WashingtonFirst Bankshares, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - WashingtonFirst Bankshares, Inc.	copyofexhibit321.htm
EX-31.1 - EXHIBIT 31.1 - WashingtonFirst Bankshares, Inc.	copyofexhibit311.htm
EX-31.2 - EXHIBIT 31.2 - WashingtonFirst Bankshares, Inc.	copyofexhibit312.htm

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As filed with the Securities and Exchange Commission on May 10, 2016

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 March 31, 2016


¨	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 May 3, 2016, the registrant had outstanding 10,426,594 shares of voting common stock and 1,817,842 shares of non-voting common stock.

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Table of Contents to First Quarter 2016 Form 10-Q



	Glossary of Acronyms	3
PART I		4
Item 1.	Consolidated Financial Statements	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Income	5
	Consolidated Statements of Comprehensive Income	6
	Consolidated Statements of Changes in Shareholders’ Equity	7
	Consolidated Statements of Cash Flows	8
	Notes to the Consolidated Financial Statements	9
	1. Organization	9
	2. Significant Accounting Policies	9
	3. Acquisition Activities	13
	4. Cash and Cash Equivalents	14
	5. Investment Securities	14
	6. Loans Held for Investment	17
	7. Allowance for Loan Losses	22
	8. Other Real Estate Owned	24
	9. Goodwill and Identifiable Intangibles	25
	10. Deposits	26
	11. Other Borrowings	27
	12. Federal Home Loan Bank Advances	27
	13. Long-Term Borrowings	28
	14. Shareholders’ Equity	29
	15. Commitments and Contingencies	29
	16. Related Party Transactions	31
	17. Capital Requirements	31
	18. Share Based Compensation	33
	19. Earnings Per Share	34
	20. Fair Value Disclosures	35
	21. Segment Reporting	39
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
	Cautionary Note Regarding Forward-Looking Statements	40
	Critical Accounting Policies and Estimates	40
	Overview	43
	Acquisition Activities	44
	Results of Operations	44
	Financial Condition	48
	Capital Resources	56
	Liquidity	58
	Concentrations	59
	Off-Balance Sheet Arrangements	59
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	60
PART II		62
Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits, Financial Statement Schedules	63
	Signatures	64

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Glossary of Acronyms



ACBB	-	Atlantic Central Bankers Bank
ACH	-	Automated Clearing House
ALCO	-	Asset/Liability Committee
AOCI	-	Additional Other Comprehensive Income
ASC	-	FASB Accounting Standards Codification
ASU	-	Accounting Standards Update
Bank	-	WashingtonFirst Bank
BHC Act	-	Bank Holding Company Act
BOLI	-	Bank Owned Life Insurance
Bureau	-	Virginia Bureau of Financial Institutions
CBB	-	Community Bankers Bank
CDARS	-	Certificate of Deposit Account Registry Service
CET1	-	Common Equity Tier 1
CFPB	-	Consumer Financial Protection Bureau
CMO	-	Collateralized Mortgage Obligations
Company	-	WashingtonFirst Bankshares, Inc.
CRA	-	Community Reinvestment Act of 1977
DIF	-	Deposit Insurance Fund
Dodd-Frank Act	-	Dodd-Frank Wall Street Reform and Consumer Protection Act
ELC	-	Executive Loan Committee of the Board of Directors
EVE	-	Economic Value of Equity
Exchange Act	-	Securities Exchange Act of 1934, as amended
Fannie Mae	-	Federal National Mortgage Association
FDIA	-	Federal Deposit Insurance Act
FDIC	-	Federal Deposit Insurance Corporation
FDICIA	-	Federal Deposit Insurance Corporation Improvement Act of 1991
Federal Reserve	-	Board of Governors of the Federal Reserve System
FHFA	-	Federal Housing Finance Agency
FHLB	-	Federal Home Loan Bank of Atlanta
FRA	-	Federal Reserve Act
FRB	-	Federal Reserve Bank
Freddie Mac	-	Federal Home Loan Mortgage Corporation
GAAP	-	Generally Accepted Accounting Principles in the U.S.
GLB Act	-	Graham Leach Bliley Act of 1999
GSE	-	Government Sponsored Enterprises
HUD	-	The Department of Housing and Urban Development
HVCRE	-	High-volatility commercial real estate
IRLOC	-	Interest Rate Lock Commitment
IRS	-	Internal Revenue Service
JOBS Act	-	Jumpstart Our Business Startups Act of 2012
LHFS	-	Loans Held for Sale
LTV	-	Loan-to-value Ratio
MBS	-	Mortgage Backed Securities
Mortgage Company	-	WashingtonFirst Mortgage Corporation (formerly 1^stPortfolio Lending Corporation)
NASDAQ	-	NASDAQ Capital Market
NII	-	Net Interest Income
OFAC	-	U.S. Treasury Department Office of Foreign Assets Control
OLC	-	Bank Officers' Loan Committee
OREO	-	Other Real Estate Owned
RESPA	-	Real Estate Settlement Procedures Act
SOX	-	Sarbanes-Oxley Act of 2002
SBLF	-	Small Business Loan Fund
SEC	-	Securities and Exchange Commission
Securities Act	-	Securities Act of 1933, as amended
TDR	-	Troubled Debt Restructuring
TILA	-	Truth-in-Lending Act
USA Patriot Act	-	Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
VA	-	Veterans Administration
VCDC	-	Virginia Community Development Corporation
VSCA	-	Virginia Stock Corporation Act
Wealth Advisors	-	1^st Portfolio, Inc.

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PART I

Item 1. Consolidated Financial Statements

WashingtonFirst Bankshares, Inc.

Consolidated Balance Sheets

(unaudited)



	March 31, 2016			December 31, 2015
	(in thousands, except per share data)
Assets:
Cash and cash equivalents:
Cash and due from bank balances	$	3,075		$	3,739
Federal funds sold	65,942			59,014
Interest bearing deposits	100			—
Cash and cash equivalents	69,117			62,753
Investment securities, available-for-sale, at fair value	257,085			220,113
Restricted stock, at cost	6,532			6,128
Loans held for sale, at lower of cost or fair value	37,439			36,494
Loans held for investment:
Loans held for investment, at amortized cost	1,346,057			1,308,083
Allowance for loan losses	(12,329		)	(12,289		)
Total loans held for investment, net of allowance	1,333,728			1,295,794
Premises and equipment, net	7,819			7,374
Goodwill	11,420			11,431
Identifiable intangibles	1,820			1,888
Deferred tax asset	6,989			8,116
Accrued interest receivable	4,624			4,502
Other real estate owned	1,675			—
Bank-owned life insurance	13,611			13,521
Other assets	7,524			6,352
Total Assets	$	1,759,383		$	1,674,466
Liabilities and Shareholders' Equity:
Liabilities:
Non-interest bearing deposits	$	358,181		$	304,425
Interest bearing deposits	1,049,379			1,028,817
Total deposits	1,407,560			1,333,242
Other borrowings	9,849			6,942
FHLB advances	112,220			110,087
Long-term borrowings	32,919			32,884
Accrued interest payable	1,404			912
Other liabilities	11,303			11,804
Total Liabilities	1,575,255			1,495,871
Commitments and contingent liabilities	—			—
Shareholders' Equity:
Common stock:
Common Stock Voting, $0.01 par value, 50,000,000 shares authorized, 10,408,055 and 10,377,981 shares issued and outstanding, respectively	103			103
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	161,323			160,861
Accumulated earnings	20,931			17,740
Accumulated other comprehensive income/(loss)	1,753			(127		)
Total Shareholders' Equity	184,128			178,595
Total Liabilities and Shareholders' Equity	$	1,759,383		$	1,674,466

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
	March 31, 2016		March 31, 2015
	(in thousands)
Interest and dividend income:
Interest and fees on loans	$	16,391	$	13,440
Interest and dividends on investments:
Taxable	992		716
Tax-exempt	21		19
Dividends on other equity securities	72		61
Interest on Federal funds sold and other short-term investments	68		74
Total interest and dividend income	17,544		14,310
Interest expense:
Interest on deposits	1,995		1,451
Interest on borrowings	996		553
Total interest expense	2,991		2,004
Net interest income	14,553		12,306
Provision for loan losses	625		700
Net interest income after provision for loan losses	13,928		11,606
Non-interest income:
Service charges on deposit accounts	79		109
Earnings on bank-owned life insurance	90		95
Gain on sale of loans, net	2,742		69
Mortgage banking activities	1,199		—
Wealth management income	428		—
Gain on sale of available-for-sale investment securities, net	75		15
Other operating income	168		269
Total non-interest income	4,781		557
Non-interest expense:
Compensation and employee benefits	7,804		4,133
Premises and equipment	1,817		1,483
Data processing	1,005		823
Professional fees	319		338
Mortgage loan processing expenses	195		—
Other operating expenses	1,361		1,068
Total non-interest expense	12,501		7,845
Income before provision for income taxes	6,208		4,318
Provision for income taxes	2,284		1,528
Net income	3,924		2,790
Preferred stock dividends	—		(28		)
Net income available to common shareholders	$	3,924	$	2,762

Earnings per common share:
Basic earnings per common share	$	0.32	$	0.29
Diluted earnings per common share	$	0.32	$	0.28

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
	March 31, 2016			March 31, 2015
	(in thousands)
Net income	$	3,924		$	2,790
Other comprehensive income (loss):
Unrealized gain/(loss) on hedge:
Unrealized holding gain/(loss)	—			—
Reclassification adjustment for realized (gains)/losses	(66		)	—
Tax effect	—			—
Unrealized (gain)/loss on hedge, net of tax	(66		)	—
Unrealized gain/(loss) on securities available for sale:
Unrealized holding gain/(loss) arising during the period	3,197			1,291
Reclassification adjustment for realized (gains)/losses	(75		)	(15		)
Tax effect	(1,176		)	(457		)
Unrealized gain/(loss) on securities available for sale, net of tax	1,946			819
Total other comprehensive income (loss)	1,880			819
Comprehensive income	$	5,804		$	3,609

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 Three Months Ended
	March 31, 2016					March 31, 2015
	Shares		Amount			Shares		Amount
	(in thousands, except share data)
Preferred stock:
Balance, beginning of period	—		$	—		13,347		$	67
Redemption of preferred stock	—		—			(4,449	)	(23		)
Balance, end of period	—		—			8,898		44
Additional paid-in capital - preferred:
Balance, beginning of period			—					13,280
Redemption of preferred stock			—					(4,426		)
Balance, end of period			—					8,854
Common stock:
Balance, beginning of period	12,195,823		121			9,565,637		95
Exercise of stock options	30,524		—			20,829		—
Forfeiture of restricted stock award	(450	)	—			—		—
Balance, end of period	12,225,897		121			9,586,466		95
Additional paid-in capital - common:
Balance, beginning of period			160,861					112,887
Exercise of stock options			328					164
Stock compensation expense			134					58
Balance, end of period			161,323					113,109
Accumulated earnings:
Balance, beginning of period			17,740					7,775
Net income			3,924					2,790
Preferred stock dividends			—					(28		)
Cash dividends declared			(733		)			(479		)
Balance, end of period			20,931					10,058
Accumulated other comprehensive income/(loss):
Balance, beginning of period			(127		)			434
Other comprehensive (loss) income			1,880					819
Balance, end of period			1,753					1,253
Total shareholders' equity			$	184,128				$	133,413

See accompanying notes to unaudited consolidated financial statements.

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WashingtonFirst Bankshares, Inc.

Consolidated Statements of Cash Flows

(unaudited)



	For the Three Months Ended
	March 31, 2016			March 31, 2015
	(in thousands)
Cash flows from operating activities:
Net income	$	3,924		$	2,790
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	459			329
Amortization of deferred loan origination fees and costs	(295		)	(209		)
Net amortization of purchase accounting marks	(194		)	(319		)
Gain on sale of investment securities available-for-sale	(75		)	(15		)
Provision for loan losses	625			700
Earnings on bank-owned life insurance	(90		)	(95		)
Net amortization on investment securities available-for-sale	247			251
Stock based compensation	134			58
Gain on sale of loans	(2,742		)	(69		)
Originations of loans held-for-sale	(122,636		)	(5,756		)
Proceeds from sales of loans held-for-sale	124,433			4,353
Net change in:
Accrued interest receivable	(122		)	96
Other assets	(1,274		)	1,433
Accrued interest payable	492			47
Other liabilities	(493		)	(1,856		)
Net cash provided by operating activities	2,393			1,738
Cash flows from investing activities:
Purchase of investment securities available-for-sale	(59,947		)	(28,801		)
Proceeds from repayment of investment securities available-for-sale	8,189			7,046
Proceeds from sale of investment securities available-for-sale	17,687			12,335
Net increase in loans held-for-investment	(39,763		)	(21,509		)
Net increase in FHLB stock	(404		)	(170		)
Purchases of premises and equipment, net	(848		)	(206		)
Net cash used in investing activities	(75,086		)	(31,305		)
Cash flows from financing activities:
Net increase in deposits	74,298			94,773
Proceeds from FHLB advances	23,000			7,500
Repayments of FHLB advances	(20,745		)	(243		)
Net (decrease)/increase in other borrowings	2,907			1,916
Proceeds from exercise of stock options	328			164
Redemption of preferred stock	—			(4,449		)
Cash dividends paid	(731		)	(409		)
Preferred stock dividends paid	—			(28		)
Net cash provided by (used in) financing activities	79,057			99,224
Net increase in cash and cash equivalents	6,364			69,657
Cash and cash equivalents at beginning of period	62,753			62,306
Cash and cash equivalents at end of period	$	69,117		$	131,963

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 subsidiaries, WashingtonFirst Bank, 1^st Portfolio, Inc., and WashingtonFirst Mortgage a wholly-owned subsidiary of WashingtonFirst Bank), unless the context requires otherwise.

1. ORGANIZATION

The Company is organized under the laws of the Commonwealth of Virginia as a bank holding company. The Company headquartered in Reston, Virginia, is the parent company of the Bank, which operates 19 full-service banking offices throughout the Washington, D.C. metropolitan area. In addition, WashingtonFirst provides wealth management services through its subsidiary, 1^st Portfolio, Inc., located in Fairfax, Virginia and mortgage banking services through the Bank’s wholly owned subsidiary, WashingtonFirst Mortgage which operates in two locations: Fairfax, Virginia and Rockville, Maryland.

