UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 Or
 o
    
    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 333-147950
 First Priority Financial Corp.
  Pennsylvania
    
    6022
    
    20-8420347(State or other
jurisdiction of
incorporation or 
organization)
    
    (Primary Standard
Industrial
Classification Code Number)
    
    (I.R.S. Employer
Identification No.)
 
 (Address, including zip code, of registrants principal executive offices)
  (Registrants telephone number, including area code)
 þ o
  o Large accelerated filer
    
    o Accelerated filer
    
    o Non-accelerated filer(Do not check if a smaller reporting company)
    
    þ Smaller reporting company
 o þ




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FIRST PRIORITY FINANCIAL CORP.
 INDEX TO FORM 10-Q REPORT
 PageNo.Part I. FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Balance Sheets  March 31, 2008 (unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Income   For the three months ended March 31, 2008 and 2007 (unaudited)
    
    
    4Consolidated Statements of Shareholders Equity  For the three months ended March 31, 2008 and 2007 (unaudited)
    
    
    5Consolidated Statements of Cash Flows  For the three months ended March 31, 2008 and 2007 (unaudited)
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 1A. Risk Factors
    
    
    21Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    48Item 4. Controls and Procedures
    
    
    48Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    49Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    49Item 3. Defaults Upon Senior Securities
    
    
    49Item 4. Submission of Matters to a Vote of Security Holders
    
    
    49Item 5. Other Information
    
    
    49Item 6. Exhibits
    
    
    49
  2




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##### 



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements

First Priority Financial Corp.
 
 Consolidated Balance Sheets
 (In thousands, except per share data)
 March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)AssetsCash and due from banks
    
    $
    2,948
    
    
    $
    943Total cash and cash equivalents
    
    
    2,948
    
    
    
    943Securities available for sale (amortized
cost: $27,649 and $45,015, respectively)
    
    
    27,693
    
    
    
    45,026Loans receivable
    
    
    122,885
    
    
    
    105,207Less: allowance for loan losses
    
    
    1,401
    
    
    
    1,055Net Loans
    
    
    121,484
    
    
    
    104,152Restricted investment in bank stock
    
    
    60
    
    
    
    50Premises and equipment, net
    
    
    1,353
    
    
    
    574Accrued interest receivable
    
    
    590
    
    
    
    545Goodwill
    
    
    1,166
    
    
    
    Other assets
    
    
    384
    
    
    
    321Total Assets
    
    $
    155,678
    
    
    $
    151,611Liabilities and Shareholders EquityLiabilitiesDeposits:Non-interest bearing
    
    $
    7,590
    
    
    $
    6,846Interest-bearing
    
    
    117,150
    
    
    
    109,459Total Deposits
    
    
    124,740
    
    
    
    116,305Short-term borrowings
    
    
    5,396
    
    
    
    18,097Long-term debt
    
    
    390
    
    
    
    390Accrued interest payable
    
    
    877
    
    
    
    858Other liabilities
    
    
    2,441
    
    
    
    641Total Liabilities
    
    
    133,844
    
    
    
    136,291Shareholders EquityPreferred stock, $100 par value; authorized 10,000 shares;
no shares issued or outstanding
    
    
    
    
    
    
    Common stock, $1 par value; authorized 10,000 shares;
3,084 and 2,108 shares issued and outstanding, respectively
    
    
    3,084
    
    
    
    2,108Surplus
    
    
    25,434
    
    
    
    18,982Accumulated deficit
    
    
    (6,728
    )
    
    
    (5,781
    )Accumulated other comprehensive income
    
    
    44
    
    
    
    11Total Shareholders Equity
    
    
    21,834
    
    
    
    15,320Total Liabilities and Shareholders Equity
    
    $
    155,678
    
    
    $
    151,611
 See notes to unaudited consolidated financial statements.
 3




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##### 



First Priority Financial Corp.
 
 Consolidated Statements of Income
 Unaudited (In thousands, except per share data)
 For the three months endedMarch 31,2008
    
    
    2007Interest IncomeLoans receivable, including fees
    
    $
    1,716
    
    
    $
    1,025Securities  taxable
    
    
    121
    
    
    
    208Interest bearing deposits and other
    
    
    1
    
    
    
    1Federal funds sold and securities purchased under agreements to resell
    
    
    149
    
    
    
    191Total Interest Income
    
    
    1,987
    
    
    
    1,425Interest ExpenseDeposits
    
    
    1,179
    
    
    
    827Short-term borrowings
    
    
    7
    
    
    
    6Other
    
    
    5
    
    
    
