(PHOTO)

September 15, 2008

To Our Stockholders,
Customers, and Friends:

The Board of Directors,
management, and staff of Eagle Bancorp and its wholly owned subsidiary,
American Federal Savings Bank, are pleased to present our annual report for our
fiscal year ended June 30, 2008.

I am pleased to report that
the Company has performed well notwithstanding national developments that have
adversely impacted many financial institutions operating in other markets.
Montana in general, and our local markets, have avoided the economic downturn
experienced in other parts of the country. Our credit quality remains
excellent, with extremely low loan delinquency rates compared to our peers.

However, as you have learned
from extensive coverage in local and national media there continue to be
significant challenges facing the banking industry. These challenges include an
environment of credit quality problems and the housing related slowdown.
Perhaps the most dramatic evidence of the challenges still facing residential
lenders and the pace of the housing recovery occurred very recently. On Sunday,
September 7th, Treasury Secretary Henry Paulson announced a plan
whereby both Fannie Mae and Freddie Mac were placed into conservatorship under
the control of the Federal Housing Finance Agency, the principal regulator of
Fannie and Freddie. Treasury will, as part of this plan, receive $1 billion of
senior preferred stock, with warrants representing an ownership stake of nearly
80 percent of Fannie and Freddie. The dividends on the preferred stock have
been suspended, but the securities continue to exist but in materially less
valuable form given the dilution caused by the senior securities issued to
Treasury and the suspension of the dividend. The Companys performance reflects
its success in meeting these challenges. Our year has been a successful one,
with an increase in net income of $332,000, or 18.7% over the previous year.
Basic earnings per share increased from $1.66 to $1.97. Three main factors need
to be taken into consideration when reviewing this years results and our
anticipated performance for next year.

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Short-term interest rates declined over the past year, with
 long-term interest rates remaining at their previous level. This return to a
 more normal positively sloped yield curve provided the Company with the
 opportunity to reduce funding costs and widen its net interest margin. Net
 interest income (before provision for loan losses), our main component of
 core earnings, increased 11.2%.                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | The Company adopted SFAS
 159, The Fair Value Option for Financial
 Assets and Financial Liabilities, at the beginning of the year to
 account for its holdings of FNMA and FHLMC preferred stock. Changes in market
 value of these securities flow through the income statement. Due to the
 distressed situation in the national housing market, FNMA and FHLMC have experienced financial
 difficulties during our fiscal year ending June 30th, which was reflected in the
 decline in value of the Companys holdings of the agencies preferred stock
 in the amount of $511,000. In light of the events described above, the
 Company will recognize an additional loss on its Fannie and Freddie preferred
 stock in the first quarter 2009. Please see the management discussion and
 analysis in the attached 10-KSB for further information.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | The Company took
 $175,000 back into income after evaluating the levels of its loan loss
 reserves. While this may seem counterintuitive given problems experienced
 recently by many financial institutions, the Companys level of
 non-performing loans as a percentage of assets decreased again, from an
 already very low 0.09% to 0.01%. Our continued conservative underwriting and
 strong local economies, along with other qualitative measures, were also
 considered when determining the proper level of our loan loss reserves.                                                                                                                                                                                                                                                                                                          

Growth in assets increased
to 14.39% (compared to last years growth of 8.15%), with loans receivable
increasing by 10.12%. Asset growth coupled with our stock repurchase program
lowered our core capital

---



ratio from 9.85% to 9.16%.
Deposit growth was flat. As has been the case the last few years, the funding
side of our business continues to be our greatest challenge. We have many
sources of additional liquidity available to us and have used these to manage
our interest costs and to manage our balance sheet.

Our plan for the coming year
includes managing growth in assets by funding growth in the loan portfolio with
modest deposit growth and maturities and repayments from our investment
portfolio. An emphasis will be placed on growing the Companys commercial and
commercial real estate loan portfolios.

The fiscal year just ended
marks the first year we were subject to the Section 404 provisions of the
Sarbanes-Oxley Act. Our management team has worked with our outside auditors,
internal auditors and staff to ensure we are in compliance with these
provisions.

We also continue to expand
our footprint in the communities we serve. We are pleased to announce that
construction is proceeding on our new full service branch in the Skyway Mall in
Helena. The opening is expected by the end of the calendar year. The Helena
market continues to grow, and this will allow us to participate in the growth
at the north end of the city. Construction has also begun in Bozeman on our new
Oak Street location. We expect that office to open in the fall of 2009. Plans
are underway for a remodel of our Townsend office. We have recently installed a
drive-up ATM at that office, the only one in the area.

This past spring we launched
a new checking account lineup, coordinated with an expanded marketing campaign.
This has generated excitement among our staff along with a significant increase
in new account openings. Our employee incentive program was also revamped
during the year, tying it to the goals from the Companys business plan.

We sincerely appreciate the
continuing trust and loyalty of our constituencies  Stockholders,
Customers, Employees and Communities. We will work to earn your continued
confidence as we thank you for the privilege of serving you!

Very Sincerely,

-s- Peter J. Johnson

Peter J. Johnson
President/CEO

---



---

---

U.S.
SECURITIES AND EXCHANGE COMMISSION  Washington,
D.C. 20549


FORM 10-KSB

|                                                                                                                                                              
|--------------------------------------------------------------------------------------------------------------------------------------------------------------
|(Mark One)                                                                                                                                                    
|x          Annual
 report under section 13 or 15(d) of the Securities Exchange Act of 1934 for
 the fiscal year ended June 30, 2008.                          
|o          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                                
|                                              
|(Name of small business issuer 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)                        |  | (Zip
 Code)                          

|                           |                                   
|-------------------------- | ----------------------------------
|Issuers telephone number: | (406) 442-3080                    
|                           |                                   
|                           | www.americanfederalsavingsbank.com

|                                                             |  |                                      
|------------------------------------------------------------ |  | -------------------------------------
|Securities to be registered
 under Section 12(b) of the Act: |  |                                      
|Title
 of class                                              |  | Name of exchange on which
 registered
|                                                             |  |                                      
|None                                                         |  | N/A                                  
|                                                             |  |                                      
|                                                             |  |                                      
|Securities to be registered
 under Section 12(g) of the Act: |  |                                      

|                                        
|----------------------------------------
|Common
 stock, par value $0.01 per share
|                                        
|(Title
 of class)                       

Check whether the issuer is
not required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act. oCheck whether the issuer
(1) filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.

Yes     x          No     o

Check if there is no
disclosure of delinquent filers in response to Item 405 of Regulation S-B is
not contained in this form, and no disclosure will be contained, to the best of
registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
Indicate by check mark whether the registrant is a shell company (as required
in Rule 12b-2 of the Exchange Act). o
Issuers revenues for its most recent fiscal year
are     $16,322,000

The aggregate market value of
the common stock held by non-affiliates, computed by reference to the closing
price as of August 29, 2008, was $8,858,124.

As of August 29, 2008, there were
1,075,312 shares of common stock issued and outstanding.

Documents Incorporated By Reference

1.          Portions
of the proxy statements for the annual meeting of stockholders for the fiscal
years ended June 30, 2008 and June 30, 2007 and the Registration Statement on
Form SB-2 filed on December 20, 1999 are incorporated by reference in Part III
hereof.

|                                                            
|------------------------------------------------------------
|Transitional
 Small Business Disclosure
 Format (Check one):

Yes     o          No     x

---

---



TABLE OF CONTENTS

|          |  |  |                                                                                                                   |           |   
|--------- |  |  | ----------------------------------------------------------------------------------------------------------------- | --------- | --
|Item
 No. |  |  |                                                                                                                   | Page
 No.
|          |  |  |                                                                                                                   |          
|          |  |  | Part I                                                                                                            |           |   
|          |  |  |                                                                                                                   |           |   
|1         |  |  | Description of Business                                                                                           |           | 1 
|2         |  |  | Description of Property                                                                                           |           | 22
|3         |  |  | Legal Proceedings                                                                                                 |           | 23
|4         |  |  | Submission of Matters to a Vote of Security
Holders                                                               |           | 23
|          |  |  |                                                                                                                   |           |   
|          |  |  | Part II                                                                                                           |           |   
|          |  |  |                                                                                                                   |           |   
|5         |  |  | Market for Common Equity, Related Stockholder Matters
 and Small Business Issuers Purchases of Equity Securities |           | 23
|5C        |  |  | Small Business Issuer Purchases of Equity
Securities                                                              |           | 24
|6         |  |  | Managements Discussion and Analysis or Plan of
 Operation                                                        |           | 24
|7         |  |  | Financial Statements                                                                                              |           | 32
|         
|8A        |  |  | Controls and Procedures                                                                                           |           | 32
|8B        |  |  | Other Information                                                                                                 |           | 33
|          |  |  |                                                                                                                   |           |   
|          |  |  | Part III                                                                                                          |           |   
|          |  |  |                                                                                                                   |           |   
|9         |  |  | Directors, Executive Officers, Promoters and Control
 Persons; Compliance with Section 16(a) of the Exchange Act  |           | 34
|10        |  |  | Executive Compensation                                                                                            |           | 34
|11        |  |  | Security Ownership of Certain Beneficial Owners, and
 Management and Related Stockholder Matters                  |           | 34
|12        |  |  | Certain Relationships and Related
Transactions                                                                    |           | 34
|13        |  |  | Exhibits                                                                                                          |           | 34
|14        |  |  | Principal Accountant Fees and Services                                                                            |           | 34

---



PART I

ITEM 1. DESCRIPTION OF BUSINESS.

General

Eagle Bancorp (Eagle or
the Company), a federally chartered stock holding company holds 100% of the
Stock of American Federal Savings Bank (American Federal or the Bank). Its
charter was approved on April 4, 2000, when it became the mid-tier stock
holding company for the Bank, a federally chartered stock savings bank
headquartered in Helena, Montana. Eagle Bancorps principal business is to hold
the capital stock of American Federal. Upon the reorganization and conversion
to stock form of American Federal Savings Bank, Eagle Bancorp issued 575,079
shares of its common stock, par value $.01 per share (the Common Stock) to
the public at a price of $8 per share. That represented approximately 47% of
the issued and outstanding shares of the Common Stock. The remaining 648,493
shares of the Common Stock are held by Eagle Financial MHC, Eagle Bancorps
mutual holding company.

American Federal was founded
in 1922 as a Montana chartered building and loan association and has conducted
operations in Helena since that time. In 1975, the Bank adopted a federal
thrift charter. The Bank currently has four full service offices and one
satellite branch. We also have six automated teller machines located in our
market area and we participate in the CashCard and Money Pass ATM networks. The
Banks website can be found at www.americanfederalsavingsbank.com.

Business Strategy

Since our founding in Helena
in 1922, we have operated in the southcentral portion of Montana. Since the
advent of NOW accounts and low and no cost checking or other transaction
accounts, we have sought to operate in a fashion similar to a commercial bank
offering these kinds of deposits and changing our emphasis on home mortgage
lending by broadening and diversifying the kind of loans we offer. As a result
of these efforts, we provide full retail banking services, including one- to
four-family residential mortgage loans, home equity loans, lines of credit,
consumer loans, commercial real estate loans and commercial loans for
businesses as well as certificates of deposit, checking accounts, NOW accounts,
savings accounts and money market accounts.

We attract deposits from the
general public and use these deposits primarily to originate loans and to
purchase investment securities. The principal sources of funds for lending and
investing activities are deposits, Federal Home Loan Bank advances and other
borrowings, the repayment, sale and maturity of loans and sale and maturity of
securities. The principal sources of income are interest on loans and
investments. The principal expense is interest paid on deposits and Federal
Home Loan Bank advances and other borrowings.

Market Area

From our headquarters in
Helena, Montana, we operate four full service retail banking offices, including
our main office, and one satellite branch. Our satellite branch is located in
Helena and our other full service branches are located in Bozeman (opened
1980), Butte (opened 1979) and Townsend (opened 1979), Montana. A fifth branch
will be opening in Helena in late 2008.

Montana is one of the
largest states in terms of land mass but ranks as one of the least populated
states. As of the 2000 census it had a population of 902,000. Helena, where we
are headquartered, is the county seat of Lewis and Clark County, which has a
population of approximately 59,300 and is located within 120 miles of four of
Montanas other five largest cities: Missoula, Great Falls, Bozeman and Butte.
It is approximately midway between Yellowstone and Glacier National Parks.
Helena is also Montanas state capital. Its economy has shown moderate growth,
in terms of both employment and income. State government and the numerous
offices of the federal government comprise the largest employment sector.
Helena also has significant employment in the service industries. Specifically,
it has evolved into a central health care center with employment in the medical
and the supporting professions as well as the medical insurance industry. The
local economy is also dependent to a lesser extent upon ranching and agriculture.
These have been more cyclical in nature and remain vulnerable to severe weather
conditions, increased competition, both domestic and international, as well as
commodity prices.

1

---



Bozeman is approximately 95
miles southeast of Helena. It is located in Gallatin County, which has a
population of approximately 80,900. Bozeman is home to Montana State University
and has achieved its recent growth in part due to the growth of the University
as well as the increased tourism for resort areas in and near Bozeman.
Agriculture, however, remains an important part of Bozemans economy. Bozeman
has also become an attractive location for retirees, primarily from the West
Coast, owing to its many winter and summer recreational opportunities and the
presence of the University.

Butte, Montana is
approximately 64 miles southwest of Helena. Butte and the surrounding
Silver-Bow County have a population of approximately 32,800. Buttes economy is
somewhat reliant on the mining industry. Buttes economy has benefited recently
from the increases in mineral commodity prices.

Townsend is the smallest
community in which we operate. It has a population of about 2,000. Many of its
residents commute to other Montana locations for work. Other employment in
Townsend is primarily in agriculture and services. Townsend is approximately 32
miles southeast of Helena.

Competition

We face strong competition
in our primary market area for the attraction of retail deposits and the
origination of loans. Historically, Montana was a unit banking state. This
means that the ability of Montana state banks to create branches was either
prohibited or significantly restricted. As a result of unit banking, Montana
has a significant number of independent financial institutions serving a single
community in a single location. While the states population is approximately
945,000 people, there are 65 credit unions in Montana as well as two federally
chartered thrift institutions, and 79 commercial banks as of June 30, 2008. Our
most direct competition for depositors has historically come from locally owned
and out-of-state commercial banks, thrift institutions and credit unions
operating in our primary market area. The number of such competitor locations
has increased significantly in recent years. Our competition for loans also
comes from banks, thrifts and credit unions in addition to mortgage bankers and
brokers. Our principal market areas can be characterized as markets with
moderately increasing incomes, low unemployment, increasing wealth (particularly
in the growing resort areas such as Bozeman), and moderate population growth.

