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 June 30, 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
    
    (Primary Standard Industrial
    
    (I.R.S. Employerof incorporation or
    
    Classification Code Number)
    
    Identification No.)organization)
 
 
   
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 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  June 30, 2008 (unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Income   For the three months and six months
ended June 30, 2008 and 2007 (unaudited)
    
    
    4Consolidated Statements of Shareholders Equity  For the six months ended
June 30, 2008 and 2007 (unaudited)
    
    
    5Consolidated Statements of Cash Flows  For the six months ended June 30,
2008 and 2007 (unaudited)
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    51Item 4T. Controls and Procedures
    
    
    51Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    52Item 1A. Risk Factors
    
    
    52Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    52Item 3. Defaults Upon Senior Securities
    
    
    52Item 4. Submission of Matters to a Vote of Security Holders
    
    
    52Item 5. Other Information
    
    
    53Item 6. Exhibits
    
    
    53
  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)
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)AssetsCash and due from banks
    
    $
    1,677
    
    
    $
    943Federal funds sold and securities purchased under agreements to resell
    
    
    1,002
    
    
    
    Interest bearing deposits in banks
    
    
    191
    
    
    
    Total cash and cash equivalents
    
    
    2,870
    
    
    
    943Securities available for sale (amortized cost: $39,133 and $45,015,
respectively)
    
    
    38,987
    
    
    
    45,026Loans receivable
    
    
    149,928
    
    
    
    105,207Less: allowance for loan losses
    
    
    1,582
    
    
    
    1,055Net Loans
    
    
    148,346
    
    
    
    104,152Restricted investments in bank stocks
    
    
    810
    
    
    
    50Premises and equipment, net
    
    
    1,409
    
    
    
    574Accrued interest receivable
    
    
    684
    
    
    
    545Goodwill
    
    
    1,194
    
    
    
    Other assets
    
    
    338
    
    
    
    321Total Assets
    
    $
    194,638
    
    
    $
    151,611Liabilities and Shareholders EquityLiabilitiesDeposits:Non-interest bearing
    
    $
    6,878
    
    
    $
    6,846Interest-bearing
    
    
    144,745
    
    
    
    109,459Total Deposits
    
    
    151,623
    
    
    
    116,305Short-term borrowings
    
    
    13,131
    
    
    
    18,097Long-term debt
    
    
    7,400
    
    
    
    390Accrued interest payable
    
    
    1,083
    
    
    
    858Other liabilities
    
    
    732
    
    
    
    641Total Liabilities
    
    
    173,969
    
    
    
    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
    
    
    25,441
    
    
    
    18,982Accumulated deficit
    
    
    (7,710
    )
    
    
    (5,781
    )Accumulated other comprehensive income (loss)
    
    
    (146
    )
    
    
    11Total Shareholders Equity
    
    
    20,669
    
    
    
    15,320Total Liabilities and Shareholders Equity
    
    $
    194,638
    
    
    $
    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
    
    
    For the six monthsended June 30,
    
    
    ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest IncomeLoans receivable, including fees
    
    $
    2,035
    
    
    $
    1,267
    
    
    $
    3,751
    
    
    $
    2,292Securities  taxable
    
    
    133
    
    
    
    109
    
    
    
    254
    
    
    
    317Interest bearing deposits and other
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    2Federal funds sold and securities
purchased under agreements to
resell
    
    
    77
    
    
    
    273
    
    
    
    226
    
    
    
    464Total Interest Income
    
    
    2,246
    
    
    
    1,650
    
    
    
    4,233
    
    
    
    3,075Interest ExpenseDeposits
    
    
    1,241
    
    
    
    965
    
    
    
    2,420
    
    
    
    1,792Short-term borrowings
    
    
    7
    
    
    
    3
    
    
    
    14
    
    
    
    9Other
    
    
    39
    
    
    
    
    
    
    
    44
    
    
    
    Total Interest Expense
    
    
    1,287
    
    
    
    968
    
    
    
    2,478
    
    
    
    1,801Net Interest Income
    
    
    959
    
    
    
    682
    
    
    
    1,755
    
    
    
    1,274Provision for Loan Losses
    
    
    181
    
    
    
    134
    
    
    
    393
    
    
    
    237Net Interest Income after
Provision for Loan Losses
    
    
    778
    
    
    
    548
    
    
    
    1,362
    
    
    
    1,037Non-Interest IncomeWealth management fee income
    
    
    33
    
    
    
    52
    
    
    
    89
    
    
    
