UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the Quarterly Period Ended March 31, 2008
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from to .
Commission File Number 0-25923
Eagle
Bancorp, Inc
(Exact name of registrant as
specified in its charter)
Maryland
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52-2061461
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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7815 Woodmont Avenue, Bethesda, Maryland
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20814
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(Address of principal executive offices)
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(Zip Code)
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(301) 986-1800
(Registrants telephone number,
including area code)
N/A
(Former name, former address and
former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated filer, and smaller reporting company
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
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Accelerated filer
x
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Non-accelerated filer
o
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Smaller reporting
company
o
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(Do not check if a
smaller reporting company)
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Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act
Yes
o
No
x
Indicate the number of shares outstanding of each
of the issuers classes of common stock, as of the latest practicable date.
As of May 2, 2008, the registrant had 9,832,063
shares of Common Stock outstanding.
Item
1 Financial Statements
EAGLE
BANCORP, INC.
Consolidated Balance Sheets
March 31, 2008 and December 31,
2007
(dollars in thousands)
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March 31,
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December 31,
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2008
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2007
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(unaudited)
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(audited)
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ASSETS
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Cash and due
from banks
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$
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18,117
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$
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15,408
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Federal funds
sold
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16,013
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244
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Interest bearing
deposits with banks and other short-term investments
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2,230
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4,490
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Investment
securities available for sale, at fair value
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82,932
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87,117
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Loans held for
sale
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1,945
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2,177
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Loans
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759,547
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716,677
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Less allowance
for credit losses
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(8,733
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)
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(8,037
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)
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Loans, net
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750,814
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708,640
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Premises and
equipment, net
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6,445
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6,701
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Deferred income
taxes
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3,218
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3,597
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Bank owned life
insurance
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12,100
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11,984
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Other assets
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5,653
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6,042
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TOTAL ASSETS
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$
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899,467
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$
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846,400
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LIABILITIES
AND STOCKHOLDERS EQUITY
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LIABILITIES
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Deposits:
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Noninterest
bearing demand
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$
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143,508
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$
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142,477
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Interest bearing
transaction
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47,822
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54,090
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Savings and
money market
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193,348
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177,081
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Time, $100,000
or more
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177,003
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173,586
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Other time
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124,059
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83,702
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Total deposits
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685,740
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630,936
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Customer
repurchase agreements and federal funds purchased
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61,727
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76,408
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Other short-term
borrowings
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22,000
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22,000
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Long-term
borrowings
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40,000
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30,000
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Other
liabilities
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6,463
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5,890
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Total
liabilities
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815,930
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765,234
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STOCKHOLDERS
EQUITY
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Common stock,
$.01 par value; shares authorized 20,000,000, shares issued and outstanding
9,790,252 (2008) and 9,721,315 (2007)
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98
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97
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Additional paid
in capital
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52,878
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52,290
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Retained
earnings
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29,258
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28,195
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Accumulated
other comprehensive income
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1,303
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584
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Total
stockholders equity
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83,537
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81,166
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TOTAL
LIABILITIES AND STOCKHOLDERS EQUITY
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$
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899,467
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$
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846,400
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See notes to
consolidated financial statements.
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2
EAGLE
BANCORP, INC
.
Consolidated Statements of
Operations
For the Three Month Periods Ended March 31, 2008 and 2007
(unaudited)
(dollars in thousands, except
per share data)
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2008
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2007
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Interest
Income
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Interest and
fees on loans
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$
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12,880
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$
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12,531
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Interest and
dividends on investment securities
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1,095
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1,181
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Interest on
federal funds sold
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39
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24
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Total interest
income
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14,014
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13,736
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Interest
Expense
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Interest on
deposits
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4,428
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4,835
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Interest on
customer repurchase agreements and federal funds purchased
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394
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525
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Interest on
other short-term borrowings
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190
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108
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Interest on
long-term borrowings
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402
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299
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Total interest
expense
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5,414
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5,767
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Net
Interest Income
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8,600
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7,969
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Provision
for Credit Losses
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720
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303
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Net
Interest Income After Provision For Credit Losses
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7,880
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7,666
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Noninterest
Income
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Service charges
on deposits
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429
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349
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Gain on sale of
loans
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127
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237
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Gain on sale of
investment securities
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10
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7
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Increase in the
cash surrender value of bank owned life insurance
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116
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107
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Other income
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258
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298
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Total
noninterest income
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940
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998
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Noninterest
Expense
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Salaries and
employee benefits
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3,640
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3,352
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Premises and
equipment expenses
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1,080
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1,208
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Marketing and
advertising
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81
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91
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Legal,
accounting and professional fees
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170
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144
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Other expenses
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1,237
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1,254
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Total
noninterest expense
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6,208
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6,049
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Income
Before Income Tax Expense
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2,612
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2,615
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Income
Tax Expense
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961
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933
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Net
Income
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$
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1,651
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$
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1,682
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Earnings
Per Share
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Basic
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$
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0.17
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$
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0.18
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Diluted
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$
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0.17
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$
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0.17
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Dividends
Declared Per Share
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$
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0.06
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$
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0.06
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See notes to
consolidated financial statements.
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3
EAGLE BANCORP, INC.
Consolidated Statements of Cash Flows
For the Three Month Periods Ended March 31, 2008 and 2007
(unaudited)
(dollars in thousands)
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2008
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2007
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Cash
Flows From Operating Activities:
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Net income
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$
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1,651
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$
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1,682
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Adjustments to
reconcile net income to net cash provided by (used in) operating activities:
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Provision for
credit losses
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720
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303
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Depreciation and
amortization
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332
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327
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Gains on sale of
loans
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(127
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)
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(237
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)
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Origination of
loans held for sale
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(10,423
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)
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(10,158
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)
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Proceeds from
sale of loans held for sale
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10,782
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10,021
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Increase in cash
surrender value of BOLI
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(116
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)
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(107
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)
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Gain on sale of
investment securities
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(10
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)
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(7
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)
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Stock-based
compensation expense
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33
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47
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Excess tax
benefit from exercise of non-qualified stock options
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(132
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)
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13
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Decrease
(increase) in other assets
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268
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(190
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)
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Increase in
other liabilities
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705
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604
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Net cash
provided by operating activities
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3,683
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2,298
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Cash
Flows From Investing Activities:
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Decrease in
interest bearing deposits with other banks and short term investments
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2,260
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282
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Purchases of
available for sale investment securities
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(5,351
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)
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(51
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)
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Proceeds from
maturities of available for sale securities
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2,755
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1,287
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Proceeds from
sale/call of available for sale securities
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8,010
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15,799
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|
Net increase in
loans
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|
(42,894
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)
|
(11,995
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)
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Bank premises
and equipment acquired
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(76
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)
|
(753
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)
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Net cash (used
in) provided by investing activities
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(35,296
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)
|
4,569
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|
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Cash
Flows From Financing Activities:
|
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|
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Increase in
deposits
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54,804
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3,596
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Decrease in
customer repurchase agreements and federal funds purchased
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(14,681
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)
|
(3,021
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)
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Increase in
long-term borrowings
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10,000
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Issuance of
common stock
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424
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335
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Excess tax
benefit from exercise of non-qualified stock options
|
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132
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|
(13
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)
|
Payment of
dividends and payment in lieu of fractional shares
|
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(588
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)
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(570
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)
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Net cash
provided by financing activities
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50,091
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327
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Net
Increase In Cash And Due From Banks
|
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18,478
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7,194
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Cash
And Due From Banks At Beginning Of Period
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15,652
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28,977
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Cash
and Due from Banks At End Of Period
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$
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34,130
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$
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36,171
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Supplemental
Cash Flows Information:
|
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Interest paid
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$
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5,124
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|
$
|
5,828
|
|
Income taxes
paid
|
|
$
|
675
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|
$
|
483
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|
See notes to
consolidated financial statements.
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4
EAGLE BANCORP, INC.
Consolidated
Statements of Changes in Stockholders Equity
For the Three Month Periods
Ended March 31, 2008 and 2007 (unaudited)
(dollars
in thousands)
|
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|
|
|
|
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Accumulated
|
|
|
|
|
|
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|
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Other
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Total
|
|
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Common
|
|
Additional Paid
|
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Retained
|
|
Comprehensive
|
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Stockholders
|
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|
Stock
|
|
in Capital
|
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Earnings
|
|
Income (Loss)
|
|
Equity
|
|
Balance,
January 1, 2008
|
|
$
|
97
|
|
$
|
52,290
|
|
$
|
28,195
|
|
$
|
584
|
|
$
|
81,166
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
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Net Income
|
|
|
|
|
|
1,651
|
|
|
|
1,651
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain
on securities available for sale (net of taxes)
|
|
|
|
|
|
|
|
725
|
|
725
|
|
Less:
reclassification adjustment for gains net of taxes of $4 included in net
income
|
|
|
|
|
|
|
|
(6
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)
|
(6
|
)
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
2,370
|
|
Cash Dividend
($0.06 per share)
|
|
|
|
|
|
(588
|
)
|
|
|
(588
|
)
|
Shares issued
under dividend reinvestment plan - 22,134 shares
|
|
|
|
261
|
|
|
|
|
|
261
|
|
Stock-based
compensation
|
|
|
|
33
|
|
|
|
|
|
33
|
|
Exercise of
options for 46,803 shares of common stock
|
|
1
|
|
162
|
|
|
|
|
|
163
|
|
Tax benefit on
non-qualified options exercise
|
|
|
|
132
|
|
|
|
|
|
132
|
|
Balance,
March 31, 2008
|
|
$
|
98
|
|
$
|
52,878
|
|
$
|
29,258
|
|
$
|
1,303
|
|
$
|
83,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2007
|
|
$
|
95
|
|
$
|
50,278
|
|
$
|
22,796
|
|
$
|
(253
|
)
|
$
|
72,916
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
1,682
|
|
|
|
1,682
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain
on securities available for sale (net of taxes)
|
|
|
|
|
|
|
|
67
|
|
67
|
|
Less:
reclassification adjustment for gains net of taxes of $3 included in net
income
|
|
|
|
|
|
|
|
(4
|
)
|
(4
|
)
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
1,745
|
|
Cash Dividend
($0.06 per share)
|
|
|
|
|
|
(570
|
)
|
|
|
(570
|
)
|
Stock-based
compensation
|
|
|
|
47
|
|
|
|
|
|
47
|
|
Exercise of
options for 31,558 shares of common stock
|
|
|
|
335
|
|
|
|
|
|
335
|
|
Tax benefit
adjustment on non-qualified options exercise
|
|
|
|
(13
|
)
|
|
|
|
|
(13
|
)
|
Balance,
March 31, 2007
|
|
$
|
95
|
|
$
|
50,647
|
|
$
|
23,908
|
|
$
|
(190
|
)
|
$
|
74,460
|
|
See notes to
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
5
EAGLE BANCORP,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
For the
Three Months Ended March 31, 2008 and 2007 (unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements of Eagle Bancorp, Inc.
(the Company) included herein are unaudited; however, they reflect all
adjustments, consisting only of normal recurring accruals, that in the opinion
of Management, are necessary to present fairly the results for the periods
presented. The amounts as of and for the year ended December 31, 2007 were
derived from audited consolidated financial statements. Certain information and
note disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. There have been no
significant changes to the Companys Accounting Policies as disclosed in the
Companys Annual Report on Form 10-K for the year ended December 31,
2007. The Company believes that the
disclosures are adequate to make the information presented not misleading. The
results of operations for the three months ended March 31, 2008 are not
necessarily indicative of the results of operations to be expected for the
remainder of the year, or for any other period. Certain reclassifications have
been made to amounts previously reported to conform to the classifications made
in 2008.