    Total Interest Expense
    
    
    1,191
    
    
    
    833Net Interest Income
    
    
    796
    
    
    
    592Provision for Loan Losses
    
    
    212
    
    
    
    103Net Interest Income after Provision for Loan Losses
    
    
    584
    
    
    
    489Non-Interest IncomeWealth management fee income
    
    
    56
    
    
    
    54Other
    
    
    28
    
    
    
    11Total Non-Interest Income
    
    
    84
    
    
    
    65Non-Interest ExpensesSalaries and employee benefits
    
    
    1,048
    
    
    
    822Occupancy and equipment
    
    
    110
    
    
    
    102Data processing equipment and operations
    
    
    77
    
    
    
    48Professional fees
    
    
    118
    
    
    
    132Marketing, advertising, and business development
    
    
    23
    
    
    
    26FDIC insurance assessments
    
    
    21
    
    
    
    15Capital stock tax expense
    
    
    21
    
    
    
    12Merger integration costs
    
    
    125
    
    
    
    Other
    
    
    72
    
    
    
    70Total Non-Interest Expenses
    
    
    1,615
    
    
    
    1,227Net Loss
    
    $
    (947
    )
    
    $
    (673
    )Loss per shareBasic and diluted
    
    $
    (0.39
    )
    
    $
    (0.32
    )Weighted average shares outstandingBasic and diluted
    
    
    2,440
    
    
    
    2,108
 See notes to unaudited consolidated financial statements.
 4




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##### 



First Priority Financial Corp.
 
 Consolidated Statements of Shareholders Equity
 For the Three Months Ended March 31, 2008 and 2007
 Unaudited (Dollars in thousands)
 AccumulatedOtherCommon
    
    
    
    
    
    
    Accumulated
    
    
    ComprehensiveStock
    
    
    Surplus
    
    
    Deficit
    
    
    Income
    
    
    TotalBalance  December 31, 2006
    
    $
    2,108
    
    
    $
    18,934
    
    
    $
    (3,405
    )
    
    $
    1
    
    
    $
    17,638Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (673
    )
    
    
    
    
    
    
    (673
    )Net unrealized
holding
gain on
available for
sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Total
Comprehensive
Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (671
    )Stock options expense
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    13Balance  March 31, 2007
    
    $
    2,108
    
    
    $
    18,947
    
    
    $
    (4,078
    )
    
    $
    3
    
    
    $
    16,980Balance  December 31, 2007
    
    $
    2,108
    
    
    $
    18,982
    
    
    $
    (5,781
    )
    
    $
    11
    
    
    $
    15,320Issuance of common
stock for
acquisition of
Prestige Community
Bank (976,137
shares)
    
    
    976
    
    
    
    6,435
    
    
    
    
    
    
    
    
    
    
    
    7,411Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (947
    )
    
    
    
    
    
    
    (947
    )Net
unrealized
holding gain
on available
for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    33Total
Comprehensive
Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (914
    )Stock options expense
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17Balance  March 31, 2008
    
    $
    3,084
    
    
    $
    25,434
    
    
    $
    (6,728
    )
    
    $
    44
    
    
    $
    21,834
 See notes to unaudited consolidated financial statements.
 5




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##### 



First Priority Financial Corp.
 
 Consolidated Statements of Cash Flows
 Unaudited (Dollars in thousands)
 For the three months endedMarch 31,2008
    
    
    2007Cash Flows from Operating ActivitiesNet loss
    
    $
    (947
    )
    
    $
    (673
    )Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:Provision for loan losses
    
    
    212
    
    
    
    103Depreciation and amortization
    
    
    42
    
    
    
    22Net accretion and amortization of securities discounts and premiums
    
    
    (1
    )
    
    
    (124
    )Stock based compensation expense
    
    
    17
    
    
    
    13Increase in accrued interest receivable
    
    
    (45
    )
    
    
    (86
    )Increase in other assets
    
    
    (12
    )
    
    
    (21
    )Increase (decrease) in accrued interest payable
    
    
    (15
    )
    
    
    98Increase (decrease) in other liabilities
    
    
    981
    
    
    
    (111
    )Net Cash (Used in) Provided by Operating Activities
    
    
    232
    
    
    
    (779
    )Cash Flows from Investing ActivitiesNet increase in loans
    
    
    (11,848
    )
    
    
    (10,537
    )Purchases of securities available for sale
    
    
    (21,959
    )
    
    
    (70,879
    )Purchase of restricted stock
    
    
    (10
    )
    
    
    Proceeds from maturities of securities available for sale
    
    
    39,324
    
    
    
