended June 30, 2014 were $270.0 million and $250.2 million, respectively, compared to $210.1 million and $218.0 million, respectively, compared to the same periods in 2013, an increase resulting from the Millennium Transaction and organic growth.

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Table M17: Certificates of Deposit Greater Than or Equal to $100,000 by Maturity
	June 30, 2014		December 31, 2013
	(in thousands)
Three months or less	$	46,134	$	31,521
Three through six months	32,258		62,096
Six through twelve months	58,469		37,344
Over twelve months	118,167		77,353
Total certificates of deposit greater than or equal to $100,000	$	255,028	$	208,314

Other Borrowings

Other borrowings consists of customer repurchase agreements which are standard commercial bank transactions that involve a WashingtonFirst customer instead of a wholesale bank or broker. This product is an accommodation to commercial customers and individuals that require safety for their funds beyond the FDIC deposit insurance limits. WashingtonFirst believes this product offers it a stable source of financing at a reasonable market rate of interest and is continuing the program. As of June 30, 2014, WashingtonFirst had $13.3 million of customer repurchase agreements, compared to $10.2 million as of December 31, 2013.

FHLB Advances

The FHLB is a significant source of funding for WashingtonFirst. WashingtonFirst augments its funding portfolio with FHLB advances for both liquidity and interest rate management. The book value as of June 30, 2014 and December 31, 2013 contains a $3.2 million and $3.5 million purchase price adjustment, respectively, associated with the advance acquired in the Alliance acquisition mentioned above and is being amortized over the life of the advance. Advances are secured by a lien on certain loans and securities of WashingtonFirst Bank that are pledged from time to time.



Table M18: Composition of FHLB Advances
	June 30, 2014			December 31, 2013
	(dollars in thousands)
As of period ended:
FHLB advances	$	53,236		$	43,478
Weighted average outstanding effective interest rate	1.87		%	1.30		%



Table M19: FHLB Advances Average Balances
	For the Three Months Ended						For the Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(dollars in thousands)
Averages for the period:
FHLB advances	$	46,056		$	32,772		$	46,094		$	36,523
Average effective interest rate paid during the period	1.82		%	1.97		%	1.79		%	2.12		%
Maximum month-end balance outstanding	$	53,236		$	35,369		$	53,236		$	40,689

Long-term Borrowings



Table M20: Long-term Borrowings Detail
	June 30, 2014		December 31, 2013
	(in thousands)
Subordinated debt	$	2,264	$	2,247
Trust preferred capital notes	7,676		7,607
Long-term borrowings	$	9,940	$	9,854

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on or before June 15, 2020. In recording this transaction, the warrants were valued at $0.3 million, which was treated as an increase in additional paid-in capital, and the liability associated with the Bank Subordinated Debt was recorded at $2.2 million. The $0.3 million discount on the Bank Subordinated Debt is being expensed monthly over the life of the debt.

On June 30, 2003, Alliance invested $0.3 million as common equity into a wholly-owned Delaware statutory business trust (the “Trust”). Simultaneously, the Trust privately issued $10.0 million face amount of thirty-year floating rate trust preferred capital securities (the “Trust Preferred Capital Notes”) in a pooled trust preferred capital securities offering. The Trust used the offering proceeds, plus the equity, to purchase $10.3 million principal amount of Alliances’ floating rate junior subordinated debentures due 2033 (the “Subordinated Debentures”). Both the Trust Preferred Capital Notes and the Subordinated Debentures are callable at any time, without penalty. The interest rate associated with the Trust Preferred Capital Notes is three month LIBOR plus 3.15 percent subject to quarterly interest rate adjustments. The interest rates as of June 30, 2014 and December 31, 2013 were 3.38 percent and 3.39 percent, respectively. The Trust Preferred Capital Notes are guaranteed by WashingtonFirst on a subordinated basis, and were recorded on WashingtonFirst’s books at the time of the Alliance acquisition at a discounted amount of $7.5 million, which was the fair value of the instruments at the time of the acquisition. The $2.5 million discount is being expensed monthly over the life of the obligation. Under the indenture governing the Trust Preferred Capital Notes, WashingtonFirst has the right to defer payments of interest for up to twenty consecutive quarterly periods.

Under the indenture governing the Trust Preferred Capital Notes, WashingtonFirst has the right to defer payments of interest for up to twenty consecutive quarterly periods. The interest deferred under the indenture compounds quarterly at the interest rate then in effect. WashingtonFirst is not currently deferring the interest payments.

