UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





x
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
quarterly period ended December 31, 2009




 ̈
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
transition period from _____ to _____.





Commission
file number 0-29687




Eagle
      Bancorp(Exact
      name of small business issuer as specified in its
  charter)




United
      States
              81-0531318(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)




1400
      Prospect Avenue, Helena, MT 59601(Address
      of principal executive
offices)




(406)
      442-3080(Issuer's
      telephone number)





Website
address:www.americanfederalsavingsbank.com





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.     Yes x  No  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).   Yes
 ̈  No  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.


Large
      accelerated filer
                         ̈
                        Accelerated
      filer ̈Non-accelerated
      filer
                         ̈
                        Smaller
      reporting companyx(Do
      not check if smallerreporting
      company)




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







APPLICABLE
ONLY TO CORPORATE ISSUERS





Indicate
the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:




Common
      stock, par value $0.01 per share
              1,074,507  shares
      outstanding


As of
February 12, 2010











EAGLE BANCORP AND SUBSIDIARY





TABLE OF
CONTENTS




PAGEPART I.
                                FINANCIAL INFORMATIONItem1.
                                Financial
      StatementsConsolidated
      Statements of Financial Condition as of December 31, 2009
                                
                                1
      and 2(unaudited)
      and June 30, 2009Consolidated
      Statements of Income for the three and six months ended
                                
                                3
      and 4December
      31, 2009 and 2008 (unaudited)Consolidated
      Statements of Changes in Stockholders' Equity for the six
                                
                                5months
      ended December 31, 2009 and 2008 (unaudited)Consolidated
      Statements of Cash Flows for the six months ended
                                
                                6
      and 7December
      31, 2009 and 2008 (unaudited)Notes
      to Consolidated Financial Statements
                                
                                8
      to 17Item
      2.
                                Management's
      Discussion and Analysis of Financial Condition and Results
    of
                                
                                18 to 24OperationsItem
      3.
                                Quantitative
      and Qualitative Disclosures About Market Risk
                                
                                25Item
      4.
                                Controls
      and Procedures
                                
                                26PART II.
                                OTHER INFORMATIONItem
      1.
                                Legal
      Proceedings
                                
                                27Item
      1A.
                                Risk
      FactorsItem
      2.
                                Unregistered
      Sales of Equity Securities and Use of Proceeds
                                
                                27Item
      3.
                                Defaults
      Upon Senior Securities
                                
                                27Item
      4.
                                Submission
      of Matters to a Vote of Security Holders
                                
                                28Item
      5.
                                Other
      Information
                                
                                28Item
      6.
                                Exhibits
                                
                                28Signatures
                                
                                29Exhibit
      31.1Exhibit
      31.2Exhibit
      32.1










EAGLE
BANCORP AND SUBSIDIARY





CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION


(Dollars
in Thousands, Except for Per Share Data)




December 31,
                    
                    
                    June 30,2009
                    
                    
                    2009(Unaudited)
                    
                    
                    (Audited)ASSETSCash
      and due from banks
                    
                    $
                    3,696
                    
                    
                    $
                    2,487Interest-bearing
      deposits with banks
                    
                    
                    3,129
                    
                    
                    
                    224Federal
      funds sold
                    
                    
                    -
                    
                    
                    
                    3,617Total
      cash and cash equivalents
                    
                    
                    6,825
                    
                    
                    
                    6,328Securities
      available-for-sale, at market value
                    
                    
                    94,948
                    
                    
                    
                    82,263Securities
      held-to-maturity, at cost
                    
                    
                    265
                    
                    
                    
                    375Preferred
      stock - FASB ASC 825, at market value
                    
                    
                    -
                    
                    
                    
                    25Federal
      Home Loan Bank stock, at cost
                    
                    
                    2,003
                    
                    
                    
                    2,000Investment
      in Eagle Bancorp Statutory Trust I
                    
                    
                    155
                    
                    
                    
                    155Mortgage
      loans held-for-sale
                    
                    
                    2,236
                    
                    
                    
                    5,349Loans
      receivable, net of deferred loan fees and allowance for loan losses of
      $700 atDecember 31, 2009 and $525 at June 30,
      2009
                    
                    
                    171,250
                    
                    
                    
                    167,197Accrued
      interest and dividends receivable
                    
                    
                    1,534
                    
                    
                    
                    1,399Mortgage
      servicing rights, net
                    
                    
                    2,350
                    
                    
                    
                    2,208Premises
      and equipment, net
                    
                    
                    15,989
                    
                    
                    
                    13,761Cash
      surrender value of life insurance
                    
                    
                    6,593
                    
                    
                    
                    6,496Real
      estate acquired in settlement of loans, net of allowance for
      losses
                    
                    
                    142
                    
                    
                    
                    -Other
      assets
                    
                    
                    1,818
                    
                    
                    
                    2,153Total
      assets
                    
                    $
                    306,108
                    
                    
                    $
                    289,709





See
accompanying notes to consolidated financial statements.






-
1-







EAGLE
BANCORP AND SUBSIDIARY





CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION (Continued)


(Dollars
in Thousands, Except for Per Share Data)




December 31,
                
                
                June 30,2009
                
                
                2009(Unaudited)
                
                
                (Audited)LIABILITIESDeposit
      accounts:Noninterest
      bearing
                
                $
                17,745
                
                
                $
                15,002Interest
      bearing
                
                
                184,478
                
                
                
                172,197Total
      deposits
                
                
                202,223
                
                
                
                187,199Accrued
      expenses and other liabilities
                
                
                2,228
                
                
                
                2,507Federal
      funds purchased
                
                
                -
                
                
                
                -FHLB
      advances and other borrowings
                
                
                66,222
                
                
                
                67,056Subordinated
      debentures
                
                
                5,155
                
                
                
                5,155Total
      liabilities
                
                
                275,828
                
                
                
                261,917EQUITYPreferred
      stock (no par value, 1,000,000 shares authorized, none issued or
      outstanding)
                
                
                -
                
                
                
                -Common
      stock (par value $0.01 per share; 9,000,000 shares authorized; 1,223,572
      shares issued; 1,074,507 and 1,075,312 shares outstanding at December 31,
      2009 and June 30, 2009, respectively)
                
                
                12
                
                
                
                12Additional
      paid-in capital
                
                
                4,614
                
                
                
                4,564Unallocated
      common stock held by employee stock ownership plan
("ESOP")
                
                
                -
                
                
                
                (18
                )Treasury
      stock, at cost (149,065 and 148,260 shares at December 31, 2009 and June
      30, 2009, respectively)
                
                
                (5,056
                )
                
                
                (5,034
                )Retained
      earnings
                
                
                30,026
                
                
                
                28,850Accumulated
      other comprehensive gain (loss)
                
                
                684
                
                
                
                (582
                )Total
      equity
                
                
                30,280
                
                
                
                27,792Total
      liabilities and equity
                
                $
                306,108
                
                
                $
                289,709




See
accompanying notes to consolidated financial statements.






-
2-






EAGLE
BANCORP AND SUBSIDIARY





QUARTERLY
CONSOLIDATED STATEMENTS OF INCOME


(Dollars
in Thousands, Except for Per Share Data)




Three Months Ended
                  
                  
                  Six Months EndedDecember 31,
                  
                  
                  December 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Unaudited)Interest
      and Dividend Income:Interest
      and fees on loans
                  
                  $
                  2,780
                  
                  
                  $
                  2,955
                  
                  
                  $
                  5,488
                  
                  
                  $
                  5,792Securities
      available for sale
                  
                  
                  1,008
                  
                  
                  
                  977
                  
                  
                  
                  2,012
                  
                  
                  
                  1,940Securities
      held to maturity
                  
                  
                  3
                  
                  
                  
                  5
                  
                  
                  
                  7
                  
                  
                  
                  10Interest
      on deposits with banks
                  
                  
                  7
                  
                  
                  
                  1
                  
                  
                  
                  15
                  
                  
                  
                  5FHLB
      dividends
                  
                  
                  -
                  
                  
                  
                  5
                  
                  
                  
                  -
                  
                  
                  
                  12Total
      interest and dividend income
                  
                  
                  3,798
                  
                  
                  
                  3,943
                  
                  
                  
                  7,522
                  
                  
                  
                  7,759Interest
      Expense:Deposits
                  
                  
                  589
                  
                  
                  
                  830
                  
                  
                  
                  1,200
                  
                  
                  
                  1,692FHLB
      advances & other borrowings
                  
                  
                  689
                  
                  
                  
                  670
                  
                  
                  
                  1,344
                  
                  
                  
                  1,313Subordinated
      debentures
                  
                  
                  75
                  
                  
                  
                  75
                  
                  
                  
                  150
                  
                  
                  
                  150Total
      interest expense
                  
                  
                  1,353
                  
                  
                  
                  1,575
                  
                  
                  
                  2,694
                  
                  
                  
                  3,155Net
      Interest Income
                  
                  
                  2,445
                  
                  
                  
                  2,368
                  
                  
                  
                  4,828
                  
                  
                  
                  4,604Loan
      loss provision
                  
                  
                  107
                  
                  
                  
                  34
                  
                  
                  
                  242
                  
                  
                  
                  34Net
      interest income after loan loss provision
                  
                  
                  2,338
                  
                  
                  
                  2,334
                  
                  
                  
                  4,586
                  
                  
                  
                  4,570Noninterest
      income:Service
      charges on deposit accounts
                  
                  
                  205
                  
                  
                  
                  181
                  
                  
                  
                  400
                  
                  
                  
                  371Net
      gain on sale of loans
                  
                  
                  349
                  
                  
                  
                  238
                  
                  
                  
                  789
                  
                  
                  
                  421Mortgage
      loan servicing fees
                  
                  
                  198
                  
                  
                  
                  (83
                  )
                  
                  
                  383
                  
                  
                  
                  57Net
      gain on sale of available for sale securities
                  
                  
                  28
                  
                  
                  
                  -
                  
                  
                  
                  28
                  
                  
                  
                  57Net
      gain (loss) on securities FASB ASC 825
                  
                  
                  -
                  
                  
                  
                  (47
                  )
                  
                  
                  84
                  
                  
                  
                  (1,286
                  )Other
                  
                  
                  157
                  
                  
                  
                  155
                  
                  
                  
                  314
                  
                  
                  
                  320Total
      noninterest income
                  
                  
                  937
                  
                  
                  
                  444
                  
                  
                  
                  1,998
                  
                  
                  
                  (60
                  )





See
accompanying notes to consolidated financial statements.