2. NATURE OF OPERATIONS
The
Company, through EagleBank, its bank subsidiary (the Bank), conducts a full
service community banking business, primarily in Montgomery County, Maryland
and Washington, D.C. The primary financial services include real estate,
commercial and consumer lending, as well as traditional deposit and repurchase
agreement products. The Bank is also active in the origination and sale of
residential mortgage loans and the origination of small business loans. The
guaranteed portion of small business loans is typically sold through the Small
Business Administration, in a transaction apart from the loans origination.
The Bank offers its products and services through nine banking offices and
various electronic capabilities, including remote deposit services introduced
in 2006. In July 2006, the Company formed Eagle Commercial Ventures, LLC (ECV)
as a direct subsidiary to provide subordinate financing for the acquisition,
development and construction of real estate projects, whose primary financing
would be done by the Bank. Prior to the formation of ECV, the Company engaged
directly in occasional subordinate financing transactions, which involve higher
levels of risk, together with commensurate returns.
3. CASH FLOWS
For purposes of reporting
cash flows, cash and cash equivalents include cash and due from banks, and
federal funds sold (items with an original maturity of three months or less).
6
4.
INVESTMENT SECURITIES
Amortized cost and
estimated fair value of securities available for sale are summarized as
follows:
(dollars in thousands)
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
March 31, 2008
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government
agency securities
|
|
$
|
42,316
|
|
$
|
1,856
|
|
$
|
|
|
$
|
44,172
|
|
Mortgage backed
securities
|
|
26,577
|
|
563
|
|
|
|
27,140
|
|
Municipal bonds
|
|
5,064
|
|
|
|
89
|
|
4,975
|
|
Federal Reserve
and Federal Home Loan Bank stock
|
|
5,512
|
|
|
|
|
|
5,512
|
|
Other equity
investments
|
|
1,278
|
|
7
|
|
152
|
|
1,133
|
|
|
|
$
|
80,747
|
|
$
|
2,426
|
|
$
|
241
|
|
$
|
82,932
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
December 31, 2007
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government
agency securities
|
|
$
|
50,428
|
|
$
|
885
|
|
$
|
18
|
|
$
|
51,295
|
|
Mortgage backed
securities
|
|
29,218
|
|
220
|
|
135
|
|
29,303
|
|
Municipal bonds
|
|
357
|
|
|
|
6
|
|
351
|
|
Federal Reserve
and Federal Home Loan Bank stock
|
|
4,870
|
|
|
|
|
|
4,870
|
|
Other equity
investments
|
|
1,278
|
|
20
|
|
|
|
1,298
|
|
|
|
$
|
86,151
|
|
$
|
1,125
|
|
$
|
159
|
|
$
|
87,117
|
|
Gross unrealized losses and fair
value by length of time that the individual available securities have been in a
continuous unrealized loss position as of March 31, 2008 are as follows:
(dollars
in thousands)
|
|
Estimated
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
Less than
|
|
More than
|
|
Unrealized
|
|
March 31, 2008
|
|
Value
|
|
12 months
|
|
12 months
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
4,975
|
|
$
|
89
|
|
$
|
|
|
$
|
89
|
|
Other equity
investments
|
|
1,000
|
|
152
|
|
|
|
152
|
|
|
|
$
|
5,975
|
|
$
|
241
|
|
$
|
|
|
$
|
241
|
|
|
|
Estimated
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
Less than
|
|
More than
|
|
Unrealized
|
|
December 31, 2007
|
|
Value
|
|
12 months
|
|
12 months
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government
agency securities
|
|
$
|
5,982
|
|
$
|
|
|
$
|
18
|
|
$
|
18
|
|
Mortgage backed
securities
|
|
11,032
|
|
6
|
|
129
|
|
135
|
|
Municipal bonds
|
|
351
|
|
6
|
|
|
|
6
|
|
|
|
$
|
17,365
|
|
$
|
12
|
|
$
|
147
|
|
$
|
159
|
|
The unrealized losses that exist are the result of
changes in market interest rates since original purchases. Except for one municipal bond issue which has
an underlying rating of AA, all of the remaining bonds are rated AAA. The
weighted average duration of debt securities, which comprise 92% of total
investment securities, is relatively short at 2.5 years. These factors, coupled
with the Companys ability and intent to hold these investments
7
for a
period of time sufficient to allow for any anticipated recovery in fair value
substantiates that the unrealized losses are temporary in nature.
5. INCOME
TAXES
The Company employs the
liability method of accounting for income taxes as required by Statement of
Financial Accounting Standards No. 109 (SFAS), Accounting for Income
Taxes. Under the liability method, deferred-tax assets and liabilities are
determined based on differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities (i.e., temporary
differences) and are measured at the enacted rates that will be in effect when
these differences reverse. The Company adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes in the
first quarter of 2007. The Company utilizes statutory requirements for its
income tax accounting, and avoids risks associated with potentially problematic
tax positions that may incur challenge upon audit, where an adverse outcome is
more likely than not. Therefore, no provisions are made for either uncertain
tax positions nor accompanying potential tax penalties and interest for
underpayments of income taxes in the Companys tax reserves.
6. EARNINGS PER SHARE
Earnings per common share are computed by dividing net
income by the weighted average number of common shares outstanding during the
period. Diluted net income per common share is computed by dividing net income
by the weighted average number of common shares outstanding during the period,
including any potential dilutive common shares outstanding, such as stock
options. There were 325,518 shares and
170,535 shares as of March 31, 2008 and 2007, respectively, excluded from
the diluted net income per share computation because their inclusion would be
anti-dilutive.
7.
STOCK-BASED COMPENSATION
The Company
maintains the 1998 Stock Option Plan (1998 Plan) and the 2006 Stock Plan (2006
Plan). No additional options may be granted under the 1998 Plan. The 1998 Plan
provided for the periodic granting of incentive and non-qualifying options to
selected key employees and members of the Board. Option awards were made with
an exercise price equal to the market price of the Companys shares at the date
of grant. The option grants generally vested over a period of one to two years
under the 1998 Plan.
The Company
adopted the 2006 Plan upon approval by shareholders at the 2006 Annual Meeting
held on May 25, 2006. The Plan provides for the issuance of awards of
incentive options, nonqualifying options, restricted stock and stock
appreciation rights with respect to up to 650,000 shares. The purpose of the
2006 Plan is to advance the interests of the Company by providing directors and
selected employees of the Bank, the Company, and their affiliates with the
opportunity to acquire shares of common stock, through awards of options,
restricted stock and stock appreciation rights.
The Company also
maintains the 2004 Employee Stock Purchase Plan (the ESPP). Under the ESPP, a
total of 253,500 shares of common stock, were reserved for issuance to eligible
employees at a price equal to at least 85% of the fair market value of the
shares of common stock on the date of grant. Grants each year expire no later
than the last business day of January in the calendar year following the
year in which the grant is made. No grants have been made under this plan in
2008.
The Company believes
that awards under all plans better align the interests of its employees with
those of its shareholders.
In January 2008,
the Company awarded options to purchase 79,300 shares to employees and 34,000
shares to certain Directors under the 2006 Plan which have a five-year term and
vest in three substantially equal installments on the date of grant, and the
first and second anniversaries of the date of grant.
8
In January 2008,
the Company awarded options to purchase 46,500 shares to six senior officers
under the 2006 Plan which have a ten-year term. Of the total shares awarded,
21,500 vest in three substantially equal installments on the date of grant, and
the first and second anniversaries of the date of grant. The remaining 25,000
shares awarded vest over a four year period beginning on the fifth anniversary
date of the grant.
The fair value of
each option grant and other equity based award is estimated on the date of
grant using the Black-Scholes option pricing model with the assumptions as
shown in the table below used for grants during the three months ended March 31,
2008 and the twelve months ended December 31, 2007 and 2006.
Below is a summary of
changes in shares under option (split adjusted) for the three months ended March 31,
2008. The information excludes restricted stock unit awards.
9
|
|
|
|
|
|
Weighted-Average
|
|
Weighted-Average
|
|
Aggregate
|
|
|
|
|
|
Weighted-Average
|
|
Remaining
|
|
Grant Date
|
|
Intrinsic
|
|
|
|
Stock Options
|
|
Exercise Price
|
|
Contractual Life
|
|
Fair Value
|
|
Value
|
|
As of 1/1/2008
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
752,944
|
|
$
|
10.09
|
|
|
|
$
|
3.28
|
|
|
|
Vested
|
|
631,682
|
|
8.70
|
|
|
|
3.15
|
|
|
|
Nonvested
|
|
121,263
|
|
17.36
|
|
|
|
3.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
activity
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
159,800
|
|
$
|
13.05
|
|
|
|
$
|
2.91
|
|
|
|
Exercised
|
|
46,803
|
|
3.48
|
|
|
|
1.54
|
|
|
|
Forfeited
|
|
200
|
|
16.97
|
|
|
|
3.31
|
|
|
|
Expired
|
|
9,522
|
|
15.02
|
|
|
|
3.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
3/31/2008
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
856,219
|
|
$
|
10.95
|
|
4.54
|
|
$
|
3.30
|
|
$
|
2,650,764
|
|
Vested
|
|
641,694
|
|
9.57
|
|
4.23
|
|
3.23
|
|
2,650,544
|
|
Nonvested
|
|
214,525
|
|
15.10
|
|
5.47
|
|
3.52
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding:
|
|
|
|
|
|
Weighted-Average
|
|
Range of
|
|
Stock Options
|
|
Weighted-Average
|
|
Remaining
|
|
Exercise Prices
|
|
Outstanding
|
|
Exercise Price
|
|
Contractual Life
|
|
$3.25
|
-
|
$8.75
|
|
272,056
|
|
$
|
4.83
|
|
2.57
|
|
$8.76
|
-
|
$13.26
|
|
397,104
|
|
12.01
|
|
6.21
|
|
$13.27
|
-
|
$17.77
|
|
86,938
|
|
16.81
|
|
3.37
|
|
$17.78
|
-
|
$19.46
|
|
100,121
|
|
18.31
|
|
4.27
|
|
|
|
856,219
|
|
10.95
|
|
4.54
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable:
Range of
|
|
Stock Options
|
|
Weighted-Average
|
|
Exercise Prices
|
|
Exercisable
|
|
Exercise Price
|
|
$3.25
|
-
|
$8.75
|
|
272,056
|
|
$
|
4.83
|
|
$8.76
|
-
|
$13.26
|
|
280,233
|
|
11.58
|
|
$13.27
|
-
|
$17.77
|
|
23,348
|
|
16.85
|
|
$17.78
|
-
|
$19.46
|
|
66,057
|
|
17.98
|
|
|
|
641,694
|
|
9.57
|
|
|
|
|
|
|
|
|
|
|
Assumptions:
|
|
Three Months
|
|
|
|
|
|
|
|
Ended
|
|
Year Ended
|
|
Year Ended
|
|
|
|
March 31, 2008
|
|
2007
|
|
2006
|
|
Expected
Volatility
|
|
23.7 - 37.1
|
%
|
18.5 - 24.4
|
%
|
21.4 - 24.1
|
%
|
Weighted-Average
Volatility
|
|
27.02
|
%
|
20.12
|
%
|
22.62
|
%
|
Expected
Dividends
|
|
1.8
|
%
|
1.4
|
%
|
1.3
|
%
|
Expected Term
(In years)
|
|
3.5 - 9.0
|
|
3.1 - 4.0
|
|
0.5 - 3.4
|
|
Risk-Free Rate
|
|
2.71
|
%
|
4.73
|
%
|
4.60
|
%
|
Weighted-Average
Fair Value (Grant date)
|
|
$
|
2.91
|
|
$
|
3.18
|
|
$
|
4.40
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intrinsic
value of options exercised during the period:
|
|
411,955
|
|
Total fair value
of shares vested during the period:
|
|
220,930
|
|
Weighted-average
period over which nonvested awards are expected to be recognized:
|
|
2.02
|
years
|
The expected lives is
based on the simplified method allowed by SAB No. 107, whereby the
expected term is equal to the midpoint between the vesting date and the end of
the contractual term of the award.