All or a portion of the Trust Preferred Capital Notes may be included as Tier 1 Capital in the regulatory computation of capital adequacy. Under current regulatory guidelines, the Trust Preferred Capital Notes may constitute no more than 25 percent of total Tier 1 Capital. Any amount not eligible to be counted as Tier 1 Capital is considered to be Tier 2 Capital. As of June 30, 2014, the entire amount of Trust Preferred Capital Notes was considered Tier 1 Capital.

Capital Resources

Capital management consists of providing equity to support WashingtonFirst’s current and future operations. The Company is subject to capital adequacy requirements imposed by the Federal Reserve Board and the Bank is subject to capital adequacy requirements imposed by the FDIC. Both the Federal Reserve Board and the FDIC have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy. These standards define capital and establish minimum capital requirements in relation to assets and off-balance sheet exposure, adjusted for credit risk. The risk-based capital standards currently in effect are designed to make regulatory capital requirements more sensitive to differences in risk profiles among bank holding companies and banks, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate relative risk weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.

The risk-based capital standards issued by the Federal Reserve Board currently require all bank holding companies to have “Tier 1 capital” of at least 4.0 percent and “total risk-based” capital (Tier 1 and Tier 2) of at least 8.0 percent of total risk-weighted assets. “Tier 1 capital” generally includes common shareholders’ equity and qualifying perpetual preferred stock together with related surpluses and retained earnings, less deductions for goodwill and various other intangibles. “Tier 2 capital” may consist of a limited amount of intermediate-term preferred stock, a limited amount of term subordinated debt, certain hybrid capital instruments and other debt securities, perpetual preferred stock not qualifying as Tier 1 capital, and a limited amount of the general valuation allowance for loan losses. The sum of Tier 1 capital and Tier 2 capital is “total risk-based capital.”

The Federal Reserve Board has also adopted guidelines which supplement the risk-based capital guidelines with a minimum ratio of Tier 1 capital to average total consolidated tangible assets, or “leverage ratio,” of 3.0 percent for institutions with well diversified risk, including no undue interest rate exposure; excellent asset quality; high liquidity; good earnings; and that are generally considered to be strong banking organizations, rated composite 1 under applicable federal guidelines, and that are not experiencing or anticipating significant growth. Other banking organizations are required to maintain a leverage ratio of at least 4.0 percent. These rules further provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain capital positions substantially above the minimum supervisory levels and comparable to peer group averages, without significant reliance on intangible assets.

Pursuant to the 1991 Federal Deposit Insurance Corporation Improvement Act (“FDICIA”), each federal banking agency revised its risk-based capital standards to ensure that those standards take adequate account of interest rate risk, concentration of credit risk and the risks of nontraditional activities, as well as reflect the actual performance and expected risk of loss on multifamily mortgages. The Bank is subject to capital adequacy guidelines of the FDIC that are substantially similar to the Federal Reserve Board’s guidelines. Also pursuant to FDICIA, the FDIC has promulgated regulations setting the levels at which an insured institution such as the Bank would be considered “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” Under the FDIC’s regulations, the Bank is classified “well-capitalized” for purposes of prompt corrective action.

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Both the Company and the Bank are considered “well capitalized” under the risk-based capital guidelines currently in effect for the federal banking regulatory agencies, and maintaining a “well capitalized” regulatory position is important for each organization. Both WashingtonFirst and the Bank monitor their respective capital positions to ensure appropriate capital for the respective risk profile of each organization, as well as sufficient levels to promote depositor and investor confidence in the respective organizations.

Total shareholders’ equity was $113.4 million as of June 30, 2014 compared to the December 31, 2013 level of $107.6 million. The change in equity is primarily attributable to current earnings and cash dividends declared during 2014.



Table M21: Capital Categories, Capital Ratios and Minimum Capital Ratios Required by Bank Regulators
	June 30, 2014			December 31, 2013
	(in thousands)
Tier 1 Capital:
Common stock	$	77		$	76
Capital surplus	86,386			85,636
Preferred stock	17,796			17,796
Accumulated earnings	8,939			5,605
Less: disallowed assets	(6,980		)	(3,943		)
Add: Trust preferred	7,676			7,607
Total Tier 1 Capital	$	113,894		$	112,777

Tier 2 Capital:
Qualifying allowance for loan losses	$	8,332		$	8,534
Qualifying subordinated debt	2,500			2,500
Total Tier 2 Capital	$	10,832		$	11,034

Total risk-based capital	$	124,726		$	123,811
Risk weighted assets	1,011,224			881,235
Qualifying quarterly average assets	1,249,499			1,070,599



Table M22: Capital Ratios and Regulatory Requirements Summary
	June 30, 2014		December 31, 2013		To Be Well Capitalized Under Prompt Corrective Action Provisions	For Minimum Capital Adequacy Requirements
Capital Ratios:
Total risk-based capital ratio	12.33	%	14.05	%	10.00%	8.00%
Tier 1 risk-based capital ratio	11.26	%	12.80	%	6.00%	4.00%
Tier 1 leverage ratio	9.12	%	10.53	%	5.00%	4.00%

WashingtonFirst Bank and WashingtonFirst monitor the capital levels and the risk profile of the entities to determine if capital levels are sufficient for the risk profiles of the organization. For a discussion of the new capital requirements in WashingtonFirst’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 19, 2014.