On May 13, 2015, WashingtonFirst entered into an Agreement and Plan of Reorganization providing for the Company’s acquisition of 1^stPortfolio Holding Corporation with and into the Company (“1^st Portfolio Acquisition”). The 1^stPortfolio Acquisition closed on July 31, 2015. 1^st Portfolio Holding’s wholly owned subsidiary, 1^stPortfolio, Inc., became a wholly owned subsidiary of WashingtonFirst and wholly owned subsidiary 1^stPortfolio Lending Corporation (now WashingtonFirst Mortgage) became a wholly owned subsidiary of WashingtonFirst Bank. For more information regarding the 1^st Portfolio Acquisition, see Note 3 – Acquisition Activities.

2. SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of WashingtonFirst conform to accounting principles generally accepted in the United States of America (“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 subsidiaries WashingtonFirst Bank, 1^st Portfolio Wealth Advisors and WashingtonFirst Mortgage (a wholly-owned subsidiary of 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. These statements should be read in conjunction with the audited financial statements and related notes included in the Company’s annual report on form 10-K for the year ended December 31, 2015 as filed with the SEC on March 15, 2016.


(b)	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.


(c)	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

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correspondent banks as of March 31, 2016 and December 31, 2015. 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 Three Months Ended
	March 31, 2016			March 31, 2015
	(in thousands)
Cash paid during the period for:
Interest paid	$	2,499		$	1,957
Income taxes paid	1,072			50
Non-cash activity:
Loans converted into other real estate owned	1,675			90
Reclassifications from goodwill to other liabilities	(11		)	—


(d)	Loans Held for Sale

Loans held for sale are carried at lower of cost or fair value, determined in the aggregate. Fair 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 these loans are recognized based on the difference between the selling price and the carrying value of the related loan sold.


(e)	Loans Held for Investment

The Bank makes several types of loans to its customers including real estate loans (which vary in type between construction and development, commercial, and residential), commercial and industrial loans, and consumer loans. The Bank’s primary market is located in the greater Washington, D.C. metropolitan area. The loan portfolio is 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.

(f) 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. 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.

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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.

(g) 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.

(h) Leases

The Bank leases certain properties 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.

(i) Income Taxes

The provision for income taxes is based on the results of operations, adjusted primarily for: (1) decreases from tax-exempt income; and (2) the tax-exempt earnings from BOLI offset by stock-based compensation which are in excess of the tax-exempt income amounts and income taxes paid to applicable state taxing authorities. 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 its subsidiaries 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 2012. As of March 31, 2016 and December 31, 2015 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

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income tax matters as other non-interest expense. As of March 31, 2016 and December 31, 2015, the Company does not have any amounts accrued for interest and/or penalties.

(j) 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.

(k) 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.

(l) Derivative Financial Instruments

WashingtonFirst Mortgage enters into commitments to fund residential mortgage loans with the intention of selling them in the secondary market. WashingtonFirst Mortgage also enters into forward sales agreements for certain funded loans and loan commitments, and records unfunded commitments intended for loans held for sale and forward sales agreements at fair value with changes in fair value recorded as a component of other income. Loans originated and intended for sale in the secondary market are carried at fair value. For pipeline loans which are not pre-sold to an investor, WashingtonFirst Mortgage manages the interest rate risk on rate lock commitments by entering into forward sale contracts of mortgage backed securities, whereby WashingtonFirst Mortgage obtains the right to deliver securities to investors in the future at a specified price. Such contracts are accounted for as derivatives and are recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in other income.

The Company has determined these derivative financial instruments do not meet the hedging criteria required by ASC 815 and has not designated these derivative financial instruments as hedges. Accordingly, changes in fair value are recognized currently in income.

(m) Purchased Credit Impaired Loans

Related to its acquisition activity, the Bank has acquired loans, some of which have shown evidence of credit impairment since origination. These purchased credit impaired loans are recorded at the amount paid, such that there is no carryover of the seller’s allowance for loan losses. After acquisition, losses are recognized by an increase in the allowance for loan losses. Such purchased credit impaired loans are accounted for individually. For each such loan the Company estimates the amount and timing of expected cash flows, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

(n) Reclassifications

Certain reclassifications of prior year information were made to conform to the March 31, 2016 presentation. These reclassifications had no material impact of the Company’s financial position or results of operations.

(o) Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases. From the lessee's perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessees. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or

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entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall. The guidance in this ASU among other things, (1) requires equity investments with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (3) eliminates the requirement for public businesses entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (4) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (5) requires an entity to present separately in other comprehensive income the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (6) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (7) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance in this ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.

FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this update creates a new topic in ASC 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 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 non-monetary 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 2015-03, Simplifying the Presentation of Debt Issuance Costs. This update requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability, consistent with the presentation of debt discounts. Further, the update requires the amortization of debt issuance costs to be reported as interest expense. Similarly, debt issuance costs and any discount or premium are considered in the aggregate when determining the effective interest rate on the debt. The new guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The new guidance must be applied retrospectively. The impact of adoption of this ASU by the Company was not 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 ASC 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 were 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.

3. ACQUISITION ACTIVITIES

On May 13, 2015, the Company entered into an Agreement and Plan of Reorganization (“1^stPortfolio Agreement”) providing for the Company’s acquisition of 1^stPortfolio Holding Corporation with and into the Company (“1^st Portfolio Acquisition”). The 1^stPortfolio Acquisition closed on July 31, 2015. 1^st Portfolio Holding Corporation’s wholly owned subsidiary, 1^stPortfolio Wealth Advisors became a wholly owned subsidiary of the Company and wholly owned subsidiary 1^stPortfolio Lending Corporation (now WashingtonFirst Mortgage Corporation) became a wholly owned subsidiary of the Bank.

Under the terms of the 1^stPortfolio Agreement, accredited shareholders of 1^st Portfolio Holding Corporation received 916,410 shares of WFBI common stock valued at $17.05 per share.



Table 3.1: Goodwill on 1^st Portfolio Acquisition
	Amount
	(in thousands)
Consideration paid:
Common shares issued (916,410 shares)	$	15,625
Cash paid to shareholders in lieu of fractional shares	1
Fair value of options	149
	15,775
Assets acquired:
Cash and cash equivalents	5,732
Loans held for sale	32,912
Premises and equipment	1,164
Customer list intangible	1,447
Other assets	1,371
Total assets	42,626
Liabilities assumed:
Borrowings	27,759
Other liabilities	4,272
Total liabilities	32,031
Net assets acquired	10,595
Goodwill	$	5,180

For income tax purposes, the acquired assets and assumed liabilities are recorded at their carry-over basis with no resulting goodwill. Goodwill at the time of closing of the 1^st Portfolio acquisition was allocated between the Mortgage Company and the Wealth Advisor at $3.6 million and $1.6 million respectively. The full amount of the customer list intangible was allocated to the Wealth Advisor, and is being amortized over 15 years.

The following table presents unaudited pro forma information as if the acquisition had occurred at the beginning of the periods ended March 31, 2016 and March 31, 2015, and includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, depreciations expense on property acquired, and the related income tax effects. The pro forma financial information is not necessarily indicative of results of operations that would have occurred had the transactions been effected on the assumed dates.

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Table 3.2: Proforma Income Statement (Unaudited)
	For the three months ended March 31,
	2016		2015
	(in thousands)
Net Interest Income	$	14,553	$	12,623
Non-Interest income	4,781		5,239
Non-Interest Expense	12,501		11,572
Net Income (Loss) - Common	3,924		3,531

EPS - basic	$	0.32	$	0.34
EPS - diluted	0.32		0.33

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.

4. CASH AND CASH EQUIVALENTS

Regulation D of the FRA requires that banks maintain reserve balances with the FRB based principally on the type and amount of their deposits. During 2016 and 2015, 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 FRB 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 FDIC, classified as interest bearing balances, as of March 31, 2016. All balances are fully insured up to the applicable limits by the FDIC.

5. 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.

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As of March 31, 2016, and December 31, 2015, all investments were classified as available-for-sale.



Table 5.1: Available-for-Sale Investment Securities Summary
	As of March 31, 2016
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
	(in thousands)
U.S. Treasuries	$	8,128	$	159	$	—		$	8,287
U.S. Government agencies	89,664		1,402		(1		)	91,065
Mortgage-backed securities	82,146		415		(180		)	82,381
Collateralized mortgage obligations	60,325		384		(77		)	60,632
Taxable state and municipal securities	10,291		545		—			10,836
Tax-exempt state and municipal securities	3,758		128		(2		)	3,884
Total available-for-sale investment securities	$	254,312	$	3,033	$	(260	)	$	257,085



	As of December 31, 2015
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
	(in thousands)
U.S. Treasuries	$	9,636	$	15	$	(33	)	$	9,618
U.S. Government agencies	96,177		229		(390		)	96,016
Mortgage-backed securities	59,125		161		(410		)	58,876
Collateralized mortgage obligations	40,787		85		(474		)	40,398
Taxable state and municipal securities	10,405		448		—			10,853
Tax-exempt state and municipal securities	4,282		81		(11		)	4,352
Total available-for-sale investment securities	$	220,412	$	1,019	$	(1,318	)	$	220,113

The estimated fair value of securities pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes amounted to $106.8 million and $104.5 million as of March 31, 2016 and December 31, 2015, respectively. As of March 31, 2016 and December 31, 2015 there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

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.

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.

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 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.

WashingtonFirst did not recognize in earnings any other-than-temporary impairment losses on available-for-sale investment securities during the three months ended March 31, 2016 and March 31, 2015. During the three months ended March 31, 2016, WashingtonFirst received proceeds of $17.7 million from the sale of securities from its available-for-sale investment portfolio resulting in gross

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realized gains of $101.0 thousand and gross realized losses of $26.0 thousand, compared to proceeds of $12.3 million resulting in gross realized gains of $156.0 thousand and gross realized losses of $141.0 thousand during the three months ended March 31, 2015.



Table 5.2: Gross Unrealized Loss and Fair Value of Available-for-Sale Securities
	As of March 31, 2016
	Unrealized loss position for less than 12 months					Unrealized loss position for more than 12 months
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
U.S. Treasuries	$	—	$	—		$	—	$	—
U.S. Government agencies	999		(1		)	—		—
Mortgage-backed securities	26,425		(158		)	2,593		(22		)
Collateralized mortgage obligations	12,475		(12		)	7,983		(65		)
Tax-exempt state and municipal securities	532		(2		)	—		—
Total	$	40,431	$	(173	)	$	10,576	$	(87	)



	As of December 31, 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. Treasuries	$	5,101	$	(33	)	$	—	$	—
U.S. Government agencies	59,175		(382		)	996		(8		)
Mortgage-backed securities	36,769		(322		)	2,612		(88		)
Collateralized mortgage obligations	19,320		(225		)	10,034		(249		)
Tax-exempt state and municipal securities	1,245		(9		)	519		(2		)
Total	$	121,610	$	(971	)	$	14,161	$	(347	)

As of March 31, 2016, there were $10.6 million, or seven positions, of individual securities that had been in a continuous loss position for more than 12 months with a total unrealized loss of $87.0 thousand. As of December 31, 2015, $14.2 million, or eleven positions, of individual securities that had been in a continuous loss position for more than 12 months with a total unrealized loss of $347.0 thousand. The Company has determined that these securities are temporarily impaired at March 31, 2016 for the following reasons:

U.S. Treasuries and Government Agencies. The unrealized losses in this category were caused by interest rate fluctuations. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has been met for the Company to be required to sell any of these investments before recovery of its amortized cost basis, which may be at maturity, the Company does not consider these investments to be other than temporarily impaired,

Mortgage backed securities (including collateralized mortgage obligations). The unrealized losses in this category were primarily the result of interest rate fluctuation. Since the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company does not consider these investments to be other than temporarily impaired.

Tax-exempt state and municipal securities. The unrealized losses in the category were generally the result of changes in market interest rates and interest spread relationships since original purchases. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. The Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be at maturity, therefore the Company does not consider these investments to be other than temporarily impaired.

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The temporary unrealized losses presented above are attributable to interest rate fluctuations. As of March 31, 2016, 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 March 31, 2016, the fair market value of U.S. Treasuries and U.S. Government Agencies was $8.3 million and $91.1 million, respectively. The mortgage-backed securities portfolio at March 31, 2016, is composed of GNMA, FNMA or FHLMC mortgage-backed securities reported at fair value of $82.4 million and GNMA collateralized mortgage obligations reported at fair value of $60.6 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. As of March 31, 2016, the fair value of the taxable state and municipal securities portfolio totaled $10.8 million, while the tax-exempt state and municipal securities portfolio totaled $3.9 million. As of March 31, 2016, all tax-exempt state and municipal securities are rated A or higher, and any fluctuations in their fair value are caused by changes in interest rates.

The amortized cost and fair value of investments by remaining contractual maturity for available-for-sale investment securities as of March 31, 2016, 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 March 31, 2016
	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	1,509	$	1,525
Due after one year through five years	98,948		100,751
Due after five years through ten years	30,269		30,842
Due after ten years	123,586		123,967
Total	$	254,312	$	257,085

6. LOANS HELD FOR INVESTMENT



Table 6.1: Composition of Loans Held for Investment by Loan Class
	March 31, 2016		December 31, 2015
	(in thousands)
Construction and development	$	259,804	$	249,433
Commercial real estate	671,288		657,110
Residential real estate	246,538		241,395
Real estate loans	1,177,630		1,147,938
Commercial and industrial	162,311		153,860
Consumer	6,116		6,285
Total loans	1,346,057		1,308,083
Less: allowance for loan losses	12,329		12,289
Net loans	$	1,333,728	$	1,295,794

As of March 31, 2016, $682.6 million of loans were pledged as collateral for FHLB advances, compared to $636.2 million as of December 31, 2015. Loans pledged include qualifying home equity lines of credit, commercial real estate loans, multifamily real estate loans, and residential real estate secured loans.

A significant portion of the Bank’s loan portfolio is secured by commercial real estate collateral in the greater Washington, D.C. metropolitan area. Real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower. Under guidance adopted by the federal banking regulators, banks that have concentrations in construction, land

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development or commercial real estate loans (other than loans for majority owner occupied properties) would be expected to maintain higher levels of risk management and, potentially, higher levels of capital.