    106Other
    
    
    33
    
    
    
    16
    
    
    
    61
    
    
    
    27Total Non-Interest Income
    
    
    66
    
    
    
    68
    
    
    
    150
    
    
    
    133Non-Interest ExpensesSalaries and employee benefits
    
    
    1,278
    
    
    
    764
    
    
    
    2,326
    
    
    
    1,586Occupancy and equipment
    
    
    195
    
    
    
    113
    
    
    
    305
    
    
    
    215Data processing equipment and operations
    
    
    87
    
    
    
    64
    
    
    
    164
    
    
    
    113Professional fees
    
    
    71
    
    
    
    99
    
    
    
    189
    
    
    
    231Marketing, advertising, and business
development
    
    
    72
    
    
    
    49
    
    
    
    95
    
    
    
    75FDIC insurance assessments
    
    
    32
    
    
    
    17
    
    
    
    53
    
    
    
    31Capital stock tax expense
    
    
    23
    
    
    
    12
    
    
    
    44
    
    
    
    23Merger integration costs
    
    
    (53
    )
    
    
    
    
    
    
    72
    
    
    
    Other
    
    
    121
    
    
    
    93
    
    
    
    193
    
    
    
    164Total Non-Interest Expenses
    
    
    1,826
    
    
    
    1,211
    
    
    
    3,441
    
    
    
    2,438Net Loss
    
    $
    (982
    )
    
    $
    (595
    )
    
    $
    (1,929
    )
    
    $
    (1,268
    )Loss per shareBasic and diluted
    
    $
    (0.31
    )
    
    $
    (0.28
    )
    
    $
    (0.70
    )
    
    $
    (0.60
    )Weighted average shares outstandingBasic and diluted
    
    
    3,084
    
    
    
    2,108
    
    
    
    2,762
    
    
    
    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 Six Months Ended June 30, 2008 and 2007  Unaudited (Dollars in thousands)
 AccumulatedOtherCommon
    
    
    
    
    
    
    Accumulated
    
    
    ComprehensiveStock
    
    
    Surplus
    
    
    Deficit
    
    
    Income (Loss)
    
    
    TotalBalance  December 31, 2006
    
    $
    2,108
    
    
    $
    18,934
    
    
    $
    (3,405
    )
    
    $
    1
    
    
    $
    17,638Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (1,268
    )
    
    
    
    
    
    
    (1,268
    )Net unrealized
holding
loss on
available for
sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    (11
    )Total
Comprehensive
Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,279
    )Stock options expense
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    22Balance  June 30, 2007
    
    $
    2,108
    
    
    $
    18,956
    
    
    $
    (4,673
    )
    
    $
    (10
    )
    
    $
    16,381Balance  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
    
    
    
    6,415
    
    
    
    
    
    
    
    
    
    
    
    7,391Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (1,929
    )
    
    
    
    
    
    
    (1,929
    )Net
unrealized
holding loss
on available
for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (157
    )
    
    
    (157
    )Total
Comprehensive
Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,086
    )Stock options expense
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    44Balance  June 30, 2008
    
    $
    3,084
    
    
    $
    25,441
    
    
    $
    (7,710
    )
    
    $
    (146
    )
    
    $
    20,669
 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 six months endedJune 30,2008
    
    
    2007Cash Flows from Operating ActivitiesNet loss
    
    $
    (1,929
    )
    
    $
    (1,268
    )Adjustments to reconcile net loss to net cash used in operating activities:Provision for loan losses
    
    
    393
    
    
    
    237Depreciation and amortization
    
    
    101
    
    
    
    57Net accretion and amortization of securities discounts and premiums
    
    
    (3
    )
    
    
    (136
    )Stock based compensation expense
    
    
    44
    
    
    
    23Increase in accrued interest receivable
    
    
    (140
    )
    
    
    (131
    )(Increase) decrease in other assets
    
    
    34
    
    
    
    (19
    )Increase in accrued interest payable
    
    
    192
    
    
    
    342Decrease in other liabilities
    
    
    (745
    )
    
    
    (18
    )Net Cash Used in Operating Activities
    
    
    (2,053
    )
    
    
    (913
    )Cash Flows from Investing ActivitiesNet increase in loans
    
    
    (38,891
    )
    
    
    (24,673
    )Purchases of securities available for sale
    
    
    (60,883
    )
    
    
    (103,867
    )Purchase of restricted stock
    
    
    (760
    )
    
    
    Proceeds from maturities of securities available for sale
    
    
    66,769
    
    
    
