WashingtonFirst Bankshares, Inc. - FORM 10-Q

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EX-32.1 - EXHIBIT 32.1 - WashingtonFirst Bankshares, Inc.	wfbi-06302015xexx321.htm
EX-31.1 - EXHIBIT 31.1 - WashingtonFirst Bankshares, Inc.	wfbi-06302015xexx311.htm
XML - IDEA: XBRL DOCUMENT - WashingtonFirst Bankshares, Inc.	R9999.htm
EX-31.2 - EXHIBIT 31.2 - WashingtonFirst Bankshares, Inc.	wfbi-063015exx312.htm

Table of Contents

As filed with the Securities and Exchange Commission on August 7, 2015

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015


¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________.

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 ¨

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 ¨

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. (Check one):

Large accelerated filer ¨ Accelerated filer x

Non-accelerated filer ¨ Smaller Reporting Company ¨

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

Yes ¨ No x

As of July 30, 2015, the registrant had outstanding 7,781,564 shares of voting common stock and 1,817,842 shares of non-voting common stock.

Table of Contents

Table of Contents to Second Quarter 2015 Form 10-Q



Part I - Financial Information		3
Item 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	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	15
	4. Cash and Cash Equivalents	16
	5. Investment Securities	16
	6. Loans	19
	7. Allowance for Loan Losses	24
	8. Other Real Estate Owned	27
	9. Intangible Assets	27
	10. Deposits	28
	11. Other Borrowings	28
	12. Federal Home Loan Bank Advances	29
	13. Long-Term Borrowings	30
	14. Shareholders’ Equity	30
	15. Commitments and Contingencies	31
	16. Related Party Transactions	32
	17. Capital Requirements	33
	18. Earnings Per Share	34
	19. Other Operating Expenses	34
	20. Fair Value Disclosures	35
	21. Subsequent Events	39
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	41
	Millennium Transaction	43
	Results of Operations	44
	Financial Condition	49
	Capital Resources	58
	Liquidity	60
	Concentrations	60
	Off-Balance Sheet Arrangements	60
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61
Item 4.	Controls and Procedures	63
PART II - Other Information		64
Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	65

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PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

WashingtonFirst Bankshares, Inc.

Consolidated Balance Sheets

(unaudited)



	June 30, 2015			December 31, 2014
	(in thousands)
Assets:
Cash and cash equivalents:
Cash and due from bank balances	$	3,859		$	3,396
Federal funds sold	105,566			46,876
Interest bearing balances	—			12,034
Cash and cash equivalents	109,425			62,306
Investment securities, available-for-sale, at fair value	193,739			166,508
Restricted stocks	6,021			5,225
Loans held for sale, at lower of cost or fair value	822			1,068
Loans held for investment:
Loans held for investment, at amortized cost	1,180,402			1,065,058
Allowance for loan losses	(10,626		)	(9,257		)
Total loans held for investment, net of allowance	1,169,776			1,055,801
Premises and equipment, net	5,956			6,198
Intangibles	6,808			6,894
Deferred tax asset	10,333			9,586
Accrued interest receivable	3,898			3,852
Other real estate owned	291			361
Bank-owned life insurance	13,336			13,147
Other assets	4,065			4,364
Total Assets	$	1,524,470		$	1,335,310
Liabilities and Shareholders' Equity:
Liabilities:
Non-interest bearing deposits	$	386,006		$	278,051
Interest bearing deposits	862,861			808,012
Total deposits	1,248,867			1,086,063
Other borrowings	11,649			8,237
FHLB advances	107,818			86,047
Long-term borrowings	10,112			10,027
Deferred tax liability	2,680			1,920
Accrued interest payable	633			548
Other liabilities	7,556			7,930
Total Liabilities	1,389,315			1,200,772
Shareholders' Equity:
Preferred stock:
Series D, $5.00 par value, 8,898 and 13,347 shares issued and outstanding, respectively, 1% dividend	44			67
Additional paid-in capital - preferred	8,854			13,280
Common stock:
Common Stock Voting, $0.01 par value, 50,000,000 shares authorized, 7,781,564 and 7,747,795 shares issued and outstanding, respectively	77			77
Common Stock Non-Voting, $0.01 par value, 10,000,000 shares authorized, 1,817,842 and 1,817,842 shares issued and outstanding, respectively	18			18
Additional paid-in capital - common	113,384			112,887
Accumulated earnings	12,321			7,775
Accumulated other comprehensive income related to available-for-sale securities	457			434
Total Shareholders' Equity	135,155			134,538
Total Liabilities and Shareholders' Equity	$	1,524,470		$	1,335,310

See accompanying notes to unaudited consolidated financial statements.

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WashingtonFirst Bankshares, Inc.

Consolidated Statements of Income

(unaudited)



	For the Three Months Ended						For the Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
	(in thousands, except per share amounts)
Interest and dividend income:
Interest and fees on loans	$	14,314		$	12,993		$	27,754		$	24,194
Interest and dividends on investments:
Taxable	786			729			1,502			1,395
Tax-exempt	17			39			36			86
Dividends on other equity securities	56			42			117			70
Interest on Federal funds sold and other short-term investments	79			89			153			160
Total interest and dividend income	15,252			13,892			29,562			25,905
Interest expense:
Interest on deposits	1,518			1,381			2,969			2,603
Interest on borrowings	562			394			1,115			776
Total interest expense	2,080			1,775			4,084			3,379
Net interest income	13,172			12,117			25,478			22,526
Provision for loan losses	850			760			1,550			1,305
Net interest income after provision for loan losses	12,322			11,357			23,928			21,221
Non-interest income:
Service charges on deposit accounts	122			126			231			232
Earnings on bank-owned life insurance	94			85			189			168
Gain on sale of other real estate owned, net	117			5			117			69
Gain on sale of loans, net	97			56			166			73
Gain on sale of available-for-sale investment securities, net	7			1			22			144
Other operating income	169			131			438			282
Total non-interest income	606			404			1,163			968
Non-interest expense:
Compensation and employee benefits	4,570			4,529			8,703			8,597
Premises and equipment	1,506			1,417			2,989			2,925
Data processing	913			685			1,736			1,400
Professional fees	325			314			663			735
Merger expenses	241			18			241			186
Other operating expenses	1,046			1,081			2,114			2,183
Total non-interest expense	8,601			8,044			16,446			16,026
Income before provision for income taxes	4,327			3,717			8,645			6,163
Provision for income taxes	1,560			1,287			3,088			2,125
Net income	2,767			2,430			5,557			4,038
Preferred stock dividends	(23		)	(45		)	(51		)	(89		)
Net income available to common shareholders	$	2,744		$	2,385		$	5,506		$	3,949

Earnings per common share:
Basic earnings per common share (1)	$	0.28		$	0.30		$	0.57		$	0.49
Diluted earnings per common share (1)	$	0.28		$	0.29		$	0.57		$	0.48
(1) Retroactively adjusted to reflect the effect of all stock dividends.

See accompanying notes to unaudited 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, 2015			June 30, 2014		June 30, 2015			June 30, 2014
	(in thousands)
Net income	$	2,767		$	2,430	$	5,557		$	4,038
Other comprehensive income, net of tax:
Net unrealized holding (losses)/gains, net of tax expense/(benefit) (1)	(792		)	1,138		37			1,714
Reclassification adjustment for realized (gains)/losses	(4		)	11		(14		)	(9		)
Net change from available-for-sale securities	(796		)	1,149		23			1,705
Comprehensive income	$	1,971		$	3,579	$	5,580		$	5,743

(1) Unrealized (losses)/gains on available for sale securities is shown net of income tax benefit of $0.4 million and net of income tax expense of $21,000 for the three and six months ended June 30, 2015, respectively, compared to net of income tax expense of $0.6 million and $0.9 million for the three and six months ended June 30, 2014, respectively.

See accompanying notes to unaudited 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, 2015					June 30, 2014
	Shares		Amount			Shares	Amount
	(in thousands, except share data)
Preferred stock:
Balance, beginning of period	13,347		$	67		17,796	$	89
Redemption of preferred stock	(4,449	)	(23		)	—	—
Balance, end of period	8,898		$	44		17,796	$	89
Additional paid-in capital - preferred:
Balance, beginning of period			$	13,280			$	17,707
Redemption of preferred stock			(4,426		)		—
Balance, end of period			$	8,854			$	17,707
Common stock:
Balance, beginning of period	9,565,637		$	95		7,648,495	$	76
Exercise of stock options	33,769		—			81,104	1
Balance, end of period	9,599,406		$	95		7,729,599	$	77
Additional paid-in capital - common:
Balance, beginning of period			$	112,887			$	85,636
Exercise of stock options			311				639
Stock compensation expense			186				111
Balance, end of period			$	113,384			$	86,386
Accumulated earnings:
Balance, beginning of period			$	7,775			$	5,605
Net income			5,557				4,038
Preferred stock dividends			(51		)		(89		)
Cash dividends declared			(960		)		(615		)
Balance, end of period			$	12,321			$	8,939
Accumulated other comprehensive loss:
Balance, beginning of period			$	434			$	(1,509	)
Change in unrealized gain on available-for-sale securities, net of tax and reclassification adjustments			23				1,705
Balance, end of period			$	457			$	196
Total shareholders' equity			$	135,155			$	113,394

See accompanying notes to unaudited consolidated financial statements.

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WashingtonFirst Bankshares, Inc.

Consolidated Statements of Cash Flows

(unaudited)



	For the Six Months Ended
	June 30, 2015			June 30, 2014
	(in thousands)
Cash flows from operating activities:
Net income	$	5,557		$	4,038
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	174			1,107
Net amortization of purchase accounting marks	(739		)	(2,229		)
Gain on sale of available-for-sale investment securities	(22		)	(144		)
Gain on sale of loans	(166		)	(73		)
Gain on sale of other real estate owned	(117		)	(69		)
Loss on disposal of fixed assets	(19		)	—
Provision for loan losses	1,550			1,305
Write-down of other real estate owned	—			190
Earnings on bank-owned life insurance	(189		)	(168		)
Net amortization on available-for-sale investment securities	458			509
Stock based compensation	186			111
Originations of loans held for sale	(10,428		)	(7,818		)
Proceeds from sales of loans held for sale	10,840			5,688
Net change in:
Accrued interest receivable	(46		)	(209		)
Other assets	228			1,602
Accrued interest payable	85			(6		)
Other liabilities	(447		)	(1,720		)
Net cash provided by operating activities	6,905			2,114
Cash flows from investing activities:
Net cash received in acquisitions	—			59,047
Purchase of available-for-sale investment securities	(54,698		)	(37,160		)
Proceeds from repayment of available-for-sale investment securities	14,731			14,474
Proceeds from sale/call of available-for-sale investment securities	12,335			13,554
Net increase in loans held for investment	(114,362		)	(61,430		)
Purchase of bank-owned life insurance	—			(2,500		)
Net (increase)/decrease in FHLB stock	(796		)	475
Proceeds from sale of real estate owned	277			453
Purchases of premises and equipment, net	(409		)	(1,190		)
Net cash used in investing activities	(142,922		)	(14,277		)
Cash flows from financing activities:
Net increase in deposits	162,788			123,615
Proceeds from FHLB advances	267,500			25,000
Repayments of FHLB advances	(245,487		)	(27,182		)
Net increase in other borrowings	3,412			3,181
Proceeds from exercise of stock options	311			640
Redemption of preferred stock	(4,449		)	—
Cash dividends paid	(888		)	(612		)
Preferred stock dividends paid	(51		)	(89		)
Net cash provided by financing activities	183,136			124,553
Net increase in cash and cash equivalents	47,119			112,390
Cash and cash equivalents at beginning of period	62,306			109,164
Cash and cash equivalents at end of period	$	109,425		$	221,554

See accompanying notes to unaudited consolidated financial statements.

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WashingtonFirst Bankshares, Inc.

Notes to the Unaudited Consolidated Financial Statements

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 Bankshares 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 to 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, 2015 and December 31, 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, 2015		June 30, 2014
	(in thousands)
Cash paid during the period for:
Interest paid	$	3,999	$	3,385
Income taxes paid	1,535		—
Non-cash activity:
Loans converted into other real estate owned	90		—
Non-cash activity resulting from acquisitions/transactions:
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 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, 2015 and December 31, 2014.