Lending Activities

General.American Federal
Savings Bank primarily originates one- to four-family residential real estate
loans and, to a lesser extent, commercial real estate loans, real estate
construction loans, home equity loans, consumer loans and commercial loans.
Commercial real estate loans include loans on multi-family dwellings, loans on
nonresidential property and loans on developed and undeveloped land. Home
equity loans include loans secured by the borrowers primary residence.
Typically, the property securing such loans is subject to a prior lien.
Consumer loans consist of loans secured by collateral other than real estate,
such as automobiles, recreational vehicles and boats. Personal loans and lines
of credit are made on deposits held by the Bank and on an unsecured basis.
Commercial loans consist of business loans and lines of credit on a secured and
unsecured basis.

2

---



Loan Portfolio Composition.The following table
analyzes the composition of the Banks loan portfolio by loan category at the
dates indicated.

|                                     |  |                        |         |                   |  |        |   |                   |         |   |  |        |  
|------------------------------------ |  | ---------------------- | ------- | ----------------- |  | ------ | - | ----------------- | ------- | - |  | ------ | -
|                                     |  | At June 30,            |        
|                                     |  |                        |        
|                                     |  | 2008                   |         | 2007              | 
|                                     |  |                        |         |                   | 
|                                     |  | (Dollars in thousands) |        
|                                     |  |                        |        
|                                     |  | Amount                 |         | Percent of
 Total |  | Amount |   | Percent of
 Total |        
|                                     |  |                        |         |                   |  |        |   |                   |        
|                                     |  |                        |         |                   |  |        |   |                   |         |   |  |        |  
|First mortgage loans:                |  |                        |         |                   |  |        |   |                   |         |   |  |        |  
|Residential mortgage (1-4
family)(1) |  | $                      | 86,751  |                   |  | 51.53  | % | $                 | 81,958  |   |  | 51.68  | %
|Commercial real estate(1)            |  |                        | 28,197  |                   |  | 16.75  | % |                   | 25,621  |   |  | 16.16  | %
|Real estate construction             |  |                        | 7,317   |                   |  | 4.35   | % |                   | 8,253   |   |  | 5.20   | %
|                                     |  |                        |         |                   |  |        |   |                   |         |   |  |        |  
|Total first mortgage loans           |  |                        | 122,265 |                   |  | 72.62  | % |                   | 115,832 |   |  | 73.04  | %
|                                     |  |                        |         |                   |  |        |   |                   |         |   |  |        |  
|                                     |  |                        |         |                   |  |        |   |                   |         |   |  |        |  
|Other
 loans:                        |  |                        |         |                   |  |        |   |                   |         |   |  |        |  
|Home equity                          |  |                        | 28,034  |                   |  | 16.65  | % |                   | 24,956  |   |  | 15.74  | %
|Consumer                             |  |                        | 11,558  |                   |  | 6.87   | % |                   | 11,438  |   |  | 7.21   | %
|Commercial                           |  |                        | 6,502   |                   |  | 3.86   | % |                   | 6,366   |   |  | 4.01   | %
|                                     |  |                        |         |                   |  |        |   |                   |         |   |  |        |  
|Total other loans                    |  |                        | 46,094  |                   |  | 27.38  | % |                   | 42,760  |   |  | 26.96  | %
|                                     |  |                        |         |                   |  |        |   |                   |         |   |  |        |  
|                                     |  |                        |         |                   |  |        |   |                   |         |   |  |        |  
|Total
 loans                         |  |                        | 168,359 |                   |  | 100.00 | % |                   | 158,592 |   |  | 100.00 | %
|                                     |  |                        |         |                   |  |        |   |                   |         |   |  |        |  
|Less:                                |  |                        |         |                   |  |        |   |                   |         |   |  |        |  
|Deferred loan fees:                  |  |                        | (90     | )                 |  |        |   |                   | (66     | ) |  |        |  
|Allowance for loan losses            |  |                        | 300     |                   |  |        |   |                   | 518     |   |  |        |  
|                                     |  |                        |         |                   |  |        |   |                   |         |   |  |        |  
|                                     |  |                        |         |                   |  |        |   |                   |         |   |  |        |  
|Total loans, net                     |  | $                      | 168,149 |                   |  |        |   | $                 | 158,140 |   |  |        |  
|                                     |  |                        |         |                   |  |        |   |                   |         |   |  |        |  

|                                 
|---------------------------------
|                                 
|(1) Excludes loans held for sale.

Fee Income.American Federal
Savings Bank receives lending related fee income from a variety of sources. Its
principal source of this income is from the origination and servicing of sold
mortgage loans. Fees generated from mortgage loan servicing, which generally
consists of collecting mortgage payments, maintaining escrow accounts,
disbursing payments to investors and foreclosure processing for loans held by
others, were $542,000 and $533,000 for the years ended June 30, 2008 and 2007,
respectively. Other loan related fee income for contract collections, late
charges, credit life commissions and credit card fees were $61,000 and $83,000
for the years ended June 30, 2008 and 2007, respectively.

Loan Maturity Schedule.The following table
sets forth the estimated maturity of the loan portfolio of the Bank at June 30,
2008. Scheduled principal repayments of loans do not necessarily reflect the
actual life of such assets. The average life of a loan is typically
substantially less than its contractual terms because of prepayments. In
addition, due on sale clauses on loans generally give American Federal Savings
Bank the right to declare loans immediately due and payable in the event, among
other things, that the borrower sells the real property, subject to the
mortgage, and the loan is not paid off. All mortgage loans are shown to be
maturing based on the date of the last payment required by the loan agreement,
except as noted.

3

---



Loans having
no stated maturity, those without a scheduled payment, demand loans and matured
loans, are shown as due within six months.

|                                     |  |                  |       |                 |   |                               |  |                                |       |               |   |        |  |   |         |  |   |         | 
|------------------------------------ |  | ---------------- | ----- | --------------- | - | ----------------------------- |  | ------------------------------ | ----- | ------------- | - | ------ |  | - | ------- |  | - | ------- | 
|                                     |  | Within 6
 Months |       | 6 to 12
 Months |   | More than
 1 year to
 2 years |  | More than
 2 years to
 5 years |       | Over 5
 years |   | Total  | 
|                                     |  |                  |       |                 |   |                               |  |                                |       |               |   |        | 
|                                     |  | (In thousands)   |      
|                                     |  |                  |      
|Residential mortgage (1-4 family)(1) |  | $                |      |                 | $ | 707                           |  | $                              | 121   |               | $ | 2,475  |  | $ | 84,892  |  | $ | 88,195  | 
|Commercial real estate and land(1)   |  |                  |      |                 |   | 4,072                         |  |                                | 1,402 |               |   | 6,963  |  |   | 21,767  |  |   | 34,204  | 
|Real estate construction             |  |                  | 619   |                 |   | 5,667                         |  |                                | 957   |               |   |       |  |   |        |  |   | 7,243   | 
|Home equity                          |  |                  | 244   |                 |   | 1,125                         |  |                                | 3,141 |               |   | 9,967  |  |   | 13,497  |  |   | 27,974  | 
|Consumer                             |  |                  | 274   |                 |   | 2,218                         |  |                                | 915   |               |   | 5,798  |  |   | 2,412   |  |   | 11,617  | 
|Commercial                           |  |                  | 90    |                 |   | 2,143                         |  |                                | 858   |               |   | 2,074  |  |   | 1,331   |  |   | 6,496   | 
|                                     |  |                  |       |                 |   |                               |  |                                |       |               |   |        |  |   |         |  |   |         | 
|                                     |  |                  |       |                 |   |                               |  |                                |       |               |   |        |  |   |         |  |   |         | 
|Total Loans (1)                      |  | $                | 1,227 |                 | $ | 15,932                        |  | $                              | 7,394 |               | $ | 27,277 |  | $ | 123,899 |  | $ | 175,729 | 
|                                     |  |                  |       |                 |   |                               |  |                                |       |               |   |        |  |   |         |  |   |         | 

|                                 | 
|-------------------------------- | 
|                                 | 
|(1)Includes
 loans held for sale

The following
table sets forth the dollar amount of all loans, at June 30, 2008, due after June
30, 2009, which have fixed interest rates and which have floating or adjustable
interest rates:

|                                  |  |                        |         |            |   |        |   |   |         |  
|--------------------------------- |  | ---------------------- | ------- | ---------- | - | ------ | - | - | ------- | -
|                                  |  | Fixed                  |         | Adjustable |   | Total  |  
|                                  |  |                        |         |            |   |        |  
|                                  |  | (Dollars in thousands) |        
|                                  |  |                        |         |            |   |        |   |   |         |  
|Residential mortgage (1-4 family) |  | $                      | 68,517  |            | $ | 18,970 |   | $ | 87,487  |  
|Commercial real estate            |  |                        | 27,243  |            |   | 2,889  |   |   | 30,132  |  
|Real estate construction          |  |                        | 957     |            |   |       |   |   | 957     |  
|Home equity                       |  |                        | 24,693  |            |   | 1,912  |   |   | 26,605  |  
|Consumer                          |  |                        | 8,728   |            |   | 397    |   |   | 9,125   |  
|Commercial                        |  |                        | 4,183   |            |   | 80     |   |   | 4,263   |  
|                                  |  |                        |         |            |   |        |   |   |         |  
|                                  |  |                        |         |            |   |        |   |   |         |  
|Total (1)                         |  | $                      | 134,321 |            | $ | 24,248 |   | $ | 158,569 |  
|                                  |  |                        |         |            |   |        |   |   |         |  
|                                  |  |                        |         |            |   |        |   |   |         |  
|Percent of total                  |  |                        | 84.71   | %          |   | 15.29  | % |   | 100.00  | %

|                             | 
|---------------------------- | 
|                             | 
|(1)Due
 after June 30, 2009.

4

---



The following
table sets forth information with respect to our loan originations, purchases
and sales activity for the periods indicated.

|                                                 |  |                |         |      |   |         |  
|------------------------------------------------ |  | -------------- | ------- | ---- | - | ------- | -
|                                                 |  | Ended June 30, |        
|                                                 |  | 2008           |         | 2007 |  
|                                                 |  |                |         |      |  
|                                                 |  | (In thousands) |        
|Net loans receivable(1) at beginning of
 period: |  | $              | 159,315 |      | $ | 141,776 |  
|                                                 |  |                |         |      |   |         |  
|Loans originated:                                |  |                |         |      |   |         |  
|Residential mortgage (1-4 family)                |  |                | 72,385  |      |   | 64,622  |  
|Commercial real estate & Land                    |  |                | 19,375  |      |   | 10,763  |  
|Real estate construction                         |  |                | 15,504  |      |   | 18,043  |  
|Home equity                                      |  |                | 20,461  |      |   | 16,780  |  
|Consumer                                         |  |                | 7,637   |      |   | 5,899   |  
|Commercial loans                                 |  |                | 8,243   |      |   | 2,777   |  
|                                                 |  |                |         |      |   |         |  
|                                                 |  |                |         |      |   |         |  
|Total loans originated                           |  |                | 143,605 |      |   | 118,884 |  
|                                                 |  |                |         |      |   |         |  
|                                                 |  |                |         |      |   |         |  
|Loans sold:                                      |  |                |         |      |   |         |  
|Whole loans                                      |  |                | 47,732  |      |   | 42,840  |  
|Commercial Construction                          |  |                | 4,341   |      |   |        |  
|                                                 |  |                |         |      |   |         |  
|                                                 |  |                |         |      |   |         |  
|Total loans sold                                 |  |                | 52,073  |      |   | 42,840  |  
|                                                 |  |                |         |      |   |         |  
|                                                 |  |                |         |      |   |         |  
|Principal repayments and loan refinancings       |  |                | 75,522  |      |   | 58,515  |  
|                                                 |  |                |         |      |   |         |  
|Deferred loan fees decrease (increase)           |  |                | (24     | )    |   | (7      | )
|                                                 |  |                |         |      |   |         |  
|Allowance for loans decrease (increase)          |  |                | 218     |      |   | 17      |  
|                                                 |  |                |         |      |   |         |  
|Net loan increase (decrease)                     |  |                | 16,204  |      |   | 17,539  |  
|                                                 |  |                |         |      |   |         |  
|Net loans receivable(1) at end of period         |  |                |         |      |   |         |  
|                                                 |  | $              | 175,519 |      | $ | 159,315 |  
|                                                 |  |                |         |      |   |         |  

|                                  | 
|--------------------------------- | 
|                                  | 
|(1)Includes
 loans held for sale.

Residential Lending

The Banks
primary lending activity consists of the origination of one-to-four-family
residential mortgage loans secured by property located in the Banks market
area. Approximately 51.53% of the banks loans as of June 30, 2008 were
comprised of such loans. American Federal generally originates one-
to-four-family residential mortgage loans in amounts up to 80% of the lesser of
the appraised value or the selling price of the mortgaged property without
requiring private mortgage insurance. A mortgage loan originated by the Bank,
whether fixed rate or adjustable rate, can have a term of up to 30 years. The
Bank holds substantially all of its adjustable rate and its 8, 10 and 12-year
fixed rate loans in portfolio. Adjustable rate loans limit the periodic
interest rate adjustment and the minimum and maximum rates that may be charged
over the term of the loan. The Banks fixed rate 15-year and 20-year loans are held
in portfolio or sold in the secondary market depending on market conditions.
Generally, all 30-year fixed rate loans are sold in the secondary market. The
volume of loan sales is dependent on the volume, type and term of loan
originations.

5

---



The Bank
obtains a significant portion of its noninterest income from servicing loans
sold. The Bank offers many of the fixed rate loans it originates for sale in
the secondary market on a servicing retained basis. This means that we process
the borrowers payments and send them to the purchaser of the loan. This
retention of servicing enables the Bank to increase fee income and maintain a
relationship with the borrower. Servicing income was $542,000 for the year
ended June 30, 2008. At June 30, 2008, American Federal Savings Bank had
$197.67 million in residential mortgage loans sold with servicing retained.
American Federal Savings Bank does not ordinarily purchase home mortgage loans
from other financial institutions.

Property
appraisals on real estate securing the Banks single-family residential loans
are made by state certified and licensed independent appraisers who are
approved annually by the board of directors. Appraisals are performed in
accordance with applicable regulations and policies. American Federal Savings
Bank generally obtains title insurance policies on all first mortgage real
estate loans originated. On occasion, refinancings of mortgage loans are
approved using title reports instead of title insurance. Title reports are also
allowed on home equity loans. Borrowers generally remit funds with each monthly
payment of principal and interest, to a loan escrow account from which American
Federal Savings Bank makes disbursements for such items as real estate taxes
and hazard and mortgage insurance premiums as they become due.