    119,000Purchases of premises and equipment
    
    
    (130
    )
    
    
    (264
    )Net cash received from acquisition
    
    
    21,844
    
    
    
    Net Cash Used in Investing Activities
    
    
    (12,051
    )
    
    
    (9,804
    )Cash Flows from Financing ActivitiesNet increase in deposits
    
    
    14,470
    
    
    
    25,911Net decrease in short-term borrowings
    
    
    (5,449
    )
    
    
    (16,432
    )Net increase in long-term debt
    
    
    7,010
    
    
    
    370Net Cash Provided by Financing Activities
    
    
    16,031
    
    
    
    9,849Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    1,927
    
    
    
    (868
    )Cash and Cash Equivalents  Beginning
    
    
    943
    
    
    
    1,984Cash and Cash Equivalents  Ending
    
    $
    2,870
    
    
    $
    1,116Supplementary Cash Flows InformationInterest paid
    
    $
    2,332
    
    
    $
    1,801
 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)
  FASB Statement No. 159
  9




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Note 1  Summary of Significant Accounting Policies (continued)
   FASB Statement No. 162
  FSP FAS 140-3
  FSP APB 14-1
  10




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Note 1  Summary of Significant Accounting Policies (continued)
 SAB 109
  SAB 110
 
 Note 2  Acquisition of Prestige Community Bank
  11




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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
    
    
    212Total Liabilities
    
    
    21,544Net Assets Acquired
    
    $
    7,391
 12




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Note 2  Acquisition of Prestige Community Bank (continued)
  Pro FormaSix months endedJune 30, 2008(Dollars in thousands)Total revenue
    
    $
    1,896Net loss
    
    
    (2,525
    )Basic and diluted loss per share
    
    
    (0.82
    )
     13




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Note 2  Acquisition of Prestige Community Bank (continued)
   (Dollars in thousands)Purchase Price:Net assets acquired
    
    $
    7,391Transaction costs
    
    
    320Total purchase price
    
    
    7,711Net Assets Acquired:Seller shareholders equity
    
    
    7,524Estimated 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
    
    
    7,391Estimated adjustment for contract termination costs and other purchase
accounting adjustments
    
    
    874Goodwill Resulting from Acquisition
    
    $
    1,194
  14




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Note 3  Stock Option Plan
      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
    
    
    (31,222
    )
    
    
    10.00Outstanding at June 30, 2008
    
    
    589,750
    
    
    $
    10.02Exercisable at June 30, 2008
    
    
    117,500
    
    
    $
    10.00
 15




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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
  16




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Note 4Earnings Per Share (continued)
  For the three months
    
    
    For the six monthsended June 30,
    
    
    ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share information)Basic and diluted loss per shareNet loss
    
    $
    (982
    )
    
    $
    (595
    )
    
    $
    (1,929
    )
    
    $
    (1,268
    )Weighted average common shares outstanding
    
    
    3,084
    
    
    
    2,108
    
    
    
    2,762
    
    
    
    2,108Basic and diluted loss per share
    
    $
    (0.31
    )
    
    $
    (0.28
    )
    
    $
    (0.70
    )
    
    $
    (0.60
    )
 Note 5  Financial Instruments with Off-Balance Sheet Risk
     17




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Note 6  Short-Term Borrowings
     Note 7  Long-Term Debt
   18




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##### 



Note 7  Long-Term Debt (continued)
   Note 8  Fair Value of Financial Instruments
 Fair Value Measurements
    19




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##### 



Note 8  Fair Value of Financial Instruments (continued)
   Fair Value MeasurementsAt June 30, 2008, UsingQuotedPrices inActiveMarkets for
    
    
    Other
    
    
    SignificantFair Value
    
    
    Identical
    
    
    Observable
    
    
    UnobservableJune 30,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Available for Sale Securities
    
    $
    38,987
    
    
    $
    15,000
    
    
    $
    23,987
    
    
    $
    Total Assets Measured at Fair Value
    
    $
    38,987
    
    
    $
    15,000
    
    
    $
    23,987
    
    
    $
    
 Note 9  Subsequent Event
  20




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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;
    
    inflation, interest rate, market, and monetary fluctuations;
 21




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##### 




    
    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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##### 



Critical Accounting Policies
  23




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##### 



24




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##### 



Recently Issued Accounting Standards
  25




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##### 



Results of Operations
 Income Statement Review
  Summary
     26




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##### 



Net Interest Income
    27




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##### 



Average Balances, Income and Expenses, and Rates
 For the Three Months Ended June 30,2008
    
