10-Q

ed 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the Quarterly Period Ended June 30, 2016

or

¨ 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 No. 333-183118

FIRST PRIORITY FINANCIAL CORP.

Pennsylvania	20-8420347
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)
2 West Liberty Boulevard, Suite 104 Malvern, Pennsylvania	19355
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (877) 533-4420

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 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and 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 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, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark if the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of Each Class	Number of Shares Outstanding as of August 9, 2016
Common Stock, $1.00 Par Value	6,530,244 Outstanding Shares

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	54
PART II—OTHER INFORMATION		55
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	56

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, and as such, statements containing the words “believes,” “expects,” “anticipates,” “estimates,” “plans,” “projects,” “predicts,” “intends,” “seeks,” “will,” “may,” “should,” “would,” “continues,” “hope” and similar expressions, or the negative of these terms, constitute forward-looking statements that involve risks and uncertainties. Such statements are based on current expectations and are subject to risks, uncertainties and changes in condition, significance, value, and effect. Such risks, uncertainties and changes in condition, significance, value and effect could cause First Priority Financial Corp.’s actual results to differ materially from those anticipated.

Although the Company believes its plans, intentions, and expectations as reflected in or suggested by these forward-looking statements are reasonable, it can give no assurance that its plans, intentions, or expectations will be achieved. Accordingly, you should not place undue reliance on them. Listed below, and discussed elsewhere, are some important risks, uncertainties, and contingencies that could cause actual results, performances, or achievements to be materially different from the forward-looking statements made in this document. These factors, risks, uncertainties, and contingencies include, but are not limited to, the following:

· the strength of the United States economy in general and the strength of the regional and local economies in which First Priority conducts operations;

· the effects of changing economic conditions in First Priority’s market areas and nationally;

· the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;

· changes in federal and state banking, insurance, and investment laws and regulations which could impact First Priority’s operations;

· inflation, interest rate, market, and monetary fluctuations;

· First Priority’s timely development of competitive new products and services in a changing environment and the acceptance of such products and services by customers;

· the impact of changes in financial services policies, laws, and regulations, including laws, regulations, policies, and practices concerning taxes, banking, capital, liquidity, proper accounting treatment, securities, and insurance, and the application thereof by regulatory bodies and the impact of changes in and interpretations of generally accepted accounting principles;

· the occurrence of adverse changes in the securities markets;

· the effects of changes in technology or in consumer spending and savings habits;

· terrorist attacks in the United States or upon United States interests abroad, or armed conflicts involving the United States military;

· security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer;

· regulatory or judicial proceedings;

· changes in asset quality;

· First Priority’s success in managing the risks involved in the foregoing.

The effects of these factors are difficult to predict. New factors emerge from time to time, and we are not able to assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements speak only as of the date of this document.

Because these forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this quarterly report or the date of any document incorporated by reference in this quarterly report.

1

PART I

Item 1.  Financial Statements.

First Priority Financial Corp.

Consolidated Balance Sheets

(Unaudited, in thousands, except share and per share data)

	June 30, 2016			December 31, 2015
Assets
Cash and due from banks	$	4,183		$	3,533
Interest-bearing deposits in banks		16,798			2,376
Total cash and cash equivalents		20,981			5,909
Securities available for sale, at fair value (amortized cost: $32,855 and $94,389,    respectively)		33,770			94,704
Securities held to maturity, at amortized cost (fair value: $21,003 and $20,446,    respectively)		19,325			19,886
Loans receivable		418,069			409,153
Less: allowance for loan losses		2,807			2,795
Net loans		415,262			406,358
Restricted investments in bank stocks		2,074			3,368
Premises and equipment, net		1,879			2,033
Bank owned life insurance		3,217			3,178
Accrued interest receivable		1,542			1,623
Other real estate owned		1,733			1,633
Deferred taxes		2,928			3,543
Goodwill		2,725			2,725
Intangible assets with finite lives, net		272			310
Other assets		1,208			1,270
Total Assets	$	506,916		$	546,540
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Non-interest bearing	$	51,971		$	46,343
Interest-bearing		358,664			362,344
Total deposits		410,635			408,687
Federal Home Loan Bank of Pittsburgh advances		37,900			74,725
Subordinated debt		9,196			9,201
Accrued interest payable		447			450
Other liabilities		1,237			1,386
Total Liabilities		459,415			494,449
Commitments and contingencies (Note 9)		—			—
Shareholders’ Equity:
Preferred stock, $100 par value; authorized 10,000,000 shares:
Series A: 9%; 4,579 shares issued and outstanding; liquidation value: $4,579 as of December 31, 2015		—			4,579
Series B: 9%; 229 shares issued and outstanding; liquidation value: $229 as of December 31, 2015		—			229
Series C: 9%; 3,404 and 4,596 shares issued and outstanding; liquidation value: $3,404 and $4,596, respectively		3,404			4,596
Common stock, $1 par value; authorized 20,000,000 shares as of June 30, 2016 and
10,000,000 shares as of December 31, 2015;
issued and outstanding: 2016: 6,519,744; 2015: 6,492,194		6,520			6,492
Surplus		40,492			40,327
Accumulated deficit		(3,535	)		(4,368	)
Accumulated other comprehensive income		620			236
Total Shareholders’ Equity		47,501			52,091
Total Liabilities and Shareholders’ Equity	$	506,916		$	546,540

See notes to unaudited consolidated financial statements.

2

First Priority Financial Corp.

Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)

	For the three months ended June 30,				For the six months ended June 30,
	2016		2015		2016		2015
Interest and Dividend Income
Loans receivable, including fees	$	4,718	$	4,302	$	9,278	$	8,489
Securities—taxable		293		372		594		720
Securities—exempt from federal taxes		115		63		262		88
Interest bearing deposits and other		28		24		56		118
Total Interest and Dividend Income		5,154		4,761		10,190		9,415
Interest Expense
Deposits		860		718		1,708		1,444
Short-term borrowings		19		33		44		49
Long-term debt		42		25		83		49
Subordinated debt		172		—		344		—
Total Interest Expense		1,093		776		2,179		1,542
Net Interest Income		4,061		3,985		8,011		7,873
Provision for Loan Losses		90		130		200		250
Net Interest Income after Provision for Loan Losses		3,971		3,855		7,811		7,623
Non-Interest Income
Wealth management fee income		109		174		178		264
Gains on sales of investment securities		104		—		339		—
Bank owned life insurance income		19		21		39		42
Other		94		91		179		186
Total Non-Interest Income		326		286		735		492
Non-Interest Expenses
Salaries and employee benefits		2,033		1,912		4,014		3,764
Occupancy and equipment		468		514		1,011		1,059
Data processing equipment and operations		220		218		437		438
Professional fees		171		163		307		344
Marketing, advertising, and business development		54		52		98		82
FDIC insurance assessments		75		87		132		176
Pennsylvania bank shares tax expense		86		94		169		187
Other real estate owned		107		88		192		147
Other		271		298		602		581
Total Non-Interest Expenses		3,485		3,426		6,962		6,778
Income before Income Tax Expense		812		715		1,584		1,337
Income Tax Expense		256		236		497		441
Net Income	$	556	$	479	$	1,087	$	896
Preferred dividends		77		211		254		377
Income to Common Shareholders	$	479	$	268	$	833	$	519
Income per common share:
Basic	$	0.07	$	0.04	$	0.13	$	0.08
Diluted	$	0.07	$	0.04	$	0.13	$	0.08
Weighted average common shares outstanding:
Basic		6,503		6,446		6,499		6,446
Diluted		6,568		6,506		6,549		6,500

See notes to unaudited consolidated financial statements.

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First Priority Financial Corp.

Consolidated Statements of Comprehensive Income

(Unaudited, in thousands)

	For the three months ended June 30,						For the six months ended June 30,
	2016			2015			2016			2015
Net income	$	556		$	479		$	1,087		$	896
Other comprehensive income:
Securities available for sale:
Change in unrealized gain (loss) on securities available for sale		404			(484	)		939			(90	)
Reclassification adjustment for realized gains included in net income		(104	)		-			(339	)		-
Tax effect		(102	)		164			(204	)		30
Net unrealized gain (loss) arising during the period		198			(320	)		396			(60	)
Net unrealized holding losses on securities transferred    between available for sale and held to maturity:
Amortization of net unrealized holding losses to    income during the period		(4	)		(7	)		(19	)		(20	)
Tax effect		2			3			7			7
Net unrealized holding losses on securities    transferred during the period		(2	)		(4	)		(12	)		(13	)
Total other comprehensive income (loss)		196			(324	)		384			(73	)
Total comprehensive income	$	752		$	155		$	1,471		$	823

See notes to unaudited consolidated financial statements.

4

First Priority Financial Corp.

Consolidated Statements of Shareholders’ Equity

For the Six Months Ended June 30, 2016 and 2015

(Unaudited, dollars in thousands)

	Preferred Stock			Common Stock			Surplus			Accumulated Deficit			Accumulated Other Comprehensive Income (loss)			Total
Balance – December 31, 2014	$	9,404		$	6,447		$	40,045		$	(5,679	)	$	(6	)	$	50,211
Preferred stock dividends		—			—			—			(377	)		—			(377	)
Issuance of 11,000 shares of restricted common stock		—			11			(11	)		—			—			—
Forfeiture of 5,350 shares of restricted common stock		—			(5	)		5			—			—			—
Net Income		—			—			—			896			—			896
Other comprehensive loss		—			—			—			—			(73	)		(73	)
Stock based compensation expense		—			—			134			—			—			134
Balance—June 30, 2015	$	9,404		$	6,453		$	40,173		$	(5,160	)	$	(79	)	$	50,791
Balance – December 31, 2015	$	9,404		$	6,492		$	40,327		$	(4,368	)	$	236		$	52,091
Preferred stock dividends		—			—			—			(254	)		—			(254	)
Redemption of preferred stock		(6,000	)		—			—			—			—			(6,000	)
Issuance of 25,550 shares of restricted common stock, net of forfeitures		—			26			(26	)		—			—			—
Exercise of 2,000 shares of common stock options		—			2			10			—			—			12
Net income		—			—			—			1,087			—			1,087
Other comprehensive income		—			—			—			—			384			384
Stock based compensation expense		—			—			181			—			—			181
Balance—June 30, 2016	$	3,404		$	6,520		$	40,492		$	(3,535	)	$	620		$	47,501

See notes to unaudited consolidated financial statements.

5

First Priority Financial Corp.

Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)

	For the six months ended June 30,
	2016			2015
Cash Flows from Operating Activities
Net income	$	1,087		$	896
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		200			250
Write down of other real estate owned		43			137
Depreciation and amortization of premises and equipment		165			215
Net amortization		90			9
Stock based compensation expense		181			134
Net amortization of investment securities premiums and discounts		93			101
Net gain on sale of investment securities		(339	)		—
Net gain on sale of other real estate owned		(2	)		(87	)
Net loss on disposal of premises and equipment		25			5
Bank owned life insurance policy income		(39	)		(42	)
Originations of loans held for sale		—			(1,196	)
Proceeds from sale of loans held for sale		—			1,196
Deferred income tax expense		418			383
Decrease (increase) in accrued interest receivable		81			(90	)
Decrease (increase) in other assets		61			(8	)
Decrease in accrued interest payable		(3	)		(9	)
(Decrease) increase in other liabilities		(131	)		76
Net Cash Provided by Operating Activities		1,930			1,970
Cash Flows from Investing Activities
Net repayments (originations) in loans		3,188			(16,383	)
Purchase of loans		(12,730	)		—
Purchases of securities available for sale		(1,456	)		(19,839	)
Redemption (purchase) of restricted stock		1,294			(363	)
Proceeds from maturities or calls of securities available for sale		56,660			33,647
Proceeds from maturities or calls of securities held to maturity		505			215
Proceeds from the sale of securities available for sale		6,609			—
Proceeds from the sale of other real estate owned		200			313
Purchases of premises and equipment		(36	)		(81	)
Proceeds from the sale of premises and equipment		—			4
Net Cash Provided by (Used in) Investing Activities		54,234			(2,487	)
Cash Flows from Financing Activities
Net increase (decrease) in deposits		2,009			(633	)
Net (decrease) increase in short-term borrowings		(36,825	)		11,737
Redemption of preferred stock		(6,000	)		—
Payments regarding subordinance debt issuance costs		(16	)		—
Proceeds from the exercise of common stock options		12			—
Cash dividends paid on preferred stock		(272	)		(370	)
Net Cash (Used in) Provided by Financing Activities		(41,092	)		10,734
Net Increase in Cash and Cash Equivalents		15,072			10,217
Cash and Cash Equivalents—Beginning		5,909			7,866
Cash and Cash Equivalents—Ending	$	20,981		$	18,083
Supplementary Disclosures of Cash Flows Information
Noncash activity:
Transfer of loans receivable to other real estate owned	$	341		$	232
Cash paid for interest on deposits and borrowings	$	2,243		$	1,662
Cash paid for income taxes	$	43		$	20

See notes to unaudited consolidated financial statements.

6

First Priority Financial Corp.

Notes to Unaudited Consolidated Financial Statements

Note 1—Summary of Significant Accounting Policies

Organization and Nature of Operations

First Priority Financial Corp.

First Priority Financial Corp. (“First Priority,” the “Company”) is a bank holding company incorporated under the laws of the Commonwealth of Pennsylvania on February 13, 2007. On May 11, 2007, as a result of a reorganization and merger, First Priority Bank (the “Bank”) became a wholly-owned subsidiary of First Priority.  First Priority, primarily through the Bank, serves residents and businesses in the Delaware Valley with branches in Berks, Bucks, Chester and Montgomery counties in Pennsylvania.  The Bank, which has 7 retail branch office locations, is a locally managed community bank providing commercial banking products, primarily loans and deposits, headquartered in Malvern, PA.

First Priority provides banking services through the Bank and does not engage in any activities other than banking and related activities. As of June 30, 2016, First Priority had total assets of $506.9 million and total shareholders’ equity of $47.5 million.

First Priority Bank

The Bank is a state-chartered commercial banking institution which was incorporated under the laws of the Commonwealth of Pennsylvania on May 25, 2005. First Priority Bank’s deposits are insured by the FDIC up to the maximum amount permitted for all banks.  

The Bank engages in a full service commercial and consumer banking business with strong private banking and individual wealth management services. The Bank offers a variety of consumer, private banking and commercial loans, mortgage products and commercial real estate financing. The Company’s operations are significantly affected by prevailing economic conditions, competition, and the monetary, fiscal, and regulatory policies of governmental agencies. Lending activities are influenced by a number of factors, including the general credit needs of individuals and small and medium-sized businesses in the Company’s market area, competition, the current regulatory environment, the level of interest rates, and the availability of funds. Deposit flows and costs of funds are influenced by prevailing market rates of interest, competition, account maturities, and the level of personal income and savings in the market area.

The Bank also offers certain financial planning and investment management services. These investment services are provided by First Priority Financial Services, a Division of First Priority Bank, through an agreement with a third party provider. In addition, various life insurance products are offered through the Bank, and the Bank has also entered into solicitation agreements with several investment advisors to provide portfolio management services to customers of the Bank.

The Bank currently seeks deposits and commercial and private banking relationships through its seven banking offices. The Bank provides deposit products that include checking, money market and savings accounts, and certificates of deposit as well as other deposit services, including cash management electronic banking and mobile products as well as online account opening capabilities. The Bank obtains funding in the local community by providing excellent service and competitive rates to its customers and utilizes various advertising to attract current and potential deposit customers. The Bank also uses brokered certificates of deposit as a cost effective funding alternative.

Basis of Presentation

The accompanying unaudited consolidated financial statements consist of the Company and the Company’s wholly owned consolidated subsidiary, the Bank.  All significant intercompany accounts and transactions have been eliminated in consolidation.

These statements are prepared in accordance with instructions to Form 10-Q, and therefore, do not include information or all footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of these financial statements have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for First Priority Financial Corp. for the year ended December 31, 2015, included in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 25, 2016. The results of interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.  

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Subsequent Events

Management has evaluated events and transactions occurring subsequent to June 30, 2016 for items that should potentially be recognized or disclosed in these Consolidated Financial Statements. The evaluation was conducted through the date these financial statements were issued.

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, stock-based compensation, impairment of goodwill, impairment of investments, the valuation of deferred tax assets and the valuation of other real estate owned.

Acquired Loans

Acquired loans are initially recorded at their acquisition date fair values. The carryover of allowance for loan losses is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at the acquisition date. Fair values for acquired loans are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.

Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments are accounted for as impaired loans under ASC 310-30. The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable discount. The non-accretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows require the Company to evaluate the need for an allowance for loan losses on these loans. Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the non-accretable discount which the Company then reclassifies as an accretable discount that is recognized into interest income over the remaining life of the loans using the interest method.  As of June 30, 2016 there were three remaining acquired purchased credit impaired loans with a net recorded balance of $238 thousand, after a non-accretable credit discount of $362 thousand.

Acquired loans that met the criteria for non-accrual of interest prior to acquisition may be considered performing upon acquisition, or in the future, regardless of whether the customer is contractually delinquent, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans. As such, the Company may no longer consider the loan to be non-accrual or non-performing and may accrue interest on these loans, including the impact of any accretable discount. For acquired loans that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value and amortized over the life of the asset. Subsequent to the acquisition date, the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans, however, the Company records a provision for loan losses only when the required allowance exceeds any remaining pooled discounts for loans evaluated collectively for impairment. As of June 30, 2016, the net recorded balance of acquired loans resulting from the Affinity merger totaled $18.0 million, including a remaining interest rate fair value adjustment of $72 thousand offset by a remaining accretable credit discount of $62 thousand, both of which are being recognized into interest income over the remaining life of the loans.  Additionally, the Company purchased portfolios of performing residential real estate loans during 2014 through 2016, all of which and were underwritten using similar underwriting standards as it uses for its organic portfolio.  These combined portfolios totaled $33.0 million as of June 30, 2016 with remaining acquisition premiums of $648 thousand which will be recognized into interest income over the remaining life of the loans

Allowance for Loan Losses

The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments, totaling $35 thousand as of both June 30, 2016 and December 31, 2015, represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheets. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all

8

identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors.  This evaluation is inherently subjective as it requires material estimates that may be 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 impaired. 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. The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include:

1. Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

2. National, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans.

3. Nature and volume of the portfolio and terms of loans.

4. Management team with experience, depth, and knowledge in banking and in many areas of lending. Each contributes to the sound credit culture and control within the Company.

5. Volume and severity of past due, classified and nonaccrual loans as well as other loan modifications.

6. The Company engages a third party to perform an independent review of the loan portfolio as a measure for quality and consistency in credit evaluation and credit decisions.

7. Existence and effect of any concentrations of credit and changes in the level of such concentrations.

8. Effect of external factors, such as competition and legal and regulatory requirements.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

A majority of the Company’s loans are to business owners of many types. The Company makes commercial loans for real estate development and other business purposes required by our customers.

The Company’s credit policies determine advance rates against the different forms of collateral that can be pledged against commercial loans. Typically, the majority of loans will be limited to a percentage of their underlying collateral values such as real estate values, equipment, eligible accounts receivable and inventory. Individual loan advance rates may be higher or lower depending upon the financial strength of the borrower and/or term of the loan. The assets financed through commercial loans are used within the business for its ongoing operation. Repayment of these kinds of loans generally comes from the cash flow of the business or the ongoing conversions of assets. Commercial real estate loans include long-term loans financing commercial properties. Repayment of this kind of loan is dependent upon either the ongoing cash flow of the borrowing entity or the resale of or lease of the subject property. Commercial real estate loans typically require a loan to value ratio of not greater than 80% and vary in terms.

Residential mortgages and home equity loans are secured by the borrower’s residential real estate in either a first or second lien position. Residential mortgages and home equity loans have varying loan rates depending on the financial condition of the borrower and the loan to value ratio. Residential mortgages have amortizations up to 30 years and home equity loans have maturities of no more than 15 years.  Residential mortgages and home equity loans typically require a loan to value ratio of not greater than 80%.  

Other consumer loans include installment loans, car loans, and overdraft lines of credit. The majority of these loans are secured.

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.

9

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 or the fair value of the collateral if the loan is collateral dependent.  An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral.

For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values may be discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable aging or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans criticized special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.

In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

Comprehensive Income

Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as a separate component of the shareholders’ equity section of the balance sheet, such items, along with net income, are components of total comprehensive income.  

10

Total reclassifications from accumulated other comprehensive income for the periods presented are as follows:

Details about Accumulated Other Comprehensive Income Components	Amounts Reclassified from Accumulated Other Comprehensive Income												Affected Line Item in the Statement where Net Income is Presented
	For the three months ended June 30,						For the six months ended June 30,
	2016			2015			2016			2015
	(Dollars in thousands)						(Dollars in thousands)
Sale of investment securities available for sale	$	(104	)	$	—		$	(339	)	$	—		Gains on sale of investment securities
Amortization of unrealized holding gain (losses) on securities transferred from available for sale to held to maturity		(4	)		(7	)		(19	)		(20	)	Interest Income on taxable securities
Tax effect		37			3			122			7		Income Tax Expense
Total reclassification	$	(71	)	$	(4	)	$	(236	)	$	(13	)

Accumulated other comprehensive income as of June 30, 2016 and December 31, 2015 consisted of the following:

	June 30,		December 31,
	2016		2015
	(Dollars in thousands)
Net unrealized gain on available for sale securities	$	604	$	208
Net unrealized holding gains on securities transferred from available for sale to held to maturity		16		28
Total	$	620	$	236

Note 2—Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, deferred by ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The amendments are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. Management does not believe the adoption of ASU 2014-09 will have a significant impact on the Company’s Consolidated Financial Statements but will continue to evaluate.

In January 2016, the FASB issued Accounting Standards Update 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 changes current U.S. GAAP for public entities by requiring the following, among others: (1) equity securities, except those accounted for under the equity method of accounting, to be measured at fair value with changes in fair value recognized in net income; (2) the use of the exit price when measuring fair value of financial instruments for disclosure purposes; (3) an entity to present separately in other comprehensive income the portion of the total change in the 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; and (4) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or notes to the financial statements. ASU 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods. Early application is permitted. The Company is currently assessing the impact the adoption of ASU 2016-01 will have on future financial statements and disclosures.

In February 2016, the FASB issued Accounting Standards Update ("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 lessee. 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

11

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 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 March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods therein.  The Company is evaluating the impact of this ASU on its consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326).” The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.  The amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods therein.  Early adoption is permitted.  The Company is evaluating the impact of this ASU on its consolidated financial statements and disclosures.

Note 3—Earnings Per Common Share

Diluted earnings per common share take into account the potential dilution that could occur if securities or other contracts to issue common stock are exercised and converted into common stock. Proceeds assumed to have been received on such exercise or conversion, are assumed to be used to purchase shares of the Company’s common stock at the average market price during the period, as required by the “treasury stock method” of accounting for common stock equivalents. For purposes of calculating the basic and diluted earnings per share, the Company’s reported net income is adjusted for dividends on preferred stock to determine the net income to common shareholders.  Securities that could potentially dilute basic earnings per common share in future periods that were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive amounted to 176,357 shares as of June 30, 2016 and 262,667 shares as of June 30, 2015.

The calculations of basic and diluted earnings per common share are presented below for the three and six months ended June 30, 2016 and 2015:

	For the three months ended June 30,						For the six months ended June 30,
	(In thousands, except per share information)
	2016			2015			2016			2015
Net income	$	556		$	479		$	1,087		$	896
Less: preferred stock dividends		(77	)		(211	)		(254	)		(377	)
Income to common shareholders	$	479		$	268		$	833		$	519
Average basic common shares outstanding		6,503			6,446			6,499			6,446
Effect of dilutive stock options		65			60			50			54
Average number of common shares used to calculate    diluted earnings per common share		6,568			6,506			6,549			6,500
Basic earnings per common share	$	0.07		$	0.04		$	0.13		$	0.08
Diluted earnings per common share	$	0.07		$	0.04		$	0.13		$	0.08

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The amount of preferred stock dividends related to each series of preferred stock are presented below for the three and six months ended June 30, 2016 and 2015:

	For the three months ended June 30,				For the six months ended June 30,
	2016		2015		2016		2015
	(Dollars in thousands)				(Dollars in thousands)
Preferred dividends:
Preferred Series A	$	—	$	103	$	77	$	206
Preferred Series B		—		5		4		10
Preferred Series C		77		103		173		161
Total preferred dividends	$	77	$	211	$	254	$	377

Note 4—Securities

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Available for sale securities are carried at fair value.

Securities classified as held to maturity are those debt securities the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost adjusted for the amortization of premium and accretion of discount, computed by a method which approximates the interest method over the terms of the securities.

The Company previously transferred investment securities from available for sale to held to maturity securities.  Due to these transfers, securities classified as held to maturity have net unrealized holding gains, before taxes, totaling $24 thousand as of June 30, 2016 and $43 thousand as of December 31, 2015, which are being amortized over the remaining life of the related securities as an adjustment of yield in a manner consistent with the accretion of discount on the same transferred debt securities. This will have no impact on the Company’s net income because the amortization of the unrealized holding loss reported in equity will offset the effect on the interest income of the accretion of the discount on these securities.

The amortized cost, unrealized gains and losses, and the fair value of the Company’s investment securities available for sale and held to maturity are as follows for the periods presented:

	June 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Available For Sale:
Obligations of U.S. government agencies and corporations	$	7,974	$	57	$	—		$	8,031
Obligations of states and political subdivisions		7,645		483		(1	)		8,127
Federal agency mortgage-backed securities		15,441		360		(8	)		15,793
Federal agency collateralized mortgage obligations		270		1		—			271
Other debt securities		1,500		23		—			1,523
Money market mutual fund		25		—		—			25
Total investment securities available for sale	$	32,855	$	924	$	(9	)	$	33,770
Held To Maturity:
Obligations of states and political subdivisions	$	18,844	$	1,632	$	—		$	20,476
Other debt securities		481		46		—			527
Total investment securities held to maturity	$	19,325	$	1,678	$	—		$	21,003

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	December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Available For Sale:
Obligations of U.S. government agencies and corporations	$	62,967	$	-	$	(63	)	$	62,904
Obligations of states and political subdivisions		13,964		398		(15	)		14,347
Federal agency mortgage-backed securities		17,042		87		(91	)		17,038
Federal agency collateralized mortgage obligations		347		-		(1	)		346
Money market mutual fund		69		-		-			69
Total investment securities available for sale	$	94,389	$	485	$	(170	)	$	94,704
Held To Maturity:
Obligations of states and political subdivisions	$	19,405	$	597	$	(47	)	$	19,955
Other debt securities		481		10		-			491
Total investment securities held to maturity	$	19,886	$	607	$	(47	)	$	20,446

Included in unrealized losses are market losses on securities that have been in a continuous unrealized loss position for twelve months or more and those securities that have been in a continuous unrealized loss position for less than twelve months. The table below details the aggregate unrealized losses and aggregate fair value of the underlying securities whose fair values are below their amortized cost at June 30, 2016 and December 31, 2015.

	As of June 30, 2016
	Less than 12 Months							12 Months or longer							Total
	Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses			Count
	(Dollars in thousands)
Available for Sale:
Obligations of states and political subdivisions	$	894	$	(1	)		1	$	-	$	-			—	$	894	$	(1	)		1
Federal agency mortgage-backed securities		1,365		(7	)		2		39		(1	)		1		1,404		(8	)		3
Total Available for Sale	$	2,259	$	(8	)		3	$	39	$	(1	)		1	$	2,298	$	(9	)		4

	As of December 31, 2015
	Less than 12 Months							12 Months or longer							Total
	Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses			Count
	(Dollars in thousands)
Available for Sale:
Obligations of U.S. government agencies and corporations	$	12,905	$	(63	)		11	$	—	$	—			—	$	12,905	$	(63	)		11
Obligations of states and political subdivisions		2,780		(15	)		7		—		—			—		2,780		(15	)		7
Federal agency mortgage-backed securities		4,276		(46	)		3		2,304		(45	)		2		6,580		(91	)		5
Federal agency collateralized mortgage obligations		220		(1	)		1		—		—			—		220		(1	)		1
Total Available for Sale	$	20,181	$	(125	)		22	$	2,304	$	(45	)		2	$	22,485	$	(170	)		24
Held to Maturity:
Obligations of states and political subdivisions	$	2,373	$	(47	)		5	$	-	$	-			-	$	2,373	$	(47	)		5
Total Held to Maturity	$	2,373	$	(47	)		5	$	-	$	-			-	$	2,373	$	(47	)		5

14

As of June 30, 2016, management believes that the estimated fair value of the securities disclosed above is primarily dependent upon the movement in market interest rates, particularly given the minimal inherent credit risk associated with the issuers of these securities and that the unrealized losses in these portfolios are not the result of deteriorating credit within any investment category.

Securities issued by states and political subdivisions are all rated investment grade. Each holding is reviewed quarterly for impairment by management and our third party investment advisor. All mortgage backed securities and collateralized mortgage obligations are issued by U.S. government sponsored agencies; there are no holdings of private label mortgage backed securities or securities backed by loans classified as “Alt-A” or “Subprime”.

Although the fair value will fluctuate as market interest rates move, management believes that these fair values will recover as the underlying portfolios mature. The Company evaluates a variety of factors in concluding whether securities are other-than-temporarily impaired. These factors include, but are not limited to, the type and purpose of the bond, the underlying rating of the bond issuer, and the presence of credit enhancements (i.e. state guarantees, municipal bond insurance, collateral requirements, etc.). The Company does not intend to sell any of these securities and it is unlikely that it will be required to sell any of these securities before recovery. Management does not believe any individual unrealized loss on individual securities, as of June 30, 2016, represents other than temporary impairment.

For the three and six months ended June 30, 2016 there were realized gains of $104 thousand and $339 thousand.  There were no realized gains or losses for the three and six months ended June 30, 2015.

Securities with an estimated fair value of $51.0 million and $55.2 million were pledged at June 30, 2016 and December 31, 2015, respectively, to secure public fund deposits. In addition, securities pledged to secure borrowings by the Bank totaled $59 thousand and $60 thousand as of June 30, 2016 and December 31, 2015, respectively.

The amortized cost and fair value of securities as of June 30, 2016 by contractual maturity are shown below. Certain of these investment securities have call features which allow the issuer to call the security prior to its maturity date at the issuer’s discretion.

	June 30, 2016				June 30, 2016
	Available for Sale Securities				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Due within one year	$	250	$	250	$	—	$	—
Due after one year through five years		10,396		10,490		802		813
Due after five years through ten years		401		403		1,295		1,369
Due after ten years		6,072		6,538		17,228		18,821
		17,119		17,681		19,325		21,003
Federal agency collateralized mortgage obligations		270		271		—		—
Federal agency mortgage-backed securities		15,441		15,793		—		—
Money market mutual fund		25		25		—		—
Total	$	32,855	$	33,770	$	19,325	$	21,003

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Note 5—Loans Receivable and Related Allowance for Loan Losses

Loans receivable consist of the following at June 30, 2016 and December 31, 2015.

	June 30,			December 31,
	2016			2015
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	70,741		$	74,470
Commercial mortgage		180,029			179,365
Commercial construction		15,058			13,466
Total commercial		265,828			267,301
Residential mortgage loans		109,893			101,185
Consumer:
Home equity lines of credit		25,527			24,762
Other consumer loans		16,599			15,915
Total consumer		42,126			40,677
Total loans		417,847			409,163
Allowance for loan losses		(2,807	)		(2,795	)
Net deferred loan cost (fees)		222			(10	)
Total loans receivable, net	$	415,262		$	406,358

The following tables summarize the activity in the allowance for loan losses by loan class for the three and six months ended June 30, 2016 and 2015:

	For the three months ended												For the six months ended
	June 30, 2016												June 30, 2016
	Allowance for Loan Losses												Allowance for Loan Losses
	(Dollars in thousands)												(Dollars in thousands)
	Beginning Balance		Charge-offs			Recoveries		Provision for loan losses			Ending Balance		Beginning Balance		Charge-offs			Recoveries		Provision for loan losses			Ending Balance
Commercial and industrial	$	672	$	(75	)	$	2	$	(32	)	$	567	$	631	$	(75	)	$	19	$	(8	)	$	567
Commercial mortgage		819		—			—		9			828		831		(72	)		—		69			828
Commercial construction		67		—			—		(10	)		57		56		—			—		1			57
Residential mortgage loans		248		—			—		28			276		259		—			—		17			276
Home equity lines of credit		154		—			3		(5	)		152		167		—			8		(23	)		152
Other consumer loans		59		—			4		(16	)		47		84		(75	)		7		31			47
Unallocated		764		—			—		116			880		767		—			—		113			880
Total loans	$	2,783	$	(75	)	$	9	$	90		$	2,807	$	2,795	$	(222	)	$	34	$	200		$	2,807

16

	For the three months ended												For the six months ended
	June 30, 2015												June 30, 2015
	Allowance for Loan Losses												Allowance for Loan Losses
	(Dollars in thousands)												(Dollars in thousands)
	Beginning Balance		Charge-offs			Recoveries		Provision for loan losses			Ending Balance		Beginning Balance		Charge-offs			Recoveries		Provision for loan losses			Ending Balance
Commercial and industrial	$	745	$	—		$	2	$	17		$	764	$	788	$	(16	)	$	7	$	(15	)	$	764
Commercial mortgage		507		(31	)		—		149			625		468		(42	)		—		199			625
Commercial construction		34		—			—		6			40		26		—			—		14			40
Residential  mortgage loans		163		-			—		12			175		159		(14	)		—		30			175
Home equity lines of credit		221		-			84		(75	)		230		270		(12	)		88		(116	)		230
Other consumer  loans		66		-			4		(3	)		67		87		(16	)		8		(12	)		67
Unallocated		641		—			—		24			665		515		—			—		150			665
Total loans	$	2,377	$	(31	)	$	90	$	130		$	2,566	$	2,313	$	(100	)	$	103	$	250		$	2,566

The following tables present the balance in the allowance for loan losses at June 30, 2016 and December 31, 2015 disaggregated on the basis of the Company’s impairment method by class of loans receivable along with the balance of loans receivable by class disaggregated on the basis of the Company’s impairment methodology:

	June 30, 2016
	Allowance for Loan Losses						Loans Receivable
	(Dollars in thousands)
	Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment		Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
Commercial and industrial	$	567	$	100	$	467	$	70,741	$	1,655	$	69,086
Commercial mortgage		828		225		603		180,029		1,890		178,139
Commercial construction		57		—		57		15,058		—		15,058
Residential mortgage loans		276		47		229		109,893		667		109,226
Home equity lines of credit		152		—		152		25,527		94		25,433
Other consumer loans		47		—		47		16,599		173		16,426
Unallocated		880		—		880		—		—		—
Total loans	$	2,807	$	372	$	2,435	$	417,847	$	4,479	$	413,368

	December 31, 2015
	Allowance for Loan Losses						Loans Receivable
	(Dollars in thousands)
	Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment		Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
Commercial and industrial	$	631	$	123	$	508	$	74,470	$	1,259	$	73,211
Commercial mortgage		831		264		567		179,365		2,196		177,169
Commercial construction		56		—		56		13,466		—		13,466
Residential mortgage loans		259		46		213		101,185		669		100,516
Home equity lines of credit		167		—		167		24,762		96		24,666
Other consumer loans		84		19		65		15,915		351		15,564
Unallocated		767		—		767		—		—		—
Total loans	$	2,795	$	452	$	2,343	$	409,163	$	4,571	$	404,592

17

The following tables summarize information in regard to impaired loans by loan portfolio class as of June 30, 2016 and December 31, 2015 as well as for the three and six month periods ended June 30, 2016 and 2015, respectively:

	June 30, 2016						December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance    recorded:
Commercial and industrial	$	725	$	1,273	$	—	$	317	$	803	$	—
Commercial mortgage		1,382		1,439		—		1,463		1,530		—
Commercial construction		—		—		—		—		—		—
Residential mortgage loans		30		63		—		31		64		—
Home equity lines of credit		94		95		—		96		97		—
Other consumer loans		173		198		—		185		206		—
With an allowance recorded:
Commercial and industrial	$	930	$	994	$	100	$	942	$	995	$	123
Commercial mortgage		508		631		225		733		850		264
Commercial construction		—		—		—		—		—		—
Residential mortgage loans		637		637		47		638		638		46
Home equity lines of credit		—		—		—		—		—		—
Other consumer loans		—		—		—		166		168		19
Total:
Commercial and industrial	$	1,655	$	2,267	$	100	$	1,259	$	1,798	$	123
Commercial mortgage		1,890		2,070		225		2,196		2,380		264
Commercial construction		—		—		—		—		—		—
Residential mortgage loans		667		700		47		669		702		46
Home equity lines of credit		94		95		—		96		97		—
Other consumer loans		173		198		—		351		374		19
Total	$	4,479	$	5,330	$	372	$	4,571	$	5,351	$	452

18

	Three months ended June 30,								Six months ended June 30,
	2016				2015				2016				2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)								(Dollars in thousands)
With no related allowance    recorded:
Commercial and industrial	$	809	$	—	$	556	$	—	$	969	$	—	$	897	$	9
Commercial mortgage		1,387		15		1,900		11		1,416		29		2,736		26
Commercial construction		—		—		—		—		—		—		—		—
Residential mortgage loans		30		—		236		—		30		—		234		—
Home equity lines of credit		94		1		99		1		95		2		100		2
Other consumer loans		175		1		321		1		178		3		326		3
With an allowance recorded:
Commercial and industrial	$	399	$	12	$	984	$	5	$	668	$	14	$	930	$	5
Commercial mortgage		305		8		1,590		—		409		11		795		—
Commercial construction		—		—		-		—		—		—		-		—
Residential mortgage loans		638		6		—		—		638		12		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—
Other consumer loans		—		—		—		—		—		—		—		—
Total:
Commercial and industrial	$	1,208	$	12	$	1,540	$	5	$	1,637	$	14	$	1,827	$	14
Commercial mortgage		1,692		23		3,490		11		1,825		40		3,531		26
Commercial construction		—		—		—		—		—		—		—		—
Residential mortgage loans		668		6		236		—		668		12		234		—
Home equity lines of credit		94		1		99		1		95		2		100		2
Other consumer loans		175		1		321		1		178		3		326		3
Total	$	3,837	$	43	$	5,686	$	18	$	4,403	$	71	$	6,018	$	45

The following table presents non-accrual loans by classes of the loan portfolio as of June 30, 2016 and December 31, 2015:

	June 30, 2016		December 31, 2015
	(Dollars in thousands)
Commercial and industrial	$	746	$	1,059
Commercial mortgage		11		575
Residential mortgage loans		30		31
Home equity lines of credit		15		16
Other consumer loans		75		252
Total loans	$	877	$	1,933

The Company’s policy for interest income recognition on nonaccrual loans is to recognize income under the cash basis when the loans are both current and the collateral on the loan is sufficient to cover the outstanding obligation to the Company. The Company will not recognize income if these factors do not exist. Interest that would have been accrued on non-accruing loans under the original terms but was not recognized as interest income totaled $18 thousand and $50 thousand for the three and six months ended June 30, 2016 and $65 thousand and $125 thousand for the three and six months ended June 30, 2015, respectively.