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 Stocks

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 4.25 percent of aggregate outstanding advances in addition to the membership stock requirement of 0.25 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 borrowers. 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.

Troubled debt restructurings are also considered impaired with impairment generally measured at the present value of future cash flows using the loan’s effective rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral.

(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 7 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 fair value, less expected sales costs, 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 2011. As of June 30, 2015 and December 31, 2014 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, 2015 and December 31, 2014, 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 and Acquired Intangible Assets

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 during the six months ended June 30, 2015 and 2014.

Intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Acquired intangible assets consist of core deposit and customer relationship intangible assets arising from acquisitions. They are initially measured at fair value and then are amortized over their useful lives. For more information regarding goodwill, see Note 9—Intangible Assets.

(s) Bank-Owned Life Insurance (BOLI)

The Bank has purchased life insurance policies on certain officers. Bank-owned life insurance is recorded at its currently realizable cash surrender value. Changes in cash surrender value are recorded on the “Earnings on Bank-Owned Life Insurance” line item in the statement of income.

(t) Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

(u) Stock Splits and Dividends

Stock dividends in excess of 20% are reported as stock splits, resulting in no adjustment to the Company’s equity accounts. Stock dividends for 20% or less are reported by transferring the fair value, as of the ex‑dividend date, of the stock issued from retained earnings to common stock. Fractional share amounts are paid in cash with a reduction in retained earnings. All share and per share amounts are retroactively adjusted for stock splits and dividends. The Board of Directors has declared three stock dividends, with the most recent being on July 21, 2014 (paid September 2, 2014) which has caused prior year earnings per share and certain ratios involving the outstanding number of shares to be adjusted in this filing.

(v) Fair Values of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed separately. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on-and off-balance sheet financial instruments do not include the value of anticipated future business or the values of assets and liabilities not considered financial instruments.

(w) Recent Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (ASU) No. 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments are intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. These amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures are required. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2014. The impact of adoption of this ASU by the Company was not and is not expected to be material.

FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this Update creates a new topic in the FASB Accounting Standards Codification® (ASC or Codification), Topic 606. In addition to superseding and replacing nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASC 606 establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new

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and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, ASU 2014-09 adds a new Subtopic to the Codification, ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers, to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic. The new guidance does not apply to certain contracts within the scope of other ASC Topics, such as lease contracts, insurance contracts, financing arrangements, financial instruments, guarantees other than product or service warranties, and nonmonetary exchanges between entities in the same line of business to facilitate sales to customers. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. The impact of adoption of this ASU by the Company is not expected to be material.

FASB issued ASU 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. This update requires creditors to reclassify loans that are within the scope of the ASU to “other receivables” upon foreclosure, rather than reclassifying them to other real estate owned. The separate other receivable recorded upon foreclosure is to be measured based on the amount of the loan balance (principal and interest) the creditor expects to recover from the guarantor. The new guidance is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The impact of adoption of this ASU by the Company was not and is not expected to be material.

FASB issued ASU No. 2014-17, Business Combinations (Topic 805)-Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force), which provides guidance regarding when and how an acquiree that is a business or a non-profit activity can apply pushdown accounting in its separate financial statements. In particular, ASU No. 2014-17 provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon the occurrence of an event in which an acquirer obtains control of the acquiree. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If, however, pushdown accounting is not applied during that reporting period, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity’s most recent change-in-control event. Such an election to apply pushdown accounting in a reporting period after the one in which the change-in-control event occurred should be considered a change in accounting principle, in accordance with FASB Accounting Standards Codification (“ASC” or “Codification”) Topic 250, Accounting Changes and Error Corrections. Additionally, the ASU provides that an acquired entity should determine whether to elect to apply pushdown accounting for each individual change-in-control event in which an acquirer obtains control of the acquired entity. Notably, if pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. The amendments in this ASU are effective on November 18, 2014. Following the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. The impact of prospective adoption of this ASU by the Company was not and is not expected to be material.

(x) Reclassifications

Certain reclassifications of prior year information were made to conform to the 2015 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. 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 of $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 3.1: 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

It is not practicable to provide pro-forma information as the Millennium assets and liabilities were acquired by the FDIC and historical information about such assets and liabilities are not available.

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 reserve balances with the Federal Reserve Bank based principally on the type and amount of their deposits. During the first six months of 2015 and 2014, 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.

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, 2015 and December 31, 2014. All balances 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, 2015
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
	(in thousands)
U.S. Treasuries	$	4,503	$	41	$	—		$	4,544
U.S. Government agencies	79,339		450		(128		)	79,661
Mortgage-backed securities	55,087		273		(241		)	55,119
Collateralized mortgage obligations	40,182		143		(359		)	39,966
Taxable state and municipal securities	11,445		528		—			11,973
Tax-exempt state and municipal securities	2,472		19		(15		)	2,476
Total available-for-sale investment securities	$	193,028	$	1,454	$	(743	)	$	193,739



	As of December 31, 2014
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
	(in thousands)
U.S. Treasuries	$	2,998	$	16	$	—		$	3,014
U.S. Government agencies	51,757		206		(99		)	51,864
Mortgage-backed securities	50,457		453		(118		)	50,792
Collateralized mortgage obligations	45,245		154		(584		)	44,815
Taxable state and municipal securities	12,139		615		—			12,754
Tax-exempt state and municipal securities	3,236		45		(12		)	3,269
Total available-for-sale investment securities	$	165,832	$	1,489	$	(813	)	$	166,508

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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 $103.3 million and $94.6 million as of June 30, 2015 and December 31, 2014, 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, 2015 and 2014. During the three months ended June 30, 2015, 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 gains of $7,000 and realized no losses, compared to proceeds of $0.1 million resulting in gross realized gains of $1,000 during the three months ended June 30, 2014. During the six months ended June 30, 2015, WashingtonFirst received proceeds of $14.8 million from the call or sale of securities from its available-for-sale investment portfolio resulting in gross realized gains of $163,000 and gross realized losses of $141,000, compared to proceeds of $13.7 million resulting in gross realized gains of $192,000 and gross realized losses of $48,000 during the six months ended June 30, 2014.



Table 5.2: Gross Unrealized Loss and Fair Value of Available-for-Sale Securities
	As of June 30, 2015
	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	$	26,635	$	(107	)	$	1,984	$	(21	)
Mortgage-backed securities	22,705		(145		)	2,750		(96		)
Collateralized mortgage obligations	11,650		(56		)	11,773		(303		)
Tax-exempt state and municipal securities	1,484		(15		)	—		—
Total	$	62,474	$	(323	)	$	16,507	$	(420	)



	As of December 31, 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	$	11,972	$	(24	)	$	6,935	$	(75	)
Mortgage-backed securities	5,109		(6		)	4,601		(112		)
Collateralized mortgage obligations	10,166		(52		)	19,963		(532		)
Tax-exempt state and municipal securities	962		(9		)	537		(3		)
Total	$	28,209	$	(91	)	$	32,036	$	(722	)

As of June 30, 2015 and December 31, 2014, twelve and twenty-three, respectively, of the securities in loss positions had been in loss positions for more than 12 months and had a total unrealized loss of $0.4 million and $0.7 million, respectively.

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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, 2015 and December 31, 2014, 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, 2015, all U.S. Treasuries and U.S. Government Agencies are rated AA+ or higher, 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 June 30, 2015, the fair market value of U.S. Treasuries and U.S. Government Agencies were $4.5 million and $79.7 million, respectively. The mortgage-backed securities portfolio at June 30, 2015, is composed of GNMA, FNMA or FHLMC mortgage-backed securities reported at fair value of $55.1 million and GNMA collateralized mortgage obligations reported at fair value of $40.0 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, 2015, the fair value of the taxable state and municipal securities portfolio totaled $12.0 million, while the tax-exempt state and municipal securities portfolio totaled $2.5 million. The municipal bond portfolio has no concentration in any state greater than 20 percent and carries bond ratings of A or higher.

The amortized cost and fair value of investments by remaining contractual maturity for available-for-sale investment securities as of June 30, 2015, 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, 2015
	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	1,599	$	1,618
Due after one year through five years	83,261		83,981
Due after five years through ten years	32,581		32,736
Due after ten years	75,587		75,404
Total	$	193,028	$	193,739

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6. LOANS



Table 6.1: Composition of Loans Held for Investment by Loan Class
	June 30, 2015		December 31, 2014
	(in thousands)
Construction and development	$	195,242	$	156,241
Commercial real estate	710,205		650,051
Residential real estate	132,218		122,306
Real estate loans	1,037,665		928,598
Commercial and industrial	133,650		127,084
Consumer	9,087		9,376
Total loans	1,180,402		1,065,058
Less: allowance for loan losses	10,626		9,257
Net loans	$	1,169,776	$	1,055,801

As of June 30, 2015, $559.0 million of loans were pledged as collateral for FHLB advances, compared to $516.5 million as of December 31, 2014.



Table 6.2: Loans Held for Investment Aging Analysis by Loan Class
	As of June 30, 2015
	Current Loans (1)		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Non- Accrual		Total Past Due		Total Loans
	(in thousands)
Construction and development	$	195,014	$	—	$	—	$	—	$	228	$	228	$	195,242
Commercial real estate	703,007		4,100		—		—		3,098		7,198		710,205
Residential real estate	130,599		514		—		—		1,105		1,619		132,218
Commercial and industrial	132,186		151		89		—		1,224		1,464		133,650
Consumer	8,709		—		—		113		265		378		9,087
Balance at end of period	$	1,169,515	$	4,765	$	89	$	113	$	5,920	$	10,887	$	1,180,402



	As of December 31, 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	$	155,414	$	—	$	586	$	241	$	827	$	156,241
Commercial real estate	641,292		201		2,911		5,647		8,759		650,051
Residential real estate	119,855		598		—		1,853		2,451		122,306
Commercial and industrial	124,591		857		683		953		2,493		127,084
Consumer	9,112		264		—		—		264		9,376
Balance at end of period	$	1,050,264	$	1,920	$	4,180	$	8,694	$	14,794	$	1,065,058

(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, 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 pass watch rated loans (risk ratings 1 to 6) are to borrowers 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 partially mitigated by collateral supporting the loan; however, loans in this category have collateral that is considered to be degraded.

•

Substandard loans (risk rating 8) are considered to have specific and well-defined weaknesses that jeopardize the repayment terms as originally structured in WashingtonFirst’s initial 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), pass watch (rating number 6), and special mention (rating number 7) are deemed to be unclassified assets. Internal risk ratings of 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, 2015
Internal risk rating grades	Pass		Pass Watch		Special Mention		Substandard		Total
Risk rating number	1 to 5		6		7		8
	(in thousands)
Construction and development	$	193,680	$	1,334	$	—	$	228	$	195,242
Commercial real estate	689,360		6,321		8,053		6,471		710,205
Residential real estate	126,959		3,434		745		1,080		132,218
Commercial and industrial	123,851		4,318		3,612		1,869		133,650
Consumer	8,710		118		—		259		9,087
Balance at end of period	$	1,142,560	$	15,525	$	12,410	$	9,907	$	1,180,402



	As of December 31, 2014
Internal risk rating grades	Pass		Pass Watch		Special Mention		Substandard		Total
Risk rating number	1 to 5		6		7		8
	(in thousands)
Construction and development	$	154,506	$	1,494	$	—	$	241	$	156,241
Commercial real estate	623,964		6,491		10,342		9,254		650,051
Residential real estate	117,163		2,928		1,090		1,125		122,306
Commercial and industrial	116,781		5,450		2,727		2,126		127,084
Consumer	9,244		125		—		7		9,376
Balance at end of period	$	1,021,658	$	16,488	$	14,159	$	12,753	$	1,065,058

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Table 6.4: Changes in Troubled Debt Restructurings
	June 30, 2015
	Construction and Development			Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer		Total
	(in thousands)
For the Three Months Ended:
Beginning Balance	$	237		$	2,035		$	1,833		$	1,028		$	—	$	5,133
New TDRs	—			—			310			999			—		1,309
Increases to existing TDRs	—			—			1			16			—		17
Charge-offs post modification	—			—			—			—			—		—
Sales, principal payments, or other decreases	(9		)	(3		)	(210		)	(2		)	—		(224		)
Ending Balance	$	228		$	2,032		$	1,934		$	2,041		$	—	$	6,235