-
3-







EAGLE
BANCORP AND SUBSIDIARY





QUARTERLY
CONSOLIDATED STATEMENTS OF INCOME (Continued)


(Dollars
in Thousands, Except for Per Share Data)




Three Months Ended
                  
                  
                  Six Months EndedDecember 31,
                  
                  
                  December 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Unaudited)Noninterest
      expense:Salaries
      and employee benefits
                  
                  
                  1,251
                  
                  
                  
                  1,146
                  
                  
                  
                  2,350
                  
                  
                  
                  2,192Occupancy
      expense
                  
                  
                  231
                  
                  
                  
                  136
                  
                  
                  
                  387
                  
                  
                  
                  285Furniture
      and equipment depreciation
                  
                  
                  68
                  
                  
                  
                  65
                  
                  
                  
                  131
                  
                  
                  
                  132In-house
      computer expense
                  
                  
                  101
                  
                  
                  
                  101
                  
                  
                  
                  189
                  
                  
                  
                  174Advertising
                  
                  
                  124
                  
                  
                  
                  103
                  
                  
                  
                  230
                  
                  
                  
                  194Amortization
      of mortgage servicing rights
                  
                  
                  137
                  
                  
                  
                  66
                  
                  
                  
                  263
                  
                  
                  
                  137Federal
      insurance premiums
                  
                  
                  66
                  
                  
                  
                  9
                  
                  
                  
                  131
                  
                  
                  
                  16Postage
                  
                  
                  49
                  
                  
                  
                  45
                  
                  
                  
                  87
                  
                  
                  
                  78Legal,
      accounting, and examination fees
                  
                  
                  93
                  
                  
                  
                  65
                  
                  
                  
                  168
                  
                  
                  
                  113Consulting
      fees
                  
                  
                  41
                  
                  
                  
                  19
                  
                  
                  
                  98
                  
                  
                  
                  62ATM
      processing
                  
                  
                  12
                  
                  
                  
                  14
                  
                  
                  
                  29
                  
                  
                  
                  28Other
                  
                  
                  312
                  
                  
                  
                  287
                  
                  
                  
                  525
                  
                  
                  
                  494Total
      noninterest expense
                  
                  
                  2,485
                  
                  
                  
                  2,056
                  
                  
                  
                  4,588
                  
                  
                  
                  3,905Income
      before provision for income taxes
                  
                  
                  790
                  
                  
                  
                  722
                  
                  
                  
                  1,996
                  
                  
                  
                  605Provision
      for income taxes
                  
                  
                  237
                  
                  
                  
                  198
                  
                  
                  
                  599
                  
                  
                  
                  181Net
      income
                  
                  $
                  553
                  
                  
                  $
                  524
                  
                  
                  $
                  1,397
                  
                  
                  $
                  424Basic
      earnings per common share
                  
                  $
                  0.52
                  
                  
                  $
                  0.49
                  
                  
                  $
                  1.30
                  
                  
                  $
                  0.40Diluted
      earnings per common share
                  
                  $
                  0.45
                  
                  
                  $
                  0.43
                  
                  
                  $
                  1.14
                  
                  
                  $
                  0.35Weighted
      average shares outstanding (basic eps)
                  
                  
                  1,073,747
                  
                  
                  
                  1,069,952
                  
                  
                  
                  1,073,323
                  
                  
                  
                  1,069,581Weighted
      average shares outstanding (diluted eps)
                  
                  
                  1,222,812
                  
                  
                  
                  1,218,212
                  
                  
                  
                  1,222,235
                  
                  
                  
                  1,217,635





See
accompanying notes to consolidated financial statements.






-
4-







EAGLE
BANCORP AND SUBSIDIARY





QUARTERLY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


For the
Six Months Ended December 31, 2009 and 2008


(Dollars
in Thousands, Except for Per Share Data)




ADDITIONAL
                    
                    
                    UNALLOCATED
                    
                    
                    
                    
                    
                    
                    
                    
                    OTHERPREFERRED
                    
                    
                    COMMON
                    
                    
                    PAID-IN
                    
                    
                    ESOP
                    
                    
                    TREASURY
                    
                    
                    RETAINED
                    
                    
                    COMPREHENSIVESTOCK
                    
                    
                    STOCK
                    
                    
                    CAPITAL
                    
                    
                    SHARES
                    
                    
                    STOCK
                    
                    
                    EARNINGS
                    
                    
                    INCOME(LOSS)
                    
                    
                    TOTALBalance,
      June 30, 2008
                    
                    $
                    -
                    
                    
                    $
                    12
                    
                    
                    $
                    4,487
                    
                    
                    $
                    (55
                    )
                    
                    $
                    (5,013
                    )
                    
                    $
                    27,025
                    
                    
                    $
                    (822
                    )
                    
                    $
                    25,634Net
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    424
                    
                    
                    
                    -
                    
                    
                    
                    424Other
      comprehensive income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    (826
                    )
                    
                    
                    (826
                    )Total
      comprehensive income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (402
                    )Dividends
      paid ($.255 per share)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (218
                    )
                    
                    
                    
                    
                    
                    
                    (218
                    )Treasury
      stock purchased (760 shares @ $27.00)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (21
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (21
                    )EIFT
      No. 06-4 & 06-10
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (129
                    )
                    
                    
                    
                    
                    
                    
                    (129
                    )ESOP
      shares allocated or committed to be released for allocation (1,150
      shares)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    39
                    
                    
                    
                    18
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    57Balance,
      December 31, 2008
                    
                    $
                    -
                    
                    
                    $
                    12
                    
                    
                    $
                    4,526
                    
                    
                    $
                    (37
                    )
                    
                    $
                    (5,034
                    )
                    
                    $
                    27,102
                    
                    
                    $
                    (1,648
                    )
                    
                    $
                    24,921Balance,
      June 30, 2009
                    
                    $
                    -
                    
                    
                    $
                    12
                    
                    
                    $
                    4,564
                    
                    
                    $
                    (18
                    )
                    
                    $
                    (5,034
                    )
                    
                    $
                    28,850
                    
                    
                    $
                    (582
                    )
                    
                    $
                    27,792Net
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    1,397
                    
                    
                    
                    -
                    
                    
                    
                    1,397Other
      comprehensive income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    1,266
                    
                    
                    
                    1,266Total
      comprehensive income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,663Dividends
      paid ($0.26 per share)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (221
                    )
                    
                    
                    
                    
                    
                    
                    (221
                    )Treasury
      stock purchased (805 shares @ $28.25)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (22
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (22
                    )ESOP
      shares allocated or committed to be released for allocation (1,150
      shares)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    50
                    
                    
                    
                    18
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    68Balance,
      December 31, 2009
                    
                    $
                    -
                    
                    
                    $
                    12
                    
                    
                    $
                    4,614
                    
                    
                    $
                    -
                    
                    
                    $
                    (5,056
                    )
                    
                    $
                    30,026
                    
                    
                    $
                    684
                    
                    
                    $
                    30,280





See
accompanying notes to consolidated financial statements.






-
5-






EAGLE
BANCORP AND SUBSIDIARY





CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Dollars
in Thousands, Except for Per Share Data)




Six Months EndedDecember 31,2009
                
                
                2008(Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                1,397
                
                
                $
                424Adjustments
      to reconcile net income to net cash from operating
    activitiesProvision
      for loan losses
                
                
                242
                
                
                
                34Provision
      for mortgage servicing rights valuation losses
                
                
                -
                
                
                
                239Depreciation
                
                
                288
                
                
                
                222Net
      amortization of marketable securities premium and
discounts
                
                
                127
                
                
                
                88Amortization
      of capitalized mortgage servicing rights
                
                
                263
                
                
                
                137Gain
      on sale of loans
                
                
                (789
                )
                
                
                (421
                )Net
      realized (gain) loss on sale of available-for-sale
    securities
                
                
                (28
                )
                
                
                (57
                )Increase
      in cash surrender value of life insurance
                
                
                (97
                )
                
                
                (118
                )Gain
      on sale of property & equipment
                
                
                2Loss
      (Gain) investment securities, Preferred Stock
                
                
                (84
                )
                
                
                1,286Change
      in assets and liabilities:(Increase)
      decrease in assets:Accrued
      interest and dividends receivable
                
                
                (135
                )
                
                
                (6
                )Loans
      held-for-sale
                
                
                3,869
                
                
                
                (105
                )Other
      assets
                
                
                272
                
                
                
                (944
                )Increase
      (decrease) in liabilities:Accrued
      expenses and other liabilities
                
                
                (659
                )
                
                
                415Net
      cash provided by operating activities
                
                
                4,668
                
                
                
                1,194CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of securities:Investment
      securities available-for-sale
                
                
                (22,682
                )
                
                
                (9,639
                )Proceeds
      from maturities, calls and principal payments:Investment
      securities held-to-maturity
                
                
                110
                
                
                
                315Investment
      securities available-for-sale
                
                
                4,700
                
                
                
                5,779FHLB
      Stock purchased
                
                
                (3
                )
                
                
                (210
                )Proceeds
      from sales of investment securities available-for-sale
                
                
                7,148
                
                
                
                4,062Net
      increase in loan receivable, excludes transfers to real estate acquired in
      settlement of loans
                
                
                (4,879
                )
                
                
                (4,706
                )Proceeds
      from the sale of real estate acquired in the settlement of
      loans
                
                
                15
                
                
                
                -Purchase
      of property and equipment
                
                
                (2,527
                )
                
                
                (2,989
                )Net
      cash used in investing activities
                
                
                (18,118
                )
                
                
                (7,388
                )





See
accompanying notes to consolidated financial statements.






-
6-




EAGLE
BANCORP AND SUBSIDIARY





CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)


(Dollars
in Thousands, Except for Per Share Data)




Six Months EndedDecember 31,2009
                      
                      
                      2008(Unaudited)CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      increase in checking and savings accounts
                      
                      $
                      15,024
                      
                      
                      $
                      2,429Net
      decrease in federal funds
                      
                      
                      -
                      
                      
                      
                      900Payments
      on FHLB advances
                      
                      
                      (2,834
                      )
                      
                      
                      (6,333
                      )FHLB
      advances
                      
                      
                      2,000
                      
                      
                      
                      11,000Purchase
      of Treasury Stock
                      
                      
                      (22
                      )
                      
                      
                      (21
                      )Dividends
      paid
                      
                      
                      (221
                      )
                      
                      
                      (218
                      )Net
      cash provided by financing activities
                      
                      
                      13,947
                      
                      
                      
                      7,757Net
      increase in cash
                      
                      
                      497
                      
                      
                      
                      1,563CASH
      AND CASH EQUIVALENTS, beginning of period
                      
                      
                      6,328
                      
                      
                      
                      4,090CASH
      AND CASH EQUIVALENTS, end of period
                      
                      $
                      6,825
                      
                      
                      $
                      5,653SUPPLEMENTAL
      CASH FLOW INFORMATION:Cash
      paid during the period for interest
                      
                      $
                      2,704
                      
                      
                      $
                      3,161Cash
      paid during the period for income taxes
                      
                      $
                      407
                      
                      
                      $
                      943NON-CASH
      INVESTING ACTIVITIES:(Increase)
      decrease in market value of securities available-for-sale
                      
                      $
                      (1,843
                      )
                      
                      $
                      1,155Mortgage
      servicing rights capitalized
                      
                      $
                      405
                      
                      
                      $
                      236





See
accompanying notes to consolidated financial statements.