10
Included in salaries and
employee benefits the Company recognized $33 thousand ($0.00 per share) and $47
thousand ($0.00 per share) in share based compensation expense for the three
months ended March 31, 2008 and 2007, respectively. As of March 31,
2008 there was $799 thousand of total unrecognized compensation cost related to
non-vested equity awards under the Companys various share based compensation
plans. The $737 thousand of unrecognized compensation expense is being
amortized over the remaining requisite service (vesting) periods through 2015.
8. NEW ACCOUNTING PRONOUNCEMENTS
Recent
Accounting Pronouncements Adopted
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157).
This statement provides a single definition of fair value, a framework for
measuring fair value, and expanded disclosures concerning fair value.
Previously, different definitions of fair value were contained in various
accounting pronouncements creating inconsistencies in measurement and disclosures.
SFAS 157 applies under those previously issued pronouncements that prescribe
fair value as the relevant measure of value, except SFAS 123R and related interpretations
and pronouncements that require or permit measurement similar to fair value but
are not intended to measure fair value. This pronouncement is effective for
fiscal years beginning after November 15, 2007.
The Company adopted SFAS No. 157 as of January 1,
2008 and the adoption did not have a material impact on the consolidated
financial statements or results of operations of the Company.
In February 2007,
the FASB issued SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities
(SFAS 159). SFAS 159
allows entities the option to measure eligible financial instruments at fair
value as of specified dates. Such election, which may be applied on an
instrument by instrument basis, is typically irrevocable once elected.
Statement 159 is effective for fiscal years beginning after November 15,
2007.
The Company adopted the provisions of SFAS 159 on January 1,
2008
and the adoption
did not have a material impact on the consolidated financial statements or
results of operations of the Company.
In December 2007,
the SEC issued Staff Accounting Bulletin No. 110 (SAB No. 110),
Certain Assumptions Used in Valuation Methods
,
which extends the use of the simplified method, under certain circumstances,
in developing an estimate of expected term of plain vanilla share options in
accordance with SFAS No. 123R. Prior to SAB No. 110, SAB No. 107
stated that the simplified method was only available for grants made up to December 31,
2007. The Company continues to use the simplified method in developing an
estimate of the expected term of stock options.
Accounting
Pronouncements Issued But Not Yet Effective
In December 2007,
the FASB issued SFAS 141(R),
Business
Combinations (Revised 2007) (SFAS 141R).
SFAS 141R replaces SFAS 141, Business Combinations,
and applies to all transactions and other events in which one entity obtains
control over one or more other businesses. SFAS 141R requires an acquirer,
upon initially obtaining control of another entity, to recognize the assets,
liabilities and any non-controlling interest in the acquiree at fair value as
of the acquisition date. Contingent consideration is required to be recognized
and measured at fair value on the date of acquisition rather than at a later
date when the amount of that consideration may be determinable beyond a
reasonable doubt. This fair value approach replaces the cost-allocation process
required under SFAS 141 whereby the cost of an acquisition was allocated
to the individual assets acquired and liabilities assumed based on their
estimated fair value. SFAS 141R requires acquirers to expense acquisition-related
costs as incurred rather than allocating such costs to the assets acquired and
liabilities assumed, as was previously the case under SFAS 141. Under
SFAS 141R, the requirements of SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities, would have to be met in order to
accrue for a restructuring plan in purchase accounting. Pre-acquisition
contingencies are to be recognized at fair value, unless it is a
non-contractual contingency that is not likely to materialize, in which case,
nothing should be recognized in purchase accounting and, instead, that
contingency would be subject to the probable and estimable recognition criteria
of SFAS 5, Accounting for Contingencies. SFAS 141R is expected to
have a significant impact on the Companys accounting for business combinations
closing on or after January 1, 2009.
In December 2007,
the FASB issued SFAS No. 160,
Noncontrolling Interest in Consolidated Financial
Statements, an amendment of ARB Statement No. 51
(SFAS 160).
SFAS 160
amends Accounting Research
11
Bulletin (ARB) No. 51,
Consolidated Financial Statements, to establish accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS 160 clarifies that a non-controlling
interest in a subsidiary, which is sometimes referred to as minority interest,
is an ownership interest in the consolidated entity that should be reported as
a component of equity in the consolidated financial statements. Among other
requirements, SFAS 160 requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
non-controlling interest. It also requires disclosure, on the face of the
consolidated income statement, of the amounts of consolidated net income
attributable to the parent and to the non-controlling interest. SFAS 160
is effective for the Company on January 1, 2009 and is not expected to
have a significant impact on the Companys financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures
about Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133
(SFAS 161). SFAS 161 is intended to enhance the current
disclosure framework previously required for derivative instruments and hedging
activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities to include how and why an entity uses derivative
instruments, how derivative instruments and related hedge items are accounted
for and their impact on an entitys financial positions, results of operations,
and cash flows. This standard is
effective for fiscal years and interim periods beginning after November 15,
2008, with early adoption encouraged.
While the Company does not currently utilize derivative instruments, it
is currently evaluating the impact of this new standard on its financial
position, results of operations and cash flows.
9. FAIR
VALUE MEASUREMENTS
SFAS No. 157,
Fair Value Measurements
, defines
fair value, establishes a framework for measuring fair value, establishes a
three-level valuation hierarchy for disclosure of fair value measurement and
enhances disclosure requirements for fair value measurements. The valuation
hierarchy is based upon the transparency of inputs to the valuation of an asset
or liability as of the measurement date. The three levels are defined as
follow:
Level 1
|
|
Quoted prices (unadjusted) in active markets for
identical assets or liabilities;
|
|
|
|
Level 2
|
|
Inputs other than quoted prices included within
Level 1 that are either directly or indirectly observable;
|
|
|
|
Level 3
|
|
Unobservable inputs in which little or no market
activity exists, therefore requiring an entity to develop its own assumptions
about the assumptions that market participants would use in pricing.
|
Investment securities available for sale are the only
balance sheet category the Company is required by generally accepted accounting
principles to account for at fair value. The following table presents
information about the Companys assets measured at fair value on a recurring
basis as of March 31, 2008, and indicates the fair value hierarchy of the
valuation techniques utilized by the Company to determine such fair value.
(dollars in thousands)
|
|
Carrying Value
(Fair Value)
|
|
Quoted Prices
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant Other
Unobservable Inputs
(Level 3)
|
|
Trading Gains
and (Losses)
|
|
Total Changes in Fair
Values Included in
Period Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities available for sale
|
|
$
|
82,932
|
|
$
|
1,033
|
|
$
|
81,799
|
|
$
|
100
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
10. PENDING ACQUISITION
On December 2, 2007
the Company entered into a definitive agreement with Fidelity & Trust
Financial Corporation (Fidelity) and its subsidiary Fidelity & Trust
Bank for the Company to acquire Fidelity and for Fidelity & Trust Bank
to be merged into EagleBank, with EagleBank being the surviving entity.
The
combination is structured as a stock-for-stock exchange, under which
Fidelitys shareholders (based on an original defined conversion
ratio) will receive 0.9202 shares of Eagle common stock for each share of Fidelity common stock owned. The
originally defined conversion ratio is subject to possible
reductions under certain
circumstances set forth in the merger agreement.
Based upon the closing stock price for Eagle Bancorp Inc. on November 30,
2007 and the original defined conversion ratio, the aggregate value of the
transaction would be $48.8 million, or $11.51 per share of Fidelity common
stock. The value of the transaction at closing is expected to be lower,
based on reductions in the conversion ratio which are expected to result from
applications of the adjustment provisions of the merger agreement. Changes in the aggregate value of the
transaction will also occur based on changes in the value of Eagle common
stock. Following the completion of the merger, Fidelity & Trusts
shareholders will own approximately 28% of Eagle Bancorps outstanding common
stock, based on the original defined conversion ratio. Two members of
the Fidelity & Trust Financial Corporation Board will join the Eagle
Bancorp, Inc. Board and four of their directors will join the EagleBank
Board.
Eagle Bancorp, Inc.
is the holding company for EagleBank which commenced operations in 1998. The
bank is headquartered in Bethesda, Maryland, and conducts full service banking
services through nine offices, located in Montgomery County, Maryland and
Washington, D.C. The Company focuses on building relationships with businesses,
professionals and individuals in its marketplace.
Fidelity & Trust
Bank was founded and opened in November 2003. The Banks mission is
to provide its customers with customized banking solutions and above all,
outstanding customer service.
In late December 2007,
EagleBank approved a $7 million demand line of credit to Fidelity which was
secured by the stock of Fidelity & Trust Bank. That demand line of
credit was increased to $9 million in March, 2008. At March 31, 2008,
EagleBank had $9 million advanced under the line of credit facility which is
included in Loans on the Consolidated Balance Sheets. The outstanding line
amount bears interest at the prime interest rate less ¼%.
Item 2 - Managements
Discussion and Analysis of Financial Condition and Results of Operation.
The following discussion
provides information about the results of operations, and financial condition,
liquidity, and capital resources of the Company and its subsidiaries as of the
dates and periods indicated. This discussion and analysis should be read in
conjunction with the unaudited Consolidated Financial Statements and Notes
thereto, appearing elsewhere in this report and the Management Discussion and
Analysis in the Companys Annual Report on Form 10-K for the year ended December 31,
2007.
This report contains
forward looking statements within the meaning of the Securities Exchange Act of
1934, as amended, including statements of goals, intentions, and expectations as
to future trends, plans, events or results of Company operations and policies
and regarding general economic conditions. In some cases, forward looking
statements can be identified by use of such words as may, will, anticipate,
believes, expects, plans, estimates, potential, continue, should,
and similar words or phases. These
statements are based upon current and anticipated economic conditions,
nationally and in the Companys market, interest rates and interest rate
policy, competitive factors and other conditions which, by their nature, are
not susceptible to accurate forecast, and are subject to significant
uncertainty. Because of these uncertainties and the assumptions on which this
discussion and the forward looking statements are based, actual future
operations and results in the future may differ materially from those indicated
herein. Readers are cautioned against placing undue reliance on any such
forward looking statements.
13
GENERAL
The Company is a growth
oriented, one-bank holding company headquartered in Bethesda, Maryland. The
Company provides general commercial and consumer banking services through its
wholly owned banking subsidiary the Bank, a Maryland chartered bank which is a
member of the Federal Reserve System. The Company was organized in October 1997,
to be the holding company for the Bank. The Bank was organized as an
independent, community oriented, full service banking alternative to the super
regional financial institutions, which dominate the primary market area. The
Companys philosophy is to provide superior, personalized service to its
customers. The Company focuses on relationship banking, providing each customer
with a number of services, becoming familiar with and addressing customer needs
in a proactive, personalized fashion. The Bank currently has six offices
serving Montgomery County and three offices in the District of Columbia.
The Company offers a
broad range of commercial banking services to its business and professional
clients as well as full service consumer banking services to individuals living
and/or working primarily in the service area. The Company emphasizes providing
commercial banking services to sole proprietors, small and medium-sized
businesses, partnerships, corporations, non-profit organizations and
associations, and investors living and working in and near the primary service
area. A full range of retail banking services are offered to accommodate the
individual needs of both corporate customers as well as the community the
Company serves. These services include the usual deposit functions of
commercial banks, including business and personal checking accounts, NOW
accounts and money market and savings accounts, business, construction, and
commercial loans, equipment leasing, residential mortgages and consumer loans
and cash management services. The Company has developed significant expertise
and commitment as an SBA lender, has been designated a Preferred Lender by the
Small Business Administration (SBA), and is a leading community bank SBA
lender in the Washington D.C. district.