    88,000Purchases of premises and equipment
    
    
    (13
    )
    
    
    (144
    )Net cash received from acquisition
    
    
    21,877
    
    
    
    Net Cash Provided by Investing Activities
    
    
    27,371
    
    
    
    6,440Cash Flows from Financing ActivitiesNet increase (decrease) in deposits
    
    
    (12,414
    )
    
    
    10,567Net decrease in short-term borrowings
    
    
    (13,184
    )
    
    
    (17,501
    )Net Cash Used in Financing Activities
    
    
    (25,598
    )
    
    
    (6,934
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    2,005
    
    
    
    (1,273
    )Cash and Cash Equivalents  Beginning
    
    
    943
    
    
    
    1,984Cash and Cash Equivalents  Ending
    
    $
    2,948
    
    
    $
    711Supplementary Cash Flows InformationInterest paid
    
    $
    1,194
    
    
    $
    735
 See notes to unaudited consolidated financial statements.
 6




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Notes to Unaudited Consolidated Financial Statements
Note 1  Summary of Significant Accounting Policies
 Organization and Nature of Operations
 First Priority Financial Corp.
     7




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Note 1  Summary of Significant Accounting Policies (continued)
 First Priority Bank
    Basis of Presentation
    8




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Note 1  Summary of Significant Accounting Policies (continued)
   Goodwill
   Recent Accounting Pronouncements
 FASB Statement No. 141(R)
  9




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Note 1  Summary of Significant Accounting Policies (continued)
 FASB Statement No. 160
  FASB Statement No. 161
  SFAS No. 159
  10




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Note 1  Summary of Significant Accounting Policies (continued)
 FSP FAS 140-3
  SAB 109
  SAB 110
 
 11




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Note 1  Summary of Significant Accounting Policies (continued)
 EITF 06-11
  Note 2  Acquisition of Prestige Community Bank
    12




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Note 2  Acquisition of Prestige Community Bank (continued)
  Balance Sheet AcquiredFebruary 29, 2008(Dollars in thousands)AssetsCash and cash equivalents
    
    $
    22,184Loans receivable
    
    
    5,830Less: allowance for loan losses
    
    
    150Net Loans
    
    
    5,680Other assets
    
    
    1,071Total Assets
    
    
    28,935LiabilitiesNon-interest bearing deposits
    
    
    1,379Interest-bearing deposits
    
    
    19,470Short-term borrowings
    
    
    483Other liabilities
    
    
    192Total Liabilities
    
    
    21,524Net Assets Acquired
    
    $
    7,411
  Pro FormaThree months endedMarch 31, 2008(Dollars in thousands)Total revenue
    
    $
    872Net loss
    
    
    (1,542
    )Basic and diluted loss per share
    
    
    (0.50
    )
 13




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Note 2  Acquisition of Prestige Community Bank (continued)
      14




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Note 2  Acquisition of Prestige Community Bank (continued)
  (Dollars in thousands)Purchase Price:Net assets acquired
    
    $
    7,411Transaction costs
    
    
    307Total purchase price
    
    
    7,718Net Assets Acquired:Seller shareholders equity
    
    
    7,544Estimated adjustments to reflect assets acquired at fair value:Loans (2.5 years weighted average life)
    
    
    28Estimated amount allocated to liabilities assumed at fair value:Time deposits (0.4 year weighted average life)
    
    
    (161
    )Fair value of net assets acquired
    
    
    7,411Estimated adjustment for contract termination costs and other purchase
accounting adjustments
    
    
    859Goodwill Resulting from Acquisition
    
    $
    1,166
  Note 3  Stock Option Plan
  15




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Note 3  Stock Option Plan (continued)
     WeightedAverageExerciseShares
    
    
    PriceOutstanding at December 31, 2007
    
    
    421,000
    
    
    $
    10.00Granted during 2008
    
    
    52,950
    
    
    
    10.25Options exchanged  Prestige acquisition
    
    
    147,022
    
    
    
    10.00Forfeited/cancelled during period
    
    
    (21,022
    )
    
    
    10.00Outstanding at March 31, 2008
    
    
    599,950
    
    
    $
    10.02Exercisable at March 31, 2008
    
    
    127,500
    
    
    $
    10.00
  16




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Note 3  Stock Option Plan (continued)
  Granted in2008Dividend yield
    
    
    0.0
    %Expected life
    
    7 yearsExpected volatility
    
    
    25
    %Risk-free interest rate
    
    
    2.93
    %Weighted average fair value
    
    $
    3.46
    Note 4Earnings Per Share
   17




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Note 4Earnings Per Share (continued)
 For the three months endedMarch 31,2008
    