Home Equity Loans.

American
Federal Savings Bank also originates home equity loans. These loans are secured
by the borrowers primary residence, but are typically subject to a prior lien,
which may or may not be held by the Bank. At June 30, 2008, $28.03 million or
16.65% of our total loans, were home equity loans. Borrowers may use the
proceeds from the Banks home equity loans for many purposes, including home
improvement, debt consolidation, or other purchasing needs. The Bank offers
fixed rate, fixed payment home equity loans as well as variable and fixed rate
home equity lines of credit. Fixed rate home equity loans typically have terms
of no longer than fifteen years.

Although home
equity loans are secured by real estate, they carry a greater risk than first
lien residential mortgages because of the existence of a prior lien on the
property securing the loan, as well as the flexibility the borrower has with
respect to the loan proceeds. American Federal Savings Bank attempts to
minimize this risk by maintaining conservative underwriting policies on such
loans. We generally make home equity loans for up to only 85% of appraised
value of the underlying real estate collateral, less the amount of any existing
prior liens on the property securing the loan.

Commercial Real Estate.

American
Federal Savings Bank originates commercial real estate mortgage loans,
including both developed and undeveloped land loans, and loans on multi-family
dwellings. Commercial real estate loans made up 16.75% of the Banks total loan
portfolio, or $28.20 million at June 30, 2008. The majority of these loans are
non-residential commercial real estate loans. American Federal Savings Banks
commercial real estate mortgage loans are primarily permanent loans secured by
improved property such as office buildings, retail stores, commercial
warehouses and apartment buildings. The terms and conditions of each loan are
tailored to the needs of the borrower and based on the financial strength of
the project and any guarantors. Generally, commercial real estate loans
originated by the Bank will not exceed 75% of the appraised value or the
selling price of the property, whichever is less. The average loan size is
approximately $174,000 and is typically made with fixed rates of interest and
five to 15 year maturities. Upon maturity, the loan is repaid or the terms and
conditions are renegotiated. Generally, all originated commercial real estate
loans are within the market area of the Bank and all are within the state of
Montana. American Federal Savings Banks largest single commercial real estate
loan had a balance of approximately $7,500,000 on June 30, 2008, and is secured
by a commercial office building. The Bank sold $6.0 million of that loan on
July 9, 2008 which was included in loans held for sale as of June 30, 2008.

6

---



Real Estate Construction Lending.

American
Federal Savings Bank also lends funds for the construction of one-
to-four-family homes and commercial real estate. Real estate construction loans
are made both to individual homeowners for the construction of their primary
residence and, to a lesser extent, to local builders for the construction of
pre-sold houses or houses that are being built for sale in the future. Real
estate construction loans accounted for $7.30 million or 4.35% of the Banks
loan portfolio at June 30, 2008.

Consumer Loans.

As part of its
strategy to invest in higher yielding shorter term loans, American Federal
Savings Bank emphasized growth of its consumer lending portfolio in recent
years. This portfolio includes personal loans secured by collateral other than
real estate, unsecured personal loans and lines of credit, and loans secured by
deposits held by the Bank. As of June 30, 2008, consumer loans totaled $11.56
million or 6.87% of the Banks total loan portfolio. These loans consist
primarily of auto loans, RV loans, boat loans, personal loans and credit lines
and deposit account loans. Consumer loans are originated in the Banks market
area and generally have maturities of up to 7 years. For loans secured by
savings accounts, American Federal Savings Bank will lend up to 90% of the
account balance on single payment loans and up to 100% for monthly payment
loans.

Consumer loans
have a shorter term and generally provide higher interest rates than
residential loans. Consumer loans can be helpful in improving the spread
between average loan yield and cost of funds and at the same time improve the
matching of the maturities of rate sensitive assets and liabilities. Increasing
its consumer loans has been a major part of the Banks strategy of operating
more like a commercial bank than a traditional savings bank.

The
underwriting standards employed by American Federal Savings Bank for consumer
loans include a determination of the applicants credit history and an
assessment of the applicants ability to meet existing obligations and payments
on the proposed loan. The stability of the applicants monthly income may be
determined by verification of gross monthly income from primary employment, and
additionally from any verifiable secondary income. Creditworthiness of the
applicant is of primary consideration; however, the underwriting process also
includes a comparison of the value of the collateral in relation to the
proposed loan amount.

Commercial Loans.

Commercial
loans amounted to $6.50 million, or 3.86% of the Banks total loan portfolio at
June 30, 2008. American Federal Savings Banks commercial loans are traditional
business loans and are not secured by real estate. Such loans may be structured
as unsecured lines of credit or may be secured by inventory, accounts
receivable or other business assets. While the commercial loan portfolio
amounts to only 3.86% of the total portfolio at June 30, 2008, American Federal
Savings Bank intends to increase such lending by focusing on market segments
which it has not previously emphasized, such as business loans to doctors,
lawyers, architects and other professionals as well as to small businesses
within its market area. Our management believes that this strategy provides
opportunities for growth, without significant additional cost outlays for staff
and infrastructure.

Commercial
loans of this nature usually involve greater credit risk than 1-4 family
residential mortgage loans. The collateral we receive is typically related
directly to the performance of the borrowers business which means that
repayment of commercial loans is dependent on the successful operations and
income stream of the borrowers business. Such risks can be significantly
affected by economic conditions. In addition, commercial lending generally
requires substantially greater oversight efforts compared to residential real
estate lending.

Loans to One Borrower.

Under federal
law, savings institutions have, subject to certain exemptions, lending limits
to one borrower in an amount equal to the greater of $500,000 or 15% of the
institutions unimpaired capital and surplus. As of June 30, 2008, our largest
aggregation of loans to one borrower was approximately $7,500,000, consisting
of one commercial real estate loan secured an office building. With having a
commitment to sell eighty percent, or $6.0 million, of that loan, to the
Montana Board of Investments, the balance of $1.5 million is below the Banks
federal legal lending limit to one borrower of approximately $3.93 million. At
June 30, 2008, this loan was current, and on July 9, 2008 eighty percent, or
$6.0 million, of the loan was sold to the Montana Board of Investments as
described above. The Bank maintains the servicing for this loan.

7

---



Loan Solicitation and Processing.

Our customary
sources of mortgage loan applications include repeat customers, walk-ins, and
referrals from home builders and real estate brokers. We also advertise in
local newspapers and on local radio and television. We currently have the
ability to accept online mortgage loan applications and provide pre-approvals
through our website. Our branch managers and loan officers located at our
headquarters and in branches, have authority to approve certain types of loans
when presented with a completed application. Other loans must be approved at
our main offices as disclosed herein. No loan consultants or loan brokers are
currently used by us for either residential or commercial lending activities.

After
receiving a loan application from a prospective borrower, a credit report and
verifications are obtained to confirm specific information relating to the loan
applicants employment, income and credit standing. When required by our
policies, an appraisal of the real estate intended to secure the proposed loan
is undertaken by an independent fee appraiser. In connection with the loan
approval process, our staff analyze the loan applications and the property
involved. Officers and branch managers are granted lending authority based on
the kind of loan types where they possess expertise and their level of
experience. We have established a series of loan committees to approve any
loans which may exceed the lending authority of particular officers or branch
managers. A quorum (five) of the board of directors is required for approval of
any loan, or aggregation of loans to a single borrower, that exceeds
$1,250,000.

Loan
applicants are promptly notified of the decision by a letter setting forth the
terms and conditions of the decision. If approved, these terms and conditions
include the amount of the loan, interest rate basis, amortization term, a brief
description of real estate to be mortgaged, tax escrow and the notice of
requirement of insurance coverage to be maintained. We generally require title
insurance on first mortgage loans and fire and casualty insurance on all
properties securing loans, which insurance must be maintained during the entire
term of the loan.

Loan Commitments.

We generally
provide commitments to fund fixed and adjustable-rate single-family mortgage
loans for periods up to 60 days at a specified term and interest rate, and
other loan categories for shorter time periods. The total amount of our
commitments to extend credit as of June 30, 2008, was approximately $8.37
million, $7.78 million of which was for residential mortgage loans.

Non-performing Loans and Problem Assets

Collection Procedures

Generally, our
collection procedures provide that when a loan is 15 or more days delinquent,
the borrower is notified with a past due notice. If the loan becomes 30 days
delinquent, the borrower is sent a written delinquent notice requiring payment.
If the delinquency continues, subsequent efforts are made to contact the
delinquent borrower, including face to face meetings and counseling to resolve
the delinquency. All collection actions are undertaken with the objective of
compliance with the Fair Debt Collection Act.

For mortgage
loans and home equity loans, if the borrower is unable to cure the delinquency
or reach a payment agreement, we will institute foreclosure actions. If a
foreclosure action is taken and the loan is not reinstated, paid in full or
refinanced, the property is sold at judicial sale at which we may be the buyer
if there are no adequate offers to satisfy the debt. Any property acquired as
the result of foreclosure or by deed in lieu of foreclosure is classified as
real estate owned until such time as it is sold or otherwise disposed of. When
real estate owned is acquired, it is recorded at the lower of the unpaid
principal balance of the related loan or its fair market value less estimated
selling costs. The initial recording of any loss is charged to the allowance
for loan losses. As of June 30, 2008, American Federal Savings Bank had no real
estate owned.

Loans are
reviewed on a quarterly basis and are placed on non-accrual status when they
are more than 90 days delinquent. Loans may be placed on non-accrual status at
any time if, in the opinion of management, the collection of additional
interest is doubtful. Interest accrued and unpaid at the time a loan is placed
on non-accrual status is charged against interest income. Subsequent payments
are either applied to the outstanding principal balance or recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.
At June 30, 2008, we had $32,000 ($0.00 net of specific reserves) of loans that
were non-performing and held on non-accrual status.

8

---



Delinquent Loans.

The following
table provides information regarding the Banks loans that are delinquent 30 to
89 days at June 30, 2008:

|                              |  |                         |    |        |   |                                         |  |  |        |  
|----------------------------- |  | ----------------------- | -- | ------ | - | --------------------------------------- |  |  | ------ | -
|                              |  | Number                  |    | Amount |   | Percentage
 of Total
 Delinquent
 Loans | 
|                              |  |                         |    |        |   |                                         |  |  |        |  
|                              |  | (Dollars
 in thousands) |   
|Loan Type:                    |  |                         |    |        |   |                                         |  |  |        |  
|Mortgage (1-4 family)         |  |                         | 5  |        | $ | 285                                     |  |  | 31.75  | %
|Real estate construction      |  |                         |   |        |   |                                        |  |  | 0.00   | %
|Commercial real estate & Land |  |                         | 5  |        |   | 306                                     |  |  | 34.08  | %
|Home equity                   |  |                         | 5  |        |   | 209                                     |  |  | 23.27  | %
|Consumer                      |  |                         | 14 |        |   | 46                                      |  |  | 5.12   | %
|Commercial                    |  |                         | 1  |        |   | 52                                      |  |  | 5.79   | %
|                              |  |                         |    |        |   |                                         |  |  |        |  
|                              |  |                         |    |        |   |                                         |  |  |        |  
|Total                         |  |                         | 30 |        | $ | 898                                     |  |  | 100.00 | %
|                              |  |                         |    |        |   |                                         |  |  |        |  

Non-Performing Assets.

The following
table sets forth information regarding American Federal Savings Banks
non-performing assets as of the dates indicated. As of June 30, 2008 the Bank
had one loan considered to be a troubled debt restructuring within the meaning
of the Statement of Financial Accounting Standards No. 114. It was fully
reserved as of June 30, 2008 leaving a net $0.00 balance as of June 30, 2008.

|                                                                    |  |                        |      |      |   |      |  
|------------------------------------------------------------------- |  | ---------------------- | ---- | ---- | - | ---- | -
|                                                                    |  | At June 30,            |     
|                                                                    |  | 2008                   |      | 2007 |  
|                                                                    |  |                        |      |      |   |      |  
|                                                                    |  | (Dollars in thousands) |     
|Non-accrual loans                                                   |  | $                      | 32   |      | $ | 21   |  
|Accruing loans delinquent 90 days or more                           |  |                        |     |      |   | 191  |  
|Real estate owned                                                   |  |                        |     |      |   |     |  
|                                                                    |  |                        |      |      |   |      |  
|                                                                   
|Total                                                               |  | $                      | 32   |      | $ | 212  |  
|                                                                    |  |                        |      |      |   |      |  
|                                                                   
|Total non-performing loans as a percentage
 of total loan portfolio |  |                        | 0.02 | %    |   | 0.13 | %
|                                                                   
|Percentage of total assets                                          |  |                        | 0.01 | %    |   | 0.09 | %

During the
year ended June 30, 2008, the Bank had no foreclosures resulting in neither
gains nor losses. During the year ended June 30, 2008, no interest was recorded
on loans previously accounted for on a non-accrual basis.

Classified Assets.

Management, in
compliance with regulatory guidelines, conducts an internal loan review
program, whereby loans are placed or classified in categories depending upon
the level of risk of nonpayment or loss. These categories are special mention,
substandard, doubtful or loss. When a loan is classified as substandard or
doubtful, management is required to establish an allowance for loan losses in
an amount that is deemed prudent. When management classifies a loan as a loss
asset, a reserve equal to 100% of the loan balance is required to be
established or the loan is required to be charged-off. The allowance for loan
losses is composed of an allowance for both inherent risk associated with
lending activities and specific problem assets.