PENDING
ACQUISITION
In December 2007,
the Company announced the signing of a definitive agreement to acquire Fidelity &
Trust Financial Corporation (Fidelity & Trust), parent of Fidelity &
Trust Bank. At December 31, 2007, Fidelity & Trust had $447
million of assets. Fidelity & Trust Bank operates six locations, with
one in Northern Virginia, three in Montgomery County, Maryland and two in the
District of Columbia. The transaction is subject to regulatory and shareholder
approvals and the satisfaction of other conditions, as set forth in the merger
agreement. The transaction is currently anticipated to be completed in the
third quarter of 2008.
Refer to Note 10 to the
Consolidated Financial Statements on page 13 for further information on
this transaction.
CRITICAL ACCOUNTING
POLICIES
The Companys
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP) and
follow general practices within the banking industry. Application of these
principles requires management to make estimates, assumptions, and judgments
that affect the amounts reported in the financial statements and accompanying
notes. These estimates, assumptions and judgments are based on information
available as of the date of the consolidated financial statements; accordingly,
as this information changes, the consolidated financial statements could reflect
different estimates, assumptions, and judgments. Certain policies inherently
have a greater reliance on the use of estimates, assumptions and judgments and
as such have a greater possibility of producing results that could be
materially different than originally reported. Estimates, assumptions, and
judgments are necessary when assets and liabilities are required to be recorded
at fair value, when a decline in the value of an asset not carried on the
financial statements at fair value warrants an impairment write-down or
valuation reserve to be established, or when an asset or liability needs to be
recorded contingent upon a future event. Carrying assets and liabilities at
fair value inherently results in more financial statement volatility. The fair
values and the information used to record valuation adjustments for investment
14
securities available for
sale are based either on quoted market prices or are provided by other
third-party sources, when available.
The allowance for credit
losses is an estimate of the losses that may be sustained in our loan
portfolio. The allowance is based on two principles of accounting: (a) Statement
on Financial Accounting Standards (SFAS) 5, Accounting for Contingencies,
which requires that losses be accrued when they are probable of occurring and
are estimable and (b) SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, which requires that losses be accrued when it is
probable that the Company will not collect all principal and interest payments
according to the contractual terms of the loan. The loss, if any, can be
determined by the difference between the loan balance and the value of
collateral, the present value of expected future cash flows, or values
observable in the secondary markets.
Three components comprise
our allowance for credit losses: a specific allowance, a formula allowance and
a nonspecific or environmental factors allowance. Each component is determined
based on estimates that can and do change when actual events occur.
The specific allowance
allocates an allowance to identified loans. A loan for which reserves are
individually allocated may show deficiencies in the borrowers overall
financial condition, payment record, support available from financial
guarantors and or the fair market value of collateral. When a loan is
identified as impaired, a specific reserve is established based on the Companys
assessment of the loss that may be associated with the individual loan.
The formula allowance is
used to estimate the loss on internally risk rated loans, exclusive of those
identified as requiring specific reserves. Loans identified in the risk rating
evaluation as substandard, doubtful and loss, (classified loans) are segregated
from non-classified loans. Classified
loans are assigned allowance factors based on an impairment analysis. Allowance
factors relate to the level of the internal risk rating with loans exhibiting
higher risk ratings receiving a higher allowance factor.
The unallocated formula
allowance is used to estimate the loss associated with non-classified
loans. These unclassified loans are also
stratified by loan type and risk rating, and allowance factors are assigned by
management based upon a number of factors, including delinquencies, loss
history, changes in lending policy and procedures, changes in business and
economic conditions, changes in the nature and volume of the portfolio,
management expertise, concentrations within the portfolio, quality of loan
review systems, competition, and legal and regulatory requirements. The factors assigned differ by loan type and
internal risk rating. The unallocated
allowance captures losses inherent in the portfolio which have not yet been
recognized. Allowance factors and the
overall size of the allowance may change from period to period based upon
managements assessment of the above described factors and the relative weights
given to each factor.
Management has
significant discretion in making the judgments inherent in the determination of
the provision and allowance for credit losses, including, in connection with
the valuation of collateral, a borrowers prospects of repayment, and in
establishing allowance factors on the formula allowance and nonspecific or
environmental allowance components of the allowance. The establishment of
allowance factors is a continuing evaluation, based on managements ongoing
assessment of the global factors discussed above and their impact on the
portfolio. The allowance factors may change from period to period, resulting in
an increase or decrease in the amount of the provision or allowance, based upon
the same volume and classification of loans. Changes in allowance factors have
a direct impact on the amount of the provision, and a related after tax effect
on net income. Errors in managements perception and assessment of the global
factors and their impact on the portfolio could result in the allowance not
being adequate to cover losses in the portfolio, and may result in additional
provisions or charge-offs.
Alternatively, errors in managements perception and assessment of the
global factors and their impact on the portfolio could result in the allowance
being in excess of amounts necessary to cover losses in the portfolio, and may
result in lower provision in the future. For additional information regarding
the allowance for credit losses, refer to the discussion under the caption Allowance
for Credit Losses below.
Beginning
in January 2006, the Company adopted the provisions of SFAS No. 123R,
which requires the expense recognition for the fair value of share based
compensation awards, such as stock options, restricted stock units, performance
based shares and the like. This standard
allows management to establish modeling assumptions as to expected stock price
volatility, option terms, forfeiture rates and dividend rates which directly
impact estimated fair value. The accounting standard also allows for the use of
alternative option pricing models which may impact fair value
15
as
determined. The Companys practice is to utilize reasonable and supportable
assumptions which are reviewed with the appropriate Board Committee.
RESULTS
OF OPERATIONS
Summary
The Company reported net income of $1.7 million for
the three months ended March 31, 2008, and March 31, 2007. Income per
basic and diluted share was $0.17 for the three month period ended March 31,
2008, as compared to $0.18 per basic and $0.17 per diluted share for the same
period in 2007.
The Company had an
annualized return on average assets of 0.77% and an annualized return on
average equity of 7.98% for the first three months of 2008, as compared to
returns on average assets and average equity of 0.88% and 9.23%, respectively,
for the same three months of 2007.
For the three months
ended March 31, 2008, net interest income showed an increase of 8% as
compared to the same period in 2007 on growth in average earning assets of 13%.
For the three months ended March 31, 2008 as compared to the same period
in 2007, the Company experienced a decline in its net interest margin from
4.41% to 4.19% or 22 basis points. This change was primarily due to an
inability to reprice assets as quickly as liabilities in a downward rate
environment and the reliance on more expensive sources of funds which has
increased interest expense at a faster rate than increases in interest income.
For both the three months
ended March 31, 2008 and 2007, average interest bearing liabilities
funding average earning assets was 77%. Additionally, while the average rate on
earning assets for the three months ended March 31, 2008, as compared to
2007 has declined by 77 basis points from 7.60% to 6.83%, the cost of interest
bearing liabilities has decreased by 74 basis points from 4.17% to 3.43%,
resulting in a slight decline in the net interest spread of 3 basis points from
3.43% for the three months ended March 31, 2007 to 3.40% for the three
months ended March 31, 2008. The net interest margin decreased 22 basis
points from 4.41% for the three months ended March 31, 2007 to 4.19% for
the three months ended March 31, 2008, a higher decline than the net
interest spread as the benefit of average noninterest sources funding earning
assets declined from 98 basis points for the three months ended March 31,
2007 to 79 basis points for the three months ended March 31, 2008. This
decline was due to the lower level of interest rates in the quarter ended March 31,
2008 as compared to 2007.
Due to the need to meet
loan funding objectives in excess of deposit growth, the bank has relied to a
larger extent on alternative funding sources, such as FHLB Advances and
brokered deposits which costs have contributed to narrowing of the net interest
spread. If significant reliance on alternative funding sources continues, the
Companys earnings could be adversely impacted.
Loans, which generally
have higher yields than securities and other earning assets, increased from 87%
of average earning assets in the first three months of 2007 to 89% of average
earning assets for the same period of 2008.
Investment securities for the first three months of 2008 amounted to 10%
of average earning assets, a decline of 2% from an average of 12% for the same
period in 2007. Federal funds sold averaged 0.7% in the first three months of
2008 versus 0.2% of average earning assets for the same period of 2007.
The provision for credit
losses was $720 thousand for the first three months of 2008 as compared to $303
thousand for the same period in 2007.
The higher provisioning in the first three months of 2008 as compared
to 2007 is primarily attributable to substantial loan growth in the first
quarter of 2008 and in lesser part to changes in the portfolio mix and
increases in nonperforming and problem loans.
In total, the ratio of
net charge-offs to average loans was .01% for the first three months of 2008 as
compared to .26% for the first three months of 2007. The continued management
of a quality loan portfolio remains a key objective of the Company.
16
Total noninterest income
was $940 thousand for the first three months of 2008 as compared to $998
thousand for the same period in 2007, a 6% decrease. This decline was primarily
due to a lower volume and pricing of SBA loan sales activity, which activity is
subject to significant quarterly variances.
Total noninterest
expenses increased from $6.0 million in the first three months of 2007 to $6.2
million for the first three months of 2008, an increase of 3%. The primary reasons
for this increase were increases in staff levels and related personnel costs,
merit increases and benefit costs over the past twelve months and higher
internet and license agreements costs. The efficiency ratio for the three
months ended March 31, 2008 improved to 65.07% as compared to 67.44% for
the same period in 2007.
For the three months
ended March 31, 2008 as compared to 2007, the increase in net interest
income from increased volumes, offset by the combination of a higher provision
for credit losses, lower levels of noninterest income, lower net interest
margin and higher levels of noninterest expenses, resulted in stable net income
during the three month period.
The ratio of average
equity to average assets increased from 9.59% for the first three months of
2007 to 9.67% for the first three months of 2008. As discussed below, the
capital ratios of the Bank and Company remain above well capitalized levels.
Net Interest Income and
Net Interest Margin
Net interest income is
the difference between interest income on earning assets and the cost of funds
supporting those assets. Earning assets are composed primarily of loans and
investment securities. The cost of funds
represents interest expense on deposits, customer repurchase agreements and other
borrowings. Noninterest bearing deposits and capital are other components
representing funding sources (refer to discussion above under Results of
Operations). Changes in the volume and mix of assets and funding sources, along
with the changes in yields earned and rates paid, determine changes in net
interest income. Net interest income for the first three months of 2008 was
$8.6 million compared to $8.0 million for the first three months of 2007, an 8%
increase.
The table below labeled Average
Balances, Interest Yields and Rates and Net Interest Margin presents the
average balances and rates of the various categories of the Companys assets
and liabilities for the three months ended 2008 and 2007. Included in the table is a measurement of
interest rate spread and margin.
Interest spread is the difference (expressed as a percentage) between
the interest rate earned on earning assets less the interest expense on
interest bearing liabilities. While net interest spread provides a quick
comparison of earnings rates versus cost of funds, management believes that
margin provides a better measurement of performance. Margin includes the effect of noninterest
bearing sources in its calculation and is net interest income expressed as a
percentage of average earning assets.