    
    2007Interest
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)Interest-earning assets:Loans receivable
    
    $
    136,073
    
    
    $
    2,035
    
    
    
    6.02
    %
    
    $
    67,166
    
    
    $
    1,267
    
    
    
    7.56
    %Securities available for sale
    
    
    13,845
    
    
    
    133
    
    
    
    3.88
    %
    
    
    8,013
    
    
    
    109
    
    
    
    5.46
    %Federal funds sold
    
    
    14,743
    
    
    
    77
    
    
    
    2.09
    %
    
    
    20,801
    
    
    
    273
    
    
    
    5.25
    %Deposits with banks and other
    
    
    69
    
    
    
    1
    
    
    
    
    
    
    
    76
    
    
    
    1
    
    
    
    Total interest earning assets
    
    
    164,730
    
    
    
    2,246
    
    
    
    5.49
    %
    
    
    96,056
    
    
    
    1,650
    
    
    
    6.89
    %Non-interest-earning assets
    
    
    4,094
    
    
    
    
    
    
    
    
    
    
    
    1,490TOTAL ASSETS
    
    $
    168,824
    
    
    
    
    
    
    
    
    
    
    $
    97,546Interest-bearing liabilities:Demand, interest-bearing
    
    $
    1,372
    
    
    
    5
    
    
    
    1.43
    %
    
    $
    747
    
    
    
    4
    
    
    
    2.26
    %Money market and savings
    
    
    38,181
    
    
    
    238
    
    
    
    2.51
    %
    
    
    36,208
    
    
    
    452
    
    
    
    4.99
    %Time deposits
    
    
    93,322
    
    
    
    998
    
    
    
    4.30
    %
    
    
    38,620
    
    
    
    509
    
    
    
    5.29
    %Borrowed funds
    
    
    5,707
    
    
    
    46
    
    
    
    3.30
    %
    
    
    269
    
    
    
    3
    
    
    
    5.43
    %Total interest-bearing liabilities
    
    
    138,582
    
    
    
    1,287
    
    
    
    3.74
    %
    
    
    75,844
    
    
    
    968
    
    
    
    5.12
    %Non interest-bearing liabilities:Demand, non-interest bearing
deposits
    
    
    6,763
    
    
    
    
    
    
    
    
    
    
    
    4,117Other liabilities
    
    
    2,122
    
    
    
    
    
    
    
    
    
    
    
    842Shareholders equity
    
    
    21,357
    
    
    
    
    
    
    
    
    
    
    
    16,743TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY
    
    $
    168,824
    
    
    
    
    
    
    
    
    
    
    $
    97,546Net interest income/rate spread
    
    
    
    
    
    $
    959
    
    
    
    1.75
    %
    
    
    
    
    
    $
    682
    
    
    
    1.77
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.34
    %
    
    
    
    
    
    
    
    
    
    
    2.85
    %
   28




---



##### 



Average Balances, Income and Expenses, and Rates
 For the Six Months Ended June 30,2008
    
    
    2007Interest
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)Interest-earning assets:Loans receivable
    
    $
    120,689
    
    
    $
    3,751
    
    
    
    6.25
    %
    
    $
    61,178
    
    
    $
    2,292
    
    
    
    7.55
    %Securities available for sale
    
    
    12,465
    
    
    
    254
    
    
    
    4.11
    %
    
    
    11,893
    
    
    
    317
    
    
    
    5.37
    %Federal funds sold
    
    
    16,031
    
    
    
    226
    
    
    
    2.83
    %
    
    
    17,772
    
    
    
    464
    
    
    
    5.26
    %Deposits with banks and other
    
    
    40
    
    
    
    2
    
    
    
    
    
    
    
    50
    
    
    
    2
    
    
    
    Total interest earning assets
    
    
    149,225
    
    
    
    4,233
    
    
    
    5.71
    %
    
    
    90,893
    
    
    
    3,075
    
    
    
    6.82
    %Non-interest-earning assets
    
    
    2,804
    
    
    
    
    
    
    
    
    
    
    
    1,256TOTAL ASSETS
    
    $
    152,029
    
    
    
    
    
    
    
    
    
    
    $
    92,149Interest-bearing liabilities:Demand, interest-bearing
    
    $
    1,120
    
    
    
    9
    
    
    
    1.63
    %
    
    $
    825
    
    
    
    8
    
    
    
    1.98
    %Money market and savings
    
    
    40,358
    
    
    
    598
    
    
    