9

---



Managements
evaluation of the classification of assets and the adequacy of the allowance
for loan losses is reviewed by the Board on a regular basis and by the
regulatory agencies as part of their examination process. In addition, each
loan that exceeds $500,000 and each group of loans that exceeds $500,000 is
monitored more closely. The following table reflects our classified assets.

|                                             |  |                |     |      |   |     | 
|-------------------------------------------- |  | -------------- | --- | ---- | - | --- | 
|                                             |  | At June 30,    |    
|                                             |  | 2008           |     | 2007 |  
|                                             |  |                |     |      |   |     | 
|                                             |  | (In thousands) |    
|Residential mortgages (1-4 family):          |  |                |     |      |   |     | 
|Special mention                              |  | $              |    |      | $ |    | 
|Substandard                                  |  |                |    |      |   | 128 | 
|Doubtful                                     |  |                |    |      |   |    | 
|Loss                                         |  |                |    |      |   |    | 
|                                             |  |                |     |      |   |     | 
|Commercial Real Estate and Land:             |  |                |     |      |   |     | 
|Special mention                              |  |                |    |      |   |    | 
|Substandard                                  |  |                | 42  |      |   |    | 
|Doubtful                                     |  |                |    |      |   |    | 
|Loss                                         |  |                |    |      |   |    | 
|                                             |  |                |     |      |   |     | 
|Home equity loans:                           |  |                |     |      |   |     | 
|Special mention                              |  |                |    |      |   |    | 
|Substandard                                  |  |                |    |      |   | 9   | 
|Doubtful                                     |  |                |    |      |   |    | 
|Loss                                         |  |                | 32  |      |   | 31  | 
|                                             |  |                |     |      |   |     | 
|Consumer loans:                              |  |                |     |      |   |     | 
|Special mention                              |  |                |    |      |   |    | 
|Substandard                                  |  |                | 26  |      |   | 21  | 
|Doubtful                                     |  |                |    |      |   |    | 
|Loss                                         |  |                |    |      |   | 4   | 
|                                             |  |                |     |      |   |     | 
|Commercial loans:                            |  |                |     |      |   |     | 
|Special mention                              |  |                |    |      |   | 191 | 
|Substandard                                  |  |                |    |      |   | 7   | 
|Doubtful                                     |  |                |    |      |   |    | 
|Loss                                         |  |                |    |      |   |    | 
|                                             |  |                |     |      |   |     | 
|Real estate owned/repossessed property       |  |                |     |      |   |     | 
|Special mention                              |  |                |    |      |   |    | 
|Substandard                                  |  |                |    |      |   |    | 
|Doubtful                                     |  |                |    |      |   |    | 
|Loss                                         |  |                | 6   |      |   |    | 
|                                             |  |                |     |      |   |     | 
|                                             |  |                |     |      |   |     | 
|Total classified loans and real estate owned |  | $              | 106 |      | $ | 391 | 
|                                             |  |                |     |      |   |     | 

Allowance for Loan Losses and Real Estate
Owned.

The Bank
segregates its loan portfolio for loan losses into the following broad
categories: residential mortgages (1-4 family), commercial real estate, real
estate construction, commercial loans, home equity loans and consumer loans.
The Bank provides for a general allowance for losses inherent in the portfolio
by the above categories, which consists of two components. General loss
percentages are calculated based on historical analyses and other factors such
as volume and severity of delinquencies, local and national economy,
underwriting standards, and other factors. A supplemental portion of the
allowance is calculated for inherent losses which probably exist as of the evaluation
date even though they might not have been identified by the more objective
processes used. This is due to the risk of error and/or inherent imprecision in
the process.

10

---



This portion of the allowance is particularly subjective and requires
judgments based on qualitative factors which do not lend themselves to exact
mathematical calculations such as: trends in delinquencies and non-accruals;
trends in volume; terms and portfolio mix; new credit products; changes in
lending policies and procedures; and changes in the outlook for the local,
regional and national economy.

At least quarterly, the management of the Bank evaluates the need to
establish reserves against losses on loans and other assets based on estimated
losses on specific loans and on any real estate owned when a finding is made
that a loss is estimable and probable. Such evaluation includes a review of all
loans for which full collectibility may not be reasonably assured and
considers; among other matters; the estimated market value of the underlying
collateral of problem loans; prior loss experience; economic conditions; and
overall portfolio quality.

Provisions for, or adjustments to, estimated losses are included in
earnings in the period they are established. We had $300,000 in allowances for
loan losses at June 30, 2008.

While we believe we have established our existing allowance for loan
losses in accordance with generally accepted accounting principles, there can
be no assurance that bank regulators, in reviewing our loan portfolio, will not
request that we significantly increase our allowance for loan losses, or that
general economic conditions, a deteriorating real estate market, or other
factors will not cause us to significantly increase our allowance for loan
losses, therefore negatively affecting our financial condition and earnings.

In making loans, we recognize that credit losses will be experienced
and that the risk of loss will vary with, among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan and,
in the case of a secured loan, the quality of the security for the loan.

It is our policy to review our loan portfolio, in accordance with
regulatory classification procedures, on at least a quarterly basis.

The following table sets forth information with respect to our
allowance for loan losses at the dates indicated:

|                                                                             |  |                               |        |      |   |        |   
|---------------------------------------------------------------------------- |  | ----------------------------- | ------ | ---- | - | ------ | --
|                                                                             |  | For the Years Ended
 June 30, |       
|                                                                             |  | 2008                          |        | 2007 |  
|                                                                             |  |                               |        |      |  
|                                                                             |  | (Dollars in thousands)        |       
|                                                                             |  |                               |       
|Balance at beginning of period                                               |  | $                             | 518    |      | $ | 535    |   
|                                                                             |  |                               |        |      |   |        |   
|Loans charged-off                                                            |  |                               | (54    | )    |   | (29    | ) 
|Recoveries                                                                   |  |                               | 11     |      |   | 12     |   
|                                                                             |  |                               |        |      |   |        |   
|Net loans charged-off                                                        |  |                               | (43    | )    |   | (17    | ) 
|Provision for possible loan losses                                           |  |                               | (175   | )    |   |       |   
|                                                                             |  |                               |        |      |   |        |   
|Balance at end of period                                                     |  | $                             | 300    |      | $ | 518    |   
|                                                                             |  |                               |        |      |   |        |   
|Allowance for loan losses to total loans                                     |  |                               | 0.18   | %    |   | 0.33   | % 
|                                                                             |  |                               |        |      |   |        |   
|Allowance for loan losses to total
 non-performing loans                     |  |                               | 937.50 | %    |   | 244.34 | % 
|                                                                             |  |                               |        |      |   |        |   
|Net recoveries (charge-offs) to average
 loans outstanding during the period |  |                               | (0.03  | )%   |   | (0.01  | )%

11

---



The following
table presents our allocation of the allowance for loan losses by loan category
and the percentage of loans in each category to total loans at the periods
indicated.

|                                  |  |                        |     |                                               |  |                                          |   |        |        |                                               |   |                                          |  |  |        |   |  |        |  
|--------------------------------- |  | ---------------------- | --- | --------------------------------------------- |  | ---------------------------------------- | - | ------ | ------ | --------------------------------------------- | - | ---------------------------------------- |  |  | ------ | - |  | ------ | -
|                                  |  | 2008                   |     | 2007                                          | 
|                                  |  |                        |     |                                               | 
|                                  |  | (Dollars in thousands) |    
|                                  |  |                        |    
|                                  |  | Amount                 |     | Percentage
 of Allowance
 to Total
 Allowance |  | Loans in
 Each Category
 to Total
 Loans |   | Amount |        | Percentage
 of Allowance
 to Total
 Allowance |   | Loans in
 Each Category
 to Total
 Loans | 
|                                  |  |                        |     |                                               |  |                                          |   |        |        |                                               |   |                                          | 
|First Mortgage Loans:             |  |                        |     |                                               |  |                                          |   |        |        |                                               |   |                                          |  |  |        |   |  |        |  
|Residential mortgage (1-4 family) |  | $                      | 133 |                                               |  | 44.33                                    | % |        | 51.53  | %                                             | $ | 189                                      |  |  | 36.49  | % |  | 51.68  | %
|Commercial real estate            |  |                        | 34  |                                               |  | 11.33                                    | % |        | 16.75  | %                                             |   | 27                                       |  |  | 5.21   | % |  | 16.16  | %
|Real estate construction          |  |                        | 10  |                                               |  | 3.33                                     | % |        | 4.35   | %                                             |   | 13                                       |  |  | 2.51   | % |  | 5.20   | %
|                                  |  |                        |     |                                               |  |                                          |   |        |        |                                               |   |                                          |  |  |        |   |  |        |  
|Total mortgage loans              |  |                        | 177 |                                               |  | 59.00                                    | % |        | 72.62  | %                                             |   | 229                                      |  |  | 44.21  | % |  | 73.04  | %
|                                  |  |                        |     |                                               |  |                                          |   |        |        |                                               |   |                                          |  |  |        |   |  |        |  
|                                  |  |                        |     |                                               |  |                                          |   |        |        |                                               |   |                                          |  |  |        |   |  |        |  
|Other loans:                      |  |                        |     |                                               |  |                                          |   |        |        |                                               |   |                                          |  |  |        |   |  |        |  
|Home equity                       |  |                        | 62  |                                               |  | 20.67                                    | % |        | 16.65  | %                                             |   | 48                                       |  |  | 9.27   | % |  | 15.74  | %
|Consumer                          |  |                        | 51  |                                               |  | 17.00                                    | % |        | 6.87   | %                                             |   | 141                                      |  |  | 27.22  | % |  | 7.21   | %
|Commercial                        |  |                        | 10  |                                               |  | 3.32                                     | % |        | 3.86   | %                                             |   | 100                                      |  |  | 19.30  | % |  | 4.01   | %
|                                  |  |                        |     |                                               |  |                                          |   |        |        |                                               |   |                                          |  |  |        |   |  |        |  
|Total other loans                 |  |                        | 123 |                                               |  | 41.00                                    | % |        | 27.38  | %                                             |   | 289                                      |  |  | 55.79  | % |  | 26.96  | %
|                                  |  |                        |     |                                               |  |                                          |   |        |        |                                               |   |                                          |  |  |        |   |  |        |  
|                                  |  |                        |     |                                               |  |                                          |   |        |        |                                               |   |                                          |  |  |        |   |  |        |  
|Total                             |  | $                      | 300 |                                               |  | 100.00                                   | % |        | 100.00 | %                                             | $ | 518                                      |  |  | 100.00 | % |  | 100.00 | %
|                                  |  |                        |     |                                               |  |                                          |   |        |        |                                               |   |                                          |  |  |        |   |  |        |  

Investment Activities

General

Federally
chartered savings banks such as
American Federal Savings Bank have the authority to invest in various types of
investment securities, including United States Treasury obligations, securities
of various Federal agencies (including securities collateralized by mortgages),
certificates of deposits of insured banks and savings institutions, municipal
securities, corporate debt securities and loans to other banking institutions.

Eagle
maintains liquid assets that may be invested in specified short-term securities
and other investments. Liquidity levels may be increased or decreased depending
on the yields on investment alternatives. They may also be increased based on
managements judgment as to the attractiveness of the yields then available in
relation to other opportunities. Liquidity levels can also change based on
managements expectation of future yield levels, as well as managements
projections as to the short-term demand for funds to be used in the Banks loan
origination and other activities. Eagle maintains an investment securities
portfolio and a mortgage-backed securities portfolio as part of its investment
portfolio.

Investment Policies.

The investment
policy of Eagle, which is established
by the board of directors, is designed to foster earnings and liquidity within
prudent interest rate risk guidelines, while complementing American Federals
lending activities. The policy provides for available-for-sale (including those
accounted for under SFAS 159), held-to-maturity, and trading classifications.
However, Eagle does not hold any securities for purposes of trading. The policy
permits investments in high credit quality instruments with diversified cash
flows while permitting us to maximize total return within the guidelines set
forth in our interest rate risk and liquidity management policies. Permitted
investments include but are not limited to U.S. government obligations,
government agency or government-sponsored agency obligations, state, county and
municipal obligations, and mortgage-backed securities. Collateralized mortgage
obligations, investment grade corporate debt securities, and commercial paper
are also included. We also invest in Federal Home Loan Bank overnight deposits
and federal funds, but these instruments are not considered part of the
investment portfolio.

Our investment
policy also includes several specific guidelines and restrictions to insure
adherence with safe and sound activities. The policy prohibits investments in
high-risk mortgage derivative products (as defined within the policy) without
prior approval from the board of directors. Management must demonstrate the
business advantage of such investments.

12

---



We do not
participate in hedging programs, interest rate swaps, or other activities
involving the use of off-balance sheet derivative financial instruments, except
interest rate caps and certain financial instruments designated as cash flow
hedges related to loans committed to be sold in the secondary market. Further,
Eagle does not invest in securities which are not rated investment grade.

The Board,
through its asset liability committee, has charged the President & CEO to
implement the investment policy. All transactions are reported to the board of
directors monthly, as well as the current composition of the portfolio,
including market values and unrealized gains and losses.

Investment Securities.

We maintain a
portfolio of investment securities, classified as either available-for-sale
(including those accounted for under SFAS 159) or held-to-maturity to enhance
total return on investments. At June 30, 2008, our investment securities
included U.S. government and agency obligations, Small Business Administration
pools, municipal securities, mortgage-backed securities, collateralized
mortgage obligations and corporate obligations, all with varying
characteristics as to rate, maturity and call provisions. Eagle also maintains
a small portion of common stock. Investment securities held-to-maturity
represented 0.84% of Eagles total investment portfolio. Securities
available-for-sale totaled 94.82% of Eagles total investment portfolio, while
securities SFAS 159 totaled 1.60%. The remaining percentage is comprised of
interest-bearing deposits in banks and stock in the Federal Home Loan Bank of
Seattle (FHLB). During the past year, total investment balances in
mortgage-backed securities and collateralized mortgage obligations increased as
management implemented a leverage strategy in March, 2008 to take advantage
of historical large spreads. This strategy accounts for approximately $15
million in the increase in those securities. Much of the cash generated by
payments on mortgage-backed securities and maturities of agency obligations has
been reinvested in municipal securities.