17
Average Balances, Interest
Yields And Rates, And Net Interest Margin
(dollars
in thousands)
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
Average
Balance
|
|
Interest
|
|
Average
Yield/Rate
|
|
Average
Balance
|
|
Interest
|
|
Average
Yield/Rate
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing
deposits with other banks and other short-term investments
|
|
$
|
4,093
|
|
$
|
43
|
|
4.23
|
%
|
$
|
4,377
|
|
$
|
61
|
|
5.65
|
%
|
Loans (1) (2) (3)
|
|
731,501
|
|
12,880
|
|
7.08
|
%
|
636,225
|
|
12,531
|
|
7.99
|
%
|
Investment
securities available for sale (3)
|
|
84,029
|
|
1,052
|
|
5.04
|
%
|
90,115
|
|
1,120
|
|
5.04
|
%
|
Federal funds
sold
|
|
5,840
|
|
39
|
|
2.69
|
%
|
1,812
|
|
24
|
|
5.37
|
%
|
Total interest
earning assets
|
|
825,463
|
|
14,014
|
|
6.83
|
%
|
732,529
|
|
13,736
|
|
7.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
noninterest earning assets
|
|
42,709
|
|
|
|
|
|
45,814
|
|
|
|
|
|
Less: allowance
for credit losses
|
|
8,142
|
|
|
|
|
|
7,463
|
|
|
|
|
|
Total
noninterest earning assets
|
|
34,567
|
|
|
|
|
|
38,351
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
860,030
|
|
|
|
|
|
$
|
770,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing
transaction
|
|
$
|
44,143
|
|
$
|
65
|
|
0.59
|
%
|
$
|
55,344
|
|
$
|
66
|
|
0.48
|
%
|
Savings and
money market
|
|
185,589
|
|
1,067
|
|
2.31
|
%
|
165,606
|
|
1,518
|
|
3.72
|
%
|
Time deposits
|
|
288,965
|
|
3,296
|
|
4.59
|
%
|
263,293
|
|
3,251
|
|
5.01
|
%
|
Customer
repurchase agreements and federal funds purchased
|
|
55,014
|
|
394
|
|
2.88
|
%
|
46,577
|
|
525
|
|
4.57
|
%
|
Other short-term
borrowings
|
|
22,000
|
|
190
|
|
3.47
|
%
|
8,000
|
|
108
|
|
5.48
|
%
|
Long-term
borrowings
|
|
39,670
|
|
402
|
|
4.08
|
%
|
22,000
|
|
299
|
|
5.51
|
%
|
Total interest
bearing liabilities
|
|
635,381
|
|
5,414
|
|
3.43
|
%
|
560,820
|
|
5,767
|
|
4.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
bearing demand
|
|
136,409
|
|
|
|
|
|
132,249
|
|
|
|
|
|
Other
liabilities
|
|
5,040
|
|
|
|
|
|
3,921
|
|
|
|
|
|
Total
noninterest bearing liabilities
|
|
141,449
|
|
|
|
|
|
136,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
equity
|
|
83,200
|
|
|
|
|
|
73,890
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
860,030
|
|
|
|
|
|
$
|
770,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
|
|
$
|
8,600
|
|
|
|
|
|
$
|
7,969
|
|
|
|
Net interest
spread
|
|
|
|
|
|
3.40
|
%
|
|
|
|
|
3.43
|
%
|
Net interest
margin
|
|
|
|
|
|
4.19
|
%
|
|
|
|
|
4.41
|
%
|
(1)
|
Includes Loans held for sale
|
(2)
|
Loans placed on nonaccrual status are included in
average balances. Net loan fees and late charges included in interest income
on loans totaled $297 thousand and $309 thousand for the three
months ended March 31, 2008 and 2007, respectively.
|
(3)
|
Interest and fees on loans and investments exclude
tax equivalent adjustments.
|
18
Provision for Credit
Losses
The provision for credit
losses represents the amount of expense charged to current earnings to fund the
allowance for credit losses. The amount of the allowance for credit losses is
based on many factors which reflect managements assessment of the risk in the
loan portfolio. Those factors include economic conditions and trends, the value
and adequacy of collateral, volume and mix of the portfolio, performance of the
portfolio, and internal loan processes of the Company and Bank.
Management has developed
a comprehensive analytical process to monitor the adequacy of the allowance for
credit losses. This process and guidelines were developed utilizing among other
factors, the guidance from federal banking regulatory agencies. The results of
this process, in combination with conclusions of the Banks outside loan review
consultant, support managements assessment as to the adequacy of the allowance
at the balance sheet date. Please refer to the discussion under the caption Critical
Accounting Policies for an overview of the methodology management employs on a
quarterly basis to assess the adequacy of the allowance and the provisions
charged to expense. Also, refer to the following table which reflects the
comparative charge-offs and recoveries of prior loan charge-offs information.
During the first three
months of 2008, a provision for credit losses was made in the amount of $720
thousand and the allowance for credit losses increased $696 thousand, including
the impact of $24 thousand in net charge-offs during the period. The provision
for credit losses of $720 thousand in the first three months of 2008 compared
to a provision for credit losses of $303 thousand in the first three months of
2007.
The higher
provisioning in the first three months of 2008 as compared to the same period
in 2007 is primarily attributable to loan growth and in lesser part to changes
in the portfolio mix and increases in non-performing and problem loans.
At March 31, 2008,
the Company had $11.7 million of loans classified as nonperforming, as compared
to $5.3 million at December 31, 2007, and $1.6 million at March 31,
2007.
The increase in
non-performing loans at March 31, 2008 as compared to December 31,
2007 relates primarily to two commercial loan relationships which include
commercial real estate loans secured by residential properties which have
experienced cost overruns and/or delays in the development and construction
processes. Management believes that the
Company is adequately reserved for these non-performing real estate secured
loans. The Company had no restructured loans at March 31, 2008, December 31,
2007 or March 31, 2007. Significant variation in these amounts may occur
from period to period because the amount of nonperforming loans depends largely
on the condition of a small number of individual credits and borrowers relative
to the total loan portfolio. The Company had no Other Real Estate Owned (OREO)
at March 31, 2008, December 31, 2007 or March 31, 2007. The
balance of impaired loans was $11.7 million with specific reserves against those
loans of $580 thousand at March 31, 2008, compared to $1.9 million of
impaired loans at December 31, 2007 with specific reserves of $678
thousand and $1.6 million of impaired loans at March 31, 2007 with
specific reserves of $428 thousand. The allowance for loan losses represented
1.15% of total loans at March 31, 2008 as compared to 1.12% at December 31,
2007, and 1.14% at March 31, 2007.
As part of its
comprehensive loan review process, the Companys Board of Directors and the
Bank Directors Loan Committee and or Board of Directors Credit Review
Committees carefully evaluate loans which are past-due 30 days or more. The Committee(s) make a thorough
assessment of the conditions and circumstances surrounding each delinquent
loan. The Banks loan policy requires that loans be placed on nonaccrual if
they are ninety days past-due, unless they are well secured and in the process
of collection.
The maintenance of a high
quality loan portfolio, with an adequate allowance for possible loan losses,
will continue to be a primary management objective for the Company.
19
The following
table sets forth activity in the allowance for credit losses for the periods
indicated.
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(dollars in thousands)
|
|
2008
|
|
2007
|
|
Balance at
beginning of year
|
|
$
|
8,037
|
|
$
|
7,373
|
|
Charge-offs:
|
|
|
|
|
|
Commercial
|
|
|
|
396
|
|
Real estate
commercial
|
|
|
|
|
|
Construction
|
|
|
|
|
|
Home equity
|
|
|
|
|
|
Other consumer
|
|
24
|
|
24
|
|
Total
charge-offs
|
|
24
|
|
420
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
Commercial
|
|
|
|
7
|
|
Real estate
commercial
|
|
|
|
|
|
Construction
|
|
|
|
|
|
Home equity
|
|
|
|
|
|
Other consumer
|
|
|
|
|
|
Total recoveries
|
|
|
|
7
|
|
Net charge-offs
|
|
(24
|
)
|
(413
|
)
|
|
|
|
|
|
|
Additions
charged to operations
|
|
720
|
|
303
|
|
Balance at end
of period
|
|
$
|
8,733
|
|
$
|
7,263
|
|
|
|
|
|
|
|
Annualized ratio
of net charge-offs during the period to average loans outstanding during the
period
|
|
0.01
|
%
|
0.26
|
%
|
The following
table reflects the allocation of the allowance for credit losses at the dates
indicated. The allocation of the
allowance to each category is not necessarily indicative of future losses or
charge-offs and does not restrict the use of the allowance to absorb losses in
any category.
|
|
As of March 31,
|
|
As of December 31,
|
|
|
|
2008
|
|
2007
|
|
(dollars in thousands)
|
|
Amount
|
|
% (1)
|
|
Amount
|
|
% (1)
|
|
Commercial
|
|
$
|
3,500
|
|
20
|
%
|
$
|
3,300
|
|
21
|
%
|
Real estate
commercial
|
|
3,089
|
|
51
|
%
|
3,053
|
|
55
|
%
|
Real estate
residential
|
|
23
|
|
0
|
%
|
21
|
|
0
|
%
|
Construction -
commercial and residential
|
|
1,736
|
|
20
|
%
|
1,314
|
|
15
|
%
|
Home equity
|
|
234
|
|
8
|
%
|
233
|
|
8
|
%
|
Other consumer
|
|
151
|
|
1
|
%
|
116
|
|
1
|
%
|
Unallocated
|
|
|
|
0
|
%
|
|
|
0
|
%
|
Total loans
|
|
$
|
8,733
|
|
100
|
%
|
$
|
8,037
|
|
100
|
%
|
(1) Represents the percent of loans in each
category to total loans.
|
20
Nonperforming Assets
The Companys
nonperforming assets, which are comprised of loans delinquent 90 days or more,
non-accrual loans, restructured loans and other real estate owned, totaled
$11.7 million at March 31, 2008 compared to $1.6 million at March 31,
2007. The percentage of nonperforming loans to total loans was 1.54% at March 31,
2008 compared to 0.74% at December 31, 2007 and 0.25% at March 31,
2007.
The increase in
non-performing loans at March 31, 2008 as compared to December 31,
2007 relates primarily to two commercial loan relationships which include
commercial real estate loans secured by residential properties which have
experienced cost overruns and/or delays in the development and construction
processes. Management believes that the
Company is adequately reserved for these non-performing real estate secured
loans.
The following
table shows the amounts of nonperforming assets at the dates indicated.
|
|
March 31,
|
|
December 31,
|
|
(dollars in thousands)
|
|
2008
|
|
2007
|
|
2007
|
|
Nonaccrual Loans
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,314
|
|
$
|
1,601
|
|
$
|
1,174
|
|
Other consumer
|
|
|
|
|
|
|
|
Home equity
|
|
123
|
|
|
|
123
|
|
Construction -
commercial and residential
|
|
9,645
|
|
|
|
3,386
|
|
Real estate -
commercial
|
|
629
|
|
|
|
641
|
|
Accrual
loans-past due 90 days
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
Other Consumer
|
|
|
|
|
|
|
|
Real estate -
commercial
|
|
|
|
|
|
|
|
Restructured
loans
|
|
|
|
|
|
|
|
Real estate
owned
|
|
|
|
|
|
|
|
Total
non-performing assets
|
|
$
|
11,711
|
|
$
|
1,601
|
|
$
|
5,324
|
|
At March 31, 2008,
there were an additional $237 thousand of performing loans considered potential
problem loans, defined as loans which are not included in the past-due,
nonaccrual or restructured categories, but for which known information about
possible credit problems causes management to be uncertain as to the ability of
the borrowers to comply with the present loan repayment terms which may in the
future result in disclosures in the past- due, nonaccrual or restructured loan
categories.
Noninterest Income
Total noninterest income
includes service charges on deposits, gain on sale of loans, gain on investment
securities, income from bank owned life insurance (BOLI) and other income.
Total noninterest income
for the three months ended March 31, 2008 was $940 thousand compared to $998
thousand for the same three month period in 2007, a 6% decrease. This decline
was due primarily to a lower volume of SBA loan sales activity, which activity
is subject to significant quarterly variances.