    2007(In thousands, exceptper share information)Basic and diluted loss per shareNet loss
    
    $
    (947
    )
    
    $
    (673
    )Weighted average common shares outstanding
    
    
    2,440
    
    
    
    2,108Basic and diluted loss per share
    
    $
    (0.39
    )
    
    $
    (0.32
    )
 Note 5  Financial Instruments with Off-Balance Sheet Risk
     Note 6  Short-Term Borrowings
  18




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Note 6  Short-Term Borrowings (continued)
    Note 7  Fair Value of Financial Instruments
 Fair Value Measurements
    19




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##### 



Note 7  Fair Value of Financial Instruments (continued)
   Fair Value MeasurementsAt March 31, 2008, UsingQuotedPrices inActiveMarkets for
    
    
    Other
    
    
    SignificantFair Value
    
    
    Identical
    
    
    Observable
    
    
    UnobservableMarch 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Available for Sale Securities
    
    $
    27,693
    
    
    $
    17,000
    
    
    $
    10,693
    
    
    $
    Total Assets Measured at Fair Value
    
    $
    27,693
    
    
    $
    17,000
    
    
    $
    10,693
    
    
    $
    
 20




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##### 



Item 1A. Risk Factors
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Forward-Looking Statements
   
    
    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;
 21




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##### 




    
    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;
    
    regulatory or judicial proceedings;
    
    changes in asset quality; and
    
    First Prioritys success in managing the risks involved in the foregoing.
  Overview
  22




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23




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##### 



Critical Accounting Policies
      24




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##### 



Recently Issued Accounting Standards
  Results of Operations
 Income Statement Review
  25




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##### 



Summary
    Net Interest Income
    26




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##### 



Average Balances, Income and Expenses, and Rates
 For the Three Months Ended March 31,2008
    
    
    2007Interest
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)Interest-earning assets:Loans receivable
    
    $
    105,305
    
    
    $
    1,716
    
    
    
    6.53
    %
    
    $
    55,124
    
    
    $
    1,025
    
    
    
    7.54
    %Securities available for sale
    
    
    11,085
    
    
    
    121
    
    
    
    4.38
    %
    
    
    15,816
    
    
    
    208
    
    
    
    5.33
    %Federal funds sold
    
    
    17,320
    
    
    
    149
    
    
    
    3.45
    %
    
    
    14,708
    
    
    
    191
    
    
    
    5.27
    %Deposits with banks and other
    
    
    11
    
    
    
    1
    
    
    
    
    
    
    
    24
    
    
    
    1
    
    
    
    Total interest earning assets
    
    
    133,721
    
    
    
    1,987
    
    
    
    5.96
    %
    
    
    85,672
    
    
    
    1,425
    
    
    
    6.75
    %Non-interest-earning assets
    
    
    1,513
    
    
    
    
    
    
    
    
    
    
    
    1,020TOTAL ASSETS
    
    $
    135,234
    
    
    
    
    
    
    
    
    
    
    $
    86,692Interest-bearing liabilities:Demand, interest-bearing
    
    $
    869
    
    
    
    4
    
    
    
    1.95
    %
    
    $
    903
    
    
    
    4
    
    
    
    1.75
    %Money market and savings
    
    
    42,534
    
    
    
    360
    
    
    
    3.40
    %
    
    
    33,373
    
    
    
    411
    
    
    
    5.00
    %Time deposits
    
    
    66,186
    
    
    
    815
    
    
    
    4.94
    %
    
    
    31,550
    
    
    
    412
    
    
    
    5.30
    %Borrowed funds
    
    
    1,194
    
    
    
    12
    
    
    
    3.91
    %
    
    
    381
    
    
    
    6
    
    
    
    5.97
    %Total interest-bearing liabilities
    
    
    110,783
    
    
    
    1,191
    
    
    
    4.31
    %
    
    
    66,207
    
    
    
    833
    
    
    
    5.10
    %Non interest-bearing liabilities:Demand, non-interest bearing
deposits
    
    
    5,397
    
    
    
    
    
    
    
    
    
    
    
    2,469Other liabilities
    
    
    1,683
    
    
    
    
    
    
    
    
    
    
    
    583Shareholders equity
    
    
    17,371
    
    
    
    
    
    
    
    
    
    
    
    17,433TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY
    
    $
    135,234
    
    
    
    
    
    
    
    
    
    
    $
    86,692Net interest income/rate spread
    
    
    
    
    
    $
    796
    
    
    
    1.65
    %
    
    
    