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The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of June 30, 2016 and December 31, 2015:

	June 30, 2016
	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	68,660	$	200	$	1,881	$	—	$	70,741
Commercial mortgage		178,313		684		1,032		—		180,029
Commercial construction		15,058		—		—		—		15,058
Residential mortgage loans		109,863		—		30		—		109,893
Consumer:
Home equity lines of credit		25,512		—		15		—		25,527
Other consumer loans		16,524		—		75		—		16,599
Total	$	413,930	$	884	$	3,033	$	—	$	417,847

	December 31, 2015
	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	67,509	$	5,290	$	1,671	$	—	$	74,470
Commercial mortgage		174,339		3,478		1,548		—		179,365
Commercial construction		13,466		—		-		—		13,466
Residential mortgage loans		101,154		—		31		—		101,185
Consumer:
Home equity lines of credit		24,746		—		16		—		24,762
Other consumer loans		15,663		—		252		—		15,915
Total	$	396,877	$	8,768	$	3,518	$	—	$	409,163

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of June 30, 2016 and December 31, 2015:

	June 30, 2016
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	618	$	—	$	647	$	1,265	$	69,476	$	70,741
Commercial mortgage		49		—		11		60		179,969		180,029
Commercial construction		—		—		—		—		15,058		15,058
Residential mortgage loans		—		—		—		—		109,893		109,893
Consumer:								—
Home equity lines of credit		—		—		—		—		25,527		25,527
Other consumer loans		153		—		5		158		16,441		16,599
Total	$	820	$	—	$	663	$	1,483	$	416,364	$	417,847

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	December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	—	$	67	$	230	$	297	$	74,173	$	74,470
Commercial mortgage		51		101		195		347		179,018		179,365
Commercial construction		—		—		—		—		13,466		13,466
Residential mortgage loans		975		—		—		975		100,210		101,185
Consumer:
Home equity lines of credit		—		—		—		-		24,762		24,762
Other consumer loans		15		—		209		224		15,691		15,915
Total	$	1,041	$	168	$	634	$	1,843	$	407,320	$	409,163

As of June 30, 2016 and December 31, 2015, there were no loans 90 days past due and still accruing interest.

Troubled Debt Restructurings

The Company may grant a concession or modification for economic or legal reasons related to a borrower’s declining financial condition that it would not otherwise consider, resulting in a modified loan which is then identified as a troubled debt restructuring (“TDR”). The Company may modify loans through rate reductions, extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers’ operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Company’s allowance for loan losses.

The Company identifies loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.

The following tables summarize the balance of outstanding TDR’s at June 30, 2016 and December 31, 2015:

	Number of Loans		Performing TDR's		Non-Performing TDR's		Total TDRs
	(Dollars in thousands)
June 30, 2016
Commercial and industrial		4	$	909	$	21	$	930
Commercial mortgage		4		1,879		-		1,879
Residential mortgage loans		2		638		30		668
Home equity lines of credit		2		78		15		93
Other consumer loans		2		97		21		118
Total		14	$	3,601	$	87	$	3,688

	Number of Loans		Performing TDR's		Non-Performing TDR's		Total TDRs
	(Dollars in thousands)
December 31, 2015
Commercial and industrial		4	$	200	$	742	$	942
Commercial mortgage		6		1,622		343		1,965
Residential mortgage loans		2		638		31		669
Home equity lines of credit		2		79		17		96
Other consumer loans		2		99		22		121
Total		16	$	2,638	$	1,155	$	3,793

At June 30, 2016 and December 31, 2015, there were no commitments to lend additional funds to debtors whose terms have been modified in TDR’s.  As of June 30, 2016, there were no TDRs that were subsequently in default.  As of December 31, 2015, two commercial loans, classified as TDR’s, with a combined balance totaling $64 thousand were in default and were classified as non-

21

accrual status.  Additionally, a mortgage loan restructured during the fourth quarter of 2015 with an outstanding balance of $638 thousand was past due 30 days as of December 31, 2015. 

The following table reflects information regarding TDR’s entered into by the Company for the three and six month periods ended June 30, 2016 and 2015.

	For the three months ended
	June 30, 2016						June 30, 2015
	Number of Contracts		Pre- Modification Outstanding Recorded Investments		Post- Modification Outstanding Recorded Investments		Number of Contracts		Pre- Modification Outstanding Recorded Investments		Post- Modification Outstanding Recorded Investments
	(Dollars in thousands)						(Dollars in thousands)
Troubled debt restructurings:
Commercial and industrial		—	$	—	$	—		1	$	200	$	200
Total		—	$	—	$	—		1	$	200	$	200
	For the six months ended
	June 30, 2016						June 30, 2015
	Number of Contracts		Pre- Modification Outstanding Recorded Investments		Post- Modification Outstanding Recorded Investments		Number of Contracts		Pre- Modification Outstanding Recorded Investments		Post- Modification Outstanding Recorded Investments
	(Dollars in thousands)						(Dollars in thousands)
Troubled debt restructurings:
Commercial and industrial		—	$	—	$	—		1	$	200	$	200
Residential mortgage loans		—		—		—		1		35		35
Total		—	$	—	$	—		2	$	235	$	235

There were no new TDR’s entered into during the three and six months ended June 30, 2016.  The two TDRs entered into during the six months ended June 30, 2015 consisted of a commercial loan whereby the customer’s payment schedule was modified and a mortgage loan which included an interest rate reduction.  Neither of these restructurings included any forgiveness of debt.

The carrying amount of foreclosed residential real estate properties held was $858 thousand as of June 30, 2016.  There were no consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure as of June 30, 2016.

Note 6—Deposits

The components of deposits at June 30, 2016 and December 31, 2015 are as follows:

	June 30,		December 31,
	2016		2015
	(Dollars in thousands)
Demand, non-interest bearing	$	51,971	$	46,343
Demand, interest-bearing		50,754		38,297
Money market and savings accounts		99,279		90,696
Time, $100 and over		48,346		56,138
Time, other		160,285		177,213
	$	410,635	$	408,687

Included in time, other at June 30, 2016 and December 31, 2015 are brokered deposits of $98.3 million and $113.3 million, respectively.

As of June 30, 2016 and December 31, 2015 aggregate time deposits which exceed the $250 thousand FDIC insurance limit were $8.8 million and $10.0 million, respectively.

22

At June 30, 2016, the scheduled maturities of time deposits were as follows:

	(Dollars in thousands)
6/30/2017	$	73,690
6/30/2018		81,742
6/30/2019		30,499
6/30/2020		7,053
6/30/2021		15,543
Thereafter		104
	$	208,631

Note 7—Shareholders’ Equity

As of December 31, 2015, the Company had 10,000,000 authorized common shares.  The Company amended its articles of incorporation, effective May 4, 2016, to increase the number of authorized shares of its common stock, $1.00 par value, from 10,000,000 shares to 20,000,000 shares.  The amendment was approved by shareholders at the 2016 annual meeting of shareholders held on May 3, 2016.

As of June 30, 2016 and December 31, 2015 the Company had 3,404 shares and 9,404 shares, respectively, of 9%, fixed rate, Cumulative Perpetual Preferred Stock outstanding totaling $3.4 million and $9.4 million, respectively.

On January 22, 2016, First Priority redeemed $6.0 million of its outstanding Preferred Stock for a total redemption price of $1,016.75 per share which included accrued dividends. This redemption included all shares of outstanding Series A (4,579 shares; par value $1,000) and Series B (229 shares; par value $1,000); and approximately 25.9% of Series C (1,192 shares of 4,596 shares outstanding; par value $1,000).  The shares of Series C were selected for redemption on a pro rata basis.  After the completion of these redemptions, 3,404 shares of Series C Preferred Stock is outstanding as of June 30, 2016.

The Preferred Stock has no maturity date and ranks senior to common stock with respect to dividends and upon liquidation, dissolution, or winding up. The Company may redeem the Preferred Stock, in whole or in part, at its liquidation preference plus accrued and unpaid dividends.

Note 8—Stock Compensation Program

In 2005, the Company adopted the 2005 Stock Compensation Program, which was amended at the Company’s annual meeting on April 23, 2009 as the 2009 Stock Compensation Program (the “Program”) and further amended effective March 18, 2010. The Program allows equity benefits to be awarded in the form of Incentive Stock Options, Compensatory Stock Options or Restricted Stock. The Program authorizes the Board of Directors to grant options up to an aggregate maximum of 1,207,957 shares to officers, other employees and directors of the Company, including 382,957 shares which were authorized for grant under this plan as a result of the merger with Affinity. Only employees of the Company will be eligible to receive Incentive Stock Options, and such grants are subject to the limitations under Section 422 of the Internal Revenue Code.

All stock options granted under the Program fully vest in four years from the date of grant (or potentially earlier upon a change of control), excluding options issued in regards to the Company’s Severance Plan which vest only upon change in control, and options terminate ten years from the date of the grant. The exercise price of the options granted is the fair value of a share of common stock at the time of the grant.

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A summary of the Stock Option Plan is presented below:

	Options to Purchase Common Shares			Weighted Average Exercise Price
Outstanding at beginning of period		970,193		$	6.41
Granted during period		25,000			5.98
Forfeited/cancelled during period		─			─
Exercised		(2,000	)		5.73
Expired		(18,133	)		9.65
Outstanding at end of period (1)		975,060			6.34
Exercisable at end of period (1)		354,560		$	7.74

(1) Included in options outstanding and exercisable at June 30, 2016 are 100,000 organizer options, with an exercise price of $10.00 per share, exchanged as part of the 2008 acquisition of Prestige Community Bank which were issued outside of the Program.

The weighted average remaining contractual lives of all outstanding stock options and exercisable options based on the closing stock price at June 30, 2016 and December 31, 2015 were 6.38 years and 3.48 years, respectively, and 6.67 years and 3.66 years, respectively. The aggregate intrinsic value of all outstanding stock options was $269 thousand as of June 30, 2016, including $46 thousand related to currently exercisable options, and $618 thousand as of December 31, 2015, including $121 thousand related to exercisable options.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2016
Dividend yield..................................	0.0%
Expected life.....................................	7 years
Expected volatility...........................	26%
Risk-free interest rate......................	1.76%
Weighted average fair value..........	$        1.88

For option grants to individual employees, the Company assumes no forfeitures.  For option grants made to a group of employees, a 10% forfeiture rate is typically assumed at the date of the grant, and compared to actual forfeitures on an annual basis.

Under the terms of the merger agreement dated February 28, 2013, with Affinity, each Affinity option became fully vested and was exchanged for a grant of 0.9813 FPFC options, with an adjusted exercise price to reflect the exchange ratio and maintains the same expiration date as the original option. As of June 30, 2016, 45,460 of these options remain outstanding with an average exercise price of $9.42 and a remaining contractual term of 3.29 years.

The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.  Due to the Company’s lack of sufficient historical exercise data and the limited period of time for which shares have been issued, the “simplified” method is used to determine the expected life of options, calculated as the average of the sum of the vesting term and original contractual term for all periods presented. The expected volatility percentage is based on the average expected volatility of similar public financial institutions in the Company’s market area.  The risk-free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of grant.

As of June 30, 2016, there was $287 thousand of unrecognized compensation cost related to non-vested stock options granted after January 1, 2007, excluding those stock options issued in conjunction with the Company’s severance plan. That cost is expected to be recognized over a weighted average period of 3.01 years. There was no tax benefit recognized related to this stock-based compensation. There are 355,000 stock options issued in connection with the termination of the previously executed change in control agreements and the adoption of the severance plan, with $576 thousand of unrecognized compensation cost which will only be recognized if a change in control occurs, based on the options which remain outstanding and are probable to vest at that time.  During 2015, there were 99,000 performance options issued to various employees.  Certain performance criteria must be achieved over the performance period in order for the option granted to vest.  Performance is analyzed on a quarterly basis to determine if the specific required performance is more likely than not to be achieved.  Based on this evaluation, 27,500 performance options were cancelled in 2015 leaving 71,500 outstanding as of June 30, 2016.  These non-vested options may be further adjusted in the future.

Restricted Stock grants fully vest after a minimum of three years from the date of grant (or potentially earlier upon a change of control or retirement after the age of 66), subject to the recipient remaining an employee of the Company.  Directors are also granted restricted stock as part of their compensation for their services on the Board of Directors, or related Committees, as approved by the Compensation Committee of the Board. Upon issuance of the shares, resale of the shares is restricted during the vesting period,

24

during which the shares may not be sold, pledged, or otherwise disposed of. Prior to the vesting date and in the event the recipient terminates association with Company for any reasons other than death, disability or change of control, the recipient forfeits all rights to the shares that would otherwise be issued under the grant. Compensation expense related to restricted stock awards granted under the Plan is determined at the date of the award based on the estimated fair value of the shares and is amortized over the vesting period.  As of June 30, 2016, there was $391 thousand of unrecognized compensation cost related to restricted stock, which will be amortized through February 10, 2020.

A summary of restricted stock award activity is presented below for the six months ended June 30, 2016:

	Shares
Outstanding unvested shares at beginning of period		165,474
Shares Granted during period		25,750
Shares Forfeited/cancelled during the period		(200	)
Vested Shares during this period		(22,049	)
Outstanding unvested shares at end of period		168,975

Note 9—Financial Instruments with Off-Balance Sheet Risk

The Company 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 include commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet.

The Company’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 amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

At June 30, 2016 and December 31, 2015, outstanding commitments to extend credit consisting of total unfunded commitments under lines of credit were $95.8 million and $97.8 million, respectively. In addition, as of each of these dates, the Company maintained $681 thousand and $711 thousand of performance standby letters of credit outstanding, respectively, and $1.2 million and $1.1 million of financial standby letters of credit outstanding, respectively, on behalf of its customers.

As of June 30, 2016, the Company also has deposit letters of credit totaling $9.9 million, issued by the Federal Home Loan Bank of Pittsburgh (“FHLB”), as required to provide collateral on certain municipal deposits maintained at First Priority.  These deposit letters of credit are secured by a blanket lien on selected mortgage loans within First Priority Bank’s portfolio.

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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include residential or commercial real estate, accounts receivable, inventory and equipment.

Note 10—Regulatory Matters

The Dodd-Frank Act required the FRB to establish minimum consolidated capital requirements for bank holding companies that are as stringent as those required for insured depositary subsidiaries. The federal banking agencies approved rules that implemented the Dodd-Frank requirements and certain other regulatory capital reforms which were designed to enhance such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. These rules (i) introduced a new capital ratio pursuant to the prompt corrective action provisions, the common equity tier 1 capital to risk rated assets ratio, (ii) increased the adequately capitalized and well capitalized thresholds for the Tier 1 risk based capital ratios to 6% and 8% respectively, (iii) changed the treatment of certain capital components for determining Tier 1 and Tier 2 capital, and (iv) changed the risk weighting of certain assets and off balance sheet items in determining risk weighted assets. The new risk based capital rules became effective January 1, 2015.

Under the revised capital guidelines, the Bank’s minimum capital to risk-adjusted assets requirements consist of a common equity tier 1 capital ratio of 4.5% (6.5% to be considered “well capitalized”) and a tier 1 capital ratio of 6.0%, increased from 4.0% (and increased from 6.0% to 8.0% to be considered “well capitalized”); the total capital ratio remains at 8.0% under the new rules (10.0%

25

to be considered “well capitalized”).  In addition, the Bank must maintain a minimum Tier 1 leverage ratio of at least 4.0% (5.0% to be considered “well capitalized”).  The new minimum capital requirements became effective on January 1, 2015.

Under the new rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. The capital contribution buffer requirements began to phase in over a three-year period beginning January 1, 2016 and is 0.625% during 2016.  The capital buffer requirement, on a fully phased-in basis as of January 1, 2019, effectively raises the minimum required common equity Tier 1 capital ratio to 7.0% (5.125% in 2016), the Tier 1 capital ratio to 8.5% (6.625% in 2016), and the total capital ratio to 10.5% (8.625% in 2016).

The Bank’s capital amounts (dollars in thousands) and ratios at June 30, 2016 and December 31, 2015 are presented below:

Actual

Minimum Capital Requirement

To be Well Capitalized under Prompt Corrective Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

June 30, 2016

Total capital (to risk-weighted assets)

$

53,494

13.64

%

$

31,382

>8.0

%

$

>39,227

>10.0

%

Tier 1 capital (to risk-weighted assets)

41,456

10.57

>23,536

>6.0

>31,382

>8.0

Tier 1 common equity capital (to risk-weighted assets)

41,456

10.57

>17,652

>4.5

>25,497

>6.5

Tier 1 capital (to total assets)

41,456

8.41

>19,723

>4.0

>24,654

>5.0

December 31, 2015

Total capital (to risk-weighted assets)

$

51,889

12.98

%

$

>31,985

>8.0

%

$

>39,981

>10.0

%

Tier 1 capital (to risk-weighted assets)

39,858

9.97

>23,989

>6.0

>31,985

>8.0

Tier 1 common equity capital (to risk-weighted assets)

39,858

9.97

>17,992

>4.5

>25,988

>6.5

Tier 1 capital (to total assets)

39,858

8.11

>19,655

>4.0

>24,568

>5.0

First Priority’s ability to pay cash dividends is dependent on receiving cash in the form of dividends from the Bank. However, certain restrictions exist regarding the ability of the Bank to transfer funds to First Priority in the form of cash dividends. All dividends are currently subject to prior approval of the Pennsylvania Department of Banking and Securities and the FDIC and are payable only from the undivided profits of the Bank, with the exception of an exemption enacted by the Pennsylvania Department of Banking and Securities which allows the Bank to pay dividends related to the preferred stock originally issued under the U.S. Department of the Treasury’s Troubled Asset Relief Program—Capital Purchase Program. Additionally, First Priority has met the requirement of obtaining prior approval from the Federal Reserve Bank on any payment of dividends, including dividends on the aforementioned preferred stock, when net income for the past four quarters is not sufficient to fund the dividend payments over that same period or when such payment would negatively impact capital adequacy of the Company.

Note 11—Fair Value Measurements and Fair Values of Financial Instruments

Management uses its best judgment in estimating the fair value of the Bank’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of June 30, 2016 and December 31, 2015 and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with FASB ASC Topic 820—Fair Value Measurements, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in some instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use

26

of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

FASB ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC Topic 820 are as follows:

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 inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). Management utilizes inputs that it believes a market participant would use.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2016 and December 31, 2015 are as follows:

Description	Fair Value		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
	(Dollars in thousands)
As of June 30, 2016:
Investment securities available for sale:
Obligations of U.S. government agencies and    corporations	$	8,031	$	—	$	8,031	$	—
Obligations of states and political subdivisions		8,127		—		8,127		—
Federal agency mortgage-backed securities		15,793		—		15,793		—
Federal agency collateralized mortgage obligations		271		—		271		—
Other debt securities		1,523		—		1,523		—
Money market mutual fund		25		25		—		—
Total assets measured at fair value on a recurring basis	$	33,770	$	25	$	33,745	$	—
As of December 31, 2015:
Investment securities available for sale:
Obligations of U.S. government agencies and    corporations	$	62,904	$	—	$	62,904	$	—
Obligations of states and political subdivisions		14,347		—		14,347		—
Federal agency mortgage-backed securities		17,037		—		17,037		—
Federal agency collateralized mortgage obligations		347		—		347		—
Money market mutual fund		69		69		—		—
Total assets measured at fair value on a recurring basis	$	94,704	$	69	$	94,635	$	—

27

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2016 and December 31, 2015 are as follows:

Description	Fair Value		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
	(Dollars in thousands)
As of June 30, 2016:
Impaired loans	$	3,337	$	—	$	—	$	3,337
Other real estate owned		19		—		—		19
Total assets measured at fair value on a    nonrecurring basis	$	3,356	$	—	$	—	$	3,356
As of December 31, 2015:
Impaired loans	$	3,699	$	—	$	—	$	3,699
Other real estate owned		935		—		—		935
Total assets measured at fair value on a    nonrecurring basis	$	4,634	$	—	$	—	$	4,634

Management generally uses a discounted appraisal technique in valuing impaired assets, resulting in the discounting of the collateral values underlying each impaired asset. A discounted tax assessment rate has been applied for smaller assets to determine the discounted collateral value. All impaired loans are classified as Level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment.

Quantitative information about Level 3 fair value measurements at June 30, 2016 is included in the table below:

	Fair Value		Valuation Techniques	Unobservable Inputs	Estimated Ratings (Weighted Average) (3)
	(Dollars in thousands)
Impaired loans	$	3,337	Appraisal of real estate collateral (1)	Appraisal adjustments(2)	0%-50% (5.03%)
			Valuation of business assets used as collateral(1)	Valuation adjustments(2)	25%-30%
				Liquidation expenses	2%-10% (6.05%)
Other real estate owned	$	19	Appraisal of collateral(1)	Appraisal adjustments(2)	─
				Liquidation expenses	5% (5.00%)

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Quantitative information about Level 3 fair value measurements at December 31, 2015 is included in the table below:

	Fair Value		Valuation Techniques	Unobservable Inputs	Estimated Ratings (Weighted Average) (3)
	(Dollars in thousands)
Impaired loans	$	3,699	Appraisal of real estate collateral (1)	Appraisal adjustments(2)	0%-50%                (4.75%)
			Valuation of business assets used as collateral(1)	Valuation adjustments(2)	25%-30%
				Liquidation expenses	2%-10% (6.34%)
Other real estate owned	$	935	Appraisal of collateral(1)	Appraisal adjustments(2)	0%-25%                (3.39%)
				Liquidation expenses	7%-8.5% (8.38%)

(1) Fair Value is generally determined through independent appraisals of the underlying collateral, which include Level 3 inputs that are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

(3) The range and weighted average of qualitative factors such as economic conditions and estimated liquidation expenses are presented as a percent of the appraised value.

Valuation of real estate collateral may be discounted based on the age of the existing appraisal. No discounts are taken for recent appraisals. Valuations related to business assets used as collateral are typically discounted more heavily due to the inherent level of uncertainty in determining the fair value of these types of assets. Liquidation costs relating to these assets are charged to expense.

Other real estate owned measured at fair value on a nonrecurring basis consists of properties acquired as a result of accepting a deed in lieu of foreclosure, foreclosure or through other means related to collateral on Bank loans which resulted in a gain or loss recognized during the period. Costs relating to the development or improvement of assets are capitalized and costs relating to holding the property are charged to expense. As of June 30, 2016, the fair value of other real estate owned consists of balances of $400 thousand, net of a valuation allowance of $381 thousand.  As of December 31, 2015, the fair value of other real estate owned consists of balances of $1.3 million, net of a valuation allowance of $404 thousand.  Fair value is generally determined based upon independent third-party appraisals of the property.

Real estate properties acquired through, or in lieu of, foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices or appraised value of the property. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at June 30, 2016 and December 31, 2015:

Cash and Cash Equivalents

The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets’ fair values.

Securities

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a

29

mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

Loans Receivable

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.

Impaired Loans

Impaired loans, which are included in loans receivable, are those that are accounted for under FASB ASC Topic 310, “Receivables”, in which the Company has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value of the impaired loans consists of the loan balances, net of any valuation allowance. As of June 30, 2016 the fair value of impaired loans consisted of loan balances with an allowance recorded of $2.1 million, net of valuation allowances of $372 thousand; and loan balances with no related allowance recorded of $2.5 million, net of partial charge-offs of $852 thousand. As of December 31, 2015 the fair value of impaired loans consisted of loan balances with an allowance recorded of $2.5 million, net of valuation allowances of $452 thousand and partial charge-offs of $2 thousand; and loan balances with no related allowance recorded of $2.5 million, net of partial charge-offs of $867 thousand.

Restricted Investment in Bank Stock

The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.

Accrued Interest Receivable and Payable

The carrying amount of accrued interest receivable and accrued interest payable approximates fair value.

Deposit Liabilities

The fair values disclosed for demand deposits (interest and noninterest checking), money market and savings accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market to the maturities of the time deposits.

Short-Term Borrowings

The carrying amounts of short-term borrowings approximate their fair values.

Long-Term Debt

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Subordinated Debt

The fair values of subordinated debt has been estimated using discounted cash flow calculation taking into account contractual maturities, call features, and market interest rates for instruments with similar financial and credit characteristics.  These instruments are classified within Level 2 of the fair value hierarchy.

Off-Balance Sheet Financial Instruments

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.

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At June 30, 2016 and December 31, 2015, the estimated fair values of the Company’s financial instruments were as follows:

	June 30, 2016
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	20,981	$	20,981	$	20,981	$	—	$	—
Securities available for sale		33,770		33,770		25		33,745		—
Securities held to maturity		19,325		21,003		—		21,003		—
Loans receivable, net		415,262		424,208		—		—		424,208
Restricted stock		2,074		2,074		—		2,074		—
Accrued interest receivable		1,542		1,542		—		1,542		—
Liabilities:
Deposits		410,635		412,037		—		412,037		—
Federal Home Loan Bank of Pittsburgh advances		37,900		37,958		—		37,958		—
Subordinated debt		9,196		9,504		—		9,504		—
Accrued interest payable		447		447		—		447		—
Off-balance sheet credit related instruments:
Commitments to extend credit		—		—		—		—		—

	December 31, 2015
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	5,909	$	5,909	$	5,909	$	—	$	—
Securities available for sale		94,704		94,704		69		94,635		—
Securities held to maturity		19,886		20,446		—		20,446		—
Loans receivable, net		406,358		413,187		—		—		413,187
Restricted stock		3,368		3,368		—		3,368		—
Accrued interest receivable		1,623		1,623		—		1,623		—
Liabilities:
Deposits		408,687		409,029		—		409,029		—
Federal Home Loan Bank of Pittsburgh advances		74,725		74,654		—		74,654		—
Subordinated debt		9,201		9,201		—		9,201		—
Accrued interest payable		450		450		—		450		—
Off-balance sheet credit related instruments:
Commitments to extend credit		—		—		—		—		—

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

The following discussion summarizes First Priority’s results of operations and highlights material changes for the three and six months ended June 30, 2016 and 2015, and its financial condition as of June 30, 2016 and December 31, 2015. This discussion is intended to provide additional information about the significant changes in the results of operations presented in the accompanying consolidated financial statements for First Priority and its wholly owned subsidiary, First Priority Bank. First Priority’s consolidated financial condition and results of operations consist essentially of the Bank’s financial condition and results of operations. Current performance does not guarantee, and may not be indicative of, similar performance in the future.  

You should read this discussion and analysis in conjunction with the unaudited consolidated financial statements for the period ended June 30, 2016 included herein as well as with the audited consolidated financial statements and the accompanying footnotes for the year ended December 31, 2015, included in the Company’s Form 10-K filed with the Securities and Exchange Commission.

This discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties, such as First Priority’s plans, objectives, expectations and intentions. Therefore, this analysis should be read in conjunction with the “Cautionary Statement Regarding Forward-Looking Statements” presented elsewhere in this document and the “Risk Factors” described in the Company’s Form 10-K for the period ended December 31, 2015.

Overview

The following table sets forth selected measures of First Priority’s financial position or performance for the dates or periods indicated.

	As of and for the six months ended June 30,
	2016	2015
Total revenue (1)	$             8,746	$        8,365
Net income	1,087	896
Total assets	506,916	503,945
Total loans receivable	418,069	391,319
Total deposits	410,635	377,466

(1)Total revenue equals net interest income plus non-interest income.

Like most financial institutions, First Priority derives the majority of its income from interest it receives on its interest-earning assets, such as loans and investments. First Priority’s primary source of funds for making these loans and investments is its deposits, on which it pays interest. Consequently, one of the key measures of First Priority’s success is its amount of net interest income, or the difference between the income on its average interest-earning assets and the expense on its average interest-bearing liabilities, such as deposits and borrowings. Another key measure is the spread between the yield First Priority earns on these average interest-earning assets and the rate it pays on its average interest-bearing liabilities, which is called its net interest spread.

There are risks inherent in all loans, and First Priority maintains an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. This allowance is maintained by charging a provision for loan losses against operating earnings. A detailed discussion of this process, as well as several tables describing the allowance for loan losses is included herein.

In addition to earning interest on its loans and investments, First Priority earns income through other sources, such as fees and other charges to its banking customers and income from providing wealth management services, as well as net gains or losses realized from the sale of assets. The various components of non-interest income, as well as non-interest expense, are described in this section.

Critical Accounting Policies, Judgments and Estimates

First Priority has adopted various accounting policies that govern the application of accounting principles generally accepted in the United States of America and that are consistent with general practices within the banking industry in the preparation of its consolidated financial statements. First Priority’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Form 10-K as of December 31, 2015, filed with the Securities and Exchange Commission.

Certain accounting policies involve significant judgments and assumptions by First Priority that have a material impact on the carrying value of certain assets and liabilities. First Priority considers these accounting policies to be critical accounting estimates. The judgment and assumptions used are based on historical experience and other factors, which First Priority believes to be reasonable under the circumstances and have been reasonably consistent with prior results. Because of the nature of the judgments and assumptions made, actual results could differ from these estimates, which could have a material impact on the carrying values of its

32

assets and liabilities and its results of operations. Material estimates that are particularly susceptible to significant change in the near term relate to investment securities impairment evaluation, the valuation of acquired loans, the determination of the allowance for loan losses, valuation of other real estate owned, the analysis of potential impairment of goodwill, the valuation of deferred tax assets and accounting for stock-based compensation.

Investment Securities Impairment Evaluation. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. When a determination is made that an other-than-temporary impairment exists but the Company does not intend to sell the debt security and it is more likely than not that it will not be required to sell the debt security prior to its anticipated recovery, the other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income. Management believes that there are no investment securities with other-than-temporary impairment for each of the reporting periods presented.

Acquired Loans. Fair values for acquired loans are based on a discounted cash flow methodology that involves significant assumptions and judgments as to estimates of credit risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.

Allowance for Loan Losses. The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans.

Pools of loans are evaluated for loss exposure based upon historical loss rates in each category of loans and adjusted for qualitative factors. Management assigned each factor a value to reflect improving, stable or declining conditions based on its best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

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.

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 or the fair value of the collateral if the loan is collateral dependent.

See the Allowance for Loan Losses section related to Balance Sheet Review as of June 30, 2016 and December 31, 2015 for more information.

Other Real Estate Owned. Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Any write-down, at or prior to the dates the real estate is considered foreclosed, is charged to the allowance for loan losses. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell.

Goodwill. Goodwill represents the excess of the cost of an acquired entity over the fair value of the identifiable net assets acquired in accordance with the acquisition method of accounting. Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment.

Income Taxes. Deferred taxes are provided on the liability method whereby deferred tax assets (“DTA”) are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company files a consolidated federal income tax return with the Bank.

If management makes a determination based on the available evidence that it is more likely than not that some portion or all of the deferred tax assets will not be realized in future periods a valuation allowance is calculated and recorded. These determinations are inherently subjective and dependent upon estimates and judgments concerning management’s evaluation of both positive and negative evidence. The weight given to the potential effect of positive and negative evidence must be commensurate with the extent to which it can be objectively verified.

When determining the need for a valuation allowance, the Company assessed the possible sources of taxable income available under tax law to realize a tax benefit for deductible temporary differences and carryforwards, as defined by Accounting Standards Codification (“ASC”) Topic 740-10-30-18. This guidance related to when a valuation allowance on the DTA should be maintained, generally provides that the valuation allowance should be reversed, when in the judgment of management, it is more likely than not

33

that the DTA will be realized.  Management has determined that the DTA will be realized and does not maintain a valuation allowance.

Stock Based Compensation. Compensation costs related to share-based payment transactions are recognized in the financial statements over the period that an employee provides service in exchange for the award. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model based on management’s assumptions.  The value of restricted stock awards is determined based on the estimated fair value of the shares at the date of the award.

Results of Operations

Income Statement Review

First Priority’s results of operations are affected by five major elements: (1) net interest income, or the difference between interest income earned on loans and investments and interest expense accrued on deposits and borrowed funds; (2) the provision for loan losses, or the amount added to the allowance for loan losses to provide reserves for inherent losses on loans; (3) non-interest income, consisting of income from wealth management services, fees and other charges to our banking customers, and net gains or losses realized from the sale of assets; (4) non-interest expense, which consists primarily of salaries, employee benefits and other operating expenses; and (5) income taxes, including deferred taxes, when applicable. Each of these major elements is reviewed in more detail in the following discussion.

Results of Operations Comparative Summary

Shown in the table below are the three month reported results of operations as well as the increase (decrease) for the respective periods.

	For the three months ended June 30,				Increase (decrease)			% Change			For the six months ended June 30,				Increase (decrease)			% Change
	2016		2015								2016		2015
	(Dollars in thousands)										(Dollars in thousands)
Net interest income	$	4,061	$	3,985	$	76			1.9	%	$	8,011	$	7,873	$	138			1.8	%
Non-interest income		326		286		40			14.0	%		735		492		243			49.4	%
Total Revenue		4,387		4,271		116			2.7	%		8,746		8,365		381			4.6	%
Provision for loan losses		90		130		(40	)		(30.8	)%		200		250		(50	)		(20.0	)%
Non-interest expenses		3,485		3,426		59			1.7	%		6,962		6,778		184			2.7	%
Income before income tax expense		812		715		97			13.6	%		1,584		1,337		247			18.5	%
Income tax expense		256		236		20			8.5	%		497		441		56			12.7	%
Net Income	$	556	$	479	$	77			16.1	%	$	1,087	$	896	$	191			21.3	%
Preferred dividends, including net amortization		77		211		(134	)		(63.5	)%		254		377		(123	)		(32.6	)%
Net Income to common shareholders	$	479	$	268	$	211			78.7	%	$	833	$	519	$	314			60.5	%
Income per common share:
Basic	$	0.07	$	0.04	$	0.03					$	0.13	$	0.08	$	0.05
Diluted	$	0.07	$	0.04	$	0.03					$	0.13	$	0.08	$	0.05

Operating results reflected above for the three and six months ended June 30, 2016 were impacted by the following items, including the specific line items impacted:

· In order to take advantage of favorable market conditions the Company sold $3.8 million of state and municipal investment securities in the current quarter, or $6.3 million for the first six months of 2016, which were classified as available for sale  and resulted in gains from these sales totaling $104 thousand and $339 thousand for these respective periods, which are included in non-interest income above.  There were no gains recorded in the first half of 2015.  

· Non-interest expenses include $91 thousand of costs recorded in the first quarter of 2016 related to the closing of the Bank’s Plumstead Office in June 2016, which reflects write offs of leasehold improvements and all remaining lease payments.  Anticipated annual cost savings are approximately $200 thousand, which will begin in the third quarter of 2016.

● The issuance of $9.5 million of 7% subordinated debt in November 2015 and the related redemption of $6 million of the Company’s 9% Preferred Stock in January 2016, impacted the following:  

o Interest expense specifically related to the subordinated debt issuance, which is reflected within net interest income, totaled $172 thousand and $344 thousand for the three and six months ended June 30, 2016, respectively.  This interest expense is tax deductible.    