For the Six Months Ended:
Beginning Balance	$	241		$	4,619		$	1,796		$	354		$	—	$	7,010
New TDRs	—			—			354			1,675			—		2,029
Increases to existing TDRs	—			—			2			16			—		18
Charge-offs post modification	—			(128		)	—			—			—		(128		)
Sales, principal payments, or other decreases	(13		)	(2,459		)	(218		)	(4		)	—		(2,694		)
Ending Balance	$	228		$	2,032		$	1,934		$	2,041		$	—	$	6,235



	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

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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 loan 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 6.5: New Troubled Debt Restructurings Details
	June 30, 2015					June 30, 2014
	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	—	$	—	$	—	—	$	—	$	—
Commercial real estate	—	—		—		—	—		—
Residential real estate	3	354		354		4	1,268		1,268
Commercial and industrial	5	1,839		1,675		—	—		—
Consumer	—	—		—		—	—		—
Total loans	8	$	2,193	$	2,029	4	$	1,268	$	1,268



Table 6.6: Troubled Debt Restructuring in Default in Past Twelve Months
	June 30, 2015					June 30, 2014
	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	$	383	$	228	1	$	409	$	253
Commercial real estate	2	2,071		2,032		2	2,071		2,058
Residential real estate	1	24		24		—	—		—
Commercial and industrial	3	856		691		—	—		—
Consumer	—	—		—		—	—		—
Total loans	7	$	3,334	$	2,975	3	$	2,480	$	2,311



Table 6.7: Non-Performing Assets
	June 30, 2015		December 31, 2014
	(in thousands)
Non-accrual loans	$	5,920	$	8,694
90+ days still accruing	113		—
Troubled debt restructurings still accruing	4,362		2,151
Other real estate owned	291		361
Total non-performing assets	$	10,686	$	11,206

As of June 30, 2015 and December 31, 2014, there was one loan and no loans, respectively, 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 $0.1 million and $0.2 million for the three and six months ended June 30, 2015, respectively, compared to $0.2 million and $0.5 million for the three and six months ended June 30, 2014, respectively.

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7. ALLOWANCE FOR LOAN LOSSES



Table 7.1: Changes in Allowance for Loan Losses by Loan Class
	June 30, 2015
	Construction and Development		Commercial Real Estate			Residential Real Estate			Commercial and Industrial		Consumer			Total
	(in thousands)
For the Three Months Ended:
Beginning Balance	$	1,461	$	5,585		$	1,286		$	1,497	$	26		$	9,855
Provision for loan losses	189		41			74			545		1			850
Charge-offs	—		(10		)	(118		)	—		(6		)	(134		)
Recoveries	—		—			48			6		1			55
Ending Balance	$	1,650	$	5,616		$	1,290		$	2,048	$	22		$	10,626

For the Six Months Ended:
Beginning Balance	$	1,028	$	5,674		$	920		$	1,612	$	23		$	9,257
Provision for loan losses	622		80			424			421		3			1,550
Charge-offs	—		(138		)	(143		)	—		(6		)	(287		)
Recoveries	—		—			89			15		2			106
Ending Balance	$	1,650	$	5,616		$	1,290		$	2,048	$	22		$	10,626



	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 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

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Table 7.2: Loans Held for Investment and Related Allowance for Loan Losses by Impairment Method and Loan Class
	As of June 30, 2015
	Construction and Development		Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer		Total
	(in thousands)
Ending Balance:
Evaluated collectively for impairment	$	195,014	$	694,031	$	128,309	$	127,311	$	8,715	$	1,153,380
Evaluated individually for impairment	228		16,174		3,909		6,339		372		27,022
	$	195,242	$	710,205	$	132,218	$	133,650	$	9,087	$	1,180,402

Allowance for Losses:
Evaluated collectively for impairment	$	1,618	$	4,703	$	713	$	904	$	21	$	7,959
Evaluated individually for impairment	32		913		577		1,144		1		2,667
	$	1,650	$	5,616	$	1,290	$	2,048	$	22	$	10,626



	As of December 31, 2014
	Construction and Development		Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer		Total
	(in thousands)
Ending Balance:
Evaluated collectively for impairment	$	156,000	$	625,673	$	117,278	$	120,640	$	9,363	$	1,028,954
Evaluated individually for impairment	241		24,378		5,028		6,444		13		36,104
	$	156,241	$	650,051	$	122,306	$	127,084	$	9,376	$	1,065,058

Allowance for Losses:
Evaluated collectively for impairment	$	1,024	$	4,137	$	489	$	858	$	18	$	6,526
Evaluated individually for impairment	4		1,537		431		754		5		2,731
	$	1,028	$	5,674	$	920	$	1,612	$	23	$	9,257



Table 7.3: Specific Allocation for Impaired Loans by Loan Class
	June 30, 2015						December 31, 2014
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
	(in thousands)
With no related allowance:
Construction and development	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate	8,504		8,464		—		6,747		6,746		—
Residential real estate	1,915		1,809		—		2,108		2,017		—
Commercial and industrial	1,210		916		—		1,757		1,411		—
Consumer	257		257		—		—		—		—
Total with no related allowance	11,886		11,446		—		10,612		10,174		—
With an allowance recorded:
Construction and development	383		228		32		396		241		4
Commercial real estate	8,291		7,710		913		18,419		17,632		1,537
Residential real estate	2,136		2,100		577		3,131		3,011		431
Commercial and industrial	5,678		5,423		1,144		5,277		5,033		754
Consumer	115		115		1		13		13		5
Total with an allowance recorded	16,603		15,576		2,667		27,236		25,930		2,731
Total impaired loans	$	28,489	$	27,022	$	2,667	$	37,848	$	36,104	$	2,731

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Table 7.4: Average Impaired Loan Balance by Loan Class - 3 Months
	For the Three Months Ended
	June 30, 2015				June 30, 2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(in thousands)
With no related allowance:
Construction and development	$	—	$	—	$	—	$	—
Commercial real estate	8,989		101		4,447		—
Residential real estate	1,759		15		2,162		26
Commercial and industrial	848		3		854		—
Consumer	259		—		—		—
Total with no related allowance	11,855		119		7,463		26
With an allowance recorded:
Construction and development	233		—		258		—
Commercial real estate	7,727		82		20,386		217
Residential real estate	2,027		20		1,690		4
Commercial and industrial	5,167		76		8,510		98
Consumer	87		2		8		—
Total with an allowance recorded	15,241		180		30,852		319
Total average impaired loans	$	27,096	$	299	$	38,315	$	345



Table 7.5: Average Impaired Loan Balance by Loan Class - 6 Months
	For the Six Months Ended
	June 30, 2015				June 30, 2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(in thousands)
With no related allowance:
Construction and development	$	—	$	—	$	—	$	—
Commercial real estate	9,657		201		2,859		—
Residential real estate	1,868		30		1,771		51
Commercial and industrial	765		5		851		—
Consumer	261		—		—		—
Total with no related allowance	12,551		236		5,481		51
With an allowance recorded:
Construction and development	236		—		261		—
Commercial real estate	7,765		164		19,429		434
Residential real estate	1,930		40		1,308		9
Commercial and industrial	4,930		153		8,387		195
Consumer	51		5		9		—
Total with an allowance recorded	14,912		362		29,394		638
Total average impaired loans	$	27,463	$	598	$	34,875	$	689

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8. OTHER REAL ESTATE OWNED



Table 8.1: Changes in OREO
	For the Three Months Ended						For the Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
	(in thousands)
Balance at beginning of period	$	451		$	1,016		$	361		$	1,463
Properties acquired at foreclosure	—			—			90			—
Sales of foreclosed properties	(160		)	—			(160		)	(384		)
Valuation adjustments	—			(127		)	—			(190		)
Balance at end of period	$	291		$	889		$	291		$	889



Table 8.2: OREO Expenses
	For the Three Months Ended				For the Six Months Ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
	(in thousands)
Write-downs	$	—	$	127	$	—	$	190
Operating expenses, net of rental income	9		11		14		43
Total OREO expense	$	9	$	138	$	14	$	233

9. INTANGIBLE ASSETS

Intangible assets include 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 an eight year period. See Note 3 for further details on the Millennium Transaction. 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
	For the Three Months Ended						For the Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
	(in thousands)
Goodwill:
Balance, beginning of period	$	6,240		$	6,240		$	6,240		$	3,601
Goodwill recorded in Millennium Transaction	—			—			—			2,639
Balance, end of period	$	6,240		$	6,240		$	6,240		$	6,240
Core deposit intangibles:
Balance, beginning of period	$	611		$	784		$	654		$	342
Addition of core deposit intangibles	—			—			—			470
Amortization of core deposit intangibles	(43		)	(44		)	(86		)	(72		)
Balance, end of period	$	568		$	740		$	568		$	740
Total intangibles	$	6,808		$	6,980		$	6,808		$	6,980

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10. DEPOSITS



Table 10.1: Composition of Deposits
	June 30, 2015		December 31, 2014
	(in thousands)
Demand deposit accounts	$	386,006	$	278,051
NOW accounts	125,833		99,023
Money market accounts	198,217		208,331
Savings accounts	124,521		129,754
Time deposits under $100,000	81,680		100,055
Time deposits $100,000 and over	332,610		270,849
Total deposits	$	1,248,867	$	1,086,063



Table 10.2: Scheduled Maturities of Time Deposits
	June 30, 2015		December 31, 2014
	(in thousands)
Within 1 Year	$	277,812	$	213,212
1 - 2 years	73,067		86,364
2 - 3 years	25,015		31,131
3 - 4 years	25,162		24,212
4 - 5 years	12,916		14,996
5+ years	318		989
Total	$	414,290	$	370,904

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 $44.9 million and $44.3 million as of June 30, 2015 and December 31, 2014, respectively. The Bank had no brokered deposits as of June 30, 2015, compared to $10.0 million as of December 31, 2014.

11. OTHER BORROWINGS

Other borrowings consist of $11.6 million and $8.2 million of customer repurchase agreements as of June 30, 2015 and December 31, 2014, respectively. Customer repurchase agreements are overnight and continuous standard commercial banking transactions that involve a Bank customer instead of a wholesale bank or broker. The average rate of these repurchase agreements was 0.05 percent as of both June 30, 2015 and December 31, 2014. As of June 30, 2015, these repurchase agreements were backed by $6.4 million of collateralized mortgage obligations and $5.2 million of mortgage-backed securities, compared $6.2 million and $2.0 million, respectively, as of December 31, 2014.

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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 25 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, 2015, the Bank had pledged a total of $559.0 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, 2015, the Bank had $182.3 million in remaining credit available with the FHLB.



Table 12.1: Composition of FHLB Advances
	June 30, 2015			December 31, 2014
	(dollars in thousands)
As of period ended:
FHLB advances	$	105,067		$	83,054
FHLB purchase accounting mark	2,751			2,993
FHLB total	$	107,818		$	86,047
Weighted average outstanding effective interest rate	1.37		%	1.58		%



Table 12.2: FHLB Advances Average Balances
	For the Three Months Ended						For the Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
	(dollars in thousands)
Averages for the period:
FHLB advances	$	97,517		$	46,056		$	101,495		$	46,094
Average effective interest rate paid during the period	1.53		%	1.82		%	1.47		%	1.79		%
Maximum month-end balance outstanding	$	107,834		$	53,236		$	125,926		$	53,236



Table 12.3: Contractual Maturities of FHLB Advances
	June 30, 2015		December 31, 2014
	(in thousands)
Within one year	$	35,000	$	20,000
2 - 3 years	7,500		—
3 - 4 years	12,341		7,500
4 - 5 years	13,259		16,371
5+ years	39,718		42,176
Total FHLB advances	$	107,818	$	86,047

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13. LONG-TERM BORROWINGS



Table 13: Long-term Borrowings Detail
	June 30, 2015		December 31, 2014
	(in thousands)
Subordinated debt	$	2,298	$	2,281
Trust preferred capital notes	7,814		7,746
Long-term borrowings	$	10,112	$	10,027

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 60,657 shares of Company common stock at a share price equal to $10.30. These warrants have been retroactively adjusted to reflect the effect of all stock dividends and 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, 2015 and December 31, 2014 were 3.44 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, 2015, the entire amount of Trust Preferred Capital Notes was considered Tier 1 Capital.

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 (“QSBL”) as of December 31, 2013 had increased sufficiently as compared with the QSBL baseline, the annual dividend rate will be fixed at a rate of 1%.