-
7-






EAGLE BANCORP AND SUBSIDIARY





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




NOTE
1.BASIS OF
PRESENTATION





The
accompanying unaudited consolidated financial statements have been prepared in
accordance with instructions for Form 10-Q.  Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements.  However, such information reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of results for the unaudited
interim periods.





The
results of operations for the six month period ended December 31, 2009 are not
necessarily indicative of the results to be expected for the fiscal year ending
June 30, 2010 or any other period.  The unaudited consolidated
financial statements and notes presented herein should be read in conjunction
with the audited consolidated financial statements and related notes thereto
included in Eagle’s Form 10-K dated June 30, 2009.





The
Company evaluated subsequent events for potential recognition and/or disclosure
through February 16, 2010, the date the consolidated financial statements were
issued.





NOTE
2.INVESTMENT
SECURITIES





Investment
securities are summarized as follows:


(Dollars
in thousands)




December 31, 2009
                        
                        
                        June 30, 2009(Unaudited)
                        
                        
                        (Audited)GROSS
                        
                        
                        
                        
                        
                        
                        
                        
                        GROSSAMORTIZED
                        
                        
                        UNREALIZED
                        
                        
                        FAIR
                        
                        
                        AMORTIZED
                        
                        
                        UNREALIZED
                        
                        
                        FAIRCOST
                        
                        
                        GAINS
                        
                        
                        (LOSSES)
                        
                        
                        VALUE
                        
                        
                        COST
                        
                        
                        GAINS
                        
                        
                        (LOSSES)
                        
                        
                        VALUEAvailable-for-sale:U.S.
      government and agency obligations
                        
                        $
                        5,845
                        
                        
                        $
                        28
                        
                        
                        $
                        (7
                        )
                        
                        $
                        5,866
                        
                        
                        $
                        3,893
                        
                        
                        $
                        14
                        
                        
                        $
                        (25
                        )
                        
                        $
                        3,882Municipal
      obligations
                        
                        
                        35,406
                        
                        
                        
                        557
                        
                        
                        
                        (713
                        )
                        
                        
                        35,250
                        
                        
                        
                        29,747
                        
                        
                        
                        202
                        
                        
                        
                        (1,056
                        )
                        
                        
                        28,893Corporate
      obligations
                        
                        
                        8,925
                        
                        
                        
                        390
                        
                        
                        
                        (46
                        )
                        
                        
                        9,269
                        
                        
                        
                        9,963
                        
                        
                        
                        149
                        
                        
                        
                        (619
                        )
                        
                        
                        9,493Mortgage-backed
      securities
                        
                        
                        2,060
                        
                        
                        
                        55
                        
                        
                        
                        (1
                        )
                        
                        
                        2,114
                        
                        
                        
                        8,287
                        
                        
                        
                        162
                        
                        
                        
                        (5
                        )
                        
                        
                        8,444Collateralized
      mortgage obligations
                        
                        
                        41,769
                        
                        
                        
                        926
                        
                        
                        
                        (246
                        )
                        
                        
                        42,449
                        
                        
                        
                        31,274
                        
                        
                        
                        663
                        
                        
                        
                        (386
                        )
                        
                        
                        31,551Total
                        
                        $
                        94,005
                        
                        
                        $
                        1,956
                        
                        
                        $
                        (1,013
                        )
                        
                        $
                        94,948
                        
                        
                        $
                        83,164
                        
                        
                        $
                        1,190
                        
                        
                        $
                        (2,091
                        )
                        
                        $
                        82,263Held-to-maturity:Municipal
      obligations
                        
                        $
                        265
                        
                        
                        $
                        3
                        
                        
                        $
                        -
                        
                        
                        $
                        268
                        
                        
                        $
                        375
                        
                        
                        $
                        9
                        
                        
                        $
                        -
                        
                        
                        $
                        384Total
                        
                        $
                        265
                        
                        
                        $
                        3
                        
                        
                        $
                        -
                        
                        
                        $
                        268
                        
                        
                        $
                        375
                        
                        
                        $
                        9
                        
                        
                        $
                        -
                        
                        
                        $
                        384Securities
      at fair value option:Preferred
      stock
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        2,000
                        
                        
                        $
                        -
                        
                        
                        $
                        (1,975
                        )
                        
                        $
                        25Total
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        2,000
                        
                        
                        $
                        -
                        
                        
                        $
                        (1,975
                        )
                        
                        $
                        25




-
8-







EAGLE
BANCORP AND SUBSIDIARY





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE
2.INVESTMENT
SECURITIES-
continued





The
following table discloses, as of December 31, 2009 and June 30, 2009, the
Company’s investment securities that have been in a continuous unrealized-loss
position for less than twelve months and those that have been in a continuous
unrealized-loss position for twelve or more months:




December 31, 2009Less Than 12 Months
                
                
                12 Months Or Longer(In thousands)Estimated
                
                
                Gross
                
                
                Estimated
                
                
                GrossMarket
                
                
                Unrealized
                
                
                Market
                
                
                UnrealizedValue
                
                
                Losses
                
                
                Value
                
                
                LossesU.S.
      Government and agency
                
                $
                1,805
                
                
                $
                4
                
                
                $
                323
                
                
                $
                3Municipal
      obligations
                
                
                10,708
                
                
                
                368
                
                
                
                2,630
                
                
                
                345Corporate
      obligations
                
                
                189
                
                
                
                8
                
                
                
                625
                
                
                
                38Mortgage-backed
      and CMOs
                
                
                7,814
                
                
                
                91
                
                
                
                381
                
                
                
                156Total
      interest and dividend income
                
                $
                20,516
                
                
                $
                471
                
                
                $
                3,959
                
                
                $
                542





June 30, 2009Less Than 12 Months
                
                
                12 Months Or Longer(In thousands)Estimated
                
                
                Gross
                
                
                Estimated
                
                
                GrossMarket
                
                
                Unrealized
                
                
                Market
                
                
                UnrealizedValue
                
                
                Losses
                
                
                Value
                
                
                LossesU.S.
      Government and agency
                
                $
                1,686
                
                
                $
                18
                
                
                $
                458
                
                
                $
                7Municipal
      obligations
                
                
                11,529
                
                
                
                422
                
                
                
                5,732
                
                
                
                634Corporate
      obligations
                
                
                1,193
                
                
                
                49
                
                
                
                1,961
                
                
                
                570Mortgage-backed
      & CMOs
                
                
                2,755
                
                
                
                196
                
                
                
                1,062
                
                
                
                195Total
      interest and dividend income
                
                $
                17,163
                
                
                $
                685
                
                
                $
                9,213
                
                
                $
                1,406




In
evaluating debt securities for other-than-temporary impairment losses,
management assesses whether the Company intends to sell or if it is more
likely-than-not that it will be required to sell impaired debt
securities.  In so doing, management considers contractual
constraints, liquidity, capital, asset/liability management and securities
portfolio objectives.  With respect to its impaired debt securities at
December 31, 2009 (unaudited) and June 30, 2009, management determined that it
does not intend to sell and that there is no expected requirement to sell any of
its impaired debt securities.





As of
December 31, 2009 (unaudited) and June 30, 2009, there were 70 and 97 securities
in an unrealized loss position and were considered to be temporarily impaired
and therefore an impairment charge has not been recorded.  All of such
temporarily impaired investments are debt securities.





At
December 31, 2009 (unaudited), 47 U.S. Government and agency securities and
municipal obligations have unrealized losses with aggregate depreciation of less
than 1.75% from the Company’s amortized cost basis.  We believe these
unrealized losses are principally due to rising interest rates.  As
such, the Company determined that none of such securities had
other-than-temporary impairment.






-
9-







EAGLE
BANCORP AND SUBSIDIARY





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE
2.INVESTMENT
SECURITIES-
continued





At
December 31, 2009 (unaudited), 18 mortgage backed and CMO securities have
unrealized losses with aggregate depreciation of less than 0.6% from the
Company’s cost basis.  We believe these unrealized losses are
principally due to the credit market’s concerns regarding the stability of the
mortgage market and rising interest rates.    Management
considers available evidence to assess whether it is more likely-than-not that
all amounts due would not be collected.  In such assessment,
management considers the severity and duration of the impairment, the credit
ratings of the security, the overall deal and payment structure, including the
Company's position within the structure, underlying obligor, financial condition
and near term prospects of the issuer, delinquencies, defaults, loss severities,
recoveries, prepayments, cumulative loss projections, discounted cash flows and
fair value estimates.  There has been no disruption of the scheduled
cash flows on any of the securities.  Management’s analysis as of
December 31, 2009 revealed no expected credit losses on the
securities.  Two of the CMO securities are non-agency securities (one
with Alt-A collateral from 2005-2006 and the other with Alt-A collateral from
2003).  The security with Alt-A collateral from 2005-2006 has a split
rating from the credit rating agencies.  One credit rating agency has
it rated below investment quality while another credit rating agency has it
rated above investment quality (B3 is the lower rating).  The fair
value of this security represents less than 0.4% of the total fair value of all
securities available for sale.





At
December 31, 2009 (unaudited), 5 corporate obligations have unrealized losses
with aggregate depreciation of less than 0.6% from the Company’s cost
basis.  We believe these unrealized losses are principally due to the
credit market crisis of 2008-2009 along with rising interest
rates.  Management, in conjunction with its investment consultants,
reviews the ability of the companies which issued the securities to meet their
payment terms.  This evaluation includes a review of each company’s
financial condition (including parent and subsidiary information), current
developments in the financial press, and commentary from the ratings
agencies.  Management has concluded that the companies, as
demonstrated by their continued payments of interest and the rise in fair values
subsequent to December 31, 2009, will not experience any credit losses and has
determined that the securities are not other than temporarily
impaired.  The five corporate securities are trust preferred
securities.  They are single-issuer obligations (unsecured junior
subordinated debt), not pooled trust preferred securities.  Four have
split ratings from the credit rating agencies, with one agency rating the
securities above investment grade and another agency rating them below
investment grade (BB is the lowest rating).  The other trust preferred
security is rated above investment grade by all the major credit rating
agencies.  At December 31, 2009, the total fair value of the
securities represents approximately 0.85% of the total fair value for all
securities available for sale. The fact that four of the securities had split
ratings was taken into consideration in management’s OTTI review.  The
split ratings came about because of the credit market crisis in
2008-2009.  The issuer of the four trust preferred securities is Bank
of America, which was subject to much scrutiny in mid to late 2008, which lead
to the decline in fair value.  After the largest banks were subject to
stress tests in early 2009, and it was determined in May 2009 that Bank of
America “passed”, the fair value began to recover.  At December 31,
2009 the fair value of the trust preferred securities had increased over 4.4%
from the level at September 30, 2009 and saw an increase in the lower credit
agency rating from B to BB. (At 12-31-09 the fair value of the five trust
preferred securities totaled $814,000, with an unrealized loss of
$47,000).  Management believes this trend will continue and lead to
full recovery of its cost basis in the securities.