Liquidity

Liquidity is the ability to meet the demand for funds from depositors and borrowers as well as expenses incurred in the operation of the business. WashingtonFirst has a formal liquidity management policy and a contingency funding policy used to assist management in executing its liquidity strategies. Similar to other banking organizations, WashingtonFirst monitors the need for funds to support depositor activities and funding of loans. WashingtonFirst’s client base includes a significant number of title and escrow businesses which have more deposit inflows and outflows than a traditional commercial business relationship. WashingtonFirst maintains additional liquidity sources to support the needs of this client base. Loss of relationship officers or clients could have a material impact on WashingtonFirst’s liquidity position through a reduction in average deposits.

WashingtonFirst’s management monitors the Company’s overall liquidity position daily. WashingtonFirst has available federal funds lines with correspondent banks as well as FHLB advances at its disposal.

As of June 30, 2014, WashingtonFirst had $221.6 million in cash and cash equivalents to support the business activities and deposit flows of its clients. WashingtonFirst maintains credit lines at the FHLB and other correspondent banks. As of June 30, 2014,

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WashingtonFirst had a total credit line of $258.3 million with the FHLB with an unused portion of $205.1 million. Borrowings with the FHLB have certain collateral requirements and are subject to disbursement approval by the FHLB. As of June 30, 2014, WashingtonFirst also had $49.0 million in unsecured borrowing capacity from correspondent banks. As of June 30, 2014, WashingtonFirst did not have any outstanding borrowings from its correspondent banks. All borrowings from correspondent banks are subject to disbursement approval. In addition to the borrowing capacity described above, WashingtonFirst may sell investment securities, loans and other assets to generate additional liquidity. Management believes that it has sufficient liquidity to protect depositors, provide for business growth and comply with regulatory requirements.

Concentrations

Substantially all of WashingtonFirst’s loans, commitments and standby letters of credit have been granted to customers located in the greater Washington, D.C. metropolitan area. WashingtonFirst’s overall business includes a significant focus on real estate activities, including real estate lending, title companies and real estate settlement businesses. As of June 30, 2014, commercial real estate loans were 59.7 percent of the total loan portfolio, construction and development loans were 13.4 percent of the total loan portfolio and residential real estate loans were 12.1 percent of the total loan portfolio. In addition, a substantial portion of our non-interest bearing deposits is generated by our title and escrow company clients. See “Item 1A. Risk Factors – Risks Associated With WashingtonFirst’s Business – WashingtonFirst’s profitability depends significantly on local economic conditions” in WashingtonFirst’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 19, 2014.

Off-Balance Sheet Arrangements

WashingtonFirst enters into certain off-balance sheet arrangements in the normal course of business to meet the financing needs of customers. These off-balance sheet arrangements include commitments to extend credit, standby letters of credit and financial guarantees which would impact the overall liquidity and capital resources to the extent customers accept and/or use these commitments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. With the exception of these off-balance sheet arrangements, WashingtonFirst has no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required as the Company is a smaller reporting company.

Item 4. Controls and Procedures

(a)

Management's Evaluation of Disclosure Controls and Procedures. WashingtonFirst Bank maintains disclosure controls and procedures designed to ensure that information required to be disclosed in its periodic filings under the Securities Exchange Act of 1934 (the “Exchange Act”), including this report, is recorded, processed, summarized and reported on a timely basis. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to WashingtonFirst’s management on a timely basis to allow decisions regarding required disclosure. Management, including WashingtonFirst’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of WashingtonFirst’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2014.

WashingtonFirst carried out the evaluation of the effectiveness of its disclosure controls and procedures, required by paragraph (b) of Exchange Act Rules 13a-15 and 15d-15, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that WashingtonFirst’s disclosure controls and procedures were effective as of June 30, 2014.