Table 6.2: Loans Held for Investment Aging Analysis by Loan Class
	As of March 31, 2016
	Current Loans (1)		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due (and accruing)		Non- Accrual		Total Past Due		Total Loans
	(in thousands)
Construction and development	$	259,712	$	—	$	—	$	—	$	92	$	92	$	259,804
Commercial real estate	664,178		3,894		—		—		3,216		7,110		671,288
Residential real estate	243,776		776		67		—		1,919		2,762		246,538
Commercial and industrial	157,022		1,114		612		—		3,563		5,289		162,311
Consumer	5,763		353		—		—		—		353		6,116
Balance at end of period	$	1,330,451	$	6,137	$	679	$	—	$	8,790	$	15,606	$	1,346,057



	As of December 31, 2015
	Current Loans (1)		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due (and accruing)		Non- Accrual		Total Past Due		Total Loans
	(in thousands)
Construction and development	$	249,312	$	—	$	—	$	—	$	121	$	121	$	249,433
Commercial real estate	649,185		2,466		—		—		5,459		7,925		657,110
Residential real estate	238,831		1,044		—		—		1,520		2,564		241,395
Commercial and industrial	149,703		411		617		28		3,101		4,157		153,860
Consumer	6,284		1		—		—		—		1		6,285
Balance at end of period	$	1,293,315	$	3,922	$	617	$	28	$	10,201	$	14,768	$	1,308,083
(1) For the purpose of this table, loans 1-29 days past due are included in the balance of current loans.

WashingtonFirst divides its loans held for investment 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

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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.



Table 6.3: Risk Categories of Loans Held for Investment by Loan Class
	As of March 31, 2016
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	$	258,427	$	1,285	$	—	$	92	$	259,804
Commercial real estate	654,943		8,906		2,543		4,896		671,288
Residential real estate	237,808		6,008		1,207		1,515		246,538
Commercial and industrial	152,846		4,528		1,230		3,707		162,311
Consumer	5,744		372		—		—		6,116
Balance at end of period	$	1,309,768	$	21,099	$	4,980	$	10,210	$	1,346,057



	As of December 31, 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	$	248,011	$	1,301	$	—	$	121	$	249,433
Commercial real estate	638,431		5,950		5,570		7,159		657,110
Residential real estate	234,957		4,447		783		1,208		241,395
Commercial and industrial	144,421		3,732		1,170		4,537		153,860
Consumer	5,905		380		—		—		6,285
Balance at end of period	$	1,271,725	$	15,810	$	7,523	$	13,025	$	1,308,083

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.

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Table 6.4: Non-Accrual Loans by Loan Class
	March 31, 2016		December 31, 2015
	(in thousands)
Construction and development	$	92	$	121
Commercial real estate	3,216		5,459
Residential real estate	1,919		1,520
Commercial and industrial	3,563		3,101
Total non-accrual loans	$	8,790	$	10,201

A modification to the contractual terms of a loan that results in granting a concession to a borrower experiencing financial difficulties is considered a 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: Changes in Troubled Debt Restructurings
	Construction and Development			Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer		Total
	(in thousands)
Balance as of January 1, 2016	$	29		$	2,029		$	1,967		$	1,949		$	353	$	6,327
New TDRs	—			—			1,788			—			—		1,788
Increases to existing TDRs	—			—			3			—			—		3
Charge-offs post modification	(29		)	(544		)	(11		)	—			—		(584		)
Sales, principal payments, or other decreases	—			(1,485		)	(877		)	(647		)	—		(3,009		)
Balance as of March 31, 2016	$	—		$	—		$	2,870		$	1,302		$	353	$	4,525



	Construction and Development			Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer		Total
	(in thousands)
Balance as of January 1, 2015	$	241		$	4,619		$	1,796		$	354		$	—	$	7,010
New TDRs	—			—			44			676			—		720
Increases to existing TDRs	—			—			1			—			—		1
Charge-offs post modification	—			(128		)	—			—			—		(128		)
Sales, principal payments, or other decreases	(4		)	(2,456		)	(8		)	(2		)	—		(2,470		)
Balance as of March 31, 2015	$	237		$	2,035		$	1,833		$	1,028		$	—	$	5,133

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Table 6.6: New Troubled Debt Restructurings Details
	For the Three Months Ended
	March 31, 2016					March 31, 2015
	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	1	1,788		1,788		1	44		44
Commercial and industrial	—	—		—		3	840		676
Consumer	—	—		—		—	—		—
Total loans	1	$	1,788	$	1,788	4	$	884	$	720

TDRs are reported as impaired loans in the calendar year of their restructuring and are evaluated to determine whether they should be placed on non-accrual status. In subsequent years, a TDR may be returned to accrual status if the borrower satisfies a minimum six-month performance requirement; however, it will remain classified as impaired.



Table 6.7: Troubled Debt Restructuring in Default in Past Twelve Months
	As of March 31,
	2016					2015
	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	$	392	$	236
Commercial real estate	—	—		—		2	2,071		2,035
Residential real estate	2	381		380		—	—		—
Commercial and industrial	4	1,161		996		3	840		675
Consumer	—	—		—		—	—		—
Total loans	6	$	1,542	$	1,376	6	$	3,303	$	2,946

The following is an analysis of new loans modified in a troubled debt restructuring by type of concession for the three months ended March 31, 2016 and 2015. There were no modifications that involved forgiveness of debt.



Table 6.8: Troubled Debt Restructuring by Type of Concession
	As of March 31,
	2016			2015
	Number of Loans	Post-Modification Outstanding Recorded Balance		Number of Loans	Post-Modification Outstanding Recorded Balance
	(dollars in thousands)
Extended under forbearance	1	$	1,788	—	$	—
Interest rate modification	—	—		1	676
Maturity or payment extension	—	—		3	44
Total loans	1	$	1,788	4	$	720

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The outstanding balances in Table 6.1 include acquired impaired loans with a recorded investment of $2.8 million or 0.2% of total loans as of March 31, 2016, compared to $3.5 million or 0.3% of total loans as of December 31, 2015. The contractual principal in these acquired loans was $3.0 million as of March 31, 2016 compared to $3.8 million as of December 31, 2015. For these loans, the allowance for loan losses was decreased by $190.3 thousand during the three months ended March 31, 2016 and was increased by $79.1 thousand during the three months ended March 31, 2015. The balances do not include future accretable net interest on the acquired impaired loans.



Table 6.9: Accretable Yield of Purchased Credit Impaired Loans
	For the Three Months Ended
	March 31, 2016			March 31, 2015
	(in thousands)
Accretable yield at beginning of period	$	1,208		$	1,484
Accretion (including cash recoveries)	(84		)	(89		)
Net reclassifications to accretable from non-accretable	39			20
Disposals (including maturities, foreclosures, and charge-offs)	(153		)	—
Accretable yield at end of period	$	1,010		$	1,415



Table 6.10: Non-Performing Assets
	March 31, 2016		December 31, 2015
	(in thousands)
Non-accrual loans	$	8,790	$	10,201
90+ days still accruing	—		28
Troubled debt restructurings still accruing	3,594		4,269
Other real estate owned	1,675		—
Total non-performing assets	$	14,059	$	14,498

As of March 31, 2016 and December 31, 2015, there were no loans and one loan, 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 $154.3 thousand and $101.9 thousand for the three months ended March 31, 2016 and 2015, respectively. The Company has no remaining commitment to fund non-performing loans.

7. ALLOWANCE FOR LOAN LOSSES



Table 7.1: Changes in Allowance for Loan Losses by Loan Class
	March 31, 2016
	Construction and Development			Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer			Total
	(in thousands)
Balance as of December 31, 2015	$	2,321		$	6,125		$	1,532		$	2,172		$	139		$	12,289
Provision for loan losses	121			641			(85		)	(52		)	—			625
Charge-offs	(31		)	(543		)	(8		)	(38		)	(1		)	(621		)
Recoveries	2			—			25			8			1			36
Balance as of March 31, 2016	$	2,413		$	6,223		$	1,464		$	2,090		$	139		$	12,329

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	March 31, 2015
	Construction and Development		Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer		Total
	(in thousands)
Balance as of December 31, 2014	$	1,028	$	5,674		$	920		$	1,612		$	23	$	9,257
Provision for/(release of) loan losses	433		39			350			(124		)	2		700
Charge-offs	—		(128		)	(25		)	—			—		(153		)
Recoveries	—		—			41			9			1		51
Balance as of March 31, 2015	$	1,461	$	5,585		$	1,286		$	1,497		$	26	$	9,855



Table 7.2: Loans Held for Investment and Related Allowance for Loan Losses by Impairment Method and Loan Class
	As of March 31, 2016
	Construction and Development		Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer		Total
	(in thousands)
Ending Balance:
Evaluated collectively for impairment	$	259,712	$	665,530	$	241,561	$	157,565	$	5,763	$	1,330,131
Evaluated individually for impairment	92		3,216		4,788		3,934		353		12,383
Evaluated individually for impairment but not deemed to be impaired	—		2,542		189		812		—		3,543
	$	259,804	$	671,288	$	246,538	$	162,311	$	6,116	$	1,346,057

Allowance for Losses:
Evaluated collectively for impairment	$	2,412	$	5,276	$	1,262	$	845	$	21	$	9,816
Evaluated individually for impairment	1		789		163		1,196		118		2,267
Evaluated individually for impairment but not deemed to be impaired	—		158		39		49		—		246
	$	2,413	$	6,223	$	1,464	$	2,090	$	139	$	12,329



	As of December 31, 2015
	Construction and Development		Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer		Total
	(in thousands)
Ending Balance:
Evaluated collectively for impairment	$	249,312	$	643,617	$	235,885	$	145,217	$	5,932	$	1,279,963
Evaluated individually for impairment	121		5,458		3,488		5,050		353		14,470
Evaluated individually for impairment but not deemed to be impaired	—		8,035		2,022		3,593		—		13,650
	$	249,433	$	657,110	$	241,395	$	153,860	$	6,285	$	1,308,083

Allowance for Losses:
Evaluated collectively for impairment	$	2,291	$	4,990	$	1,181	$	787	$	20	$	9,269
Evaluated individually for impairment	30		972		170		1,209		119		2,500
Evaluated individually for impairment but not deemed to be impaired	—		163		181		176		—		520
	$	2,321	$	6,125	$	1,532	$	2,172	$	139	$	12,289

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Table 7.3: Specific Allocation for Impaired Loans by Loan Class
	March 31, 2016						December 31, 2015
	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	127		87		—		317		278		—
Residential real estate	4,060		3,940		—		2,397		2,297		—
Commercial and industrial	990		671		—		407		313		—
Consumer	—		—		—		—		—		—
Total with no related allowance	5,177		4,698		—		3,121		2,888		—
With an allowance recorded:
Construction and development	107		92		1		291		121		30
Commercial real estate	3,241		3,129		789		5,313		5,180		972
Residential real estate	859		848		163		1,205		1,191		170
Commercial and industrial	3,304		3,263		1,196		5,146		4,737		1,209
Consumer	353		353		118		353		353		119
Total with an allowance recorded	7,864		7,685		2,267		12,308		11,582		2,500
Total impaired loans	$	13,041	$	12,383	$	2,267	$	15,429	$	14,470	$	2,500



Table 7.4: Average Impaired Loan Balance by Loan Class
	For the Three Months Ended
	March 31, 2016				March 31, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(in thousands)
With no related allowance:
Construction and development	$	30	$	—	$	—	$	—
Commercial real estate	2,307		—		5,607		92
Residential real estate	4,497		31		1,824		14
Commercial and industrial	1,238		1		785		1
Consumer	—		—		257		—
Total with no related allowance	8,072		32		8,473		107
With an allowance recorded:
Construction and development	92		—		239		—
Commercial real estate	3,141		—		12,733		127
Residential real estate	927		12		1,998		18
Commercial and industrial	4,054		17		4,429		57
Consumer	353		7		7		—
Total with an allowance recorded	8,567		36		19,406		202
Total average impaired loans	$	16,639	$	68	$	27,879	$	309

8. 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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Table 8.1: Changes in OREO
	For the Three Months Ended
	March 31, 2016		March 31, 2015
	(in thousands)
Balance at beginning of period	$	—	$	361
Properties acquired at foreclosure	1,675		90
Balance at end of period	$	1,675	$	451



Table 8.2: OREO Expenses
	For the Three Months Ended
	March 31, 2016		March 31, 2015
	(in thousands)
Write-downs	$	—	$	—
Operating expenses, net of rental income	3		5
Total OREO expense	$	3	$	5

As of March 31, 2016, the Company had approximately $154.0 thousand in loans in the process of foreclosure.

9. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

Intangible assets include goodwill, core deposit intangibles, and a client list intangible. 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. 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.

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.

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. The Bank’s core deposit intangibles arising from acquisitions are amortized over a five year period for non-interest bearing deposits and interest-bearing NOW accounts. Conversely, core deposit intangibles arising from savings accounts are being amortized over an eight year period. As a part of the 1^stPortfolio Acquisition that closed on July 31, 2015, the Company recognized $5.2 million of goodwill and a client list intangible asset of $1.4 million. The client list is being amortized over a 15 year term beginning in August 2015. See Note 3 for further details on the 1^st Portfolio Acquisition. The Company performs annual impairment tests on goodwill in the fourth quarter of each year using the fair value approach. There was no impairment of goodwill during the periods ended March 31, 2016 and March 31, 2015.

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Table 9: Goodwill and Identifiable Intangibles
	For the Three Months Ended
	March 31, 2016			March 31, 2015
	(in thousands)
Goodwill:
Balance, beginning of period	$	11,431		$	6,240
Goodwill additions/(reductions)	(11		)	—
Balance, end of period	$	11,420		$	6,240

Identifiable intangibles:
Core deposit intangible balance, beginning of period	$	481		$	654
Addition of core deposit intangibles	—			—
Amortization of core deposit intangibles	(43		)	(43		)
Core deposit intangible balance, net, end of period	$	438		$	611

Client list intangible balance, beginning of period	$	1,407		$	—
Addition of client list intangibles	—			—
Amortization of client list intangibles	(25		)	—
Client list intangible balance, net, end of period	$	1,382		$	—
Total intangibles, net	$	13,240		$	6,851

10. DEPOSITS



Table 10.1: Composition of Deposits
	March 31, 2016		December 31, 2015
	(in thousands)
Demand deposit accounts	$	358,181	$	304,425
NOW accounts	121,099		115,459
Money market accounts	269,057		309,940
Savings accounts	188,003		163,289
Time deposits under $100,000	79,733		81,771
Time deposits $100,000 through $250,000	275,494		242,683
Time deposits over $250,000	115,993		115,675
Total deposits	$	1,407,560	$	1,333,242

Time deposits include CDARS balances and brokered deposits. The CDARS deposits are customer deposits that are placed in the CDARS network to maximize the FDIC insurance coverage. CDARS balances were $40.9 million and $44.3 million as of March 31, 2016 and December 31, 2015, respectively. The Bank did not have any brokered deposits as of March 31, 2016 or December 31, 2015. As of March 31, 2016 and December 31, 2015 , approximately $676.2 million and $644.3 million, respectively, in deposits were in excess of FDIC insurance limits.