    
    
    $
    592
    
    
    
    1.65
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.39
    %
    
    
    
    
    
    
    
    
    
    
    2.80
    %
  Net interest margin declined 41 basis points from 2.80% for the first quarter, 2007 to 2.39%
for the same period in 2008. This decline in net interest margin is primarily attributable to
overall growth achieved in earning assets, primarily loans, which was generally funded by higher
costing deposit products, thereby changing the relative mix of funding sources. Also, as the
Companys balance sheet continues to grow, the positive impact on net interest margin of free funds
related to equity and other non-interest bearing funds becomes relatively smaller. In addition,
the Bank, as well as the banking industry in general, continues to experience increased competition
and market pressures in regards to relative deposit rates. 27




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##### 



Analysis of Changes in Net Interest Income
   Changes in Net Interest IncomeThree months ended March 31,2008 vs. March 31, 2007Increase (Decrease)Due to Change InNetVolume
    
    Rate
    
    Change(in thousands)Interest income:Loans receivable
    
    $
    844
    
    
    $
    (153
    )
    
    $
    691Securities available for sale
    
    
    (55
    )
    
    
    (32
    )
    
    
    (87
    )Federal funds sold
    
    
    31
    
    
    
    (73
    )
    
    
    (42
    )Deposits with banks and other
    
    
    (2
    )
    
    
    2
    
    
    
    Total interest earning assets
    
    
    818
    
    
    
    (256
    )
    
    
    562Interest expense:Demand, interest-bearing
    
    
    
    
    
    
    
    
    
    
    Money market and savings
    
    
    99
    
    
    
    (150
    )
    
    
    (51
    )Time deposits
    
    
    433
    
    
    
    (30
    )
    
    
    403Borrowed funds
    
    
    9
    
    
    
    (3
    )
    
    
    6Total interest bearing liabilities
    
    
    541
    
    
    
    (183
    )
    
    
    358Change in net interest income
    
    $
    277
    
    
    $
    (73
    )
    
    $
    204
 28




---



##### 



Provision for Loan Losses
      Non-Interest Income
  29




---



##### 



For the three months endedMarch 31,2008
    
    
    2007(in thousands)Non-Interest IncomeWealth management fee income
    
    $
    56
    
    
    $
    54Service charges on deposits
    
    
    4
    
    
    
    2Other branch fees
    
    
    6
    
    
    
    3Loan related fees
    
    
    18
    
    
    
    4Other
    
    
    
    
    
    
    2Total Non-Interest Income
    
    $
    84
    
    
    $
    65
  Non-Interest Expenses
  For the three months endedMarch 31,2008
    
    
    2007(in thousands)Non-Interest ExpensesSalaries and employee benefits
    
    $
    1,048
    
    
    $
    822Occupancy and equipment
    
    
    110
    
    
    
    102Data processing equipment and operations
    
    
    77
    
    
    
    48Professional fees
    
    
    118
    
    
    
    132Marketing, advertising and business development
    
    
    23
    
    
    
    26FDIC deposit insurance assessments
    
    
    21
    
    
    
    15Capital stock tax expense
    
    
    21
    
    
    
    12Merger integration costs
    
    
    125
    
    
    
    Other
    
    
    72
    
    
    
    70Total Non-Interest Expenses
    
    $
    1,615
    
    
    $
    1,227
  30




---



##### 



31




---



##### 



Provision for Income Taxes
  Financial Condition
 Balance Sheet Review
 Overview
    Investments
  32




---



##### 



As of March 31, 2008After one but
    
    After five butWithin 1 year
    
    within five years
    
    within ten years
    
    Over ten years
    
    TotalAmount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield(Dollars in thousands)U.S. Government
agency securities
    
    $
    17,000
    
    
    
    1.41
    %
    
    $
    3,006
    
    
    
    4.52
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    20,006
    
    
    
    1.88
    %Mortgage-backed
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,701
    
    
    
    4.98
    %
    
    
    6,701
    
    
    
    4.98
    %Other securities
    
    
    
    
    
    
    
    
    
    
    986
    
    
    
    4.00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    986
    
    
    
    4.00
    %Total investments
available for sale
    
    $
    17,000
    
    
    
    1.41
    %
    
    $
    3,992
    
    
    
    4.39
    %
    
    $
    
    
    
    
    
    
    
    $
    6,701
    
    
    
    4.98
    %
    
    $
    27,693
    
    
    
    2.70
    %As of December 31, 2007After one but
    
    After five butWithin 1 year
    
    within five years
    
    within ten years
    
    Over ten years
    
    TotalAmount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    Yield(Dollars in thousands)U.S. Government
agency securities
    