    2.98
    %
    
    
    34,798
    
    
    
    862
    
    
    
    4.99
    %Time deposits
    
    
    79,754
    
    
    
    1,813
    
    
    
    4.57
    %
    
    
    35,104
    
    
    
    922
    
    
    
    5.29
    %Borrowed funds
    
    
    3,451
    
    
    
    58
    
    
    
    3.41
    %
    
    
    325
    
    
    
    9
    
    
    
    5.75
    %Total interest-bearing liabilities
    
    
    124,683
    
    
    
    2,478
    
    
    
    4.00
    %
    
    
    71,052
    
    
    
    1,801
    
    
    
    5.11
    %Non interest-bearing liabilities:Demand, non-interest bearing
deposits
    
    
    6,080
    
    
    
    
    
    
    
    
    
    
    
    3,298Other liabilities
    
    
    1,902
    
    
    
    
    
    
    
    
    
    
    
    713Shareholders equity
    
    
    19,364
    
    
    
    
    
    
    
    
    
    
    
    17,086TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY
    
    $
    152,029
    
    
    
    
    
    
    
    
    
    
    $
    92,149Net interest income/rate spread
    
    
    
    
    
    $
    1,755
    
    
    
    1.71
    %
    
    
    
    
    
    $
    1,274
    
    
    
    1.71
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.37
    %
    
    
    
    
    
    
    
    
    
    
    2.83
    %
 29




---



##### 



Analysis of Changes in Net Interest Income
    30




---



##### 



Changes in Net Interest IncomeThree months ended June 30,
    
    Six months ended June 30,2008 vs. June 30, 2007
    
    2008 vs. June 30, 2007Increase (Decrease)
    
    Increase (Decrease)Due to Change In
    
    Due to Change InVolume
    
    Rate
    
    Net Change
    
    Volume
    
    Rate
    
    Net Change(in thousands)
    
    (in thousands)Interest income:Loans receivable
    
    $
    1,071
    
    
    $
    (303
    )
    
    $
    768
    
    
    $
    1,913
    
    
    $
    (454
    )
    
    $
    1,459Securities available for sale
    
    
    62
    
    
    
    (38
    )
    
    
    24
    
    
    
    14
    
    
    
    (77
    )
    
    
    (63
    )Federal funds sold
    
    
    (64
    )
    
    
    (132
    )
    
    
    (196
    )
    
    
    (42
    )
    
    
    (196
    )
    
    
    (238
    )Deposits with banks and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total interest earning assets
    
    
    1,069
    
    
    
    (473
    )
    
    
    596
    
    
    
    1,885
    
    
    
    (727
    )
    
    
    1,158Interest expense:Demand, interest-bearing
    
    
    3
    
    
    
    (2
    )
    
    
    1
    
    
    
    3
    
    
    
    (2
    )
    
    
    1Money market and savings
    
    
    23
    
    
    
    (237
    )
    
    
    (214
    )
    
    
    123
    
    
    
    (387
    )
    
    
    (264
    )Time deposits
    
    
    599
    
    
    
    (110
    )
    
    
    489
    
    
    
    1,033
    
    
    
    (142
    )
    
    
    891Borrowed funds
    
    
    45
    
    
    
    (2
    )
    
    
    43
    
    
    
    54
    
    
    
    (5
    )
    
    
    49Total interest bearing liabilities
    
    
    670
    
    
    
    (351
    )
    
    
    319
    
    
    
    1,213
    
    
    
    (536
    )
    
    
    677Change in net interest income
    
    $
    399
    
    
    $
    (122
    )
    
    $
    277
    
    
    $
    672
    
    
    $
    (191
    )
    
    $
    481
 Provision for Loan Losses
    31




---



##### 



Non-Interest Income
  For the three months
    
    
    For the six monthsended June 30,
    
    
    ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Non-Interest IncomeWealth management fee income
    
    $
    33
    
    
    $
    52
    
    
    $
    89
    
    
    $
    106Service charges on deposits
    
    
    8
    
    
    
    3
    
    
    
    12
    
    
    
    6Other branch fees
    
    
    8
    
    
    
    3
    
    
    
    14
    
    
    
    6Loan related fees
    
    
    12
    
    
    
    5
    
    
    
    30
    
    
    
    8Other
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    7Total Non-Interest Income
    
    $
    66
    
    
    $
    68
    
    
    $
    150
    
    
    $
    133
  32




---



##### 



Non-Interest Expenses
   For the three months
    
    
    For the six monthsended June 30,
    
    
    ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Non-Interest ExpensesSalaries and employee benefits
    