The following
table sets forth the carrying value of Eagles investment and mortgage-backed
securities portfolio at the dates indicated.

|                                              |  |                        |        |                      |  |             |   |                      |        |  |  |        |  
|--------------------------------------------- |  | ---------------------- | ------ | -------------------- |  | ----------- | - | -------------------- | ------ |  |  | ------ | -
|                                              |  | At June 30,            |       
|                                              |  |                        |       
|                                              |  | 2008                   |        | 2007                 | 
|                                              |  |                        |        |                      | 
|                                              |  | (Dollars in thousands) |       
|                                              |  |                        |       
|                                              |  | Book
 Value            |        | Percentage
 of Total |  | Book
 Value |   | Percentage
 of Total |       
|                                              |  |                        |        |                      |  |             |   |                      |       
|Securities available for sale, at fair value: |  |                        |        |                      |  |             |   |                      |        |  |  |        |  
|U.S. Government and agency obligations        |  | $                      | 2,232  |                      |  | 2.70        | % | $                    | 3,643  |  |  | 5.41   | %
|Corporate obligations                         |  |                        | 12,722 |                      |  | 15.38       |   |                      | 13,623 |  |  | 20.22  |  
|Municipal obligations                         |  |                        | 22,190 |                      |  | 26.83       |   |                      | 20,728 |  |  | 30.77  |  
|Collateralized mortgage obligations           |  |                        | 28,224 |                      |  | 34.17       |   |                      | 17,075 |  |  | 25.35  |  
|Mortgage-backed securities                    |  |                        | 13,016 |                      |  | 15.74       |   |                      | 7,872  |  |  | 11.68  |  
|Common Stock                                  |  |                        | 33     |                      |  |            |   |                      |       |  |  |       |  
|Corporate preferred stock                     |  |                        |       |                      |  |            |   |                      | 1,833  |  |  | 2.72   |  
|                                              |  |                        |        |                      |  |             |   |                      |        |  |  |        |  
|                                             
|Total securities available-for-sale           |  |                        | 78,417 |                      |  | 94.82       |   |                      | 64,774 |  |  | 96.15  |  
|                                              |  |                        |        |                      |  |             |   |                      |        |  |  |        |  
|                                             
|Securities held to maturity, at book value:   |  |                        |        |                      |  |             |   |                      |        |  |  |        |  
|                                              |  |                        |       
|Mortgage-backed securities                    |  |                        | 22     |                      |  | 0.03        |   |                      | 95     |  |  | 0.14   |  
|Municipal obligations                         |  |                        | 675    |                      |  | 0.82        |   |                      | 826    |  |  | 1.23   |  
|                                              |  |                        |        |                      |  |             |   |                      |        |  |  |        |  
|                                              |  |                        |       
|Total securities held-to-maturity             |  |                        | 697    |                      |  | 0.85        |   |                      | 921    |  |  | 1.37   |  
|                                              |  |                        |        |                      |  |             |   |                      |        |  |  |        |  
|                                              |  |                        |        |                      |  |             |   |                      |        |  |  |        |  
|Preferred stock - SFAS 159                    |  |                        | 1,321  |                      |  | 1.60        |   |                      | N/A    |  |  | N/A    |  
|                                              |  |                        |        |                      |  |             |   |                      |        |  |  |        |  
|                                              |  |                        |       
|Total securities                              |  |                        | 80,435 |                      |  | 97.27       |   |                      | 65,695 |  |  | 98     |  
|                                              |  |                        |        |                      |  |             |   |                      |        |  |  |        |  
|                                             
|Interest-bearing deposits                     |  |                        | 549    |                      |  | 0.66        |   |                      | 360    |  |  | 0.53   |  
|                                              |  |                        |       
|Federal Home Loan Bank capital stock, at cost |  |                        | 1,715  |                      |  | 2.07        |   |                      | 1,315  |  |  | 1.95   |  
|                                              |  |                        |        |                      |  |             |   |                      |        |  |  |        |  
|                                              |  |                        |       
|Total                                         |  | $                      | 82,699 |                      |  | 100.00      | % | $                    | 67,370 |  |  | 100.00 | %
|                                              |  |                        |        |                      |  |             |   |                      |        |  |  |        |  

13

---



The following
table sets forth information regarding the carrying values, weighted average
yields and maturities of Eagles investment and mortgage-backed securities
portfolio at June 30, 2008.

|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|-------------------------------------- |  | ---------------------- | ----- | ------------------------------------ |  | -------------------- | - | ------------------------------------ | ----- | ------------- |  | ------------------------------------ | - | ------------- | ------ | ---------------------- |  | ------------------------------------ | - | - | ------ |  | - | ------ |  |  | ---- | -
|                                       |  | At June 30, 2008       |      
|                                       |  |                        |      
|                                       |  | One Year or Less       |       | One to Five Years                    |  | More than Five Years |   | Total Investment Securities          |      
|                                       |  |                        |       |                                      |  |                      |   |                                      |      
|                                      
|                                       |  | CarryingValue          |       | Annualized
 Weighted
 Average
 Yield |  | Carrying
 Value      |   | Annualized
 Weighted
 Average
 Yield |       | CarryingValue |  | Annualized
 Weighted
 Average
 Yield |   | CarryingValue |        | ApproximateMarketValue |  | Annualized
 Weighted
 Average
 Yield |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |  
|                                       |  | (Dollars in thousands) |      
|Securities available for sale:         |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|U.S. Government and agency obligations |  | $                      | 1,004 |                                      |  | 3.78                 |   | $                                    | 515   |               |  | 2.76                                 | % | $             | 713    |                        |  | 3.05                                 | % | $ | 2,232  |  | $ | 2,232  |  |  | 3.31 | %
|Corporate obligations                  |  |                        | 3,535 |                                      |  | 3.93                 |   |                                      | 6,301 |               |  | 4.84                                 |   |               | 2,888  |                        |  | 6.86                                 |   |   | 12,724 |  |   | 12,724 |  |  | 5.05 |  
|Municipal obligations                  |  |                        |      |                                      |  |                     |   |                                      | 256   |               |  | 5.03                                 |   |               | 21,934 |                        |  | 4.93                                 |   |   | 22,190 |  |   | 22,190 |  |  | 4.93 |  
|Collateralized mortgage obligations    |  |                        |      |                                      |  |                     |   |                                      | 712   |               |  | 3.70                                 |   |               | 27,510 |                        |  | 4.89                                 |   |   | 28,222 |  |   | 28,222 |  |  | 4.86 |  
|Mortgage-backed securities             |  |                        | 484   |                                      |  | 3.71                 |   |                                      | 1,322 |               |  | 3.68                                 |   |               | 11,210 |                        |  | 5.19                                 |   |   | 13,016 |  |   | 13,016 |  |  | 4.98 |  
|Common stock (dividend yield)          |  |                        |      |                                      |  |                     |   |                                      |      |               |  |                                     |   |               | 33     |                        |  | 9.90                                 |   |   | 33     |  |   | 33     |  |  |     |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|Total securities available for sale    |  |                        | 5,023 |                                      |  | 3.88                 |   |                                      | 9,106 |               |  | 4.47                                 |   |               | 64,288 |                        |  | 5.03                                 |   |   | 78,417 |  |   | 78,417 |  |  | 4.88 |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|Securities held to maturity:           |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|Mortgage-backed securities             |  |                        | 22    |                                      |  | 5.45                 |   |                                      |      |               |  |                                     |   |               |       |                        |  |                                     |   |   | 22     |  |   | 22     |  |  | 5.45 |  
|Municipal obligations                  |  |                        | 300   |                                      |  | 5.81                 |   |                                      | 235   |               |  | 7.27                                 |   |               | 140    |                        |  | 6.46                                 |   |   | 675    |  |   | 686    |  |  | 6.45 |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|Total securities held to maturity      |  |                        | 322   |                                      |  | 5.79                 |   |                                      | 235   |               |  | 7.27                                 |   |               | 140    |                        |  | 6.46                                 |   |   | 697    |  |   | 708    |  |  | 6.42 |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|Preferred - SFAS 159                   |  |                        |      |                                      |  |                     |   |                                      |      |               |  |                                     |   |               | 1,321  |                        |  | 7.86                                 |   |   | 1,321  |  |   | 1,321  |  |  | 7.86 |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|Total securities                       |  |                        | 5,345 |                                      |  | 3.99                 |   |                                      | 9,341 |               |  | 4.54                                 |   |               | 65,749 |                        |  | 5.09                                 |   |   | 80,435 |  |   | 80,446 |  |  | 4.95 |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|Interest-bearing deposits              |  |                        | 549   |                                      |  | 2.00                 |   |                                      |      |               |  |                                     |   |               |       |                        |  |                                     |   |   | 549    |  |   | 549    |  |  | 2.00 |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|Federal Home Loan Bank capital stock   |  |                        |      |                                      |  |                     |   |                                      |      |               |  |                                     |   |               | 1,715  |                        |  | 1.82                                 |   |   | 1,715  |  |   | 1,715  |  |  | 1.82 |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  
|Total                                  |  | $                      | 5,894 |                                      |  | 3.81                 | % | $                                    | 9,341 |               |  | 4.54                                 | % | $             | 67,464 |                        |  | 5.00                                 | % | $ | 82,699 |  | $ | 82,710 |  |  | 4.86 | %
|                                       |  |                        |       |                                      |  |                      |   |                                      |       |               |  |                                      |   |               |        |                        |  |                                      |   |   |        |  |   |        |  |  |      |  

14

---



SOURCES OF FUNDS

General.

Deposits are
the major source of our funds for lending and other investment purposes.
Borrowings (principally from the Federal Home Loan Bank of Seattle) are also
used to compensate for reductions in the availability of funds from other
sources. In addition to deposits and borrowings, we derive funds from loan and
mortgage-backed securities principal repayments, and proceeds from the
maturity, call and sale of mortgage-backed securities and investment securities
and from the sale of loans. Loan and mortgage-backed securities payments are a
relatively stable source of funds, while loan prepayments and deposit inflows
are significantly influenced by general interest rates and financial market
conditions.

Deposits.

We offer a
variety of deposit accounts. Deposit account terms vary, primarily as to the
required minimum balance amount, the amount of time that the funds must remain
on deposit and the applicable interest rate.

Our current
deposit products include certificates of deposit accounts ranging in terms from
90 days to five years as well as checking, savings and money market accounts.
Individual retirement accounts (IRAs) are included in certificates of deposit.

Deposits are
obtained primarily from residents of Helena, Bozeman, Butte and Townsend. We
believe we are able to attract deposit accounts by offering outstanding
service, competitive interest rates and convenient locations and service hours.
We use traditional methods of advertising to attract new customers and deposits,
including radio, television, print media advertising and sales training and
incentive programs for employees. Management believes that non-residents of
Montana hold an insignificant number of deposit accounts.

We pay
interest rates on deposits which are competitive in our market. Interest rates
on deposits are set weekly by senior management, based on a number of factors,
including: projected cash flow; a current survey of a selected group of
competitors rates for similar products; external data which may influence
interest rates; investment opportunities and loan demand; and scheduled
certificate maturities and loan and investment repayments.

Core deposits
are deposits that are more stable and somewhat less sensitive to rate changes.
They also represent a lower cost source of funds than rate sensitive, more
volatile accounts such as certificates of deposit. We believe that our core
deposits are our checking, as well as NOW accounts, statement savings accounts,
money market accounts and IRA accounts. Based on our historical experience, we
include IRA accounts funded by certificates of deposit as core deposits because
they exhibit the principal features of core deposits in that they are stable
and generally are not rate sensitive. Core deposits amounted to $116.63 million
or 65.21% of the Banks deposits at June 30, 2008 ($94.52 million or 52.85% if
IRA certificates of deposit are excluded). The presence of a high percentage of
core deposits and, in particular, transaction accounts, is part of our strategy
to restructure our liabilities to more closely resemble the lower cost
liabilities of a commercial bank. However, a significant portion of our
deposits remains in certificate of deposit form. These certificates of deposit,
should they mature and be renewed at higher rates, will result in an increase
in our cost of funds.

15

---



The following
table sets forth American Federals distribution of deposit accounts at the
dates indicated and the weighted average interest rate on each category of
deposit represented:

|                                       |  |                        |         |                   |  |                         |   |        |      |                   |   |                         |  |  |        |   |  |      |  
|-------------------------------------- |  | ---------------------- | ------- | ----------------- |  | ----------------------- | - | ------ | ---- | ----------------- | - | ----------------------- |  |  | ------ | - |  | ---- | -
|                                       |  | At June 30,            |        
|                                       |  |                        |        
|                                       |  |                        |         |                   |  | 2008                    |   |        |      |                   |   |                         |  |  | 2007   |   |  |      |  
|                                       |  |                        |         |                   |  |                         |   |        |      |                   |   |                         |  |  |        |   |  |      |  
|                                       |  | (Dollars in thousands) |        
|                                       |  |                        |        
|                                       |  | Amount                 |         | Percent
 of Total |  | Weighted
 Average
 Rate |   | Amount |      | Percent
 of Total |   | Weighted
 Average
 Rate | 
|                                       |  |                        |         |                   |  |                         |   |        |      |                   |   |                         | 
|                                      
|Noninterest
 checking                  |  | $                      | 14,617  |                   |  | 8.17                    | % |        | 0.00 | %                 | $ | 13,694                  |  |  | 7.62   | % |  | 0.00 | %
|Passbook
 savings                      |  |                        | 23,906  |                   |  | 13.37                   | % |        | 0.65 | %                 |   | 22,521                  |  |  | 12.54  | % |  | 0.65 | %
|NOW
 account/Interest bearing checking |  |                        | 30,720  |                   |  | 17.18                   | % |        | 0.38 | %                 |   | 30,953                  |  |  | 17.23  | % |  | 0.21 | %
|Money market
 accounts                 |  |                        | 25,275  |                   |  | 14.12                   | % |        | 1.75 | %                 |   | 23,292                  |  |  | 12.96  | % |  | 2.12 | %
|                                       |  |                        |         |                   |  |                         |   |        |      |                   |   |                         |  |  |        |   |  |      |  
|                                      
|Total                                  |  |                        | 94,518  |                   |  | 52.85                   | % |        | 0.76 | %                 |   | 90,460                  |  |  | 50.35  | % |  | 0.78 | %
|                                       |  |                        |         |                   |  |                         |   |        |      |                   |   |                         |  |  |        |   |  |      |  
|Certificates
 of deposit accounts:     |  |                        |         |                   |  |                         |   |        |      |                   |   |                         |  |  |        |   |  |      |  
|IRA certificates                       |  |                        | 22,108  |                   |  | 12.36                   | % |        | 3.15 | %                 |   | 21,534                  |  |  | 11.99  | % |  | 3.97 | %
|Brokered certificates                  |  |                        |        |                   |  | 0.00                    | % |        | 0.00 | %                 |   | 4,411                   |  |  | 2.46   | % |  | 5.30 | %
|Other certificates                     |  |                        | 62,225  |                   |  | 34.79                   | % |        | 3.31 | %                 |   | 63,242                  |  |  | 35.20  | % |  | 4.66 | %
|                                       |  |                        |         |                   |  |                         |   |        |      |                   |   |                         |  |  |        |   |  |      |  
|Total
 certificates of deposit         |  |                        | 84,333  |                   |  | 47.15                   | % |        | 3.27 | %                 |   | 89,187                  |  |  | 49.65  | % |  | 4.53 | %
|                                       |  |                        |         |                   |  |                         |   |        |      |                   |   |                         |  |  |        |   |  |      |  
|                                      
|Total deposits                         |  | $                      | 178,851 |                   |  | 100.00                  | % |        | 1.94 | %                 | $ | 179,647                 |  |  | 100.00 | % |  | 2.64 | %
|                                       |  |                        |         |                   |  |                         |   |        |      |                   |   |                         |  |  |        |   |  |      |  