-
10-





EAGLE
BANCORP AND SUBSIDIARY





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 3. LOANS
RECEIVABLE





Loans
receivable consist of the following:




December
      31,
                                
                                
                                June
      30,2009
                                
                                
                                2009(Unaudited)
                                
                                
                                (Audited)(In
      thousands)First
      mortgage loans:Residential
      mortgage (1-4 family)
                                
                                $
                                76,634
                                
                                
                                $
                                79,216Commercial
      real estate
                                
                                
                                39,405
                                
                                
                                
                                36,713Real
      estate construction
                                
                                
                                8,015
                                
                                
                                
                                4,642Other
      loans:Home
      equity
                                
                                
                                29,275
                                
                                
                                
                                28,676Consumer
                                
                                
                                10,330
                                
                                
                                
                                10,835Commercial
                                
                                
                                8,229
                                
                                
                                
                                7,541Total
                                
                                
                                171,888
                                
                                
                                
                                167,623Less:  Allowance
      for loan losses
                                
                                
                                (700
                                )
                                
                                
                                (525
                                )Add:   Deferred
      loan expenses
                                
                                
                                62
                                
                                
                                
                                99Total
                                
                                $
                                171,250
                                
                                
                                $
                                167,197





Loans,
net of related allowance for loan losses, on which the accrual of interest has
been discontinued were $1,263,000 and $990,000 at December 31, 2009 and June 30,
2009, respectively.





The
following is a summary of changes in the allowance for loan losses:





Six
      Months
                                    
                                    
                                    Six
      Months
                                    
                                    
                                    Twelve
      MonthsEnded
                                    
                                    
                                    Ended
                                    
                                    
                                    EndedDecember
      31,
                                    
                                    
                                    December
      31,
                                    
                                    
                                    June
      30,2009
                                    
                                    
                                    2008
                                    
                                    
                                    2009(Unaudited)
                                    
                                    
                                    (Unaudited)
                                    
                                    
                                    (Audited)(In
      thousands)Balance,
      beginning of period
                                    
                                    $
                                    525
                                    
                                    
                                    $
                                    300
                                    
                                    
                                    $
                                    300Provision
      charged to operations
                                    
                                    
                                    242
                                    
                                    
                                    
                                    34
                                    
                                    
                                    
                                    257Charge-offs
                                    
                                    
                                    (69
                                    )
                                    
                                    
                                    (1
                                    )
                                    
                                    
                                    (47
                                    )Recoveries
                                    
                                    
                                    2
                                    
                                    
                                    
                                    7
                                    
                                    
                                    
                                    15Balance,
      end of period
                                    
                                    $
                                    700
                                    
                                    
                                    $
                                    340
                                    
                                    
                                    $
                                    525





Classified
assets, including loans, other real estate owned, and certain securities,
totaled $3,860,000 and $1,614,000 at December 31, 2009 and June 30, 2009,
respectively.


-
11-





EAGLE
BANCORP AND SUBSIDIARY





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE
4.DEPOSITS




Deposits
are summarized as follows (dollars in thousands):




December
      31,
                            
                            
                            June
      30,2009
                            
                            
                            2009(Unaudited)
                            
                            
                            (Audited)(In
      thousands)Noninterest
      checking
                            
                            $
                            17,745
                            
                            
                            $
                            15,002Interest-bearing
      checking
                            
                            
                            37,594
                            
                            
                            
                            32,664Statement
      savings
                            
                            
                            27,494
                            
                            
                            
                            26,445Money
      market
                            
                            
                            27,022
                            
                            
                            
                            26,886Time
      certificates of deposit
                            
                            
                            92,368
                            
                            
                            
                            86,202Total
                            
                            $
                            202,223
                            
                            
                            $
                            187,199





NOTE
5.EARNINGS
PER SHARE





Basic
earnings per share for the three months ended December 31, 2009 is computed
using 1,073,747 weighted average shares outstanding.  Earnings per
share for the six months ended December 31, 2009 is computed using 1,073,323
weighted average shares outstanding.  Basic earnings per share for the
three months ended December 31, 2008 is computed using 1,069,952 weighted
average shares outstanding.  Earnings per share for the six months
ended December 31, 2008 is computed using 1,069,581. Diluted earnings per share
is computed using the treasury stock method by adjusting the number of shares
outstanding by the shares purchased.   The weighted average
shares outstanding for the diluted earnings per share calculations are 1,222,812
for the three months ended December 31, 2009 and 1,218,212 for the three months
ended December 31, 2008.  The weighted average shares outstanding for
diluted earnings per share calculations are 1,222,235 for the six months ended
December 31, 2009 and 1,217,635 for the six months ended December 31,
2008.





NOTE
6.DIVIDENDS
AND STOCK REPURCHASE PROGRAM




This
fiscal year Eagle has paid two dividend of $0.26 per share on August 28, 2009,
and December 4, 2009.  A dividend of $0.26 per share was declared on
January 21, 2010, payable March 5, 2010 to stockholders of record on February
12, 2010.  Eagle Financial MHC, Eagle’s mutual holding company, has
waived the receipt of dividends on its 648,493 shares.





At their
regular meeting of January 17, 2008, the Company’s Board of Directors announced
a stock repurchase program for up to 28,750 shares.  This represented
approximately 6.7% of the outstanding common stock held by the
public.  The repurchased shares will be held as treasury stock and
will be held for general corporate purposes and/or issuance pursuant to Eagle’s
benefit plans.  As of February 10, 2010, 5,315 shares have been
purchased under this program.


-
12-


EAGLE
BANCORP AND SUBSIDIARY





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 7. FAIR VALUE
DISCLOSURES





Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
820 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants. FASB ASC 825 allows the Company to elect to apply fair value
accounting for designated instruments to improve financial reporting and
mitigate volatility in reported earnings.  A fair value measurement
assumes that the transaction to sell the asset or transfer the liability occurs
in the principal market for the asset or liability or, in the absence of a
principal market, the most advantageous market for the asset or liability. The
price in the principal (or most advantageous) market used to measure the fair
value of the asset or liability shall not be adjusted for transaction costs. An
orderly transaction is a transaction that assumes exposure to the market for a
period prior to the measurement date to allow for marketing activities that are
usual and customary for transactions involving such assets and liabilities; it
is not a forced transaction. Market participants are buyers and sellers in the
principal market that are (i) independent, (ii) knowledgeable,
(iii) able to transact and (iv) willing to transact.





FASB ASC
820 requires the use of valuation techniques that are consistent with the market
approach, the income approach and/or the cost approach. The market approach uses
prices and other relevant information generated by market transactions involving
identical or comparable assets and liabilities. The income approach uses
valuation techniques to convert future amounts, such as cash flows or earnings,
to a single present amount on a discounted basis. The cost approach is based on
the amount that currently would be required to replace the service capacity of
an asset (replacement costs). Valuation techniques should be consistently
applied. Inputs to valuation techniques refer to the assumptions that market
participants would use in pricing the asset or liability. Inputs may be
observable, meaning those that reflect the assumptions market participants would
use in pricing the asset or liability developed based on market data obtained
from independent sources, or unobservable, meaning those that reflect the
reporting entity’s own assumptions about the assumptions market participants
would use in pricing the asset or liability developed based on the best
information available in the circumstances. In that regard, FASB ASC 820
establishes a fair value hierarchy for valuation inputs that gives the highest
priority to quoted prices in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. The fair value hierarchy is as
follows:





·
            Level
      1 Inputs - Unadjusted quoted prices in active markets for identical assets
      or liabilities that the reporting entity has the ability to access at the
      measurement date.





·
            Level
      2 Inputs - Inputs other than quoted prices included in Level 1 that are
      observable for the asset or liability, either directly or indirectly.
      These include quoted prices for similar assets or liabilities in active
      markets, quoted prices for identical or similar assets or liabilities in
      markets that are not active, inputs other than quoted prices that are
      observable for the asset or liability (for example, interest rates,
      volatilities, prepayment speeds, loss severities, credit risks and default
      rates) or inputs that are derived principally from or corroborated by
      observable market data by correlation or other
  means.





·
            Level
      3 Inputs - Significant unobservable inputs that reflect an entity’s own
      assumptions that market participants would use in pricing the assets or
      liabilities.





A
description of the valuation methodologies used for assets and liabilities
measured at fair value, as well as the general classification of such
instruments pursuant to the valuation hierarchy, is set forth
below.





In
general, fair value is based upon quoted market prices, where available. If such
quoted market prices are not available, fair value is based upon internally
developed models that primarily use, as inputs, observable market-based
parameters. Valuation adjustments may be made to ensure that financial
instruments are recorded at fair value.





While
management believes the Company’s valuation methodologies are appropriate and
consistent with other market participants, the use of different methodologies or
assumptions to determine the fair value of certain financial instruments could
result in a different estimate of fair value at the reporting date.





Investment
Securities Available for Sale – Securities classified as available for sale are
reported at fair value utilizing Level 1 and Level 2 inputs. For these
securities, the Company obtains fair value measurements from an independent
pricing service. The fair value measurements consider observable data that may
include dealer quotes, market spreads, cash flows, the U. S. Treasury yield
curve, live trading levels, trade execution data, market consensus prepayments
speeds, credit information and the bond’s terms and conditions, among other
things.


-
13-


EAGLE
BANCORP AND SUBSIDIARY





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 7. FAIR VALUE
DISCLOSURES - continued





Preferred
Stock – Fair Value Option – The Company elected in July 2007 to apply the fair
value option to its investment in Freddie Mac and Fannie Mae preferred
stock.  Freddie Mac and Fannie Mae preferred stock are reported at
fair value utilizing Level 2 inputs. For these securities, because there is no
active or liquid trading market, the Company obtains fair value measurements
from an independent pricing service. The fair value measurements consider
observable data that may include dealer quotes, market spreads, cash flows, the
U. S. Treasury yield curve, live trading levels, trade execution data, market
consensus prepayments speeds, credit information and the terms and conditions of
the stock, among other things.





Loans
Held for Sale – These loans are reported at the lower of cost or fair value.
Fair value is determined based on expected proceeds based on sales contracts and
commitments and are considered Level 2 inputs.