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o There was a corresponding decrease in preferred dividends which specifically impacts income to common shareholders and is not tax deductible.  The dividend declared during the first quarter of 2016, totaling $177 thousand, was $100 thousand higher than the ongoing quarterly dividend of $77 thousand beginning in the second quarter of 2016, which resulted due to the timing of the redemption.  For the first six months of 2016, these dividends declined $123 thousand from $377 thousand to $254 thousand when compared to the prior year.   

Net Interest Income

First Priority’s primary source of revenue is net interest income. Net interest income is determined by the average balances of interest-earning assets and interest-bearing liabilities and the interest rates earned and paid on these balances. The amount of net interest income recorded by First Priority is affected by the rate, mix and amount of growth of interest-earning assets and interest-bearing liabilities, the amount of interest-earning assets as compared to the amount of interest-bearing liabilities, and by changes in interest rates earned and interest rates paid on these assets and liabilities.

The following tables set forth, for the three and six month periods ended June 30, 2016 and 2015, information related to First Priority’s average balances, yields on average assets, and costs of average liabilities. Average balances are derived from the daily balances throughout the periods indicated and yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. Average loans are stated net of deferred costs. The net dollar amounts and percentage changes of interest income and expense are presented for comparative purposes.

Analysis of Changes in Net Interest Income

	For the Three Months Ended June 30,														Net Change in Interest Income / Expenses
	2016							2015							$ Change			% Change
	Average Balance		Interest Income/  Expense		Yield/ Rate			Average Balance		Interest Income/  Expense		Yield/ Rate			2016 vs. 2015			2016 vs. 2015
	(Dollars in thousands)
Interest-earning assets:
Loans receivable	$	414,211	$	4,718		4.58	%	$	380,943	$	4,302		4.53	%	$	416			9.7	%
Taxable investment securities		46,809		293		2.52	%		64,856		372		2.31	%		(79	)		(21.2	)%
Nontaxable investment securities		11,283		115		4.10	%		6,338		63		4.00	%		52			82.5	%
Total investment securities		58,092		408		2.82	%		71,194		435		2.46	%		(27	)		(6.2	)%
Deposits with banks and other (1)		7,577		28		1.51	%		4,135		24		2.30	%		4			16.7	%
Total interest earning assets		479,880		5,154		4.32	%		456,272		4,761		4.19	%		393			8.3	%
Non-interest-earning assets (1)		18,920							21,113
TOTAL ASSETS	$	498,800						$	477,385
Interest-bearing liabilities:
Demand, interest-bearing	$	50,750		42		0.33	%	$	33,104		19		0.23	%	$	23			121.1	%
Money market and savings		95,020		115		0.49	%		96,652		71		0.29	%		44			62.0	%
Time deposits		212,977		703		1.33	%		196,474		628		1.28	%		75			11.9	%
FHLB advances and other borrowings		27,704		61		0.89	%		51,540		58		0.45	%		3			5.2	%
Subordinated debt		9,192		172		7.52	%		—		—		0.00	%		172			—
Total interest-bearing liabilities		395,643		1,093		1.11	%		377,770		776		0.82	%		317			40.9	%
Non interest-bearing liabilities:
Demand, non interest-bearing deposits		54,379							46,897
Other liabilities		1,572							1,688
Shareholders’ equity		47,206							51,030
TOTAL LIABILITIES AND    SHAREHOLDERS’ EQUITY	$	498,800						$	477,385
Net interest income/rate spread			$	4,061		3.21	%			$	3,985		3.37	%	$	76			1.9	%
Net interest margin						3.40	%						3.50	%

(1) Interest income includes dividends from restricted investments in bank stocks, average balance of these restricted stocks are included in non-interest-earning assets.

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	For the Six Months Ended June 30,														Net Change in Interest Income / Expenses
	2016							2015							$ Change			% Change
	Average Balance		Interest Income/  Expense		Yield/ Rate			Average Balance		Interest Income/  Expense		Yield/ Rate			2016 vs. 2015			2016 vs. 2015
	(Dollars in thousands)
Interest-earning assets:
Loans receivable	$	410,851	$	9,278		4.54	%	$	376,127	$	8,489		4.55	%	$	789			9.3	%
Taxable investment securities		50,350		594		2.37	%		63,123		720		2.30	%		(126	)		(17.5	)%
Nontaxable investment securities		12,848		262		4.10	%		4,402		88		4.03	%		174			197.7	%
Total investment securities		63,198		856		2.72	%		67,525		808		2.42	%		48			5.9	%
Deposits with banks and other (1)		5,834		56		1.94	%		4,244		118		5.61	%		(62	)		(52.5	)%
Total interest earning assets		479,883		10,190		4.27	%		447,896		9,415		4.24	%		775			8.2	%
Non-interest-earning assets (1)		18,946							20,808
TOTAL ASSETS	$	498,829						$	468,704
Interest-bearing liabilities:
Demand, interest-bearing	$	45,829		67		0.29	%	$	33,115		38		0.23	%	$	29			76.3	%
Money market and savings		93,792		218		0.47	%		99,373		145		0.29	%		73			50.3	%
Time deposits		219,569		1,423		1.30	%		195,851		1,261		1.30	%		162			12.8	%
FHLB advances and other borrowings		29,466		127		0.87	%		41,351		98		0.48	%		29			29.6	%
Subordinated debt		9,192		344		7.52	%		—		—		0.00	%		344			—
Total interest-bearing liabilities		397,848		2,179		1.10	%		369,690		1,542		0.84	%		637			41.3	%
Non interest-bearing liabilities:
Demand, non interest-bearing deposits		51,740							46,562
Other liabilities		1,536							1,639
Shareholders’ equity		47,705							50,813
TOTAL LIABILITIES AND    SHAREHOLDERS’ EQUITY	$	498,829						$	468,704
Net interest income/rate spread			$	8,011		3.17	%			$	7,873		3.40	%	$	138			1.8	%
Net interest margin						3.36	%						3.54	%

(1) Interest income includes dividends from restricted investments in bank stocks, average balance of these restricted stocks are included in non-interest-earning assets.

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Net interest income can also be analyzed in terms of the impact of changing interest rates and changing volume as shown in the Changes in Net Interest Income table below which sets forth the effect which varying levels of average interest-earning assets, interest-bearing liabilities and the applicable yields and rates have had on changes in net interest income for the periods presented.

	Changes in Net Interest Income									Changes in Net Interest Income
	For the Three Months Ended									For the Six Months Ended
	June 30, 2016 vs. 2015									June 30, 2016 vs. 2015
	Increase (Decrease)									Increase (Decrease)
	Due to Change In									Due to Change In
	(Dollars in thousands)									(Dollars in thousands)
	Volume			Rate			Net Change			Volume			Rate			Net Change
Interest income:
Loans receivable	$	368		$	48		$	416		$	807		$	(18	)	$	789
Taxable investment securities		(110	)		31			(79	)		(147	)		21			(126	)
Nontaxable investment securities		50			2			52			172			2			174
Total investment securities		(60	)		33			(27	)		25			23			48
Deposits with banks and other		14			(10	)		4			34			(96	)		(62	)
Total interest earning assets		322			71			393			866			(91	)		775
Interest expense:
Demand, interest-bearing		13			10			23			17			12			29
Money market and savings		—			44			44			(9	)		82			73
Time deposits		53			22			75			157			5			162
FHLB advances and other borrowings		(35	)		38			3			(34	)		63			29
Subordinated debt		172			—			172			344			—			344
Total interest bearing liabilities		203			114			317			475			162			637
Change in net interest income	$	119		$	(43	)	$	76		$	391		$	(253	)	$	138

For the three months ended June 30, 2016, net interest income increased $76 thousand, or 1.9%, from $4.06 million compared to the three months ended June 30, 2015 of $3.99 million. Net interest margin declined 10 basis points from 3.50% for the second quarter of 2015 to 3.40% for the same period in 2016. Net interest spread, defined as the mathematical difference between the yield on average earning assets and the rate paid on average interest-bearing liabilities, decreased 16 basis points from 3.37% for the three months ended June 30, 2015 to 3.21% for the same period in 2016. When comparing these periods, incremental growth of balances accounted for a net increase of $119 thousand while the change in our relative rate structure resulted in a net decline in net interest income of $43 thousand.

Average interest earning assets for the second quarter of 2016 increased $23.6 million, or 5.2%, including an increase in average loans of $33.3 million, or 8.7%, and a decrease in average investment balances of $13.1 million, or 18.4%, when compared to the prior year quarter. This overall increased volume of average earning assets provided an additional $322 thousand in interest income, with $368 thousand provided from incremental loan balances. The average yield on earning assets increased 13 basis points in the current quarter compared to the prior year three month period from 4.19% to 4.32% which resulted in a rate related increase of interest income of $71 thousand between the periods, of which an increase of $48 thousand can be attributed to higher yields on loans and $33 thousand primarily related to higher yields on investment securities.

Average interest bearing liabilities increased $17.9 million, or 4.7%, when comparing the current quarter to the prior year quarter. Average deposit balances increased $32.5 million, consisting of increases in time deposits of $16.5 million and interest bearing NOW accounts of $17.6 million offset by a decrease in money market and savings deposits of $1.6 million.  Also, when comparing these periods, the issuance of subordinated debt in November 2015 resulted in an average balance of $9.2 million in the second quarter of 2016.  The incremental growth of interest bearing liabilities resulted in an overall increase in interest expense of $203 thousand, of which $172 thousand was attributable to the subordinated debt. At the same time, due to the change in mix of balances, the average rate on interest bearing liabilities increased in the current quarter compared to the prior year three month period from 0.82% to 1.11%, and overall interest expense increased $114 thousand between the periods related to this increase in rates.

For the six months ended June 30, 2016, net interest income increased 1.8%, or $138 thousand, to $8.01 million compared to $7.87 million for the same period in 2015. Net interest margin decreased from 3.54% for the first six months of 2015 to 3.36% for the same period in 2016. Net interest spread decreased from 3.40% for the first six months of 2015 to 3.17% for the same period in 2016. When comparing these periods, incremental growth of balances accounted for an increase of $391 thousand while the change in our relative rate structure resulted in a decline in net interest income of $253 thousand.

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Average interest earning assets for the first six months of 2016 increased $32.0 million, or 7.1%, including an increase in average loans of $34.7 million, or 9.2%, offset by a decrease in average investment balances of $4.3 million, or 6.4%, when compared to the prior year. This increased volume of average earning assets provided an additional $866 thousand in interest income, of which $807 thousand was provided from incremental loan balances.  The average yield on earning assets increased 3 basis points in the current year compared to the prior year six month period from 4.24% to 4.27%.  The resulting change in interest income due to changing rates, which is also impacted by changes in product mix structure, was $91 thousand when comparing these periods, of which $66 thousand is directly related to lower dividends received from restricted investments in bank stocks.  

Average interest bearing liabilities increased $28.2 million, or 7.6%, in 2016. During this time, borrowed funds declined $2.7 million, as the increase of $9.2 million related to the issuance of subordinated debt was offset by a decline in FHLB advances of $11.9 million.  At the same time, overall deposit balances increased $30.9 million, or 9.4%, as interest bearing demand deposits increased $12.7 million and time deposits increased $23.7 million, while money market and savings deposits decreased $5.5 million. The incremental growth of interest bearing liabilities resulted in an increase of interest expense of $475 thousand. At the same time, the average rate on interest bearing liabilities increased 26 basis point from 0.84% for the first six months of 2015 to 1.10% in the current year, which along with the change in mix of balances, accounted for an increase in interest expense of $162 thousand due to the change in our relative rate structure.

Provision for Loan Losses

The allowance for loan losses is established through provisions for loan losses charged against operations. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance as recoveries.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management’s periodic evaluation of the adequacy of the allowance is based on known or potential risks in the portfolio, adverse situations that may affect a borrower’s ability to repay, the estimated value of any underlying collateral, the composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revisions as more information becomes available or economic conditions change.

At the end of each quarter or more often, if necessary, First Priority analyzes the collectability of its loans and accordingly adjusts the loan loss allowance to an appropriate level. The allowance for loan losses covers estimated credit losses on individually evaluated loans that are determined to be impaired, as well as estimated credit losses inherent in the remainder of the loan portfolio. For a description of the process for determining the adequacy of the allowance for loan losses, see the “Allowance for Loan Losses” section below.

The provision for loan losses was $90 thousand and $200 for the three and six months ended June 30, 2016 compared to $130 thousand and $250 thousand for the same periods in 2015.  The level of provision is impacted by the adequacy of the allowance as described above, including an analysis of impaired and non-performing loans, as well as by the level of incremental loan volume and net charge-offs of loans. Total loans increased $8.9 million during the six months ended June 30, 2016. Net charge-offs for the three and six months ended June 30, 2016 totaled $66 thousand and $188 thousand, respectively, and for the three and six months ended June 30, 2015, a net recovery of $59 thousand and $3 thousand for the periods, respectively.  The allowance for loan losses was $2.8 million at both June 30, 2016 and December 31, 2015 which represented 0.67% and 0.68%, respectively, of total loans outstanding.

Acquired loans are initially recorded at acquisition date at their acquisition date fair values, and therefore, are excluded from the calculation of loan loss reserves as of the acquisition date. As acquired loans are paid off or are refinanced or extended under First Priority’s credit underwriting process, they are no longer considered acquired loans, but instead are prospectively considered originated loans and therefore, are included as part of the calculation of the allowance for loan losses. To the extent there is a decrease in the present value of cash flows from acquired impaired loans after the date of acquisition, the Company records a provision for loan losses.

During the three months ended June 30, 2016, the Company recorded an incremental provision for loan losses of $20 thousand related to acquired loans.  The incremental required allowance calculation as of June 30, 2016 resulted in an additional allowance of $28 thousand, which was partially offset by net recoveries of $8 thousand on non-credit impaired purchased loans during the quarter.  For the six months ended June 30, 2016, an incremental provision of $31 thousand was recorded related to acquired loans, as net charge-offs were $33 thousand on non-credit impaired purchased loans less $30 thousand of previously provided specific reserves during 2015.

During the three and six months ended June 30, 2015, the Company recorded a provision for loan losses totaling $23 thousand and $65 thousand related to acquired loans, of which $23 thousand and $57 thousand, respectively, related to net charge-offs on non-credit

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impaired purchased loans.  There were no net charge-offs related to acquired loans which were initially considered credit impaired loans as of the acquisition date for the three months ended June 30, 2015 and there were $8 thousand related to purchased credit impaired loans for the six months ended June 30, 2015.  

Non-Interest Income

For the three and six months ended June 30, 2016, non-interest income totaled $326 thousand and $735 thousand, compared to $286 thousand and $492 thousand, for the same period in 2015. As detailed in the table below, non-interest income is comprised of wealth management fees, which are principally non-recurring commissions and fees related to the sale of insurance products and annuities, service charges on deposit accounts, income resulting from the investment in bank owned life insurance, gains from the sale of investment securities, and other fees which the Bank collects from its banking customers.  

The Company sold $3.8 million of state and municipal investment securities in the three months ended June 30, 2016, or $6.3 million for the first six months of 2016, which were classified as available for sale, to take advantage of favorable market conditions, and resulted in gains from these sales totaling $104 thousand and $339 thousand for these respective periods as reflected in the table below.

Components of non-interest income are shown in the table below:

	For the three months ended				Net Change			% Change				For the six months ended				Net Change			% Change
	June 30,				2016 vs.			2016 vs.				June 30,				2016 vs.			2016 vs.
	2016		2015		2015			2015				2016		2015		2015			2015
	(Dollars in thousands)											(Dollars in thousands)
Non-Interest Income
Wealth management fee income	$	109	$	174	$	(65	)		(37.4	)	%	$	178	$	264	$	(86	)		(32.6	)	%
Service charges on deposits		36		36		-			-				70		71		(1	)		(1.4	)
Other branch fees		44		45		(1	)		(2.2	)			88		87		1			1.1
Loan related fees		12		7		5			71.4				18		16		2			12.5
Gains on sales of investment securities		104		—		104			100.0				339		—		339			100.0
Bank owned life insurance income		19		21		(2	)		(9.5	)			39		42		(3	)		(7.1	)
Other		2		3		(1	)		(33.3	)			3		12		(9	)		(75.0	)
Total Non-Interest Income	$	326	$	286	$	40			14.0		%	$	735	$	492	$	243			49.4		%

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Non-Interest Expenses

For the three and six months ended June 30, 2016, non-interest expenses were $3.5 million and $7.0 million, respectively, compared to $3.4 million and $6.8 million for the same periods in 2015, or increases of $59 thousand and $184 thousand, respectively.  The following table sets forth information related to the various components of non-interest expenses for each respective period.

	For the three months ended				Net Change			% Change				For the six months ended				Net Change			% Change
	June 30,				2016 vs.			2016 vs.				June 30,				2016 vs.			2016 vs.
	2016		2015		2015			2015				2016		2015		2015			2015
	(Dollars in thousands)											(Dollars in thousands)
Non-Interest Expenses
Salaries and employee benefits	$	2,033	$	1,912	$	121			6.3		%	$	4,014	$	3,764	$	250			6.6		%
Occupancy and equipment		468		514		(46	)		(8.9	)			1,011		1,059		(48	)		(4.5	)
Data processing equipment and    operations		220		218		2			0.9				437		438		(1	)		(0.2	)
Professional fees		171		163		8			4.9				307		344		(37	)		(10.8	)
Marketing, advertising and    business development		54		52		2			3.8				98		82		16			19.5
FDIC insurance assessments		75		87		(12	)		(13.8	)			132		176		(44	)		(25.0	)
Pennsylvania bank shares tax    expense		86		94		(8	)		(8.5	)			169		187		(18	)		(9.6	)
Other real estate owned costs		107		88		19			21.6				192		147		45			30.6
Other		271		298		(27	)		(9.1	)			602		581		21			3.6
Total Non-Interest Expenses	$	3,485	$	3,426	$	59			1.7		%	$	6,962	$	6,778	$	184			2.7		%

Highlights of significant non-interest expenses items for the second quarter 2016 compared to the second quarter 2015

· Salaries and employee benefits increased $121 thousand, or 6.3%, in the three months ended June 30, 2016 compared to the second quarter of 2015. This increase resulted from incremental staffing costs to enhance business development opportunities, increased stock based compensation expense and higher employee healthcare costs.

· Occupancy and equipment costs decreased $46 thousand, or 8.9%, comparing the current quarter and the same period last year, primarily related to the closing of the Towamencin office during the third quarter of 2015.

· FDIC insurance assessments and Pennsylvania bank shares tax expense decreased in the current quarter compared to prior year.  These expenses are primarily calculated based on asset size and equity levels of the Bank.  

· Net costs related to other real estate owned increased $19 thousand, or 21.6%, in the current quarter compared to the same period in 2015. Acquisition related costs declined by $48 thousand related to sheriff costs or unpaid taxes to obtain clear title on properties to enable timely liquidation, while ongoing maintenance and other operating costs increased $54 thousand when comparing these same periods.  At the same time, net losses on property sales or valuation adjustments increased $13 thousand when comparing the current quarter to the same period last year.

· Other expenses decreased $27 thousand, or 9.1%, in the current quarter compared to the quarter ended June 30, 2015, primarily related to a lower corporate insurance costs and meals and entertainment costs.

Six months ended June 30, 2016 compared to prior year

● Non-interest expenses increased $184 thousand, or 2.7%, in the six months ended June 30, 2016 compared to 2015.

● Salaries and employee benefits increased $250 thousand in the six months ended June 30, 2016 compared to 2015 due to incremental staffing costs and related payroll taxes to enhance business development opportunities, increased bonus and stock based compensation expenses and higher employee healthcare costs.

● Occupancy and equipment costs declined $48 thousand, or 4.5%, due to lower lease costs related to the Towamencin office closure and related lower depreciation and utilities costs.

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● Professional fees decreased $37 thousand, or 10.8%, in the six months ended June 30, 2016 compared to the same period in 2015.  This variance includes lower legal costs of $108 thousand between the periods, including $50 thousand of reimbursed legal expenses on two separate problem loans which were paid off.  Offsetting this positive variance were incremental consulting costs of $31 thousand and incremental other professional fees of $40 thousand. 

● Marketing, advertising and business development expenses increased $16 thousand, or 19.5%, primarily related to marketing campaigns to enhance brand awareness.

● FDIC insurance assessments decreased $44 thousand, or 25.0%, and Pennsylvania bank shares tax expense decreased $18 thousand, or 9.6%, in 2016 compared to the prior year. These expenses are primarily calculated based on asset size and equity levels of the Bank.

● Other real estate owned costs increased by $45 thousand, or 30.6%, in 2016 compared to the prior year.  Acquisition related costs declined by $21 thousand while ongoing maintenance and other operating costs increased $92 thousand when comparing these same periods.  At the same time, incremental rental income collected increased $9 thousand while net losses on property sales or valuation adjustments declined $17 thousand when comparing the current year to the same period last year.

· Other expenses increased $21 thousand for the six months ended June 30, 2016, which includes $25 thousand to write-off of leasehold improvements related to the closure of the Plumstead office.

Provision for Income Taxes

Income tax expense recorded in the three and six months ended June 30, 2016 totaled $256 thousand and $497 thousand compared to $236 thousand and $441 thousand for the three and six months ended 2015.  The Company’s effective tax rate for the three and six months ended June 30, 2016 was 31.5% and 31.4%, respectively, and was 33.0% for both the three and six months ended June 30, 2015, which declined primarily due to an increased level of non-taxable investment securities.

The Company’s net operating loss (“NOL”) carryforwards totaled $6.3 million as of June 30, 2016, including acquired NOLs. First Priority had NOL carryforwards of $4.3 million at June 30, 2016, which expire in 2028 through 2034; such NOL carryforwards, however, are available prior to expiration to reduce future federal income taxes until such time as the entire NOL is utilized.

First Priority acquired a NOL for tax purposes related to the acquisition of Prestige Community Bank, which initially totaled $2.0 million, with a remaining balance of $1.4 million at June 30, 2016, which is subject to certain limitations and expires in 2027 through 2028 if not fully utilized. In addition, an initial NOL carryforward balance of $940 thousand was recorded resulting from the merger with Affinity, of which $615 thousand remains available to reduce future federal income taxes as of June 30, 2016. This NOL is also subject to certain limitations and expires in 2031 through 2032 if not fully utilized.

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Financial Condition as of June 30, 2016 and December 31, 2015

Balance Sheet Review

			Net Change	% Change
	June 30,	December 31,	2016 vs.	2016 vs.
	2016	2015	2015	2015
	(Dollars in thousands)
Assets
Cash and cash equivalents	$           20,981	$            5,909	$      15,072	255.1%
Investment securities	53,095	114,590	(61,495)	-53.7%
Loans	418,069	409,153	8,916	2.2%
Total earning assets	492,145	529,652	(37,507)	-7.1%
Allowance for loan losses	(2,807)	(2,795)	(12)	0.4%
Restricted investments in bank stocks	2,074	3,368	(1,294)	-38.4%
Premises and equipment, net	1,879	2,033	(154)	-7.6%
Bank owned life insurance	3,217	3,178	39	1.2%
Other real estate owned	1,733	1,633	100	6.1%
Deferred income tax assets, net	2,928	3,543	(615)	-17.4%
Goodwill and other identifiable intangibles	2,997	3,035	(38)	-1.3%
Other assets	2,750	2,893	(143)	-4.9%
Total assets	$         506,916	$        546,540	$     (39,624)	-7.2%
Liabilities
Deposits	$         410,635	$        408,687	$        1,948	0.5%
FHLB advances	37,900	74,725	(36,825)	-49.3%
Subordinated debt	9,196	9,201	(5)	-0.1%
Other liabilities	1,684	1,836	(152)	-8.3%
Total liabilities	459,415	494,449	(35,034)	-7.1%
Equity
Total shareholders' equity	47,501	52,091	(4,590)	-8.8%
Total liabilities and shareholders' equity	$         506,916	$        546,540	$     (39,624)	-7.2%

Total assets at June 30, 2016 were $506.9 million, representing a decrease of $39.6 million or 7.2% when compared to total assets of $546.5 million at December 31, 2015.  Total assets at June 30, 2016 consisted primarily of loans outstanding of $418.1 million, investment securities of $53.1 million and cash and cash equivalents of $21.0 million. At December 31, 2015, total assets consisted primarily of loans outstanding of $409.2 million, investment securities of $114.6 million and cash and cash equivalents of $5.9 million.

Deposits totaled $410.6 million at June 30, 2016 compared to $408.7 million at December 31, 2015, an increase of $1.9 million, or 0.5%. Of the total deposits at June 30, 2016, $202.0 million, or 49.2% of total deposits, are core deposits consisting of demand, money market and savings deposits, which increased $26.7 million, or 15.2% compared to core deposits of $175.3 million at December 31, 2015.

Advances from Federal Home Bank of Pittsburgh totaled $37.9 million at June 30, 2016 compared to $74.7 million at December 31, 2015, a decrease of $36.8 million, or 49.3% while subordinated debt remained flat at $9.2 million when comparing these same periods.

Shareholders’ equity at June 30, 2016 was $47.5 million, representing a decrease of $4.6 million from $52.1 million at December 31, 2015, primarily related to the redemption of preferred stock totaling $6.0 million.  

Investments

First Priority’s total investment portfolio was $53.1 million at June 30, 2016, compared to $114.6 million at December 31, 2015, a decline of $61.5 million, or 53.7%. During the first half of 2016, the Company sold $6.3 million of state and municipal obligations in order to take advantage of favorable market conditions.  Also, as of December 31, 2015, the investment portfolio included $50 million of short-term investments, consisting of United States Treasury securities and Federal Home Loan Bank notes, which were purchased related to year-end tax planning strategies and subsequently matured in January of 2016.  Additional matured or called securities totaled $5.5 million during the first six months of 2016.

42

As of June 30, 2016 and December 31, 2015, investments totaling $33.8 million and $94.7 million, respectively, were classified as available for sale while $19.3 million and $19.9 million, respectively, were classified as held to maturity. Total investments accounted for 10.5% and 21.0% of total assets at each respective date.

The Company previously transferred investment securities from available for sale to held to maturity securities.  Due to these transfers securities classified as held to maturity have net unrealized holding gains, before taxes, totaling $24 thousand as of June 30, 2016, which are being amortized over the remaining life of the related securities as an adjustment of yield in a manner consistent with the accretion of discount on debt securities. This will have no impact on the Company’s net income because the amortization of the unrealized holding gains reported in equity will offset the effect on interest income of the accretion of the discount on these securities. The transfer of securities from available for sale to held to maturity was completed in order to mitigate the volatility to common equity caused by sudden market fluctuations and to lock in a predictable earnings on these related securities.

Securities classified as available for sale are accounted for at fair value, with the difference between fair value and amortized cost reflected in the capital account as other comprehensive income or loss. The Company had net unrealized gains on available for sale securities totaling $915 thousand at June 30, 2016 compared to $315 thousand at December 31, 2015. Available for sale securities are securities that management intends to hold for an indefinite period of time or securities that may be sold in response to changes in interest rates, prepayment expectations, capital management and liquidity needs.

The total investment portfolio at June 30, 2016 was comprised of federal agency securities (15%), federal agency mortgage backed securities and federal agency collateralized mortgage obligations (30%), obligations of states and political subdivisions (51%), and corporate and other debt securities (4%). All investment securities were either government guaranteed, issued by a government agency or investment grade. First Priority had no investment securities deemed to have other than temporary impairment (“OTTI”) at June 30, 2016 or December 31, 2015 and recorded no OTTI charges during the three and six months ended June 30, 2016 and 2015.

The following table sets forth information about the contractual maturities and weighted average yields of investment securities at June 30, 2016. Actual maturities may differ from contractual maturities due to scheduled principal payments and unscheduled prepayments of mortgage backed securities and, where applicable, the ability of an issuer to call a security prior to the contractual maturity date.

	Securities Available for Sale, at Fair Value
	As of June 30, 2016
	Within 1 year					After one but within five years					After five but within ten years					Over ten years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(Dollars in thousands)
U.S. Government agency    securities	$	—	—			$	8,031		1.41	%	$	—	—			$	—	—			$	8,031		1.41	%
Obligations of states and    political subdivisions		250		1.02	%		2,459		1.77	%		403		2.79	%		5,015		4.11	%		8,127		3.24	%
Federal agency mortgage    backed securities		—	—				—	—				3,750		2.20	%		12,043		1.98	%		15,793		2.03	%
Federal agency collateralized    mortgage obligations		—	—				—	—				192		1.34	%		79		2.68	%		271		1.73	%
Other debt securities		—	—				—	—				—	—				1,523		5.50	%		1,523		5.50	%
Money market mutual fund		25		0.00	%		—	—				—	—				—	—				25		0.00	%
Total investments available    for sale	$	275		0.93	%	$	10,490		1.50	%	$	4,345		2.22	%	$	18,660		2.84	%	$	33,770		2.33	%
	Securities Held to Maturity, at Amortized Cost
	As of June 30, 2016
	Within 1 year					After one but within five years					After five but within ten years					Over ten years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(Dollars in thousands)
Obligations of states and    political subdivisions	$	—		—		$	802		4.72	%	$	1,295		3.84	%	$	16,747		4.34	%	$	18,844		4.32	%
Other debt securities		—	—				—	—				—	—				481		4.37	%		481		4.37	%
Total investments held to    maturity	$	—		—		$	802		4.72	%	$	1,295		3.84	%	$	17,228		4.34	%	$	19,325		4.32	%

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The amortized cost and fair value of First Priority’s investments, classified as available for sale or held to maturity, at June 30, 2016 and December 31, 2015 are shown in the following table:

	June 30, 2016				December 31, 2015
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Available For Sale:
Obligations of U.S. government agencies    and corporations	$	7,975	$	8,031	$	62,967	$	62,904
Obligations of states and political subdivisions		7,644		8,127		13,964		14,347
Federal agency mortgage-backed securities		15,441		15,793		17,042		17,038
Federal agency collateralized mortgage obligations		270		271		347		346
Other debt securities		1,500		1,523		—		—
Money market mutual fund		25		25		69		69
Total investment securities available for sale	$	32,855	$	33,770	$	94,389	$	94,704
Held To Maturity:
Obligations of states and political subdivisions	$	18,844	$	20,476	$	19,405	$	19,955
Other debt securities		481		527		481		491
Total held to maturity	$	19,325	$	21,003	$	19,886	$	20,446

Restricted investments in bank stocks

Restricted investments in bank stocks represent the investment in the common stock of correspondent banks required in order to transact business with those banks. Investments in restricted stock are carried at cost.

At both June 30, 2016 and December 31, 2015, the Bank held $110 thousand in common stock of Atlantic Community Bancshares, Inc. (parent company of Atlantic Community Bankers Bank), Camp Hill, Pennsylvania. Additionally, First Priority had investments in the common stock of the FHLB Bank of Pittsburgh totaling $1.96 million and $3.26 million as of June 30, 2016 and December 31, 2015, respectively. The decrease in investment is attributable to lower investments required to support the decreased level of borrowings.

Loans

First Priority’s loan portfolio is the primary component of its assets. At June 30, 2016, total loans were $418.1 million, representing an increase of $8.9 million or 2.2%, from total loans outstanding of $409.2 million at December 31, 2015. During the first six months of 2016 loan growth consisted of new organic loan production of approximately $29 million while the Company experienced approximately $33 million in principal payments or unscheduled loan payoffs.  Also included in the current year loan growth is $12.7 million from the purchase of performing residential real estate loans which were underwritten using a similar standard as the Bank uses for its originated mortgage portfolio.  The following table sets forth the classification of First Priority’s loan portfolio at June 30, 2016 and December 31, 2015.

	June 30, 2016					December 31, 2015
	Amount		Percent of total			Amount			Percent of total
Commercial & Industrial	$	70,741		17	%	$	74,470			18	%
Commercial Mortgage		180,029		43	%		179,365			44	%
Commercial Construction		15,058		4	%		13,466			3	%
Total Commercial		265,828		64	%		267,301			65	%
Residential Mortgage		109,893		26	%		101,185			25	%
Home Equity Lines		25,527		6	%		24,762			6	%
Other Consumer		16,599		4	%		15,915			4	%
Total Consumer		42,126		10	%		40,677			10	%
Total Loans		417,847		100	%		409,163			100	%
Net deferred loan (fees) or costs		222		—			(10	)		—
Total	$	418,069		100	%	$	409,153			100	%

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Commercial mortgage loans consist of loans originated for commercial purposes which are secured by nonfarm, nonresidential properties, multifamily residential properties, or 1-4 family residential properties. As of June 30, 2016, commercial mortgage loans totaled $180.0 million, consisting of $119.4 million of loans to finance commercial business properties, of which 59% are owner occupied, $14.9 million to finance, and are secured by, multifamily properties, $37.2 million secured by 1-4 family residential dwelling properties for business purposes, and $8.5 million for other purposes. In addition, as of June 30, 2016, loans to lessors of non-residential buildings totaled $73.4 million, which is included in commercial mortgage loans; of this amount, $35.9 million, or 49%, of these loans are related to owner occupied buildings.

As of December 31, 2015, commercial mortgage loans totaled $179.4 million, consisting of $121.3 million of loans to finance commercial business properties, of which 60% are owner occupied, $17.3 million to finance, and are secured by, multifamily properties, $36.2 million secured by 1-4 family residential dwelling properties for business purposes, and $4.6 million for other purposes. In addition, as of December 31, 2015, loans to lessors of non-residential buildings totaled $74.1 million, which is included in commercial mortgage loans; of this amount, $35.4 million, or 48%, of these loans are related to owner occupied buildings.

The payment experience of certain non-owner occupied commercial mortgage loans may be dependent upon the successful operation of the real estate project. These risks can be significantly affected by supply and demand conditions in the market for office and retail space and for apartments and, as such, may be subject to a greater extent to adverse conditions in the economy. In dealing with these risk factors, First Priority generally limits itself to a real estate market or to borrowers with which First Priority has experience. First Priority generally concentrates on originating commercial real estate loans secured by properties located within its market area, and many of First Priority’s commercial real estate loans are secured by owner-occupied property with personal guarantees of the debt.

Regulatory guidance exists whereby total construction, land development and other land loans should not exceed 100% of total risk based capital and further guidance whereby total construction, land development and other land loans combined with real estate loans secured by multifamily or nonresidential properties and loans to finance commercial real estate or construction loans (not secured by real estate) should not exceed 300% of total risk-based capital. The Bank monitors these two ratios, which as of June 30, 2016, totaled 41% and 173% of total risk-based capital, respectively, both well within the regulatory suggested guidance.

Credit Quality

The Bank’s written lending policies require specified underwriting, loan documentation and credit analysis standards to be met prior to funding, with additional credit department approval for the majority of new loan balances. The Loan Committee is comprised of senior members of management who oversee the loan approval process to monitor that proper standards are maintained.

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The following table summarizes non-performing assets and performing troubled debt restructurings at the dates indicated.

	June 30,			December 31,
	2016			2015
	(Dollars in thousands)
Loans past due 90 days or more and still accruing interest	$	—		$	—
Non-accrual loans		877			1,933
Total non-performing loans (1)		877			1,933
Other real estate owned		1,733			1,633
Repossessed assets (2)		—			-
Total non-performing assets (3)		2,610			3,566
Performing troubled debt restructurings (4)		3,601			2,638
Total non-performing assets and performing troubled debt    restructurings	$	6,211		$	6,204
Non-performing loans as a percentage of total loans		0.21	%		0.47	%
Non-performing assets as a percentage of total assets		0.51	%		0.65	%
Non-performing assets and performing troubled debt    restructurings as a percentage of total assets		1.07	%		1.14	%
Ratio of allowance to non-performing loans at end of period		320	%		145	%
Ratio of allowance to non-performing assets at end of period		108	%		78	%
Allowance for loan losses as a percentage of total loans		0.67	%		0.68	%

(1) Non-performing loans are comprised of (i) loans that have a non-accrual status; (ii) accruing loans that are 90 days or more past due and (iii) non-performing troubled debt restructured loans.

(2) Repossessed assets include personal property, consisting of manufactured housing, which has been acquired for debts previously contracted.

(3) Non-performing assets are comprised of non-performing loans, other real estate owned (assets acquired in foreclosure) and repossessed assets.

(4) Performing troubled debt restructurings are accruing loans that have been restructured in troubled debt restructurings and are in compliance with their modified terms.

Total non-performing loans were $877 thousand at June 30, 2016, a decrease of $1.1 million from the $1.9 million at December 31, 2015. This decrease included a loan relationship totaling $1.0 million which was restored to accruing as a performing TDR.  Additionally, three loan relationships with property fair values totaling $342 thousand were transferred to other real estate owned while charge-offs in the first six months of 2016 totaled $222 thousand.  There was also one additional non-accrual loan totaling $511 thousand related to the closure of a commercial business due to financial difficulty.  Total non-performing loans as a percentage of total loans at June 30, 2016 was 0.21%, compared to 0.47% at December 31, 2015.