For the three months
ended March 31, 2008 service charges on deposit accounts increased to $429
thousand from $349 thousand for the same three month period ended March 31,
2007, an increase of 23%. The increase in service charges on deposit accounts
for the three month period was primarily related to new relationships and to
the effect of lower market interest rate credits on analyzed accounts.
Gain on sale of loans
consists of SBA and residential mortgage loans. For the three months ended March 31,
2008 gain on sale of loans decreased from $237 thousand to $127 thousand
compared to the same three month period in 2007 or a decrease of 46%. For the
three months ended March 31, 2008 the gain on sale of SBA loans
21
decreased to $37 thousand compared to $148 thousand for the same three
month period in 2007. Activity in SBA loan sales to secondary markets can vary
widely from quarter to quarter. EagleBank has been recognized as the leading
community bank SBA lender in its marketplace. The Company originates
residential mortgage loans on a pre-sold basis, servicing released. Sales of
these residential mortgage loans yielded gains of $90 thousand in the first
three months of 2008 compared to $89 thousand in the same three month period in
2007. The Company continues its efforts to expand residential mortgage lending
and associated sale of these assets on a servicing released basis. Loans sold
are subject to repurchase in circumstances where documentation is not accurate
or the underlying loan becomes delinquent within a specified period following
sale and loan funding. The Bank considers these potential recourse provisions
to be minimal and to date have experienced no repurchases.
Other income totaled $258
thousand, for the first three months of 2008 as compared to $298 thousand for
the same three month period in 2007, a decrease of 13%. The major components of
income in this category consist of SBA service fees, noninterest loan fees and
other noninterest fee income. Noninterest loan fees increased to $155 thousand
for the three months ended March 31, 2008 from $146 thousand for the same
three month period in 2007, an increase of 6%. Other noninterest fee income was
$53 thousand for the three months ended March 31, 2008 compared to $94
thousand for the same three month period in 2007, a 43% decrease due primarily
to declines in fees on settlement services.
Income from BOLI totaled
$116 thousand for the first three months of 2008 as compared to $107 thousand
for the same three month period in 2007.
For the three months
ended March 31, 2008 and 2007, investment gains amounted to $10 and $7
thousand, respectively. Sales in 2008
were made to mitigate call risk on certain US Agency securities.
Noninterest Expense
Noninterest expense
consists of salaries and employee benefits, premises and equipment expenses,
marketing and advertising, outside data processing, legal, accounting and
professional fees and other expenses.
Total noninterest expense
was $6.2 million for the three months ended March 31, 2008 compared to
$6.0 million for the three months ended March 31, 2007, an increase of 3%.
Salaries and employee
benefits were $3.6 million for the first three months of 2008, as compared to
$3.4 million for the same three month period in 2007, a 9% increase. This increase
was due to staff additions and related personnel costs, merit increases,
incentive based compensation and increased benefit costs. At March 31,
2008, the Companys staff numbered 174, as compared to 168 at March 31,
2007.
Premises and equipment
expenses amounted to $1.1 million for the three months ended March 31,
2008 versus $1.2 million for the same three month period in 2007. This decrease
of 11% was due primarily to the sublease of certain facilities in the second
quarter of 2007 and a $69 thousand reduction in the expense associated with
equipment repairs and maintenance. For the three months ended March 31,
2008 the Company recognized $72 thousand of sublease revenue as compared to
$-0- for the same three month period in 2007. The increase in sublease revenue
and cost savings reduction in repairs and maintenance more than offset the
minimal increase in other ongoing operating expenses associated with the
Companys facilities, all of which are leased.
Marketing and advertising
costs decreased from $91 thousand for the three months ended March 31,
2007 to $81 thousand for the same three month period in 2008, a decrease of
11%. This decline was due primarily to
shifting certain design work in-house, the absence of time deposit advertising,
and a significant reduction in sponsorships.
Legal, accounting and
professional fees were $170 thousand for the three months ended March 31,
2008, as compared to $144 thousand for the same three month period in 2007, an
18% increase. This increase is primarily due to increased efforts on collection
of nonperforming assets. The costs related to the pending acquisition of
Fidelity & Trust, which will be capitalized as of the consummation of
the transaction, are not included in these expense totals.
22
Other expenses, decreased
to $1.2 million in the three months ended March 31, 2008 from $1.3 million
for the same three month period in 2007, or a decrease of 1%. The major
components of costs in this category include internet license agreements,
outside data processing, insurance expenses, ATM expenses, broker fees,
telephone, courier, correspondent bank fees, office supplies and printing,
record management and storage costs, director fees and FDIC insurance premiums. For the three months ended March 31,
2008, as compared to the same three month period in 2007, the significant
decreases in this category were primarily outside data processing, courier
fees, postage and training and seminar costs.
Income Tax Expense
The
Companys ratio of income tax expense to pre-tax income (termed effective tax
rate) increased to 36.8% for the three months ended March 31, 2008 as
compared to 35.7% for the same three month period in 2007. This increase was
due primarily to lower amounts of U.S. government agency income in the three
months ended March 31, 2008 as compared to the same three month period in
2007, which is non-taxable for state tax purposes, a higher state corporate
income tax rate and to lower amounts of share based compensation in 2008 as
compared to 2007 which is partially non-deductible for financial accounting
purposes.
FINANCIAL CONDITION
Summary
At March 31, 2008,
assets were $899.5 million, loans were $759.5 million, deposits were $685.7
million, customer repurchase agreements and other borrowings were $123.7
million and stockholders equity was $83.5 million. As compared to December 31,
2007, assets grew by $53.1 million (6.3%), loans by $42.9 million (6.0%),
deposits increased by $54.8 million (8.7%), customer repurchase agreements and
other borrowings decreased by $4.7 million (3.6%) and stockholders equity grew
by $2.4 million (2.9%).
The Company paid a
dividend of $0.06 per share for the first quarter of 2008 and 2007.
Loans
Loans, net of amortized
deferred fees and costs, at March 31, 2008, December 31, 2007 and March 31,
2007 by major category are summarized below:
|
|
As of March 31,
|
|
As of December 31,
|
|
As of March 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
(dollars in thousands)
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Commercial
|
|
$
|
154,761
|
|
20
|
%
|
$
|
149,332
|
|
21
|
%
|
$
|
135,181
|
|
21
|
%
|
Real estate
mortgage commercial (1)
|
|
385,119
|
|
51
|
%
|
392,757
|
|
55
|
%
|
353,109
|
|
55
|
%
|
Real estate
mortgage residential
|
|
2,026
|
|
0
|
%
|
2,160
|
|
0
|
%
|
1,509
|
|
0
|
%
|
Construction -
commercial and residential (1)
|
|
153,675
|
|
20
|
%
|
110,115
|
|
15
|
%
|
94,439
|
|
15
|
%
|
Home equity
|
|
57,793
|
|
8
|
%
|
57,515
|
|
8
|
%
|
48,935
|
|
8
|
%
|
Other consumer
|
|
6,173
|
|
1
|
%
|
4,798
|
|
1
|
%
|
4,183
|
|
1
|
%
|
Total loans
|
|
759,547
|
|
100
|
%
|
$
|
716,677
|
|
100
|
%
|
637,356
|
|
100
|
%
|
Less: Allowance
for Credit Losses
|
|
(8,733
|
)
|
|
|
(8,037
|
)
|
|
|
(7,263
|
)
|
|
|
Net Loans and
Leases
|
|
$
|
750,814
|
|
|
|
$
|
708,640
|
|
|
|
$
|
630,093
|
|
|
|
(1) Includes loans from
land acquisition and development.
23
Deposits and Other
Borrowings
The principal sources of
funds for the Bank are core deposits, consisting of demand deposits, NOW
accounts, money market accounts, savings accounts and certificates of deposits
from the local market areas surrounding the Banks offices. The deposit base
includes transaction accounts, time and savings accounts and accounts which
customers use for cash management and which provide the Bank with a source of
fee income and cross-marketing opportunities, as well as an attractive source
of lower cost funds.
For the three months
ending March 31, 2008, noninterest bearing deposits increased $1.0 million
as compared to December 31, 2007, while interest bearing deposits
increased by $53.8 million during the same three month period, primarily due to
growth in certificates of deposits.
Approximately 44% of the
Banks deposits at March 31, 2008 are made up of time deposits, which are
generally the most expensive form of deposit because of their fixed rate and
term. Certificates of deposit in denominations of $100 thousand or more can be
more volatile and more expensive than certificates of less than $100 thousand.
However, because the Bank focuses on relationship banking, and given the
demographics of the Companys marketplace, its historical experience has been
that large certificates of deposit have not been more volatile or significantly
more expensive than smaller denomination certificates. It has been the practice
of the Bank to pay posted rates on its certificates of deposit whether under or
over $100 thousand, although some exceptions have been made for large deposit
transactions. When appropriate in order to fund strong loan demand, the Bank
accepts certificates of deposits, generally in denominations of less than $100
thousand from bank and credit union subscribers to a wholesale deposit rate
line and to brokered deposits obtained from qualified investment firms. These
deposits amounted to approximately $38.5 million or 6% of total deposits at March 31,
2008, as compared to approximately $10.2 million or 2% of total deposits at December 31,
2007. The Bank has found rates on these
deposits to be generally competitive with rates in our market given the speed
and minimal noninterest cost at which these deposits can be acquired.
At March 31, 2008,
the Company had approximately $143.5 million in noninterest bearing demand
deposits, representing 21% of total deposits. This compared to approximately
$142.5 million of these deposits at December 31, 2007. These deposits are
primarily business checking accounts on which the payment of interest is
prohibited by regulations of the Federal Reserve. Proposed legislation has been
introduced in each of the last several sessions of Congress which would permit
banks to pay interest on checking and demand deposit accounts established by
businesses. If legislation effectively permitting the payment of interest on
business demand deposits is enacted, of which there can be no assurance, it is
likely that we may be required to pay interest on some portion of our
noninterest bearing deposits in order to compete with other banks. Payment of
interest on these deposits could have a significant negative impact on our net
interest income and net interest margin, net income, and the return on assets
and equity.
As an enhancement to the
basic noninterest bearing demand deposit account, the Company offers a sweep
account, or customer repurchase agreement, allowing qualifying businesses to
earn interest on short term excess funds which are not suited for either a CD
investment or a money market account. The balances in these accounts were $61.7
million at March 31, 2008 compared to $52.9 million at December 31,
2007. Customer repurchase agreements are not deposits and are not insured but
are collateralized by U.S. government agency securities. These accounts are particularly suitable to
businesses with significant fluctuation in the levels of cash flows. Attorney
and title company escrow accounts are an example of accounts which can benefit
from this product, as are customers who may require collateral for deposits in
excess of $100 thousand but do not qualify for other pledging arrangements.
This program requires the Company to maintain a sufficient investment
securities level to accommodate the fluctuations in balances which may occur in
these accounts.
At March 31, 2008,
the Company had no outstanding balances under its lines of credit provided by
correspondent banks, as compared to $23.5 million at December 31, 2007.
The Bank had $62.0 million of FHLB borrowings outstanding at March 31,
2008 and $52.0 million outstanding at December 31, 2007. These advances
are secured by a blanket lien on qualifying loans in the Banks commercial
mortgage and home equity loan portfolios.