(b)	Changes in Internal Control Over Financial Reporting. There were no changes in WashingtonFirst’s internal control over financial reporting during the three months ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, WashingtonFirst’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, WashingtonFirst becomes involved in litigation relating to claims arising in the normal course of its business. In the opinion of management, there are no pending or threatened legal proceedings which would have a material adverse effect on WashingtonFirst’s financial condition or results of operations.

Item 1A. Risk Factors

There were no material changes from the risk factors previously disclosed in WashingtonFirst’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 19, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity by WashingtonFirst during the fiscal period covered by this report that have not been previously reported on a From 8-K.

Item 3. Defaults Upon Senior Securities

(a) None.

(b) None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a) None.

(b) None.

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Item 6. Exhibits

(a) The following financial statements, financial statement schedules and exhibits are filed as a part of this report:


1.	Financial Statements. WashingtonFirst’s consolidated financial statements are included in Item 1 of this report.


2.	Financial Statement Schedules. Financial statement schedules have been omitted because they are either not required, not applicable or the information required to be presented is included in WashingtonFirst’s financial statements and related notes.


3.	Exhibits. The following exhibits are filed herewith pursuant to the requirements of Item 601 of Regulation S-K:

EXHIBIT LIST



Exhibit		Description

2.1†		Agreement and Plan of Reorganization, dated as of May 3, 2012, by and among WashingtonFirst Bankshares, Inc., Alliance Bankshares Corporation and Alliance Bank Corporation (included as Appendix A to Amendment No. 3 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on November 9, 2012 (File No. 333-183255)).

2.2		Amendment No. 1, dated August 9, 2012, to the Agreement and Plan of Reorganization, dated as of May 3, 2012, by and among WashingtonFirst Bankshares, Inc., Alliance Bankshares Corporation and Alliance Bank Corporation (included as Appendix A to Amendment No. 3 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on November 9, 2012 (File No. 333-183255)).

2.3		Purchase and Assumption Agreement by and among the Federal Deposit Insurance Corporation, Receiver of Millennium Bank, N.A, the Federal Deposit Insurance Corporation and WashingtonFirst Bank, dated as of February 28, 2014 (filed as Exhibit 2.1 to Form 8-K filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on March 5, 2014 (File No. 001-35768)).

3.1		Articles of Incorporation of WashingtonFirst Bankshares, Inc. filed February 25, 2009, as amended (filed as Exhibit 3.1 to Form 8-K filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on December 21, 2012 (File No. 001-35768)).

3.2		Articles of Amendment to the Articles of Incorporation of WashingtonFirst Bankshares, Inc. filed January 28, 2013 (filed as Exhibit 3.1 to Form 8-K filed with the Securities and Exchange Commission by WashingtonFirst on February 6, 2013 (File No. 001-35768)).

3.3		Bylaws of WashingtonFirst Bankshares, Inc. adopted February 25, 2009 (included as Exhibit 3.7 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on August 13, 2012 (File No. 333-183255)).

4.1		Form of certificate representing shares of WashingtonFirst Bankshares, Inc.’s common stock (included as Exhibit 4.1 to Amendment No. 1 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on September 21, 2012 (File No. 333-183255)).

4.2		WashingtonFirst Bankshares, Inc. Certificate of Designations of Senior Non-Cumulative Perpetual Preferred Stock, Series D (included as part of Exhibit 3.5 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on August 13, 2012 (File No. 333-183255)).

4.3		Form of certificate representing shares of WashingtonFirst Bankshares, Inc.’s non-voting common stock (included as Exhibit 4.3 to Amendment No. 2 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on November 5, 2012 (File No. 333-183255)).

10.1		Second Amended and Restated Executive Employment Agreement, dated September 21, 2012, by and between WashingtonFirst Bank and Shaza L. Andersen (included as Exhibit 10.1 to Amendment No. 1 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on September 21, 2012 (File No. 333-183255)).




*		Filed with this Quarterly Report on Form 10-Q.

**		Furnished with this Quarterly Report on Form 10-Q.

†		The schedules to this agreement have been omitted for this filing pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish copies of such schedules to the SEC upon request.

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Exhibit		Description

10.2		Second Amended and Restated Severance Payment Agreement, dated September 21, 2012, by and between WashingtonFirst Bank and Richard D. Horn (included as Exhibit 10.2 to Amendment No. 1 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on September 21, 2012 (File No. 333-183255)).

10.3		Second Amended and Restated Severance Payment Agreement, dated September 21, 2012, by and between WashingtonFirst Bank and George W. Connors, IV (included as Exhibit 10.3 to Amendment No. 1 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on September 21, 2012 (File No. 333-183255)).