Other real estate owned totaled $1.7 million at June 30, 2016 compared to $1.6 million at December 31, 2015.  As of June 30, 2016 and December 31, 2015 there were no repossessed assets.  Nonperforming assets totaled $2.6 million, or 0.51% of total assets, as of June 30, 2016, compared to $3.6 million, or 0.65% of total assets as of December 31, 2015.

While not considered non-performing, First Priority’s performing troubled debt restructurings are closely monitored as they consist of loans that have been modified where the borrower is experiencing financial difficulty. Troubled debt restructurings may be deemed to have a higher risk of loss than loans which have not been restructured. At June 30, 2016 First Priority’s performing troubled debt restructurings totaled $3.6 million and $2.6 million as of December 31, 2015.  This increase is explained above.

The Bank’s management continues to monitor and explore potential options and remedial actions to recover the Bank’s investment in non-performing loans. According to policy, the Bank is required to maintain a specific reserve for impaired loans. See the “Allowance for Loan Losses” section below for further information.

The Bank’s total delinquency amount is comprised of loans past due 30 to 89 days and still accruing plus the balance of nonperforming loans. As of June 30, 2016 and December 31, 2015, loans past due 30 to 89 days and still accruing totaled $820 thousand and $1.0 million, respectively, which when added to the non-performing loans for each period, resulted in a total delinquency ratio of 0.41% and 0.73%, respectively, of total loans outstanding.

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Allowance for Loan Losses

The allowance for loan losses represents an amount that First Priority believes will be adequate to absorb estimated credit losses on loans that may become impaired. While First Priority applies the methodology discussed below in connection with the establishment of the allowance for loan losses, the allowance is subject to critical judgments on the part of management. Risks within the loan portfolio are analyzed on a continuous basis by management, periodically analyzed by an external independent loan review function, and are also reviewed by the audit committee. A risk system, consisting of multiple grading categories, is utilized as an analytical tool to assess risk and appropriate allowances. In addition to the risk system, management further evaluates the risk characteristics of the loan portfolio under current and anticipated economic conditions and considers such factors as the financial condition of the borrower, past and expected loss experience, and other factors which management believes deserve recognition in establishing an appropriate allowance. These estimates are reviewed at least quarterly, and, as adjustments become necessary, they are realized in the periods in which they become known.

First Priority uses a quantitative and qualitative method to allocating its allowance to the various loan categories. An unallocated component, which is maintained to cover uncertainties that could affect management’s estimate of probable losses, reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.  Additions to the allowance are made by provisions charged to expense, and the allowance is reduced by net charge-offs, which are loans judged to be uncollectible, less any recoveries on loans previously charged off. Although management attempts to maintain the allowance at an adequate level, future additions to the allowance may be required due to the growth of the loan portfolio, changes in asset quality, changes in market conditions and other factors. Additionally, various regulatory agencies periodically review the allowance for loan losses. These agencies may require additional provisions based upon their judgment about information available to them at the time of their examination. Although management uses what it believes to be the best information available, the level of the allowance for loan losses remains an estimate which is subject to significant judgment and short-term change.

The following table sets forth a summary of the changes in the allowance for loan losses for the periods indicated:

	For the three months ended						For the six months ended
	June 30,						June 30,
	2016			2015			2016			2015
	(Dollars in thousands)						(Dollars in thousands)
Balance at the beginning of period	$	2,783		$	2,377		$	2,795		$	2,313
Charge-offs:
Commercial and Industrial		75			—			75			16
Commercial Mortgage		—			31			72			42
Residential Mortgage Loans		—			—			—			14
Home equity lines of credit		—			—			—			12
Other consumer loans		—			—			75			16
Total loans charged off		75			31			222			100
Recoveries:
Commercial and Industrial		2			2			19			7
Home equity lines of credit		3			84			8			88
Other consumer		4			4			7			8
Total recoveries		9			90			34			103
Net loans charged off		66			(59	)		188			(3	)
Provision charged to operations		90			130			200			250
Balance at end of period	$	2,807		$	2,566		$	2,807		$	2,566
Average loans (1)	$	414,211		$	380,943		$	410,851		$	376,127
Ratio of net charge-offs (recoveries) during period to average loans outstanding during period (annualized) (1)		0.06	%		-0.06	%		0.09	%		0.00	%
Allowance for loan losses as a percentage of total loans		0.67	%		0.66	%		0.67	%		0.66	%

(1) Includes non-accrual loans

The allowance for loan losses was $2.8 million at both June 30, 2016 and December 31, 2015, which represented 0.67% and 0.68% of total loans outstanding at each respective date. As of June 30, 2016 and December 31, 2015, the unamortized portion of the general credit fair value adjustment totaled $62 thousand and $174 thousand, respectively, and the total specific credit market valuation adjustment totaled $362 thousand as of both June 30, 2016 and December 31, 2015. Additionally, as of June 30, 2016 and December 31, 2015 the combination of these remaining credit fair value adjustments related to acquired loans, totaling $424 thousand and $536

47

thousand, respectively, and the allowance for loan losses of $2.8 million for each respective period, or a total of $3.2 million and $3.3 million, respectively, would equate to 0.77% and 0.81% of total loans outstanding as of June 30, 2016 and December 31, 2015, respectively. Net charge-offs recorded totaled $188 thousand for the six months ended June 30, 2016 compared to a net recovery of $3 thousand for the same period in 2015.

The following table sets forth the allocation of the allowance for loan losses by loan category. The specific allocations in any particular category may be reallocated in the future to reflect the then current conditions. Accordingly, management considers the entire allowance to be available to absorb losses in any category.

	June 30,					December 31,
	2016					2015
	Amount		Percent of total loans  (1)			Amount		Percent of total loans  (1)
(In thousands except percentage data)
Commercial and Industrial	$	567		17	%	$	631		18	%
Commercial Mortgage		828		43	%		831		44	%
Commercial Construction		57		4	%		56		3	%
Residential Mortgage Loans		276		26	%		259		25	%
Home Equity Lines of Credit		152		6	%		167		6	%
Other Consumer Loans		47		4	%		84		4	%
Total Allocated		1,927		100	%		2,028		100	%
Unallocated		880					767
TOTAL	$	2,807				$	2,795

(1) Represents loans outstanding in each category, as of the date shown, as a percentage of total loans outstanding.

A specific allocation of the allowance for loan losses is established for loans that are classified as impaired or are performing troubled debt restructurings when the discounted cash flows or related collateral value of each loan is lower than the carrying value of that loan.  A specific allocation of $372 thousand has been provided on impaired loans of $4.5 million at June 30, 2016 compared to a specific allocation of $452 thousand related to $4.6 million of originated impaired loans at December 31, 2015.

The general allocation component of the allowance for loan losses relates to reserves established for pools of homogenous loans which includes both a qualitative and quantitative analysis. The qualitative analysis utilizes a risk matrix that incorporates qualitative and environmental factors such as: loan volume, management, loan review process, internal policies and procedures, economic environment, credit concentrations, credit quality trends, and regulatory and other external factors. These factors are each risk rated using five levels from weak to strong which could create a total qualitative factor of up to 42 basis points of gross loans, depending on individual ratings applied.  The quantitative analysis uses a historical four year rolling average loan loss experience factor which management believes is a sufficient period to properly represent swings resulting from changing economic cycles, and therefore, reflects an appropriate period of loss history for calculating the general reserve in the current environment. The cumulative results from the qualitative and quantitative analysis of the loan portfolio resulted in a general allocation portion of the allowance for loan losses totaling $1.6 million as of both June 30, 2016 and December 31, 2015, respectively.

An unallocated component is maintained to cover uncertainties that could affect Management’s estimate of probable loss.  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.  

These allocations could change based on general economic or environmental factors or due to a specific credit situation which could develop within the loan portfolio.  However, based on all relevant information currently available as of June 30, 2016, management believes that the allowance for loan losses of $2.8 million is adequate as of that date and the allocations described above are appropriate.

Loan Concentrations

The Company’s loans consist of credits to borrowers spread over a broad range of industrial classifications. The largest concentrations of loans are to lessors of nonresidential buildings and lessors of residential buildings and dwellings. As of June 30, 2016, these loans totaled $73.4 million and $57.0 million, respectively, or 17.5% and 13.6%, respectively, of the total loans outstanding. As of December 31, 2015, these same classifications of loans totaled $74.1 million and $58.4 million, respectively, or 18.1% and 14.3%, respectively, of the total loans outstanding. These credits were subject to normal underwriting standards and did not present more than the normal amount of risk assumed by the Company’s other lending activities. Management believes this concentration does not pose abnormal risk when compared to the risk it assumes in other types of lending. The Company has no other concentration of loans which exceeds 10% of total loans.

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Deposits

Deposits represent the primary source of funding for earning assets. Deposits totaled $410.6 million at June 30, 2016 compared to $408.7 million at December 31, 2015, representing an increase of $1.9 million or 0.5%. During the six months ended June 30, 2016, increases of $18.1 million in demand deposits and $8.5 million in money market deposit and savings accounts were mostly offset by a decrease of $9.7 million in retail time deposits and a decrease in brokered time deposits of $15.0 million.

First Priority attracts deposits by offering competitive products and interest rates on a broad spectrum of deposit products to customers in its local marketplace, generally through its retail branch system, and also through its internet banking platform. The Bank supplements deposits raised locally with the issuance of brokered deposits when cost effective relative to local market pricing. At June 30, 2016 and December 31, 2015, brokered deposits totaled $98.3 million and $113.3 million, respectively. The guidelines governing the Bank’s participation in the brokered CD market are included in the Bank’s Asset Liability Management Policy, which is reviewed, revised and approved annually by the asset liability management committee and the board of directors. The FDIC places restrictions on a depository institution’s use of brokered deposits based on the bank’s capital classification. A well-capitalized institution may accept brokered deposits without FDIC restrictions. An adequately capitalized institution must obtain a waiver from the FDIC in order to accept brokered deposits, while an undercapitalized institution is prohibited by the FDIC from accepting brokered deposits. The Bank is classified as well-capitalized under prompt corrective action provisions (see “Regulatory Matters” of the Notes to Unaudited Consolidated Financial Statements) and, therefore, may accept brokered deposits without FDIC restrictions.

The following table sets forth the average balance of deposits and the average rates paid on deposits for the periods presented.

	For the three months ended June 30,										For the six months ended June 30,
	2016					2015					2016					2015
	Average Balance		Rate			Average Balance		Rate			Average Balance		Rate			Average Balance		Rate
	(Dollars in thousands)										(Dollars in thousands)
Demand, non-interest bearing	$	54,379				$	46,897				$	51,740				$	46,562
Demand, interest-bearing		50,750		0.33	%		33,104		0.23	%		45,829		0.29	%		33,115		0.23	%
Money market and savings    deposits		95,020		0.49	%		96,652		0.29	%		93,792		0.47	%		99,373		0.29	%
Time deposits		212,977		1.33	%		196,474		1.28	%		219,569		1.30	%		195,851		1.30	%
Total interest-bearing deposits		358,747		0.97	%		326,230		0.88	%		359,190		0.95	%		328,339		0.89	%
Total deposits	$	413,126				$	373,127				$	410,930				$	374,901

The maturity distribution of time deposits of $100,000 or more as of June 30, 2016, is as follows:

	June 30,
	2016
Three Months or Less	$	7,048
Over Three Through Six Months		3,571
Over Six Through Twelve Months		6,701
Over Twelve Months		31,026
TOTAL	$	48,346

Short-Term Borrowed Funds

At June 30, 2016, First Priority had short-term borrowings totaling $22.9 million, compared to $59.7 million at December 31, 2015. Short-term borrowings consisted of advances from the FHLB with an original maturity of one year or less as of each of these periods. The decrease of $36.8 million, or 61.7%, between periods in short-term borrowings resulted primarily from the decline in short-term investment securities from the prior year end in conjunction with the increase in interest bearing deposits reflected in cash and cash equivalents. Advances from the FHLB at June 30, 2016 are collateralized by an investment in the common stock of the FHLB, by a specific pledge of the Bank’s investment assets and by a blanket lien on qualifying mortgages within the Bank’s loan portfolio.

49

The following table outlines First Priority’s various sources of short-term borrowed funds at or for each of the three months ended June 30, 2016 and 2015. The maximum balance represents the highest indebtedness for each category of short-term borrowed funds at any month-end during each of the periods shown.

	For the six months ended June 30,
	2016			2015
	(Dollars in thousands)
Federal funds purchased:
Balance at period end	$	—		$	—
Weighted average rate at period end		—			—
Maximum month-end balance	$	—		$	—
Average daily balance during the period	$	4		$	50
Weighted average rate during the period		0.76	%		0.51	%
FHLB short-term borrowings:
Balance at period end	$	22,900		$	63,208
Weighted average rate at period end		0.56	%		0.32	%
Maximum month-end balance	$	29,875		$	63,208
Average daily balance during the period	$	14,463		$	30,301
Weighted average rate during the period		0.62	%		0.33	%

Long-Term Debt

Long-term debt totaled $15.0 million as of June 30, 2016 and December 31, 2015.  These borrowings consisted of advances from the FHLB with an original maturity in excess of one year and carry a weighted average interest rate of 1.09%, as of each of these respective dates and an average remaining life of 1.4 years and 1.9 years, respectively. Advances from the FHLB are collateralized by an investment in the common stock of the FHLB, by a specific pledge of the Bank’s investment assets and by a blanket lien on qualifying mortgages within the Bank’s loan portfolio.  Balances of FHLB long-term debt averaged $15.0 million and $11.0 million during the six months ended June 30, 2016 and 2015, respectively, with an average rate of 1.09% and 0.89% for each of these respective periods. The maximum month-end balance of these borrowings was $15.0 million for the first six months of 2016 and $11.0 million for the same period in 2015.

Subordinated Debt

On November 13, 2015, the Bank entered into Subordinated Note Purchase Agreements with five accredited investors under which the Bank issued subordinated notes (the “Notes”) totaling $9.5 million, resulting in net proceeds of approximately $9.2 million after issuance costs. The Notes have a maturity date of November 30, 2025, and bear interest at a fixed rate of 7.00% per annum.  The Notes are non-callable for an initial period of five years and include provisions for redemption pricing between 101.5% and 100.5% of the liquidation value, if called after five years but prior to the maturity date.  Upon receipt of regulatory approvals in December 2015, the Bank distributed $6.0 million of the proceeds from the subordinated note issuance to First Priority, and subsequently, in January 2016, First Priority utilized the distribution from the Bank to redeem 6,000 of the 9,404 outstanding shares of its 9.00% Fixed Rate Cumulative Perpetual Preferred Stock, at their liquidation value of $1,000 per share, or $6.0 million, plus accrued dividends.

Capital Resources

Shareholders’ equity at June 30, 2016 was $47.5 million, representing a decrease of $4.6 million from $52.1 million at December 31, 2015. Included in equity as of December 31, 2015 was $9.4 million of preferred stock, of which $6.0 million was redeemed in January 2016.  Additionally, increases in equity related to net income of $1.1 million, stock based compensation costs of $181 thousand and a positive impact from market volatility related to the investment securities portfolio resulting in a net change in net unrealized gains (losses) totaling $384 thousand, were partially offset by preferred dividends paid of $254 thousand.

As noted above, in January 2016, First Priority utilized $6 million of the proceeds received from the issuance of Tier 2 qualifying subordinated debt to redeem 6,000 shares of the Company’s outstanding preferred stock.  This redemption consisted of all outstanding shares of Series A and Series B, and 1,192 shares of the Series C preferred stock, which were redeemed on a pro rata basis, which subsequently leaves 3,404 shares of Series C outstanding.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial condition and results of operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting

50

practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

The Bank exceeds the minimum capital requirements established by regulatory agencies. Under the capital adequacy guidelines, capital is classified into two tiers. These guidelines require an institution to maintain a certain level of Tier 1 and Tier 2 capital to risk-weighted assets. Tier 1 capital consists of common shareholders’ equity and qualifying preferred stock, excluding the unrealized gain or loss on securities available for sale, minus certain intangible assets plus trust preferred securities up to 25% of Tier 1 capital, with the excess being treated as Tier 2 capital. Tier 2 capital also consists of the allowance for loan losses, subject to certain limitations, and qualifying subordinated debt. In determining the amount of risk-weighted assets, all assets, including certain off balance sheet assets, are multiplied by a risk-weight factor of 0% to 100% based on the risks believed inherent in the type of asset.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets and of Tier 1 capital to average assets, known as the Tier 1 leverage ratio. The following table sets forth the capital ratios for both First Priority and the Bank at June 30, 2016 and December 31, 2015.  First Priority currently meets the definition of a “small bank holding company” under the FRB’s regulations, and thus is not subject to any capital requirements; however, the Company meets the holding company regulatory requirements for “well-capitalized” for each stated period.  The Bank was considered “well-capitalized” and met or exceeded its applicable regulatory requirements for both periods.   

	First Priority Financial Corp.				First Priority Bank
	As of June 30, 2016		As of December 31, 2015		For Capital Adequacy Purposes		For Capital Adequacy with Capital Buffer		To Be Considered "Well-Capitalized"		As of June 30, 2016		As of December 31, 2015
Total risk-based capital		13.72%		13.08%		8.00%		8.625%		10.00%		13.64%		12.98%
Tier 1 risk-based capital		10.65%		10.07%		6.00%		6.625%		8.00%		10.57%		9.97%
Tier 1 common equity capital		10.00%		9.60%		4.50%		5.125%		6.50%		10.57%		9.97%
Tier 1 leverage capital		8.48%		8.19%		4.00%	N/A			5.00%		8.41%		8.11%

The ratios shown above, for both the Company and the Bank, include the $9.5 million issuance of Tier 2 qualifying subordinated debt noted above.

The capital ratios above reflect the new capital requirements under "Basel III" effective during the year ended December 31, 2015.  As of June 30, 2016, the Bank and the Company were in compliance with the new requirements. See Note 10 - Regulatory Matters for additional discussion regarding regulatory capital requirements.

Return on Average Equity and Assets

The following table shows the return on average assets (net income divided by total average assets), return on equity (net income divided by average equity), and the equity to assets ratio (average equity divided by total average assets) for the six months ended June 30, 2016 and 2015.

	At or for the six months ended
	June 30,
	2016	2015
Return on average assets................................	0.44%	0.39%
Return on average equity................................	4.58%	3.56%
Average equity to average assets ratio........	9.56%	10.84%

Effect of Inflation and Changing Prices

The effect of relative purchasing power over time due to inflation has not been taken into effect in First Priority’s consolidated financial statements. Rather, the statements have been prepared on a historical cost basis in accordance with accounting principles generally accepted in the United States of America.

Unlike most industrial companies, the assets and liabilities of financial institutions, such as First Priority and the Bank, are primarily monetary in nature. Therefore, the effect of changes in interest rates will have a more significant impact on its performance than will the effect of changing prices and inflation in general. In addition, interest rates may generally increase as the rate of inflation increases, although not necessarily in the same magnitude. First Priority seeks to manage the relationships between interest-sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.

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Off-Balance Sheet Arrangements

Through the operations of the Bank, First Priority has made contractual commitments to extend credit, in the ordinary course of its business activities, to meet the financing needs of customers. Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized on the balance sheets. These commitments are legally binding agreements to lend money at predetermined interest rates for a specified period of time and generally have fixed expiration dates or other termination clauses. The same credit and collateral policies are used in making these commitments as for on-balance sheet instruments.

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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis and collateral is obtained, if necessary, based on the credit evaluation of the borrower. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include personal or commercial real estate, accounts receivable, inventory and equipment.

At June 30, 2016 and December 31, 2015, outstanding commitments to extend credit consisting of total unfunded commitments under lines of credit were $95.8 million and $97.8 million, respectively. In addition, as of each of these dates, the Company maintained $681 thousand and $711 thousand of performance standby letters of credit outstanding, respectively, and $1.2 million and $1.1 million of financial standby letters of credit outstanding, respectively, on behalf of its customers.

As of June 30, 2016, the Company also has deposit letters of credit totaling $9.9 million, issued by the Federal Home Loan Bank of Pittsburgh (“FHLB”), as required to provide collateral on certain municipal deposits maintained at First Priority.  These deposit letters of credit are secured by a blanket lien on selected mortgage loans within First Priority Bank’s portfolio.

First Priority is not involved in any other off-balance sheet contractual relationships, unconsolidated related entities that have off-balance sheet arrangements or transactions that could result in liquidity needs or other commitments that could significantly impact earnings.  First Priority believes that it has adequate sources of liquidity to fund commitments that may be drawn upon by borrowers.

Liquidity

The objective of liquidity management is to assure that sufficient sources of funds are available, as needed and at a reasonable cost, to meet the ongoing and unexpected operational cash needs and commitments of First Priority and to take advantage of income producing opportunities as they arise. Sufficient liquidity must be available to meet the cash requirements of depositors wanting to withdraw funds and of borrowers wanting their credit needs met. Additionally, liquidity is needed to insure that First Priority has the ability to act at those times when profitable new lending and investment opportunities arise. While the desired level of liquidity may vary depending upon a variety of factors, it is a primary goal of First Priority to maintain adequate liquidity in all economic environments through active balance sheet management.

Liquidity management is the ongoing process of monitoring and managing First Priority’s sources and uses of funds. The primary sources of funds are deposits, scheduled amortization of loans outstanding, maturities and cash flow generated from the investment portfolio and funds provided by operations. Scheduled loan payments and investment maturities are relatively predictable sources of funds; however, deposit flows and loan prepayments are far less predictable and are influenced by the level of interest rates, economic conditions, local competition and customer preferences. Liquidity is also provided by unused lines of credit with correspondent banks and First Priority’s borrowing capacity at the FHLB. First Priority measures and monitors its liquidity position on an ongoing basis in order to better understand, predict and respond to balance sheet trends, unused borrowing capacity and liquidity needs. The liquidity position is managed on a daily basis as part of the daily settlement function and on an ongoing basis through the asset liability management function.

The key elements of First Priority’s liquidity planning process involve a primary focus on the development of a stable, core funding base; utilization of wholesale funding sources to supplement core funding; maintenance of an appropriate level of asset liquidity; management of the maturity structure of funding sources and of funding concentrations; and maintenance of borrowing facilities.

Wholesale funding sources utilized by the Bank include brokered certificates of deposits, secured advances from the Federal Home Loan Bank of Pittsburgh, federal funds purchased and other secured borrowing facilities. At June 30, 2016, wholesale funding sources totaled $136.2 million and were comprised of $98.3 million of brokered certificates of deposit and $37.9 million of FHLB advances. At December 31, 2015, wholesale funding sources totaled $188.0 million and were comprised of $113.3 million of brokered certificates of deposit and $74.7 million of FHLB advances. Wholesale funding is generally used in managing the daily liquidity needs and when it is the most cost effective funding source available to First Priority. Management continually evaluates all available funding sources for cost and availability.

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An integral part of the Bank’s balance sheet management strategy is to establish and maintain borrowing facilities with correspondent banks for access to funding. Off balance sheet borrowing capacity provides the immediate availability of funds to meet short-term financing needs without requiring the bank to maintain excess liquidity in its investment portfolio, which may have a negative impact on earnings. In today’s environment of historically low interest rates, it also provides the most effective longer term funding, in terms of the cost and structure. Long term borrowings from the FHLB cannot be called prior to maturity, which provides much greater protection against a rise in interest rates when compared to retail deposits which can be redeemed early by the depositor at lower than market rate penalties.

As of June 30, 2016 and December 31, 2015, the Bank had a borrowing facility with a correspondent bank totaling $10 million, available for short-term limited purpose usage, of which $2 million is available unsecured. The remaining $8 million is a secured line of credit.

At June 30, 2016 and December 31, 2015, the Bank had a total borrowing capacity with the FHLB of $171 million and $169 million, respectively, with advances and letters of credit outstanding of $47.8 million and $74.7 million, respectively.  Short-term liquid assets at June 30, 2016 and December 31, 2015 totaled $17.0 million and $52.4 million, respectively, and were comprised of $16.8 million and $2.4 million, respectively, of interest bearing deposits held at correspondent banks and $250 thousand and $50 million of investment securities due within 30 days, respectively.

Interest Rate Sensitivity

It is the responsibility of the board of directors and senior management to understand and control the interest rate risk exposures assumed by First Priority. The board has delegated authority to the asset liability management committee (“ALCO”) for the development of ALCO policies and for the management of the asset liability management function. The ALCO committee is comprised of senior management representing all primary functions of First Priority and meets monthly. ALCO has the responsibility for maintaining a level of interest rate risk exposures within board of director approved limits.

The primary objective of asset liability management is to optimize net interest income over time while maintaining a balance sheet mix that is prudent with respect to liquidity, capital adequacy and interest rate risk. The absolute level and volatility of interest rates can have a significant impact on the profitability of First Priority. Interest rate risk management is the process of identifying and controlling the potential adverse impact of interest rates movements on First Priority’s net interest income and on the fair value of its assets and liabilities.

One tool used to monitor interest rate risk is the measurement of its interest sensitivity “gap,” which is the positive or negative dollar difference between interest-earning assets and interest-bearing liabilities that are subject to interest rate repricing within a given period of time. Interest rate sensitivity can be managed by changing the mix, pricing and repricing characteristics of First Priority’s assets and liabilities, through management of its investment portfolio, loan and deposit product offerings, and through wholesale funding. Managing the amount of assets and liabilities repricing in the same time interval helps to hedge interest rate risk and minimize the impact on net interest income of rising or falling interest rates. First Priority generally would benefit from increasing market rates of interest when it has an asset-sensitive gap position and generally would benefit from decreasing market rates of interest when First Priority is liability-sensitive.

At June 30, 2016, First Priority was moderately liability sensitive at the one-year gap position, as it has more liabilities subject to repricing in the subsequent twelve month period than assets. It must be noted, however, that the gap analysis is not a precise indicator of First Priority’s exposure to changing interest rates. The analysis presents only a static view of the timing of maturities and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. Furthermore, the results are influenced by management assumptions concerning the repricing characteristics of deposit products with no contractual maturities, the timing of the repricing of variable rate loans with interest rates currently fixed at interest rate floors, and prepayment speeds of loans and investments subject to prepayment prior to maturity. Additionally, net interest income performance may be impacted by other significant factors in a given interest rate environment, including changes in the volume and mix of interest-earning assets and interest-bearing liabilities.

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Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Risk identification and management are essential elements for the successful management of First Priority. In the normal course of business, First Priority is subject to various types of risk, including interest rate, credit, and liquidity risk. First Priority controls and monitors these risks with policies, procedures, and various levels of managerial and board oversight. First Priority’s objective is to optimize profitability while managing and controlling risk within board approved policy limits. Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the magnitude, direction, and frequency of changes in interest rates. Interest rate risk results from various repricing frequencies and the maturity structure of assets and liabilities. First Priority uses its asset liability management policy to control and manage interest rate risk.

Liquidity risk represents the inability to generate cash or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers, as well as, the obligations to depositors and debt holders. First Priority uses its asset liability management policy and contingency funding plan to control and manage liquidity risk.

Credit risk represents the possibility that a customer may not perform in accordance with contractual terms. Credit risk results from extending credit to customers, purchasing securities, and entering into certain off-balance sheet loan funding commitments. First Priority’s primary credit risk occurs in the loan portfolio. First Priority uses its credit policy and disciplined approach to evaluating the adequacy of the allowance for loan losses to control and manage credit risk. First Priority’s investment policy limits the degree of the amount of credit risk that may be assumed in the investment portfolio. First Priority’s principal financial market risks are liquidity risks and exposures to interest rate movements.

Item 4.  Controls and Procedures

Under the supervision and with the participation of our management, including the Chairman and Chief Executive Officer and the Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chairman and Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of such period, these disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a–15(f) and 15d–15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1.  Legal Proceedings

A certain amount of litigation arises in the ordinary course of the business of First Priority and the Bank. In the opinion of the management of First Priority, there are no proceedings pending to which First Priority or the Bank is a party or to which their property is subject, that, if determined adversely to them, would be material in relation to First Priority’s shareholders’ equity or financial condition, nor are there any proceedings pending other than ordinary routine litigation incident to the business of First Priority and the Bank. In addition, no material proceedings are pending or are known to be threatened or contemplated against First Priority or the Bank by governmental authorities.

Item 1A.  Risk Factors

Not Applicable

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

None.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not Applicable

Item 5.  Other Information

None.

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Item 6.  Exhibits

Exhibit No.	Title
3.1	Articles of Incorporation of First Priority Financial Corp. (incorporated by reference to Exhibit 3.1 to First Priority’s Quarterly Report on Form 10-Q for the three months ended March 31, 2016, filed with the SEC on May 16, 2016)
3.2	Certificate of Designations for the “Fixed Rate Cumulative Perpetual Preferred Stock, Series A” of First Priority Financial Corp. (incorporated by reference to Exhibit 3.3 to First Priority’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 24, 2009)
3.3	Certificate of Designations for the “Fixed Rate Cumulative Perpetual Preferred Stock, Series B” of First Priority Financial Corp. (incorporated by reference to Exhibit 3.4 to First Priority’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 24, 2009)
3.4	Certificate of Designations for the “Fixed Rate Cumulative Perpetual Preferred Stock, Series C” of First Priority Financial Corp. (incorporated by reference to Exhibit 2.1 to First Priority’s Registration Statement No. 333-183118 on Form S-4 filed with the SEC on January 25, 2013)
3.5	Bylaws of First Priority Financial Corp. (incorporated by reference to Exhibit 3.2 to First Priority’s Registration Statement No. 333-147950 on Form S-4 filed with the SEC on December 7, 2007)
31.1	Certification of Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015, (ii) the Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2016 and 2015, (iii) the Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2016 and 2015, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015, and (v) the Notes to Unaudited Consolidated Financial Statements.

56

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		FIRST PRIORITY FINANCIAL CORP.
		(Registrant)
Dated: August 12, 2016	By	/s/ David E. Sparks
		David E. Sparks,
		Chairman and Chief Executive Officer
Dated: August 12, 2016	By	/s/ Mark J. Myers
		Mark J. Myers,
		Chief Financial Officer

Exhibit Index

Exhibit No.	Title
3.1	Articles of Incorporation of First Priority Financial Corp. (incorporated by reference to Exhibit 3.1 to First Priority’s Quarterly Report on Form 10-Q for the three months ended March 31, 2016, filed with the SEC on May 16, 2016)
3.2	Certificate of Designations for the “Fixed Rate Cumulative Perpetual Preferred Stock, Series A” of First Priority Financial Corp. (incorporated by reference to Exhibit 3.3 to First Priority’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 24, 2009)
3.3	Certificate of Designations for the “Fixed Rate Cumulative Perpetual Preferred Stock, Series B” of First Priority Financial Corp. (incorporated by reference to Exhibit 3.4 to First Priority’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 24, 2009)
3.4	Certificate of Designations for the “Fixed Rate Cumulative Perpetual Preferred Stock, Series C” of First Priority Financial Corp. (incorporated by reference to Exhibit 2.1 to First Priority’s Registration Statement No. 333-183118 on Form S-4 filed with the SEC on January 25, 2013)
3.5	Bylaws of First Priority Financial Corp. (incorporated by reference to Exhibit 3.2 to First Priority’s Registration Statement No. 333-147950 on Form S-4 filed with the SEC on December 7, 2007)
31.1	Certification of Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015, (ii) the Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2016 and 2015, (iii) the Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2016 and 2015, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015, and (v) the Notes to Unaudited Consolidated Financial Statements.

58

EX-31.1

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

CERTIFICATION

I, David E. Sparks, Chairman and Chief Executive Officer of First Priority Financial Corp., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of First Priority Financial Corp., Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 12, 2016	/s/ David E. Sparks
	David E. Sparks,
	Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

CERTIFICATION

I, Mark J. Myers, Chief Financial Officer of First Priority Financial Corp., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of First Priority Financial Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 12, 2016	/s/ Mark J. Myers
	Mark J. Myers,
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of First Priority Financial Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David E. Sparks, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 12, 2016	/s/ David E. Sparks
	David E. Sparks,
	Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of First Priority Financial Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark J. Myers, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 12, 2016	/s/ Mark J. Myers
	Mark J. Myers,
	Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 09, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Trading Symbol	FPBK
Entity Registrant Name	FIRST PRIORITY FINANCIAL CORP.
Entity Central Index Key	0001389772
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		6,530,244

XML

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Assets
Cash and due from banks	$ 4,183	$ 3,533
Interest-bearing deposits in banks	16,798	2,376
Total cash and cash equivalents	20,981	5,909
Securities available for sale, at fair value (amortized cost: $32,855 and $94,389, respectively)	33,770	94,704
Securities held to maturity, at amortized cost (fair value: $21,003 and $20,446, respectively)	19,325	19,886
Loans receivable	418,069	409,153
Less: allowance for loan losses	2,807	2,795
Net loans	415,262	406,358
Restricted investments in bank stocks	2,074	3,368
Premises and equipment, net	1,879	2,033
Bank owned life insurance	3,217	3,178
Accrued interest receivable	1,542	1,623
Other real estate owned	1,733	1,633
Deferred taxes	2,928	3,543
Goodwill	2,725	2,725
Intangible assets with finite lives, net	272	310
Other assets	1,208	1,270
Total Assets	506,916	546,540
Deposits:
Non-interest bearing	51,971	46,343
Interest-bearing	358,664	362,344
Total deposits	410,635	408,687
Federal home Loan Bank of Pittsburgh advances	37,900	74,725
Subordinated debt	9,196	9,201
Accrued interest payable	447	450
Other liabilities	1,237	1,386
Total Liabilities	459,415	494,449
Commitments and contingencies (Note 9)
Shareholders’ Equity:
Common stock, $1 par value; authorized 20,000,000 shares as of June 30, 2016 and 10,000,000 shares as of December 31, 2015; issued and outstanding: 2016: 6,519,744; 2015: 6,492,194	6,520	6,492
Surplus	40,492	40,327
Accumulated deficit	(3,535)	(4,368)
Accumulated other comprehensive income	620	236
Total Shareholders’ Equity	47,501	52,091
Total Liabilities and Shareholders’ Equity	506,916	546,540
Series A Preferred Stock [Member]
Shareholders’ Equity:
Preferred stock, value		4,579
Series B Preferred Stock [Member]
Shareholders’ Equity:
Preferred stock, value		229
Series C Preferred Stock [Member]
Shareholders’ Equity:
Preferred stock, value	$ 3,404	$ 4,596

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Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Securities available for sale, amortized cost	$ 32,855	$ 94,389
Securities held to maturity, fair value	$ 21,003	$ 20,446
Preferred stock, par value	$ 100	$ 100
Preferred stock, authorized shares	10,000,000	10,000,000
Preferred stock, dividend rate	9.00%	9.00%
Preferred stock, shares outstanding	3,404	9,404
Common stock, par value	$ 1	$ 1
Common stock, shares authorized	20,000,000	10,000,000
Common stock, shares issued	6,519,744	6,492,194
Common stock, shares outstanding	6,519,744	6,492,194
Series A Preferred Stock [Member]
Preferred stock, dividend rate		9.00%
Preferred stock, shares issued		4,579
Preferred stock, shares outstanding		4,579
Preferred stock, total liquidation value		$ 4,579
Series B Preferred Stock [Member]
Preferred stock, dividend rate		9.00%
Preferred stock, shares issued		229
Preferred stock, shares outstanding		229
Preferred stock, total liquidation value		$ 229
Series C Preferred Stock [Member]
Preferred stock, dividend rate	9.00%	9.00%
Preferred stock, shares issued	3,404	4,596
Preferred stock, shares outstanding	3,404	4,596
Preferred stock, total liquidation value	$ 3,404	$ 4,596

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Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Interest and Dividend Income
Loans receivable, including fees	$ 4,718	$ 4,302	$ 9,278	$ 8,489
Securities—taxable	293	372	594	720
Securities—exempt from federal taxes	115	63	262	88
Interest bearing deposits and other	28	24	56	118
Total Interest and Dividend Income	5,154	4,761	10,190	9,415
Interest Expense
Deposits	860	718	1,708	1,444
Short-term borrowings	19	33	44	49
Long-term debt	42	25	83	49
Subordinated debt	172		344
Total Interest Expense	1,093	776	2,179	1,542
Net Interest Income	4,061	3,985	8,011	7,873
Provision for Loan Losses	90	130	200	250
Net Interest Income after Provision for Loan Losses	3,971	3,855	7,811	7,623
Non-Interest Income
Wealth management fee income	109	174	178	264
Gains on sales of investment securities	104		339
Bank owned life insurance income	19	21	39	42
Other	94	91	179	186
Total Non-Interest Income	326	286	735	492
Non-Interest Expenses
Salaries and employee benefits	2,033	1,912	4,014	3,764
Occupancy and equipment	468	514	1,011	1,059
Data processing equipment and operations	220	218	437	438
Professional fees	171	163	307	344
Marketing, advertising, and business development	54	52	98	82
FDIC insurance assessments	75	87	132	176
Pennsylvania bank shares tax expense	86	94	169	187
Other real estate owned	107	88	192	147
Other	271	298	602	581
Total Non-Interest Expenses	3,485	3,426	6,962	6,778
Income before Income Tax Expense	812	715	1,584	1,337
Income Tax Expense	256	236	497	441
Net Income	556	479	1,087	896
Preferred dividends	77	211	254	377
Income to Common Shareholders	$ 479	$ 268	$ 833	$ 519
Income per common share:
Basic	$ 0.07	$ 0.04	$ 0.13	$ 0.08
Diluted	$ 0.07	$ 0.04	$ 0.13	$ 0.08
Weighted average common shares outstanding:
Basic	6,503	6,446	6,499	6,446
Diluted	6,568	6,506	6,549	6,500

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Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 556	$ 479	$ 1,087	$ 896
Securities available for sale:
Change in unrealized gain (loss) on securities available for sale	404	(484)	939	(90)
Reclassification adjustment for realized gains included in net income	(104)		(339)
Tax effect	(102)	164	(204)	30
Net unrealized gain (loss) arising during the period	198	(320)	396	(60)
Net unrealized holding losses on securities transferred between available for sale and held to maturity:
Amortization of net unrealized holding losses to income during the period	(4)	(7)	(19)	(20)
Tax effect	2	3	7	7
Net unrealized holding losses on securities transferred during the period	(2)	(4)	(12)	(13)
Total other comprehensive income (loss)	196	(324)	384	(73)
Total comprehensive income	$ 752	$ 155	$ 1,471	$ 823

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Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Total	Preferred Stock [Member]	Common Stock [Member]	Surplus [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Income (Loss) [Member]
Beginning balance at Dec. 31, 2014	$ 50,211	$ 9,404	$ 6,447	$ 40,045	$ (5,679)	$ (6)
Preferred stock dividends	(377)				(377)
Issuance of 11,000 shares of restricted common stock			11	(11)
Forfeiture of 5,350 shares of restricted common stock			(5)	5
Net income	896				896
Other comprehensive income (loss)	(73)					(73)
Stock based compensation expense	134			134
Ending balance at Jun. 30, 2015	50,791	9,404	6,453	40,173	(5,160)	(79)
Beginning balance at Dec. 31, 2015	52,091	9,404	6,492	40,327	(4,368)	236
Preferred stock dividends	(254)				(254)
Redemption of preferred stock	(6,000)	(6,000)
Issuance of 25,550 shares of restricted common stock, net of forfeitures			26	(26)
Exercise of 2,000 shares of common stock options	12		2	10
Net income	1,087				1,087
Other comprehensive income (loss)	384					384
Stock based compensation expense	181			181
Ending balance at Jun. 30, 2016	$ 47,501	$ 3,404	$ 6,520	$ 40,492	$ (3,535)	$ 620

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Consolidated Statements of Shareholders' Equity (Unaudited) (Parenthetical) - shares	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Statement Of Stockholders Equity [Abstract]
Issuance of restricted common stock, shares		11,000
Forfeiture of restricted common stock , shares		5,350
Issuance of restricted common stock net of forfeitures, shares	25,550
Exercise of common stock options, shares	2,000

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash Flows from Operating Activities
Net income	$ 1,087	$ 896
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for Loan Losses	200	250
Write down of other real estate owned	43	137
Depreciation and amortization of premises and equipment	165	215
Net amortization	90	9
Stock based compensation expense	181	134
Net amortization of investment securities premiums and discounts	93	101
Net gain on sale of investment securities	(339)
Net gain on sale of other real estate owned	(2)	(87)
Net loss on disposal of premises and equipment	25	5
Bank owned life insurance policy income	(39)	(42)
Originations of loans held for sale		(1,196)
Proceeds from sale of loans held for sale		1,196
Deferred income tax expense	418	383
Decrease (increase) in accrued interest receivable	81	(90)
Decrease (increase) in other assets	61	(8)
Decrease in accrued interest payable	(3)	(9)
(Decrease) increase in other liabilities	(131)	76
Net Cash Provided by Operating Activities	1,930	1,970
Cash Flows from Investing Activities
Net repayments (originations) in loans	3,188	(16,383)
Purchase of loans	(12,730)
Purchases of securities available for sale	(1,456)	(19,839)
Redemption (purchase) of restricted stock	1,294	(363)
Proceeds from maturities or calls of securities available for sale	56,660	33,647
Proceeds from maturities or calls of securities held to maturity	505	215
Proceeds from the sale of securities available for sale	6,609
Proceeds from the sale of other real estate owned	200	313
Purchases of premises and equipment	(36)	(81)
Proceeds from the sale of premises and equipment		4
Net Cash Provided by (Used in) Investing Activities	54,234	(2,487)
Cash Flows from Financing Activities
Net increase (decrease) in deposits	2,009	(633)
Net (decrease) increase in short-term borrowings	(36,825)	11,737
Redemption of preferred stock	(6,000)
Payments regarding subordinance debt issuance costs	(16)
Proceeds from the exercise of common stock options	12
Cash dividends paid on preferred stock	(272)	(370)
Net Cash (Used in) Provided by Financing Activities	(41,092)	10,734
Net Increase in Cash and Cash Equivalents	15,072	10,217
Cash and Cash Equivalents—Beginning	5,909	7,866
Cash and Cash Equivalents—Ending	20,981	18,083
Supplementary Disclosures of Cash Flows Information
Transfer of loans receivable to other real estate owned	341	232
Cash paid for interest on deposits and borrowings	2,243	1,662
Cash paid for income taxes	$ 43	$ 20

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 1—Summary of Significant Accounting Policies

Organization and Nature of Operations

First Priority Financial Corp.