24
Liquidity Management
Liquidity is a measure of
the Banks ability to meet loan demand and to satisfy depositor withdrawal
requirements in an orderly manner. The Banks primary sources of liquidity
consist of cash and cash balances due from correspondent banks, loan
repayments, federal funds sold and other short-term investments, maturities and
sales of investment securities and income from operations. The Banks entire investment securities
portfolio is in an available-for-sale status which allows it flexibility to
generate cash from sales as needed to meet ongoing loan demand. These sources of liquidity are primary and
are supplemented by the ability of the Company and Bank to borrow funds, which
are termed secondary sources. The Company maintains secondary sources of
liquidity, which includes a $15 million line of credit with a correspondent
bank, secured by the stock of the Bank, against which there were no amounts
outstanding at March 31, 2008. Additionally, the Bank can purchase up to
$76.5 million in federal funds on an unsecured basis and $5.5 million on a
secured basis from its correspondents, against which there were no borrowings
outstanding at March 31, 2008. At March 31, 2008, the Bank was also
eligible to take advances from the FHLB up to $98.5 million based on collateral
at the FHLB, of which it had $62.0 million of advances outstanding. Also, the
Bank may enter into repurchase agreements as well as obtaining additional
borrowing capabilities from the FHLB provided adequate collateral exists to
secure these lending relationships.
The loss of deposits,
through disintermediation, is one of the greater risks to liquidity.
Disintermediation occurs most commonly when rates rise and depositors withdraw
deposits seeking higher rates in alternative savings and investment sources
than banks may offer. The Bank was
founded under a philosophy of relationship banking and, therefore, believes
that it has less of an exposure to disintermediation and resultant liquidity
concerns than do many banks. There is, however, a risk that some deposits would
be lost if rates were to increase and the Bank elected not to remain
competitive with its deposit rates. Under those conditions, the Bank believes
that it is well positioned to use other sources of funds such as FHLB
borrowings, customer repurchase agreements and Bank lines of credit to offset a
decline in deposits in the short run. Over the long-term, an adjustment in
assets and change in business emphasis could compensate for a potential loss of
deposits. The Bank also maintains a marketable investment portfolio to provide
flexibility in the event of significant liquidity needs. The Bank Boards Asset
Liability Committee has adopted policy guidelines which emphasize the
importance of core deposits and their continued growth.
At March 31, 2008,
under the Banks liquidity formula, it had $224.0 million of primary and
secondary liquidity sources, which was deemed adequate to meet current and
projected funding needs.
Commitments and
Contractual Obligations
The following is a
schedule of significant funding commitments at March 31, 2008:
|
|
(in thousands)
|
|
Unused lines of
credit (consumer)
|
|
$
|
52,611
|
|
Other
commitments to extend credit
|
|
222,795
|
|
Standby letters
of credit
|
|
9,203
|
|
Total
|
|
$
|
284,609
|
|
Asset/Liability
Management and Quantitative and Qualitative Disclosure about Market Risk
A fundamental risk in
banking is exposure to market risk, or interest rate risk, since a banks net
income is largely dependent on net interest income. The Banks Asset Liability
Committee (ALCO) of the Board of Directors formulates and monitors the
management of interest rate risk through policies and guidelines established by
it and the full Board of Directors. In its consideration of risk limits, the
ALCO considers the impact on earnings and capital, the level and direction of
interest rates, liquidity, local economic conditions, outside threats and other
factors. Banking is generally a business of managing the maturity and
re-pricing mismatch inherent in its asset and liability cash flows and to
provide net interest income growth consistent with the Companys profit
objectives.
25
The Company, through its
ALCO, monitors the interest rate environment in which it operates and adjusts
the rates and maturities of its assets and liabilities to remain competitive
and to achieve its overall financial objectives subject to established risk
limits. In the current interest rate environment, the Company has been
extending the duration of its investment portfolios and acquiring more variable
and short-term liabilities, so as to mitigate the risk to earnings and capital
should interest rates decline from current levels. There can be no assurance
that the Company will be able to successfully achieve its optimal asset
liability mix, as a result of competitive pressures, customer preferences and
the inability to perfectly forecast future interest rates.
One of the tools used by
the Company to manage its interest rate risk is a static GAP analysis presented
below. The Company also uses an earnings simulation model (simulation analysis)
on a quarterly basis to monitor its interest rate sensitivity and risk and to
model its balance sheet cash flows and its income statement effects in
different interest rate scenarios. The model utilizes current balance sheet
data and attributes and is adjusted for assumptions as to investment maturities
(calls), loan prepayments, interest rates, the level of noninterest income and
noninterest expense. The data is then subjected to a shock test which assumes
a simultaneous change in interest rate up 100 and 200 basis points or down 100
and 200 basis points, along the entire yield curve, but not below zero. The
results are analyzed as to the impact on net interest income, and net income
over the next twelve and twenty four month periods and to the market value of
equity impact.
For the analysis
presented below, at March 31, 2008, the bank modified an assumption for
the re-pricing of money market deposit accounts to reflect a change of 50 basis
points in money market interest rates for each 100 basis points in market
interest rates in both a decreasing and increasing interest rate shock
scenario. This assumption change was based on the banks demand for funds and
its recent experience with market interest rates. Analysis prior to September 30,
2007 assumed that money market rates were changed 100 basis points for each 100
basis points movement in general interest rates.
As quantified in the
table below, the Companys analysis at March 31, 2008 shows a moderate
effect on net interest income, net income and the economic value of equity when
interest rates are shocked down 100 and 200 basis points and up 100 and 200
basis points, due to the significant level of variable rate and repriceable
assets and liabilities. The re-pricing duration of the investment portfolio is
about 2.5 years, the loan portfolio about 1.2 years; the interest bearing
deposit portfolio about 1.6 years and the borrowed funds portfolio about 1.0
years.
The following table
reflects the result of a shock simulation on the March 31, 2008 balances.
Change in interest
rates (basis points)
|
|
Percentage change in net
interest income
|
|
Percentage change in
net income
|
|
Percentage change in
Market Value of
Portfolio Equity
|
|
+200
|
|
-3.7
|
%
|
-9.4
|
%
|
-8.8
|
%
|
+100
|
|
-2.1
|
%
|
-5.2
|
%
|
-3.3
|
%
|
0
|
|
|
|
|
|
|
|
-100
|
|
+0.1
|
%
|
+0.1
|
%
|
-2.4
|
%
|
-200
|
|
-5.1
|
%
|
-12.8
|
%
|
-5.8
|
%
|
Certain shortcomings are
inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
repricing periods, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable-rate mortgage loans, have
features that limit changes in interest rates on a short-term basis and over
the life of the loan. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels could deviate significantly from those
assumed in calculating the tables. Finally, the ability of many borrowers to
service their debt may decrease in the event of a significant interest rate
increase.
Market interest rates
have declined significantly for the first quarter of 2008, which tends to
create floors (given a shock of
-200 basis points) on various deposit interest rate products, as interest rates
cannot be reduced
26
below zero. This lower level of market interest rates at March 31,
2008 as compared to December 31, 2007 has resulted in an increase in net
interest income and net income earnings at risk in a declining interest rate
scenario.
The results of simulation
at March 31, 2008 are within the policy limits adopted by the Company. For
net interest income, the Company has adopted a policy risk limit of 15%
negative change for a 100 basis point change in market interest rate shock and
a policy risk limit of 20% negative change for a 200 basis point change in
market interest rate shock. For the
market value of equity, the Company has adopted a policy risk limit of 20%
negative change for a 100 basis point change in market interest rates shock and
a policy risk limit of 25% negative change for a 200 basis point change in
market interest rates shock.
Gap Position
Banks and other financial
institutions earnings are significantly dependent upon net interest income,
which is the difference between interest earned on earning assets and interest
expense on interest bearing liabilities.
In falling interest rate
environments, net interest income is maximized with longer term, higher
yielding assets being funded by lower yielding short-term funds, or what is
referred to as a negative mismatch or GAP. Conversely, in a rising interest
rate environment, net interest income is maximized with shorter term, higher
yielding assets being funded by longer-term liabilities or what is referred to
as a positive mismatch or GAP.
Based on the current
economic environment, management has generally been endeavoring to extend the
duration of assets, to acquire more fixed and renegotiable rate loans, and has
been emphasizing the acquisition of shorter-term time deposits. The Company has also been acquiring lower
cost FHLB callable advances to better manage the net interest margin. This
strategy has mitigated the Companys exposure to lower interest rates as
measured at March 31, 2008. While management believes that this overall
position creates a reasonable balance in managing its interest rate risk and
maximizing its net interest margin within plan objectives, there can be no
assurance as to actual results.
The GAP position, which
is a measure of the difference in maturity and re-pricing volume between assets
and liabilities, is a means of monitoring the sensitivity of a financial
institution to changes in interest rates. The chart below provides an
indication of the sensitivity of the Company to changes in interest rates. A
negative GAP indicates the degree to which the volume of repriceable
liabilities exceeds repriceable assets in given time periods. At March 31,
2008, the Company had a positive cumulative GAP position of approximately 9% of
total assets out to three months and a negative cumulative GAP position of
about 1% out to 12 months, as compared to a three month positive GAP of 2% and
a negative cumulative GAP out to 12 months of 6% at December 31, 2007 The change in the GAP position at March 31,
2008 as compared to December 31, 2007 relates primarily to a change in the
mix of loans toward more construction loans, whose interest rates generally are
variable rate. The current position is within guideline limits established by
ALCO.
If interest rates
decline, the Companys net interest income and margin are expected to contract
slightly because of the significantly lower market rates at March 31, 2008
as compared to December 31, 2007 and the inability to significantly lower
deposit interest rates. Because
competitive market behavior does not necessarily track the trend of interest
rates but at times moves ahead of financial market influences, the change in
the cost of liabilities may be different than anticipated by the GAP model. If
this were to occur, the effects of a declining interest rate environment may
not be in accordance with managements expectations. If interest rates move
significantly up or down, the Companys interest rate sensitivity position at March 31,
2008 shows risk exposures within established policy limits established by ALCO.
Management has carefully considered its strategy to maximize interest income by
reviewing interest rate levels, economic indicators and call features within
its investment portfolio. These factors have been discussed with the ALCO and
management believes that current strategies are appropriate to current economic
and interest rate trends.
27
GAP Analysis
March 31, 2008
(dollars in thousand)
Repriceable in:
|
|
0-3 mos
|
|
4-12 mos
|
|
13-36 mos
|
|
37-60 mos
|
|
over 60 mos
|
|
Total Rate
Sensitive
|
|
Non-sensitive
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATE SENSITIVE
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
securities
|
|
$
|
9,583
|
|
$
|
13,776
|
|
$
|
43,023
|
|
$
|
5,503
|
|
$
|
11,047
|
|
$
|
82,932
|
|
|
|
|
|
Loans (1)(2)
|
|
336,797
|
|
118,030
|
|
175,314
|
|
92,873
|
|
38,478
|
|
761,492
|
|
|
|
|
|
Fed funds and
other short-term investments
|
|
18,243
|
|
|
|
|
|
|
|
|
|
18,243
|
|
|
|
|
|
Other earning
assets
|
|
|
|
12,100
|
|
|
|
|
|
|
|
12,100
|
|
|
|
|
|
Total
|
|
$
|
364,623
|
|
$
|
143,906
|
|
$
|
218,337
|
|
$
|
98,376
|
|
$
|
49,525
|
|
$
|
874,767
|
|
$
|
24,700
|
|
$
|
899,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATE SENSITIVE
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
bearing demand
|
|
$
|
4,287
|
|
$
|
13,629
|
|
$
|
36,344
|
|
$
|
36,343
|
|
$
|
52,905
|
|
$
|
143,508
|
|
|
|
|
|
Interest bearing
transaction
|
|
23,917
|
|
|
|
9,562
|
|
9,562
|
|
4,781
|
|
47,822
|
|
|
|
|
|
Savings and money
market
|
|
96,673
|
|
|
|
38,670
|
|
38,670
|
|
19,335
|
|
193,348
|
|
|
|
|
|
Time deposits
|
|
69,910
|
|
220,478
|
|
7,037
|
|
3,012
|
|
625
|
|
301,062
|
|
|
|
|
|
Customer
repurchase agreements
|
|
61,727
|
|
|
|
|
|
|
|
|
|
61,727
|
|
|
|
|
|
Other borrowings
|
|
22,000
|
|
|
|
20,000
|
|
20,000
|
|
|
|
62,000
|
|
|
|
|
|
Total
|
|
$
|
278,514
|
|
$
|
234,107
|
|
$
|
111,613
|
|
$
|
107,587
|
|
$
|
77,646
|
|
$
|
809,467
|
|
$
|
6,463
|
|
$
|
815,930
|
|
GAP
|
|
$
|
86,109
|
|
$
|
(90,201
|
)
|
$
|
106,724
|
|
$
|
(9,211
|
)
|
$
|
(28,121
|
)
|
$
|
65,300
|
|
|
|
|
|
Cumulative GAP
|
|
$
|
86,109
|
|
$
|
(4,092
|
)
|
$
|
102,632
|
|
$
|
93,421
|
|
$
|
65,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative gap as
percent of total assets
|
|
9.57
|
%
|
(0.45
|
)%
|
11.41
|
%
|
10.39
|
%
|
7.26
|
%
|
|
|
|
|
|
|
(1) Includes loans
held for sale
(2) Non-accrual
loans are included in the over 60 months category
Although NOW and MMA
accounts are subject to immediate repricing, the Banks GAP model has
incorporated a repricing schedule to account for a lag in rate changes based on
our experience, as measured by the amount of those deposit rate changes
relative to the amount of rate change in assets.