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Table 10.2: Scheduled Maturities of Time Deposits
	March 31, 2016		December 31, 2015
	(in thousands)
Within 1 Year	$	300,864	$	295,442
1 - 2 years	94,746		75,869
2 - 3 years	40,607		32,651
3 - 4 years	18,668		21,446
4 - 5 years	16,081		14,472
5+ years	254		249
Total	$	471,220	$	440,129

11. OTHER BORROWINGS

Other borrowings consist of $9.8 million and $6.9 million of customer repurchase agreements as of March 31, 2016 and December 31, 2015, 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% as of both March 31, 2016 and December 31, 2015. As of March 31, 2016, these repurchase agreements were backed by $4.5 million of collateralized mortgage obligations and $5.3 million of mortgage-backed securities, compared to $3.8 million and $3.1 million, respectively, as of December 31, 2015. In addition, the Bank maintains $108.5 million in unsecured lines of credit with a variety of correspondent banks. As of March 31, 2016, there were no outstanding balances on these lines of credit. The Company also maintains a $5.0 million unsecured line of credit with a correspondent bank.

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% 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). The Bank also maintains a secured line of credit with the FHLB of Atlanta up to 25% of total assets or $439.8 million as of March 31, 2016 based on available collateral. As of March 31, 2016, the Bank’s borrowing capacity was $418.4 million of which $109.8 million was outstanding.



Table 12.1: Composition of FHLB Advances
	March 31, 2016			December 31, 2015
	(in thousands)
As of period ended:
FHLB advances	$	109,834		$	107,579
FHLB purchase accounting mark	2,386			2,508
FHLB total	$	112,220		$	110,087
Weighted average outstanding effective interest rate	1.64		%	1.62		%



Table 12.2: FHLB Advances Average Balances
	For the Three Months Ended
	March 31, 2016			March 31, 2015
	(in thousands)
Averages for the period:
FHLB advances	$	111,710		$	105,517
Average effective interest rate paid during the period	1.61		%	1.40		%
Maximum month-end balance outstanding	$	120,695		$	125,926

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Table 12.3: Contractual Maturities of FHLB Advances
	March 31, 2016		December 31, 2015
	(in thousands)
Within one year	$	23,000	$	15,000
1 - 2 years	7,500		7,500
2 - 3 years	7,500		7,500
3 - 4 years	27,753		25,869
4 - 5 years	32,500		15,000
5+ years	11,581		36,710
Total FHLB advances	$	109,834	$	107,579

13. LONG-TERM BORROWINGS



Table 13: Long-term Borrowings Detail
	March 31, 2016		December 31, 2015
	(in thousands)
Subordinated debt	$	25,000	$	25,000
Trust preferred capital notes	7,919		7,884
Long-term borrowings	$	32,919	$	32,884

In October 2015, the Company issued $25.0 million in Subordinated Debt. As part of the use of proceeds, the Company paid off $2.5 million of existing subordinate debt at the Bank. The Subordinated Debt has a maturity of ten years, is due in full on October 15, 2025, and bears interest at 6.00% per annum, payable quarterly. As of December 31, 2015, the entire amount of Subordinated Debt was considered Tier 2 Capital.

Under current regulatory guidelines, the Subordinated Debt may constitute no more than 25% 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 March 31, 2016, the entire amount of Subordinated Debt was considered Tier 1 Capital.

On June 30, 2003, Alliance invested $300.0 thousand 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% subject to quarterly interest rate adjustments. The interest rates as of March 31, 2016 and 2015 was 3.66%. 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.

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14. SHAREHOLDERS’ EQUITY

In August 2011, WashingtonFirst elected to participate in the 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 (ended 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 (ended 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 is fixed at a rate of 1%.

In August 2014, WashingtonFirst redeemed $4.4 million (4,449 shares), or 25% of the $17.8 million outstanding Series D Preferred Stock. The shares were redeemed at their liquidation value of $1,000 per share plus accrued dividends, for a total redemption price of $4.5 million.

In February 2015, WashingtonFirst redeemed an additional $4.4 million (4,449 shares), or 25% of the initial $17.8 million outstanding Series D Preferred Stock. The shares were redeemed at their liquidation value of $1,000 per share plus accrued dividends, for a total redemption price of $4.5 million.

In October 2015, the Company redeemed the remaining $8.9 million (8,898 shares) or 50% of the initial $17.8 million outstanding Series D Preferred Stock. These shares were redeemed at their liquidation value of $1,000 per share plus accrued dividends, for a total redemption price of $8.9 million. As of March 31, 2016, there were no shares outstanding of its Series D Preferred Stock.

The Company has warrants outstanding 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 $300.0 thousand at issuance using the Black-Scholes option pricing model and are being expensed monthly over the life of the debt.

In connection with the 1^st Portfolio Acquisition, on July 31, 2015, the Company issued 916,410 shares of the Company’s common stock at a value of $17.05 as merger consideration to former stockholders of 1^stPortfolio Holding Corporation. In accordance with the Agreement and Plan of Reorganization by and Among WashingtonFirst Bankshares, Inc., 1^st Portfolio Holding Corporation and John Oswald, solely in his capacity as the FP Representative (the “Merger Agreement”), 47,895 of these shares are held in escrow until July 31, 2016 as security for the indemnification obligations of the FP Indemnity Security Holders as more particularly described in the Merger Agreement, and to make any payments to the Company as provided in therein.

The Company commenced paying cash dividends in 2014. In the fourth quarter 2015, the Company increased the quarterly cash dividend to six cents ($0.06) per share, which was paid on January 2 and April 1, 2016. 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 $19.4 million in fixed rate commitments and $265.3 million in variable rate commitments.

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Table 15.1: Outstanding Commitments to Extend Credit
	March 31, 2016		December 31, 2015
	(in thousands)
Unused lines of credit as of period ended:
Loans held for sale	$	3,436	$	3,613
Commercial	99,470		109,143
Commercial real estate	133,156		145,022
Residential real estate	1,569		772
Home equity	44,068		42,036
Personal lines of credit	3,003		2,799
Total outstanding commitments to extend credit	$	284,702	$	303,385

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 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 VCDC, a non-profit organization that seeks to gather capital from investors to build and operate low income housing programs. The Bank’s 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 an 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 March 31, 2016, the Bank had disbursed $190,000 and $50,500 to Fund XVII and Fund XVIII, respectively, as a result of investor capital calls. The Bank expects to make additional capital investments of $310.0 thousand by the end of 2017 for Fund XVII and additional capital investments of $449.5 thousand by the end of 2018 for Fund XVIII. The Bank accounts for the capital already disbursed in Other Assets on the balance sheet, and records related income using the effective interest method.

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 $1.3 million over the remaining life of the contract.

Mortgage Banking Interest Rate Locks

During the normal course of business, the Company enters into commitments to originate mortgage loans with end customers whereby the interest rate on the loan is determined prior to funding or closing such a loan in a transaction referred to as an IRLOC. The IRLOC are considered derivatives. The Company protects itself from changes in interest rates through the use of best efforts forward delivery commitments. The Company commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer of the loan has assumed the interest rate risk on the loan. The correlation between the IRLOC and the best efforts contracts is very high due to their similarity and timing of entering into an IRLOC with the customer and the best efforts delivery commitment entered into with the buyer of the loan.

The market values of the IRLOC are not readily ascertainable with precision because the IRLOC is not an actively traded instrument in a stand-alone market. The Company determines the fair value of the IRLOC by considering the difference between the wholesale and retail mortgage values and the expected premium for service and release fees offset by direct production costs of the underlying loans. In addition, we apply an estimated pull through rate to the valuation which recognizes the likelihood that some loans that have an IRLOC will not ultimately result in a funded mortgage loan.

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The Company also originates mortgage loans which are sold to investors on mandatory basis. These loans are hedged via forward sales contracts of MBS. The forward sales contracts of the MBS securities provide a natural hedge against changes in interest rates when mortgage loans are locked with customers. Certain additional risks arise from these forward delivery contracts in that the counterparties to the contract may fail to meet their contractual obligations. The Company does not expect the counterparties to fail to meet their respective obligations. If the Company fails to close loans required under mandatory delivery requirements, the Company could incur additional costs to acquire additional loans to meet the commitment and/or MBS securities to comply with its contractual obligations. These costs could adversely impact the financial performance of the Company. The forward sales contracts of MBS securities are recorded at fair value with the changes in fair value recorded in non-interest income.

Since the derivative instruments are not designated as hedging instruments, the fair value of the derivatives are recorded by the Mortgage Company as a freestanding asset or liability with the change in value being recognized in current net income during the period of change. As of March 31, 2016 and December 31, 2015, the Mortgage Company had open forward contracts with a notional value of $59.0 million and $35.0 million, respectively. The open forward delivery contracts are composed of forward sales of MBS. The fair value of these open forward contracts was a liability of $367.8 thousand and $27.7 thousand as of March 31, 2016 and December 31, 2015, respectively. Certain additional risks arise from these forward delivery contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. The Company does not expect any counterparty to fail to meet its obligation. Additional risks inherent in mandatory delivery programs include the risk that if the Company does not close the loans subject to interest rate risk lock commitments, they will be obligated to deliver MBS to the counterparty under the forward sales agreement. Should this be required, the Company could incur significant costs in acquiring replacement loans or MBS and such costs could have an adverse effect on mortgage banking operations in future periods.

Interest rate lock commitments totaled $52.2 million (notional amount) as of March 31, 2016. Fair values of these best efforts commitments were $379.1 thousand as of March 31, 2016.

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 $23.6 million, or 1.8% of total loans, and $23.7 million, or 1.8% of total loans, as of March 31, 2016 and December 31, 2015, respectively. For the three months ended March 31, 2016, principal advances to related parties totaled $545.0 thousand and principal repayments and other reductions totaled $807.3 thousand.

Total deposit accounts with related parties totaled $28.6 million and $26.7 million as of March 31, 2016 and December 31, 2015, respectively.

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. As of March 31, 2016, Management believes the Company satisfied all capital adequacy requirements to which it was subject to and that the Company and Bank were “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.

Additionally, under the final capital rules that became effective on January 1, 2015, there was a requirement for a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not maintain this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement is being phased in over three years beginning in 2016. We have included the 0.625% increase for 2016 in our minimum capital adequacy ratios in the table below. The capital buffer requirement effectively raises the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5%, and the total capital ratio to 10.5%

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on a fully phased-in basis on January 1, 2019. As of March 31, 2016, the Bank would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis as if all such requirements were currently in effect. The capital buffer provisions as of March 31, 2016, are presented in the table below as well.



Table 17: Capital Amounts, Ratios and Regulatory Requirements Summary
	Actual				To Be Well Capitalized Under Prompt Corrective Action Provisions			For Minimum Capital Adequacy Purposes			For Minimum Capital Adequacy Purposes with Capital Buffer ⁽¹⁾
	Amount		Ratio		Amount		Ratio	Amount		Ratio	Amount		Ratio
	(in thousands)
As of March 31, 2016:
Total risk-based capital ratio
Consolidated	$	213,364	14.74	%	n/a		n/a	$	115,774	>8.0%	$	124,819	>8.625%
Bank	197,783		13.68	%	$	144,629	>10.0%	115,703		>8.0%	124,742		>8.625%
Tier 1 risk-based capital ratio
Consolidated	176,035		12.16	%	n/a		n/a	86,831		>6.0%	95,875		>6.625%
Bank	185,454		12.82	%	115,703		>8.0%	86,777		>6.0%	95,816		>6.625%
Common Equity Tier 1 risk-based capital ratio
Consolidated	168,116		11.62	%	n/a		n/a	65,123		>4.5%	74,168		>5.125%
Bank	185,454		12.82	%	94,009		>6.5%	65,083		>4.5%	74,122		>5.125%
Tier 1 leverage ratio
Consolidated	176,035		10.55	%	n/a		n/a	66,763		>4.0%	n/a		n/a
Bank	185,454		11.13	%	83,313		>5.0%	66,650		>4.0%	n/a		n/a

As of December 31, 2015:
Total risk-based capital ratio
Consolidated	$	209,962	14.86	%	n/a		n/a	$	113,022	>8.0%	n/a		n/a
Bank	193,214		13.70	%	$	141,050	>10.0%	112,840		>8.0%	n/a		n/a
Tier 1 risk-based capital ratio
Consolidated	172,673		12.22	%	n/a		n/a	84,766		>6.0%	n/a		n/a
Bank	180,925		12.83	%	112,840		>8.0%	84,630		>6.0%	n/a		n/a
Common Equity Tier 1 risk-based capital ratio
Consolidated	164,789		11.66	%	n/a		n/a	63,575		>4.5%	n/a		n/a
Bank	180,925		12.83	%	91,683		>6.5%	63,473		>4.5%	n/a		n/a
Tier 1 leverage ratio
Consolidated	172,673		10.67	%	n/a		n/a	64,730		>4.0%	n/a		n/a
Bank	180,925		11.19	%	80,808		>5.0%	64,646		>4.0%	n/a		n/a
⁽¹⁾ Capital Buffer is not applicable to Tier 1 leverage ratio or any periods prior to January 1, 2016

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18. SHARE BASED COMPENSATION

In February 2010, the Board of Directors of the Company approved the Company’s 2010 Equity Compensation Plan (the “2010 Equity Plan”). Pursuant to the terms of the 2010 Equity Plan all of the shares of common stock of the Company remaining unissued under the prior plans were canceled, and an identical number of shares of the Company’s common stock were reserved for issuance under the 2010 Equity Plan. The 2010 Equity Plan gives the Personnel/Compensation Committee of the Company the ability to grant Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock, and Stock Awards to employees and non-employee directors.

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. For the three months ended March 31, 2016, and March 31, 2015, the Company recognized $133.6 thousand and $58.5 thousand in expenses, respectively, related to these awards. The total unrecognized compensation cost related to non-vested share based compensation arrangements granted under the plan as of both March 31, 2016, and March 31, 2015, was $1.6 million and $0.9 million, respectively, and is expected to be recognized over a weighted average period of 5.3 years and 5.3 years, respectively.



Table 18.1: Stock Options
	For the Three Months Ended March 31,
	2016				2015
	Stock Options		Weighted-Average Exercise Price		Stock Options		Weighted-Average Exercise Price
Outstanding, beginning of year	632,036		$	12.18	547,694		$	10.96
Options granted or exchanged	73,278		21.08		68,028		15.92
Exercised	(30,524	)	11.43		(20,829	)	9.29
Canceled or forfeited	(2,868	)	14.68		(250	)	15.92
Outstanding, end of period	671,922		$	13.13	594,643		$	11.58
Exercisable at end of period	290,069		$	13.11	284,351		$	11.58

Option awards are granted with an exercise price equal to the market price at the date of grant. The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The Company expects that all options granted will vest and become exercisable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.