On August 15, 2014, WashingtonFirst redeemed $4.4 million (4,449 shares), or 25% of the $17.8 million outstanding Series D Preferred Stock that had been issued to the Secretary of the Treasury in August 2011 through the Company’s participation in the Small Business Lending Fund. The shares were redeemed at their liquidation value of $1,000 per share plus accrued dividends through August 14, 2014, for a total redemption price of $4.5 million.

On February 20, 2015, WashingtonFirst redeemed another $4.4 million (4,449 shares), or 25% of the initial $17.8 million outstanding Series D Preferred Stock that had been issued to the Secretary of the Treasury in August 2011 through the Company’s participation in the Small Business Lending Fund. The shares were redeemed at their liquidation value of $1,000 per share plus accrued dividends through February 20, 2015, for a total redemption price of $4.5 million. As of June 30, 2015, there were 8,898 shares outstanding of its Series D Preferred Stock to the United States Treasury for $8.9 million.

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 60,657 shares of common stock at a share price equal to $10.30. These warrants have been retroactively adjusted to reflect the effect of all stock dividends and 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.

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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.

On December 30, 2014, pursuant to a private placement, the Company issued 710,553 shares of its common stock and 666,666 shares of the its Series A non-voting common stock at a price of $15.00 per share. The Company received aggregate gross proceeds from the Investors of $20.7 million.

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 (paid September 2, 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, July 1 and October 1, 2014. In the fourth quarter 2014, the Company increased the quarterly cash dividend to five cents ($0.05) per share, which was paid January 2, April 1, and July 1, 2015. 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.

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 has both fixed and variable rate commitments.



Table 15.1: Outstanding Commitments to Extend Credit
	June 30, 2015		December 31, 2014
	(dollars in thousands)
Unused lines of credit as of period ended:
Commercial	$	60,972	$	56,280
Commercial real estate	139,973		110,134
Residential real estate	390		—
Home equity	37,489		36,042
Personal lines of credit	1,766		1,460
Total outstanding commitments to extend credit	$	240,590	$	203,916

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 each pending matter, the Company contests liability or the amount of claimed damages. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages, or where investigation or discovery have yet to be completed, the Company is unable to reasonably estimate a range of possible losses on its remaining outstanding legal proceedings; however, in the opinion of management and after consultation

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with legal counsel, the Company believes that the ultimate disposition of these matters is not expected to have a material adverse effect on the financial condition of the Company.

Investment in Affordable Housing Project

The Bank has committed $1.0 million to the Virginia Community Development Corporation (VCDC), a non-profit organization that seeks to gather capital from investors to build and operate low income housing programs. The Bank’s $1.0 million commitment is split evenly between two funds: the Housing Equity Fund of Virginia XVII, L.L.C (“Fund XVII”) and the Housing Equity Fund of Virginia XVIII, L.L.C. (“Fund XVIII”). The expected return on these two funds is in the form of tax credits and tax deductions from operating losses. The principal risk associated with such and investment results from potential noncompliance with the conditions in the tax law to qualify for the tax benefits, which could result in recapture of the tax benefits. As of June 30, 2015, the Bank had disbursed $95,000 and $5,500 to Fund XVII and Fund XVIII, respectively, as a result of investor capital calls. The Bank will make additional capital investments of $0.4 million by the end of 2017 for Fund XVII and additional capital investments of $0.5 million by the end of 2018 for Fund XVIII. The Bank accounts for the capital already disbursed in the Other Assets section of the balance sheet. To date, no related income resulting from tax benefits have been recorded, however the Company plans to record such related income using the effective interest method in the future.

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 $3.2 million over the remaining life of the contract.

16. RELATED PARTY TRANSACTIONS

The aggregate amount of loans outstanding to employees, officers, directors, and to companies in which the Company’s directors were principal owners, amounted to $24.5 million, or 2.1 percent of total loans, and $26.7 million, or 2.5 percent of total loans, as of June 30, 2015 and December 31, 2014, respectively. In the second quarter 2015, principal advances to related parties in the ordinary course of business with substantially the same terms (including interest rates and collateral) as those prevailing at the time totaled $0.6 million and principal repayments and other reductions totaled $0.6 million. The aforementioned loans were made with consistent terms for comparable transactions with non-related parties. They do not involve more than normal risk of collectibility or present other unfavorable features.

Total deposit accounts with related parties totaled $56.7 million and $37.4 million as of June 30, 2015 and December 31, 2014, respectively.

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17. 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, Common Equity Tier 1 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, 2015.

As of June 30, 2015, 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 17: 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, 2015:
Total risk-based capital ratio
Consolidated	$	145,954	11.41	%	n/a		n/a	$	102,336	>8.0%
Bank	141,495		11.07	%	$	127,823	>10.0%	102,259		>8.0%
Tier 1 risk-based capital ratio
Consolidated	132,828		10.38	%	n/a		n/a	76,752		>6.0%
Bank	128,369		10.04	%	102,259		>8.0%	76,694		>6.0%
Common Equity Tier (CET) 1 risk-based capital ratio (1)
Consolidated	116,116		9.08	%	n/a		n/a	57,564		>4.5%
Bank	128,369		10.04	%	83,085		>6.5%	57,520		>4.5%
Tier 1 leverage ratio
Consolidated	132,828		9.32	%	n/a		n/a	57,008		>4.0%
Bank	128,369		9.07	%	70,776		>5.0%	56,621		>4.0%

As of December 31, 2014:
Total risk-based capital ratio
Consolidated	$	146,713	13.20	%	n/a		n/a	$	88,917	>8.0%
Bank	121,500		10.94	%	$	111,060	>10.0%	88,848		>8.0%
Tier 1 risk-based capital ratio
Consolidated	134,956		12.14	%	n/a		n/a	44,467		>4.0%
Bank	109,743		9.88	%	66,646		>6.0%	44,430		>4.0%
Tier 1 leverage ratio
Consolidated	134,956		10.23	%	n/a		n/a	52,769		>4.0%
Bank	109,743		8.33	%	65,872		>5.0%	52,698		>4.0%
(1) CET ratio conforms to the regulatory standards of Basel III that took effect on January 1, 2015 and thus do not apply to December 31, 2014.

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18. 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 18: Basic and Dilutive Earnings Per Share
	For the Three Months Ended						For the Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
	(dollars in thousands, except for per share amounts)
Net income	$	2,767		$	2,430		$	5,557		$	4,038
Less: SBLF dividends	(23		)	(45		)	(51		)	(89		)
Net income available to common shareholders	$	2,744		$	2,385		$	5,506		$	3,949

Weighted average number of shares outstanding (1)	9,596,558			8,096,932			9,583,376			8,071,391
Effect of dilutive securities:
Restricted stock, stock options and warrants (1) (2)	156,777			197,105			149,538			125,379
Diluted weighted average number of shares outstanding (1)	9,753,335			8,294,037			9,732,914			8,196,770

Basic earnings per share (1)	$	0.28		$	0.30		$	0.57		$	0.49
Diluted earnings per share (1)	$	0.28		$	0.29		$	0.57		$	0.48
(1) Retroactively adjusted to reflect the effect of all stock dividends.
(2) For the three and six months ended June 30, 2015 and 2014 all stock options were considered dilutive.

19. OTHER OPERATING EXPENSES



Table 19: Consolidated Statement of Operations - Other Operating Expenses Detail
	For the Three Months Ended				For the Six Months Ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
	(in thousands)
Other real estate owned expenses	$	9	$	138	$	14	$	233
Business and franchise tax	225		197		443		392
Advertising and promotional expenses	194		146		407		295
FDIC premiums	198		238		418		439
Postage, printing and supplies	36		54		82		113
Directors' fees	84		72		157		135
Insurance	59		23		107		47
Other	241		213		486		529
Other expenses	$	1,046	$	1,081	$	2,114	$	2,183

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20. 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, 2015 or 2014.

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.

Fair Value Classification and Transfers

As of June 30, 2015, WashingtonFirst’s assets and liabilities recorded at fair value included financial instruments valued at $13.2 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 0.9 percent of total assets and 6.4 percent of financial instruments measured at fair value as of June 30, 2015. As of December 31, 2014, WashingtonFirst’s assets and liabilities recorded at fair value included financial instruments valued at $23.6 million whose fair values were estimated by management in the absence of readily determinable fair values. These financial instruments measured as level 3 represented 1.8 percent of total assets and 12.4 percent of financial instruments measured at fair value as of December 31, 2014.

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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, 2015 and December 31, 2014, respectively, and indicate the fair value hierarchy of the valuation techniques used by WashingtonFirst to determine such fair value:



Table 20.1: Summary of Assets and Liabilities Measured at Fair Value
	As of June 30, 2015
	Level 1		Level 2		Level 3		Total
	(in thousands)
Recurring:
Assets:
U.S. Treasuries	$	4,544	$	—	$	—	$	4,544
U.S. Government agencies	—		79,661		—		79,661
Mortgage-backed securities	—		55,119		—		55,119
Collateralized mortgage obligations	—		39,966		—		39,966
Taxable state and municipal securities	—		11,973		—		11,973
Tax-exempt state and municipal securities	—		2,476		—		2,476
Total recurring assets at fair value	$	4,544	$	189,195	$	—	$	193,739

Nonrecurring:
Assets:
Loans held for investment (1)	$	—	$	—	$	12,909	$	12,909
Other real estate owned	—		—		291		291
Total nonrecurring assets at fair value	$	—	$	—	$	13,200	$	13,200



	As of December 31, 2014
	Level 1		Level 2		Level 3		Total
	(in thousands)
Recurring:
Assets:
U.S. Treasuries	$	3,014	$	—	$	—	$	3,014
U.S. Government agencies	—		51,864		—		51,864
Mortgage-backed securities	—		50,792		—		50,792
Collateralized mortgage obligations	—		44,815		—		44,815
Taxable state and municipal securities	—		12,754		—		12,754
Tax-exempt state and municipal securities	—		3,269		—		3,269
Total recurring assets at fair value	$	3,014	$	163,494	$	—	$	166,508

Nonrecurring:
Assets:
Loans held for investment (1)	$	—	$	—	$	23,199	$	23,199
Other real estate owned	—		—		361		361
Total nonrecurring assets at fair value	$	—	$	—	$	23,560	$	23,560


(1)	Represents the impaired loans, net of allowance, that have been individually evaluated and reserved for.

WashingtonFirst had no recurring level 3 assets or liabilities or transfers in and/or out of level 3 for the three and six months ended June 30, 2015 or 2014.

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Fair Value of Financial Instruments



Table 20.2: Estimated Fair Values and Carrying Values for Financial Assets, Liabilities and Commitments
	June 30, 2015				December 31, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in thousands)
Cash and cash equivalents	$	109,425	$	109,425	$	62,306	$	62,306
Investment securities	193,739		193,739		166,508		166,508
Restricted Stock	6,021		6,021		5,225		5,225
Loans held for sale	822		822		1,068		1,068
Loans held for investment, net	1,169,776		1,172,513		1,055,801		1,061,167
Bank-owned life insurance	13,336		13,336		13,147		13,147
Time deposits	414,290		415,497		370,904		372,041
Other borrowings	11,649		11,649		8,237		8,237
FHLB advances	107,818		107,834		86,047		86,583
Long-term borrowings	10,112		10,314		10,027		13,398
Off-balance sheet instruments	—		—		—		—

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.”

Restricted Stock. The fair value of restricted stock 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 time deposits 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.

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.

Off-balance sheet instruments. The fair value of off-balance-sheet lending commitments is equal to the amount of commitments outstanding. This is based on the fact that the Company generally does not offer lending commitments or standby letters of credit to

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its customers for long periods, and therefore, the underlying rates of the commitments approximate market rates, resulting in a level 2 classification.

21. SUBSEQUENT EVENTS

On July 31, 2015, WashingtonFirst Bankshares, Inc. announced the completion of its previously announced acquisition of 1^st Portfolio Holding Corporation.

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 WashingtonFirst’s financial statements and the related notes to the financial statements for the six months ended June 30, 2015 and 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” 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” 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;

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•	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.