Impaired
Loans – Impaired loans are reported at the fair value of the underlying
collateral if repayment is expected solely from the collateral. Collateral
values are estimated using Level 3 inputs based on internally customized
discounting criteria.





Repossessed
Assets – Repossessed assets are reported at fair value less estimated costs
to dispose of the property using Level 2 inputs.  The fair values are
determined by appraisals using valuation techniques consistent with the market
approach using recent sales of comparable properties.  In cases where
such inputs are unobservable, the balance is reflected within the Level 3
hierarchy.





Mortgage
Servicing Rights – Fair values are estimated by stratifying the mortgage
servicing portfolio into groups of loans with similar financial characteristics,
such as loan type, interest rate, and expected maturity and are considered Level
2 inputs.  The Company obtains market survey data estimates and bid
quotations from secondary market investors who regularly purchase mortgage
servicing rights.  Assumptions regarding loan payoffs are determined
using historical information on segmented loan categories for nonspecific
borrowers.





The
following table summarizes financial assets and financial liabilities measured
at fair value on a recurring basis as of December 31, 2009, segregated by the
level of the valuation inputs within the fair value hierarchy utilized to
measure fair value (dollars in thousands):





Level
      1
                                                    
                                                    
                                                    Level
      2
                                                    
                                                    
                                                    Level
      3
                                                    
                                                    
                                                    Total
      FairInputs
                                                    
                                                    
                                                    Inputs
                                                    
                                                    
                                                    Inputs
                                                    
                                                    
                                                    Value(In
      thousands)Investment
      securities available-for-sale
                                                    
                                                    $
                                                    
                                                    
                                                    
                                                    $
                                                    94,948
                                                    
                                                    
                                                    $
                                                    
                                                    
                                                    
                                                    $
                                                    94,948Loans
      held-for-sale
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    2,236
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    2,236





Certain
financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of
impairment).  The following table summarizes financial assets and
nonfinancial liabilities measured at fair value on a nonrecurring basis as of
December 31, 2009, segregated by the level of the valuation inputs within the
fair value hierarchy utilized to measure fair value (dollars in
thousands):





Level
      1
                                                    
                                                    
                                                    Level
      2
                                                    
                                                    
                                                    Level
      3
                                                    
                                                    
                                                    Total
      FairInputs
                                                    
                                                    
                                                    Inputs
                                                    
                                                    
                                                    Inputs
                                                    
                                                    
                                                    Value(In
      thousands)Impaired
      loans
                                                    
                                                    $
                                                    
                                                    
                                                    
                                                    $
                                                    
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -Mortgage
      servicing rights
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    2,350
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    2,350Repossessed
      assets
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    152
                                                    
                                                    
                                                    
                                                    152





As of
December 31, 2009, certain impaired loans were remeasured and reported at fair
value through a specific valuation allowance allocation of the allowance for
loan losses based upon the fair value of the underlying collateral. Impaired
loans with a carrying value of $9,007 were reduced by specific valuation
allowance allocations totaling $9,007 to a total reported fair value of $0 based
on collateral valuations utilizing Level 3 valuation inputs.


-
14-


EAGLE
BANCORP AND SUBSIDIARY





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 7. FAIR VALUE
DISCLOSURES - continued





As of
December 31, 2009, mortgage servicing rights were remeasured and reported at
fair value through a valuation allowance based upon the fair value of the
calculated servicing rights. Servicing rights with a carrying value of
$2,350,000 and no valuation allowance had a total reported fair value of
$2,350,000 based on collateral valuations utilizing Level 2 valuation
inputs.





Repossessed
assets are recorded at market value less estimated cost to sell, and are
measured for impairment by comparing the carrying value with the current fair
value of the assets.  The repossessed assets had a carrying amount of
$152,000, as of December 31, 2009.





Those
financial instruments not subject to the initial implementation of FASB ASC 820
are required under FASB ASC 825 to have their fair value disclosed, both assets
and liabilities recognized and not recognized in the statement of financial
position, for which it is practicable to estimate fair value.  Below
is a table that summarizes the fair market values of all financial instruments
of the Company at December 31, 2009, and June 30, 2009, followed by methods and
assumptions that were used by the Company in estimating the fair value of the
classes of financial instruments not covered by FASB ASC 820.





The
estimated fair value amounts of financial instruments have been determined by
the Company using available market information and appropriate valuation
methodologies.  However, considerable judgment is required to
interpret data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange.  The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.





December
      31,
                    
                    
                    June
      30,2009
                    
                    
                    2009(Unaudited)
                    
                    
                    (Audited)Estimated
                    
                    
                    
                    
                    
                    EstimatedCarrying
                    
                    
                    Fair
                    
                    
                    Carrying
                    
                    
                    Fair(Dollars
      in Thousands)
                    
                    Amount
                    
                    
                    Value
                    
                    
                    Amount
                    
                    
                    Value(In
      thousands)Financial
      Assets:Cash
      and cash equivalents
                    
                    $
                    6,825
                    
                    
                    $
                    6,825
                    
                    
                    $
                    6,328
                    
                    
                    $
                    6,328Securities
      held-to-maturity
                    
                    
                    265
                    
                    
                    
                    268
                    
                    
                    
                    375
                    
                    
                    
                    384FHLB
      stock
                    
                    
                    2,003
                    
                    
                    
                    2,003
                    
                    
                    
                    2,000
                    
                    
                    
                    2,000Loans
      receivable, net
                    
                    
                    171,250
                    
                    
                    
                    175,205
                    
                    
                    
                    167,197
                    
                    
                    
                    172,408Cash
      value of life insurance
                    
                    
                    6,593
                    
                    
                    
                    6,593
                    
                    
                    
                    6,496
                    
                    
                    
                    6,496Financial
      Liabilities:Deposits
                    
                    
                    109,855
                    
                    
                    
                    109,855
                    
                    
                    
                    100,997
                    
                    
                    
                    100,997Time
      certificates of deposit
                    
                    
                    92,368
                    
                    
                    
                    94,031
                    
                    
                    
                    86,202
                    
                    
                    
                    88,284Advances
      from the FHLB & other borrowings
                    
                    
                    66,222
                    
                    
                    
                    69,546
                    
                    
                    
                    67,056
                    
                    
                    
                    70,524Subordinated
      debentures
                    
                    
                    5,155
                    
                    
                    
                    3,751
                    
                    
                    
                    5,155
                    
                    
                    
                    3,899





The
following methods and assumptions were used by the Company in estimating the
fair value of the following classes of financial instruments.





Cash and interest-bearing
accounts – The carrying amounts approximate fair value due to the
relatively short period of time between the origination of these instruments and
their expected realization.





Stock in the FHLB –The fair
value of stock in the FHLB approximates redemption value.





Loans receivable –Fair
values are estimated by stratifying the loan portfolio into groups of loans with
similar financial characteristics.  Loans are segregated by type such
as real estate, commercial, and consumer, with each category further segmented
into fixed and adjustable rate interest terms.


-
15-


EAGLE
BANCORP AND SUBSIDIARY





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 7. FAIR VALUE
DISCLOSURES - continued





For
mortgage loans, the Company uses the secondary market rates in effect for loans
that have similar characteristics.  The fair value of other fixed rate
loans is calculated by discounting scheduled cash flows through the anticipated
maturities adjusted for prepayment estimates.  Adjustable interest
rate loans are assumed to approximate fair value because they generally reprice
within the short term.





Fair
values are adjusted for credit risk based on assessment of risk identified with
specific loans, and risk adjustments on the remaining portfolio based on credit
loss experience.





Assumptions
regarding credit risk are determined based on management’s judgment using
specific borrower information, internal credit quality analysis, and historical
information on segmented loan categories for non-specific
borrowers.





Cash surrender value of life
insurance–The carrying amount for
cash surrender value of life insurance approximates fair value as policies are
recorded at redemption value.





Deposits and time certificates of
deposit – The fair value of deposits with no stated maturity, such as
checking, passbook, and money market, is equal to the amount payable on demand.
The fair value of time certificates of deposit is based on the discounted value
of contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar maturities.





Advances from the FHLB &
Subordinated Debentures – The fair value of the Company’s advances and
debentures are estimated using discounted cash flow analysis based on the
interest rate that would be effective December 31, 2009 and June 30, 2009,
respectively if the borrowings repriced according to their stated
terms.





NOTE 8. RECENTLY ISSUED
PRONOUNCEMENTS





GAAP Codification –On
July 1, 2009, the FASB’s GAAP Codification became effective as the sole
authoritative source of GAAP.  This codification reorganizes current
GAAP for non-governmental entities into a topical index to facilitate accounting
research and to provide users additional assurance that they have referenced all
related literature pertaining to a given topic.  Existing GAAP prior
to the Codification was not altered in the compilation of the GAAP
Codification.  The GAAP Codification encompasses all FASB Statements
of Financial Accounting Standards, Emerging Issues Task Force statements, FASB
Staff Positions, FASB Interpretations, FASB Derivative Implementation Guides,
American Institute of Certified Public Accountants Statement of Positions,
Accounting Principles Board Opinions and Accounting Research Bulletins along
with the remaining body of GAAP effective as of June 30,
2009.  Financial Statements issued for all interim and annual periods
ending after September 15, 2009, will need to reference accounting guidance
embodied in the Codification as opposed to referencing the previously
authoritative pronouncements.





In
December 2007, the FASB issued ASC 810 to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and the
deconsolidation of a subsidiary; (b) changes the way the consolidated income
statement is presented; (c) establishes a single method of accounting for
changes in a parent’s ownership interest in a subsidiary that do not result in
deconsolidation; (d) requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated; and (e) requires expanded
disclosures in the consolidated financial statements that clearly identify and
distinguish between the interests of the parent’s owners and the interests of
the noncontrolling owners of a subsidiary.  The accounting provisions
of ASC 810 must be applied prospectively, but the presentation and disclosure
requirements must be applied retrospectively to provide comparability in the
financial statements.  Early adoption is prohibited.  ASC
810 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008.  The Company is in the
process of determining the impact of adopting this new accounting principle on
its consolidated financial position, results of operations and cash
flows





The FASB
recently issued ASC 805 that requires (a) a company to recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at fair value as of the acquisition date; and (b) an acquirer in
preacquisition periods to expense all acquisition-related costs, among various
other modifications included in ASC 805.  ASC 805 requires that any
adjustments to an acquired entity’s deferred tax asset and liability balance
that occur after the measurement period be recorded as a component of income tax
expense.  This accounting treatment is required for business
combinations consummated before the effective date ASC 805 (non-prospective),
otherwise ASC 805 must be applied prospectively. The presentation and disclosure
requirements must be applied retrospectively to provide comparability in the
financial statements.  Early adoption is
prohibited.   ASC 805 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008.  The impact of this standard is dependent upon the level of
future acquisitions.