First Priority Financial Corp. (“First Priority,” the “Company”) is a bank holding company incorporated under the laws of the Commonwealth of Pennsylvania on February 13, 2007. On May 11, 2007, as a result of a reorganization and merger, First Priority Bank (the “Bank”) became a wholly-owned subsidiary of First Priority.  First Priority, primarily through the Bank, serves residents and businesses in the Delaware Valley with branches in Berks, Bucks, Chester and Montgomery counties in Pennsylvania.  The Bank, which has 7 retail branch office locations, is a locally managed community bank providing commercial banking products, primarily loans and deposits, headquartered in Malvern, PA.

First Priority provides banking services through the Bank and does not engage in any activities other than banking and related activities. As of June 30, 2016, First Priority had total assets of $506.9 million and total shareholders’ equity of $47.5 million.

First Priority Bank

The Bank is a state-chartered commercial banking institution which was incorporated under the laws of the Commonwealth of Pennsylvania on May 25, 2005. First Priority Bank’s deposits are insured by the FDIC up to the maximum amount permitted for all banks.

The Bank engages in a full service commercial and consumer banking business with strong private banking and individual wealth management services. The Bank offers a variety of consumer, private banking and commercial loans, mortgage products and commercial real estate financing. The Company’s operations are significantly affected by prevailing economic conditions, competition, and the monetary, fiscal, and regulatory policies of governmental agencies. Lending activities are influenced by a number of factors, including the general credit needs of individuals and small and medium-sized businesses in the Company’s market area, competition, the current regulatory environment, the level of interest rates, and the availability of funds. Deposit flows and costs of funds are influenced by prevailing market rates of interest, competition, account maturities, and the level of personal income and savings in the market area.

The Bank also offers certain financial planning and investment management services. These investment services are provided by First Priority Financial Services, a Division of First Priority Bank, through an agreement with a third party provider. In addition, various life insurance products are offered through the Bank, and the Bank has also entered into solicitation agreements with several investment advisors to provide portfolio management services to customers of the Bank.

The Bank currently seeks deposits and commercial and private banking relationships through its seven banking offices. The Bank provides deposit products that include checking, money market and savings accounts, and certificates of deposit as well as other deposit services, including cash management electronic banking and mobile products as well as online account opening capabilities. The Bank obtains funding in the local community by providing excellent service and competitive rates to its customers and utilizes various advertising to attract current and potential deposit customers. The Bank also uses brokered certificates of deposit as a cost effective funding alternative.

Basis of Presentation

The accompanying unaudited consolidated financial statements consist of the Company and the Company’s wholly owned consolidated subsidiary, the Bank.  All significant intercompany accounts and transactions have been eliminated in consolidation.

These statements are prepared in accordance with instructions to Form 10-Q, and therefore, do not include information or all footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of these financial statements have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for First Priority Financial Corp. for the year ended December 31, 2015, included in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 25, 2016. The results of interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.  

Subsequent Events

Management has evaluated events and transactions occurring subsequent to June 30, 2016 for items that should potentially be recognized or disclosed in these Consolidated Financial Statements. The evaluation was conducted through the date these financial statements were issued.

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, stock-based compensation, impairment of goodwill, impairment of investments, the valuation of deferred tax assets and the valuation of other real estate owned.

Acquired Loans

Acquired loans are initially recorded at their acquisition date fair values. The carryover of allowance for loan losses is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at the acquisition date. Fair values for acquired loans are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.

Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments are accounted for as impaired loans under ASC 310-30. The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable discount. The non-accretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows require the Company to evaluate the need for an allowance for loan losses on these loans. Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the non-accretable discount which the Company then reclassifies as an accretable discount that is recognized into interest income over the remaining life of the loans using the interest method.  As of June 30, 2016 there were three remaining acquired purchased credit impaired loans with a net recorded balance of $238 thousand, after a non-accretable credit discount of $362 thousand.

Acquired loans that met the criteria for non-accrual of interest prior to acquisition may be considered performing upon acquisition, or in the future, regardless of whether the customer is contractually delinquent, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans. As such, the Company may no longer consider the loan to be non-accrual or non-performing and may accrue interest on these loans, including the impact of any accretable discount. For acquired loans that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value and amortized over the life of the asset. Subsequent to the acquisition date, the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans, however, the Company records a provision for loan losses only when the required allowance exceeds any remaining pooled discounts for loans evaluated collectively for impairment. As of June 30, 2016, the net recorded balance of acquired loans resulting from the Affinity merger totaled $18.0 million, including a remaining interest rate fair value adjustment of $72 thousand offset by a remaining accretable credit discount of $62 thousand, both of which are being recognized into interest income over the remaining life of the loans.  Additionally, the Company purchased portfolios of performing residential real estate loans during 2014 through 2016, all of which and were underwritten using similar underwriting standards as it uses for its organic portfolio.  These combined portfolios totaled $33.0 million as of June 30, 2016 with remaining acquisition premiums of $648 thousand which will be recognized into interest income over the remaining life of the loans

Allowance for Loan Losses

The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments, totaling $35 thousand as of both June 30, 2016 and December 31, 2015, represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheets. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors.  This evaluation is inherently subjective as it requires material estimates that may be 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 impaired. 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. The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include:

1. Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

2. National, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans.

3. Nature and volume of the portfolio and terms of loans.

4. Management team with experience, depth, and knowledge in banking and in many areas of lending. Each contributes to the sound credit culture and control within the Company.

5. Volume and severity of past due, classified and nonaccrual loans as well as other loan modifications.

6. The Company engages a third party to perform an independent review of the loan portfolio as a measure for quality and consistency in credit evaluation and credit decisions.

7. Existence and effect of any concentrations of credit and changes in the level of such concentrations.

8. Effect of external factors, such as competition and legal and regulatory requirements.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

A majority of the Company’s loans are to business owners of many types. The Company makes commercial loans for real estate development and other business purposes required by our customers.

The Company’s credit policies determine advance rates against the different forms of collateral that can be pledged against commercial loans. Typically, the majority of loans will be limited to a percentage of their underlying collateral values such as real estate values, equipment, eligible accounts receivable and inventory. Individual loan advance rates may be higher or lower depending upon the financial strength of the borrower and/or term of the loan. The assets financed through commercial loans are used within the business for its ongoing operation. Repayment of these kinds of loans generally comes from the cash flow of the business or the ongoing conversions of assets. Commercial real estate loans include long-term loans financing commercial properties. Repayment of this kind of loan is dependent upon either the ongoing cash flow of the borrowing entity or the resale of or lease of the subject property. Commercial real estate loans typically require a loan to value ratio of not greater than 80% and vary in terms.

Residential mortgages and home equity loans are secured by the borrower’s residential real estate in either a first or second lien position. Residential mortgages and home equity loans have varying loan rates depending on the financial condition of the borrower and the loan to value ratio. Residential mortgages have amortizations up to 30 years and home equity loans have maturities of no more than 15 years.  Residential mortgages and home equity loans typically require a loan to value ratio of not greater than 80%.

Other consumer loans include installment loans, car loans, and overdraft lines of credit. The majority of these loans are secured.

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.

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 or the fair value of the collateral if the loan is collateral dependent.  An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral.

For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values may be discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable aging or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans criticized special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.

In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

Comprehensive Income

Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as a separate component of the shareholders’ equity section of the balance sheet, such items, along with net income, are components of total comprehensive income.  

Total reclassifications from accumulated other comprehensive income for the periods presented are as follows:

Details about Accumulated Other Comprehensive Income Components	Amounts Reclassified from Accumulated Other Comprehensive Income												Affected Line Item in the Statement where Net Income is Presented
	For the three months ended June 30,						For the six months ended June 30,
	2016			2015			2016			2015
	(Dollars in thousands)						(Dollars in thousands)
Sale of investment securities available for sale	$	(104	)	$	—		$	(339	)	$	—		Gains on sale of investment securities
Amortization of unrealized holding gain (losses) on securities transferred from available for sale to held to maturity		(4	)		(7	)		(19	)		(20	)	Interest Income on taxable securities
Tax effect		37			3			122			7		Income Tax Expense
Total reclassification	$	(71	)	$	(4	)	$	(236	)	$	(13	)

Accumulated other comprehensive income as of June 30, 2016 and December 31, 2015 consisted of the following:

	June 30,		December 31,
	2016		2015
	(Dollars in thousands)
Net unrealized gain on available for sale securities	$	604	$	208
Net unrealized holding gains on securities transferred from available for sale to held to maturity		16		28
Total	$	620	$	236

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Recently Issued Accounting Standards

6 Months Ended

Jun. 30, 2016

Accounting Changes And Error Corrections [Abstract]

Recently Issued Accounting Standards

Note 2—Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, deferred by ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The amendments are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. Management does not believe the adoption of ASU 2014-09 will have a significant impact on the Company’s Consolidated Financial Statements but will continue to evaluate.

In January 2016, the FASB issued Accounting Standards Update 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 changes current U.S. GAAP for public entities by requiring the following, among others: (1) equity securities, except those accounted for under the equity method of accounting, to be measured at fair value with changes in fair value recognized in net income; (2) the use of the exit price when measuring fair value of financial instruments for disclosure purposes; (3) an entity to present separately in other comprehensive income the portion of the total change in the 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; and (4) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or notes to the financial statements. ASU 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods. Early application is permitted. The Company is currently assessing the impact the adoption of ASU 2016-01 will have on future financial statements and disclosures.

In February 2016, the FASB issued Accounting Standards Update ("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 lessee. 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 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 March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods therein.  The Company is evaluating the impact of this ASU on its consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326).” The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.  The amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods therein.  Early adoption is permitted.  The Company is evaluating the impact of this ASU on its consolidated financial statements and disclosures.

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Earnings Per Common Share

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

Earnings Per Common Share

Note 3—Earnings Per Common Share

Diluted earnings per common share take into account the potential dilution that could occur if securities or other contracts to issue common stock are exercised and converted into common stock. Proceeds assumed to have been received on such exercise or conversion, are assumed to be used to purchase shares of the Company’s common stock at the average market price during the period, as required by the “treasury stock method” of accounting for common stock equivalents. For purposes of calculating the basic and diluted earnings per share, the Company’s reported net income is adjusted for dividends on preferred stock to determine the net income to common shareholders.  Securities that could potentially dilute basic earnings per common share in future periods that were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive amounted to 176,357 shares as of June 30, 2016 and 262,667 shares as of June 30, 2015.

The calculations of basic and diluted earnings per common share are presented below for the three and six months ended June 30, 2016 and 2015:

	For the three months ended June 30,						For the six months ended June 30,
	(In thousands, except per share information)
	2016			2015			2016			2015
Net income	$	556		$	479		$	1,087		$	896
Less: preferred stock dividends		(77	)		(211	)		(254	)		(377	)
Income to common shareholders	$	479		$	268		$	833		$	519
Average basic common shares outstanding		6,503			6,446			6,499			6,446
Effect of dilutive stock options		65			60			50			54
Average number of common shares used to calculate    diluted earnings per common share		6,568			6,506			6,549			6,500
Basic earnings per common share	$	0.07		$	0.04		$	0.13		$	0.08
Diluted earnings per common share	$	0.07		$	0.04		$	0.13		$	0.08

The amount of preferred stock dividends related to each series of preferred stock are presented below for the three and six months ended June 30, 2016 and 2015:

	For the three months ended June 30,				For the six months ended June 30,
	2016		2015		2016		2015
	(Dollars in thousands)				(Dollars in thousands)
Preferred dividends:
Preferred Series A	$	—	$	103	$	77	$	206
Preferred Series B		—		5		4		10
Preferred Series C		77		103		173		161
Total preferred dividends	$	77	$	211	$	254	$	377

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Securities

6 Months Ended

Jun. 30, 2016

Investments Debt And Equity Securities [Abstract]

Securities

Note 4—Securities

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Available for sale securities are carried at fair value.

Securities classified as held to maturity are those debt securities the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost adjusted for the amortization of premium and accretion of discount, computed by a method which approximates the interest method over the terms of the securities.

The Company previously transferred investment securities from available for sale to held to maturity securities.  Due to these transfers, securities classified as held to maturity have net unrealized holding gains, before taxes, totaling $24 thousand as of June 30, 2016 and $43 thousand as of December 31, 2015, which are being amortized over the remaining life of the related securities as an adjustment of yield in a manner consistent with the accretion of discount on the same transferred debt securities. This will have no impact on the Company’s net income because the amortization of the unrealized holding loss reported in equity will offset the effect on the interest income of the accretion of the discount on these securities.

The amortized cost, unrealized gains and losses, and the fair value of the Company’s investment securities available for sale and held to maturity are as follows for the periods presented:

	June 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Available For Sale:
Obligations of U.S. government agencies and corporations	$	7,974	$	57	$	—		$	8,031
Obligations of states and political subdivisions		7,645		483		(1	)		8,127
Federal agency mortgage-backed securities		15,441		360		(8	)		15,793
Federal agency collateralized mortgage obligations		270		1		—			271
Other debt securities		1,500		23		—			1,523
Money market mutual fund		25		—		—			25
Total investment securities available for sale	$	32,855	$	924	$	(9	)	$	33,770
Held To Maturity:
Obligations of states and political subdivisions	$	18,844	$	1,632	$	—		$	20,476
Other debt securities		481		46		—			527
Total investment securities held to maturity	$	19,325	$	1,678	$	—		$	21,003

	December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Available For Sale:
Obligations of U.S. government agencies and corporations	$	62,967	$	-	$	(63	)	$	62,904
Obligations of states and political subdivisions		13,964		398		(15	)		14,347
Federal agency mortgage-backed securities		17,042		87		(91	)		17,038
Federal agency collateralized mortgage obligations		347		-		(1	)		346
Money market mutual fund		69		-		-			69
Total investment securities available for sale	$	94,389	$	485	$	(170	)	$	94,704
Held To Maturity:
Obligations of states and political subdivisions	$	19,405	$	597	$	(47	)	$	19,955
Other debt securities		481		10		-			491
Total investment securities held to maturity	$	19,886	$	607	$	(47	)	$	20,446

Included in unrealized losses are market losses on securities that have been in a continuous unrealized loss position for twelve months or more and those securities that have been in a continuous unrealized loss position for less than twelve months. The table below details the aggregate unrealized losses and aggregate fair value of the underlying securities whose fair values are below their amortized cost at June 30, 2016 and December 31, 2015.

	As of June 30, 2016
	Less than 12 Months							12 Months or longer							Total
	Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses			Count
	(Dollars in thousands)
Available for Sale:
Obligations of states and political subdivisions	$	894	$	(1	)		1	$	-	$	-			—	$	894	$	(1	)		1
Federal agency mortgage-backed securities		1,365		(7	)		2		39		(1	)		1		1,404		(8	)		3
Total Available for Sale	$	2,259	$	(8	)		3	$	39	$	(1	)		1	$	2,298	$	(9	)		4

	As of December 31, 2015
	Less than 12 Months							12 Months or longer							Total
	Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses			Count
	(Dollars in thousands)
Available for Sale:
Obligations of U.S. government agencies and corporations	$	12,905	$	(63	)		11	$	—	$	—			—	$	12,905	$	(63	)		11
Obligations of states and political subdivisions		2,780		(15	)		7		—		—			—		2,780		(15	)		7
Federal agency mortgage-backed securities		4,276		(46	)		3		2,304		(45	)		2		6,580		(91	)		5
Federal agency collateralized mortgage obligations		220		(1	)		1		—		—			—		220		(1	)		1
Total Available for Sale	$	20,181	$	(125	)		22	$	2,304	$	(45	)		2	$	22,485	$	(170	)		24
Held to Maturity:
Obligations of states and political subdivisions	$	2,373	$	(47	)		5	$	-	$	-			-	$	2,373	$	(47	)		5
Total Held to Maturity	$	2,373	$	(47	)		5	$	-	$	-			-	$	2,373	$	(47	)		5

As of June 30, 2016, management believes that the estimated fair value of the securities disclosed above is primarily dependent upon the movement in market interest rates, particularly given the minimal inherent credit risk associated with the issuers of these securities and that the unrealized losses in these portfolios are not the result of deteriorating credit within any investment category.

Securities issued by states and political subdivisions are all rated investment grade. Each holding is reviewed quarterly for impairment by management and our third party investment advisor. All mortgage backed securities and collateralized mortgage obligations are issued by U.S. government sponsored agencies; there are no holdings of private label mortgage backed securities or securities backed by loans classified as “Alt-A” or “Subprime”.

Although the fair value will fluctuate as market interest rates move, management believes that these fair values will recover as the underlying portfolios mature. The Company evaluates a variety of factors in concluding whether securities are other-than-temporarily impaired. These factors include, but are not limited to, the type and purpose of the bond, the underlying rating of the bond issuer, and the presence of credit enhancements (i.e. state guarantees, municipal bond insurance, collateral requirements, etc.). The Company does not intend to sell any of these securities and it is unlikely that it will be required to sell any of these securities before recovery. Management does not believe any individual unrealized loss on individual securities, as of June 30, 2016, represents other than temporary impairment.

For the three and six months ended June 30, 2016 there were realized gains of $104 thousand and $339 thousand.  There were no realized gains or losses for the three and six months ended June 30, 2015.

Securities with an estimated fair value of $51.0 million and $55.2 million were pledged at June 30, 2016 and December 31, 2015, respectively, to secure public fund deposits. In addition, securities pledged to secure borrowings by the Bank totaled $59 thousand and $60 thousand as of June 30, 2016 and December 31, 2015, respectively.

The amortized cost and fair value of securities as of June 30, 2016 by contractual maturity are shown below. Certain of these investment securities have call features which allow the issuer to call the security prior to its maturity date at the issuer’s discretion.

	June 30, 2016				June 30, 2016
	Available for Sale Securities				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Due within one year	$	250	$	250	$	—	$	—
Due after one year through five years		10,396		10,490		802		813
Due after five years through ten years		401		403		1,295		1,369
Due after ten years		6,072		6,538		17,228		18,821
		17,119		17,681		19,325		21,003
Federal agency collateralized mortgage obligations		270		271		—		—
Federal agency mortgage-backed securities		15,441		15,793		—		—
Money market mutual fund		25		25		—		—
Total	$	32,855	$	33,770	$	19,325	$	21,003

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Loans Receivable and Related Allowance for Loan Losses

6 Months Ended

Jun. 30, 2016

Receivables [Abstract]

Loans Receivable and Related Allowance for Loan Losses

Note 5—Loans Receivable and Related Allowance for Loan Losses

Loans receivable consist of the following at June 30, 2016 and December 31, 2015.

	June 30,			December 31,
	2016			2015
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	70,741		$	74,470
Commercial mortgage		180,029			179,365
Commercial construction		15,058			13,466
Total commercial		265,828			267,301
Residential mortgage loans		109,893			101,185
Consumer:
Home equity lines of credit		25,527			24,762
Other consumer loans		16,599			15,915
Total consumer		42,126			40,677
Total loans		417,847			409,163
Allowance for loan losses		(2,807	)		(2,795	)
Net deferred loan cost (fees)		222			(10	)
Total loans receivable, net	$	415,262		$	406,358

The following tables summarize the activity in the allowance for loan losses by loan class for the three and six months ended June 30, 2016 and 2015:

	For the three months ended												For the six months ended
	June 30, 2016												June 30, 2016
	Allowance for Loan Losses												Allowance for Loan Losses
	(Dollars in thousands)												(Dollars in thousands)
	Beginning Balance		Charge-offs			Recoveries		Provision for loan losses			Ending Balance		Beginning Balance		Charge-offs			Recoveries		Provision for loan losses			Ending Balance
Commercial and industrial	$	672	$	(75	)	$	2	$	(32	)	$	567	$	631	$	(75	)	$	19	$	(8	)	$	567
Commercial mortgage		819		—			—		9			828		831		(72	)		—		69			828
Commercial construction		67		—			—		(10	)		57		56		—			—		1			57
Residential mortgage loans		248		—			—		28			276		259		—			—		17			276
Home equity lines of credit		154		—			3		(5	)		152		167		—			8		(23	)		152
Other consumer loans		59		—			4		(16	)		47		84		(75	)		7		31			47
Unallocated		764		—			—		116			880		767		—			—		113			880
Total loans	$	2,783	$	(75	)	$	9	$	90		$	2,807	$	2,795	$	(222	)	$	34	$	200		$	2,807

	For the three months ended												For the six months ended
	June 30, 2015												June 30, 2015
	Allowance for Loan Losses												Allowance for Loan Losses
	(Dollars in thousands)												(Dollars in thousands)
	Beginning Balance		Charge-offs			Recoveries		Provision for loan losses			Ending Balance		Beginning Balance		Charge-offs			Recoveries		Provision for loan losses			Ending Balance
Commercial and industrial	$	745	$	—		$	2	$	17		$	764	$	788	$	(16	)	$	7	$	(15	)	$	764
Commercial mortgage		507		(31	)		—		149			625		468		(42	)		—		199			625
Commercial construction		34		—			—		6			40		26		—			—		14			40
Residential  mortgage loans		163		-			—		12			175		159		(14	)		—		30			175
Home equity lines of credit		221		-			84		(75	)		230		270		(12	)		88		(116	)		230
Other consumer  loans		66		-			4		(3	)		67		87		(16	)		8		(12	)		67
Unallocated		641		—			—		24			665		515		—			—		150			665
Total loans	$	2,377	$	(31	)	$	90	$	130		$	2,566	$	2,313	$	(100	)	$	103	$	250		$	2,566

The following tables present the balance in the allowance for loan losses at June 30, 2016 and December 31, 2015 disaggregated on the basis of the Company’s impairment method by class of loans receivable along with the balance of loans receivable by class disaggregated on the basis of the Company’s impairment methodology:

	June 30, 2016
	Allowance for Loan Losses						Loans Receivable
	(Dollars in thousands)
	Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment		Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
Commercial and industrial	$	567	$	100	$	467	$	70,741	$	1,655	$	69,086
Commercial mortgage		828		225		603		180,029		1,890		178,139
Commercial construction		57		—		57		15,058		—		15,058
Residential mortgage loans		276		47		229		109,893		667		109,226
Home equity lines of credit		152		—		152		25,527		94		25,433
Other consumer loans		47		—		47		16,599		173		16,426
Unallocated		880		—		880		—		—		—
Total loans	$	2,807	$	372	$	2,435	$	417,847	$	4,479	$	413,368

	December 31, 2015
	Allowance for Loan Losses						Loans Receivable
	(Dollars in thousands)
	Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment		Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
Commercial and industrial	$	631	$	123	$	508	$	74,470	$	1,259	$	73,211
Commercial mortgage		831		264		567		179,365		2,196		177,169
Commercial construction		56		—		56		13,466		—		13,466
Residential mortgage loans		259		46		213		101,185		669		100,516
Home equity lines of credit		167		—		167		24,762		96		24,666
Other consumer loans		84		19		65		15,915		351		15,564
Unallocated		767		—		767		—		—		—
Total loans	$	2,795	$	452	$	2,343	$	409,163	$	4,571	$	404,592

The following tables summarize information in regard to impaired loans by loan portfolio class as of June 30, 2016 and December 31, 2015 as well as for the three and six month periods ended June 30, 2016 and 2015, respectively:

	June 30, 2016						December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance    recorded:
Commercial and industrial	$	725	$	1,273	$	—	$	317	$	803	$	—
Commercial mortgage		1,382		1,439		—		1,463		1,530		—
Commercial construction		—		—		—		—		—		—
Residential mortgage loans		30		63		—		31		64		—
Home equity lines of credit		94		95		—		96		97		—
Other consumer loans		173		198		—		185		206		—
With an allowance recorded:
Commercial and industrial	$	930	$	994	$	100	$	942	$	995	$	123
Commercial mortgage		508		631		225		733		850		264
Commercial construction		—		—		—		—		—		—
Residential mortgage loans		637		637		47		638		638		46
Home equity lines of credit		—		—		—		—		—		—
Other consumer loans		—		—		—		166		168		19
Total:
Commercial and industrial	$	1,655	$	2,267	$	100	$	1,259	$	1,798	$	123
Commercial mortgage		1,890		2,070		225		2,196		2,380		264
Commercial construction		—		—		—		—		—		—
Residential mortgage loans		667		700		47		669		702		46
Home equity lines of credit		94		95		—		96		97		—
Other consumer loans		173		198		—		351		374		19
Total	$	4,479	$	5,330	$	372	$	4,571	$	5,351	$	452

	Three months ended June 30,								Six months ended June 30,
	2016				2015				2016				2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)								(Dollars in thousands)
With no related allowance    recorded:
Commercial and industrial	$	809	$	—	$	556	$	—	$	969	$	—	$	897	$	9
Commercial mortgage		1,387		15		1,900		11		1,416		29		2,736		26
Commercial construction		—		—		—		—		—		—		—		—
Residential mortgage loans		30		—		236		—		30		—		234		—
Home equity lines of credit		94		1		99		1		95		2		100		2
Other consumer loans		175		1		321		1		178		3		326		3
With an allowance recorded:
Commercial and industrial	$	399	$	12	$	984	$	5	$	668	$	14	$	930	$	5
Commercial mortgage		305		8		1,590		—		409		11		795		—
Commercial construction		—		—		-		—		—		—		-		—
Residential mortgage loans		638		6		—		—		638		12		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—
Other consumer loans		—		—		—		—		—		—		—		—
Total:
Commercial and industrial	$	1,208	$	12	$	1,540	$	5	$	1,637	$	14	$	1,827	$	14
Commercial mortgage		1,692		23		3,490		11		1,825		40		3,531		26
Commercial construction		—		—		—		—		—		—		—		—
Residential mortgage loans		668		6		236		—		668		12		234		—
Home equity lines of credit		94		1		99		1		95		2		100		2
Other consumer loans		175		1		321		1		178		3		326		3
Total	$	3,837	$	43	$	5,686	$	18	$	4,403	$	71	$	6,018	$	45

The following table presents non-accrual loans by classes of the loan portfolio as of June 30, 2016 and December 31, 2015:

	June 30, 2016		December 31, 2015
	(Dollars in thousands)
Commercial and industrial	$	746	$	1,059
Commercial mortgage		11		575
Residential mortgage loans		30		31
Home equity lines of credit		15		16
Other consumer loans		75		252
Total loans	$	877	$	1,933

The Company’s policy for interest income recognition on nonaccrual loans is to recognize income under the cash basis when the loans are both current and the collateral on the loan is sufficient to cover the outstanding obligation to the Company. The Company will not recognize income if these factors do not exist. Interest that would have been accrued on non-accruing loans under the original terms but was not recognized as interest income totaled $18 thousand and $50 thousand for the three and six months ended June 30, 2016 and $65 thousand and $125 thousand for the three and six months ended June 30, 2015, respectively.

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of June 30, 2016 and December 31, 2015:

	June 30, 2016
	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	68,660	$	200	$	1,881	$	—	$	70,741
Commercial mortgage		178,313		684		1,032		—		180,029
Commercial construction		15,058		—		—		—		15,058
Residential mortgage loans		109,863		—		30		—		109,893
Consumer:
Home equity lines of credit		25,512		—		15		—		25,527
Other consumer loans		16,524		—		75		—		16,599
Total	$	413,930	$	884	$	3,033	$	—	$	417,847

	December 31, 2015
	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	67,509	$	5,290	$	1,671	$	—	$	74,470
Commercial mortgage		174,339		3,478		1,548		—		179,365
Commercial construction		13,466		—		-		—		13,466
Residential mortgage loans		101,154		—		31		—		101,185
Consumer:
Home equity lines of credit		24,746		—		16		—		24,762
Other consumer loans		15,663		—		252		—		15,915
Total	$	396,877	$	8,768	$	3,518	$	—	$	409,163

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of June 30, 2016 and December 31, 2015:

	June 30, 2016
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	618	$	—	$	647	$	1,265	$	69,476	$	70,741
Commercial mortgage		49		—		11		60		179,969		180,029
Commercial construction		—		—		—		—		15,058		15,058
Residential mortgage loans		—		—		—		—		109,893		109,893
Consumer:								—
Home equity lines of credit		—		—		—		—		25,527		25,527
Other consumer loans		153		—		5		158		16,441		16,599
Total	$	820	$	—	$	663	$	1,483	$	416,364	$	417,847

	December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	—	$	67	$	230	$	297	$	74,173	$	74,470
Commercial mortgage		51		101		195		347		179,018		179,365
Commercial construction		—		—		—		—		13,466		13,466
Residential mortgage loans		975		—		—		975		100,210		101,185
Consumer:
Home equity lines of credit		—		—		—		-		24,762		24,762
Other consumer loans		15		—		209		224		15,691		15,915
Total	$	1,041	$	168	$	634	$	1,843	$	407,320	$	409,163

As of June 30, 2016 and December 31, 2015, there were no loans 90 days past due and still accruing interest.

Troubled Debt Restructurings

The Company may grant a concession or modification for economic or legal reasons related to a borrower’s declining financial condition that it would not otherwise consider, resulting in a modified loan which is then identified as a troubled debt restructuring (“TDR”). The Company may modify loans through rate reductions, extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers’ operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Company’s allowance for loan losses.

The Company identifies loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.

The following tables summarize the balance of outstanding TDR’s at June 30, 2016 and December 31, 2015:

	Number of Loans		Performing TDR's		Non-Performing TDR's		Total TDRs
	(Dollars in thousands)
June 30, 2016
Commercial and industrial		4	$	909	$	21	$	930
Commercial mortgage		4		1,879		-		1,879
Residential mortgage loans		2		638		30		668
Home equity lines of credit		2		78		15		93
Other consumer loans		2		97		21		118
Total		14	$	3,601	$	87	$	3,688

	Number of Loans		Performing TDR's		Non-Performing TDR's		Total TDRs
	(Dollars in thousands)
December 31, 2015
Commercial and industrial		4	$	200	$	742	$	942
Commercial mortgage		6		1,622		343		1,965
Residential mortgage loans		2		638		31		669
Home equity lines of credit		2		79		17		96
Other consumer loans		2		99		22		121
Total		16	$	2,638	$	1,155	$	3,793

At June 30, 2016 and December 31, 2015, there were no commitments to lend additional funds to debtors whose terms have been modified in TDR’s.  As of June 30, 2016, there were no TDRs that were subsequently in default.  As of December 31, 2015, two commercial loans, classified as TDR’s, with a combined balance totaling $64 thousand were in default and were classified as non-accrual status.  Additionally, a mortgage loan restructured during the fourth quarter of 2015 with an outstanding balance of $638 thousand was past due 30 days as of December 31, 2015. 

The following table reflects information regarding TDR’s entered into by the Company for the three and six month periods ended June 30, 2016 and 2015.

	For the three months ended
	June 30, 2016						June 30, 2015
	Number of Contracts		Pre- Modification Outstanding Recorded Investments		Post- Modification Outstanding Recorded Investments		Number of Contracts		Pre- Modification Outstanding Recorded Investments		Post- Modification Outstanding Recorded Investments
	(Dollars in thousands)						(Dollars in thousands)
Troubled debt restructurings:
Commercial and industrial		—	$	—	$	—		1	$	200	$	200
Total		—	$	—	$	—		1	$	200	$	200
	For the six months ended
	June 30, 2016						June 30, 2015
	Number of Contracts		Pre- Modification Outstanding Recorded Investments		Post- Modification Outstanding Recorded Investments		Number of Contracts		Pre- Modification Outstanding Recorded Investments		Post- Modification Outstanding Recorded Investments
	(Dollars in thousands)						(Dollars in thousands)
Troubled debt restructurings:
Commercial and industrial		—	$	—	$	—		1	$	200	$	200
Residential mortgage loans		—		—		—		1		35		35
Total		—	$	—	$	—		2	$	235	$	235

There were no new TDR’s entered into during the three and six months ended June 30, 2016.  The two TDRs entered into during the six months ended June 30, 2015 consisted of a commercial loan whereby the customer’s payment schedule was modified and a mortgage loan which included an interest rate reduction.  Neither of these restructurings included any forgiveness of debt.