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 after provision for loan losses for the three and six months ended June 30, 2015 was $12.3 million and $23.9 million, respectively, compared to $11.4 million and $21.2 million for the same periods in 2014. 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 $2.7 million and $5.5 million for the three and six months ended June 30, 2015, compared to $2.4 million and $3.9 million for the three and six months ended June 30, 2014. Diluted earnings per share were $0.28 per common share and $0.57 per common share for the three and six months ended June 30, 2015, compared to $0.29 per common share and $0.48 per common share for the same periods in 2014. The increase in net income available to common shareholders year over year is primarily the result of an increased average balance in interest earning assets due to organic growth of the Bank. While revenues increased as a result of the larger loan portfolio, overall costs have remained fairly stable with non-interest expenses increasing $0.4 million to $16.4 million for the six months ended June 30, 2015, compared to $16.0 million for the same period in 2014.

As of June 30, 2015 and December 31, 2014, total assets were $1.5 billion and $1.3 billion, respectively. Total loans held for investment increased by $114.0 million (10.8 percent) from $1.1 billion as of December 31, 2014, to $1.2 billion as of June 30, 2015.

As of June 30, 2015, WashingtonFirst had $10.7 million in nonperforming assets, a decrease of $0.5 million from December 31, 2014. Allowance for loan losses increased by $1.4 million during the six months ended June 30, 2015 compared to December 31, 2014. The increase in the allowance was driven by provisions of $1.6 million partially offset by net charge-offs of $0.2 million. This resulted in a $10.6 million allowance for loan losses as of June 30, 2015, compared to $9.3 million as of December 31, 2014.

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

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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.

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.

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The general allowance constituted 74.9 percent of the total allowance at June 30, 2015 and 70.5 percent at December 31, 2014. 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 and Alliance Acquisition 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, 2015. Allowances on those loans subsequent to the acquisition have been recorded in the allowance for loan losses.

As of June 30, 2015, the specific allowance accounted for 25.1 percent of the total allowance as compared to 29.5 percent at December 31, 2014. 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.

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 three and six months ended June 30, 2015 and 2014.

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.

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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.

The Millennium Transaction was accounted for using the acquisition method. Accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the transaction date. The excess of fair value of net liabilities assumed exceeded cash received in the transaction resulting in goodwill of $2.6 million. 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.

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Results of Operations



Table M1: Selected Performance Ratios
	For the Three Months Ended						For the Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
	(dollars in thousands, except earnings per share)
Average total assets	$	1,425,512		$	1,256,503		$	1,390,913		$	1,210,423
Average shareholders' equity	135,853			112,984			135,765			111,475
Net income	2,767			2,430			5,557			4,038
Basic earnings per common share (1)	$	0.28		$	0.30		$	0.57		$	0.49
Fully diluted earnings per common share (1)	$	0.28		$	0.29		$	0.57		$	0.48
Return on average assets (2)	0.78		%	0.78		%	0.81		%	0.67		%
Return on average shareholders' equity (2)	8.17		%	8.63		%	8.25		%	7.30		%
Return on average common equity (2)	8.67		%	10.05		%	8.84		%	8.50		%
Average shareholders' equity to average total assets	9.53		%	8.99		%	9.76		%	9.21		%
Efficiency ratio	62.43		%	64.24		%	61.73		%	68.21		%
Dividend payout ratio	17.86		%	13.33		%	17.54		%	16.33		%
(1) Retroactively adjusted to reflect the effect of all stock dividends.
(2) Annualized.



Table M2: Net Interest Income and Margin
	For the Three Months Ended						For the Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
	(dollars in thousands)
Net interest income	$	13,172		$	12,117		$	25,478		$	22,526
Yield on average interest-earning assets (1)	4.35		%	4.51		%	4.34		%	4.39		%
Rate on average interest-earning liabilities (1)	0.86		%	0.82		%	0.86		%	0.81		%
Net interest spread (1)	3.49		%	3.69		%	3.48		%	3.58		%
Net interest margin (1)	3.75		%	3.93		%	3.74		%	3.81		%
(1) Annualized.

The following tables provide information regarding interest-earning assets and funding for the three and six months ended June 30, 2015 and 2014. 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 M3: Average Balances, Interest Income and Expense and Average Yield and Rates - 3 Months
	For the Three Months Ended
	June 30, 2015							June 30, 2014
	Average Balance			Income/ Expense		Yield/ Rate (6)		Average Balance			Income/ Expense		Yield/ Rate (6)
	(dollars in thousands)
Assets
Interest-earning assets:
Loans (1)	$	1,127,847		$	14,314	5.02	%	$	910,596		$	12,993	5.64	%
Investment securities - taxable	181,885			786		1.71	%	166,625			729		1.73	%
Investment securities - tax-exempt (2)	2,495			17		3.22	%	5,861			39		3.31	%
Other equity securities	5,581			56		4.02	%	3,411			42		4.80	%
Interest-bearing balances	6,649			11		0.66	%	13,447			21		0.62	%
Federal funds sold	63,845			68		0.43	%	119,386			68		0.23	%
Total interest earning assets	1,388,302			15,252		4.35	%	1,219,326			13,892		4.51	%
Non-interest earning assets:
Cash and due from banks	3,378							3,755
Premises and equipment	6,094							5,861
Other real estate owned	376							991
Other assets (3)	37,218							34,573
Less: allowance for loan losses	(9,856		)					(8,003		)
Total non-interest earning assets	37,210							37,177
Total Assets	$	1,425,512						$	1,256,503

Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	105,712		$	61	0.23	%	$	94,253		$	48	0.20	%
Money market deposit accounts	206,856			251		0.49	%	218,346			265		0.49	%
Savings accounts	124,738			212		0.68	%	124,660			218		0.70	%
Time deposits	411,645			994		0.97	%	365,784			850		0.93	%
Total interest-bearing deposits	848,951			1,518		0.72	%	803,043			1,381		0.69	%
FHLB advances	97,517			378		1.53	%	46,056			212		1.82	%
Other borrowings and long-term borrowings	17,907			184		4.07	%	19,252			182		3.77	%
Total interest-bearing liabilities	964,375			2,080		0.86	%	868,351			1,775		0.82	%
Non-interest-bearing liabilities:
Demand deposits	315,894							270,023
Other liabilities	9,390							5,145
Total non-interest-bearing liabilities	325,284							275,168
Total Liabilities	1,289,659							1,143,519
Shareholders’ Equity	135,853							112,984
Total Liabilities and Shareholders’ Equity	$	1,425,512						$	1,256,503

Interest Spread (4)						3.49	%						3.69	%
Net Interest Margin (2)(5)				$	13,172	3.75	%				$	12,117	3.93	%


(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 M4: Average Balances, Interest Income and Expense and Average Yield and Rates - 6 Months
	For the Six Months Ended
	June 30, 2015							June 30, 2014
	Average Balance			Income/ Expense		Yield/ Rate (6)		Average Balance			Income/ Expense		Yield/ Rate (6)
	(dollars in thousands)
Assets
Interest-earning assets:
Loans (1)	$	1,099,723		$	27,754	5.02	%	$	886,006		$	24,194	5.43	%
Investment securities - taxable	174,584			1,502		1.71	%	158,450			1,395		1.75	%
Investment securities - tax-exempt (2)	2,779			36		3.21	%	5,845			86		3.74	%
Other equity securities	5,829			117		4.04	%	3,532			70		3.91	%
Interest-bearing balances	8,549			27		0.65	%	11,226			34		0.62	%
Federal funds sold	63,248			126		0.40	%	109,570			126		0.23	%
Total interest earning assets	1,354,712			29,562		4.34	%	1,174,629			25,905		4.39	%
Non-interest earning assets:
Cash and due from banks	3,173							3,709
Premises and equipment	6,136							5,764
Other real estate owned	369							1,177
Other assets (3)	36,131							33,406
Less: allowance for loan losses	(9,608		)					(8,262		)
Total non-interest earning assets	36,201							35,794
Total Assets	$	1,390,913						$	1,210,423

Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	101,477		$	118	0.23	%	$	90,404		$	95	0.21	%
Money market deposit accounts	208,964			505		0.49	%	207,275			505		0.49	%
Savings accounts	126,433			428		0.68	%	120,283			449		0.75	%
Time deposits	394,880			1,918		0.98	%	360,958			1,554		0.87	%
Total interest-bearing deposits	831,754			2,969		0.72	%	778,920			2,603		0.67	%
FHLB advances	101,495			749		1.47	%	46,094			415		1.79	%
Other borrowings and long-term borrowings	17,814			366		4.11	%	18,649			361		3.88	%
Total interest-bearing liabilities	951,063			4,084		0.86	%	843,663			3,379		0.81	%
Non-interest-bearing liabilities:
Demand deposits	295,561							250,174
Other liabilities	8,524							5,111
Total non-interest-bearing liabilities	304,085							255,285
Total Liabilities	1,255,148							1,098,948
Shareholders’ Equity	135,765							111,475
Total Liabilities and Shareholders’ Equity	$	1,390,913						$	1,210,423

Interest Spread (4)						3.48	%						3.58	%
Net Interest Margin (2)(5)				$	25,478	3.74	%				$	22,526	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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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 increase in expense for the six months ended June 30, 2015 reflects the increased cost of funding due to higher interest rates prevailing 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, 2015 and 2014.



Table M5: Changes in Rate and Volume Analysis
	For the Three Months Ended June 30, 2015 Compared to Same Period 2014									For the Six Months Ended June 30, 2015 Compared to Same Period 2014
	(Decrease)/Increase Due to									(Decrease)/Increase Due to
	Rate			Volume			Total			Rate			Volume			Total
	(in thousands)
Income from interest-earning assets:
Loans	$	(7,313	)	$	8,634		$	1,321		$	(4,685	)	$	8,245		$	3,560
Investment securities - taxable	(53		)	110			57			(84		)	191			107
Investment securities - tax exempt	(1		)	(21		)	(22		)	(11		)	(39		)	(50		)
Other equity securities	(42		)	56			14			1			46			47
Interest bearing balances	8			(18		)	(10		)	5			(12		)	(7		)
Federal funds sold	166			(166		)	—			136			(136		)	—
Total income from interest-earning assets	(7,235		)	8,595			1,360			(4,638		)	8,295			3,657
Expense from interest-bearing liabilities:
Interest-bearing deposits	59			78			137			192			174			366
FHLB Advances	(213		)	379			166			(214		)	548			334
Borrowed funds	57			(55		)	2			41			(36		)	5
Total expense from interest-bearing liabilities	(97		)	402			305			19			686			705
Increase in net interest income	$	(7,138	)	$	8,193		$	1,055		$	(4,657	)	$	7,609		$	2,952

Interest Earning Assets

Average loan balances were $1.1 billion for the six months ended June 30, 2015, compared to $886.0 million for the six months ended June 30, 2014. The related interest income from loans was $27.8 million for the six months ended June 30, 2015 resulting in an average yield of 5.02 percent, compared to $24.2 million for the six months ended June 30, 2014, resulting in average yields of 5.43 percent. The decrease in average yield on loans reflects competitive pressure on loan pricing during the period (including the repricing of adjustable rate loans). 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 $174.6 million for the six months ended June 30, 2015, compared to $158.5 million for the same period 2014. Interest income generated on these investment securities for the six months ended June 30, 2015 totaled $1.5 million, or a 1.71 percent yield, compared to $1.4 million or a 1.75 percent yield for the same period 2014.

Tax-exempt investment securities balances averaged $2.8 million for the six months ended June 30, 2015, compared to $5.8 million for 2014. Interest income generated on these investment securities for the six months ended June 30, 2015 totaled $36,000, or a 3.21 percent yield, compared to $86,000 or a 3.74 percent for the same period 2014. The yield for tax-exempt securities has been presented as a fully taxable equivalent.

Other equity securities balances averaged $5.8 million for the six months ended June 30, 2015, compared to $3.5 million for the same period 2014. Interest income generated on these investment securities for the six months ended June 30, 2015 totaled $117,000, or a 4.04 percent yield, compared to $70,000 or a 3.91 percent for the same period 2014.

Interest-bearing balances averaged $8.5 million for the six months ended June 30, 2015, compared to $11.2 million, for the six month ended June 30, 2014. 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, 2015 totaled $27,000, or a 0.65 percent yield, compared to $34,000 or a 0.62 percent for the same period 2014.

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Short-term investments in federal funds sold averaged $63.2 million as of June 30, 2015, compared to $109.6 million for the six months ended June 30, 2014. Interest income generated on these assets for the six months ended June 30, 2015 totaled $0.1 million, or a 0.40 percent yield, compared to $0.1 million or a 0.23 percent yield for the same period 2014.