Table 18.2: Fair Value Assumptions for Stock Option Awards
	For the Three Months Ended March 31,
	2016			2015
Weighted-average risk-free interest rate	1.46		%	2.19		%
Expected dividend yield	1.14		%	1.26		%
Weighted-average expected volatility	52.83		%	59.90		%
Weighted-average expected life (in years)	6.9			10
Weighted-average fair value of each option granted	$	10.07		$	9.40

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Table 18.3: Stock Options Outstanding
	As of March 31, 2016
	Outstanding		Exercisable
Range of Exercise Prices	Stock Options	Weighted-Average Remaining Contractual Life	Stock Options	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price
$8.00 - $9.99	16,777	3.7	16,777	3.7	$	8.68
$10.00 - $10.99	294,355	5.8	70,794	3.8	10.55
$11.00 - $11.99	17,958	1.4	17,958	1.4	11.94
$12.00 - $12.99	111,290	1.4	111,290	1.4	12.10
$13.00 - $13.99	46,090	1.1	46,090	1.1	13.82
$14.00 - $14.99	11,110	3.2	5,474	2.9	14.49
$15.00 - $15.99	75,950	8.2	18,464	7.2	15.85
$16.00 - $16.99	9,664	3.2	3,222	2.1	16.56
$17.00 - $22.99	88,728	9.9	—	0	—
	671,922	5.3	290,069	2.5	$	12.12

As of March 31, 2016, and March 31, 2015, the intrinsic value of stock options outstanding was $5.8 million and $3.2 million, respectively.



Table 18.4: Non-Vested Restricted Stock
	For the Three Months Ended March 31,
	2016				2015
	Non-vested Restricted Stock		Weighted-Average Grant Date Fair Value		Non-vested Restricted Stock		Weighted-Average Grant Date Fair Value
Outstanding, beginning of year	42,639		$	9.36	61,409		$	9.59
Granted	—		—		—		—
Canceled	(4	)	10.89		(244	)	14.31
Vested and issued	—		—		—		—
Outstanding, end of period	42,635		$	9.36	61,165		$	9.57

19. EARNINGS PER 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 restricted 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.

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.

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Table 19: Basic and Dilutive Earnings Per Share
	For the Three Months Ended
	March 31, 2016		March 31, 2015
	(in thousands, except for per share amounts)
Net income	$	3,924	$	2,790
Less: SBLF dividends	—		(28		)
Net income available to common shareholders	$	3,924	$	2,762

Weighted average number of shares outstanding	12,210,689		9,570,047
Effect of dilutive securities:
Restricted stock, stock options and warrants ⁽¹⁾	234,223		144,212
Diluted weighted average number of shares outstanding	12,444,912		9,714,259

Basic earnings per share	$	0.32	$	0.29
Diluted earnings per share	$	0.32	$	0.28
⁽¹⁾ For the three months ended March 31, 2016 and 2015 all restricted stock, stock options and warrants were dilutive.

20. FAIR VALUE DISCLOSURES

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.

Fair value is defined in FASB ASC 820-10 as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Transfers between levels of the fair value hierarchy are recognized on the actual dates of the event or circumstances that caused the transfer, which generally coincides with the Corporation’s monthly and or quarterly valuation process. The standard describes three levels of inputs that may be used to measure fair values:



	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.

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

Investment Securities Available for Sale

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

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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 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 three months ended March 31, 2016 or 2015.

Financial Derivatives

The Company relies on a third-party pricing service to value its mortgage banking derivative financial assets and liabilities, which the Company classifies as a Level 3 valuation. The external valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated pull-through rate based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment groups.

Nonrecurring Fair Value Measurements and Classification

Loans Held for Investment

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

Fair values estimated by management in the absence of readily determinable fair values are classified as Level 3. As of March 31, 2016, WashingtonFirst’s Level 3 assets and liabilities recorded were $12.5 million or approximately 0.7% of total assets and 4.1% of financial instruments measured at fair value. As of December 31, 2015, level 3 assets and liabilities were at $16.6 million or approximately 1.0% of total assets and 6.1% of financial instruments measured at fair value.

The following tables present information about WashingtonFirst’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of March 31, 2016 and December 31, 2015, respectively, and indicate the fair value hierarchy of the valuation techniques used by WashingtonFirst to determine such fair value:

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Table 20.1: Summary of Assets and Liabilities Measured at Fair Value
	As of March 31, 2016
	Level 1		Level 2		Level 3		Total
	(in thousands)
Recurring:
Assets:
U.S. Treasuries	$	8,287	$	—	$	—	$	8,287
U.S. Government agencies	—		91,065		—		91,065
Mortgage-backed securities	—		82,381		—		82,381
Collateralized mortgage obligations	—		60,632		—		60,632
Taxable state and municipal securities	—		10,836		—		10,836
Tax-exempt state and municipal securities	—		3,884		—		3,884
Financial derivatives	—		—		379		379
Total recurring assets at fair value	$	8,287	$	248,798	$	379	$	257,464
Liabilities:
Financial derivatives	$	—	$	—	$	368	$	368
Total recurring liabilities at fair value	$	—	$	—	$	368	$	368
Nonrecurring:
Assets:
Loans held for investment (1)	$	—	$	—	$	10,116	$	10,116
Loans held for sale	—		37,439		—		37,439
Other real estate owned	—		—		1,675		1,675
Total nonrecurring assets at fair value	$	—	$	37,439	$	11,791	$	49,230



	As of December 31, 2015
	Level 1		Level 2		Level 3		Total
	(in thousands)
Recurring:
Assets:
U.S. Treasuries	$	9,618	$	—	$	—	$	9,618
U.S. Government agencies	—		96,016		—		96,016
Mortgage-backed securities	—		58,876		—		58,876
Collateralized mortgage obligations	—		40,398		—		40,398
Taxable state and municipal securities	—		10,853		—		10,853
Tax-exempt state and municipal securities	—		4,352		—		4,352
Financial derivatives	—		—		93		93
Total recurring assets at fair value	$	9,618	$	210,495	$	93	$	220,206
Liabilities:
Financial derivatives	—		—		27		27
Total recurring liabilities at fair value	$	—	$	—	$	27	$	27
Nonrecurring:
Assets:
Loans held for investment (1)	$	—	$	—	$	16,521	$	16,521
Loans held for sale	—		36,494		—		36,494
Other real estate owned	—		—		—		—
Total nonrecurring assets at fair value	$	—	$	36,494	$	16,521	$	53,015


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

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The recurring Level 3 assets and liabilities are related to the fair value of the interest rate locks recorded by 1^st Portfolio Lending (acquired in July 2015). These derivatives represent the fair value of the interest rate locks and forward sales contracts of mortgage backed securities. The fair value utilizes market pricing for the valuation with the unobservable inputs being the estimated pull-through percentages which ranges from 70% to 90%. For more information on these derivatives, see Part II, Note 15 - Commitments and Contingencies.



Table 20.2: Estimated Fair Values and Carrying Values for Financial Assets, Liabilities and Commitments
	March 31, 2016				December 31, 2015
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in thousands)
Assets:
Cash and cash equivalents	$	69,117	$	69,117	$	62,753	$	62,753
Investment securities	257,085		257,085		220,113		220,113
Restricted Stock	6,532		6,532		6,128		6,128
Loans held for sale	37,439		39,062		36,494		37,389
Loans held for investment, net	1,333,728		1,374,485		1,295,794		1,334,205
Bank-owned life insurance	13,611		13,611		13,521		13,521
Derivatives	379		379		93		93
Liabilities:
Time deposits	471,220		473,496		440,129		440,584
Other borrowings	9,849		9,849		6,942		6,942
FHLB advances	112,220		116,432		110,087		112,994
Long-term borrowings	32,919		44,759		32,884		44,309
Derivatives	368		368		27		27
Off-balance sheet instruments	—		—		—		—

The following methods and assumptions not previously presented were used in estimating the fair value of 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.

Restricted Stock. It is not practical to determine the fair value of restricted stock due to the restrictions placed on transferability therefore the carrying amount is assumed to be the fair value.

Loans Held for Sale. Loans held for sale are carried at the lower of cost or fair value. Fair value is derived from secondary market quotations for similar instruments. Gains and losses on sales of these loans are recorded as a component of non-interest income in the consolidated statements of operations. As such, the Company classifies loans subjected to fair value adjustments as Level 2 valuation.

Loans Held for Investment, net. For certain homogeneous categories of loans, such as some residential mortgages, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics resulting in a Level 3 classification. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities resulting in a Level 3 classification.

Accounting pronouncements require disclosure of the estimated fair value of financial instruments. Effective January 1, 2008, fair value is defined in accordance with FASB ASC 820-10 as disclosed above. Given market conditions, a portion of our loan portfolio is not readily marketable and market prices do not exist. We have not attempted to market our loans to potential buyers, if any exist, to determine the fair value of those instruments in accordance with the definition of FASB ASC 820-10. Since negotiated prices in illiquid markets depends upon the then present motivations of the buyer and seller, it is reasonable to assume that actual sales prices could vary widely from any estimate of fair value made without the benefit of negotiations. Additionally, changes in market interest rates can dramatically impact the value of financial instruments in a short period of time. Accordingly, the fair value measurements for loans included in the table above are unlikely to represent the instruments’ liquidation values.

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.

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

21. SEGMENT REPORTING

Beginning in 2015, the Company has three reportable segments: traditional commercial banking, a mortgage banking business and a wealth management business. Revenues from commercial banking operations consist primarily of interest earned on loans and investment securities and fees from deposit services. Mortgage banking operating revenues consist principally of interest earned on mortgage loans held for sale, gains on sales of loans in the secondary market, and loan origination fee income. Wealth management operating revenues consist of fees for portfolio asset management and transactional fees charged to clients. The commercial banking segment provides the mortgage banking segment with the short-term funds needed to originate mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest based on a premium over their cost to borrow funds. These transactions are eliminated in the consolidation process. The following table presents segment information for the three months ended March 31, 2016. The Company did not have mortgage banking and wealth management segments prior to the acquisition of 1^stPortfolio Holding Corporation in July 2015 - see Note 3 Acquisition Activities for more information.



Table 21: Segment Reporting
	For the Three Months Ended March 31, 2016
	Commercial Banking		Mortgage Banking		Wealth Management		Other ⁽¹⁾			Consolidated Totals
	(In Thousands)
Revenues:
Interest income	$	17,422	$	290	$	—	$	(168	)	$	17,544
Gain on sale of loans	—		2,742		—		—			2,742
Other revenues	914		1,220		436		(531		)	2,039
Total income	$	18,336	$	4,252	$	436	$	(699	)	$	22,325

Expenses:
Interest expense	$	2,468	$	168	$	1	$	354		$	2,991
Salaries and employee benefits	4,727		2,621		238		218			7,804
Other expenses	6,684		935		138		(151		)	7,606
Total expenses	$	13,879	$	3,724	$	377	$	421		$	18,401

Net Income (loss)	$	4,457	$	528	$	59	$	(1,120	)	$	3,924

Total assets	$	1,758,082	$	50,069	$	3,488	$	(52,256	)	$	1,759,383
⁽¹⁾ Includes parent company and intercompany eliminations

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

Management’s discussion and analysis of financial condition and results of operations should be read together with WashingtonFirst’s financial statements and the related notes to the financial statements for the three months ended March 31, 2016 and 2015.

Cautionary Note Regarding Forward-Looking Statements

The following discussion and other sections to which the Company has referred you contains management’s comments on the Company’s business strategy and outlook, and 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. The Company’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 in Part II, Item 1A - “Risk Factors”.

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 the Company, 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 the Company’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 included herein speak only as of the date of this report. The Company 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.

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements are prepared in accordance with GAAP and follow general practices in the U.S. 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. 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;


•	business combinations and acquired loans


•	goodwill and other intangible asset impairment;


•	accounting for income taxes; and,


•	fair value measurements.

Allowance for Loan Losses

The provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan losses to an estimated balance that management considers adequate to absorb probable losses in the portfolio. Loans are charged against the allowance when management believes the collectability of the principal is unlikely. Recoveries of amounts previously charged-off are credited to the allowance. Management’s determination of the adequacy of the allowance is based on an evaluation of the composition of the loan portfolio, the value and adequacy of collateral, current economic conditions, historical loan loss experience, and other risk factors. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions, particularly those affecting real estate values. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to make adjustments to the allowance based on their judgments about information available to them at the time of their examination.

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The Company performs regular credit reviews of the loan portfolio to review the credit quality and adherence to its underwriting standards. The credit reviews consist of reviews by its lenders and senior management, with reviews performed periodically by an independent third party. Upon origination, each loan is assigned a risk rating ranging from one to nine, with loans closer to one having less risk. This risk rating scale is the Company’s primary credit quality indicator. The Company has various committees that review and ensure that the allowance for loan losses methodology is in accordance with GAAP and loss factors used appropriately reflect the risk characteristics of the loan portfolio.

Impaired Loans - A loan is considered impaired when, based on current information and events, it is probable that the Company 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 by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. The impaired loan policy is the same for each of the seven classes within the commercial portfolio segment.

The Company’s allowance for loan losses consists of specific, general, and unallocated components.

Specific Reserve Component - The specific reserve component relates to impaired loans. Upon being identified as impaired, for loans not considered to be collateral dependent, an allowance is established when the discounted cash flows of the impaired loan are lower than the carrying value of that loan. The impairment of collateral dependent loans is measured based on the fair value of the underlying collateral (based on independent appraisals), less selling costs, compared to the carrying value of the loan. If the Company determines that the value of an impaired collateral dependent loan is less than the recorded investment in the loan, it either recognizes an impairment reserve as a specific component to be provided for in the allowance for loan losses or charges off the deficiency if it is determined that such amount represents a confirmed loss. Typically, a loss is confirmed when the Company is moving towards foreclosure (or final disposition) of the underlying collateral, the collateral deficiency has not improved over a period determined by management, or when there is a payment default of 180 days, whichever occurs first.