The carrying amount of foreclosed residential real estate properties held was $858 thousand as of June 30, 2016.  There were no consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure as of June 30, 2016.

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Deposits

6 Months Ended

Jun. 30, 2016

Banking And Thrift [Abstract]

Deposits

Note 6—Deposits

The components of deposits at June 30, 2016 and December 31, 2015 are as follows:

	June 30,		December 31,
	2016		2015
	(Dollars in thousands)
Demand, non-interest bearing	$	51,971	$	46,343
Demand, interest-bearing		50,754		38,297
Money market and savings accounts		99,279		90,696
Time, $100 and over		48,346		56,138
Time, other		160,285		177,213
	$	410,635	$	408,687

Included in time, other at June 30, 2016 and December 31, 2015 are brokered deposits of $98.3 million and $113.3 million, respectively.

As of June 30, 2016 and December 31, 2015 aggregate time deposits which exceed the $250 thousand FDIC insurance limit were $8.8 million and $10.0 million, respectively.

At June 30, 2016, the scheduled maturities of time deposits were as follows:

	(Dollars in thousands)
6/30/2017	$	73,690
6/30/2018		81,742
6/30/2019		30,499
6/30/2020		7,053
6/30/2021		15,543
Thereafter		104
	$	208,631

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Shareholders' Equity

6 Months Ended

Jun. 30, 2016

Equity [Abstract]

Shareholders' Equity

Note 7—Shareholders’ Equity

As of December 31, 2015, the Company had 10,000,000 authorized common shares.  The Company amended its articles of incorporation, effective May 4, 2016, to increase the number of authorized shares of its common stock, $1.00 par value, from 10,000,000 shares to 20,000,000 shares.  The amendment was approved by shareholders at the 2016 annual meeting of shareholders held on May 3, 2016.

As of June 30, 2016 and December 31, 2015 the Company had 3,404 shares and 9,404 shares, respectively, of 9%, fixed rate, Cumulative Perpetual Preferred Stock outstanding totaling $3.4 million and $9.4 million, respectively.

On January 22, 2016, First Priority redeemed $6.0 million of its outstanding Preferred Stock for a total redemption price of $1,016.75 per share which included accrued dividends. This redemption included all shares of outstanding Series A (4,579 shares; par value $1,000) and Series B (229 shares; par value $1,000); and approximately 25.9% of Series C (1,192 shares of 4,596 shares outstanding; par value $1,000).  The shares of Series C were selected for redemption on a pro rata basis.  After the completion of these redemptions, 3,404 shares of Series C Preferred Stock is outstanding as of June 30, 2016.

The Preferred Stock has no maturity date and ranks senior to common stock with respect to dividends and upon liquidation, dissolution, or winding up. The Company may redeem the Preferred Stock, in whole or in part, at its liquidation preference plus accrued and unpaid dividends.

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Stock Compensation Program

6 Months Ended

Jun. 30, 2016

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock Compensation Program

Note 8—Stock Compensation Program

In 2005, the Company adopted the 2005 Stock Compensation Program, which was amended at the Company’s annual meeting on April 23, 2009 as the 2009 Stock Compensation Program (the “Program”) and further amended effective March 18, 2010. The Program allows equity benefits to be awarded in the form of Incentive Stock Options, Compensatory Stock Options or Restricted Stock. The Program authorizes the Board of Directors to grant options up to an aggregate maximum of 1,207,957 shares to officers, other employees and directors of the Company, including 382,957 shares which were authorized for grant under this plan as a result of the merger with Affinity. Only employees of the Company will be eligible to receive Incentive Stock Options, and such grants are subject to the limitations under Section 422 of the Internal Revenue Code.

All stock options granted under the Program fully vest in four years from the date of grant (or potentially earlier upon a change of control), excluding options issued in regards to the Company’s Severance Plan which vest only upon change in control, and options terminate ten years from the date of the grant. The exercise price of the options granted is the fair value of a share of common stock at the time of the grant.

A summary of the Stock Option Plan is presented below:

	Options to Purchase Common Shares			Weighted Average Exercise Price
Outstanding at beginning of period		970,193		$	6.41
Granted during period		25,000			5.98
Forfeited/cancelled during period		─			─
Exercised		(2,000	)		5.73
Expired		(18,133	)		9.65
Outstanding at end of period (1)		975,060			6.34
Exercisable at end of period (1)		354,560		$	7.74

(1) Included in options outstanding and exercisable at June 30, 2016 are 100,000 organizer options, with an exercise price of $10.00 per share, exchanged as part of the 2008 acquisition of Prestige Community Bank which were issued outside of the Program.

The weighted average remaining contractual lives of all outstanding stock options and exercisable options based on the closing stock price at June 30, 2016 and December 31, 2015 were 6.38 years and 3.48 years, respectively, and 6.67 years and 3.66 years, respectively. The aggregate intrinsic value of all outstanding stock options was $269 thousand as of June 30, 2016, including $46 thousand related to currently exercisable options, and $618 thousand as of December 31, 2015, including $121 thousand related to exercisable options.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2016
Dividend yield..................................	0.0%
Expected life.....................................	7 years
Expected volatility...........................	26%
Risk-free interest rate......................	1.76%
Weighted average fair value..........	$        1.88

For option grants to individual employees, the Company assumes no forfeitures.  For option grants made to a group of employees, a 10% forfeiture rate is typically assumed at the date of the grant, and compared to actual forfeitures on an annual basis.

Under the terms of the merger agreement dated February 28, 2013, with Affinity, each Affinity option became fully vested and was exchanged for a grant of 0.9813 FPFC options, with an adjusted exercise price to reflect the exchange ratio and maintains the same expiration date as the original option. As of June 30, 2016, 45,460 of these options remain outstanding with an average exercise price of $9.42 and a remaining contractual term of 3.29 years.

The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.  Due to the Company’s lack of sufficient historical exercise data and the limited period of time for which shares have been issued, the “simplified” method is used to determine the expected life of options, calculated as the average of the sum of the vesting term and original contractual term for all periods presented. The expected volatility percentage is based on the average expected volatility of similar public financial institutions in the Company’s market area.  The risk-free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of grant.

As of June 30, 2016, there was $287 thousand of unrecognized compensation cost related to non-vested stock options granted after January 1, 2007, excluding those stock options issued in conjunction with the Company’s severance plan. That cost is expected to be recognized over a weighted average period of 3.01 years. There was no tax benefit recognized related to this stock-based compensation. There are 355,000 stock options issued in connection with the termination of the previously executed change in control agreements and the adoption of the severance plan, with $576 thousand of unrecognized compensation cost which will only be recognized if a change in control occurs, based on the options which remain outstanding and are probable to vest at that time.  During 2015, there were 99,000 performance options issued to various employees.  Certain performance criteria must be achieved over the performance period in order for the option granted to vest.  Performance is analyzed on a quarterly basis to determine if the specific required performance is more likely than not to be achieved.  Based on this evaluation, 27,500 performance options were cancelled in 2015 leaving 71,500 outstanding as of June 30, 2016.  These non-vested options may be further adjusted in the future.

Restricted Stock grants fully vest after a minimum of three years from the date of grant (or potentially earlier upon a change of control or retirement after the age of 66), subject to the recipient remaining an employee of the Company.  Directors are also granted restricted stock as part of their compensation for their services on the Board of Directors, or related Committees, as approved by the Compensation Committee of the Board. Upon issuance of the shares, resale of the shares is restricted during the vesting period, during which the shares may not be sold, pledged, or otherwise disposed of. Prior to the vesting date and in the event the recipient terminates association with Company for any reasons other than death, disability or change of control, the recipient forfeits all rights to the shares that would otherwise be issued under the grant. Compensation expense related to restricted stock awards granted under the Plan is determined at the date of the award based on the estimated fair value of the shares and is amortized over the vesting period.  As of June 30, 2016, there was $391 thousand of unrecognized compensation cost related to restricted stock, which will be amortized through February 10, 2020.

A summary of restricted stock award activity is presented below for the six months ended June 30, 2016:

	Shares
Outstanding unvested shares at beginning of period		165,474
Shares Granted during period		25,750
Shares Forfeited/cancelled during the period		(200	)
Vested Shares during this period		(22,049	)
Outstanding unvested shares at end of period		168,975

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Financial Instruments with Off-Balance Sheet Risk

6 Months Ended

Jun. 30, 2016

Commitments And Contingencies Disclosure [Abstract]

Financial Instruments with Off-Balance Sheet Risk

Note 9—Financial Instruments with Off-Balance Sheet Risk

The Company 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 include commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet.

The Company’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 amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

At June 30, 2016 and December 31, 2015, outstanding commitments to extend credit consisting of total unfunded commitments under lines of credit were $95.8 million and $97.8 million, respectively. In addition, as of each of these dates, the Company maintained $681 thousand and $711 thousand of performance standby letters of credit outstanding, respectively, and $1.2 million and $1.1 million of financial standby letters of credit outstanding, respectively, on behalf of its customers.

As of June 30, 2016, the Company also has deposit letters of credit totaling $9.9 million, issued by the Federal Home Loan Bank of Pittsburgh (“FHLB”), as required to provide collateral on certain municipal deposits maintained at First Priority.  These deposit letters of credit are secured by a blanket lien on selected mortgage loans within First Priority Bank’s portfolio.

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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include residential or commercial real estate, accounts receivable, inventory and equipment.

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Regulatory Matters

6 Months Ended

Jun. 30, 2016

Banking And Thrift [Abstract]

Regulatory Matters

Note 10—Regulatory Matters

The Dodd-Frank Act required the FRB to establish minimum consolidated capital requirements for bank holding companies that are as stringent as those required for insured depositary subsidiaries. The federal banking agencies approved rules that implemented the Dodd-Frank requirements and certain other regulatory capital reforms which were designed to enhance such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. These rules (i) introduced a new capital ratio pursuant to the prompt corrective action provisions, the common equity tier 1 capital to risk rated assets ratio, (ii) increased the adequately capitalized and well capitalized thresholds for the Tier 1 risk based capital ratios to 6% and 8% respectively, (iii) changed the treatment of certain capital components for determining Tier 1 and Tier 2 capital, and (iv) changed the risk weighting of certain assets and off balance sheet items in determining risk weighted assets. The new risk based capital rules became effective January 1, 2015.

Under the revised capital guidelines, the Bank’s minimum capital to risk-adjusted assets requirements consist of a common equity tier 1 capital ratio of 4.5% (6.5% to be considered “well capitalized”) and a tier 1 capital ratio of 6.0%, increased from 4.0% (and increased from 6.0% to 8.0% to be considered “well capitalized”); the total capital ratio remains at 8.0% under the new rules (10.0% to be considered “well capitalized”).  In addition, the Bank must maintain a minimum Tier 1 leverage ratio of at least 4.0% (5.0% to be considered “well capitalized”).  The new minimum capital requirements became effective on January 1, 2015.

Under the new rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. The capital contribution buffer requirements began to phase in over a three-year period beginning January 1, 2016 and is 0.625% during 2016.  The capital buffer requirement, on a fully phased-in basis as of January 1, 2019, effectively raises the minimum required common equity Tier 1 capital ratio to 7.0% (5.125% in 2016), the Tier 1 capital ratio to 8.5% (6.625% in 2016), and the total capital ratio to 10.5% (8.625% in 2016).

The Bank’s capital amounts (dollars in thousands) and ratios at June 30, 2016 and December 31, 2015 are presented below:

Actual

Minimum Capital Requirement

To be Well Capitalized under Prompt Corrective Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

June 30, 2016

Total capital (to risk-weighted assets)

$

53,494

13.64

%

$

31,382

>8.0

%

$

>39,227

>10.0

%

Tier 1 capital (to risk-weighted assets)

41,456

10.57

>23,536

>6.0

>31,382

>8.0

Tier 1 common equity capital (to risk-weighted assets)

41,456

10.57

>17,652

>4.5

>25,497

>6.5

Tier 1 capital (to total assets)

41,456

8.41

>19,723

>4.0

>24,654

>5.0

December 31, 2015

Total capital (to risk-weighted assets)

$

51,889

12.98

%

$

>31,985

>8.0

%

$

>39,981

>10.0

%

Tier 1 capital (to risk-weighted assets)

39,858

9.97

>23,989

>6.0

>31,985

>8.0

Tier 1 common equity capital (to risk-weighted assets)

39,858

9.97

>17,992

>4.5

>25,988

>6.5

Tier 1 capital (to total assets)

39,858

8.11

>19,655

>4.0

>24,568

>5.0

First Priority’s ability to pay cash dividends is dependent on receiving cash in the form of dividends from the Bank. However, certain restrictions exist regarding the ability of the Bank to transfer funds to First Priority in the form of cash dividends. All dividends are currently subject to prior approval of the Pennsylvania Department of Banking and Securities and the FDIC and are payable only from the undivided profits of the Bank, with the exception of an exemption enacted by the Pennsylvania Department of Banking and Securities which allows the Bank to pay dividends related to the preferred stock originally issued under the U.S. Department of the Treasury’s Troubled Asset Relief Program—Capital Purchase Program. Additionally, First Priority has met the requirement of obtaining prior approval from the Federal Reserve Bank on any payment of dividends, including dividends on the aforementioned preferred stock, when net income for the past four quarters is not sufficient to fund the dividend payments over that same period or when such payment would negatively impact capital adequacy of the Company.

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Fair Value Measurements and Fair Values of Financial Instruments

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements and Fair Values of Financial Instruments

Note 11—Fair Value Measurements and Fair Values of Financial Instruments

Management uses its best judgment in estimating the fair value of the Bank’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of June 30, 2016 and December 31, 2015 and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with FASB ASC Topic 820—Fair Value Measurements, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in some instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

FASB ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC Topic 820 are as follows:

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 inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). Management utilizes inputs that it believes a market participant would use.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2016 and December 31, 2015 are as follows:

Description	Fair Value		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
	(Dollars in thousands)
As of June 30, 2016:
Investment securities available for sale:
Obligations of U.S. government agencies and    corporations	$	8,031	$	—	$	8,031	$	—
Obligations of states and political subdivisions		8,127		—		8,127		—
Federal agency mortgage-backed securities		15,793		—		15,793		—
Federal agency collateralized mortgage obligations		271		—		271		—
Other debt securities		1,523		—		1,523		—
Money market mutual fund		25		25		—		—
Total assets measured at fair value on a recurring basis	$	33,770	$	25	$	33,745	$	—
As of December 31, 2015:
Investment securities available for sale:
Obligations of U.S. government agencies and    corporations	$	62,904	$	—	$	62,904	$	—
Obligations of states and political subdivisions		14,347		—		14,347		—
Federal agency mortgage-backed securities		17,037		—		17,037		—
Federal agency collateralized mortgage obligations		347		—		347		—
Money market mutual fund		69		69		—		—
Total assets measured at fair value on a recurring basis	$	94,704	$	69	$	94,635	$	—

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2016 and December 31, 2015 are as follows:

Description	Fair Value		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
	(Dollars in thousands)
As of June 30, 2016:
Impaired loans	$	3,337	$	—	$	—	$	3,337
Other real estate owned		19		—		—		19
Total assets measured at fair value on a    nonrecurring basis	$	3,356	$	—	$	—	$	3,356
As of December 31, 2015:
Impaired loans	$	3,699	$	—	$	—	$	3,699
Other real estate owned		935		—		—		935
Total assets measured at fair value on a    nonrecurring basis	$	4,634	$	—	$	—	$	4,634

Management generally uses a discounted appraisal technique in valuing impaired assets, resulting in the discounting of the collateral values underlying each impaired asset. A discounted tax assessment rate has been applied for smaller assets to determine the discounted collateral value. All impaired loans are classified as Level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment.

Quantitative information about Level 3 fair value measurements at June 30, 2016 is included in the table below:

	Fair Value		Valuation Techniques	Unobservable Inputs	Estimated Ratings (Weighted Average) (3)
	(Dollars in thousands)
Impaired loans	$	3,337	Appraisal of real estate collateral (1)	Appraisal adjustments(2)	0%-50% (5.03%)
			Valuation of business assets used as collateral(1)	Valuation adjustments(2)	25%-30%
				Liquidation expenses	2%-10% (6.05%)
Other real estate owned	$	19	Appraisal of collateral(1)	Appraisal adjustments(2)	─
				Liquidation expenses	5% (5.00%)

Quantitative information about Level 3 fair value measurements at December 31, 2015 is included in the table below:

	Fair Value		Valuation Techniques	Unobservable Inputs	Estimated Ratings (Weighted Average) (3)
	(Dollars in thousands)
Impaired loans	$	3,699	Appraisal of real estate collateral (1)	Appraisal adjustments(2)	0%-50%                (4.75%)
			Valuation of business assets used as collateral(1)	Valuation adjustments(2)	25%-30%
				Liquidation expenses	2%-10% (6.34%)
Other real estate owned	$	935	Appraisal of collateral(1)	Appraisal adjustments(2)	0%-25%                (3.39%)
				Liquidation expenses	7%-8.5% (8.38%)

(1) Fair Value is generally determined through independent appraisals of the underlying collateral, which include Level 3 inputs that are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

(3) The range and weighted average of qualitative factors such as economic conditions and estimated liquidation expenses are presented as a percent of the appraised value.

Valuation of real estate collateral may be discounted based on the age of the existing appraisal. No discounts are taken for recent appraisals. Valuations related to business assets used as collateral are typically discounted more heavily due to the inherent level of uncertainty in determining the fair value of these types of assets. Liquidation costs relating to these assets are charged to expense.

Other real estate owned measured at fair value on a nonrecurring basis consists of properties acquired as a result of accepting a deed in lieu of foreclosure, foreclosure or through other means related to collateral on Bank loans which resulted in a gain or loss recognized during the period. Costs relating to the development or improvement of assets are capitalized and costs relating to holding the property are charged to expense. As of June 30, 2016, the fair value of other real estate owned consists of balances of $400 thousand, net of a valuation allowance of $381 thousand.  As of December 31, 2015, the fair value of other real estate owned consists of balances of $1.3 million, net of a valuation allowance of $404 thousand.  Fair value is generally determined based upon independent third-party appraisals of the property.

Real estate properties acquired through, or in lieu of, foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices or appraised value of the property. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at June 30, 2016 and December 31, 2015:

Cash and Cash Equivalents

The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets’ fair values.

Securities

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

Loans Receivable

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.

Impaired Loans

Impaired loans, which are included in loans receivable, are those that are accounted for under FASB ASC Topic 310, “Receivables”, in which the Company has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value of the impaired loans consists of the loan balances, net of any valuation allowance. As of June 30, 2016 the fair value of impaired loans consisted of loan balances with an allowance recorded of $2.1 million, net of valuation allowances of $372 thousand; and loan balances with no related allowance recorded of $2.5 million, net of partial charge-offs of $852 thousand. As of December 31, 2015 the fair value of impaired loans consisted of loan balances with an allowance recorded of $2.5 million, net of valuation allowances of $452 thousand and partial charge-offs of $2 thousand; and loan balances with no related allowance recorded of $2.5 million, net of partial charge-offs of $867 thousand.

Restricted Investment in Bank Stock

The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.

Accrued Interest Receivable and Payable

The carrying amount of accrued interest receivable and accrued interest payable approximates fair value.

Deposit Liabilities

The fair values disclosed for demand deposits (interest and noninterest checking), money market and savings accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market to the maturities of the time deposits.

Short-Term Borrowings

The carrying amounts of short-term borrowings approximate their fair values.

Long-Term Debt

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Subordinated Debt

The fair values of subordinated debt has been estimated using discounted cash flow calculation taking into account contractual maturities, call features, and market interest rates for instruments with similar financial and credit characteristics.  These instruments are classified within Level 2 of the fair value hierarchy.

Off-Balance Sheet Financial Instruments

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.

At June 30, 2016 and December 31, 2015, the estimated fair values of the Company’s financial instruments were as follows:

	June 30, 2016
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	20,981	$	20,981	$	20,981	$	—	$	—
Securities available for sale		33,770		33,770		25		33,745		—
Securities held to maturity		19,325		21,003		—		21,003		—
Loans receivable, net		415,262		424,208		—		—		424,208
Restricted stock		2,074		2,074		—		2,074		—
Accrued interest receivable		1,542		1,542		—		1,542		—
Liabilities:
Deposits		410,635		412,037		—		412,037		—
Federal Home Loan Bank of Pittsburgh advances		37,900		37,958		—		37,958		—
Subordinated debt		9,196		9,504		—		9,504		—
Accrued interest payable		447		447		—		447		—
Off-balance sheet credit related instruments:
Commitments to extend credit		—		—		—		—		—

	December 31, 2015
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	5,909	$	5,909	$	5,909	$	—	$	—
Securities available for sale		94,704		94,704		69		94,635		—
Securities held to maturity		19,886		20,446		—		20,446		—
Loans receivable, net		406,358		413,187		—		—		413,187
Restricted stock		3,368		3,368		—		3,368		—
Accrued interest receivable		1,623		1,623		—		1,623		—
Liabilities:
Deposits		408,687		409,029		—		409,029		—
Federal Home Loan Bank of Pittsburgh advances		74,725		74,654		—		74,654		—
Subordinated debt		9,201		9,201		—		9,201		—
Accrued interest payable		450		450		—		450		—
Off-balance sheet credit related instruments:
Commitments to extend credit		—		—		—		—		—

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Organization and Nature of Operations

Organization and Nature of Operations

First Priority Financial Corp.

First Priority Financial Corp. (“First Priority,” the “Company”) is a bank holding company incorporated under the laws of the Commonwealth of Pennsylvania on February 13, 2007. On May 11, 2007, as a result of a reorganization and merger, First Priority Bank (the “Bank”) became a wholly-owned subsidiary of First Priority.  First Priority, primarily through the Bank, serves residents and businesses in the Delaware Valley with branches in Berks, Bucks, Chester and Montgomery counties in Pennsylvania.  The Bank, which has 7 retail branch office locations, is a locally managed community bank providing commercial banking products, primarily loans and deposits, headquartered in Malvern, PA.

First Priority provides banking services through the Bank and does not engage in any activities other than banking and related activities. As of June 30, 2016, First Priority had total assets of $506.9 million and total shareholders’ equity of $47.5 million.

First Priority Bank

The Bank is a state-chartered commercial banking institution which was incorporated under the laws of the Commonwealth of Pennsylvania on May 25, 2005. First Priority Bank’s deposits are insured by the FDIC up to the maximum amount permitted for all banks.

The Bank engages in a full service commercial and consumer banking business with strong private banking and individual wealth management services. The Bank offers a variety of consumer, private banking and commercial loans, mortgage products and commercial real estate financing. The Company’s operations are significantly affected by prevailing economic conditions, competition, and the monetary, fiscal, and regulatory policies of governmental agencies. Lending activities are influenced by a number of factors, including the general credit needs of individuals and small and medium-sized businesses in the Company’s market area, competition, the current regulatory environment, the level of interest rates, and the availability of funds. Deposit flows and costs of funds are influenced by prevailing market rates of interest, competition, account maturities, and the level of personal income and savings in the market area.

The Bank also offers certain financial planning and investment management services. These investment services are provided by First Priority Financial Services, a Division of First Priority Bank, through an agreement with a third party provider. In addition, various life insurance products are offered through the Bank, and the Bank has also entered into solicitation agreements with several investment advisors to provide portfolio management services to customers of the Bank.

The Bank currently seeks deposits and commercial and private banking relationships through its seven banking offices. The Bank provides deposit products that include checking, money market and savings accounts, and certificates of deposit as well as other deposit services, including cash management electronic banking and mobile products as well as online account opening capabilities. The Bank obtains funding in the local community by providing excellent service and competitive rates to its customers and utilizes various advertising to attract current and potential deposit customers. The Bank also uses brokered certificates of deposit as a cost effective funding alternative.

Basis of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements consist of the Company and the Company’s wholly owned consolidated subsidiary, the Bank.  All significant intercompany accounts and transactions have been eliminated in consolidation.

These statements are prepared in accordance with instructions to Form 10-Q, and therefore, do not include information or all footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of these financial statements have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for First Priority Financial Corp. for the year ended December 31, 2015, included in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 25, 2016. The results of interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.  

Subsequent Events

Subsequent Events

Management has evaluated events and transactions occurring subsequent to June 30, 2016 for items that should potentially be recognized or disclosed in these Consolidated Financial Statements. The evaluation was conducted through the date these financial statements were issued.

Estimates

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, stock-based compensation, impairment of goodwill, impairment of investments, the valuation of deferred tax assets and the valuation of other real estate owned.

Acquired Loans

Acquired Loans

Acquired loans are initially recorded at their acquisition date fair values. The carryover of allowance for loan losses is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at the acquisition date. Fair values for acquired loans are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.

Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments are accounted for as impaired loans under ASC 310-30. The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable discount. The non-accretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows require the Company to evaluate the need for an allowance for loan losses on these loans. Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the non-accretable discount which the Company then reclassifies as an accretable discount that is recognized into interest income over the remaining life of the loans using the interest method.  As of June 30, 2016 there were three remaining acquired purchased credit impaired loans with a net recorded balance of $238 thousand, after a non-accretable credit discount of $362 thousand.

Acquired loans that met the criteria for non-accrual of interest prior to acquisition may be considered performing upon acquisition, or in the future, regardless of whether the customer is contractually delinquent, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans. As such, the Company may no longer consider the loan to be non-accrual or non-performing and may accrue interest on these loans, including the impact of any accretable discount. For acquired loans that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value and amortized over the life of the asset. Subsequent to the acquisition date, the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans, however, the Company records a provision for loan losses only when the required allowance exceeds any remaining pooled discounts for loans evaluated collectively for impairment. As of June 30, 2016, the net recorded balance of acquired loans resulting from the Affinity merger totaled $18.0 million, including a remaining interest rate fair value adjustment of $72 thousand offset by a remaining accretable credit discount of $62 thousand, both of which are being recognized into interest income over the remaining life of the loans.  Additionally, the Company purchased portfolios of performing residential real estate loans during 2014 through 2016, all of which and were underwritten using similar underwriting standards as it uses for its organic portfolio.  These combined portfolios totaled $33.0 million as of June 30, 2016 with remaining acquisition premiums of $648 thousand which will be recognized into interest income over the remaining life of the loans

Allowance for Loan Losses

Allowance for Loan Losses

The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments, totaling $35 thousand as of both June 30, 2016 and December 31, 2015, represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheets. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors.  This evaluation is inherently subjective as it requires material estimates that may be 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 impaired. 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. The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include:

1. Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

2. National, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans.

3. Nature and volume of the portfolio and terms of loans.

4. Management team with experience, depth, and knowledge in banking and in many areas of lending. Each contributes to the sound credit culture and control within the Company.

5. Volume and severity of past due, classified and nonaccrual loans as well as other loan modifications.

6. The Company engages a third party to perform an independent review of the loan portfolio as a measure for quality and consistency in credit evaluation and credit decisions.

7. Existence and effect of any concentrations of credit and changes in the level of such concentrations.

8. Effect of external factors, such as competition and legal and regulatory requirements.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

A majority of the Company’s loans are to business owners of many types. The Company makes commercial loans for real estate development and other business purposes required by our customers.

The Company’s credit policies determine advance rates against the different forms of collateral that can be pledged against commercial loans. Typically, the majority of loans will be limited to a percentage of their underlying collateral values such as real estate values, equipment, eligible accounts receivable and inventory. Individual loan advance rates may be higher or lower depending upon the financial strength of the borrower and/or term of the loan. The assets financed through commercial loans are used within the business for its ongoing operation. Repayment of these kinds of loans generally comes from the cash flow of the business or the ongoing conversions of assets. Commercial real estate loans include long-term loans financing commercial properties. Repayment of this kind of loan is dependent upon either the ongoing cash flow of the borrowing entity or the resale of or lease of the subject property. Commercial real estate loans typically require a loan to value ratio of not greater than 80% and vary in terms.

Residential mortgages and home equity loans are secured by the borrower’s residential real estate in either a first or second lien position. Residential mortgages and home equity loans have varying loan rates depending on the financial condition of the borrower and the loan to value ratio. Residential mortgages have amortizations up to 30 years and home equity loans have maturities of no more than 15 years.  Residential mortgages and home equity loans typically require a loan to value ratio of not greater than 80%.

Other consumer loans include installment loans, car loans, and overdraft lines of credit. The majority of these loans are secured.

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.

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 or the fair value of the collateral if the loan is collateral dependent.  An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral.

For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values may be discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable aging or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans criticized special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.

In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

Comprehensive Income

Comprehensive Income

Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as a separate component of the shareholders’ equity section of the balance sheet, such items, along with net income, are components of total comprehensive income.  

Total reclassifications from accumulated other comprehensive income for the periods presented are as follows:

Details about Accumulated Other Comprehensive Income Components	Amounts Reclassified from Accumulated Other Comprehensive Income												Affected Line Item in the Statement where Net Income is Presented
	For the three months ended June 30,						For the six months ended June 30,
	2016			2015			2016			2015
	(Dollars in thousands)						(Dollars in thousands)
Sale of investment securities available for sale	$	(104	)	$	—		$	(339	)	$	—		Gains on sale of investment securities
Amortization of unrealized holding gain (losses) on securities transferred from available for sale to held to maturity		(4	)		(7	)		(19	)		(20	)	Interest Income on taxable securities
Tax effect		37			3			122			7		Income Tax Expense
Total reclassification	$	(71	)	$	(4	)	$	(236	)	$	(13	)

Accumulated other comprehensive income as of June 30, 2016 and December 31, 2015 consisted of the following:

	June 30,		December 31,
	2016		2015
	(Dollars in thousands)
Net unrealized gain on available for sale securities	$	604	$	208
Net unrealized holding gains on securities transferred from available for sale to held to maturity		16		28
Total	$	620	$	236

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, deferred by ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The amendments are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. Management does not believe the adoption of ASU 2014-09 will have a significant impact on the Company’s Consolidated Financial Statements but will continue to evaluate.

In January 2016, the FASB issued Accounting Standards Update 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 changes current U.S. GAAP for public entities by requiring the following, among others: (1) equity securities, except those accounted for under the equity method of accounting, to be measured at fair value with changes in fair value recognized in net income; (2) the use of the exit price when measuring fair value of financial instruments for disclosure purposes; (3) an entity to present separately in other comprehensive income the portion of the total change in the 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; and (4) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or notes to the financial statements. ASU 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods. Early application is permitted. The Company is currently assessing the impact the adoption of ASU 2016-01 will have on future financial statements and disclosures.

In February 2016, the FASB issued Accounting Standards Update ("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 lessee. 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 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 March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods therein.  The Company is evaluating the impact of this ASU on its consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326).” The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.  The amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods therein.  Early adoption is permitted.  The Company is evaluating the impact of this ASU on its consolidated financial statements and disclosures.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Schedule of Total Reclassifications from Accumulated Other Comprehensive Income

Total reclassifications from accumulated other comprehensive income for the periods presented are as follows:

Details about Accumulated Other Comprehensive Income Components	Amounts Reclassified from Accumulated Other Comprehensive Income												Affected Line Item in the Statement where Net Income is Presented
	For the three months ended June 30,						For the six months ended June 30,
	2016			2015			2016			2015
	(Dollars in thousands)						(Dollars in thousands)
Sale of investment securities available for sale	$	(104	)	$	—		$	(339	)	$	—		Gains on sale of investment securities
Amortization of unrealized holding gain (losses) on securities transferred from available for sale to held to maturity		(4	)		(7	)		(19	)		(20	)	Interest Income on taxable securities
Tax effect		37			3			122			7		Income Tax Expense
Total reclassification	$	(71	)	$	(4	)	$	(236	)	$	(13	)

Schedule of Accumulated Other Comprehensive Income

Accumulated other comprehensive income as of June 30, 2016 and December 31, 2015 consisted of the following:

	June 30,		December 31,
	2016		2015
	(Dollars in thousands)
Net unrealized gain on available for sale securities	$	604	$	208
Net unrealized holding gains on securities transferred from available for sale to held to maturity		16		28
Total	$	620	$	236

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Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

Schedule of Calculations of Basic and Diluted Earnings per Common Share

The calculations of basic and diluted earnings per common share are presented below for the three and six months ended June 30, 2016 and 2015:

	For the three months ended June 30,						For the six months ended June 30,
	(In thousands, except per share information)
	2016			2015			2016			2015
Net income	$	556		$	479		$	1,087		$	896
Less: preferred stock dividends		(77	)		(211	)		(254	)		(377	)
Income to common shareholders	$	479		$	268		$	833		$	519
Average basic common shares outstanding		6,503			6,446			6,499			6,446
Effect of dilutive stock options		65			60			50			54
Average number of common shares used to calculate    diluted earnings per common share		6,568			6,506			6,549			6,500
Basic earnings per common share	$	0.07		$	0.04		$	0.13		$	0.08
Diluted earnings per common share	$	0.07		$	0.04		$	0.13		$	0.08

Schedule of Amount of Preferred Stock Dividends Related to Each Series of Preferred Stock

The amount of preferred stock dividends related to each series of preferred stock are presented below for the three and six months ended June 30, 2016 and 2015:

	For the three months ended June 30,				For the six months ended June 30,
	2016		2015		2016		2015
	(Dollars in thousands)				(Dollars in thousands)
Preferred dividends:
Preferred Series A	$	—	$	103	$	77	$	206
Preferred Series B		—		5		4		10
Preferred Series C		77		103		173		161
Total preferred dividends	$	77	$	211	$	254	$	377

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Securities (Tables)

6 Months Ended

Jun. 30, 2016

Investments Debt And Equity Securities [Abstract]

Summary of Amortized Cost, Unrealized Gains and Losses, and Estimated Fair Value of Company's Investment Securities Available for Sale

The amortized cost, unrealized gains and losses, and the fair value of the Company’s investment securities available for sale and held to maturity are as follows for the periods presented:

	June 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Available For Sale:
Obligations of U.S. government agencies and corporations	$	7,974	$	57	$	—		$	8,031
Obligations of states and political subdivisions		7,645		483		(1	)		8,127
Federal agency mortgage-backed securities		15,441		360		(8	)		15,793
Federal agency collateralized mortgage obligations		270		1		—			271
Other debt securities		1,500		23		—			1,523
Money market mutual fund		25		—		—			25
Total investment securities available for sale	$	32,855	$	924	$	(9	)	$	33,770
Held To Maturity:
Obligations of states and political subdivisions	$	18,844	$	1,632	$	—		$	20,476
Other debt securities		481		46		—			527
Total investment securities held to maturity	$	19,325	$	1,678	$	—		$	21,003

	December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Available For Sale:
Obligations of U.S. government agencies and corporations	$	62,967	$	-	$	(63	)	$	62,904
Obligations of states and political subdivisions		13,964		398		(15	)		14,347
Federal agency mortgage-backed securities		17,042		87		(91	)		17,038
Federal agency collateralized mortgage obligations		347		-		(1	)		346
Money market mutual fund		69		-		-			69
Total investment securities available for sale	$	94,389	$	485	$	(170	)	$	94,704
Held To Maturity:
Obligations of states and political subdivisions	$	19,405	$	597	$	(47	)	$	19,955
Other debt securities		481		10		-			491
Total investment securities held to maturity	$	19,886	$	607	$	(47	)	$	20,446

Schedule of Aggregate Unrealized Losses and Aggregate Fair Value of Underlying Securities Available for Sale

The table below details the aggregate unrealized losses and aggregate fair value of the underlying securities whose fair values are below their amortized cost at June 30, 2016 and December 31, 2015.

	As of June 30, 2016
	Less than 12 Months							12 Months or longer							Total
	Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses			Count
	(Dollars in thousands)
Available for Sale:
Obligations of states and political subdivisions	$	894	$	(1	)		1	$	-	$	-			—	$	894	$	(1	)		1
Federal agency mortgage-backed securities		1,365		(7	)		2		39		(1	)		1		1,404		(8	)		3
Total Available for Sale	$	2,259	$	(8	)		3	$	39	$	(1	)		1	$	2,298	$	(9	)		4

	As of December 31, 2015
	Less than 12 Months							12 Months or longer							Total
	Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses			Count
	(Dollars in thousands)
Available for Sale:
Obligations of U.S. government agencies and corporations	$	12,905	$	(63	)		11	$	—	$	—			—	$	12,905	$	(63	)		11
Obligations of states and political subdivisions		2,780		(15	)		7		—		—			—		2,780		(15	)		7
Federal agency mortgage-backed securities		4,276		(46	)		3		2,304		(45	)		2		6,580		(91	)		5
Federal agency collateralized mortgage obligations		220		(1	)		1		—		—			—		220		(1	)		1
Total Available for Sale	$	20,181	$	(125	)		22	$	2,304	$	(45	)		2	$	22,485	$	(170	)		24
Held to Maturity:
Obligations of states and political subdivisions	$	2,373	$	(47	)		5	$	-	$	-			-	$	2,373	$	(47	)		5
Total Held to Maturity	$	2,373	$	(47	)		5	$	-	$	-			-	$	2,373	$	(47	)		5

Summary of Amortized Cost and Fair Value of Securities by Contractual Maturity

The amortized cost and fair value of securities as of June 30, 2016 by contractual maturity are shown below. Certain of these investment securities have call features which allow the issuer to call the security prior to its maturity date at the issuer’s discretion.