Interest Bearing Liabilities

Average interest-bearing deposits were $831.8 million for the six months ended June 30, 2015 compared to $778.9 million as of June 30, 2014. The increase in the average interest-bearing deposits as of June 30, 2015 compared to June 30, 2014 is the result of organic growth and acquisitions. The related interest expense from interest-bearing deposits was $3.0 million for the six months ended June 30, 2015, compared to $2.6 million for the six months ended June 30, 2014. The average rate on these deposits was 0.72 percent for the six months ended June 30, 2015, compared to 0.67 percent for the same period 2014. 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 $101.5 million as of June 30, 2015, compared to $46.1 million as of June 30, 2014. Interest expense incurred on these borrowings for the six months ended June 30, 2015 totaled $0.7 million, or a 1.47 percent rate, compared to $0.4 million, or a 1.79 percent rate, for the six months ended June 30, 2014.

Other borrowings and long-term liabilities averaged $17.8 million for the six months ended June 30, 2015, compared to $18.6 million for the same period 2014. Interest expense incurred on these borrowings for the six months ended June 30, 2015 totaled $0.4 million, or a 4.11 percent rate, compared to $0.4 million, or a 3.88 percent rate for the six months ended June 30, 2014.

Provision for Loan Losses. During the three months ended June 30, 2015, WashingtonFirst recorded provisions to its allowance for loan losses of $0.9 million, charge-offs of $0.1 million and recoveries of $0.1 million, compared to provisions to its allowance for loan losses of $0.8 million, charge-offs of $0.4 million and recoveries of $0.1 million for the three months ended June 30, 2014. During the six months ended June 30, 2015, WashingtonFirst recorded provisions to its allowance for loan losses of $1.6 million, charge-offs of $0.3 million and recoveries of $0.1 million, compared to provisions to its allowance for loan losses of $1.3 million, charge-offs of $1.7 million and recoveries of $0.2 million for the six months ended June 30, 2014.

Service Charges on Deposit Accounts. Service charges on deposit accounts were $0.1 million for both the three months ended June 30, 2015 and 2014. For both the six months ended June 30, 2015 and 2014, service charges on deposit accounts were $0.2 million.

Earnings on Bank-Owned Life Insurance. Earnings on bank-owned life insurance were $0.1 million for both the three months ended June 30, 2015 and 2014. For both the six months ended June 30, 2015 and 2014, earnings on bank-owned life insurance were $0.2 million.

Gain on Sale of Other Real Estate Owned. During both the three and six months ended June 30, 2015, WashingtonFirst realized net gains of $0.1 million on sales of OREO properties, compared to $5,000 and $69,000 for the three and six months ended June 30, 2014. See Note 8 - Other Real Estate Owned for further details.

Gain on Sale of Loans, net. During the three and six months ended June 30, 2015, WashingtonFirst realized gains on the sale of loans of $0.1 million and $0.2 million, respectively. These gains are a result of the mortgage business.

Gain on Sale of Available-for-Sale Investment Securities. During the three and six months ended June 30, 2015, WashingtonFirst received proceeds of $12.3 million and 14.8 million, respectively, from the call or sale of securities from its available-for-sale investment portfolio resulting in net realized gains of $7,000 and $22,000, respectively.

Other Operating Income. During the three and six months ended June 30, 2015, WashingtonFirst recorded $0.2 million and $0.4 million, respectively, of other operating income compared to $0.1 million and $0.3 million, respectively, for the same period in 2014.

Compensation and Employee Benefits. Compensation and employee benefits were $4.6 million and $8.7 million for the three and six months ended June 30, 2015, respectively, compared to $4.5 million and $8.6 million, respectively, for the same periods in 2014.

Premises and Equipment. Premises and equipment expenses were $1.5 million and $3.0 million for the three and six months ended June 30, 2015, respectively, compared to $1.4 million and $2.9 million, respectively, for the same periods in 2014.

Data Processing. Data processing expenses were $0.9 million and $1.7 million for the three and six months ended June 30, 2015, respectively, compared to $0.7 million and $1.4 million, respectively, for the same periods in 2014. The increase in the first two quarters of 2015 compared to first two quarters of 2014 was primarily due to the increased size of the company as it continues to grow.

Professional Fees. Professional fees, which include legal, accounting and other professional services, were $0.3 million and $0.7 million for both the three and six months ended June 30, 2015 and 2014, respectively.

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Other Operating Expenses. Other operating expenses were $1.0 million and $2.1 million for the three and six months ended June 30, 2015, respectively, compared to $1.1 million and $2.2 million during the same periods in 2014. See Note 19 - Other Operating Expenses for further details.

Provision for Income Taxes. Provision for income taxes were $1.6 million and $3.1 million for the three and six months ended June 30, 2015, respectively, compared to $1.3 million and $2.1 million during the same periods in 2014, resulting in effective tax rates of 35.72 percent and 34.48 percent, respectively.

Financial Condition

Total assets were $1.5 billion as of June 30, 2015, compared to $1.3 billion as of December 31, 2014. As of June 30, 2015, WashingtonFirst had $109.4 million of cash and cash equivalents, compared to $62.3 million as of December 31, 2014. As of June 30, 2015, WashingtonFirst had $193.7 million of investments, compared to $166.5 million as of December 31, 2014.

Total loans held for investment increased by $114.0 million (10.8 percent) from $1.06 billion as of December 31, 2014, to $1.17 billion as of June 30, 2015.

Total deposits increased $162.8 million (15.0 percent) from $1.1 billion as of December 31, 2014 to $1.2 billion as of June 30, 2015.

Total shareholders’ equity increase $0.6 million (0.5 percent) from $134.5 million as of December 31, 2014 to $135.2 million as of June 30, 2015. The increase in total shareholders’ equity during the six months end in 2015 is primarily the result of the redemption of $4.4 million of the outstanding shares of Series D Preferred Stock that had been issued through the Company’s participation in the Small Business Lending Fund program and the declaration of $1.0 million of cash dividends in the first six months of 2015. These decreases were partially offset by net income of $5.6 million, stock option exercises of $0.3 million and a $23,000 increase in accumulated other comprehensive income as a result of the change in fair value of it available-for-sale investment portfolio.

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 Loans Held for Sale (“LHFS”) 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, 2015, loans held for sale totaled $0.8 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 $1.2 billion as of June 30, 2015, an increase of $115.3 million from the December 31, 2014 balance of $1.1 billion.



Table M6: Loans Held for Investment Portfolio by Loan Class
	June 30, 2015				December 31, 2014
	Amount		Percent		Amount		Percent
	(dollars in thousands)
Construction and development	$	195,242	16.5	%	$	156,241	14.7	%
Commercial real estate	710,205		60.2	%	650,051		61.0	%
Residential real estate	132,218		11.2	%	122,306		11.5	%
Real estate loans	1,037,665		87.9	%	928,598		87.2	%
Commercial and industrial	133,650		11.3	%	127,084		11.9	%
Consumer	9,087		0.8	%	9,376		0.9	%
Total loans held for investment	$	1,180,402	100.0	%	$	1,065,058	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 $0.5 million as of June 30, 2015.

Construction and development loans represented 16.5 percent and 14.7 percent of the total loan portfolio as of June 30, 2015 and December 31, 2014, 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 11.2 percent and 11.5 percent of total loans as of June 30, 2015 and December 31, 2014, 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, 2015 are summarized in the following table:



Table M7: Loan Portfolio Maturity Schedule by Loan Class
	As of June 30, 2015
	One Year or Less		One to Five Years		Over Five Years		Total
	(in thousands)
Construction and development	$	102,402	$	67,208	$	25,632	$	195,242
Commercial real estate	87,574		261,974		360,657		710,205
Residential real estate	7,999		21,048		103,171		132,218
Commercial and industrial	61,892		50,169		21,589		133,650
Consumer	1,150		6,279		1,658		9,087
Total loans	$	261,017	$	406,678	$	512,707	$	1,180,402

Loans with a predetermined interest rate	$	54,457	$	271,016	$	93,451	$	418,924
Loans with a floating or adjustable interest rate	206,560		135,662		419,256		761,478
Total loans	$	261,017	$	406,678	$	512,707	$	1,180,402

Asset Quality

WashingtonFirst separates its loans into the following categories, based on credit quality: pass; 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 M8: Held for Investment Loan Portfolio by Risk Rating and Loan Class
	As of June 30, 2015
Internal risk rating grades	Pass		Pass Watch		Special Mention		Substandard		Total
Risk rating number	1 to 5		6		7		8
	(in thousands)
Construction and development	$	193,680	$	1,334	$	—	$	228	$	195,242
Commercial real estate	689,360		6,321		8,053		6,471		710,205
Residential real estate	126,959		3,434		745		1,080		132,218
Commercial and industrial	123,851		4,318		3,612		1,869		133,650
Consumer	8,710		118		—		259		9,087
Balance at end of period	$	1,142,560	$	15,525	$	12,410	$	9,907	$	1,180,402

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 $8.7 million as of December 31, 2014 to $5.9 million as of June 30, 2015. 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. There were $0.1 million loans past due more than 90 days that were still accruing as of June 30, 2015 and no loans past due more than 90 days that were still accruing as of December 31, 2014



Table M9: Loan Portfolio Aging and Non-Accrual Loans by Loan Class
	As of June 30, 2015
	Current Loans (1)		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Non- Accrual		Total Past Due		Total Loans
	(in thousands)
Construction and development	$	195,014	$	—	$	—	$	—	$	228	$	228	$	195,242
Commercial real estate	703,007		4,100		—		—		3,098		7,198		710,205
Residential real estate	130,599		514		—		—		1,105		1,619		132,218
Commercial and industrial	132,186		151		89		—		1,224		1,464		133,650
Consumer	8,709		—		—		113		265		378		9,087
Balance at end of period	$	1,169,515	$	4,765	$	89	$	113	$	5,920	$	10,887	$	1,180,402



	As of December 31, 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	$	155,414	$	—	$	586	$	241	$	827	$	156,241
Commercial real estate	641,292		201		2,911		5,647		8,759		650,051
Residential real estate	119,855		598		—		1,853		2,451		122,306
Commercial and industrial	124,591		857		683		953		2,493		127,084
Consumer	9,112		264		—		—		264		9,376
Balance at end of period	$	1,050,264	$	1,920	$	4,180	$	8,694	$	14,794	$	1,065,058

(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 $10.6 million as of June 30, 2015, or approximately 0.90 percent of outstanding loans held for investment, compared to $9.3 million or approximately 0.87 percent of outstanding loans held for investment as of December 31, 2014, and $8.3 million or approximately 0.88 percent of loans outstanding as of June 30, 2014.

WashingtonFirst has allocated $2.7 million as of June 30, 2015 for specific loans evaluated individually for impairment. For the three months ended June 30, 2015, WashingtonFirst recorded $0.9 million in provisions for loan losses, $(0.1) million in charge-offs and $55,000 in recoveries, compared to $0.8 million in provision for loans losses, $0.4 million in charge-off and $0.1 million in recoveries for the three months ended June 30, 2014. For the six months ended June 30, 2015, WashingtonFirst recorded $1.6 million in provisions for loan losses, $0.3 million in charge-offs and $106,000 in recoveries, compared to $1.3 million in provision for loans losses, $1.7 million in charge-off and $0.2 million in recoveries for the six months ended June 30, 2014.

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 $51.3 million.

Of the Bank’s $1.2 billion in gross loans outstanding as of June 30, 2015, approximately $107.6 million or 9.1 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 $5.2 million as of June 30, 2015. This discount is a net amount consisting of credit-related mark-downs of $5.5 million, yield-related mark-downs of $1.3 million and yield-related mark-ups of $1.6 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, 2015 and December 31, 2014:



Table M10: Reconciliation of GAAP Allowance Ratio to Non-GAAP Allowance Ratio
	June 30, 2015			December 31, 2014
	(dollars in thousands)
GAAP allowance for loan losses	$	10,626		$	9,257
GAAP loans held for investment, at amortized cost	1,180,402			1,065,058

GAAP allowance for loan losses to total loans	0.90		%	0.87		%

GAAP allowance for loan losses	$	10,626		$	9,257
Plus: Credit purchase accounting marks	5,549			6,336
Non-GAAP adjusted allowance for loan losses	$	16,175		$	15,593

GAAP loans held for investment, at amortized cost	$	1,180,402		$	1,065,058
Plus: Credit purchase accounting marks	5,549			6,336
Non-GAAP loans held for investment, at amortized cost	$	1,185,951		$	1,071,394

Non-GAAP adjusted allowance for loan losses to total loans	1.36		%	1.46		%

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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 ensure its adequacy and applicability in relation to the Bank’s past and future experience with the loan portfolio, from a credit quality perspective.