The Company obtains independent appraisals from a pre-approved list of independent, third party appraisal firms located in the market in which the collateral is located. The Company’s approved appraiser list is continuously maintained to ensure the list only includes such appraisers that have the experience, reputation, character, and knowledge of the respective real estate market. At a minimum, it is ascertained that the appraiser is currently licensed in the state in which the property is located, experienced in the appraisal of properties similar to the property being appraised, has knowledge of current real estate market conditions and financing trends, and is reputable. The Company’s internal credit team, which reports to the Chief Credit Officer, performs either a technical or administrative review of all appraisals obtained. A technical review will ensure the overall quality of the appraisal, while an administrative review ensures that all of the required components of an appraisal are present. Generally, independent appraisals are updated as necessary. The Company’s impairment analysis documents the date of the appraisal used in the analysis, whether the officer preparing the report deems it current, and, if not, allows for internal valuation adjustments with justification. Adjustments to appraisals generally include discounts for continued market deterioration subsequent to the appraisal date. Any adjustments from the appraised value to carrying value are documented in the impairment analysis, which is reviewed and approved by senior credit administration officers and the Special Assets Committee. External appraisals are the primary source to value collateral dependent loans; however, the Company may also utilize values obtained through broker price opinions or other valuations sources. These alternative sources of value are used only if deemed to be more representative of value based on updated information regarding collateral resolution. Impairment analyses are updated, reviewed, and approved on a quarterly basis at or near the end of each reporting period.

General Reserve Component - The general reserve consists of two parts. The first part covers non-impaired loans and is quantitatively derived from an estimate of credit losses adjusted for various environmental factors applicable to both commercial and consumer loan segments. The estimate of credit losses is a function of the product of net charge-off historical loss experience to the loan balance of the loan portfolio averaged during the preceding twelve quarters, as management has determined this to adequately reflect the losses inherent in the loan portfolio. The qualitative environmental factors consist of national, local, and portfolio characteristics and are applied to both the commercial and consumer segments. The following table shows the types of environmental factors management considers:


•	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;

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


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

The second part covers certain non-impaired loans and is quantitatively derived from management’s estimate of potential credit losses based on its experience with these loans and their respective histories of non-performance.

Unallocated Component - This component may be used 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 loan portfolio. Together, the specific, general and unallocated components of the allowance for loan loss represent management’s estimate of losses inherent in the current loan portfolio. Though provisions for loan losses may be based on specific loans, the entire allowance for loan losses is available for any loan management deems necessary to charge-off.

Business Combinations and Acquired Loans

Business combinations are accounted for under ASC 805, Business Combinations, using the acquisition method of accounting. The acquisition method of accounting requires an acquirer to recognize the assets acquired and liabilities assumed at the acquisition date measured at their fair value as of that date. To determine fair values, the Company utilizes third party valuations, such as appraisals, or internal valuations based on discounted cash flow analysis or other valuation techniques. Under the acquisition method of accounting, the Company will identify the acquirer and the closing date and apply applicable recognition principals and conditions. If they are necessary, to implement its plan to exit an activity of an acquiree, the costs that the Company expects, but is not obligated, to incur in the future are not liabilities at the acquisition date, nor are costs to terminate the employment of or relocate an acquiree’s employee(s). The Company does not recognize these costs as part of applying the acquisition method. Instead, the Company recognizes these costs as expenses in its post-combination financial statements in accordance with other applicable GAAP.

Acquisition-related costs are costs the Company incurs to effect a business combination. Those costs include advisory, legal, accounting, valuation and other professional services. Some other examples of acquisition-related costs to the Company include systems conversions, integration planning consultants and advertising costs. The Company will account for acquisition-related costs as expenses in periods in which the costs are incurred and the services received.

Loans acquired in a business combination are recorded at fair value on the date of acquisition. Loans acquired with deteriorating credit quality are accounted for in accordance with ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorating Credit Quality, and are initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loans. Loans acquired in business combinations with evidence of credit deterioration are not considered to be impaired unless they deteriorate further subsequent to the acquisition. Certain acquired loans, including performing loans and revolving lines of credit (consumer and commercial), are accounted for in accordance with ASC 310-20, Receivables - Nonrefundable Fees and Other Costs, where the discount is accreted through earnings based on estimated cash flows over the estimated life of the loan.

Goodwill and Intangible Assets

The Company follows ASC 350, Goodwill and Other Intangible Assets, which prescribes the accounting for goodwill and intangible assets subsequent to initial recognition. Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and 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 or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed. The Company performs its annual impairment testing in the 4th quarter, or more frequently if events or changes in circumstances indicate that the asset may be impaired. 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. Intangible assets with definite useful lives are amortized over their estimated useful lives, which range up to 15 years, to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the Company’s Consolidated Balance Sheets.

WashingtonFirst recognized approximately $2.6 million of goodwill as a part of the Millennium Transaction in 2014 and approximately $5.2 million of goodwill as part of the 1^st Portfolio acquisition in 2015. No goodwill impairment was recognized for the three months ended March 31, 2016, or 2015.

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 $470.0 thousand and $400.0 thousand of core deposit intangibles, respectively, which is presented in the identifiable intangibles line item on the

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consolidated balance sheet. These are being amortized straight-line over a five year or eight year period, depending on the nature of the deposits underlying the intangible.

Client list intangible assets arise when a client list is acquired through a business combination and that client list is deemed to be an asset that will provide value over a finite period of time. During the third quarter of 2015, approximately $1.4 million relating to a client list intangible asset was added to the balance sheet as a result of the 1st Portfolio Acquisition. The client list will amortize straight-line over a fifteen year period.

Accounting for Income Taxes

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

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

Fair Value Measurements

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

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

Executive Overview

The Company generates the majority of its revenues from interest income on loans and investment securities, service charges on customer accounts, mortgage activities and wealth advisory services. See Part I, Item 1, Note 21 - “Segment Reporting” for discussion of our business segments. 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. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income.


•	In July 2015, the Company successfully completed its acquisition of 1st Portfolio. As of March 31, 2016, the mortgage and wealth advisory businesses were performing as expected.


•	Net interest income after provision for loan losses for the three months ended March 31, 2016 increased $2.3 million or 20.0% to $13.9 million compared to $11.6 million for the three months ended March 31, 2015. This increase is primarily attributable to growth in earning assets of the Bank.


•	The mortgage segment generated $4.3 million in gross revenue on $122.6 million of mortgage production, which contributed net income of $528 thousand or $0.04 cent per share fully diluted.

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•

Net income available to common shareholders was $3.9 million for March 31, 2016, compared to $2.8 million for March 31, 2015. Diluted earnings per share were $0.32 per common share for March 31, 2016, compared to $0.28 per common share for March 31, 2015. This $1.2 million (42.1%) increase in earnings is primarily attributable to the growth in earning assets of the Bank and the acquisition of 1st Portfolio in July 2015.

•

As of March 31, 2016 and December 31, 2015, total assets were $1.8 billion and $1.7 billion, respectively. Total net loans held for investment increased by $37.9 million (2.9%) from $1.30 billion as of December 31, 2015, to $1.33 billion as of March 31, 2016. This increase is attributable to organic growth from our existing lending team. During the same period, total deposits increased $74.3 million (5.6%) to $1.4 billion. This increase is attributable to core deposit growth.

•

As of March 31, 2016, WashingtonFirst had $14.1 million in non-performing assets, a decrease of $400.0 thousand from $14.5 million at December 31, 2015. Allowance for loan losses remained at $12.3 million during first quarter 2016 increasing only $40.0 thousand compared to December 31, 2015. The increase in the allowance was driven by provisions of $625.0 thousand partially offset by net charge-offs of $585.0 thousand.

Acquisition Activities in 2015

1^st Portfolio Acquisition

On May 13, 2015, WashingtonFirst entered into an Agreement and Plan of Reorganization (“1^stPortfolio Agreement”) providing for the Company’s acquisition of 1^stPortfolio Holding Corporation with and into the Company (“1^st Portfolio Acquisition”). The 1^stPortfolio Acquisition closed on July 31, 2015. 1^st Portfolio Holding Corporation’s wholly owned subsidiary, 1^stPortfolio Wealth Advisors became a wholly owned subsidiary of WashingtonFirst and wholly owned subsidiary 1^stPortfolio Lending Corporation (now WashingtonFirst Mortgage Corporation) became a wholly owned subsidiary of WashingtonFirst Bank.

The 1^stPortfolio Acquisition 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 $5.2 million. The Company also recorded $1.4 million in customer list intangibles which will be amortized over 15 years.

Results of Operations



Table M1: Selected Performance Ratios
	For the Three Months Ended
	March 31, 2016			March 31, 2015
	(in thousands, except earnings per share)
Average total assets	$	1,682,379		$	1,355,930
Average shareholders' equity	183,491			135,674
Net income	3,924			2,790
Basic earnings per common share	$	0.32		$	0.29
Fully diluted earnings per common share	$	0.32		$	0.28
Return on average assets	0.94		%	0.83		%
Return on average shareholders' equity	8.58		%	8.34		%
Average shareholders' equity to average total assets	10.91		%	10.01		%
Efficiency ratio	64.66		%	60.99		%
Dividend payout ratio	18.75		%	17.24		%

The following tables provide information regarding interest-earning assets and funding for the three months ended March 31, 2016 and 2015. 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 increase in average rate on interest-bearing deposit accounts is consistent with general trends in average short-term rates during the periods presented. The upward trend in the average rate on time deposits reflects the maturity of older time deposits and the issuance of new time deposits at higher market rates.

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Table M2: Average Balances, Interest Income and Expense and Average Yield and Rates
	For the Three Months Ended
	March 31, 2016							March 31, 2015
	Average Balance			Income/ Expense		Yield/ Rate ⁽⁶⁾		Average Balance			Income/ Expense		Yield/ Rate ⁽⁶⁾
	(in thousands)
Assets
Interest-earning assets:
Loans ⁽¹⁾	$	1,361,553		$	16,391	4.76	%	$	1,071,286		$	13,440	5.02	%
Investment securities - taxable	222,333			992		1.77	%	167,203			716		1.71	%
Investment securities - tax-exempt ⁽²⁾	4,089			21		2.52	%	3,066			19		3.21	%
Other equity securities	6,223			72		4.62	%	6,079			61		4.06	%
Interest-bearing balances	43			—		0.94	%	10,470			16		0.64	%
Federal funds sold	41,590			68		0.65	%	62,643			58		0.38	%
Total interest earning assets	1,635,831			17,544		4.24	%	1,320,747			14,310		4.34	%
Non-interest earning assets:
Cash and due from banks	1,981							2,965
Premises and equipment	7,630							6,179
Other real estate owned	432							362
Other assets ⁽³⁾	48,919							35,034
Less: allowance for loan losses	(12,414		)					(9,357		)
Total non-interest earning assets	46,548							35,183
Total Assets	$	1,682,379						$	1,355,930

Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	114,714		$	86	0.30	%	$	97,196		$	57	0.24	%
Money market deposit accounts	297,453			438		0.59	%	211,095			254		0.49	%
Savings accounts	171,442			300		0.70	%	128,147			217		0.69	%
Time deposits	438,791			1,171		1.07	%	377,929			923		0.99	%
Total interest-bearing deposits	1,022,400			1,995		0.78	%	814,367			1,451		0.72	%
FHLB advances	111,710			454		1.61	%	105,517			370		1.40	%
Other borrowings and long-term borrowings	39,599			542		5.47	%	17,720			183		4.14	%
Total interest-bearing liabilities	1,173,709			2,991		1.02	%	937,604			2,004		0.86	%
Non-interest-bearing liabilities:
Demand deposits	309,393							275,002
Other liabilities	15,786							7,650
Total non-interest-bearing liabilities	325,179							282,652
Total Liabilities	1,498,888							1,220,256
Shareholders’ Equity	183,491							135,674
Total Liabilities and Shareholders’ Equity	$	1,682,379						$	1,355,930

Interest Spread ⁽⁴⁾						3.22	%						3.48	%
Net Interest Margin ⁽²⁾⁽⁵⁾				$	14,553	3.51	%				$	12,306	3.72	%


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


(2)	Yield is presented on a fully taxable equivalent (FTE) basis using a federal statutory rate of 35 percent and includes $5 thousand and $5 thousand of FTE income as of March 31, 2016, and March 31, 2015, respectively.


(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)	Rates and yields are annualized and calculated from actual, not rounded amounts in thousands which appear in this table. Additionally, yields are calculated based on a 360 or 365 day convention as appropriate.

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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 decrease in expense reflects the decreased cost of funding due to lower interest rates available in the debt markets. The increases due to changes in volume reflect the increase in on-balance sheet assets during the three months ended March 31, 2016 and 2015.



Table M3: Changes in Rate and Volume Analysis
	For the Three Months Ended March 31, 2016 Compared to Same Period 2015									For the Three Months Ended March 31, 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	$	(4,204	)	$	7,155		$	2,951		$	(2,437	)	$	4,676		$	2,239
Investment securities - taxable	27			249			276			(127		)	177			50
Investment securities - tax exempt	(25		)	27			2			(9		)	(19		)	(28		)
Other equity securities	9			2			11			10			23			33
Interest bearing balances	38			(54		)	(16		)	—			2			2
Federal funds sold	116			(106		)	10			109			(108		)	1
Total income from interest-earning assets	(4,039		)	7,273			3,234			(2,454		)	4,751			2,297
Expense from interest-bearing liabilities:
Interest-bearing deposits	134			410			544			122			107			229
FHLB Advances	60			24			84			(264		)	430			166
Borrowed funds	74			285			359			21			(16		)	5
Total expense from interest-bearing liabilities	268			719			987			(121		)	521			400
Increase (Decrease) in net interest income	$	(4,307	)	$	6,554		$	2,247		$	(2,333	)	$	4,230		$	1,897

Interest Earning Assets

Average loan balances were $1.4 billion for the three months ended March 31, 2016, compared to $1.1 billion for the three months ended March 31, 2015. This increase is attributable primarily to organic growth. The related interest income from loans was $16.4 million for the three months ended March 31, 2016 resulting in an average yield of 4.76%, compared to $13.4 million for the three months ended March 31, 2015, resulting in an average yield of 5.02%. 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 $222.3 million for the three months ended March 31, 2016, compared to $167.2 million for the three months ended March 31, 2015. Interest income generated on these investment securities for the three months ended March 31, 2016 totaled $1.0 million, or a 1.77% yield, compared to $716.0 thousand or a 1.71% yield for the three months ended March 31, 2015.

Tax-exempt investment securities balances averaged $4.1 million for the three months ended March 31, 2016, compared to $3.1 million for the three months ended March 31, 2015. Interest income generated on these investment securities for the three months ended March 31, 2016 totaled $21.0 thousand, or a 2.52% yield, compared to $19.0 thousand or a 3.21% yield for the three months ended March 31, 2015. The yield for tax-exempt securities has been presented as a fully taxable equivalent.