Capital Resources and
Adequacy
The assessment of capital
adequacy depends on a number of factors such as asset quality, liquidity,
earnings performance, changing competitive conditions and economic forces, and
the overall level of growth. The adequacy of the Companys current and future
capital needs is monitored by management on an ongoing basis. Management seeks
to maintain a capital structure that will assure an adequate level of capital
to support anticipated asset growth and to absorb potential losses.
The capital position of
both the Company and the Bank continues to exceed regulatory requirements to be
considered well-capitalized. The primary indicators used by bank regulators in
measuring the capital position are the tier 1 risk-based capital ratio, the
total risk-based capital ratio, and the tier 1 leverage ratio. Tier 1 capital
consists of common and qualifying preferred stockholders equity less
intangibles. Total risk-based capital consists of tier 1 capital, qualifying
subordinated debt, and a portion of the allowance for credit losses. Risk-based
capital ratios are calculated with reference to risk-weighted assets. The tier
1 leverage ratio measures the ratio of tier 1 capital to total average assets
for the most recent three month period.
The ability of the
Company to continue to grow is dependent on its earnings and the ability to
obtain additional funds for contribution to the Banks capital, through
additional borrowing, the sale of additional common stock, the sale of
preferred stock, or through the issuance of additional qualifying equity
equivalents, such as subordinated debt or trust preferred securities.
28
The federal banking
regulators have issued guidance for those institutions which are deemed to have
concentrations in commercial real estate lending. Pursuant to the supervisory criteria
contained in the guidance for identifying institutions with a potential
commercial real estate concentration risk, institutions which have (1) total
reported loans for construction, land development, and other land acquisitions
which represent in total 100% or more of an institutions total risk-based
capital; or (2) total commercial real estate loans representing 300% or
more of the institutions total risk-based capital and the institutions
commercial real estate loan portfolio has increased 50% or more during the
prior 36 months are identified as having potential commercial real estate
concentration risk. Institutions which
are deemed to have concentrations in commercial real estate lending are
expected to employ heightened levels of risk management with respect to their
commercial real estate portfolios, and may be required to hold higher levels of
capital. The Company, like many
community banks, has a concentration in commercial real estate loans. Management has extensive experience in commercial
real estate lending, and has implemented and continues to maintain heightened
portfolio monitoring and reporting, and strong underwriting criteria with
respect to its commercial real estate portfolio. The Company is well capitalized. Nevertheless, it is possible that we may be
required to maintain higher levels of capital as a result of our commercial
real estate concentration, which could require us to obtain additional capital,
and may adversely affect shareholder returns.
Capital
The actual capital amounts and ratios for the Company
and Bank as of March 31, 2008 and March 31, 2007 are presented in the
table below:
|
|
|
|
|
|
|
|
|
|
For Capital
|
|
To Be Well
|
|
|
|
Company
|
|
Bank
|
|
Adequacy
|
|
Capitalized Under
|
|
|
|
Actual
|
|
|
|
Actual
|
|
|
|
Purposes
|
|
Prompt Corrective Action
|
|
(dollars in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Ratio
|
|
Provision Ratio *
|
|
As of
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to
risk-weighted assets
|
|
$
|
90,880
|
|
10.95
|
%
|
$
|
86,437
|
|
10.48
|
%
|
8.0
|
%
|
10.0
|
%
|
Tier 1 capital
to risk-weighted assets
|
|
82,147
|
|
9.90
|
%
|
77,734
|
|
9.42
|
%
|
4.0
|
%
|
6.0
|
%
|
Tier 1 capital
to average assets (leverage)
|
|
82,147
|
|
9.55
|
%
|
77,734
|
|
9.11
|
%
|
3.0
|
%
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to
risk-weighted assets
|
|
$
|
81,912
|
|
12.00
|
%
|
$
|
73,830
|
|
11.00
|
%
|
8.0
|
%
|
10.0
|
%
|
Tier 1 to
risk-weighted assets
|
|
74,949
|
|
11.00
|
%
|
66,599
|
|
9.90
|
%
|
4.0
|
%
|
6.0
|
%
|
Tier 1 capital
to average assets (leverage)
|
|
74,949
|
|
9.70
|
%
|
66,599
|
|
8.70
|
%
|
3.0
|
%
|
5.0
|
%
|
* Applies to Bank only
Bank and holding company regulations, as well as
Maryland law, impose certain restrictions on dividend payments by the Bank, as
well as restricting extension of credit and transfers of assets between the
Bank and the Company. At March 31,
2008, the Bank could pay dividends to the parent to the extent of its earnings
so long as it maintained required capital ratios.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Please refer to Item 2 of this report, Managements
Discussion and Analysis of Financial Condition and Results of Operations,
under the caption Asset/Liability Management and Quantitative and Qualitative
Disclosure about Market Risk.
29
Item 4. Controls and
Procedures
The
Companys
management,
under
the
supervision
and
with
the
participation
of
the
Companys
Chief
Executive
Officer
and
Chief
Financial
Officer,
evaluated
as
of
the
last
day
of
the
period
covered
by
this
report
the
effectiveness
of
the
operation
of
the
Companys
disclosure
controls
and
procedures,
as
defined
in
Rule
13a-14
under
the
Securities
and
Exchange
Act
of
1934.
Based
on
that
evaluation,
the
Chief
Executive
Officer
and
Chief
Financial
Officer
concluded
that
the
Companys
disclosure
controls
and
procedures
were
effective.
There
were
no
changes
in
the
Companys
internal
controls
over
financial
reporting
(as
defined
in
Rule
13a-15
under
the
Securities
Act
of
1934)
during
the
quarter
ended
March
31,
2008
that
have
materially
affected,
or
are
reasonably
likely
to
materially
affect
the
Companys
internal
control
over
financial
reporting.
PART II
- OTHER INFORMATION
Item 1 - Legal
Proceedings
From time to time the Company may become involved in
legal proceedings. At the present time there are no proceedings which the
Company believes will have an adverse impact on the financial condition or
earnings of the Company.
Item 1A - Risk Factors
There have been no material changes as of March 31,
2008 in the risk factors from those disclosed in the Companys Annual Report on
Form 10-K for the year ended December 31, 2007.
Item 2 - Unregistered
Sales of Equity Securities and Use of Proceeds
(a)
Sales of Unregistered
Securities.
|
None
|
|
|
(b)
Use of Proceeds.
|
Not
Applicable
|
|
|
(c)
Issuer Purchases of
Securities.
|
None
|
|
|
Item 3 - Defaults Upon
Senior Securities
|
None
|
|
|
Item 4 - Submission of
Matters to a Vote of Security Holders
|
None
|
|
|
Item 5 - Other
Information
|
None
|
|
|
(a) Required 8-K Disclosures
|
None
|
|
|
(b)
Changes in Procedures for Director Nominations
|
None
|
Item 6 - Exhibits
Exhibit No.
|
|
Description of Exhibit
|
2.1
|
|
Agreement
and
Plan
of
Merger,
dated
as
of
December
2,
2007
by
and
among
Eagle
Bancorp,
Inc.,
Woodmont
Holdings,
Inc.,
Fidelity
&
Trust
Financial
Corporation
and
Fidelity
&
Trust
Bank
(1)
|
3.1
|
|
Certificate of
Incorporation of the Company, as amended (2)
|
30
3.2
|
|
Bylaws of the Company
(3)
|
10.1
|
|
1998 Stock Option Plan
(4)
|
10.2
|
|
Employment Agreement
between Michael Flynn and the Company(5)
|
10.3
|
|
Employment Agreement
between Thomas D. Murphy and the Bank(5)
|
10.4
|
|
Employment Agreement
between Ronald D. Paul and the Company(6)
|
10.5
|
|
Directors Fee
Agreement between Leonard L. Abel and the Company(6)
|
10.6
|
|
Employment Agreement
between Susan G. Riel and the Bank(5)
|
10.7
|
|
Employment Agreement
between Martha Foulon-Tonat and the Bank(5)
|
10.8
|
|
Employment Agreement
between James H. Langmead and the Bank(5)
|
10.9
|
|
Employee Stock Purchase
Plan(7)
|
10.10
|
|
2006 Stock Plan(7)
|
11
|
|
Statement Regarding
Computation of Per Share Earnings
|
21
|
|
Subsidiaries of the
Registrant
|
31.1
|
|
Rule 13a-14(a) Certification
of Ronald D. Paul
|
31.2
|
|
Rule 13a-14(a) Certification
of James H. Langmead
|
31.3
|
|
Rule 13a-14(a) Certification
of Susan G. Riel
|
31.4
|
|
Rule 13a-14(a) Certification
of Michael T. Flynn
|
32.1
|
|
Section 1350
Certification of Ronald D. Paul
|
32.2
|
|
Section 1350 Certification
of James H. Langmead
|
32.3
|
|
Section 1350
Certification of Susan G. Riel
|
32.4
|
|
Section 1350
Certification of Michael T. Flynn
|
(1)
Incorporated by reference to Exhibit 2.1
to the Companys Current Report on Form 8-K filed on December 3, 2007.
(2)
Incorporated by reference to Exhibit 3.1
to the Companys Quarterly Report on Form10-Q for the period ended September 30,
2002.
(3)
Incorporated by reference to Exhibit 3.2
to the Companys Current Report on Form 8-K filed on October 30,
2007.
(4)
Incorporated by reference to Exhibit 4 to
the Companys Registration Statement on Form S-8 No. 333-78449.
(5)
Incorporated by reference to the Companys
Annual Report on Form 10-K for the year ended December 31, 2006.
(6)
Incorporated by reference to exhibit of the
same number to the Companys Annual Report on Form 10-K for the year ended
December 31, 2003.
(7)
Incorporated by reference to Exhibit 4 to
the Companys Registration Statement on Form S-8 (No. 333-116352)
(8)
Incorporated by reference to Exhibit 4 to
the Companys Registration Statement on Form S-8 (No. 333-135072)
31
SIGNATURES
Pursuant to the requirements of
the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
|
EAGLE BANCORP, INC.
|
|
|
|
|
Date: May 12, 2008
|
By:
|
/s/ Ronald D. Paul
|
|
|
Ronald D. Paul, President and Chief Executive Officer
|
|
|
|
|
Date: May 12, 2008
|
By:
|
/s/ James H. Langmead
|
|
|
James
H. Langmead, Senior Vice President and
|
|
|
Chief Financial Officer
|
|
|
|
|
|
32
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