-
16-


EAGLE
BANCORP AND SUBSIDIARY





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 8. RECENTLY ISSUED
PRONOUNCEMENTS - continued





FASB ASC
815-10 requires companies to provide qualitative disclosures about the
objectives and strategies for using derivatives, quantitative data about the
fair value of gains and losses on derivative contracts, and details of
credit-risk-related contingent features in their hedged positions.  The
statement also requires companies to disclose more information about the
location and amounts of derivative instruments in financial statements; how
derivatives and related hedges are accounted for and how the hedges affect the
entity’s financial position, financial performance and cash
flows.  FASB ASC 815-10 is effective for periods beginning after
November 15, 2008.  The Company will comply with the disclosure
provisions of FASB ASC 815-10 to the extent it has entered into derivative
transactions in the year of adoption.





On
November 14, 2008, the Securities and Exchange Commission (“SEC”) issued its
long-anticipated proposed International Financial Reporting Standards (“IFRS”)
roadmap outlining milestones that, if achieved, could lead to mandatory
transition to IFRS for U.S. domestic registrants starting in
2014.  IFRS is a comprehensive series of accounting standards
published by the International Accounting Standards Board
(IASB).  Under the proposed roadmap, the Company could be required
through its parent company to prepare financial statements in accordance with
IFRS, and the SEC will make a determination in 2011 regarding the mandatory
adoption of IFRS for U.S. domestic registrants.  Management is
currently assessing the impact that this potential change would have on the
Company’s consolidated financial statements, and will continue to monitor the
development of the potential implementation of IFRS.


-
17-


EAGLE
BANCORP AND SUBSIDIARY





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





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





Note
Regarding Forward-Looking Statements





This
report includes “forward-looking statements” within the meaning and protections
of Section 27A of the Securities Act of 1933, as amended, or the Securities Act,
and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act.  All statements other than statements of historical fact
are statements that could be forward-looking statements.  You can
identify these forward-looking statements through our use of words such as
“may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,”
“contemplate,” “expect,” “estimate,” “continue,” “plan,”  “project,”
“could,” “intend,” “target” and other similar words and expressions of the
future. These forward-looking statements include, but are not limited
to:





·
            statements
      of our goals, intentions and
expectations;


·
            statements
      regarding our business plans, prospects, growth and operating
      strategies;


·
            statements
      regarding the asset quality of our loan and investment portfolios;
      and


·
            estimates
      of our risks and future costs and
benefits.





These
forward-looking statements are based on current beliefs and expectations of our
management and are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond our
control. In addition, these forward-looking statements are subject to
assumptions with respect to future business strategies and decisions that are
subject to change.





The
following factors, among others, could cause actual results to differ materially
from the anticipated results or other expectations expressed in the
forward-looking statements:





·
            changes
      in laws or government regulations or policies affecting financial
      institutions, including changes in regulatory fees and capital
      requirements;


·
            general
      economic conditions, either nationally or in our market areas, that are
      worse than expected;


·
            competition
      among depository and other financial
  institutions;


·
            changes
      in the prices, values and sales volume of residential and commercial real
      estate in Montana;


·
            inflation
      and changes in the interest rate environment that reduce our margins or
      reduce the fair value of financial
instruments;


·
            adverse
      changes in the securities markets;


·
            our
      ability to enter new markets successfully and capitalize on growth
      opportunities;


·
            our
      ability to successfully integrate acquired entities, if
    any;


·
            changes
      in consumer spending, borrowing and savings
  habits;


·
            changes
      in our organization, compensation and benefit
  plans;


·
            our
      ability to continue to increase and manage our commercial and residential
      real estate, multi-family, and commercial business
  loans;


·
            possible
      impairments of securities held by us, including those issued by government
      entities and government sponsored
enterprises;


·
            the
      level of future deposit premium
assessments;


·
            the
      impact of the current recession on our loan portfolio (including cash flow
      and collateral values), investment portfolio, customers and capital market
      activities;


·
            the
      impact of the current governmental effort to restructure the U.S.
      financial and regulatory system;


·
            the
      failure of assumptions underlying the establishment of allowance for
      possible loan losses and other
estimates;


·
            changes
      in the financial performance and/or condition of our borrowers and their
      ability to repay their loans when due;
and


·
            the
      effect of changes in accounting policies and practices, as may be adopted
      by the regulatory agencies, as well as the Securities and Exchange
      Commission, the Public Company Accounting Oversight Board, the Financial
      Accounting Standards Board and other accounting standard
      setters.





Because
of these and other uncertainties, our actual future results may be materially
different from the results indicated by these forward-looking
statements.


-
18-


EAGLE
BANCORP AND SUBSIDIARY





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





Overview





The
Company’s primary activity is its ownership of its wholly owned subsidiary,
American Federal Savings Bank (the “Bank”).  The Bank is a federally
chartered savings bank, engaging in typical banking
activities:  acquiring deposits from local markets and investing in
loans and investment securities.  The Bank’s primary component of
earnings is its net interest margin (also called spread or margin), the
difference between interest income and interest expense.  The net
interest margin is managed by management (through the pricing of its products
and by the types of products offered and kept in portfolio), and is affected by
moves in interest rates.  Noninterest income in the form of fee income
and gain on sale of loans adds to the Bank’s income.





The Bank
has a strong mortgage lending focus, with the majority of its loans in
single-family residential mortgages.  This has led to successfully
marketing home equity loans to its customers, as well as a wide range of shorter
term consumer loans for various personal needs (automobiles, recreational
vehicles, etc.).  In recent years the Bank has focused on adding
commercial loans to its portfolio, both real estate and non-real
estate.  The purpose of this diversification is to mitigate the Bank’s
dependence on the mortgage market, as well as to improve its ability to manage
its spread.  The Bank’s management recognizes the need for sources of
fee income to complement its margin, and the Bank now maintains a significant
loan serviced portfolio, which provides a steady source of fee
income.   The gain on sale of loans also provides significant fee
income in periods of high mortgage loan origination volumes.  Fee
income is also supplemented with fees generated from the Bank’s deposit
accounts.  The Bank has a high percentage of non-maturity deposits,
such as checking accounts and savings accounts, which allows management
flexibility in managing its spread.  Non-maturity deposits do not
automatically reprice as interest rates rise, as do certificates of
deposit.





For the
past three years, management’s focus has been on improving the Bank’s core
earnings.  Core earnings can be described as income before taxes, with
the exclusion of gain on sale of loans and adjustments to the market value of
the Bank’s loan serviced portfolio.  Management believes that the Bank
will need to continue to focus on increasing net interest margin, other areas of
fee income, and control operating expenses to achieve earnings growth going
forward.  Management’s strategy of growing the bank’s loan portfolio
and deposit base is expected to help achieve these goals:  loans
typically earn higher rates of return than investments; a larger deposit base
will yield higher fee income; increasing the asset base will reduce the relative
impact of fixed operating costs.  The biggest challenge to the
strategy is funding the growth of the Bank’s balance sheet in an efficient
manner.  Deposit growth will be difficult to maintain due to fierce
competition and wholesale funding (which is usually more expensive than retail
deposits) will likely be needed to supplement it.





The level
and movement of interest rates impacts the Bank’s earnings as
well.  The Federal Reserve’s Federal Open Market Committee (FOMC) did
not change the federal funds target rate during the quarter ended December 31,
2009.  As such it ended at 0.25%.





Financial
Condition





Comparisons
of financial condition in this section are between December 31, 2009 and June
30, 2009.





Total
assets at December 31, 2009 were $306.11 million, an increase of $16.40 million,
or 5.66%, from $289.71 million at June 30, 2009. This increase in assets was
primarily attributed to an increase in securities available-for-sale of $12.69
million. Premises and equipment also increased $2.23 million to $15.99 million
primarily due to the opening of our Bozeman branch in October 2009. Total
liabilities increased by $13.91 million to $275.83 million at December 31, 2009,
from $261.92 million at June 30, 2009. Total equity increased $2.49 million to
$30.28 million at December 31, 2009 from $27.79 million at June 30,
2009.





Loans
receivable increased $4.05 million, or 2.42%, to $171.25 million at December 31,
2009, from $167.20 million at June 30, 2009. Real estate construction loans was
the loan category with the largest increase, $3.37 million, while residential
mortgage loans decreased $2.58 million as we continued to diversify lending
activity away from residential real estate lending. Commercial real estate loans
also increased $2.69 million. Most other loan categories showed modest changes.
Total loan originations were $74.92 million for the six months ended December
31, 2009, with single family mortgages accounting for $52.22 million of the
total. Home equity and construction loan originations totaled $6.83 million and
$3.84 million, respectively, for the same period. Commercial real estate and
land loan originations totaled $6.57 million. Loans held-for-sale decreased to
$2.24 million at December 31, 2009 from $5.35 million at June 30, 2009.
Securities available-for-sale increased $12.69 million, as funds from deposit
growth were deployed in municipal securities and collateralized mortgage
obligations.





Deposits
increased $15.02 million, or 8.03%, to $202.22 million at December 31, 2009 from
$187.20 million at June 30, 2009. Growth occurred in all deposit
categories.  Management attributes the increase in deposits to
increased marketing of checking accounts as well as customers’ desire to place
funds in safe, insured deposit accounts.


-
19-


EAGLE
BANCORP AND SUBSIDIARY





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





Financial
Condition - continued





Advances
from the Federal Home Loan Bank and other borrowings decreased $834,000, or
1.24%, to $66.22 million from $67.06 million as a result of continued growth in
deposits. Federal fund purchases remained at $0.





Total
shareholders’ equity increased $2.49 million or 8.95%, to $30.28 million at
December 31, 2009 from $27.79 million at June 30, 2009.  This was a
result of net income for the period of $1.40 million and by an increase in
accumulated other comprehensive income of $1.27 million (mainly due to an
increase in net unrealized gains on securities
available-for-sale).  All categories of securities had an increase in
fair value during the period.This was partially
offset by dividends paid and repurchases of common stock.





Results
of Operations for the Three Months Ended December 31, 2009 and 2008





Net
Income.  Eagle’s net income was $553,000 and $524,000 for the
three months ended December 31, 2009, and 2008, respectively.  The
increase of $29,000, or 5.53%, was due to an increase in net interest income of
$77,000, an increase in noninterest income of $493,000, offset by increases in
noninterest expense of $429,000 and loan loss provision of
$73,000.  Eagle’s tax provision was $39,000 higher in the current
quarter.  Basic earnings per share were $0.52 for the current period,
compared to $0.49 for the previous year’s period.