Other equity securities balances averaged $6.2 million for the three months ended March 31, 2016, compared to $6.1 million for the three months ended March 31, 2015. Interest income generated on these investment securities for the three months ended March 31, 2016 totaled $72.0 thousand, or a 4.62% yield, compared to $61.0 thousand or a 4.06% yield for the three months ended March 31, 2015.

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Interest-bearing balances averaged $43.0 thousand for the three months ended March 31, 2016, compared to $10.5 million for the three months ended March 31, 2015. The change in average interest-bearing balances was primarily a result of shifting excess cash balances. Interest income generated on these balances for the three months ended March 31, 2016 had a yield of 0.94%, compared to $16.0 thousand or a 0.64% yield for the three months ended March 31, 2015.

Short-term investments in federal funds sold averaged $41.6 million for the three months ended March 31, 2016, compared to $62.6 million for the three months ended March 31, 2015. The decrease in average short-term investments in 2015 is attributable to loan growth out pacing deposit growth. Interest income generated on these assets for the three months ended March 31, 2016 totaled $68.0 thousand, or a 0.65% yield, compared to $58.0 thousand or a 0.38% yield the three months ended yield in March 31, 2015.

Interest Bearing Liabilities

Average interest-bearing deposits were $1.0 billion for the three months ended March 31, 2016 compared to $814.4 million for the three months ended 2015. The increase in the average interest-bearing deposits in 2016 and 2015 is the result of organic growth and acquisitions. The related interest expense from interest-bearing deposits was $2.0 million for the three months ended March 31, 2016, compared to $1.5 million for the three months ended 2015. The average rate on these deposits was 0.78% for the three months ended March 31, 2016, compared to 0.72% for the three months ended March 31, 2015. This increase in the cost of interest-bearing deposits is attributable to increased competition in the Company’s market, and changes in the mix of interest-bearing deposits. 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 $111.7 million for the three months ended March 31, 2016, compared to $105.5 million for the three months ended March 31, 2015. Interest expense incurred on these borrowing for the three months ended March 31, 2016 totaled $454.0 thousand, or a 1.61% rate, compared to $370.0 thousand, or a 1.40% rate for the three months ended March 31, 2015.

Other borrowings and long-term liabilities averaged $39.6 million for the three months ended March 31, 2016, compared to $17.7 million for the three months ended March 31, 2015. Interest expense incurred on these borrowing for the three months ended March 31, 2016 totaled $542.0 thousand, or a 5.47% rate, compared to $183.0 thousand, or a 4.14% rate for the three months ended March 31, 2015.

Non-Interest Income. For the three months ended March 31, 2016, non-interest income was $4.8 million, and increase of $4.2 million over the same period ended March 31, 2015. This increase is primarily attributable to the acquisition of 1st Portfolio in July 2015. During the three months ended March 31, 2016, WashingtonFirst Mortgage realized gains on the sale of loans of $3.9 million, compared to $69.0 thousand realized by the Bank’s Mortgage Division for the three months ended March 31, 2015. WashingtonFirst Mortgage, formerly known as 1st Portfolio Lending. Gains realized in 2015 is related to the Bank’s mortgage division which was combined with WashingtonFirst Mortgage in 2015. Mortgage loan origination volume for the three months ended March 31, 2016 was $122.6 million. The other significant factor impacting non-interest income was the Wealth Management segment which generated $428 thousand in revenue for the three months ended March 31, 2016.

Non-Interest Expense. For the three months ended March 31, 2016, non-interest expense was $12.5 million, and increase of $4.7 million over the same period ended March 31, 2015. This increase is primarily attributable to the acquisition of 1st Portfolio in July 2015. Compensation and employee benefits were $7.8 million and $4.1 million for the three months ended March 31, 2016 and 2015, respectively. This increase is primarily attributable to mortgage lender commissions and increased in staff levels stemming from the 1st Portfolio acquisition and organic growth in the banking segment. Increases in premises and equipment expense is primarily due to the increase in rent expense associated with the addition of two new branches and the 1st Portfolio acquisition with 1st Portfolio’s two office locations. Increases in data processing expense is primarily attributable to increased core processing costs given the Bank’s growth and enhancements to network infrastructure. Changes in other operating expenses is outlined in the following table.

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Table M4: Consolidated Statement of Operations - Other Operating Expenses Detail
	For the Three Months Ended
	March 31, 2016		March 31, 2015
	(in thousands)
Other real estate owned expenses	$	3	$	5
Business and franchise tax	278		218
Advertising and promotional expenses	252		213
FDIC premiums	248		220
Postage, printing and supplies	48		46
Directors' fees	96		73
Insurance	56		48
Amortization of intangibles	67		43
Other	313		202
Other expenses	$	1,361	$	1,068

Provision for Income Taxes. Provision for income taxes were $2.3 million and $1.5 million for the three months ended March 31, 2016 and 2015, respectively, resulting in effective tax rates of 36.79% and 35.39%, respectively. The increase to the 2015 effective tax rate is attributable to the Bank’s federal rate increasing from 34 percent to 35 percent; changes in apportionment between tax jurisdictions; and the impact of tax credits from the Bank’s investment in a low income housing tax credit fund.

Financial Condition

Total assets were $1.8 billion as of March 31, 2016, compared to $1.7 billion as of December 31, 2015. This increase is primarily attributable to the Bank’s organic growth. As of March 31, 2016, WashingtonFirst had $69.1 million of cash and cash equivalents, compared to $62.8 million as of December 31, 2015. As of March 31, 2016, WashingtonFirst had $257.1 million of investments, compared to $220.1 million as of December 31, 2015.

Total loans held for investment, net, increased by $37.9 million (2.9%) from $1.30 billion as of December 31, 2015, to $1.33 billion as of March 31, 2016. This increase is attributable to organic loan growth in our core market.

Total deposits increased $74.3 million (5.6%) from $1.3 billion as of December 31, 2015 to $1.4 billion as of March 31, 2016. This increase is attributable to a $53.8 million growth in non-interest demand deposit account balances and a $31.1 million increase in time deposits.

Total shareholders’ equity increased $5.5 million (3.1%) from $178.6 million as of December 31, 2015 to $184.1 million as of March 31, 2016. The increase in total shareholders’ equity during that period is attributable to net income of $3.9 million, stock option exercises of $328.0 thousand, less year to date dividends declared of $733.0 thousand, and a $1.9 million increase in accumulated other comprehensive income as a result of the change in fair value of the available-for-sale investment portfolio.

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 $257.1 million as of March 31, 2016 compared to $220.1 million as of December 31, 2015. 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 M5: Available-for-Sale Investment Securities Summary
	March 31, 2016				December 31, 2015
	Amount		Percent		Amount		Percent
	(dollars in thousands)
U.S. Treasuries	$	8,287	3.2	%	$	9,618	4.4	%
U.S. Government agencies	91,065		35.4	%	96,016		43.6	%
Mortgage-backed securities	82,381		32.0	%	58,876		26.7	%
Collateralized mortgage obligations	60,632		23.7	%	40,398		18.4	%
Taxable state and municipal securities	10,836		4.2	%	10,853		4.9	%
Tax-exempt state and municipal securities	3,884		1.5	%	4,352		2.0	%
Total available-for-sale investment securities	$	257,085	100.0	%	$	220,113	100.0	%

The investment portfolio contains U.S. Treasury securities; U.S. Government agency securities; CMOs and 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 March 31, 2016, U.S. Government and agency securities represented $99.4 million or 38.6% of the portfolio, while CMOs and MBS were $143.0 million, or 55.7% of the portfolio, and municipal securities were $14.7 million, or 5.7% of the portfolio.

The yield on the taxable available-for-sale investment securities portfolio for the three months ended March 31, 2016 was 1.77%, compared to 1.71% for the three months ended March 31, 2015. The tax equivalent yield on the tax-exempt available-for-sale investment securities portfolio for the three months ended March 31, 2016 was 2.52%, compared to 3.21% for March 31, 2015.The amortized cost, fair value and yield of investments by remaining contractual maturity for available-for-sale investment securities 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 M6: Available-for-Sale Investment Securities Contractual Maturity
	As of March 31, 2016
	Amortized Cost		Fair Value		Weighted-Average Yield
	(in thousands)
Due within one year	$	1,509	$	1,525	3.16	%
Due after one year through five years	98,948		100,751		1.77	%
Due after five years through ten years	30,269		30,842		1.96	%
Due after ten years	123,586		123,967		1.81	%
Total available-for-sale investment securities	$	254,312	$	257,085	1.80	%


	As of December 31, 2015
	Amortized Cost		Fair Value		Weighted-Average Yield
	(in thousands)
Due within one year	$	4,606	$	4,624	1.73	%
Due after one year through five years	99,447		99,685		1.72	%
Due after five years through ten years	38,697		38,611		1.92	%
Due after ten years	77,662		77,193		1.88	%
Total available-for-sale investment securities	$	220,412	$	220,113	1.81	%

Loans Held for Sale

Loans in this category are originated by the Mortgage Company, a wholly-owned subsidiary of WashingtonFirst Bank, and comprised of residential mortgage loans extended to consumers and underwritten in accordance with standards set forth by an institutional investor to whom we expect to sell the loans. Loan proceeds are used for the purchase or refinance of the property securing the loan. Loans and servicing are sold concurrently. The LHFS are closed in the name of the Mortgage Company and carried on our books until

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the loan is delivered to and purchased by an investor, generally within fifteen to forty-five days. The Mortgage Company was recently acquired. See Note 3 - Acquisition Activity for further details. As of March 31, 2016, loans held for sale totaled $37.4 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 gross loans held for investment portfolio totaled $1.35 billion as of March 31, 2016, an increase of $38.0 million from the December 31, 2015 balance of $1.31 billion.



Table M7: Loans Held for Investment Portfolio by Loan Class
	March 31, 2016				December 31, 2015
	Amount		Percent		Amount		Percent
	(in thousands)
Construction and development	$	259,804	19.3	%	$	249,433	19.1	%
Commercial real estate	671,288		49.8	%	657,110		50.1	%
Residential real estate	246,538		18.3	%	241,395		18.5	%
Real estate loans	1,177,630		87.4	%	1,147,938		87.7	%
Commercial and industrial	162,311		12.1	%	153,860		11.8	%
Consumer	6,116		0.5	%	6,285		0.5	%
Total loans held for investment	$	1,346,057	100.0	%	$	1,308,083	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 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 include 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 $644.2 thousand as of March 31, 2016.

Construction and development loans represented 19.3% and 19.1% of the total loan portfolio as of March 31, 2016 and December 31, 2015, respectively. New originations in this category 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 18.3% and 18.5% of total loans as of March 31, 2016 and December 31, 2015, 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.

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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 March 31, 2016 are summarized in the following table:



Table M8: Loan Portfolio Maturity Schedule by Loan Class
	As of March 31, 2016
	One Year or Less		One to Five Years		Over Five Years		Total
	(in thousands)
Construction and development	$	164,279	$	69,685	$	25,840	$	259,804
Commercial real estate	42,757		223,935		404,596		671,288
Residential real estate	44,637		52,914		148,987		246,538
Commercial and industrial	73,685		63,818		24,808		162,311
Consumer	3,072		1,780		1,264		6,116
Total loans	$	328,430	$	412,132	$	605,495	$	1,346,057

Loans with a predetermined interest rate	$	60,109	$	275,237	$	105,177	$	440,523
Loans with a floating or adjustable interest rate	268,321		136,895		500,318		905,534
Total loans	$	328,430	$	412,132	$	605,495	$	1,346,057

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 Held for Investment.

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. 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. Non-accrual loans decreased from $10.2 million as of December 31, 2015 to $8.8 million as of March 31, 2016. There were no loans past due more than 90 days that were still accruing as of March 31, 2016 and $28.0 thousand in loans past due more than 90 days that were still accruing as of December 31, 2015.

Allowance for Loan Losses

The methodology used by the Company 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 $12.3 million as of March 31, 2016, or approximately 0.92% of outstanding loans held for investment, compared to $12.3 million or approximately 0.94% of outstanding loans held for investment as of December 31, 2015.

As of March 31, 2016, the Company has allocated $2.3 million for specific loans evaluated individually for impairment, and an additional $246.0 thousand for loans individually evaluated that were not deemed to be impaired. For the three months ended March 31, 2016, WashingtonFirst recorded $625.0 thousand in provisions for loan losses, $621.0 thousand in charge-offs and $36.0 thousand in recoveries, compared to $700.0 thousand in provision for loans losses, $153.0 thousand in charge-off and $102.0 thousand in recoveries for the three months ended March 31, 2015.

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

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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 M9: Analysis of the Allowance for Loan Losses
	For the Three Months Ended
	March 31, 2016			March 31, 2015
	(in thousands)
Balance at beginning of period	$	12,289		$	9,257
Provision for loan losses	625			700
Charge-offs:
Construction and development	(31		)	—
Commercial real estate	(543		)	(128		)
Residential real estate	(8		)	(25		)
Commercial and industrial	(38		)	—
Consumer loans	(1		)	—
Total charge-offs	(621		)	(153		)
Recoveries:
Construction and development	2			—
Commercial real estate	—			—
Residential real estate	25			41
Commercial and industrial	8			9
Consumer	1			1
Total recoveries	36			51
Net recoveries/(charge-offs)	(585		)	(102		)
Balance at end of period	$	12,329		$	9,855

Allowance for loan losses to total loans held for investment	0.92		%	0.91		%
Non-GAAP adjusted allowance for loan losses to total loans held for investment	1.25		%	1.45		%
Allowance for loan losses to non-accrual loans	140.26		%	174.80		%
Allowance for loan losses to non-performing assets	87.69		%	107.36		%
Non-performing assets to total assets	0.80		%	0.64		%
Net charge-offs to average loans held for investment	0.20		%	0.04		%

Of the Bank’s $1.3 billion in gross loans outstanding as of March 31, 2016, approximately $88.7 million or 6.6% 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 $4.6 million as of March 31, 2016. This discount is a net amount consisting of credit-related mark-downs of $4.6 million, yield-related mark-downs of $1.1 million and yield-related mark-ups of $1.1 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

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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 March 31, 2016 and December 31, 2015:



Table M10: Reconciliation of GAAP Allowance Ratio to Non-GAAP Allowance Ratio
	March 31, 2016			December 31, 2015
	(in thousands)
GAAP allowance for loan losses	$	12,329		$	12,289
GAAP loans held for investment, at amortized cost	1,346,057			1,308,083

GAAP allowance for loan losses to total loans	0.92		%	0.94		%

GAAP allowance for loan losses	$	12,329		$	12,289
Plus: Credit purchase accounting marks	4,555			4,721
Non-GAAP adjusted allowance for loan losses	$	16,884		$	17,010

GAAP loans held for investment, at amortized cost	$	1,346,057		$	1,308,083
Plus: Credit purchase accounting marks	4,555			4,721
Non-GAAP loans held for investment, at amortized cost	$	1,350,612		$	1,312,804

Non-GAAP adjusted allowance for loan losses to total loans	1.25		%	1.30		%

Non-performing Assets

As of March 31, 2016, WashingtonFirst had $14.1 million of non-performing assets compared to $14.5 million as of December 31, 2015, a decrease of $400.0 thousand. The ratio of non-performing assets to total assets decreased 6 basis points to 0.80% as of March 31, 2016 from 0.86% as of December 31, 2015.