    $
    1,278
    
    
    $
    764
    
    
    $
    2,326
    
    
    $
    1,586Occupancy and equipment
    
    
    195
    
    
    
    113
    
    
    
    305
    
    
    
    215Data processing equipment and
operations
    
    
    87
    
    
    
    64
    
    
    
    164
    
    
    
    113Professional fees
    
    
    71
    
    
    
    99
    
    
    
    189
    
    
    
    231Marketing, advertising and
business development
    
    
    72
    
    
    
    49
    
    
    
    95
    
    
    
    75FDIC deposit insurance assessments
    
    
    32
    
    
    
    17
    
    
    
    53
    
    
    
    31Capital stock tax expense
    
    
    23
    
    
    
    12
    
    
    
    44
    
    
    
    23Merger integration costs
    
    
    (53
    )
    
    
    
    
    
    
    72
    
    
    
    Other
    
    
    121
    
    
    
    93
    
    
    
    193
    
    
    
    164Total Non-Interest Expenses
    
    $
    1,826
    
    
    $
    1,211
    
    
    $
    3,441
    
    
    $
    2,438
  33




---



##### 



34




---



##### 



Provision for Income Taxes
  35




---



##### 



Financial Condition
 Balance Sheet Review
 Overview
   Investments
  36




---



##### 



As of June 30, 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
    
    $
    21,993
    
    
    
    2.19
    %
    
    $
    5,993
    
    
    
    3.53
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    27,986
    
    
    
    2.48
    %Mortgage-backed
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    975
    
    
    
    4.75
    %
    
    
    9,048
    
    
    
    5.01
    %
    
    
    10,023
    
    
    
    4.98
    %Other securities
    
    
    
    
    
    
    
    
    
    
    978
    
    
    
    4.00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    978
    
    
    
    4.00
    %Total investments
available for sale
    
    $
    21,993
    
    
    
    2.19
    %
    
    $
    6,971
    
    
    
    3.60
    %
    
    $
    975
    
    
    
    4.75
    %
    
    $
    9,048
    
    
    
    5.01
    %
    
    $
    38,987
    
    
    
    3.16
    %
 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
    %
  June 30, 2008
    
    
    December 31, 2007Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(Dollars in thousands)U.S. Government
agency securities
    
    $
    28,000
    
    
    $
    27,986
    
    
    $
    40,995
    
    
    $
    40,998Mortgage-backed
securities
    
    
    10,133
    
    
    
    10,023
    
    
    
    4,020
    
    
    
    4,028Other securities
    
    
    1,000
    
    
    
    978
    
    
    
    
    
    
    
    Total Investments
    
    $
    39,133
    
    
    $
    38,987
    
    
    $
    45,015
    
    
    $
    45,026
 Restricted investments in bank stocks
  37




---



##### 



Loans
   June 30, 2008
    
    December 31, 2007Percent
    
    
    
    
    
    PercentAmount
    
    of total
    
    Amount
    
    of total(Dollars in thousands)Commercial
    
    $
    41,640
    
    
    
    28
    %
    
    $
    33,506
    
    
    
    32
    %Commercial Real Estate
    
    
    39,625
    
    
    
    26
    %
    
    
    24,590
    
    
    
    23
    %Residential Real Estate
    
    
    39,832
    
    
    
    27
    %
    
    
    23,708
    
    
    
    23
    %Consumer
    
    
    28,780
    
    
    
    19
    %
    
    
    23,310
    
    
    
    22
    %Total Loans
    
    
    149,877
    
    
    
    100
    %
    
    
    105,114
    
    
    
    100
    %Net deferred loan costs
    
    
    51
    
    
    
    
    
    
    
    93
    
    
    
    Total
    
    $
    149,928
    
    
    
    100
    %
    
    $
    105,207
    
    
    
    100
    %
   38




---



##### 



At June 30, 2008Maturities of Outstanding LoansAfter 1 ButWithin 1
    
    Within 5
    
    After 5Year
    
    Years
    
    Years
    
    Total Loans(Dollars in thousands)Commercial
    
    $
    29,237
    
    
    $
    10,589
    
    
    $
    1,814
    
    
    $
    41,640Commercial Real Estate
    
    
    4,137
    
    
    
    24,182
    
    
    
    11,306
    
    
    
    39,625Residential Real Estate
    
    
    1,367
    
    
    
    11,015
    
    
    
    27,450
    
    
    