10.4		Investment Agreement, dated as of May 3, 2012, by and between WashingtonFirst Bankshares, Inc. and Endicott Opportunity Partners III, L.P. (included as Exhibit 10.4 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on August 13, 2012 (File No. 333-183255)).

10.5		Investment Agreement, dated as of June 20, 2012, by and between WashingtonFirst Bankshares, Inc. and Castle Creek Capital Partners IV, L.P. (included as Exhibit 10.5 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on August 13, 2012 (File No. 333-183255)).

10.6		WashingtonFirst Bankshares, Inc. 2010 Equity Compensation Plan (including form of award agreement) (included as Exhibit 99.1 to Form 8-K filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on May 3, 2013 (File No. 001-35768)).

10.7		Form on Incentive Stock Option Agreement (included as Exhibit 99.2 to Form 8-K filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on May 3, 2013 (File No. 001-35768)).

10.8		Form of Nonqualified Stock Option Agreement (included as Exhibit 10.7 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on August 13, 2012 (File No. 333-183255))).

10.9		Form of Restricted Stock Agreement (included as Exhibit 10.8 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on August 13, 2012 (File No. 333-183255)).

10.1		Form of Indemnification Agreement between WashingtonFirst Bankshares, Inc. and each of the directors and executive officers thereof (included as Exhibit 10.9 to Amendment No. 1 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on September 21, 2012 (File No. 333-183255)).

10.11		Amendment No. 1 to Investment Agreement, dated September 21, 2012, by and between WashingtonFirst Bankshares, Inc. and Endicott Opportunity Partners III, L.P. (included as Exhibit 10.10 to Amendment No. 1 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on September 21, 2012 (File No. 333-183255)).

10.12		Amendment No. 1 to Investment Agreement, dated September 21, 2012, by and between WashingtonFirst Bankshares, Inc. and Castle Creek Capital Partners IV, L.P. (included as Exhibit 10.11 to Amendment No. 1 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on September 21, 2012 (File No. 333-183255)).

10.13		WashingtonFirst Bank Supplemental Executive Retirement Agreement effective April 1, 2014 between WashingtonFirst Bank and Shaza L. Andersen (included as Exhibit 10.13 to Form 8-K filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on April 29, 2014 (File No. 001-35768)).




*		Filed with this Quarterly Report on Form 10-Q.

**		Furnished with this Quarterly Report on Form 10-Q.

†		The schedules to this agreement have been omitted for this filing pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish copies of such schedules to the SEC upon request.

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Exhibit		Description

10.14		WashingtonFirst Bank Supplemental Executive Retirement Agreement effective April 1, 2014 between WashingtonFirst Bank and George W. Connors, IV (included as Exhibit 10.14 to Form 8-K filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on April 29, 2014 (File No. 001-35768)).

10.15		WashingtonFirst Bank Supplemental Executive Retirement Agreement effective April 1, 2014 between WashingtonFirst Bank and Matthew R. Johnson(included as Exhibit 10.15 to Form 8-K filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on April 29, 2014 (File No. 001-35768)).

10.16		WashingtonFirst Bank Supplemental Executive Retirement Agreement effective April 1, 2014 between WashingtonFirst Bank and Richard D. Horn (included as Exhibit 10.16 to Form 8-K filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on April 29, 2014 (File No. 001-35768)).

31.1*		Certification by CEO pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification by CFO pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification by CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101**		Interactive data files pursuant to Rule 405 of Regulation S-T: WashingtonFirst Bankshares, Inc.’s (i) Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013; (ii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013; (iii) Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013; (iv) Consolidated Statements of Cash Flows for the three and six months ended June 30, 2014 and 2013; (v) Consolidated Statement of Shareholders’ Equity for the three and six months ended June 30, 2014 and 2013; and (vi) the notes to the foregoing Consolidated Financial Statements.




*		Filed with this Quarterly Report on Form 10-Q.

**		Furnished with this Quarterly Report on Form 10-Q.

†		The schedules to this agreement have been omitted for this filing pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish copies of such schedules to the SEC upon request.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



				WASHINGTONFIRST BANKSHARES, INC.
				(Registrant)

August 12, 2014				/s/ Shaza Andersen
Date				Shaza L. Andersen
				Chief Executive Officer
				(Principal Executive Officer)

August 12, 2014				/s/ Matthew Johnson
Date				Matthew R. Johnson
				Executive Vice President & Chief Financial Officer
				(Principal Financial and Accounting Officer)

WashingtonFirst Bankshares, Inc. - FORM 10-Q - August 12, 2014

Attached files

WashingtonFirst Bankshares, Inc. Reports