Table M11: Analysis of the Allowance for Loan Losses
	For the Three Months Ended						For the Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
	(dollars in thousands)
Balance at beginning of period	$	9,855		$	7,881		$	9,257		$	8,534
Provision for loan losses	850			760			1,550			1,305
Charge-offs:
Construction and development	—			(100		)	—			(100		)
Commercial real estate	(10		)	(210		)	(138		)	(791		)
Residential real estate	(118		)	(153		)	(143		)	(541		)
Commercial and industrial	—			—			—			(70		)
Consumer loans	(6		)	42			(6		)	(232		)
Total charge-offs	(134		)	(421		)	(287		)	(1,734		)
Recoveries:
Construction and development	—			—
Commercial real estate	—			1			—			102
Residential real estate	48			108			89			119
Commercial and industrial	6			3			15			6
Consumer	1			—			2			—
Total recoveries	55			112			106			227
Net charge-offs	(79		)	(309		)	(181		)	(1,507		)
Balance at end of period	$	10,626		$	8,332		$	10,626		$	8,332

Allowance for loan losses to total loans	0.90		%	0.88		%	0.90		%	0.88		%
Non-GAAP adjusted allowance for loan losses to total loans	1.36		%	1.92		%	1.36		%	1.92		%
Allowance for loan losses to non-accrual loans	179.49		%	90.38		%	179.49		%	90.38		%
Allowance for loan losses to non-performing assets	99.44		%	69.68		%	99.44		%	69.68		%
Non-performing assets to total assets	0.70		%	0.86		%	0.70		%	0.86		%
Net charge-offs to average loans (1)	0.03		%	0.14		%	0.03		%	0.34		%
(1) Annualized.

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Table M12: Changes in Allowance for Loan Losses by Loan Class
	Construction and Development		Commercial Real Estate			Residential Real Estate			Commercial and Industrial		Consumer			Total
	(in thousands)
For the Three Months Ended:
Beginning Balance	$	1,461	$	5,585		$	1,286		$	1,497	$	26		$	9,855
Provision for loan losses	189		41			74			545		1			850
Charge-offs	—		(10		)	(118		)	—		(6		)	(134		)
Recoveries	—		—			48			6		1			55
Ending Balance	$	1,650	$	5,616		$	1,290		$	2,048	$	22		$	10,626

For the Six Months Ended:
Beginning Balance	$	1,028	$	5,674		$	920		$	1,612	$	23		$	9,257
Provision for loan losses	622		80			424			421		3			1,550
Charge-offs	—		(138		)	(143		)	—		(6		)	(287		)
Recoveries	—		—			89			15		2			106
Ending Balance	$	1,650	$	5,616		$	1,290		$	2,048	$	22		$	10,626



Table M13: Loans Held for Investment and Related Allowance for Loan Losses by Impairment Method and Loan Class
	As of June 30, 2015
	Construction and Development		Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer		Total
	(in thousands)
Ending Balance:
Evaluated collectively for impairment	$	195,014	$	694,031	$	128,309	$	127,311	$	8,715	$	1,153,380
Evaluated individually for impairment	228		16,174		3,909		6,339		372		27,022
	$	195,242	$	710,205	$	132,218	$	133,650	$	9,087	$	1,180,402

Allowance for Losses:
Evaluated collectively for impairment	$	1,618	$	4,703	$	713	$	904	$	21	$	7,959
Evaluated individually for impairment	32		913		577		1,144		1		2,667
	$	1,650	$	5,616	$	1,290	$	2,048	$	22	$	10,626

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 M14: Allocation of Allowance for Loan Losses by Loan Class
	June 30, 2015				December 31, 2014
	Amount		% Total		Amount		% Total
	(dollars in thousands)
Construction and development	$	1,650	15.5	%	$	1,028	11.1	%
Commercial real estate	5,616		52.9	%	5,674		61.4	%
Residential real estate	1,290		12.1	%	920		9.9	%
Commercial and industrial	2,048		19.3	%	1,612		17.4	%
Consumer	22		0.2	%	23		0.2	%
Total allowance for loan losses	$	10,626	100.0	%	$	9,257	100.0	%

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Non-performing Assets

As of June 30, 2015, WashingtonFirst had $10.7 million of non-performing assets compared to $11.2 million as of December 31, 2014, a decrease of $0.5 million. The ratio of non-performing assets to total assets decreased to 0.70 percent as of June 30, 2015 from 0.84 percent as of December 31, 2014, a 14 basis point decrease. The ratio of non-performing assets to total assets as of June 30, 2015 fell below WashingtonFirst’s historical trends primarily due to management’s efforts to resolve non-performing loans and dispose of OREO properties acquired in recent transactions.



Table M15: Non-Performing Assets
	June 30, 2015			December 31, 2014
	(dollars in thousands)
Non-accrual loans	$	5,920		$	8,694
90+ days still accruing	113			—
Troubled debt restructurings still accruing	4,362			2,151
Other real estate owned	291			361
Total non-performing assets	$	10,686		$	11,206
Non-performing assets to total assets	0.70		%	0.84		%

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, 2015, there was $5.9 million in loans on non-accrual status compared to $8.7 million as of December 31, 2014. The $5.9 million non-accrual loan balance consists primarily of loans secured by commercial real estate. The specific allowance for impaired loans was $2.7 million as of both June 30, 2015 and December 31, 2014.

Other Real Estate Owned (OREO). As of June 30, 2015, WashingtonFirst had $0.3 million classified as other real estate owned (“OREO”) on the balance sheet, compared to $0.9 million as of June 30, 2014. During the six months ended June 30, 2015, WashingtonFirst sold one OREO property collecting cash proceeds of $0.3 million and realizing net gains of $0.1 million. Comparatively, during the six months ended June 30, 2014, WashingtonFirst sold four OREO properties collecting cash proceeds of $0.5 million and realizing net gains of $0.1 million.



Table M16: Changes in Other Real Estate Owned
	For the Three Months Ended						For the Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
	(in thousands)
Balance at beginning of period	$	451		$	1,016		$	361		$	1,463
Properties acquired at foreclosure	—			—			90			—
Sales of foreclosed properties	(160		)	—			(160		)	(384		)
Valuation adjustments	—			(127		)	—			(190		)
Balance at end of period	$	291		$	889		$	291		$	889

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 $193.7 million as of June 30, 2015 compared to $166.5 million as of December 31, 2014. 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.

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Table M17: Available-for-Sale Investment Securities Summary
	June 30, 2015				December 31, 2014
	Amount		Percent		Amount		Percent
	(dollars in thousands)
U.S. Treasuries	$	4,544	2.3	%	$	3,014	1.8	%
U.S. Government agencies	79,661		41.1	%	51,864		31.1	%
Mortgage-backed securities	55,119		28.5	%	50,792		30.5	%
Collateralized mortgage obligations	39,966		20.6	%	44,815		26.9	%
Taxable state and municipal securities	11,973		6.2	%	12,754		7.7	%
Tax-exempt state and municipal securities	2,476		1.3	%	3,269		2.0	%
Total available-for-sale investment securities	$	193,739	100.0	%	$	166,508	100.0	%

The investment portfolio contains U.S. Treasury securities; U.S. Government agency securities; collateralized mortgage obligations (“CMOs”) and mortgage backed securities (“MBS”) backed by residential mortgages guaranteed by the US Government, FNMA or FHLMC; 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, 2015, U.S. Government and agency securities represented $84.2 million or 43.5 percent of the portfolio, while CMOs and MBS were $95.1 million, or 49.0 percent of the portfolio, and municipal securities were $14.4 million, or 7.5 percent of the portfolio.

The yield on the taxable available-for-sale investment securities portfolio for both the three and six months ended June 30, 2015 was 1.71 percent, compared to 1.73 percent and 1.75 percent, respectively, for the three and six months ended June 30, 2014. The tax equivalent yield on the tax-exempt available-for-sale investment securities portfolio for the three and six months ended June 30, 2015 was 3.22 percent and 3.21 percent, respectively, compared to 3.31 percent and 3.74 percent for the three and six months ended June 30, 2014.

The amortized cost, fair value and yield of investments by remaining contractual maturity for available-for-sale investment securities as of June 30, 2015 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 M18: Available-for-Sale Investment Securities Contractual Maturity
	As of June 30, 2015
	Amortized Cost		Fair Value		Weighted-Average Yield
	(in thousands)
Due within one year	$	1,599	$	1,618	2.82	%
Due after one year through five years	83,261		83,981		1.69	%
Due after five years through ten years	32,581		32,736		1.93	%
Due after ten years	75,587		75,404		1.91	%
Total available-for-sale investment securities	$	193,028	$	193,739	1.83	%

Restricted Stocks

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 M19: Composition of Restricted Stocks
	June 30, 2015		December 31, 2014
	(in thousands)
FHLB stock	$	5,665	$	4,869
ACBB	100		100
CBB	256		256
Total other equity securities	$	6,021	$	5,225

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.

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As of June 30, 2015, the deposit portfolio totaled $1.2 billion, comprising of $386.0 million of non-interest bearing deposits and $862.9 million of interest bearing deposits. Total deposits increased $162.8 million (15.0 percent) from $1.1 billion as of December 31, 2014 to $1.2 billion as of June 30, 2015. As of December 31, 2014, the deposit portfolio totaled $1.1 billion, which was composed of $278.1 million of non-interest bearing deposits and $808.0 million of interest bearing deposits.

The average balance of interest bearing deposits for the three and six months ended June 30, 2015 was $849.0 million and $831.8 million, respectively, compared to $803.0 million and $778.9 million for the three and six months ended June 30, 2014, respectively. The increase in the average interest-bearing deposits in the second quarter 2015 is the result of organic growth and acquisitions. The related interest expense from interest-bearing deposits was $1.5 million and $3.0 million for the three and six months ended June 30, 2015, respectively, compared to $1.4 million and $2.6 million for the three and six months ended June 30, 2014. The average rate on these deposits was 0.72 percent and 0.72 percent for the three and six months ended June 30, 2015, compared to 0.69 percent and 0.67 percent for the three and six months ended June 30, 2014. 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.

Average non-interest bearing deposits for the three and six months ended June 30, 2015 were $315.9 million and $295.6 million, respectively, compared to $270.0 million and $250.2 million for the three and six months ended June 30, 2014. The increase in the average non-interest-bearing deposits in the second quarter 2015, compared to the same period in 2014, is the result of organic growth and acquisitions.



Table M20: Certificates of Deposit Greater Than or Equal to $100,000 by Maturity
	June 30, 2015		December 31, 2014
	(in thousands)
Three months or less	$	53,827	$	49,637
Three through six months	47,506		33,056
Six through twelve months	126,742		71,438
Over twelve months	104,535		116,718
Total certificates of deposit greater than or equal to $100,000	$	332,610	$	270,849

Other Borrowings

Other borrowings consist 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, 2015, WashingtonFirst had $11.6 million of customer repurchase agreements, compared to $8.2 million as of December 31, 2014.

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, 2015 and December 31, 2014 contains a $2.8 million and $3.0 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 M21: Composition of FHLB Advances
	June 30, 2015			December 31, 2014
	(dollars in thousands)
As of period ended:
FHLB advances	$	105,067		$	83,054
FHLB purchase accounting mark	2,751			2,993
FHLB total	$	107,818		$	86,047
Weighted average outstanding effective interest rate	1.37		%	1.58		%

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Table M22: FHLB Advances Average Balances
	For the Three Months Ended						For the Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
	(dollars in thousands)
Averages for the period:
FHLB advances	$	97,517		$	46,056		$	101,495		$	46,094
Average effective interest rate paid during the period	1.53		%	1.82		%	1.47		%	1.79		%
Maximum month-end balance outstanding	$	107,834		$	53,236		$	125,926		$	53,236

Long-term Borrowings



Table M23: Long-term Borrowings Detail
	June 30, 2015		December 31, 2014
	(in thousands)
Subordinated debt	$	2,298	$	2,281
Trust preferred capital notes	7,814		7,746
Long-term borrowings	$	10,112	$	10,027

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 carries an 8.0 percent interest rate, payable quarterly. In connection with the issuance of the Bank Subordinated Debt, the Company issued warrants to CBC that would allow it to purchase 60,657 shares of common stock at a share price equal to $10.30. These warrants have been retroactively adjusted to reflect the effect of all stock dividends and 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 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, 2015 and December 31, 2014 were 3.44 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. 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, 2015 and December 31, 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.