    39,832Consumer
    
    
    11,812
    
    
    
    4,122
    
    
    
    12,846
    
    
    
    28,780Total Loans
    
    $
    46,553
    
    
    $
    49,908
    
    
    $
    53,416
    
    
    $
    149,877Percentage composition of maturity
    
    
    31
    %
    
    
    33
    %
    
    
    36
    %
    
    
    100
    %Loans with fixed predetermined interest rates
    
    $
    6,835
    
    
    $
    38,122
    
    
    $
    8,802
    
    
    $
    53,759Loans with variable or floating interest rates
    
    
    39,718
    
    
    
    11,786
    
    
    
    44,614
    
    
    
    96,118Total Loans
    
    $
    46,553
    
    
    $
    49,908
    
    
    $
    53,416
    
    
    $
    149,877
 39




---



##### 



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
 Credit Quality
   40




---



##### 



June 30,
    
    
    December 31,
    
    
    June 30,2008
    
    
    2007
    
    
    2007(Dollars in thousands)Loans past due 90 days or more and still accruing
interest
    
    $
    
    
    
    $
    
    
    
    $
    Non-accrual loans
    
    
    727
    
    
    
    
    
    
    
    Total non-performing loans (1)
    
    
    727
    
    
    
    
    
    
    
    Other real estate owned
    
    
    
    
    
    
    
    
    
    
    Total non-performing assets (2)
    
    $
    727
    
    
    $
    
    
    
    $
    Non-performing loans as a percentage of total loans
    
    
    0.48
    %
    
    
    
    
    
    
    Non-performing assets as a percentage of total
assets
    
    
    0.37
    %
    
    
    
    
    
    
    Ratio of allowance to non-performing loans at end
of period
    
    
    218
    %
    
    
    
    
    
    
    Ratio of allowance to non-performing assets at end
of period
    
    
    218
    %
    
    
    
    
    
    
    Allowance for loan losses as a percentage of total
loans
    
    
    1.06
    %
    
    
    1.00
    %
    
    
    1.16
    %
 
 (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 comprised of non-performing loans and other real estate owned (assets
acquired in foreclosure).  Allowance for Loan Losses
  41




---



##### 



42




---



##### 



For the three months
    
    
    For the six monthsended June 30,
    
    
    ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)
    
    
    (Dollars in thousands)Balance at the beginning of period
    
    $
    1,401
    
    
    $
    737
    
    
    $
    1,055
    
    
    $
    634Charge-offs:Commercial
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Commercial real estate
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    Net loans charged off
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    Acquired reserve in business
combination
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    Provision charged to operations
    
    
    181
    
    
    
    134
    
    
    
    393
    
    
    
    237Balance at end of period
    
    $
    1,582
    
    
    $
    871
    
    
    $
    1,582
    
    
    $
    871Average loans (1)
    
    $
    136,073
    
    
    $
    67,166
    
    
    $
    120,689
    
    
    $
    61,178Ratio of net charge-offs during
period to average loans
outstanding during period
(annualized) (1)
    
    
    
    
    
    
    
    
    
    
    0.03
    %
    
    
    Allowance for loan losses as a
percentage of total loans
    
    
    1.06
    %
    
    
    1.16
    %
    
    
    1.06
    %
    
    
    1.16
    %
 
 (1)
    
    Includes non-accrual loans  43




---



##### 



June 30, 2008
    
    
    December 31, 2007
    
    
    June 30, 2007Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofloans in
    
    
    
    
    
    
    loans in
    
    
    
    
    
    
    loans ineach
    
    
    
    
    
    
    each
    
    
    
    
    
    
    eachcategory to
    
    
    
    
    
    
    category to
    
    
    
    
    
    
    category toAmount
    
    
    total loans
    
    
    Amount
    
    
    total loans
    
    
    Amount
    
    
    total loans(Dollars in thousands)Commercial
    
    $
    436
    
    
    
    28
    %
    
    $
    94
    
    
    
    32
    %
    
    $
    66
    
    
    
    31
    %Commercial Real Estate
    
    
    233
    
    
    
    26
    %
    
    
    81
    
    
    
    23
    %
    
    
    59
    
    
    
    24
    %Residential Real Estate
    
    
    100
    
    
    
    27
    %
    
    
    43
    
    
    
    23
    %
    
    
    22
    
    
    
    17
    %Consumer
    
    
    47
    
    
    
    19
    %
    
    
    39
    
    
    
    22
    %
    
    
    37
    
    
    