    $
    38,995
    
    
    
    3.54
    %
    
    $
    2,003
    
    
    
    5.13
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    40,998
    
    
    
    3.62
    %Mortgage-backed
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,028
    
    
    
    5.26
    %
    
    
    4,028
    
    
    
    5.26
    %Total investments
available for sale
    
    $
    38,995
    
    
    
    3.54
    %
    
    $
    2,003
    
    
    
    5.13
    %
    
    $
    
    
    
    
    
    
    
    $
    4,028
    
    
    
    5.26
    %
    
    $
    45,026
    
    
    
    3.76
    %
 33




---



##### 



March 31, 2008
    
    
    December 31, 2007Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(Dollars in thousands)U.S. Government agency securities
    
    $
    20,000
    
    
    $
    20,006
    
    
    $
    40,995
    
    
    $
    40,998Mortgage-backed securities
    
    
    6,649
    
    
    
    6,701
    
    
    
    4,020
    
    
    
    4,028Other securities
    
    
    1,000
    
    
    
    986
    
    
    
    
    
    
    
    Total Investments
    
    $
    27,649
    
    
    $
    27,693
    
    
    $
    45,015
    
    
    $
    45,026
 Restricted investment in bank stock
   Loans
  34




---



##### 



March 31, 2008
    
    December 31, 2007Percent
    
    
    
    
    
    PercentAmount
    
    of total
    
    Amount
    
    of total(Dollars in thousands)Commercial
    
    $
    37,004
    
    
    
    30
    %
    
    $
    33,506
    
    
    
    32
    %Commercial Real Estate
    
    
    30,005
    
    
    
    25
    %
    
    
    24,590
    
    
    
    23
    %Residential Real Estate
    
    
    30,886
    
    
    
    25
    %
    
    
    23,708
    
    
    
    23
    %Consumer
    
    
    24,924
    
    
    
    20
    %
    
    
    23,310
    
    
    
    22
    %Total Loans
    
    
    122,819
    
    
    
    100
    %
    
    
    105,114
    
    
    
    100
    %Net deferred loan costs
    
    
    66
    
    
    
    
    
    
    
    93
    
    
    
    Total
    
    $
    122,885
    
    
    
    100
    %
    
    $
    105,207
    
    
    
    100
    %
     35




---



##### 



At March 31, 2008Maturities of Outstanding LoansAfter 1 ButWithin 1
    
    Within 5
    
    After 5Year
    
    Years
    
    Years
    
    Total Loans(Dollars in thousands)Commercial
    
    $
    24,326
    
    
    $
    12,157
    
    
    $
    521
    
    
    $
    37,004Commercial Real Estate
    
    
    2,798
    
    
    
    18,673
    
    
    
    8,534
    
    
    
    30,005Residential Real Estate
    
    
    1,006
    
    
    
    11,291
    
    
    
    18,589
    
    
    
    30,886Consumer
    
    
    8,771
    
    
    
    3,727
    
    
    
    12,426
    
    
    
    24,924Total Loans
    
    $
    36,901
    
    
    $
    45,848
    
    
    $
    40,070
    
    
    $
    122,819Percentage composition of maturity
    
    
    30
    %
    
    
    37
    %
    
    
    33
    %
    
    
    100
    %Loans with fixed predetermined interest rates
    
    $
    5,284
    
    
    $
    38,719
    
    
    $
    8,303
    
    
    $
    52,306Loans with variable or floating interest rates
    
    
    31,617
    
    
    
    7,129
    
    
    
    31,767
    
    
    
    70,513Total Loans
    
    $
    36,901
    
    
    $
    45,848
    
    
    $
    40,070
    
    
    $
    122,819
 At December 31, 2007Maturities of Outstanding LoansAfter 1 ButWithin 1
    
    Within 5
    
    After 5Year
    
    Years
    
    Years
    
    Total Loans(Dollars in thousands)Commercial
    
    $
    21,387
    
    
    $
    12,069
    
    
    $
    50
    
    
    $
    33,506Commercial Real Estate
    
    
    3,371
    
    
    
    14,306
    
    
    
    6,913
    
    
    
    24,590Residential Real Estate
    
    
    832
    
    
    
    10,751
    
    
    
    12,125
    
    
    
    23,708Consumer
    
    
    8,478
    
    
    
    3,614
    
    
    
    11,218
    
    
    