The following
table sets forth the amounts and maturities of our certificates of deposit as
of June 30, 2008, for the maturity dates indicated:

|           |  |                |        |                |   |                |  |                       |       |       |   |     |  |   |        | 
|---------- |  | -------------- | ------ | -------------- | - | -------------- |  | --------------------- | ----- | ----- | - | --- |  | - | ------ | 
|           |  |                |       
|           |  | (In thousands) |       
|           |  | June 30,
 2009 |        | June 30,
 2010 |   | June 30,
 2011 |  | After
 June 30,
 2012 |       | Total |  
|           |  |                |        |                |   |                |  |                       |       |       |  
|          
|1.01-2.00% |  | $              | 694    |                | $ |               |  | $                     |      |       | $ |    |  | $ | 694    | 
|2.01-3.00% |  |                | 29,477 |                |   | 1,117          |  |                       | 30    |       |   |    |  |   | 30,624 | 
|3.01-4.00% |  |                | 25,666 |                |   | 6,902          |  |                       | 1,054 |       |   | 47  |  |   | 33,669 | 
|4.01-5.00% |  |                | 10,417 |                |   | 2,617          |  |                       | 702   |       |   | 339 |  |   | 14,075 | 
|5.01-6.00% |  |                | 4,906  |                |   | 326            |  |                       | 39    |       |   |    |  |   | 5,271  | 
|6.01-7.00% |  |                |       |                |   |               |  |                       |      |       |   |    |  |   |       | 
|           |  |                |        |                |   |                |  |                       |       |       |   |     |  |   |        | 
|           |  |                |        |                |   |                |  |                       |       |       |   |     |  |   |        | 
|Total      |  | $              | 71,160 |                | $ | 10,962         |  | $                     | 1,825 |       | $ | 386 |  | $ | 84,333 | 
|           |  |                |        |                |   |                |  |                       |       |       |   |     |  |   |        | 

The following
table shows the amount of certificates of deposit of more than $100,000 by time
remaining until maturity as of June 30, 2008:

|                     |  |                |        | 
|-------------------- |  | -------------- | ------ | 
|                     |  | (In thousands) |       
|                     |  |                |       
|3 months or
 less    |  | $              | 6,925  | 
|Over 3 to 6
 months  |  |                | 7,366  | 
|Over 6 to 12
 months |  |                | 5,497  | 
|Over 12
 months      |  |                | 2,343  | 
|                     |  |                |        | 
|                     |  |                |        | 
|Total                |  | $              | 22,131 | 
|                     |  |                |        | 

16

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The following
table sets forth the net changes in deposit accounts for the periods indicated:

|                                                     |  |                        |         |      |   |         |  
|---------------------------------------------------- |  | ---------------------- | ------- | ---- | - | ------- | -
|                                                     |  | Year Ended June 30,    |        
|                                                     |  |                        |        
|                                                     |  | 2008                   |         | 2007 |  
|                                                     |  |                        |         |      |  
|                                                     |  | (Dollars in thousands) |        
|                                                    
|Opening
 balance                                     |  | $                      | 179,647 |      | $ | 174,342 |  
|Deposits(Withdrawals),
 Net                          |  |                        | (5,060  | )    |   | 1,279   |  
|Interest
 credited                                   |  |                        | 4,263   |      |   | 4,026   |  
|                                                     |  |                        |         |      |   |         |  
|                                                     |  |                        |         |      |   |         |  
|Ending
 balance                                      |  | $                      | 178,850 |      | $ | 179,647 |  
|                                                     |  |                        |         |      |   |         |  
|                                                     |  |                        |         |      |   |         |  
|Net increase                                         |  | $                      | (797    | )    | $ | 5,305   |  
|                                                     |  |                        |         |      |   |         |  
|Percent
 increase                                    |  |                        | -0.44   | %    |   | 3.04    | %
|                                                     |  |                        |         |      |   |         |  
|Weighted
 average cost of deposits during the period |  |                        | 2.67    | %    |   | 2.37    | %
|                                                     |  |                        |         |      |   |         |  
|Weighted
 average cost of deposits at end of period  |  |                        | 1.94    | %    |   | 2.64    | %

Our depositors
are primarily residents of the state of Montana.

Borrowings.

Deposits are
the primary source of funds for our lending and investment activities and for
general business purposes. However, as the need arises, or in order to take
advantage of funding opportunities, we also borrow funds in the form of
advances from the Federal Home Loan Bank of Seattle and other borrowings from
PNC Financial Services, Inc. (PNC) to supplement our supply of lendable funds
and to meet deposit withdrawal requirements.

During the
fiscal year ended June 30, 2006, Eagle formed a special purpose subsidiary,
Eagle Bancorp Statutory Trust I (the Trust), for the purpose of issuing trust
preferred securities in the amount of $5.0 million. Eagle has issued
subordinated debentures to the Trust, and the coupon on the debentures matches
the dividend payment on the trust preferred securities. For regulatory
purposes, the securities qualify as Tier 1 Capital, while for accounting
purposes they are recorded as long term debt. The securities have a 30 year
maturity and carry a fixed coupon of 6.02% for the first five years, at which
time the coupon becomes variable, at a spread of 142 basis points over 3 month
LIBOR.

The following
table sets forth information concerning our borrowing from the Federal Home
Loan Bank of Seattle and PNC at the end of, and during, the periods indicated:

|                                                  |  |                        |        |      |   |        |  
|------------------------------------------------- |  | ---------------------- | ------ | ---- | - | ------ | -
|                                                  |  | Ended June 30,         |       
|                                                  |  |                        |       
|                                                  |  | 2008                   |        | 2007 |  
|                                                  |  |                        |        |      |  
|                                                  |  | (Dollars in thousands) |       
|Advances and other
 borrowings:                   |  |                        |        |      |   |        |  
|Average balance                                   |  | $                      | 43,712 |      | $ | 29,071 |  
|Maximum balance at any month-end                  |  |                        | 68,222 |      |   | 36,695 |  
|Balance at period end                             |  |                        | 68,222 |      |   | 33,800 |  
|                                                  |  |                        |        |      |   |        |  
|Weighted average interest
 rate during the period |  |                        | 4.50   | %    |   | 5.04   | %
|Weighted average interest
 rate at period end     |  |                        | 3.94   | %    |   | 4.90   | %

17

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Subsidiary Activity

We are
permitted to invest in the capital stock of, or originate secured or unsecured
loans to, subsidiary corporations. We do not have any subsidiaries, except for
American Federal Savings Bank and Eagle Bancorp Statutory Trust I.

Personnel

As of June 30,
2008, we had 73 full-time employees and 7 part-time employees. The employees
are not represented by a collective bargaining unit. We believe our
relationship with our employees to be good.

18

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REGULATION

Set forth
below is a brief description of laws which relate to the regulation of American
Federal and Eagle Bancorp. The description does not purport to be complete and
is qualified in its entirety by reference to applicable laws and regulations.

Regulation of American Federal Savings Bank

General.

As a federally
chartered savings bank and a member of the FDICs Deposit Insurance Fund,
American Federal Savings Bank is subject to extensive regulation by the Office
of Thrift Supervision and the FDIC. Lending activities and other investments
must comply with federal statutory and regulatory requirements. American
Federal Savings Bank is also subject to reserve requirements of the Federal
Reserve System. Federal regulation and supervision establishes a comprehensive
framework of activities in which an institution can engage and is intended
primarily for the protection of the Deposit Insurance Fund of the FDIC and
depositors. This regulatory structure gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies regarding the
classification of assets and the establishment of adequate loan loss reserves.

The Office of
Thrift Supervision regularly examines American Federal Savings Bank and
provides a report on its examination findings to American Federals board of
directors. American Federals relationship with its depositors and borrowers is
also regulated by federal law, especially in such matters as the ownership of
savings accounts and the form and content of American Federals mortgage
documents.

American
Federal Savings Bank must file reports with the Office of Thrift Supervision
and the FDIC concerning its activities and financial condition, and must obtain
regulatory approvals prior to entering into transactions such as mergers with
or acquisitions of other financial institutions. Any change in such
regulations, whether by the Office of Thrift Supervision, the FDIC or the
United States Congress, could have a material adverse impact on Eagle and
American Federal, and their operations.

Insurance of Deposit Accounts.

The deposit
accounts held by American Federal Savings Bank are insured by the Deposit
Insurance Fund of the FDIC to a maximum of $100,000 as permitted by law
(qualifying retirement funds are insured up to $250,000). Insurance on deposits
may be terminated by the FDIC it if finds an institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institutions primary regulator.

Regulatory Capital Requirements.

Office of
Thrift Supervision (OTS) capital regulations require savings institutions to
meet three capital standards. The standards for capital adequacy are tangible capital
equal to 1.5% of adjusted total assets, core capital (leverage ratio) equal to
at least 4% of total adjusted assets, and risk-based capital equal to 8% of
total risk-weighted assets. In order to be deemed Well Capitalized, OTS rules
require a leverage ratio of at least 5%, a Tier 1 risk-based ratio of at least
6%, and a total risk-based ratio of at least 10%. American Federals capital
ratios at June 30, 2008 are set forth below.

|                   |  |                        |        |                                |  |        |  |       |        |  |  |      | 
|------------------ |  | ---------------------- | ------ | ------------------------------ |  | ------ |  | ----- | ------ |  |  | ---- | 
|                   |  | Actual                 |        | For Capital Adequacy
 Purposes | 
|                   |  |                        |        |                                |  |        | 
|                   |  | Amount                 |        | Ratio                          |  | Amount |  | Ratio |       
|                   |  |                        |        |                                |  |        |  |       |       
|                   |  | (Dollars in thousands) |       
|                  
|Tangible           |  | $                      | 25,928 |                                |  | 9.40   |  | $     | 4,136  |  |  | 1.50 | 
|Leverage           |  | $                      | 25,928 |                                |  | 9.40   |  | $     | 8,272  |  |  | 3.00 | 
|Tier 1
 risk-based |  | $                      | 25,928 |                                |  | 13.30  |  | $     | 7,799  |  |  | 4.00 | 
|Total
 risk-based  |  | $                      | 26,192 |                                |  | 13.43  |  | $     | 15,599 |  |  | 8.00 | 

Tangible
capital is defined as core capital less all intangible assets, less
nonqualifying mortgage servicing rights and investments. Core capital is
defined as common stockholders equity, noncumulative perpetual preferred stock
and minority interests in the equity accounts of consolidated subsidiaries,
nonwithdrawable accounts and pledged deposits of mutual savings associations
and qualifying supervisory goodwill, less nonqualifying intangible assets,
mortgage servicing rights and investments.

19

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The risk-based
capital standard for savings institutions requires the maintenance of total
risk-based capital of 8% of risk-weighted assets. Risk-based capital is
comprised of core and supplementary capital. The components of supplementary
capital include, among other items, cumulative perpetual preferred stock,
perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance
for loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the Office of Thrift Supervision, which
range from 0% for cash to 100% for delinquent loans, property acquired through
foreclosure, commercial loans, and other assets.

Office of
Thrift Supervision rules require a deduction from capital for institutions
which have unacceptable levels of interest rate risk. The Office of Thrift
Supervision calculates the sensitivity of an institutions net portfolio value
based on data submitted by the institution in a schedule to its quarterly
Thrift Financial Report and using the interest rate risk measurement model
adopted by the Office of Thrift Supervision. The amount of the interest rate
risk component, if any, is deducted from an institutions total capital in
order to determine if it meets its risk-based capital requirement. Federal
savings institutions with less than $300 million in assets and a risk-based
capital ratio above 12% are exempt from filing the interest rate risk schedule.
However, the Office of Thrift Supervision may require any exempt institution to
file such schedule on a quarterly basis and may be subject to an additional
capital requirement based on its level of interest rate risk as compared to its
peers.

Dividend and Other Capital Distribution
Limitations.

The Office of
Thrift Supervision imposes various restrictions or requirements on the ability
of savings institutions to make capital distributions, including dividend
payments.

Office of
Thrift Supervision regulations impose limitations on all capital distributions
by savings institutions, such as cash dividends, payment to repurchase or
otherwise acquire its shares, payments to stockholders of another institution
in a cash-out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institutions
capital level. An institution that exceeds all capital requirements before and
after a proposed capital distribution and has not been advised by the Office of
Thrift Supervision that it is in need of more than the normal supervision has
the greatest amount of flexibility for determining dividends. Such institutions
can, after prior notice but without the approval of the Office of Thrift
Supervision, make capital distributions during a calendar year. These
distributions can be equal to the greater of 100% of its net income to date
during the calendar year plus the amount that would reduce by one-half its
excess capital divided by its fully phased-in capital requirements at the
beginning of the calendar year. At the institutions discretion, dividends can
also be 75% of its net income over the most recent four-quarter period. Any
additional capital distributions require prior regulatory notice. As of June
30, 2008, American Federal Savings Bank had this level of flexibility with
respect to dividends.

Qualified Thrift Lender Test.

Federal
savings institutions must meet a
qualified thrift lender test or they become subject to operating restrictions.
The Bank anticipates that it will maintain an appropriate level of investments
consisting primarily of residential mortgages, mortgage-backed securities and
other mortgage-related investment, and otherwise qualify as a qualified thrift
lender. The required percentage of these mortgage-related investments is 65% of
portfolio assets. Portfolio assets are all assets minus intangible assets,
property used by the institution in conducting its business and liquid assets
equal to 10% of total assets. Compliance with the qualified thrift lender test
is determined on a monthly basis in nine out of every twelve months.

Transactions With Affiliates.

Generally,
federal banking law requires that transactions between a savings institution or
its subsidiaries and its affiliates must be on terms as favorable to the
savings institution as comparable transactions with non-affiliates. In
addition, some transactions can be restricted to an aggregate percentage of the
savings institutions capital. Collateral in specified amounts must usually be
provided by affiliates in order to receive loans from the savings institution.
In addition, a savings institution may not extend credit to any affiliate
engaged in activities not permissible for a bank holding company or acquire the
securities of any affiliate that is not a subsidiary. The Office of Thrift
Supervision has the discretion to treat subsidiaries of a savings institution
as affiliates on a case-by-case basis.

Liquidity Requirements.

The Bank is
required to maintain minimum levels of liquid assets as defined by the Office
of Thrift Supervision regulations. 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 bank
engages.

20

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Federal Home Loan Bank System.

We are a
member of the Federal Home Loan Bank of Seattle, which is one of 12 regional
Federal Home Loan Banks. Each Federal Home Loan Bank serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from funds deposited by financial institutions and proceeds derived from the
sale of consolidated obligations of the Federal Home Loan Bank System. It makes
loans to members pursuant to policies and procedures established by the board
of directors of the Federal Home Loan Bank.