Table M11: Non-Performing Assets
	March 31, 2016			December 31, 2015
	(dollars in thousands)
Non-accrual loans	$	8,790		$	10,201
90+ days still accruing	—			28
Troubled debt restructurings still accruing	3,594			4,269
Other real estate owned	1,675			—
Total non-performing assets	$	14,059		$	14,498
Non-performing assets to total assets	0.80		%	0.86		%

Non-accrual loans were $8.8 million as of March 31, 2016, compared to $10.2 million as of December 31, 2015. The $8.8 million non-accrual loan balance consists primarily of loans secured by commercial real estate. The change in non-accrual loans is primarily attributable to the foreclosure on one borrower, with the property moving into OREO in March 2016. Specific reserves for impaired loans were $2.3 million and $2.5 million, respectively, as of March 31, 2016 and December 31, 2015.

As of March 31, 2016, OREO was $1.7 million compared to none as of December 31, 2015. During the three months ended March 31, 2016, WashingtonFirst acquired five OREO properties with a fair value of $1.7 million through foreclosure.

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Table M12: Changes in Other Real Estate Owned
	For the Three Months Ended
	March 31, 2016		March 31, 2015
	(in thousands)
Balance at beginning of period	$	—	$	361
Properties acquired at foreclosure	1,675		90
Sales of foreclosed properties	—		—
Write downs	—		—
Balance at end of period	$	1,675	$	451

Restricted Stock

WashingtonFirst’s securities portfolio contains restricted stock investments that are required to be held as part of its banking operations. As a member of the FHLB, the Bank is required to purchase and maintain stock in the FHLB in an amount equal to 4.25% of aggregate outstanding advances in addition to the membership stock requirement of 0.09% of total assets as of December 31, 2015 (subject to a cap of $15.0 million). 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 readily available 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.

These include stock of the FHLB, ACBB and CBB.



Table M13: Composition of Restricted Stocks
	March 31, 2016		December 31, 2015
	(in thousands)
FHLB stock	$	6,176	$	5,772
ACBB	100		100
CBB	256		256
Total other equity securities	$	6,532	$	6,128

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.

As of March 31, 2016, the deposit portfolio totaled $1.4 billion, comprised of $358.2 million of non-interest bearing deposits and $1.0 billion of interest bearing deposits. Total deposits increased $74.3 million (5.6%) from $1.3 billion as of December 31, 2015 to $1.4 billion as of March 31, 2016. As of December 31, 2015, the deposit portfolio totaled $1.3 billion, which was composed of $304.4 million of non-interest bearing deposits and $1.0 billion of interest bearing deposits.

The average balance of interest bearing deposits was $1.0 billion for the three months ended March 31, 2016 compared to $814.4 million for the same period 2015. The increase in the average interest-bearing deposits in 2016 and 2015 is the result of organic growth and acquisitions. The related interest expense from interest-bearing deposits was $2.0 million for the three months ended March 31, 2016, compared to $1.5 million for the same period 2015. The average rate on these deposits was 0.78% for the three months ended March 31, 2016, compared to 0.72% for the same period 2015. 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 were $309.4 million for the three months ended March 31, 2016, compared to $275.0 million for the same period 2015. The increase in the average non-interest-bearing deposits in 2016 and 2015 is the result of organic growth and acquisitions.

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Table M14: Certificates of Deposit by Maturity Buckets
	As of March 31, 2016
	(in thousands)
	Under $100,000		$100,000 through $250,000		Over $250,000		Total
Three months or less	$	16,933	$	34,392	$	35,146	$	86,471
Three through six months	7,741		44,469		17,776		69,986
Six through twelve months	18,053		79,034		47,320		144,407
Over twelve months	37,006		117,599		15,751		170,356
Total certificates of deposit	$	79,733	$	275,494	$	115,993	$	471,220



	As of December 31, 2015
	(in thousands)
	Under $100,000		$100,000 through $250,000		Over $250,000		Total
Three months or less	$	15,849	$	57,512	$	17,314	$	90,675
Three through six months	16,420		30,984		35,099		82,503
Six through twelve months	15,884		57,127		49,252		122,263
Over twelve months	33,618		97,060		14,010		144,688
Total certificates of deposit	$	81,771	$	242,683	$	115,675	$	440,129

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 March 31, 2016, WashingtonFirst had $9.8 million of customer repurchase agreements with an average rate of 0.05%, compared to $6.9 million at 0.05% as of December 31, 2015.

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 purchase accounting mark noted in the table below is associated with an advance acquired in the 2012 Alliance acquisition 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 M15: Composition of FHLB Advances
	March 31, 2016			December 31, 2015
	(in thousands)
As of period ended:
FHLB advances	$	109,834		$	107,579
FHLB purchase accounting mark	2,386			2,508
FHLB total	$	112,220		$	110,087
Weighted average outstanding effective interest rate	1.64		%	1.62		%

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Table M16: FHLB Advances Average Balances
	For the Three Months Ended
	March 31, 2016			March 31, 2015
	(in thousands)
Averages for the period:
FHLB advances	$	111,710		$	105,517
Average effective interest rate paid during the period	1.61		%	1.40		%
Maximum month-end balance outstanding	$	120,695		$	125,926

Long-term Borrowings



Table M17: Long-term Borrowings Detail
	March 31, 2016		December 31, 2015
	(in thousands)
Subordinated debt	$	25,000	$	25,000
Trust preferred capital notes	7,919		7,884
Long-term borrowings	$	32,919	$	32,884

On October 5, 2015, the Company issued $25.0 million in subordinated debt (the “Company Subordinated Debt”). The Company Subordinated Debt has a maturity of ten (10) years with a five year no-call provision, maturing in full on October 15, 2025, and carries a 6.00% fixed rate coupon, payable quarterly, subject to reset after five years at 3-month LIBOR plus 467 basis points. As of March 31, 2016 the entire amount of Company Subordinated Debt is considered Tier 2 Capital.

On June 30, 2003, Alliance invested $300.0 thousand 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”). The Trust Preferred Capital Notes are callable at any time without penalty. The interest rate associated with the Trust Preferred Capital Notes is three month LIBOR plus 3.15% subject to quarterly interest rate adjustments. The interest rate as of March 31, 2016 and December 31, 2015 was 3.66%. 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.

Under current regulatory guidelines, the Trust Preferred Capital Notes may constitute no more than 25% 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 March 31, 2016 and December 31, 2015, 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 and the Bank is subject to capital adequacy requirements imposed by the FDIC. Both the Federal Reserve and the FDIC have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy.

As of March 31, 2016 and December 31, 2015, WashingtonFirst Bank had $102.1 million and $100.1 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 2015, WashingtonFirst redeemed its remaining balance of $13.3 million.



Table M18: Capital Categories, Capital Ratios and Minimum Capital Ratios Required by Bank Regulators
	March 31, 2016			December 31, 2015
	(in thousands)
Tier 1 Capital:
Common stock	$	121		$	121
Capital surplus	161,323			160,861
Accumulated earnings	20,931			17,740
Less: disallowed assets	(14,259		)	(13,933		)
Total Common Equity Tier 1 Capital (1)	168,116			164,789

Add: Preferred Stock	—			—
Add: Trust preferred	7,919			7,884
Total Tier 1 Capital	$	176,035		$	172,673

Tier 2 Capital:
Qualifying allowance for loan losses	12,329			12,289
Qualifying subordinated debt	25,000			25,000
Total Tier 2 Capital	$	37,329		$	37,289

Total risk-based capital	$	213,364		$	209,962
Risk weighted assets	1,447,176			1,412,771
Qualifying quarterly average assets	1,669,068			1,618,250



Table M19: Capital Ratios and Regulatory Requirements Summary
	March 31, 2016		December 31, 2015		To Be Well Capitalized Under Prompt Corrective Action Provisions	For Minimum Capital Adequacy Requirements
	March 31, 2016		December 31, 2015			For Minimum Capital Adequacy Requirements
Capital Ratios:
Total risk-based capital ratio	14.74	%	14.86	%	10.00%	8.00%
Tier 1 risk-based capital ratio	12.16	%	12.22	%	8.00%	6.00%
CET 1 risk-based capital ratio (1)	11.62	%	11.66	%	6.50%	4.50%
Tier 1 leverage ratio	10.55	%	10.67	%	5.00%	4.00%

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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Table M20: Reconciliation of Tangible Common Equity to Tangible Assets Ratio
	March 31, 2016			December 31, 2015
	(dollars in thousands)
Tangible Common Equity:
Common Stock Voting	$	103		$	103
Common Stock Non-Voting	18			18
Additional paid-in capital - common	161,323			160,861
Accumulated earnings	20,931			17,740
Accumulated other comprehensive income/(loss)	1,753			(127		)
Total Common Equity	$	184,128		$	178,595

Less Intangibles:
Goodwill	$	11,420		$	11,431
Identifiable intangibles	1,820			1,888
Total Intangibles	$	13,240		$	13,319

Tangible Common Equity	$	170,888		$	165,276

Tangible Assets:
Total Assets	$	1,759,383		$	1,674,466

Less Intangibles:
Goodwill	$	11,420		$	11,431
Identifiable intangibles	1,820			1,888
Total Intangibles	$	13,240		$	13,319

Tangible Assets	$	1,746,143		$	1,661,147

Tangible Common Equity to Tangible Assets	9.79		%	9.95		%

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 on a daily basis. Liquid assets include cash, interest-bearing balances, Federal funds sold, securities available for sale, loans held for sale and loans maturing within one year. Additional liquidity sources available to the Company include its capacity to borrow funds through correspondent bank lines of credit, a line of credit with the FHLB of Atlanta, the purchase of wholesale and brokered deposits and a corporate line of credit at a correspondent bank. Management considers the Company’s overall liquidity to be sufficient to satisfy its depositors requirements and to meet its customers’ credit needs.

Cash and cash equivalents and securities available for sale comprised 18.5% of total assets as of March 31, 2016, compared to 16.9% as of December 31, 2015. Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary. The Bank maintains $108.5 million in unsecured lines of credit with a variety of correspondent banks. As of March 31, 2016, there were no outstanding balances on these lines of credit. The Bank also maintains a secured line of credit with the FHLB of Atlanta up to 25 percent of total assets or $439.8 million as of March 31, 2016 based on available collateral. As of March 31, 2016, the Bank’s borrowing capacity was $418.4 million of which $109.8 million was outstanding.

Community banks may also acquire funding from brokers through a nationally recognized network of financial institutions. The Bank may utilize such funding when rates are more favorable than other comparable sources of funding. As of March 31, 2016, the Bank had no brokered funds.

As of March 31, 2016, loans held for investment that mature within one year totaled $328.4 million or 18.7% of total assets.

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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 March 31, 2016, commercial real estate loans were 49.8% of the total loan portfolio, construction and development loans were 19.3% of the total loan portfolio and residential real estate loans were 18.3% of the total loan portfolio.

The banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory 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 March 31, 2016, the Bank’s total reported loans for construction, land development, and other land acquisitions represented 131.4% of total bank risk based capital, and its total commercial real estate loans represented 470.8% of total bank risk based capital.

For more information regarding risks, see Part II, Item 1A. Risk Factors - “Risks Associated With WashingtonFirst’s Business”, “WashingtonFirst’s profitability depends significantly on local economic conditions” and Part II, Item 1A. Risk Factors - “Risks Associated With WashingtonFirst’s Business”, “WashingtonFirst’s loan portfolios have significant real estate concentration” both located in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 15, 2016.

Off-Balance Sheet Arrangements

The Company enters into certain off-balance sheet arrangements in the normal course of business to meet the financing needs of customers. These 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 arrangements, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is defined as the sensitivity of net 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 Company’s primary market risk exposure is interest rate risk inherent in our lending, deposit taking and borrowing activities, since net interest income is the largest component on net income. The board of directors has delegated interest rate risk management to the 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 NII sensitivity and 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.

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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 March 31, 2016.

The interest rate risk model results for March 31, 2016 and December 31, 2015 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	March 31, 2016				December 31, 2015
Rate Shocks	NII		EVE		NII		EVE
+400 bp	6.0	%	3.9	%	2.8	%	0.2	%
+300 bp	7.9	%	6.7	%	5.8	%	2.7	%
+200 bp	6.7	%	7.2	%	5.3	%	4.4	%
+100 bp	3.7	%	4.8	%	3.1	%	3.6	%
-100 bp	2.3	%	(4.0	)%	3.7	%	(1.9	)%
-200 bp	1.7	%	(6.0	)%	3.2	%	(7.0	)%

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.

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.

Item 4. Controls and Procedures


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

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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 March 31, 2016. 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 March 31, 2016.


(b)	Changes in Internal Control Over Financial Reporting

There were no changes in WashingtonFirst’s internal control over financial reporting during the three months ended March 31, 2016 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, 2015 filed with the SEC on March 15, 2016.

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, Financial Statement Schedules

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


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


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


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



Exhibit		Description

31.1*		Certification of Registrants’ principal executive officer relating to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, 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 March 31, 2016, 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 March 31, 2016 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	May 10, 2016
By:	Shaza L. Andersen	Date
	President & Chief Executive Officer
	(Principal Executive Officer)

	/s/ Matthew R. Johnson	May 10, 2016
By:	Matthew R. Johnson	Date
	Executive Vice President & Chief Financial Officer
	(Principal Financial and Accounting Officer)

EXHIBIT INDEX



Exhibit		Description

31.1*		Certification of Registrants’ principal executive officer relating to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, 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 March 31, 2016, 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 March 31, 2016 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.

WashingtonFirst Bankshares, Inc. - FORM 10-Q - May 10, 2016

Attached files

WashingtonFirst Bankshares, Inc. Reports