    23,310Total Loans
    
    $
    34,068
    
    
    $
    40,740
    
    
    $
    30,306
    
    
    $
    105,114Percentage composition of maturity
    
    
    32
    %
    
    
    39
    %
    
    
    29
    %
    
    
    100
    %Loans with fixed predetermined interest rates
    
    $
    2,330
    
    
    $
    35,678
    
    
    $
    5,602
    
    
    $
    43,610Loans with variable or floating interest rates
    
    
    31,738
    
    
    
    5,062
    
    
    
    24,704
    
    
    
    61,504Total Loans
    
    $
    34,068
    
    
    $
    40,740
    
    
    $
    30,306
    
    
    $
    105,114
 36




---



##### 



Credit Quality
    March 31,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Loans past due 90 days or more and still accruing interest
    
    $
    
    
    
    $
    Non-accrual loans
    
    
    861
    
    
    
    Total non-performing loans (1)
    
    
    861
    
    
    
    Other real estate owned
    
    
    
    
    
    
    Total non-performing assets (2)
    
    $
    861
    
    
    $
    Non-performing loans as a percentage of total loans
    
    
    0.70
    %
    
    
    Non-performing assets as a percentage of total assets
    
    
    0.55
    %
    
    
    
 
 (1)
    
    Non-performing loans are comprised of (i) loans that are on a non-accrual basis;
(ii) accruing loans that are 90 days or more past due and (iii) restructured loans.(2)
    
    Non-performing assets are composed of non-performing loans and other real estate owned
(assets acquired in foreclosure).  37




---



##### 



Allowance for Loan Losses
      38




---



##### 



For the three
    
    
    For the year
    
    
    For the threemonths
    
    
    ended
    
    
    monthsended March
    
    
    December 31,
    
    
    ended March31, 2008
    
    
    2007
    
    
    31, 2007(Dollars in thousands)Balance at the beginning of period
    
    $
    1,055
    
    
    $
    634
    
    
    $
    634Charge-offs:Commercial
    
    
    1
    
    
    
    
    
    
    
    Commercial real estate
    
    
    15
    
    
    
    
    
    
    
    Net loans charged off
    
    
    16
    
    
    
    
    
    
    
    Acquired reserve in business combination
    
    
    150Provision charged to operations
    
    
    212
    
    
    
    421
    
    
    
    103Balance at end of period
    
    $
    1,401
    
    
    $
    1,055
    
    
    $
    737Average loans (1)
    
    $
    105,305
    
    
    $
    74,149
    
    
    $
    55,124Ratio of net charge-offs during period
to average loans outstanding during
period (annualized) (1)
    
    
    0.06
    %
    
    
    
    
    
    
    Allowance for loan losses as a
percentage of total loans
    
    
    1.14
    %
    
    
    1.00
    %
    
    
    1.21
    %Ratio of allowance to non-performing
loans at end of period
    
    
    163
    %
    
    
    
    
    
    
    Ratio of allowance to non-performing
assets at end of period
    
    
    163
    %
    
    
    
    
    
    
    
 
 (1)
    
    Includes non-accrual loans  39




---



##### 



March 31, 2008
    
    December 31, 2007
    
    March 31, 2007Percent
    
    
    
    
    
    Percent
    
    
    
    
    
    Percentof loans
    
    
    
    
    
    of loans
    
    
    
    
    
    of loansin each
    
    
    
    
    
    in each
    
    
    
    
    
    in eachcategory
    
    
    
    
    
    category
    
    
    
    
    
    categoryto total
    
    
    
    
    
    to total
    
    
    
    
    
    to totalAmount
    
    loans
    
    Amount
    
    loans
    
    Amount
    
    loans(Dollars in thousands)Commercial
    
    $
    204
    
    
    
    30
    %
    
    $
    94
    
    
    
    32
    %
    
    $
    144
    
    
    
    32
    %Commercial Real Estate
    
    
    400
    
    
    
    25
    %
    
    
    81
    
    
    
    23
    %
    
    
    148
    
    
    
    24
    %Residential Real Estate
    
    
    77
    
    
    
    25
    %
    
    
    43
    
    
    
    23
    %
    
    
    19
    
    
    
    15
    %Consumer
    
    
    42
    
    
    
    20
    %
    
    
    39
    
    
    
    22
    %
    
    
    110
    
    
    
    29
    %Total Allocated
    
    
    723
    
    
    
    100.0
    %
    
    
    257
    
    
    
    100.0
    %
    
    
    421
    
    
    
    100.0
    %Unallocated
    
    
    678
    
    
    
    
    
    
    
    798
    
    
    
    
    
    
    
    316
    
    
    
    Total
    
    $
    1,401
    
    
    