As a member,
we are required to purchase and maintain stock in the Federal Home Loan Bank of
Seattle in an amount equal to at least 1% of our aggregate unpaid residential
mortgage loans, home purchase contracts or similar obligations at the beginning
of each year, or 5% of our outstanding advances, whichever is larger. We are in
compliance with this requirement. The Federal Home Loan Bank imposes various
limitations on advances such as limiting the amount of real estate related
collateral to 30% of a members capital and limiting total advances to a
member. As a federal savings bank, we were mandatory members of the Federal
Home Loan Bank of Seattle. Under the Gramm-Leach-Bliley Financial Modernization
Act of 1999, we are now voluntary members of the Federal Home Loan Bank of
Seattle. We could withdraw or significantly reduce our required stock ownership
in the Federal Home Loan Bank of Seattle.

Federal Reserve System.

The Federal
Reserve System requires all depository institutions to maintain
noninterest-bearing reserves at specified levels against their checking, NOW
and Super NOW checking accounts and non-personal time deposits. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve
System may be used to satisfy the Office of Thrift Supervision liquidity
requirements.

Savings
institutions have authority to borrow from the Federal Reserve System discount
window. The Bank established during the fiscal year a primary credit
facility at the Federal Reserves discount window. It had a $0.00 balance as of
June 30, 2008 and is secured by an agency bond.

Regulation of Eagle Bancorp

General.

Eagle Bancorp,
as a federal stock corporation in a mutual holding company structure, is deemed
a federal mutual holding company within the meaning of Section 10(o) of the
Home Owners Loan act (HOLA). Eagle is registered and files reports with the
Office of Thrift Supervision and is subject to regulation and examination by the
Office of Thrift Supervision. In addition, the Office of Thrift Supervision has
enforcement authority over Eagle and any nonsavings institution subsidiary of
Eagle. The Office of Thrift Supervision can restrict or prohibit activities
that it determines to be a serious risk to us. This regulation is intended
primarily for the protection of our depositors and not for the benefit of
stockholders of Eagle.

Federal Taxation

Savings
institutions are subject to the Internal Revenue Code of 1986, as amended, in the
same general manner as other corporations. Prior to changes to the Internal
Revenue Code in 1996, thrift institutions enjoyed a tax advantage over banks
with respect to determining additions to its bad debt reserves.

The Internal
Revenue Code was revised in August 1996 to equalize the taxation of thrift
institutions and banks, effective for taxable years beginning after 1995. All
thrift institutions are now subject to the same provisions as banks with
respect to deductions for bad debt. Now only thrift institutions that are
treated as small banks under the Internal Revenue Code may continue to account
for bad debts under the reserve method; however, such institutions may only use
the experience method for determining additions to their bad debt reserve.
Thrift institutions that are not treated as small banks may no longer use the
reserve method to account for their bad debts but must now use the specific
charge-off method.

The revisions
to the Internal Revenue Code in 1996 also provided that all thrift institutions
must generally recapture any applicable excess reserves into their taxable
income, over a six year period beginning in 1996; however, such recapture may
be delayed up to two years if a thrift institution meets a residential-lending
test. Generally, a thrift institutions applicable excess reserves equals the
excess of the balance of its bad debt reserves as of the close of its taxable
year beginning before January 1, 1996, over the balance of such reserves as of
the close of its last taxable year beginning before January 1, 1988. These are
known as pre-1988 reserves. American Federal Savings Bank had recaptured all of
its remaining applicable excess reserve as of June 30, 2008.

21

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In addition,
all thrift institutions must continue to keep track of their pre-1988 reserves
because this amount remains subject to recapture in the future under the
Internal Revenue Code. A thrift institution such as American Federal, would
generally be required to recapture into its taxable income its pre-1988
reserves in the case of excess distributions, and redemptions of American
Federals stock and in the case of a reduction in American Federals
outstanding loans when comparing loans currently outstanding to loans
outstanding at the end of the base year. For taxable years after 1995, American
Federal Savings Bank will continue to account for its bad debts under the
reserve method. The balance of American Federals pre-1988 reserves equaled
$915,000.

Eagle may
exclude from its income 100% of dividends received from American Federal
Savings Bank as a member of the same affiliated group of corporations. A 70%
dividends received deduction generally applies with respect to dividends
received from corporations that are not members of such affiliated group.

American
Federals federal income tax returns for the last five tax years have not been
audited by the IRS.

State Taxation

American
Federal Savings Bank files Montana tax returns. For Montana tax purposes,
savings institutions are presently taxed at a rate equal to 6.75% of taxable
income which is calculated based on federal taxable income, subject to
adjustments (including the addition of interest income on state and municipal
obligations).

American Federals
state tax returns have not been audited for the past five years by the state of
Montana.

ITEM 2. DESCRIPTION OF PROPERTY.

The Companys
business activities consist of its ownership of 100% of the common stock of the
Bank. The Banks executive office is located at 1400 Prospect Avenue in Helena,
Montana. American Federal conducts its business through five offices, which are
located in Helena, Bozeman, Butte, and Townsend, Montana. All of its offices
are owned. Its principal banking office in Helena also serves as its executive
headquarters and operations center. This office houses over 50% of American
Federal full-time employees. The following table sets forth the location of
each of American Federals offices, the year the office was opened, and the net
book value including land, buildings, computer software and its related
equipment and furniture. The square footage at each location is also shown.

|                      |  |                      |  |                    |  |                                         |       |                 |  |        | 
|--------------------- |  | -------------------- |  | ------------------ |  | --------------------------------------- | ----- | --------------- |  | ------ | 
|Location              |  | Address              |  | Opened             |  | Value At
 June 30, 2008
 (in thousands) |       | Square
 Footage | 
|                      |  |                      |  |                    |  |                                         |       |                 | 
|                     
|Helena Main           |  | 1400
 Prospect Ave.  |  | 1997               |  | $                                       | 4,052 |                 |  | 32,304 | 
|Office                |  | Helena, MT
 59601    |  |                    |  |                                         |       |                 |  |        | 
|                      |  |                      |  |                    |  |                                         |       |                 |  |        | 
|Helena
 Downtown      |  | 28 Neill
 Ave.       |  | 1987               |  | $                                       | 380   |                 |  | 1,391  | 
|Drive-up              |  | Helena, MT
 59601    |  |                    |  |                                         |       |                 |  |        | 
|                      |  |                      |  |                    |  |                                         |       |                 |  |        | 
|Helena
 Skyway Branch |  | 2090
 Cromwell Dixon |  | Under Construction |  | $                                       | 911   |                 |  | 4,643  | 
|                      |  | Helena, MT
 59602    |  |                    |  |                                         |       |                 |  |        | 
|                      |  |                      |  |                    |  |                                         |       |                 |  |        | 
|Butte Office          |  | 3401
 Harrison Ave.  |  | 1979               |  | $                                       | 521   |                 |  | 3,890  | 
|                      |  | Butte, MT
 59701     |  |                    |  |                                         |       |                 |  |        | 
|                      |  |                      |  |                    |  |                                         |       |                 |  |        | 
|Bozeman
 Office       |  | 606 North
 Seventh   |  | 1980               |  | $                                       | 495   |                 |  | 5,886  | 
|                      |  | Bozeman, MT
 59715   |  |                    |  |                                         |       |                 |  |        | 
|                      |  |                      |  |                    |  |                                         |       |                 |  |        | 
|Bozeman
 Branch       |  | 1455 Oak St          |  | Under Construction |  | $                                       | 1,626 |                 |  | 19,818 | 
|                      |  | Bozeman, MT
 59715   |  |                    |  |                                         |       |                 |  |        | 
|                      |  |                      |  |                    |  |                                         |       |                 |  |        | 
|Townsend
 Office      |  | 416 Broadway         |  | 1979               |  | $                                       | 95    |                 |  | 1,973  | 
|                      |  | Townsend, MT
 59644  |  |                    |  |                                         |       |                 |  |        | 

As of June 30,
2008, the net book value of land, buildings, furniture, and equipment owned by
American Federal, less accumulated depreciation, totaled $8.08 million.

22

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ITEM 3. LEGAL PROCEEDINGS.

American
Federal, from time to time, is a party to routine litigation, which arises in
the normal course of business, such as claims to enforce liens, condemnation
proceedings on properties in which American Federal Savings Bank holds security
interests, claims involving the making and servicing of real property loans,
and other issues incident to the business of American Federal. There were no
lawsuits pending or known to be contemplated against Eagle or American Federal
at June 30, 2008.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.

No matters
were submitted to a vote of security holders in the fourth quarter of the
fiscal year ended June 30, 2008.

PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUERS PURCHASES OF EQUITY SECURITIES.

The common
stock is traded on the OTC Bulletin Board under the symbol EBMT. At the close
of business on June 30, 2008, there were 1,076,072 shares of common stock
outstanding, held by approximately 600 shareholders of record. Eagle Financial
MHC, Eagles mutual holding company, held 648,493 shares (or 60.3%) of the
outstanding common stock.

The high bid
and asked prices noted below for the four quarters of fiscal 2007 and the four
quarters of the current fiscal year were obtained from the OTC Bulletin Board.
The quotations reflect interdealer prices without retail markup, markdown or
commission, and may not represent actual transactions.

|                     |  |          |   |         |  |  |  |   |       |  | 
|-------------------- |  | -------- | - | ------- |  |  |  | - | ----- |  | 
|                     |  | High Bid |   | Low Bid | 
|                     |  |          |   |         | 
|Fourth
 quarter 2008 |  |          | $ | 29.50   |  |  |  | $ | 25.75 |  | 
|Third
 quarter 2008  |  |          | $ | 30.80   |  |  |  | $ | 26.00 |  | 
|Second
 quarter 2008 |  |          | $ | 32.75   |  |  |  | $ | 30.30 |  | 
|First
 quarter 2008  |  |          | $ | 33.00   |  |  |  | $ | 30.45 |  | 
|Fourth
 quarter 2007 |  |          | $ | 34.00   |  |  |  | $ | 31.43 |  | 
|Third
 quarter 2007  |  |          | $ | 34.50   |  |  |  | $ | 31.50 |  | 
|Second
 quarter 2007 |  |          | $ | 34.00   |  |  |  | $ | 31.30 |  | 
|First
 quarter 2007  |  |          | $ | 34.00   |  |  |  | $ | 31.25 |  | 

The closing
price of the common stock on June 30, 2008, was $27.00. The company had paid
four quarterly dividends during the year, all in the amount of $0.24 per share.
Eagle Financial MHC waived receipt of its dividends during the year.

23

---



ITEM 5 (c)
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

|           |  |                                           |       |                                     |   |                                                                                            |  |                                                                                          |       |  |  |        | 
|---------- |  | ----------------------------------------- | ----- | ----------------------------------- | - | ------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------- | ----- |  |  | ------ | 
|Period     |  | (a)
 Total
 Number of
 Shares
 Purchased* |       | (b)
 Average
 Price Paid
 Per Share |   | (c)
 Total Number of
 Shares Purchased
 as Part of
 Publicly
 Announced Plans
 or Programs |  | (d)
 Maximum Number
 of Shares that
 May Yet Be
 Purchased
 Under the Plans
 or Programs |      
|           |  |                                           |       |                                     |   |                                                                                            |  |                                                                                          |       |  |  |        | 
|April 2008 |  |                                           | 2,000 |                                     |   | 28.25                                                                                      |  |                                                                                          | 2,000 |  |  | 25,000 | 
|May 2008   |  |                                           | None  |                                     |   | N/A                                                                                        |  |                                                                                          | N/A   |  |  | N/A    | 
|June 2008  |  |                                           | None  |                                     |   | N/A                                                                                        |  |                                                                                          | N/A   |  |  | N/A    | 
|Total      |  |                                           | 2,000 |                                     | $ | 28.25                                                                                      |  |                                                                                          | 2,000 |  |  | 25,000 | 

* The Company
publicly announced a stock repurchase program on January 17, 2008. The Company
is 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 August 29, 2008, 3,750 shares had been purchased.

ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION.

Note Regarding Forward-Looking Statements

This report
contains certain forward-looking statements. Eagle desires to take advantage
of the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995 and is including this statement for the express purpose of availing
itself of the protections of the safe harbor with respect to all such
forward-looking statements. These forward-looking statements, which are
included in Managements Discussion and Analysis, describe future plans or
strategies and include Eagles expectations of future financial results. The
words believe, expect, anticipate, intend, estimate, project,
and
similar expressions identify forward-looking statements. Eagles ability to
predict results or the effect of future plans or strategies or qualitative or
quantitative changes based on market risk is inherently uncertain. Factors
which could affect actual results but are not limited to include (i) change in
general market interest rates, (ii) general economic conditions, (iii) local
economic conditions, (iv) legislative/regulatory changes, (v) monetary and
fiscal policies of the U.S. Treasury and Federal Reserve, (vi) changes in the
quality or composition of Eagles loan and investment portfolios, (vii) demand
for loan products, (viii) deposit flows, (ix) competition, and (x) demand for
financial services in Eagles markets. These factors should be considered in
evaluating the forward-looking statements. You are cautioned not to place undue
reliance on these forward-looking statements that speak only as of their dates.

General

Eagle
Bancorps subsidiary, American Federal Savings Bank, operates as a community
savings bank. It raises money by offering FDIC-insured deposit products and
lending this money, primarily for the purpose of home financing. As of June 30,
2008, 43.21% of its total loans were residential mortgage loans with fixed
rates and 11.96% were residential mortgage loans with adjustable rates. Total
first lien mortgage loans at June 30, 2008, were $122.27 million or 72.62% of
the total loan portfolio. Other loan products include home equity loans,
consumer and commercial loans. These loans totaled $46.09 million or 27.38% of
the total loan portfolio.

The
consolidated financial condition and operating results of Eagle are primarily
dependent on its wholly owned subsidiary, American Federal Savings Bank. All
references to the Company prior to April 4, 2000, except where otherwise
indicated, are to the Bank.

24

---



Analysis of Net Interest Income

The Banks
earnings have historically depended primarily upon net interest income, which
is the difference between interest income earned on loans and investments and
interest paid on deposits and any borrowed funds. It is the single largest
component of Eagles operating income. Net interest income is affected by (i)
the difference between rates of interest earned on loans and investments and
rates paid on interest-bearing deposits and borrowings (the interest rate
spread) and (ii) the relative amounts of loans and investments and
interest-bearing deposits and borrowings.