As of June 30, 2015 and December 31, 2014, WashingtonFirst Bank had $13.7 million and $10.4 million, respectively, of capital in excess of the amount needed to meet the regulatory minimum Tier 1 leverage ratio required to be considered “well capitalized”.

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WashingtonFirst elected to participate in the SBLF program, and on August 4, 2011, WashingtonFirst issued and sold to the U.S. Treasury 17,796 shares of Series D Preferred Stock for an aggregate purchase price of $17.8 million in cash. In 2014, WashingtonFirst redeemed 25 percent ($(4.4) million) of the $17.8 million outstanding shares of Series D Preferred Stock that had been issued through the Company’s participation in the SBLF program. In the first quarter 2015, WashingtonFirst redeemed an additional 25 percent ($4.4 million) of the $17.8 million outstanding shares of Series D Preferred Stock that had been issued through the Company’s participation in the SBLF program.

Total shareholders’ equity increased $0.6 million (0.5 percent) from $134.5 million as of December 31, 2014 to $135.2 million as of June 30, 2015. The increase in total shareholders’ equity in the second quarter 2015 is primarily the result of the redemption of $4.4 million of the outstanding shares of Series D Preferred Stock that had been issued through the Company’s participation in the Small Business Lending Fund program and the declaration of $1.0 million of cash dividends in the first six months 2015. These increases were partially offset by net income of $5.6 million, stock option exercises of $0.3 million and a $23,000 increase in accumulated other comprehensive income as a result of the change in fair value of it available-for-sale investment portfolio.



Table M24: Capital Categories, Capital Ratios and Minimum Capital Ratios Required by Bank Regulators
	June 30, 2015			December 31, 2014
	(in thousands)
Tier 1 Capital:
Common stock	$	95		$	95
Capital surplus	113,384			112,887
Accumulated earnings	12,321			7,775
Less: disallowed assets	(9,684		)	(6,894		)
Total Common Equity Tier 1 Capital (1)	116,116			113,863

Add: Preferred Stock	8,898			13,347
Add: Trust preferred	7,814			7,746
Total Tier 1 Capital	$	132,828		$	134,956

Tier 2 Capital:
Qualifying allowance for loan losses	10,626			9,257
Qualifying subordinated debt	2,500			2,500
Total Tier 2 Capital	$	13,126		$	11,757

Total risk-based capital	$	145,954		$	146,713
Risk weighted assets	1,279,195			1,111,426
Qualifying quarterly average assets	1,425,203			1,319,030
(1) Common equity tier 1 ratio conforms to the regulatory standards of Basel III that took effect on March 31, 2015, and thus do not apply to prior periods.



Table M25: Capital Ratios and Regulatory Requirements Summary
					To Be Well Capitalized Under Prompt Corrective Action Provisions	For Minimum Capital Adequacy Requirements
	June 30, 2015		December 31, 2014			For Minimum Capital Adequacy Requirements
Capital Ratios:
Total risk-based capital ratio	11.41	%	13.20	%	10.00%	8.00%
Tier 1 risk-based capital ratio	10.38	%	12.14	%	8.00%	6.00%
CET 1 risk-based capital ratio (1)	9.08	%	n/a		6.50%	4.50%
Tier 1 leverage ratio	9.32	%	10.23	%	5.00%	4.00%
(1) CET 1 ratio conforms to the regulatory standards of Basel III that took effect on March 31, 2015, and thus do not apply to prior periods.

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.

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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 maintains additional liquidity sources to support the needs of this client base.

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, 2015, WashingtonFirst had $109.4 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, 2015, WashingtonFirst had a total credit line of $287.3 million with the FHLB with an unused portion of $182.2 million. Borrowings with the FHLB have certain collateral requirements and are subject to disbursement approval by the FHLB. As of June 30, 2015, WashingtonFirst also had $103.5 million in unsecured borrowing capacity from correspondent banks. As of June 30, 2015, 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 commercial and residential real estate activities. As of June 30, 2015, commercial real estate loans were 60.2 percent of the total loan portfolio, construction and development loans were 16.5 percent of the total loan portfolio and residential real estate loans were 11.2 percent of the total loan portfolio.

The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development, and other land acquisitions which represent 100% or more of an institution’s total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institution’s total risk-based capital and the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital. As of June 30, 2015, WashingtonFirst’s total reported loans for construction, land development, and other land acquisitions represented 148.8 percent of total risk based capital. Additionally, as of June 30, 2015, WashingtonFirst’s total commercial real estate loans represented 543.2 percent of total risk based capital.

See “Item 1A. Risk Factors – Risks Associated With WashingtonFirst’s Business – WashingtonFirst’s profitability depends significantly on local economic conditions” and “Item 1A. Risk Factors” – Risks Associated With WashingtonFirst’s Business – WashingtonFirst’s loan portfolios have significant real estate concentration” in WashingtonFirst’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 16, 2015 for more information regarding risks.

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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is defined as the sensitivity of income, fair market values and capital to changes in interest rates, foreign currency exchange rates, commodity prices and other relevant market prices and rates. The primary market risk that WashingtonFirst is exposed to is interest rate risk inherent in our lending, deposit taking and borrowing activities, since the Company’s net income is largely dependent on net interest income. The board of directors has delegated interest rate risk management to the Asset/Liability Committee (“ALCO”). ALCO is governed by policy approved annually by our board of directors. The overall interest rate risk position and strategies are reviewed by executive management, ALCO and the Bank’s board of directors on an ongoing basis. ALCO formulates and monitors management of interest rate risk through policies and guidelines it establishes and through review of detailed reports discussed at least quarterly. In establishing guidelines, ALCO considers impact on earnings, capital, level and direction of interest rates, liquidity, local economic conditions, external threats and other factors as part of its process to identify and manage maturity and re-pricing mismatches inherent in its cash flows to provide net interest growth consistent with the Company’s earnings objectives.

The Company uses an earnings simulation model on a quarterly basis to monitor its interest rate sensitivity and risk, and to model balance sheet and income statement effects in alternative interest rate scenarios. In modeling interest rate risk, the Company measures net interest income (“NII”) sensitivity and economic value of equity (“EVE”). The resulting percentage change in NII over various rate scenarios is an indication of short-term interest rate risk. The resulting change in EVE over various rate scenarios is an indication of long-term interest rate risk.

The earnings simulation model utilizes a static current balance sheet and related attributes, and adjusts for assumptions such as interest rates, loan and investment prepayment speeds, deposit early withdrawal assumptions, the sensitivity of non-maturity deposit rates, non-interest income and expense and other factors deemed significant by ALCO. Maturing and repayment dollars are assumed to roll back into like instruments for new terms at current market rates. Pricing floors on discretionary priced liability products are used which limit how low various deposit products could go under declining interest rate scenarios, reflective of our pricing philosophy in response to changing interest rates. Additional assumptions are applied to modify volumes and pricing under various rate scenarios. This information is then shock tested which assumes a simultaneous change in interest rates ranging from +400 basis points to -200 basis points. Results are then analyzed for the impact on NII, net income and EVE over the next 12 months and 24 months. In addition to simultaneous changes in interest rates, alternative interest rate changes such as changes based on interest rate ramps are also performed.

As part of its interest rate risk management, the Company typically uses its investment portfolio and wholesale funding instruments to balance its interest rate exposure.

The board of directors has established interest rate risk limits in its ALCO policy for static gap analysis and both NII and EVE. WashingtonFirst engages an outside consulting firm to assist in modeling its short-term and long-term interest rate risk profile. On a periodic basis, management reports to ALCO and the board of directors on WashingtonFirst’s interest rate risk profile and expectations of changes in the profiles based on certain interest rate shocks. The Company believes its strategies are prudent and is within its policy guidelines as of June 30, 2015.

The interest rate risk model results for June 30, 2015 and December 31, 2014 are shown in the table below based on an immediate shift in market interest rates and a static balance sheet. The percentage change indicates what the Company would expect NII and EVE to change over the next twelve months under various interest rate shock scenarios:



	Percentage Change in NII and EVE from Base Case
Interest	June 30, 2015				December 31, 2014
Rate Shocks	NII		EVE		NII		EVE
+400 bp	10.0	%	5.8	%	4.9	%	0.9	%
+300 bp	9.5	%	5.6	%	6.3	%	2.3	%
+200 bp	6.7	%	5.7	%	4.9	%	3.7	%
+100 bp	2.4	%	3.4	%	1.6	%	2.5	%
-100 bp	3.8	%	(1.4	)%	4.3	%	(0.8	)%
-200 bp	3.1	%	(7.0	)%	3.6	%	(6.1	)%

This analysis suggests that if interest rates were to increase, the Company is positioned for an improvement in net interest income over the next 12 months.

On a periodic basis, the Company back-tests actual changes in its net interest income against expected changes as well as actual market interest rate movements and other factors impacting actual versus projected results.

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Certain shortcomings are inherent in this method of analysis. Since WashingtonFirst’s actual balance sheet movement is not static (maturing and repayment dollars are presumed to be rolled back into like instruments for new terms at current market rates), these simulated changes in net interest income are indicative only of the magnitude of interest rate risk in the balance sheet. These changes do not take into account actions we may take in response to changes in interest rates, and are not necessarily reflective of the income WashingtonFirst would actually receive. There is no guarantee that the risk management techniques and balance sheet management strategies the Company employs will be effective in periods of rapid rate movements or extremely volatile periods. In addition to changes in interest rates, the level of future net interest income is also dependent on a number of other variables including growth and composition of earning assets and interest bearing liabilities, economic and competitive conditions, changes in lending, investing and deposit gathering strategies and client preferences.

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Item 4. Controls and Procedures


(a)	Management's Evaluation of Disclosure Controls and Procedures.

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the Company’s periodic filings under 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 the Company’s management on a timely basis to allow decisions regarding required disclosure. Management, including the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2015. Based on management’s assessment, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2015.


(b)	Changes in Internal Control Over Financial Reporting.

There were no changes in WashingtonFirst’s internal control over financial reporting during the six months ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, WashingtonFirst’s internal control over financial reporting.

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PART II

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, 2014 filed with the SEC on March 16, 2015.

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



	Exhibit	Description

	2.4	Agreement and Plan of Reorganization by and among WashingtonFirst Bankshares, Inc., 1st Portfolio Holding Corporation, and John Oswald, solely in his capacity as the FP Representative, dated as of May 13, 2015 (incorporated by reference herein to Exhibit 2.1 to Form 8-K filed with the Securities and Exchange Commission by WashingtonFirst Bankshares, Inc. on May 19, 2015 (File No. 001-35768)).
*	31.1	Certification of Registrants’ principal executive officer relating to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002.

*	31.2	Certification of Registrants’ principal financial officer relating to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002.

*	32.1	Certification of Registrant’s principal executive officer and principal financial officer relating to the Registrant’s Quarterly Report of Form 10-Q for the quarterly period ended June 30, 2015, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002.

*	101.INS	XBRL Instance Document.

*	101.SCH	XBRL Taxonomy Extension Schema Document.

*	101.CAL	XBRL Taxonomy Calculation Linkbase Document.

*	101.DEF	XBRL Taxonomy Definition Linkbase Document.

*	101.LAB	XBRL Taxonomy Label Linkbase Document.

*	101.PRE	XBRL Taxonomy Presentation Linkbase Document.




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

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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)

	/s/ Shaza Andersen	August 7, 2015
By:	Shaza L. Andersen	Date
	President & Chief Executive Officer
	(Principal Executive Officer)

	/s/ Matthew R. Johnson	August 7, 2015
By:	Matthew R. Johnson	Date
	Executive Vice President & Chief Financial Officer
	(Principal Financial and Accounting Officer)

WashingtonFirst Bankshares, Inc. - FORM 10-Q - August 7, 2015

Attached files

WashingtonFirst Bankshares, Inc. Reports