    100.0
    %
    
    $
    1,055
    
    
    
    100.0
    %
    
    $
    737
    
    
    
    100.0
    %
  Loan Concentrations
  Deposits
  40




---



##### 



For the three months ended March 31,2008
    
    
    2007Average
    
    
    
    
    
    
    AverageBalance
    
    
    Rate
    
    
    Balance
    
    
    Rate(Dollars in thousands)Demand, non-interest bearing
    
    $
    5,397
    
    
    
    
    
    
    $
    2,469Demand, interest bearing
    
    
    869
    
    
    
    1.95
    %
    
    
    903
    
    
    
    1.75
    %Money market and savings deposits
    
    
    42,534
    
    
    
    3.40
    %
    
    
    33,373
    
    
    
    5.00
    %Time deposits
    
    
    66,186
    
    
    
    4.94
    %
    
    
    31,550
    
    
    
    5.30
    %Total interest-bearing deposits
    
    
    109,589
    
    
    
    4.32
    %
    
    
    65,826
    
    
    
    5.10
    %Total deposits
    
    $
    114,986
    
    
    
    
    
    
    $
    68,295
  March 31,2008(In thousands)Three Months or Less
    
    $
    4,490Over Three Through Six Months
    
    
    8,438Over Six Through Twelve Months
    
    
    8,383Over Twelve Months
    
    
    5,118Total
    
    $
    26,429
 Other Interest-Bearing Liabilities
 Short-Term Borrowed Funds
   41




---



##### 



Long-Term Debt
   Capital Resources
   42




---



##### 



43




---



##### 



To BeAs of
    
    As of
    
    ConsideredMarch 31,
    
    December 31,
    
    Well-2008
    
    2007
    
    CapitalizedFirst Priority Bank:Total risk-based capital ratio
    
    
    19.17
    %
    
    
    16.01
    %
    
    
    10.00
    %Tier 1 risk-based capital ratio
    
    
    17.95
    %
    
    
    14.98
    %
    
    
    6.00
    %Tier 1 leverage ratio
    
    
    15.49
    %
    
    
    12.30
    %
    
    
    8.00
    %
    44




---



##### 



Effect of Inflation and Changing Prices
   Off-Balance Sheet Arrangements
    Liquidity
  45




---



##### 



Contractual Obligations
    46




---



##### 



Payments Due by PeriodOver 1
    
    Over 2
    
    Over 3Within 1
    
    through 2
    
    through 3
    
    through 5
    
    Over 5Year
    
    Years
    
    Years
    
    Years
    
    Years
    
    Total(In thousands)Time deposits
    
    $
    55,832
    
    
    $
    13,190
    
    
    $
    4,506
    
    
    $
    3,594
    
    
    $
    
    
    
    $
    77,122Operating lease obligations
    
    
    344
    
    
    
    459
    
    
    
    459
    
    
    
    868
    
    
    
    2,893
    
    
    
    5,023Long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390
    
    
    
    390Short-term borrowings
    
    
    5,396
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,396Accrued interest payable
    
    
    877
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    877Total
    
    $
    62,449
    
    
    $
    13,649
    
    
    $
    4,965
    
    
    $
    4,462
    
    
    $
    3,283
    
    
    $
    88,808
 47




---



##### 



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
   48




---



##### 



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 Exhibit No.
    
    Title3.1
    
    Articles of Incorporation of First Priority Financial Corp.
(incorporated by reference herein from the Companys
registration statement on Form S-4, SEC File No. 333-147950.)3.2
    
    Bylaws of First Priority Financial Corp. (incorporated by
reference herein from the Companys registration statement on
Form S-4, SEC File No. 333-147950.)31.1
    
    Certification of Chief Executive Officer in accordance with
Section 302 of the Sarbanes-Oxley Act of 2002, (filed
herewith)31.2
    
    Certification of Chief Financial Officer in accordance with
Section 302 of the Sarbanes-Oxley Act of 2002, (filed
herewith)32.1
    
    Certification of Chief Executive Officer in accordance with
Section 906 of the Sarbanes-Oxley Act of 2002, (filed
herewith)32.2
    
    Certification of Chief Financial Officer in accordance with
Section 906 of the Sarbanes-Oxley Act of 2002, (filed
herewith)
 49




---



##### 



SIGNATURES
  FIRST PRIORITY FINANCIAL CORP.
(Registrant)By:
    /s/ David E. SparksDavid E. Sparks,Chairman, President and Chief Executive OfficerBy:
    /s/ Lawrence E. DonatoLawrence E. Donato,Chief Financial Officer 50