Net Interest
Income.  Net interest income increased to $2.45 million for the
quarter ended December 31, 2009, from $2.37 million for the previous year’s
quarter.  This increase of $77,000 was the result of a decrease in
interest expense of $222,000 offset by a decrease in interest and dividend
income of $145,000.





Interest and Dividend
Income.  Total interest and dividend income was $3.80 million
for the quarter ended December 31, 2009, compared to $3.94 million for the
quarter ended December 31, 2008, representing a decrease of $145,000, or
3.68%.  Interest and fees on loans decreased to $2.78 million for the
three months ended December 31, 2009 from $2.96 million for the same period
ended December 31, 2008.  This decrease of $175,000, or 5.92%, was due
primarily to the decrease in the average balances on loans for the quarter ended
December 31, 2009.  Average balances for loans receivable, net, for
the quarter ended December 31, 2009 were $172.05 million, compared to $180.34
million for the previous year.  This represents a decrease of $8.29
million, or 4.60%.  The average interest rate earned on loans
receivable decreased by 9 basis points, from 6.55% to 6.46%.  Interest
and dividends on investment securities available-for-sale (AFS) increased to
$1.01 million for the quarter ended December 31, 2009 from $977,000 for the same
quarter last year.  Average balances on investments increased to
$92.64 million for the quarter ended December 31, 2009, compared to $75.57
million for the quarter ended December 31, 2008.  The average interest
rate earned on investments decreased to 4.37% from 5.20%.  Interest on
deposits with banks increased to $7,000 from $1,000, due to an increase in
average balances.  Average balances on deposits with banks increased
to $8.44 million for the quarter ended December 31, 2009, compared to $286,000
for the quarter ended December 31, 2008.  The average rates on deposit
with banks decreased from 1.40% at December 31, 2008 to 0.33% at December 31,
2009.





Interest
Expense.  Total interest expense decreased to $1.35 million for
the quarter ended December 31, 2009, from $1.58 million for the quarter ended
December 31, 2008, a decrease of $222,000, or 14.10%, due to increases in
interest paid on deposits.  Interest on deposits decreased to $589,000
for the quarter ended December 31, 2009, from $830,000 for the quarter ended
December 31, 2008.  This decrease of $241,000, or 29.04%, was the
result of a decrease in average rates paid on deposit
accounts.  Interest bearing checking accounts decreased in average
rates paid from 0.36% to 0.22%.   Money market accounts had
decreased from 1.48% to 0.52%.  Average balances in interest-bearing
deposit accounts increased to $181.54 million for the quarter ended December 31,
2009, compared to $167.76 million for the same quarter in the previous year. A
small decrease in the average balance of borrowings, partially offset by an
increase in the average rate paid, resulted in an increase in interest paid on
borrowings to $689,000 versus $670,000 paid in the previous year’s
quarter.  The average rate paid on borrowings increased from 4.10%
last year to 4.24% this year.  The average rate paid on liabilities
decreased 49 basis points from the quarter ended December 31, 2008 to the
quarter ended December 31, 2009.


-
20-


EAGLE
BANCORP AND SUBSIDIARY





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





Results
of Operations for the Three Months Ended December 31, 2009 and 2008 -
continued





Provision for Loan
Losses.  Provisions for loan losses are charged to earnings to
maintain the total allowance for loan losses at a level considered adequate by
Eagle’s subsidiary, American Federal Savings Bank (the “Bank”), to provide for
probable loan losses based on prior loss experience, volume and type of lending
conducted by the Bank, national and local economic conditions, and past due
loans in portfolio.  The Bank’s policies require a review of assets on
a quarterly basis.  The Bank classifies loans as well as other assets
if warranted.  While the Bank believes it uses the best information
available to make a determination with respect to the allowance for loan losses,
it recognizes that future adjustments may be necessary.  The Bank took
$107,000 in provision for loan losses for the quarter ended December 31, 2009
and $34,000 in the quarter ended December 31, 2008.  This was due an
increase in loan delinquencies and to the weakened national and local
economy.  Total classified loans increased from $1.61 million at June
30, 2009 to $2.77 million at December 31, 2009. The Bank currently has one
foreclosed real estate property with a net book value of $142,000.





Noninterest Income.Total
noninterest income increased to $937,000 for the quarter ended December 31,
2009, from $444,000 for the quarter ended December 31, 2008, an increase of
$493,000 or 111.04%.  This increase is substantially due to the prior
period’s loss in market value on investments in certain preferred stock, issued
by Fannie Mae and Freddie Mac, which are accounted for under Statement of
Financial Accounting Standard (SFAS) No. 159 Fair Value Option for Financial
Assets and Financial Liabilities.  For the three month period
ending December 31, 2008, the market value of Fannie Mae and Freddie Mac
preferred stock, owned by Eagle, decreased $47,000.  These securities
were sold in the quarter ending December 31, 2009.  Continually,
mortgage loan servicing fees increased $281,000.  This increase is
solely due to provision for valuation allowance on mortgage serving rights of
$239,000 that occurred in the quarter ended December 31, 2008.  No
provision for valuation allowance on mortgage servicing rights was incurred in
the quarter ended December 31, 2008. Net gain on sale of loans increased
$111,000 to $349,000 for the quarter ended December 31, 2009.  The
service charges on deposit accounts increased to $205,000 from $181,000 due to
more activity.





Noninterest
Expense.  Noninterest expense increased by $429,000 or 20.87%
to $2.49 million for the quarter ended December 31, 2009, from $2.06 million for
the quarter ended December 31, 2008.  This increase was primarily due
to increases in salaries and employee benefits of $105,000, occupancy costs of
$95,000, and federal insurance premiums of $57,000.  The increase in
salaries and employee benefits expense was due to merit raises, and other
inflationary items such as health care premiums.  Increases in
occupancy costs were due to the opening of the Skyway branch in Helena, Montana
in January 2009 and the Oak Street branch in Bozeman, Montana in October
2009.  Federal deposit insurance premiums increased due to the
expiration of credits and FDIC assessment rates increases for all federally
insured financial institutions.  Other expense categories showed minor
changes.





Income Tax
Expense.  Eagle’s income tax expense was $237,000 for the
quarter ended December 31, 2009, compared to $198,000 for the quarter ended
December 31, 2008.  The effective tax rate for the quarter ended
December 31, 2009 was 30.00% and was 27.42% for the quarter ended December 31,
2008.





Results
of Operations for the Six Months Ended December 31, 2009 and 2008





Net
Income.  Eagle’s net income was $1.40 million and $424,000 for
the six months ended December 31, 2009 and 2008, respectively.  The
increase of $973,000, or 229.48%, in net income was the result of an increase in
net interest income of $224,000 and an increase noninterest income of $2.06
million, offset by an increase in noninterest expense of
$683,000.  Eagle’s tax provision was $418,000 higher in the current
period.  Basic earnings per share for the period ended December 31,
2009 were $1.30 compared to $0.40 per share for the period ended December 31,
2008.





Net Interest
Income.  Net interest income increased to $4.83 million for the
six months ended December 31, 2009 from $4.60 million for the six months ended
December 31, 2008.  This increase of $224,000 was the result of a
decrease in an interest and dividend income of $237,000 offset by a decrease in
interest expense of $461,000.





Interest and Dividend
Income.  Total interest and dividend income was $7.52 million
for the six months ended December 31, 2009, compared to $7.76 million for the
same period ended December 31, 2008, representing a decrease of $237,000, or
3.05%.  Interest and fees on loans decreased to $5.49 million for 2009
from $5.79 million for 2008.  This decrease of $304,000, or 5.25%, was
due to a decrease in the average balances of loans receivable for the six months
ended December 31, 2009 and by a decrease in the average interest rate on such
loans.  Average balances for loans receivable, net, for this period
were $171.66 million, compared to $177.35 million for the previous
year.  This is a decrease of $5.69 million, or 3.21%.  The
average interest rate earned on loans receivable decreased by 14 basis points,
to 6.39% from 6.53%.  Interest and dividends on investment securities
available-for-sale (AFS) increased to $2.01 million for the six months ended
December 31, 2009 from $1.94 million for the same period ended December 31,
2008.  Interest on deposits with banks increased to $15,000 from
$5,000.


-
21-


EAGLE
BANCORP AND SUBSIDIARY





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




Results
of Operations for the Six Months Ended December 31, 2009 and 2008 -
continued





Interest
Expense.  Total interest expense decreased to $2.69 million for
the six months ended December 31, 2009 from $3.16 million for the six months
ended December 31, 2008, a decrease of $461,000, or 14.61%.  Interest
on deposits decreased to $1.20 million for the six months ended December 31,
2009 from $1.69 million for the six months ended December 31,
2008.  This decrease of $492,000, or 29.08%, was the result of a
decrease in average rates paid on deposit accounts offset by an increase in
average balances in deposit accounts.  Average rates paid on
certificates of deposit decreased from 2008 to 2009, and the average rate paid
on all liabilities decreased by 50 basis points from the six month period ended
December 31, 2008 to the six month period ended December 31,
2009.  Average balances in interest-bearing deposits increased to
$178.27 million for the six month period ended December 31, 2009 compared to
$166.47 million for the same period in the previous year.  Interest
paid on borrowings increased to $1.34 million for the six months ended December
31, 2009 from $1.31 million for the same period ended December 31,
2008.  The increase in borrowing costs was due to increases in the
average balances.  Average balances of borrowings increased to $72.67
million in 2009 compared to $71.79 million in 2008.  The average rate
paid on borrowings increased 3 basis points from 2008 to 2009.





Provision for Loan
Losses.  Provisions for loan losses are charged to earnings to
maintain the total allowance for loan losses at a level considered adequate by
the Bank, to provide for probable loan losses based on prior loss experience,
volume and type of lending, national and local economies, and past due loans in
portfolio.  The Bank’s policies require the review of assets on a
quarterly basis.  The Bank classifies loans as well as other assets if
warranted.  While the Bank believes it uses the best information
available to make a determination with respect to the allowance for loan losses,
it recognizes that future adjustments may be necessary.  $242,000 was
provided for loan losses for the six month period ended December 31, 2009, while
$34,000 was provided for the six month period ended December 31,
2008.  Total classified loans increased from $1.61 million at June 30,
2009 to $2.77 million at December 31, 2009, and total less than 1.70% of total
loans. The Bank currently has one foreclosed real estate property with a net
book value of $142,000.