	June 30, 2016				June 30, 2016
	Available for Sale Securities				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Due within one year	$	250	$	250	$	—	$	—
Due after one year through five years		10,396		10,490		802		813
Due after five years through ten years		401		403		1,295		1,369
Due after ten years		6,072		6,538		17,228		18,821
		17,119		17,681		19,325		21,003
Federal agency collateralized mortgage obligations		270		271		—		—
Federal agency mortgage-backed securities		15,441		15,793		—		—
Money market mutual fund		25		25		—		—
Total	$	32,855	$	33,770	$	19,325	$	21,003

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Loans Receivable and Related Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2016

Receivables [Abstract]

Summary of Loans Receivable

Loans receivable consist of the following at June 30, 2016 and December 31, 2015.

	June 30,			December 31,
	2016			2015
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	70,741		$	74,470
Commercial mortgage		180,029			179,365
Commercial construction		15,058			13,466
Total commercial		265,828			267,301
Residential mortgage loans		109,893			101,185
Consumer:
Home equity lines of credit		25,527			24,762
Other consumer loans		16,599			15,915
Total consumer		42,126			40,677
Total loans		417,847			409,163
Allowance for loan losses		(2,807	)		(2,795	)
Net deferred loan cost (fees)		222			(10	)
Total loans receivable, net	$	415,262		$	406,358

Activity in Allowance for Loan Losses by Loan Class

The following tables summarize the activity in the allowance for loan losses by loan class for the three and six months ended June 30, 2016 and 2015:

	For the three months ended												For the six months ended
	June 30, 2016												June 30, 2016
	Allowance for Loan Losses												Allowance for Loan Losses
	(Dollars in thousands)												(Dollars in thousands)
	Beginning Balance		Charge-offs			Recoveries		Provision for loan losses			Ending Balance		Beginning Balance		Charge-offs			Recoveries		Provision for loan losses			Ending Balance
Commercial and industrial	$	672	$	(75	)	$	2	$	(32	)	$	567	$	631	$	(75	)	$	19	$	(8	)	$	567
Commercial mortgage		819		—			—		9			828		831		(72	)		—		69			828
Commercial construction		67		—			—		(10	)		57		56		—			—		1			57
Residential mortgage loans		248		—			—		28			276		259		—			—		17			276
Home equity lines of credit		154		—			3		(5	)		152		167		—			8		(23	)		152
Other consumer loans		59		—			4		(16	)		47		84		(75	)		7		31			47
Unallocated		764		—			—		116			880		767		—			—		113			880
Total loans	$	2,783	$	(75	)	$	9	$	90		$	2,807	$	2,795	$	(222	)	$	34	$	200		$	2,807

	For the three months ended												For the six months ended
	June 30, 2015												June 30, 2015
	Allowance for Loan Losses												Allowance for Loan Losses
	(Dollars in thousands)												(Dollars in thousands)
	Beginning Balance		Charge-offs			Recoveries		Provision for loan losses			Ending Balance		Beginning Balance		Charge-offs			Recoveries		Provision for loan losses			Ending Balance
Commercial and industrial	$	745	$	—		$	2	$	17		$	764	$	788	$	(16	)	$	7	$	(15	)	$	764
Commercial mortgage		507		(31	)		—		149			625		468		(42	)		—		199			625
Commercial construction		34		—			—		6			40		26		—			—		14			40
Residential  mortgage loans		163		-			—		12			175		159		(14	)		—		30			175
Home equity lines of credit		221		-			84		(75	)		230		270		(12	)		88		(116	)		230
Other consumer  loans		66		-			4		(3	)		67		87		(16	)		8		(12	)		67
Unallocated		641		—			—		24			665		515		—			—		150			665
Total loans	$	2,377	$	(31	)	$	90	$	130		$	2,566	$	2,313	$	(100	)	$	103	$	250		$	2,566

Allowance For Loan Losses Impairment Method

The following tables present the balance in the allowance for loan losses at June 30, 2016 and December 31, 2015 disaggregated on the basis of the Company’s impairment method by class of loans receivable along with the balance of loans receivable by class disaggregated on the basis of the Company’s impairment methodology:

	June 30, 2016
	Allowance for Loan Losses						Loans Receivable
	(Dollars in thousands)
	Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment		Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
Commercial and industrial	$	567	$	100	$	467	$	70,741	$	1,655	$	69,086
Commercial mortgage		828		225		603		180,029		1,890		178,139
Commercial construction		57		—		57		15,058		—		15,058
Residential mortgage loans		276		47		229		109,893		667		109,226
Home equity lines of credit		152		—		152		25,527		94		25,433
Other consumer loans		47		—		47		16,599		173		16,426
Unallocated		880		—		880		—		—		—
Total loans	$	2,807	$	372	$	2,435	$	417,847	$	4,479	$	413,368

	December 31, 2015
	Allowance for Loan Losses						Loans Receivable
	(Dollars in thousands)
	Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment		Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
Commercial and industrial	$	631	$	123	$	508	$	74,470	$	1,259	$	73,211
Commercial mortgage		831		264		567		179,365		2,196		177,169
Commercial construction		56		—		56		13,466		—		13,466
Residential mortgage loans		259		46		213		101,185		669		100,516
Home equity lines of credit		167		—		167		24,762		96		24,666
Other consumer loans		84		19		65		15,915		351		15,564
Unallocated		767		—		767		—		—		—
Total loans	$	2,795	$	452	$	2,343	$	409,163	$	4,571	$	404,592

Summary of Impaired Loans by Loan Portfolio Class

The following tables summarize information in regard to impaired loans by loan portfolio class as of June 30, 2016 and December 31, 2015 as well as for the three and six month periods ended June 30, 2016 and 2015, respectively:

	June 30, 2016						December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance    recorded:
Commercial and industrial	$	725	$	1,273	$	—	$	317	$	803	$	—
Commercial mortgage		1,382		1,439		—		1,463		1,530		—
Commercial construction		—		—		—		—		—		—
Residential mortgage loans		30		63		—		31		64		—
Home equity lines of credit		94		95		—		96		97		—
Other consumer loans		173		198		—		185		206		—
With an allowance recorded:
Commercial and industrial	$	930	$	994	$	100	$	942	$	995	$	123
Commercial mortgage		508		631		225		733		850		264
Commercial construction		—		—		—		—		—		—
Residential mortgage loans		637		637		47		638		638		46
Home equity lines of credit		—		—		—		—		—		—
Other consumer loans		—		—		—		166		168		19
Total:
Commercial and industrial	$	1,655	$	2,267	$	100	$	1,259	$	1,798	$	123
Commercial mortgage		1,890		2,070		225		2,196		2,380		264
Commercial construction		—		—		—		—		—		—
Residential mortgage loans		667		700		47		669		702		46
Home equity lines of credit		94		95		—		96		97		—
Other consumer loans		173		198		—		351		374		19
Total	$	4,479	$	5,330	$	372	$	4,571	$	5,351	$	452

	Three months ended June 30,								Six months ended June 30,
	2016				2015				2016				2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)								(Dollars in thousands)
With no related allowance    recorded:
Commercial and industrial	$	809	$	—	$	556	$	—	$	969	$	—	$	897	$	9
Commercial mortgage		1,387		15		1,900		11		1,416		29		2,736		26
Commercial construction		—		—		—		—		—		—		—		—
Residential mortgage loans		30		—		236		—		30		—		234		—
Home equity lines of credit		94		1		99		1		95		2		100		2
Other consumer loans		175		1		321		1		178		3		326		3
With an allowance recorded:
Commercial and industrial	$	399	$	12	$	984	$	5	$	668	$	14	$	930	$	5
Commercial mortgage		305		8		1,590		—		409		11		795		—
Commercial construction		—		—		-		—		—		—		-		—
Residential mortgage loans		638		6		—		—		638		12		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—
Other consumer loans		—		—		—		—		—		—		—		—
Total:
Commercial and industrial	$	1,208	$	12	$	1,540	$	5	$	1,637	$	14	$	1,827	$	14
Commercial mortgage		1,692		23		3,490		11		1,825		40		3,531		26
Commercial construction		—		—		—		—		—		—		—		—
Residential mortgage loans		668		6		236		—		668		12		234		—
Home equity lines of credit		94		1		99		1		95		2		100		2
Other consumer loans		175		1		321		1		178		3		326		3
Total	$	3,837	$	43	$	5,686	$	18	$	4,403	$	71	$	6,018	$	45

Non-accrual Loans by Classes of Loan Portfolio

The following table presents non-accrual loans by classes of the loan portfolio as of June 30, 2016 and December 31, 2015:

	June 30, 2016		December 31, 2015
	(Dollars in thousands)
Commercial and industrial	$	746	$	1,059
Commercial mortgage		11		575
Residential mortgage loans		30		31
Home equity lines of credit		15		16
Other consumer loans		75		252
Total loans	$	877	$	1,933

Classes of Loan Portfolio within Company's Internal Risk Rating System

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of June 30, 2016 and December 31, 2015:

	June 30, 2016
	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	68,660	$	200	$	1,881	$	—	$	70,741
Commercial mortgage		178,313		684		1,032		—		180,029
Commercial construction		15,058		—		—		—		15,058
Residential mortgage loans		109,863		—		30		—		109,893
Consumer:
Home equity lines of credit		25,512		—		15		—		25,527
Other consumer loans		16,524		—		75		—		16,599
Total	$	413,930	$	884	$	3,033	$	—	$	417,847

	December 31, 2015
	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	67,509	$	5,290	$	1,671	$	—	$	74,470
Commercial mortgage		174,339		3,478		1,548		—		179,365
Commercial construction		13,466		—		-		—		13,466
Residential mortgage loans		101,154		—		31		—		101,185
Consumer:
Home equity lines of credit		24,746		—		16		—		24,762
Other consumer loans		15,663		—		252		—		15,915
Total	$	396,877	$	8,768	$	3,518	$	—	$	409,163

Classes of Loan Portfolio Summarized by Past Due Status

The following tables present the classes of the loan portfolio summarized by the past due status as of June 30, 2016 and December 31, 2015:

	June 30, 2016
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	618	$	—	$	647	$	1,265	$	69,476	$	70,741
Commercial mortgage		49		—		11		60		179,969		180,029
Commercial construction		—		—		—		—		15,058		15,058
Residential mortgage loans		—		—		—		—		109,893		109,893
Consumer:								—
Home equity lines of credit		—		—		—		—		25,527		25,527
Other consumer loans		153		—		5		158		16,441		16,599
Total	$	820	$	—	$	663	$	1,483	$	416,364	$	417,847

	December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	—	$	67	$	230	$	297	$	74,173	$	74,470
Commercial mortgage		51		101		195		347		179,018		179,365
Commercial construction		—		—		—		—		13,466		13,466
Residential mortgage loans		975		—		—		975		100,210		101,185
Consumer:
Home equity lines of credit		—		—		—		-		24,762		24,762
Other consumer loans		15		—		209		224		15,691		15,915
Total	$	1,041	$	168	$	634	$	1,843	$	407,320	$	409,163

Summary of Information Regarding Troubled Debt Restructurings

The following tables summarize the balance of outstanding TDR’s at June 30, 2016 and December 31, 2015:

	Number of Loans		Performing TDR's		Non-Performing TDR's		Total TDRs
	(Dollars in thousands)
June 30, 2016
Commercial and industrial		4	$	909	$	21	$	930
Commercial mortgage		4		1,879		-		1,879
Residential mortgage loans		2		638		30		668
Home equity lines of credit		2		78		15		93
Other consumer loans		2		97		21		118
Total		14	$	3,601	$	87	$	3,688

	Number of Loans		Performing TDR's		Non-Performing TDR's		Total TDRs
	(Dollars in thousands)
December 31, 2015
Commercial and industrial		4	$	200	$	742	$	942
Commercial mortgage		6		1,622		343		1,965
Residential mortgage loans		2		638		31		669
Home equity lines of credit		2		79		17		96
Other consumer loans		2		99		22		121
Total		16	$	2,638	$	1,155	$	3,793

The following table reflects information regarding TDR’s entered into by the Company for the three and six month periods ended June 30, 2016 and 2015.

	For the three months ended
	June 30, 2016						June 30, 2015
	Number of Contracts		Pre- Modification Outstanding Recorded Investments		Post- Modification Outstanding Recorded Investments		Number of Contracts		Pre- Modification Outstanding Recorded Investments		Post- Modification Outstanding Recorded Investments
	(Dollars in thousands)						(Dollars in thousands)
Troubled debt restructurings:
Commercial and industrial		—	$	—	$	—		1	$	200	$	200
Total		—	$	—	$	—		1	$	200	$	200
	For the six months ended
	June 30, 2016						June 30, 2015
	Number of Contracts		Pre- Modification Outstanding Recorded Investments		Post- Modification Outstanding Recorded Investments		Number of Contracts		Pre- Modification Outstanding Recorded Investments		Post- Modification Outstanding Recorded Investments
	(Dollars in thousands)						(Dollars in thousands)
Troubled debt restructurings:
Commercial and industrial		—	$	—	$	—		1	$	200	$	200
Residential mortgage loans		—		—		—		1		35		35
Total		—	$	—	$	—		2	$	235	$	235

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Deposits (Tables)

6 Months Ended

Jun. 30, 2016

Banking And Thrift [Abstract]

Components of Deposits

The components of deposits at June 30, 2016 and December 31, 2015 are as follows:

	June 30,		December 31,
	2016		2015
	(Dollars in thousands)
Demand, non-interest bearing	$	51,971	$	46,343
Demand, interest-bearing		50,754		38,297
Money market and savings accounts		99,279		90,696
Time, $100 and over		48,346		56,138
Time, other		160,285		177,213
	$	410,635	$	408,687

Scheduled Maturities of Time Deposits

At June 30, 2016, the scheduled maturities of time deposits were as follows:

	(Dollars in thousands)
6/30/2017	$	73,690
6/30/2018		81,742
6/30/2019		30,499
6/30/2020		7,053
6/30/2021		15,543
Thereafter		104
	$	208,631

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Stock Compensation Program (Tables)

6 Months Ended

Jun. 30, 2016

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of Stock Option Plan

A summary of the Stock Option Plan is presented below:

	Options to Purchase Common Shares			Weighted Average Exercise Price
Outstanding at beginning of period		970,193		$	6.41
Granted during period		25,000			5.98
Forfeited/cancelled during period		─			─
Exercised		(2,000	)		5.73
Expired		(18,133	)		9.65
Outstanding at end of period (1)		975,060			6.34
Exercisable at end of period (1)		354,560		$	7.74

(1) Included in options outstanding and exercisable at June 30, 2016 are 100,000 organizer options, with an exercise price of $10.00 per share, exchanged as part of the 2008 acquisition of Prestige Community Bank which were issued outside of the Program.

Weighted Average Assumption of Fair Value Option Grant

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2016
Dividend yield..................................	0.0%
Expected life.....................................	7 years
Expected volatility...........................	26%
Risk-free interest rate......................	1.76%
Weighted average fair value..........	$        1.88

Summary of Restricted Stock Award Activity

A summary of restricted stock award activity is presented below for the six months ended June 30, 2016:

	Shares
Outstanding unvested shares at beginning of period		165,474
Shares Granted during period		25,750
Shares Forfeited/cancelled during the period		(200	)
Vested Shares during this period		(22,049	)
Outstanding unvested shares at end of period		168,975

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Regulatory Matters (Tables)

6 Months Ended

Jun. 30, 2016

Banking And Thrift [Abstract]

Schedule of Bank's Capital Amounts and Ratios

The Bank’s capital amounts (dollars in thousands) and ratios at June 30, 2016 and December 31, 2015 are presented below:

Actual

Minimum Capital Requirement

To be Well Capitalized under Prompt Corrective Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

June 30, 2016

Total capital (to risk-weighted assets)

$

53,494

13.64

%

$

31,382

>8.0

%

$

>39,227

>10.0

%

Tier 1 capital (to risk-weighted assets)

41,456

10.57

>23,536

>6.0

>31,382

>8.0

Tier 1 common equity capital (to risk-weighted assets)

41,456

10.57

>17,652

>4.5

>25,497

>6.5

Tier 1 capital (to total assets)

41,456

8.41

>19,723

>4.0

>24,654

>5.0

December 31, 2015

Total capital (to risk-weighted assets)

$

51,889

12.98

%

$

>31,985

>8.0

%

$

>39,981

>10.0

%

Tier 1 capital (to risk-weighted assets)

39,858

9.97

>23,989

>6.0

>31,985

>8.0

Tier 1 common equity capital (to risk-weighted assets)

39,858

9.97

>17,992

>4.5

>25,988

>6.5

Tier 1 capital (to total assets)

39,858

8.11

>19,655

>4.0

>24,568

>5.0

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Fair Value Measurements and Fair Values of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Summary of Financial Assets Measured at Fair Value on Recurring Basis

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2016 and December 31, 2015 are as follows:

Description	Fair Value		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
	(Dollars in thousands)
As of June 30, 2016:
Investment securities available for sale:
Obligations of U.S. government agencies and    corporations	$	8,031	$	—	$	8,031	$	—
Obligations of states and political subdivisions		8,127		—		8,127		—
Federal agency mortgage-backed securities		15,793		—		15,793		—
Federal agency collateralized mortgage obligations		271		—		271		—
Other debt securities		1,523		—		1,523		—
Money market mutual fund		25		25		—		—
Total assets measured at fair value on a recurring basis	$	33,770	$	25	$	33,745	$	—
As of December 31, 2015:
Investment securities available for sale:
Obligations of U.S. government agencies and    corporations	$	62,904	$	—	$	62,904	$	—
Obligations of states and political subdivisions		14,347		—		14,347		—
Federal agency mortgage-backed securities		17,037		—		17,037		—
Federal agency collateralized mortgage obligations		347		—		347		—
Money market mutual fund		69		69		—		—
Total assets measured at fair value on a recurring basis	$	94,704	$	69	$	94,635	$	—

Summary of Financial Assets Measured at Fair Value on Nonrecurring Basis

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2016 and December 31, 2015 are as follows:

Description	Fair Value		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
	(Dollars in thousands)
As of June 30, 2016:
Impaired loans	$	3,337	$	—	$	—	$	3,337
Other real estate owned		19		—		—		19
Total assets measured at fair value on a    nonrecurring basis	$	3,356	$	—	$	—	$	3,356
As of December 31, 2015:
Impaired loans	$	3,699	$	—	$	—	$	3,699
Other real estate owned		935		—		—		935
Total assets measured at fair value on a    nonrecurring basis	$	4,634	$	—	$	—	$	4,634

Quantitative Information about Level 3 Fair Value Measurements

Quantitative information about Level 3 fair value measurements at June 30, 2016 is included in the table below:

	Fair Value		Valuation Techniques	Unobservable Inputs	Estimated Ratings (Weighted Average) (3)
	(Dollars in thousands)
Impaired loans	$	3,337	Appraisal of real estate collateral (1)	Appraisal adjustments(2)	0%-50% (5.03%)
			Valuation of business assets used as collateral(1)	Valuation adjustments(2)	25%-30%
				Liquidation expenses	2%-10% (6.05%)
Other real estate owned	$	19	Appraisal of collateral(1)	Appraisal adjustments(2)	─
				Liquidation expenses	5% (5.00%)

Quantitative information about Level 3 fair value measurements at December 31, 2015 is included in the table below:

	Fair Value		Valuation Techniques	Unobservable Inputs	Estimated Ratings (Weighted Average) (3)
	(Dollars in thousands)
Impaired loans	$	3,699	Appraisal of real estate collateral (1)	Appraisal adjustments(2)	0%-50%                (4.75%)
			Valuation of business assets used as collateral(1)	Valuation adjustments(2)	25%-30%
				Liquidation expenses	2%-10% (6.34%)
Other real estate owned	$	935	Appraisal of collateral(1)	Appraisal adjustments(2)	0%-25%                (3.39%)
				Liquidation expenses	7%-8.5% (8.38%)

(1) Fair Value is generally determined through independent appraisals of the underlying collateral, which include Level 3 inputs that are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

(3) The range and weighted average of qualitative factors such as economic conditions and estimated liquidation expenses are presented as a percent of the appraised value.

Summary of Estimated Fair Values of Company's Financial Instruments

At June 30, 2016 and December 31, 2015, the estimated fair values of the Company’s financial instruments were as follows:

	June 30, 2016
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	20,981	$	20,981	$	20,981	$	—	$	—
Securities available for sale		33,770		33,770		25		33,745		—
Securities held to maturity		19,325		21,003		—		21,003		—
Loans receivable, net		415,262		424,208		—		—		424,208
Restricted stock		2,074		2,074		—		2,074		—
Accrued interest receivable		1,542		1,542		—		1,542		—
Liabilities:
Deposits		410,635		412,037		—		412,037		—
Federal Home Loan Bank of Pittsburgh advances		37,900		37,958		—		37,958		—
Subordinated debt		9,196		9,504		—		9,504		—
Accrued interest payable		447		447		—		447		—
Off-balance sheet credit related instruments:
Commitments to extend credit		—		—		—		—		—

	December 31, 2015
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	5,909	$	5,909	$	5,909	$	—	$	—
Securities available for sale		94,704		94,704		69		94,635		—
Securities held to maturity		19,886		20,446		—		20,446		—
Loans receivable, net		406,358		413,187		—		—		413,187
Restricted stock		3,368		3,368		—		3,368		—
Accrued interest receivable		1,623		1,623		—		1,623		—
Liabilities:
Deposits		408,687		409,029		—		409,029		—
Federal Home Loan Bank of Pittsburgh advances		74,725		74,654		—		74,654		—
Subordinated debt		9,201		9,201		—		9,201		—
Accrued interest payable		450		450		—		450		—
Off-balance sheet credit related instruments:
Commitments to extend credit		—		—		—		—		—

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Summary of Significant Accounting Policies - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2016 USD ($) Branch	Dec. 31, 2015 USD ($)	Jun. 30, 2015 USD ($)	Dec. 31, 2014 USD ($)
Summary Of Significant Accounting Policies [Line Items]
Entity date of formation	Feb. 13, 2007
Agreement of reorganization and merger date	May 11, 2007
Number of retail branch office locations | Branch	7
Total assets	$ 506,916,000	$ 546,540,000
Total Shareholders' Equity	47,501,000	52,091,000	$ 50,791,000	$ 50,211,000
Purchased credit impairment loans	238,000
Credit impairment loans non-accretable discount difference	362,000
Acquired loans interest rate fair value adjustment	72,000
Accretable credit discount	62,000
Combined purchase price of portfolio	33,000,000
Mortgage loan portfolio acquisition purchase price premium amount	648,000
Portion of allowance for loan losses	$ 0
Residential mortgages amortization period, description	Residential mortgages have amortizations up to 30 years
Home equity loans maturity period, description	Home equity loans have maturities of no more than 15 years.
Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Commercial real estate percentage of loan to value ratio	80.00%
Residential mortgages amortization period	30 years
Home equity loans maturity period	15 years
Residential mortgages home equity percentage of loan to value ratio	80.00%
Reserve For Off Balance Sheet Activities [Member]
Summary Of Significant Accounting Policies [Line Items]
Reserve for unfunded lending commitments	$ 35,000	$ 35,000
Affinity Merger [Member]
Summary Of Significant Accounting Policies [Line Items]
Net recorded balance of acquired loans from merger	$ 18,000,000
First Priority Bank [Member]
Summary Of Significant Accounting Policies [Line Items]
Entity date of formation	May 25, 2005

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Summary of Significant Accounting Policies - Schedule of Total Reclassifications from Accumulated Other Comprehensive Income (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Reclassification Adjustment out Of Accumulated Other Comprehensive Income [Line Items]
Interest Income on taxable securities	$ (5,154)	$ (4,761)	$ (10,190)	$ (9,415)
Income Tax Expense	256	236	497	441
Total reclassification	479	268	833	519
Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment out Of Accumulated Other Comprehensive Income [Line Items]
Income Tax Expense	37	3	122	7
Total reclassification	(71)	(4)	(236)	(13)
Amortization Of Unrealized Holding Gain ( Losses) On Securities Transferred From Available For Sale To Held To Maturity | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment out Of Accumulated Other Comprehensive Income [Line Items]
Interest Income on taxable securities	(4)	$ (7)	(19)	$ (20)
Sale of Investment Securities Available for Sale | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment out Of Accumulated Other Comprehensive Income [Line Items]
Gains on sale of Investment securities	$ (104)		$ (339)

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Summary of Significant Accounting Policies - Schedule of Accumulated Other Comprehensive income (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Accumulated Other Comprehensive Income (Loss) [Line Items]
Net unrealized gain on available for sale securities	$ 404	$ (484)	$ 939	$ (90)
Total	620		620		$ 236
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Net unrealized gain on available for sale securities			604		208
Net unrealized holding gains on securities transferred from available for sale to held to maturity			16		28
Total	$ 620		$ 620		$ 236

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Earnings Per Common Share - Additional Information (Detail) - shares	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Earnings Per Share [Abstract]
Anti-dilutive securities not included in the computation of diluted earnings per common share	176,357	262,667

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Earnings Per Common Share - Schedule of Calculations of Basic and Diluted Earnings per Common Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Earnings Per Share [Abstract]
Net income	$ 556	$ 479	$ 1,087	$ 896
Less: preferred stock dividends	(77)	(211)	(254)	(377)
Income to Common Shareholders	$ 479	$ 268	$ 833	$ 519
Average basic common shares outstanding	6,503	6,446	6,499	6,446
Effect of dilutive stock options	65	60	50	54
Average number of common shares used to calculate diluted earnings per common share	6,568	6,506	6,549	6,500
Basic earnings per common share	$ 0.07	$ 0.04	$ 0.13	$ 0.08
Diluted earnings per common share	$ 0.07	$ 0.04	$ 0.13	$ 0.08

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Earnings Per Common Share - Schedule of Amount of Preferred Stock Dividends Related to Each Series of Preferred Stock (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Class Of Stock [Line Items]
Preferred dividends	$ 77	$ 211	$ 254	$ 377
Series A Preferred Stock [Member]
Class Of Stock [Line Items]
Preferred dividends		103	77	206
Series B Preferred Stock [Member]
Class Of Stock [Line Items]
Preferred dividends		5	4	10
Series C Preferred Stock [Member]
Class Of Stock [Line Items]
Preferred dividends	$ 77	$ 103	$ 173	$ 161

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Securities - Additional Information (Detail) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Investments Debt And Equity Securities [Abstract]
Net unrealized holding gains amortized adjustment related to debt securities, before taxes	$ 24,000		$ 24,000		$ 43,000
Gross gains on sale of available for sale securities	104,000	$ 0	339,000	$ 0
Securities pledged to secure public fund deposits	51,000,000		51,000,000		55,200,000
Securities pledged to secure borrowings	$ 59,000		$ 59,000		$ 60,000

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Securities - Summary of Amortized Cost, Unrealized Gains and Losses, and Estimated Fair Value of Company's Investment Securities Available for Sale (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	$ 32,855	$ 94,389
Gross Unrealized Gains	924	485
Gross Unrealized Losses	(9)	(170)
Fair Value	33,770	94,704
Obligations of U.S. Government Agencies and Corporations [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	7,974	62,967
Gross Unrealized Gains	57
Gross Unrealized Losses		(63)
Fair Value	8,031	62,904
Obligations of States and Political Subdivisions [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	7,645	13,964
Gross Unrealized Gains	483	398
Gross Unrealized Losses	(1)	(15)
Fair Value	8,127	14,347
Federal Agency Mortgage-Backed Securities [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	15,441	17,042
Gross Unrealized Gains	360	87
Gross Unrealized Losses	(8)	(91)
Fair Value	15,793	17,038
Federal Agency Collateralized Mortgage Obligations [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	270	347
Gross Unrealized Gains	1
Gross Unrealized Losses		(1)
Fair Value	271	346
Other Debt Securities [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	1,500
Gross Unrealized Gains	23
Fair Value	1,523
Money Market Mutual Fund [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	25	69
Fair Value	$ 25	$ 69

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Securities - Summary of Amortized Cost, Unrealized Gains and Losses, and Estimated Fair Value of Company's Investment Securities Held to Maturity (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Schedule Of Held To Maturity Securities [Line Items]
Amortized Cost	$ 19,325	$ 19,886
Gross Unrealized Gains	1,678	607
Gross Unrealized Losses		(47)
Securities held to maturity, fair value	21,003	20,446
Obligations of States and Political Subdivisions [Member]
Schedule Of Held To Maturity Securities [Line Items]
Amortized Cost	18,844	19,405
Gross Unrealized Gains	1,632	597
Gross Unrealized Losses		(47)
Securities held to maturity, fair value	20,476	19,955
Other Debt Securities [Member]
Schedule Of Held To Maturity Securities [Line Items]
Amortized Cost	481	481
Gross Unrealized Gains	46	10
Securities held to maturity, fair value	$ 527	$ 491

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Securities - Schedule of Aggregate Unrealized Losses and Aggregate Fair Value of Underlying Securities Available for Sale (Detail) $ in Thousands	Jun. 30, 2016 USD ($) Positions	Dec. 31, 2015 USD ($) Positions
Schedule Of Available For Sale Securities [Line Items]
Available for Sale, Fair Value Less than 12 Months	$ 2,259	$ 20,181
Available for Sale, Unrealized Losses Less than 12 Months	$ (8)	$ (125)
Available for Sale, Count Less than 12 Months | Positions	3	22
Available for Sale, Fair Value More than 12 Months	$ 39	$ 2,304
Available for Sale, Unrealized Losses More than 12 Months	$ (1)	$ (45)
Available for Sale, Count More than 12 Months | Positions	1	2
Available for Sale, Total Fair Value	$ 2,298	$ 22,485
Available for Sale, Total Unrealized Losses	$ (9)	$ (170)
Available for Sale, Total Count | Positions	4	24
Obligations of States and Political Subdivisions [Member]
Schedule Of Available For Sale Securities [Line Items]
Available for Sale, Fair Value Less than 12 Months	$ 894	$ 2,780
Available for Sale, Unrealized Losses Less than 12 Months	$ (1)	$ (15)
Available for Sale, Count Less than 12 Months | Positions	1	7
Available for Sale, Total Fair Value	$ 894	$ 2,780
Available for Sale, Total Unrealized Losses	$ (1)	$ (15)
Available for Sale, Total Count | Positions	1	7
Federal Agency Mortgage-Backed Securities [Member]
Schedule Of Available For Sale Securities [Line Items]
Available for Sale, Fair Value Less than 12 Months	$ 1,365	$ 4,276
Available for Sale, Unrealized Losses Less than 12 Months	$ (7)	$ (46)
Available for Sale, Count Less than 12 Months | Positions	2	3
Available for Sale, Fair Value More than 12 Months	$ 39	$ 2,304
Available for Sale, Unrealized Losses More than 12 Months	$ (1)	$ (45)
Available for Sale, Count More than 12 Months | Positions	1	2
Available for Sale, Total Fair Value	$ 1,404	$ 6,580
Available for Sale, Total Unrealized Losses	$ (8)	$ (91)
Available for Sale, Total Count | Positions	3	5
Obligations of U.S. Government Agencies and Corporations [Member]
Schedule Of Available For Sale Securities [Line Items]
Available for Sale, Fair Value Less than 12 Months		$ 12,905
Available for Sale, Unrealized Losses Less than 12 Months		$ (63)
Available for Sale, Count Less than 12 Months | Positions		11
Available for Sale, Total Fair Value		$ 12,905
Available for Sale, Total Unrealized Losses		$ (63)
Available for Sale, Total Count | Positions		11
Federal Agency Collateralized Mortgage Obligations [Member]
Schedule Of Available For Sale Securities [Line Items]
Available for Sale, Fair Value Less than 12 Months		$ 220
Available for Sale, Unrealized Losses Less than 12 Months		$ (1)
Available for Sale, Count Less than 12 Months | Positions		1
Available for Sale, Total Fair Value		$ 220
Available for Sale, Total Unrealized Losses		$ (1)
Available for Sale, Total Count | Positions		1

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Securities - Schedule of Aggregate Unrealized Losses and Aggregate Fair Value of Underlying Securities Held to Maturity (Detail) $ in Thousands	Dec. 31, 2015 USD ($) Positions
Schedule Of Held To Maturity Securities [Line Items]
Held to Maturity, Fair Value Less than 12 Months	$ 2,373
Held to Maturity, Unrealized Losses Less than 12 Months	$ (47)
Held to Maturity, Count Less than 12 Months | Positions	5
Held to Maturity, Total Fair Value	$ 2,373
Held to Maturity, Total Unrealized Losses	$ (47)
Held to Maturity, Total Count | Positions	5
Obligations of States and Political Subdivisions [Member]
Schedule Of Held To Maturity Securities [Line Items]
Held to Maturity, Fair Value Less than 12 Months	$ 2,373
Held to Maturity, Unrealized Losses Less than 12 Months	$ (47)
Held to Maturity, Count Less than 12 Months | Positions	5
Held to Maturity, Total Fair Value	$ 2,373
Held to Maturity, Total Unrealized Losses	$ (47)
Held to Maturity, Total Count | Positions	5

XML

Securities - Summary of Amortized Cost and Fair Value of Securities by Contractual Maturity (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost, Due within one year, Available for Sale Securities	$ 250
Amortized Cost, Due after one year through five years, Available for Sale Securities	10,396
Amortized Cost, Due after five years through ten years, Available for Sale Securities	401
Amortized Cost, Due after ten years, Available for Sale Securities	6,072
Total Amortized Cost, Available for Sale Securities	17,119
Securities available for sale, amortized cost	32,855	$ 94,389
Fair Value, Due within one year, Available for Sale Securities	250
Fair Value, Due after one year through five years, Available for Sale Securities	10,490
Fair Value, Due after five years through ten years, Available for Sale Securities	403
Fair Value, Due after ten years, Available for Sale Securities	6,538
Total Fair Value, Available for Sale Securities	17,681
Fair Value	33,770	94,704
Amortized Cost, Due after one year through five years, Held to Maturity	802
Amortized Cost, Due after five years through ten years, Held to Maturity	1,295
Amortized Cost, Due after ten years, Held to Maturity	17,228
Amortized Cost	19,325	19,886
Fair Value, Due after one year through five years, Held to Maturity	813
Fair Value, Due after five years through ten years, Held to Maturity	1,369
Fair Value, Due after ten years, Held to Maturity	18,821
Total Fair Value	21,003	20,446
Federal Agency Collateralized Mortgage Obligations [Member]
Schedule Of Available For Sale Securities [Line Items]
Securities available for sale, amortized cost	270	347
Fair Value	271	346
Federal Agency Mortgage-Backed Securities [Member]
Schedule Of Available For Sale Securities [Line Items]
Securities available for sale, amortized cost	15,441	17,042
Fair Value	15,793	17,038
Money Market Mutual Fund [Member]
Schedule Of Available For Sale Securities [Line Items]
Securities available for sale, amortized cost	25	69
Fair Value	$ 25	$ 69

XML

Loans Receivable and Related Allowance for Loan Losses - Summary of Loans Receivable (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014
Commercial:
Commercial and industrial	$ 70,741		$ 74,470
Commercial mortgage	180,029		179,365
Commercial construction	15,058		13,466
Total commercial	265,828		267,301
Residential mortgage loans	109,893		101,185
Consumer:
Home equity lines of credit	25,527		24,762
Other consumer loans	16,599		15,915
Total consumer	42,126		40,677
Total loans	417,847		409,163
Allowance for loan losses	(2,807)	$ (2,783)	(2,795)	$ (2,566)	$ (2,377)	$ (2,313)
Net deferred loan cost (fees)	222		(10)
Net loans	$ 415,262		$ 406,358