    28
    %Total Allocated
    
    
    816
    
    
    
    100
    %
    
    
    257
    
    
    
    100
    %
    
    
    184
    
    
    
    100
    %Unallocated
    
    
    766
    
    
    
    
    
    
    
    798
    
    
    
    
    
    
    
    687Total
    
    $
    1,582
    
    
    
    
    
    
    $
    1,055
    
    
    
    
    
    
    $
    871
  Loan Concentrations
  Deposits
  44




---



##### 



June 30,
    
    
    December 31,2008
    
    
    2007(in thousands)Demand, non-interest bearing
    
    $
    6,878
    
    
    $
    6,846Demand, interest bearing
    
    
    1,308
    
    
    
    1,486Money market and savings deposits
    
    
    36,864
    
    
    
    45,403Time
    
    
    106,573
    
    
    
    62,570Total interest bearing deposits
    
    
    144,745
    
    
    
    109,459Total deposits
    
    $
    151,623
    
    
    $
    116,305
  June 30, 2008(In thousands)Three Months or Less
    
    $
    10,741Over Three Through Six Months
    
    
    7,125Over Six Through Twelve Months
    
    
    5,781Over Twelve Months
    
    
    9,201TOTAL
    
    $
    32,848
 Other Interest-Bearing Liabilities
 Short-Term Borrowed Funds
  45




---



##### 



Long-Term Debt
    46




---



##### 



Capital Resources
      47




---



##### 



To BeAs of
    
    
    
    
    
    ConsideredJune 30,
    
    As of
    
    Well-2008
    
    December 31, 2007
    
    CapitalizedFirst Priority Bank:Total risk-based capital ratio
    
    
    15.09
    %
    
    
    16.01
    %
    
    
    10.00
    %Tier 1 risk-based capital ratio
    
    
    13.96
    %
    
    
    14.98
    %
    
    
    6.00
    %Tier 1 leverage ratio
    
    
    11.77
    %
    
    
    12.30
    %
    
    
    8.00
    %
   48




---



##### 



Effect of Inflation and Changing Prices
   Off-Balance Sheet Arrangements
    49




---



##### 



Liquidity
     Contractual Obligations
  50




---



##### 



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
    
    $
    69,749
    
    
    $
    13,851
    
    
    $
    17,788
    
    
    $
    5,185
    
    
    $
    
    
    
    $
    106,573Operating lease obligations
    
    
    459
    
    
    
    459
    
    
    
    459
    
    
    
    835
    
    
    
    2,697
    
    
    
    4,909Long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,000
    
    
    
    400
    
    
    
    7,400Short-term borrowings
    
    
    13,131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,131Accrued interest payable
    
    
    1,083
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,083Total
    
    $
    84,422
    
    
    $
    14,310
    
    
    $
    18,247
    
    
    $
    13,020
    
    
    $
    3,097
    
    
    $
    133,096
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4T. Controls and Procedures
   51




---



##### 



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors
  
 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.
  For
    
    Against
    
    Withheld
    
    Term ExpiresRobert J. Fairbaugh
    
    
    2,361,047
    
    
    
    0
    
    
    
    50,000
    
    
    
    2011Vincent P. Small, Jr.
    
    
    2,361,047
    
    
    
    0
    
    
    
    50,000
    
    
    
    2011David E. Sparks
    
    
    2,361,047
    
    
    
    0
    
    
    
    50,000
    
    
    
    2011William L. Wetty
    
    
    2,361,047
    
    
    
    0
    
    
    
    50,000
    
    
    
    2011S. James Worthington, Jr.
    
    
    2,338,547
    
    
    
    22,500
    
    
    
    50,000
    
    
    
    2011
  Term ExpiresHoward R. Berlin
    
    
    2009John K. Desmond, Jr.
    
    
    2009Mary Ann Messmer
    
    
    2009Scott J. Tarte
    
    
    2009Richard M. Wesselt
    
    
    2009Lawrence E. Donato
    
    
    2010Alan P. Novak
    
    
    2010Mel A. Shaftel
    
    
    2010Christopher E. Spinieo
    
    
    2010
 52




---



##### 



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)
 53




---



##### 



SIGNATURES
  FIRST PRIORITY FINANCIAL CORP.
(Registrant)Date: August 14, 2008
    By:
    /s/ David E. SparksDavid E. Sparks,Chairman, President and Chief Executive OfficerDate: August 14, 2008
    By:
    /s/ Lawrence E. DonatoLawrence E. Donato,Chief Financial Officer 54