Noninterest
Income.  Total noninterest income increased to $2.00 million
for the six months ended December 31, 2009, from negative ($60,000) for the six
months ended December 31, 2008, an increase of $2.06 million.  This
increase is principally due to the prior period experiencing a loss in market
value on investments in certain preferred stock, issued by Fannie Mae and
Freddie Mac which is accounted for under Statement of Financial Accounting
Standard FASB ASC 825 Fair
Value Option for Financial Assets and Financial
Liabilities.  For the six month period ending December 31,
2008, the market value of Fannie Mae and Freddie Mac preferred stock, owned by
Eagle, decreased $1.286 million, while these securities were sold during the six
month period ending December 31, 2009.  A gain in value of these
preferred stocks of $84,000 was recognized during the six month period ending
December 31, 2009.  These preferred stocks were sold in November and
December 2009, and as such, they have a zero balance as December 31,
2009.  Net gain on sale of loans increased to $789,000 for the six
months ended December 31, 2009 from $421,000 for the six months ended December
31, 2008, an increase of $368,000, or 87.41%.  This increase was due
to selling more mortgage loans during the current period.  The Bank
sold $48.25 million mortgage loans during the six months ended December 31, 2009
compared to $21.92 million during the six months ended December 31, 2008, an
increase of $26.33 million, or 120.12%.  Other categories of
noninterest income showed minor changes.





Noninterest
Expense.  Noninterest expense increased by $683,000, or 17.49%
to $4.59 million for the six months ended December 31, 2009, from $3.91 million
for the six months ended December 31, 2008.  This increase was
primarily due to increases in salaries and employee benefits of $158,000,
occupancy expenses of $102,000, and federal insurance premiums of
$115,000.  The increase in salaries and employee benefits expense was
due to merit raises, and other inflationary items such as health care
premiums.  Increases in occupancy expenses were due to the opening of
the Skyway branch in Helena, Montana in January 2009 and the Oak Street branch
in Bozeman, Montana in October 2009.  Federal deposit insurance
premiums increased due to the expiration of credits and FDIC assessment rates
increases for all federally insured financial institutions.  Other
categories of noninterest expense showed modest changes.





Income Tax
Expense.  Eagle’s income tax expense was $599,000 for the six
months ended December 31, 2009, compared to $181,000 for the six months ended
December 31, 2008.  The effective tax rate for the six months ended
December 31, 2009 was 30.00% and was 29.92% for the six months ended December
31, 2008.




-
22-





EAGLE
BANCORP AND SUBSIDIARY





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




Liquidity,
Interest Rate Sensitivity and Capital Resources





The
company’s subsidiary, American Federal Savings Bank (the Bank), is required to
maintain minimum levels of liquid assets as defined by the Office of Thrift
Supervision (OTS) regulations.  The OTS has eliminated the statutory
requirement based upon a percentage of deposits and short-term
borrowings.  The OTS states that the liquidity requirement is retained
for safety and soundness purposes, and that appropriate levels of liquidity will
depend upon the types of activities in which the company engages.  For
internal reporting purposes, the Bank uses policy minimums of 1.0%, and 8.0% for
“basic surplus” and “basic surplus with FHLB” as internally
defined.  In general, the “basic surplus” is a calculation of the
ratio of unencumbered short-term assets reduced by estimated percentages of CD
maturities and other deposits that may leave the Bank in the next 90 days
divided by total assets.  “Basic surplus with FHLB” adds to “basic
surplus” the additional borrowing capacity the Bank has with the FHLB of
Seattle.  The Bank exceeded those minimum ratios as of both December
31, 2009 and June 30, 2009.





The
Bank’s primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments, funds provided from
operations, and advances from the Federal Home Loan Bank of Seattle and other
borrowings.  Scheduled repayments of loans and mortgage-backed
securities and maturities of investment securities are generally
predictable.  However, other sources of funds, such as deposit flows
and loan prepayments, can be greatly influenced by the general level of interest
rates, economic conditions and competition.  The Bank uses liquidity
resources principally to fund existing and future loan
commitments.  It also uses them to fund maturing certificates of
deposit, demand deposit withdrawals and to invest in other loans and
investments, maintain liquidity, and meet operating expenses.





Liquidity
may be adversely affected by unexpected deposit outflows, higher interest rates
paid by competitors, and similar matters. Management monitors projected
liquidity needs and determines the level desirable, based in part on commitments
to make loans and management’s assessment of the bank’s ability to generate
funds.





At
September 30, 2009 (the most recent report available), the Bank’s measure of
sensitivity to interest rate movements, as measured by the OTS, slightly
improved from the previous quarter.  The Bank’s capital ratio as
measured by the OTS decreased from the previous quarter.  The Bank’s
strong capital position mitigates its interest rate risk
exposure.  The Bank is well within the guidelines set forth by the
Board of Directors for interest rate risk sensitivity.





As of
December 31, 2009, the Bank’s regulatory capital was in excess of all applicable
regulatory requirements.  At December 31, 2009, the Bank’s tangible,
core, and risk-based capital ratios amounted to 9.36%, 9.36%, and 13.45%, respectively, compared to
regulatory requirements of 1.5%, 3.0%, and 8.0%, respectively.  See
the following table (amounts in thousands):





At December 31, 2009(Unaudited)Dollar
                
                
                % ofAmount
                
                
                AssetsTangible
      capital:Capital
      level
                
                $
                28,014
                
                
                
                9.36Requirement
                
                
                4,489
                
                
                
                1.50Excess
                
                
                23,525
                
                
                
                7.86Core
      capital:Capital
      level
                
                
                28,014
                
                
                
                9.36Requirement
                
                
                8,978
                
                
                
                3.00Excess
                
                
                19,036
                
                
                
                6.36Risk-based
      capital:Capital
      level
                
                
                28,705
                
                
                
                13.45Requirement
                
                
                17,071
                
                
                
                8.00Excess
                
                
                11,634
                
                
                
                5.45




-
23-





EAGLE
BANCORP AND SUBSIDIARY





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




Impact
of Inflation and Changing Prices





Our
financial statements and the accompanying notes have been prepared in accordance
with generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation.  The impact of inflation is reflected in the
increased cost of our operations.  Interest rates have a greater
impact on our performance than do the general levels of
inflation.  Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and
services.




-
24-


EAGLE
BANCORP AND SUBSIDIARY


QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Item
3.  Quantitative and Qualitative Disclosures About Market
Risk





This item
has been omitted based on Eagle’s status as a smaller reporting
company.




-
25-





EAGLE
BANCORP AND SUBSIDIARY





CONTROLS
AND PROCEDURES




Item
4.  Controls and Procedures





Based on
their evaluation, the Company’s Chief Executive Officer, Peter J. Johnson, and
Chief Financial Officer, Clint J. Morrison, have concluded the Company’s
disclosure controls and procedures are effective as of December 31, 2009 to
ensure that information required to be disclosed in the reports that the Company
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms.  During the last
fiscal quarter, there have been no changes in the Company’s internal control
over financial reporting that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial
reporting.





-
26-





EAGLE
BANCORP AND SUBSIDIARY





Part
II - OTHER INFORMATION





Item
      1.
            Legal
      Proceedings.





Neither
the Company nor the Bank is involved in any pending legal proceeding other than
non-material legal proceedings occurring in the ordinary course of
business.





Item
      1A.
            Risk
      Factors.





This item
has been omitted based on Eagle’s status as a smaller reporting
company.


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





The
following table summarizes the Company’s purchase of its common stock for the
three months ended December 31, 2009.




(a)
                                              
                                              (b)
                                              
                                              
                                              (c)
                                              
                                              
                                              (d)Total Number
                                              
                                              
                                              Maximumof Shares
                                              
                                              
                                              Number ofPurchased
                                              
                                              
                                              Shares thatTotal
                                              
                                              
                                              
                                              
                                              as Part of
                                              
                                              
                                              May Yet BeNumber of
                                              
                                              Average
                                              
                                              
                                              Publicly
                                              
                                              
                                              PurchasedShares
                                              
                                              Price Paid
                                              
                                              
                                              Announced Plans
                                              
                                              
                                              Under the PlansPeriod
                                              
                                              Purchased*
                                              
                                              Per Share
                                              
                                              
                                              or Programs
                                              
                                              
                                              or ProgramsOctober
      1, 2009 through
                                              
                                              None
                                              
                                              
                                              N/A
                                              
                                              
                                              
                                              N/A
                                              
                                              
                                              
                                              23,435October
      31, 2009November
      1, 2009 through
                                              
                                              None
                                              
                                              
                                              N/A
                                              
                                              
                                              
                                              N/A
                                              
                                              
                                              
                                              23,435November
      30, 2009December
      1, 2009 through
                                              
                                              None
                                              
                                              
                                              N/A
                                              
                                              
                                              
                                              N/A
                                              
                                              
                                              
                                              23,435December
      31, 2009Total
                                              
                                              None
                                              
                                              
                                              N/A
                                              
                                              
                                              
                                              N/A
                                              
                                              
                                              
                                              23,435





*The
Company publicly announced a stock repurchase program on January 17, 2008. The
Company was authorized to acquire up to 28,750 shares of common stock with the
price subject to market conditions. No expiration date was set for the
repurchase program. As of December 31, 2009, 5,315 shares had been repurchased
under this plan.





Item
      3.
            Defaults
      Upon Senior Securities.





Not
applicable.




-
27-





EAGLE
BANCORP AND SUBSIDIARY





Part
II - OTHER INFORMATION (CONTINUED)




Item 4.
            Submission
      of Matters to a Vote of Security
Holders.





The proxy
statement for the Annual Meeting of Stockholders was mailed on September 21,
2009.  The following matters were voted on at the meeting held on
October 22, 2009:





1.
            Election
      of directors for three-year terms expiring in
  2012:




For
                    
                    
                    AgainstJames
      A. Maierle
                    
                    
                    
                    
                    
                    
                    983,491
                    
                    
                    
                    725Thomas
      J. McCarvel
                    
                    
                    
                    
                    
                    
                    983,531
                    
                    
                    
                    685




2.
            Ratification
      of appointment of Davis Kinard & Co, PC as auditors for the fiscal
      year ended June 30, 2010:





For
                      
                      
                      Against
                      
                      
                      Abstain983,531
                      
                      
                      
                      60
                      
                      
                      
                      625




Item
      5.
              Other
      Information.





None.





Item
      6.
            Exhibits.





31.1
Certification by Peter J. Johnson, Chief Executive Officer, pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 (a) of the Sarbanes-Oxley Act of 2002.





31.2
Certification by Clint J. Morrison, Chief Financial Officer, pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 (a) of the Sarbanes-Oxley Act of 2002.





32.1
Certification by Peter J. Johnson, Chief Executive Officer, and Clint J.
Morrison, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





-
28-





EAGLE
BANCORP AND SUBSIDIARY




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
      BANCORPDate:   February
      16, 2010
                  By:
                  /s/ Peter
      J. JohnsonPeter
      J. JohnsonPresident/CEODate:   February
      16, 2010
                  By:
                  /s/ Clint
      J. MorrisonClint
      J. MorrisonSenior
      Vice
President/CFO




-
29-