XML

Loans Receivable and Related Allowance for Loan Losses - Activity in Allowance for Loan Losses by Loan Class (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Beginning Balance	$ 2,783	$ 2,377	$ 2,795	$ 2,313
Allowance for Loan Losses, Charge-offs	(75)	(31)	(222)	(100)
Allowance for Loan Losses, Recoveries	9	90	34	103
Allowance for Loan Losses, Provision for loan losses	90	130	200	250
Allowance for Loan Losses, Ending Balance	2,807	2,566	2,807	2,566
Residential Mortgage Loans [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Beginning Balance	248	163	259	159
Allowance for Loan Losses, Charge-offs				(14)
Allowance for Loan Losses, Provision for loan losses	28	12	17	30
Allowance for Loan Losses, Ending Balance	276	175	276	175
Home Equity Lines of Credit [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Beginning Balance	154	221	167	270
Allowance for Loan Losses, Charge-offs				(12)
Allowance for Loan Losses, Recoveries	3	84	8	88
Allowance for Loan Losses, Provision for loan losses	(5)	(75)	(23)	(116)
Allowance for Loan Losses, Ending Balance	152	230	152	230
Commercial and Industrial [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Beginning Balance	672	745	631	788
Allowance for Loan Losses, Charge-offs	(75)		(75)	(16)
Allowance for Loan Losses, Recoveries	2	2	19	7
Allowance for Loan Losses, Provision for loan losses	(32)	17	(8)	(15)
Allowance for Loan Losses, Ending Balance	567	764	567	764
Commercial Mortgage [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Beginning Balance	819	507	831	468
Allowance for Loan Losses, Charge-offs		(31)	(72)	(42)
Allowance for Loan Losses, Provision for loan losses	9	149	69	199
Allowance for Loan Losses, Ending Balance	828	625	828	625
Commercial Construction [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Beginning Balance	67	34	56	26
Allowance for Loan Losses, Provision for loan losses	(10)	6	1	14
Allowance for Loan Losses, Ending Balance	57	40	57	40
Other Consumer Loans [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Beginning Balance	59	66	84	87
Allowance for Loan Losses, Charge-offs			(75)	(16)
Allowance for Loan Losses, Recoveries	4	4	7	8
Allowance for Loan Losses, Provision for loan losses	(16)	(3)	31	(12)
Allowance for Loan Losses, Ending Balance	47	67	47	67
Unallocated [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Beginning Balance	764	641	767	515
Allowance for Loan Losses, Provision for loan losses	116	24	113	150
Allowance for Loan Losses, Ending Balance	$ 880	$ 665	$ 880	$ 665

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Loans Receivable and Related Allowance for Loan Losses - Balance in Allowance for Loan Losses Disaggregated on Basis of Company's Impairment Method (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Ending Balance	$ 2,807	$ 2,783	$ 2,795	$ 2,566	$ 2,377	$ 2,313
Allowance for Loan Losses, Ending Balance: Individually Evaluated for Impairment	372		452
Allowance for Loan Losses, Ending Balance: Collectively Evaluated for Impairment	2,435		2,343
Total loans	417,847		409,163
Loans Receivable, Ending Balance: Individually Evaluated for Impairment	4,479		4,571
Loans Receivable, Ending Balance: Collectively Evaluated for Impairment	413,368		404,592
Residential Mortgage Loans [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Ending Balance	276	248	259	175	163	159
Allowance for Loan Losses, Ending Balance: Individually Evaluated for Impairment	47		46
Allowance for Loan Losses, Ending Balance: Collectively Evaluated for Impairment	229		213
Total loans	109,893		101,185
Loans Receivable, Ending Balance: Individually Evaluated for Impairment	667		669
Loans Receivable, Ending Balance: Collectively Evaluated for Impairment	109,226		100,516
Home Equity Lines of Credit [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Ending Balance	152	154	167	230	221	270
Allowance for Loan Losses, Ending Balance: Collectively Evaluated for Impairment	152		167
Total loans	25,527		24,762
Loans Receivable, Ending Balance: Individually Evaluated for Impairment	94		96
Loans Receivable, Ending Balance: Collectively Evaluated for Impairment	25,433		24,666
Commercial and Industrial [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Ending Balance	567	672	631	764	745	788
Allowance for Loan Losses, Ending Balance: Individually Evaluated for Impairment	100		123
Allowance for Loan Losses, Ending Balance: Collectively Evaluated for Impairment	467		508
Total loans	70,741		74,470
Loans Receivable, Ending Balance: Individually Evaluated for Impairment	1,655		1,259
Loans Receivable, Ending Balance: Collectively Evaluated for Impairment	69,086		73,211
Commercial Mortgage [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Ending Balance	828	819	831	625	507	468
Allowance for Loan Losses, Ending Balance: Individually Evaluated for Impairment	225		264
Allowance for Loan Losses, Ending Balance: Collectively Evaluated for Impairment	603		567
Total loans	180,029		179,365
Loans Receivable, Ending Balance: Individually Evaluated for Impairment	1,890		2,196
Loans Receivable, Ending Balance: Collectively Evaluated for Impairment	178,139		177,169
Commercial Construction [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Ending Balance	57	67	56	40	34	26
Allowance for Loan Losses, Ending Balance: Collectively Evaluated for Impairment	57		56
Total loans	15,058		13,466
Loans Receivable, Ending Balance: Collectively Evaluated for Impairment	15,058		13,466
Other Consumer Loans [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Ending Balance	47	59	84	67	66	87
Allowance for Loan Losses, Ending Balance: Individually Evaluated for Impairment			19
Allowance for Loan Losses, Ending Balance: Collectively Evaluated for Impairment	47		65
Total loans	16,599		15,915
Loans Receivable, Ending Balance: Individually Evaluated for Impairment	173		351
Loans Receivable, Ending Balance: Collectively Evaluated for Impairment	16,426		15,564
Unallocated [Member]
Financing Receivable Allowance For Credit Losses [Line Items]
Allowance for Loan Losses, Ending Balance	880	$ 764	767	$ 665	$ 641	$ 515
Allowance for Loan Losses, Ending Balance: Collectively Evaluated for Impairment	$ 880		$ 767

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Loans Receivable and Related Allowance for Loan Losses - Summary of Impaired Loans by Loan Portfolio Class (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Financing Receivable, Impaired [Line Items]
Total, Related Allowance	$ 372		$ 372		$ 452
Net recorded investment	4,479		4,479		4,571
Total, Unpaid Principle Balance	5,330		5,330		5,351
Total, Average Recorded Investment	3,837	$ 5,686	4,403	$ 6,018
Total, Interest Income Recognized	43	18	71	45
Commercial and Industrial [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance recorded, Recorded Investment	725		725		317
With no related allowance recorded, Unpaid Principle Balance	1,273		1,273		803
Total, Related Allowance	100		100		123
With an allowance recorded, Recorded Investment	930		930		942
With an allowance recorded, Unpaid Principle Balance	994		994		995
Net recorded investment	1,655		1,655		1,259
Total, Unpaid Principle Balance	2,267		2,267		1,798
With an allowance recorded, Average Recorded Investment	399	984	668	930
With an allowance recorded, Interest Income Recognized	12	5	14	5
Total, Average Recorded Investment	1,208	1,540	1,637	1,827
Total, Interest Income Recognized	12	5	14	14
With no related allowance recorded, Average Recorded Investment	809	556	969	897
With no related allowance recorded, Interest Income Recognized				9
Commercial Mortgage [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance recorded, Recorded Investment	1,382		1,382		1,463
With no related allowance recorded, Unpaid Principle Balance	1,439		1,439		1,530
Total, Related Allowance	225		225		264
With an allowance recorded, Recorded Investment	508		508		733
With an allowance recorded, Unpaid Principle Balance	631		631		850
Net recorded investment	1,890		1,890		2,196
Total, Unpaid Principle Balance	2,070		2,070		2,380
With an allowance recorded, Average Recorded Investment	305	1,590	409	795
With an allowance recorded, Interest Income Recognized	8		11
Total, Average Recorded Investment	1,692	3,490	1,825	3,531
Total, Interest Income Recognized	23	11	40	26
With no related allowance recorded, Average Recorded Investment	1,387	1,900	1,416	2,736
With no related allowance recorded, Interest Income Recognized	15	11	29	26
Other Consumer Loans [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance recorded, Recorded Investment	173		173		185
With no related allowance recorded, Unpaid Principle Balance	198		198		206
Total, Related Allowance					19
With an allowance recorded, Recorded Investment					166
With an allowance recorded, Unpaid Principle Balance					168
Net recorded investment	173		173		351
Total, Unpaid Principle Balance	198		198		374
Total, Average Recorded Investment	175	321	178	326
Total, Interest Income Recognized	1	1	3	3
With no related allowance recorded, Average Recorded Investment	175	321	178	326
With no related allowance recorded, Interest Income Recognized	1	1	3	3
Residential Mortgage Loans [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance recorded, Recorded Investment	30		30		31
With no related allowance recorded, Unpaid Principle Balance	63		63		64
Total, Related Allowance	47		47		46
With an allowance recorded, Recorded Investment	637		637		638
With an allowance recorded, Unpaid Principle Balance	637		637		638
Net recorded investment	667		667		669
Total, Unpaid Principle Balance	700		700		702
With an allowance recorded, Average Recorded Investment	638		638
With an allowance recorded, Interest Income Recognized	6		12
Total, Average Recorded Investment	668	236	668	234
Total, Interest Income Recognized	6		12
With no related allowance recorded, Average Recorded Investment	30	236	30	234
Home Equity Lines of Credit [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance recorded, Recorded Investment	94		94		96
With no related allowance recorded, Unpaid Principle Balance	95		95		97
Net recorded investment	94		94		96
Total, Unpaid Principle Balance	95		95		$ 97
Total, Average Recorded Investment	94	99	95	100
Total, Interest Income Recognized	1	1	2	2
With no related allowance recorded, Average Recorded Investment	94	99	95	100
With no related allowance recorded, Interest Income Recognized	$ 1	$ 1	$ 2	$ 2

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Loans Receivable and Related Allowance for Loan Losses - Non-accrual Loans by Classes of Loan Portfolio (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financing Receivable Recorded Investment Past Due [Line Items]
Non-accrual loans	$ 877	$ 1,933
Commercial and Industrial [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Non-accrual loans	746	1,059
Commercial Mortgage [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Non-accrual loans	11	575
Other Consumer Loans [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Non-accrual loans	75	252
Residential Mortgage Loans [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Non-accrual loans	30	31
Home Equity Lines of Credit [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Non-accrual loans	$ 15	$ 16

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Loans Receivable and Related Allowance for Loan Losses - Additional Information (Detail)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016 USD ($) Contract	Jun. 30, 2015 USD ($) Contract	Jun. 30, 2016 USD ($) Contract	Jun. 30, 2015 USD ($) SecurityLoan Contract	Dec. 31, 2015 USD ($) SecurityLoan
Accounts Notes And Loans Receivable [Line Items]
Non-accruing loans interest income not yet recognized	$ 18,000	$ 65,000	$ 50,000	$ 125,000
Loans past due 90 days or more and still accruing interest	0		0		$ 0
Commitments to lend additional funds	$ 0		$ 0		$ 0
Number of Contracts | Contract	0	1	0	2
Foreclosed residential real estate properties	$ 858,000		$ 858,000
Commercial Loans [Member]
Accounts Notes And Loans Receivable [Line Items]
Number of Contracts | SecurityLoan				2	2
Residential Mortgage Loans [Member]
Accounts Notes And Loans Receivable [Line Items]
Number of Contracts | Contract				1
Outstanding Default Loans			0		$ 638,000
Foreclosed residential real estate properties	$ 0		$ 0
Commercial Loans One [Member]
Accounts Notes And Loans Receivable [Line Items]
Outstanding Default Loans					$ 64,000

XML

Loans Receivable and Related Allowance for Loan Losses - Classes of Loan Portfolio within Company's Internal Risk Rating System (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Commercial:
Commercial and industrial	$ 70,741	$ 74,470
Commercial mortgage	180,029	179,365
Commercial construction	15,058	13,466
Residential mortgage loans	109,893	101,185
Consumer:
Home equity lines of credit	25,527	24,762
Other consumer loans	16,599	15,915
Total loans	417,847	409,163
Pass [Member]
Commercial:
Commercial and industrial	68,660	67,509
Commercial mortgage	178,313	174,339
Commercial construction	15,058	13,466
Residential mortgage loans	109,863	101,154
Consumer:
Home equity lines of credit	25,512	24,746
Other consumer loans	16,524	15,663
Total loans	413,930	396,877
Special Mention [Member]
Commercial:
Commercial and industrial	200	5,290
Commercial mortgage	684	3,478
Consumer:
Total loans	884	8,768
Substandard [Member]
Commercial:
Commercial and industrial	1,881	1,671
Commercial mortgage	1,032	1,548
Residential mortgage loans	30	31
Consumer:
Home equity lines of credit	15	16
Other consumer loans	75	252
Total loans	$ 3,033	$ 3,518

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Loans Receivable and Related Allowance for Loan Losses - Classes of Loan Portfolio Summarized by Past Due Status (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	$ 1,483	$ 1,843
Current	416,364	407,320
Total loans	417,847	409,163
Commercial and Industrial [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	1,265	297
Current	69,476	74,173
Total loans	70,741	74,470
Commercial Mortgage [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	60	347
Current	179,969	179,018
Total loans	180,029	179,365
Commercial Construction [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Current	15,058	13,466
Total loans	15,058	13,466
Other Consumer Loans [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	158	224
Current	16,441	15,691
Total loans	16,599	15,915
30-59 Days Past Due [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	820	1,041
30-59 Days Past Due [Member] | Commercial and Industrial [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	618
30-59 Days Past Due [Member] | Commercial Mortgage [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	49	51
30-59 Days Past Due [Member] | Other Consumer Loans [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	153	15
60-89 Days Past Due [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due		168
60-89 Days Past Due [Member] | Commercial and Industrial [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due		67
60-89 Days Past Due [Member] | Commercial Mortgage [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due		101
Greater Than 90 Days [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	663	634
Greater Than 90 Days [Member] | Commercial and Industrial [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	647	230
Greater Than 90 Days [Member] | Commercial Mortgage [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	11	195
Greater Than 90 Days [Member] | Other Consumer Loans [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	5	209
Residential Mortgage Loans [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due		975
Current	109,893	100,210
Total loans	109,893	101,185
Residential Mortgage Loans [Member] | 30-59 Days Past Due [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due		975
Home Equity Lines of Credit [Member]
Financing Receivable Recorded Investment Past Due [Line Items]
Current	25,527	24,762
Total loans	$ 25,527	$ 24,762

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Loans Receivable and Related Allowance for Loan Losses - Summary of Outstanding Troubled Debt Restructurings (Detail) $ in Thousands	Jun. 30, 2016 USD ($) loan	Dec. 31, 2015 USD ($) loan
Financing Receivable Modifications [Line Items]
Number of Loans | loan	14	16
Total TDRs	$ 3,688	$ 3,793
Performing [Member]
Financing Receivable Modifications [Line Items]
Total TDRs	3,601	2,638
Non-Performing [Member]
Financing Receivable Modifications [Line Items]
Total TDRs	$ 87	$ 1,155
Commercial and Industrial [Member]
Financing Receivable Modifications [Line Items]
Number of Loans | loan	4	4
Total TDRs	$ 930	$ 942
Commercial and Industrial [Member] | Performing [Member]
Financing Receivable Modifications [Line Items]
Total TDRs	909	200
Commercial and Industrial [Member] | Non-Performing [Member]
Financing Receivable Modifications [Line Items]
Total TDRs	$ 21	$ 742
Commercial Mortgage [Member]
Financing Receivable Modifications [Line Items]
Number of Loans | loan	4	6
Total TDRs	$ 1,879	$ 1,965
Commercial Mortgage [Member] | Performing [Member]
Financing Receivable Modifications [Line Items]
Total TDRs	$ 1,879	1,622
Commercial Mortgage [Member] | Non-Performing [Member]
Financing Receivable Modifications [Line Items]
Total TDRs		$ 343
Other Consumer Loans [Member]
Financing Receivable Modifications [Line Items]
Number of Loans | loan	2	2
Total TDRs	$ 118	$ 121
Other Consumer Loans [Member] | Performing [Member]
Financing Receivable Modifications [Line Items]
Total TDRs	97	99
Other Consumer Loans [Member] | Non-Performing [Member]
Financing Receivable Modifications [Line Items]
Total TDRs	$ 21	$ 22
Residential Mortgage Loans [Member]
Financing Receivable Modifications [Line Items]
Number of Loans | loan	2	2
Total TDRs	$ 668	$ 669
Residential Mortgage Loans [Member] | Performing [Member]
Financing Receivable Modifications [Line Items]
Total TDRs	638	638
Residential Mortgage Loans [Member] | Non-Performing [Member]
Financing Receivable Modifications [Line Items]
Total TDRs	$ 30	$ 31
Home Equity Lines of Credit [Member]
Financing Receivable Modifications [Line Items]
Number of Loans | loan	2	2
Total TDRs	$ 93	$ 96
Home Equity Lines of Credit [Member] | Performing [Member]
Financing Receivable Modifications [Line Items]
Total TDRs	78	79
Home Equity Lines of Credit [Member] | Non-Performing [Member]
Financing Receivable Modifications [Line Items]
Total TDRs	$ 15	$ 17

XML

Loans Receivable and Related Allowance for Loan Losses - Summary of Information Regarding Bank's Troubled Debt Restructurings (Detail) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016 Contract	Jun. 30, 2015 USD ($) Contract	Jun. 30, 2016 Contract	Jun. 30, 2015 USD ($) Contract
Financing Receivable Modifications [Line Items]
Number of Contracts | Contract	0	1	0	2
Pre-Modification Outstanding Recorded Investments		$ 200		$ 235
Post-Modification Outstanding Recorded Investments		$ 200		$ 235
Residential Mortgage Loans [Member]
Financing Receivable Modifications [Line Items]
Number of Contracts | Contract				1
Pre-Modification Outstanding Recorded Investments				$ 35
Post-Modification Outstanding Recorded Investments				$ 35
Commercial and Industrial [Member]
Financing Receivable Modifications [Line Items]
Number of Contracts | Contract		1		1
Pre-Modification Outstanding Recorded Investments		$ 200		$ 200
Post-Modification Outstanding Recorded Investments		$ 200		$ 200

XML

Deposits - Components of Deposits (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Deposits [Abstract]
Demand, non-interest bearing	$ 51,971	$ 46,343
Demand, interest-bearing	50,754	38,297
Money market and savings accounts	99,279	90,696
Time, $100 and over	48,346	56,138
Time, other	160,285	177,213
Total deposits	$ 410,635	$ 408,687

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Deposits - Additional Information (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Deposits [Abstract]
Brokered deposits	$ 98,300	$ 113,300
FDIC insurance limit	250	250
Time deposits in excess of FDIC Insurance limit	$ 8,800	$ 10,000

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Deposits - Scheduled Maturities of Time Deposits (Detail) $ in Thousands	Jun. 30, 2016 USD ($)
Time Deposits Rolling Year Maturity [Abstract]
6/30/2017	$ 73,690
6/30/2018	81,742
6/30/2019	30,499
6/30/2020	7,053
6/30/2021	15,543
Thereafter	104
Total time deposits	$ 208,631

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Shareholders' Equity - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands		6 Months Ended	12 Months Ended
	Jan. 22, 2016	Jun. 30, 2016	Dec. 31, 2015	May 04, 2016
Class Of Stock [Line Items]
Common stock, shares authorized		20,000,000	10,000,000	20,000,000
Common stock, par value		$ 1	$ 1	$ 1.00
Preferred stock, shares outstanding		3,404	9,404
Preferred stock, value outstanding		$ 3,400	$ 9,400
Preferred stock, dividend rate		9.00%	9.00%
Preferred Stock, redemption amount	$ 6,000	$ 6,000
Preferred Stock, redemption price per share	$ 1,016.75
Preferred stock, par value		$ 100	$ 100
Series A Preferred Stock [Member]
Class Of Stock [Line Items]
Preferred stock, shares outstanding			4,579
Preferred stock, dividend rate			9.00%
Preferred Stock, redemption price per share	$ 1,000
Preferred stock, shares redeemed	4,579
Preferred stock, shares issued			4,579
Series B Preferred Stock [Member]
Class Of Stock [Line Items]
Preferred stock, shares outstanding			229
Preferred stock, dividend rate			9.00%
Preferred Stock, redemption price per share	$ 1,000
Preferred stock, shares redeemed	229
Preferred stock, shares issued			229
Series C Preferred Stock [Member]
Class Of Stock [Line Items]
Preferred stock, shares outstanding		3,404	4,596
Preferred stock, dividend rate		9.00%	9.00%
Preferred stock, shares redeemed	1,192
Preferred stock pro rata percentage shares redeemed	25.90%
Preferred stock, shares issued	4,596	3,404	4,596
Preferred stock, par value	$ 1,000

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Stock Compensation Program - Additional Information (Detail) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock Compensation Program, aggregate maximum number of share to grant	1,207,957
Vesting period of granted stock options	4 years
Description of options termination from the date of grant	Terminate ten years from the date of the grant
Weighted average remaining contractual life, outstanding stock options	6 years 4 months 17 days	6 years 8 months 1 day
Weighted average remaining contractual life, exercisable stock options	3 years 5 months 23 days	3 years 7 months 28 days
Options outstanding, intrinsic value	$ 269,000	$ 618,000
Options exercisable, intrinsic value	$ 46,000	$ 121,000
Stock options outstanding	975,060	970,193
Average Exercise Price - Options Granted this period	$ 5.98
Unrecognized compensation cost	$ 287,000
Weighted average period for cost is expected to be recognized	3 years 4 days
Tax benefit recognized related to stock-based compensation	$ 0
Stock options issued under Severance Plan	355,000
Unrecognized Compensation Cost for Shares Issued and Restricted under the Severance Plan	$ 576,000
Shares issued to various employees is included in options granted	25,000
Unrecognized compensation cost amortized period	Feb. 10, 2020
Performance Options [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock options outstanding	71,500
Shares issued to various employees is included in options granted		99,000
Options, cancelled, Shares		27,500
Restricted Stock [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Unrecognized compensation cost related to restricted stock	$ 391,000
Restricted Stock [Member] | Employee [Member] | Minimum [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period of granted stock options	3 years
Affinity Bancorp, Inc [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares authorized for grant	382,957
Weighted average remaining contractual life, exercisable stock options	3 years 3 months 15 days
Business combination shares exchange ratio	0.9813%
Stock options outstanding	45,460
Average Exercise Price - Options Granted this period	$ 9.42

XML

Stock Compensation Program - Summary of Stock Option Plan (Detail)	6 Months Ended
	Jun. 30, 2016 $ / shares shares
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Options, Beginning balance, Options to Purchase Common Shares | shares	970,193
Options, Granted, Options to Purchase Common Shares | shares	25,000
Options, Exercised, Options to Purchase Common Shares | shares	(2,000)
Options, expired, Options to Purchase Common Shares | shares	(18,133)
Options, Ending balance, Options to Purchase Common Shares | shares	975,060
Options, Exercisable, Options to Purchase Common Shares | shares	354,560
Options, Beginning balance, Weighted Average Exercise Price | $ / shares	$ 6.41
Options, Granted, Weighted Average Exercise Price | $ / shares	5.98
Options, Exercised, Weighted Average Exercise Price | $ / shares	5.73
Options, Expired, Weighted Average Exercise Price | $ / shares	9.65
Options, Ending balance, Weighted Average Exercise Price | $ / shares	6.34
Options, Exercisable, Weighted Average Exercise Price | $ / shares	$ 7.74

XML

Stock Compensation Program - Summary of Stock Option Plan (Parenthetical) (Detail) - $ / shares	Jun. 30, 2016	Dec. 31, 2015
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock options outstanding	975,060	970,193
Options, Exercisable, Options to Purchase Common Shares	354,560
Options, Exercisable, Weighted Average Exercise Price	$ 7.74
Options outstanding, exercise price	$ 6.34	$ 6.41
Organizer Options [Member] | 2008 Acquisition of Prestige [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock options outstanding	100,000
Options, Exercisable, Options to Purchase Common Shares	100,000
Options, Exercisable, Weighted Average Exercise Price	$ 10.00
Options outstanding, exercise price	$ 10.00

XML

Stock Compensation Program - Weighted Average Assumption of Fair Value Option Grant (Detail)	6 Months Ended
	Jun. 30, 2016 $ / shares
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Dividend yield	0.00%
Expected life	7 years
Expected volatility	26.00%
Risk-free interest rate	1.76%
Weighted average fair value	$ 1.88

XML

Stock Compensation Program - Summary of Restricted Stock Award Activity (Detail)	6 Months Ended
	Jun. 30, 2016 shares
Share Based Compensation Arrangement By Share Based Payment Award Equity Instruments Other Than Options Nonvested Roll Forward
Restricted stock award, Beginning balance, Unvested shares	165,474
Restricted stock award, Granted, Shares	25,750
Restricted stock award, Forfeited/cancelled, Shares	(200)
Restricted stock award, Vested, Shares	(22,049)
Restricted stock award, Ending balance, Unvested shares	168,975

XML

Financial Instruments with Off-Balance Sheet Risk - Additional Information (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Federal Home Loan Bank of Pittsburgh [Member]
Loss Contingencies [Line Items]
Letters of credit	$ 9,900
Financial Standby Letters of Credit [Member]
Loss Contingencies [Line Items]
Letters of credit	1,200	$ 1,100
Lines of Credit [Member]
Loss Contingencies [Line Items]
Commitments issued under lines of credit	95,800	97,800
Performance Standby Letters of Credit [Member]
Loss Contingencies [Line Items]
Letters of credit	$ 681	$ 711

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Regulatory Matters - Additional Information (Detail)		6 Months Ended
	Jan. 01, 2019	Jun. 30, 2016	Dec. 31, 2015	Dec. 31, 2014
Compliance With Regulatory Capital Requirements Under Banking Regulations [Line Items]
Tier One Risk Based Capital Required To Be Adequately Capitalized		6.00%	6.00%	4.00%
Tier One Risk Based Capital Required To Be Well Capitalized		8.00%	8.00%	6.00%
Tier 1 common equity capital (to risk-weighted assets), Minimum Capital Requirement Ratio		4.50%	4.50%
Tier 1 common equity capital (to risk-weighted assets), To be Well Capitalized under Prompt Corrective Action Provisions Ratio		6.50%	6.50%
Total capital (to risk-weighted assets), Minimum Capital Requirement Ratio		8.00%	8.00%
Total capital (to risk-weighted assets), To be Well Capitalized under Prompt Corrective Action Provisions Ratio		10.00%	10.00%
Tier 1 capital (to total assets), Minimum Capital Requirement Ratio		4.00%	4.00%
Tier 1 capital (to total assets), To be Well Capitalized under Prompt Corrective Action Provisions Ratio		5.00%	5.00%
Tier 1 risk based capital required capital conservation buffer ratio		0.625%
Tier 1 common equity capital ratio minimum requirement		5.125%
Tier 1 capital ratio minimum requirement		6.625%
Tier 1 total capital ratio minimum requirement		8.625%
Scenario, Forecast [Member]
Compliance With Regulatory Capital Requirements Under Banking Regulations [Line Items]
Tier 1 common equity capital ratio	7.00%
Tier 1 capital ratio	8.50%
Tier 1 total capital ratio	10.50%
Dodd Frank Act
Compliance With Regulatory Capital Requirements Under Banking Regulations [Line Items]
Tier One Risk Based Capital Required To Be Adequately Capitalized		6.00%
Tier One Risk Based Capital Required To Be Well Capitalized		8.00%
Effective date of new risk based capital rules		Jan. 01, 2015

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Regulatory Matters - Schedule of Bank's Capital Amounts and Ratios (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015	Dec. 31, 2014
Banking And Thrift [Abstract]
Total capital (to risk-weighted assets), Actual Amount	$ 53,494	$ 51,889
Tier 1 capital (to risk-weighted assets), Actual Amount	41,456	39,858
Tier 1 common equity capital (to risk-weighted assets), Actual Amount	41,456	39,858
Tier 1 capital (to total assets), Actual Amount	$ 41,456	$ 39,858
Total capital (to risk-weighted assets), Actual Ratio	13.64%	12.98%
Tier 1 capital (to risk-weighted assets), Actual Ratio	10.57%	9.97%
Tier 1 common equity capital (to risk-weighted assets), Actual Ratio	10.57%	9.97%
Tier 1 capital (to total assets), Actual Ratio	8.41%	8.11%
Total capital (to risk-weighted assets), Minimum Capital Requirement Amount	$ 31,382	$ 31,985
Tier 1 capital (to risk-weighted assets), Minimum Capital Requirement Amount	23,536	23,989
Tier 1 common equity capital (to risk-weighted assets), Minimum Capital Requirement Amount	17,652	17,992
Tier 1 capital (to total assets), Minimum Capital Requirement Amount	$ 19,723	$ 19,655
Total capital (to risk-weighted assets), Minimum Capital Requirement Ratio	8.00%	8.00%
Tier One Risk Based Capital Required To Be Adequately Capitalized	6.00%	6.00%	4.00%
Tier 1 common equity capital (to risk-weighted assets), Minimum Capital Requirement Ratio	4.50%	4.50%
Tier 1 capital (to total assets), Minimum Capital Requirement Ratio	4.00%	4.00%
Total capital (to risk-weighted assets), To be Well Capitalized under Prompt Corrective Action Provisions Amount	$ 39,227	$ 39,981
Tier 1 capital (to risk-weighted assets), To be Well Capitalized under Prompt Corrective Action Provisions Amount	31,382	31,985
Tier 1 common equity capital (to risk-weighted assets), To be Well Capitalized under Prompt Corrective Action Provisions Amount	25,497	25,988
Tier 1 capital (to total assets), To be Well Capitalized under Prompt Corrective Action Provisions Amount	$ 24,654	$ 24,568
Total capital (to risk-weighted assets), To be Well Capitalized under Prompt Corrective Action Provisions Ratio	10.00%	10.00%
Tier One Risk Based Capital Required To Be Well Capitalized	8.00%	8.00%	6.00%
Tier 1 common equity capital (to risk-weighted assets), To be Well Capitalized under Prompt Corrective Action Provisions Ratio	6.50%	6.50%
Tier 1 capital (to total assets), To be Well Capitalized under Prompt Corrective Action Provisions Ratio	5.00%	5.00%

XML

Fair Value Measurements and Fair Values of Financial Instruments - Summary of Financial Assets Measured at Fair Value on Recurring Basis (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	$ 33,770	$ 94,704
Obligations of U.S. Government Agencies and Corporations [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	8,031	62,904
Obligations of States and Political Subdivisions [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	8,127	14,347
Federal Agency Mortgage-Backed Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	15,793	17,037
Federal Agency Collateralized Mortgage Obligations [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	271	347
Other Debt Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	1,523
Money Market Mutual Fund [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	25	69
(Level 1) Quoted Prices in Active Markets for Identical Assets [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	25	69
(Level 1) Quoted Prices in Active Markets for Identical Assets [Member] | Money Market Mutual Fund [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	25	69
(Level 2) Significant Other Observable Inputs [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	33,745	94,635
(Level 2) Significant Other Observable Inputs [Member] | Obligations of U.S. Government Agencies and Corporations [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	8,031	62,904
(Level 2) Significant Other Observable Inputs [Member] | Obligations of States and Political Subdivisions [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	8,127	14,347
(Level 2) Significant Other Observable Inputs [Member] | Federal Agency Mortgage-Backed Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	15,793	17,037
(Level 2) Significant Other Observable Inputs [Member] | Federal Agency Collateralized Mortgage Obligations [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	271	$ 347
(Level 2) Significant Other Observable Inputs [Member] | Other Debt Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a recurring basis	$ 1,523

XML

Fair Value Measurements and Fair Values of Financial Instruments - Summary of Financial Assets Measured at Fair Value on Nonrecurring Basis (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a nonrecurring basis	$ 3,356	$ 4,634
(Level 3) Significant Unobservable Inputs [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a nonrecurring basis	3,356	4,634
Impaired Loans [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a nonrecurring basis	3,337	3,699
Impaired Loans [Member] | (Level 3) Significant Unobservable Inputs [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a nonrecurring basis	3,337	3,699
Other Real Estate Owned [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a nonrecurring basis	19	935
Other Real Estate Owned [Member] | (Level 3) Significant Unobservable Inputs [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets measured at fair value on a nonrecurring basis	$ 19	$ 935

XML

Fair Value Measurements and Fair Values of Financial Instruments - Quantitative Information about Level 3 Fair Value Measurements (Detail) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Fair Value Inputs Assets Quantitative Information [Line Items]
Asset at fair Value	$ 3,356	$ 4,634
(Level 3) Significant Unobservable Inputs [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Asset at fair Value	3,356	4,634
Impaired Loans [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Asset at fair Value	$ 3,337	$ 3,699
Impaired Loans [Member] | Unobservable Inputs Appraisal Adjustments [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Unobservable Inputs	Appraisal adjustments
Impaired Loans [Member] | Unobservable Inputs Valuation Adjustments [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Unobservable Inputs	Valuation adjustments
Impaired Loans [Member] | Unobservable Inputs Liquidation Expenses [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Estimated Ratings, maximum	10.00%	10.00%
Estimated Ratings Weighted Average, Liquidation expenses	6.05%	6.34%
Unobservable Inputs	Liquidation expenses
Estimated Ratings, minimum	2.00%	2.00%
Impaired Loans [Member] | (Level 3) Significant Unobservable Inputs [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Asset at fair Value	$ 3,337	$ 3,699
Impaired Loans [Member] | Appraisal of Real Estate Collateral [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Valuation Techniques	Appraisal of real estate collateral
Impaired Loans [Member] | Appraisal of Real Estate Collateral [Member] | Unobservable Inputs Appraisal Adjustments [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Estimated Ratings, maximum	50.00%	50.00%
Estimated Ratings Weighted Average, Appraisal adjustments	5.03%	4.75%
Estimated Ratings, minimum	0.00%	0.00%
Impaired Loans [Member] | Valuation of Business Assets Used as Collateral [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Valuation Techniques	Valuation of business assets used as collateral
Impaired Loans [Member] | Valuation of Business Assets Used as Collateral [Member] | Unobservable Inputs Valuation Adjustments [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Estimated Ratings, maximum	30.00%	30.00%
Estimated Ratings, minimum	25.00%	25.00%
Other Real Estate Owned [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Asset at fair Value	$ 19	$ 935
Other Real Estate Owned [Member] | Unobservable Inputs Appraisal Adjustments [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Unobservable Inputs	Appraisal adjustments
Estimated Ratings, minimum		0.00%
Other Real Estate Owned [Member] | Unobservable Inputs Liquidation Expenses [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Estimated Ratings, maximum	5.00%	8.50%
Estimated Ratings Weighted Average, Liquidation expenses	5.00%	8.38%
Unobservable Inputs	Liquidation expenses
Estimated Ratings, minimum		7.00%
Other Real Estate Owned [Member] | (Level 3) Significant Unobservable Inputs [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Asset at fair Value	$ 19	$ 935
Other Real Estate Owned [Member] | Appraisal of Collateral [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Valuation Techniques	Appraisal of collateral
Other Real Estate Owned [Member] | Appraisal of Collateral [Member] | Unobservable Inputs Appraisal Adjustments [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Estimated Ratings, maximum		25.00%
Other Real Estate Owned [Member] | Appraisal of Collateral [Member] | Unobservable Inputs Liquidation Expenses [Member]
Fair Value Inputs Assets Quantitative Information [Line Items]
Estimated Ratings Weighted Average, Liquidation expenses		3.39%

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Fair Value Measurements and Fair Values of Financial Instruments - Additional Information (Detail) - USD ($)	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Valuation of real estate collateral, discount	$ 0
Other real estate owned	1,733,000	$ 1,633,000
Impaired loan balances	4,479,000	4,571,000
Total, Related Allowance	372,000	452,000
Impaired Loans Fair Value with Allowance Recorded [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Impaired loan balances	2,100,000	2,500,000
Total, Related Allowance	372,000	452,000
Net of partial charge-offs		2,000
Impaired Loans Fair Value with no Related Allowance Recorded [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Impaired loan balances	2,500,000	2,500,000
Net of partial charge-offs	852,000	867,000
Portion at Fair Value Measurement [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Other real estate owned	400,000	1,300,000
Other Real Estate Owned [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Valuation allowance	$ 381,000	$ 404,000

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Fair Value Measurements and Fair Values of Financial Instruments - Summary of Estimated Fair Values of Company's Financial Instruments (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Fair Value	$ 33,770	$ 94,704
Securities held to maturity	21,003	20,446
Carrying Amount [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Cash and cash equivalents	20,981	5,909
Fair Value	33,770	94,704
Securities held to maturity	19,325	19,886
Loans receivable, net	415,262	406,358
Restricted stock	2,074	3,368
Accrued interest receivable	1,542	1,623
Deposits	410,635	408,687
Federal Home Loan Bank of Pittsburgh advances	37,900	74,725
Subordinated debt	9,196	9,201
Accrued interest payable	447	450
Fair Value [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Cash and cash equivalents	20,981	5,909
Fair Value	33,770	94,704
Securities held to maturity	21,003	20,446
Loans receivable, net	424,208	413,187
Restricted stock	2,074	3,368
Accrued interest receivable	1,542	1,623
Deposits	412,037	409,029
Federal Home Loan Bank of Pittsburgh advances	37,958	74,654
Subordinated debt	9,504	9,201
Accrued interest payable	447	450
Fair Value [Member] | (Level 1) Quoted Prices in Active Markets for Identical Assets [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Cash and cash equivalents	20,981	5,909
Fair Value	25	69
Fair Value [Member] | (Level 2) Significant Other Observable Inputs [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Fair Value	33,745	94,635
Securities held to maturity	21,003	20,446
Restricted stock	2,074	3,368
Accrued interest receivable	1,542	1,623
Deposits	412,037	409,029
Federal Home Loan Bank of Pittsburgh advances	37,958	74,654
Subordinated debt	9,504	9,201
Accrued interest payable	447	450
Fair Value [Member] | (Level 3) Significant Unobservable Inputs [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Loans receivable, net	$ 424,208	$ 413,187