The following
table presents the average balances of and the interest and dividends earned or
paid on each major class of loans and investments and interest-bearing deposits
and borrowings. Nonaccruing loans are included in balances for all periods.
Average balances are daily average balances. The yields and costs include fees,
which are considered adjustments to yields.

|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|-------------------------------------------------------------- |  | ------------------------------------ | ------- | ------------------------- | - | ------------ |  | ------------------------ | ------ | ------------------------ | - | ------------ |  | - | ------ |  |  | ------ | -
|                                                               |  | For the twelve months ended June 30, |        
|                                                               |  |                                      |         |                           |  
|                                                               |  | 2008                                 |         | 2007                      |  
|                                                               |  |                                      |         |                           |  
|                                                               |  | (Dollars in thousands)               |        
|                                                               |  | Average
 Daily
 Balance              |         | Interest
 and 
 Dividends |   | Yield/
 Rate |  | Average 
 Daily
 Balance |        | Interest
 and
 Dividends |   | Yield/
 Rate | 
|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              | 
|Assets:                                                        |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|Interest-earning assets:                                       |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|FHLB stock                                                     |  | $                                    | 1,336   |                           | $ | 16           |  |                          | 1.20   | %                        | $ | 1,315        |  | $ | 7      |  |  | 0.53   | %
|Loans receivable, net                                          |  |                                      | 165,470 |                           |   | 10,905       |  |                          | 6.59   |                          |   | 149,818      |  |   | 9,731  |  |  | 6.50   |  
|Investment securities                                          |  |                                      | 67,837  |                           |   | 3,105        |  |                          | 4.58   |                          |   | 66,723       |  |   | 2,854  |  |  | 4.28   |  
|Interest-bearing deposits with banks                           |  |                                      | 1,587   |                           |   | 63           |  |                          | 3.97   |                          |   | 922          |  |   | 50     |  |  | 5.42   |  
|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|Total interest-earning assets                                  |  |                                      | 236,230 |                           |   | 14,089       |  |                          | 5.96   |                          |   | 218,778      |  |   | 12,642 |  |  | 5.78   |  
|Noninterest-earning assets                                     |  |                                      | 19,070  |                           |   |              |  |                          |        |                          |   | 18,351       |  |   |        |  |  |        |  
|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|Total assets                                                   |  | $                                    | 255,300 |                           |   |              |  |                          |        |                          | $ | 237,129      |  |   |        |  |  |        |  
|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|Liabilities and Equity:                                        |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|Interest-bearing liabilities:                                  |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|Deposit accounts:                                              |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|Money market                                                   |  | $                                    | 21,981  |                           | $ | 420          |  |                          | 1.91   |                          | $ | 25,648       |  | $ | 525    |  |  | 2.05   |  
|Passbooks                                                      |  |                                      | 22,965  |                           |   | 150          |  |                          | 0.65   |                          |   | 23,139       |  |   | 152    |  |  | 0.66   |  
|Checking                                                       |  |                                      | 30,550  |                           |   | 71           |  |                          | 0.23   |                          |   | 30,789       |  |   | 63     |  |  | 0.20   |  
|Certificates of deposit                                        |  |                                      | 88,888  |                           |   | 3,746        |  |                          | 4.21   |                          |   | 83,753       |  |   | 3,451  |  |  | 4.12   |  
|Advances from FHLB & subordinated debt                         |  |                                      | 48,867  |                           |   | 2,266        |  |                          | 4.64   |                          |   | 34,226       |  |   | 1,766  |  |  | 5.16   |  
|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|Total interest-bearing liabilities                             |  |                                      | 213,251 |                           |   | 6,653        |  |                          | 3.12   |                          |   | 197,555      |  |   | 5,957  |  |  | 3.02   |  
|Non-interest checking                                          |  |                                      | 14,063  |                           |   |              |  |                          |        |                          |   | 13,382       |  |   |        |  |  |        |  
|Other noninterest-bearing liabilities                          |  |                                      | 2,403   |                           |   |              |  |                          |        |                          |   | 2,189        |  |   |        |  |  |        |  
|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|Total liabilities                                              |  |                                      | 229,717 |                           |   |              |  |                          |        |                          |   | 213,126      |  |   |        |  |  |        |  
|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|Total equity                                                   |  |                                      | 25,583  |                           |   |              |  |                          |        |                          |   | 24,003       |  |   |        |  |  |        |  
|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|Total liabilities and equity                                   |  | $                                    | 255,300 |                           |   |              |  |                          |        |                          | $ | 237,129      |  |   |        |  |  |        |  
|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|Net interest income/interest rate spread(1)                    |  |                                      |         |                           | $ | 7,436        |  |                          | 2.84   | %                        |   |              |  | $ | 6,685  |  |  | 2.76   | %
|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|Net interest margin(2)                                         |  |                                      |         |                           |   |              |  |                          | 3.15   | %                        |   |              |  |   |        |  |  | 3.06   | %
|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  
|Total interest-earning assets to
 interest-bearing liabilities |  |                                      |         |                           |   |              |  |                          | 110.78 | %                        |   |              |  |   |        |  |  | 110.74 | %
|                                                               |  |                                      |         |                           |   |              |  |                          |        |                          |   |              |  |   |        |  |  |        |  

|    |                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Interest
 rate spread represents the difference between the average yield on
 interest-earning assets and the average rate on interest-bearing liabilities.
|    |                                                                                                                                                            
|(2) | Net interest
 margin represents income before the provision for loan losses divided by
 average interest-earning assets.                                   

25

---



Rate/Volume Analysis

The following
table sets forth information regarding changes in interest income and interest
expense for the periods indicated. For each category of our loans and
investments and our interest-bearing deposits and borrowings, information is
provided on changes attributable to change in volume (change in volume
multiplied by the old rate). The table also provides information on change in
rate (changes in rate multiplied by old volume). The combined effects of
changes in rate and volume have been allocated proportionately to the change
due to rate and the change due to volume.

|                                             |  |                                                   |       |              |   |      |   |        |       |              |   |       |   |   |       |   |   |       |  
|-------------------------------------------- |  | ------------------------------------------------- | ----- | ------------ | - | ---- | - | ------ | ----- | ------------ | - | ----- | - | - | ----- | - | - | ----- | -
|                                             |  | For the Years Ended June 30,
 Increase (Decrease) |      
|                                             |  |                                                   |      
|                                             |  | (In thousands)                                    |      
|                                             |  | 2008 vs 2007                                      |       | 2007 vs 2006 |  
|                                             |  |                                                   |       |              |  
|                                             |  | Volume                                            |       | Due to
 Rate |   | Net  |   | Volume |       | Due to
 Rate |   | Net   |  
|                                             |  |                                                   |       |              |   |      |   |        |       |              |   |       |  
|Interest earning assets:                     |  |                                                   |       |              |   |      |   |        |       |              |   |       |   |   |       |   |   |       |  
|Loans receivable, net                        |  | $                                                 | 1,017 |              | $ | 157  |   | $      | 1,174 |              | $ | 1,603 |   | $ | 329   |   | $ | 1,932 |  
|Investment securities                        |  |                                                   | 48    |              |   | 203  |   |        | 251   |              |   | (113  | ) |   | 326   |   |   | 213   |  
|Interest-bearing deposits with banks         |  |                                                   | 36    |              |   | (23  | ) |        | 13    |              |   | (22   | ) |   | 13    |   |   | (9    | )
|Other earning assets                         |  |                                                   |      |              |   | 9    |   |        | 9     |              |   |      |   |   | 7     |   |   | 7     |  
|                                             |  |                                                   |       |              |   |      |   |        |       |              |   |       |   |   |       |   |   |       |  
|Total interest earning assets                |  |                                                   | 1,101 |              |   | 346  |   |        | 1,447 |              |   | 1,468 |   |   | 675   |   |   | 2,143 |  
|                                             |  |                                                   |       |              |   |      |   |        |       |              |   |       |   |   |       |   |   |       |  
|Interest-bearing liabilities:                |  |                                                   |       |              |   |      |   |        |       |              |   |       |   |   |       |   |   |       |  
|Passbook, money market and checking
accounts |  |                                                   | (76   | )            |   | (23  | ) |        | (99   | )            |   | (49   | ) |   | 78    |   |   | 29    |  
|Certificates of deposit                      |  |                                                   | 212   |              |   | 83   |   |        | 295   |              |   | 239   |   |   | 912   |   |   | 1,151 |  
|Borrowings                                   |  |                                                   | 755   |              |   | (255 | ) |        | 500   |              |   | 824   |   |   | 168   |   |   | 992   |  
|                                             |  |                                                   |       |              |   |      |   |        |       |              |   |       |   |   |       |   |   |       |  
|Total interest-bearing liabilities           |  |                                                   | 891   |              |   | (195 | ) |        | 696   |              |   | 1,014 |   |   | 1,158 |   |   | 2,172 |  
|                                             |  |                                                   |       |              |   |      |   |        |       |              |   |       |   |   |       |   |   |       |  
|Change in net interest income                |  | $                                                 | 210   |              | $ | 541  |   | $      | 751   |              | $ | 454   |   | $ | (483  | ) | $ | (29   | )
|                                             |  |                                                   |       |              |   |      |   |        |       |              |   |       |   |   |       |   |   |       |  

Interest Rate Risk Analysis

In addition to
the asset/liability committee, the board of directors reviews our asset and
liability policies. The board of directors reviews interest rate risk and
interest rate trends quarterly, as well as liquidity and capital ratio
requirements. Management administers the policies and determinations of the
board of directors with respect to our asset and liability goals and
strategies. Our asset and liability policy and strategies are expected to
continue as described so long as competitive and regulatory conditions in the
financial institution industry and market interest rates continue as they have
in recent years.

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 residential 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 servicing 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.

26

---



For the past
few 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 due to fierce
competition and wholesale funding (which is usually more expensive than retail
deposits) will likely be needed to supplement deposit growth.

The level and
movement of interest rates impacts the Banks earnings as well. For the 2008
fiscal year the yield curve began to steepen as the Federal Open Market
Committee (FOMC) reduced the fed funds rate by a total of 275 basis points
during the fiscal year, however long-term rates remained relatively unchanged.

Financial Condition

Introduction.

Total assets
increased $35.22 million, or 14.39%, to $279.91 million at June 30, 2008,
compared to $244.69 million at June 30, 2007. Total liabilities increased by
$33.68 million, or 15.27%, to $254.27 million at June 30, 2008, from $220.60
million at June 30, 2007. The loan portfolio grew $10.01 million during the
year, approximately sixty percent of the previous years growth, due to an
increase in loan sales. Total deposits decreased $796,000, reflecting the
Banks decision to call a $4.41 million brokered certificate of deposit.
Noninterest checking increased $923,000 or 6.74%, to $14.62 million at June 30,
2008, while money market accounts increased $1.98 million, or 8.81%. Much of
the asset growth was funded by increased borrowings principally in the form of
FHLB borrowings.

Balance Sheet Details.

Loans
receivable increased $10.01 million, or 6.33% to $168.15 million from $158.14
million. Increased originations in most loan categories contributed to the
higher loan balances, and consequently all categories except real estate
construction loans showed an increase in balances compared to last year. Commercial
real estate and land loans increased $2.58 million during the year, and
residential mortgage loans increased $4.79 million. The available-for-sale
(AFS) investment portfolio increased $13.64 million, or 21.06%, to $78.42
million at June 30, 2008 from $64.77 million at June 30, 2007. The investment
category with the largest increase was collateralized mortgage obligations
(CMOs), which increased $11.15 million.

Total deposits
decreased $796,000. Certificates of deposit decreased $4.85 million, to $84.33
million at June 30, 2008 from $89.19 million at June 30, 2007. This amount
includes $4.41 million of brokered certificates of deposit that the Bank called
during the year as noted above. Without the calling of that brokered
certificate of deposit the decrease would have been $440,000. The Bank had no
brokered deposits as of June 30, 2008. Interest-earning checking accounts
decreased $234,000 while noninterest checking increased $923,000. Money market
accounts increased $1.98 million and savings accounts increased $1.39 million.
Deposit growth is expected to continue to be difficult to achieve due to fierce
competition among financial institutions in our markets. Advances from the
Federal Home Loan Bank and other borrowings increased to $68.22 million at
year-end 2008 from $33.80 million at year-end 2007, an increase of $34.42
million. This increase was needed to help fund growth in loans and investments.

Total
shareholders equity was $25.63 million at June 30, 2008, an increase of $1.55
million. This increase was the result of net income for the year and a decrease
in accumulated other comprehensive loss of $86,000 (mainly due to a decrease in
net unrealized loss on securities available-for-sale), partially offset by the
purchase of treasury stock and dividends paid during the year.

Comparison of Operating Results for the Years
Ending June 30, 2008 and 2007

Net Income.

Eagles net
income was $2.110 million and $1.778 million for the years ended June 30, 2008
and 2007 respectively. This increase of $332,000, or 18.67%, was the result of
an increase in net interest income of $751,000 a decrease in net noninterest
income of $37,000 and an adjustment to the provision for loan losses of
$175,000, offset by an increase in noninterest expense of $449,000. Eagles tax
provision was $108,000 higher in 2008. Basic earnings per share for the year
ended June 30, 2008 were $1.97, compared to $1.66 for the year ended June 30,
2007. Diluted earnings per share were $1.74 and $1.47 for 2008 and 2007,
respectively.

27

---



Net Interest Income.

Net interest
income increased to $7.436 million for the year ended June 30, 2008, from
$6.685 million for the previous year. This increase of $751,000, or 11.23%, was
the result of an increase in interest income of $1.438 million, partially
offset by an increase in interest expense of $687,000.

Interest and Dividend Income.

Total interest
and dividend income was $14.089 million for the year ended June 30, 2008,
compared to $12.651 million for the year ended June 30, 2007, an increase of
$1.438 million, or 11.37%. Interest and fees on loans increased to $10.905
million for 2008 from $9.731 million for 2007. This increase of $1.174 million,
or 12.06%, was due primarily to the increase in the average balances on loans
receivable for the year ended June 30, 2008. The average interest rate earned
on loans receivable increased by 9 basis points, to 6.59% from 6.50%. Average
balances for loans receivable, net, for the year ended June 30, 2008 were
$165.47 million, compared to $149.82 million for the previous year. This
represents an increase of $15.65 million, or 10.45% and reflects managements
plan to grow the loan portfolio. Interest and dividends on investment
securities available-for-sale (AFS) increased to $3.071 million for the year
ended June 30, 2008 from $2.811 million for the year ended June 30, 2007, an
increase of $260,000, or 9.25%. This increase was the result of higher average
interest rates on the AFS portfolio during the year, along with an higher
average balance. Interest earned from deposits at other banks increased
slightly for the year ended June 30, 2008 due to higher average balances.
Interest and dividends on investments held-to-maturity (HTM) also experienced a
slight decline.

Interest Expense.

Total interest
expense increased to $6.653 million for the year ended June 30, 2008 from
$5.966 million for the year ended June 30, 2007, an increase of $687,000, or
11.52%. Interest on deposits increased to $4.387 million for the year ended
June 30, 2008 from $4.191 million for the year ended June 30, 2007. This
increase of $196,000, or 4.68%, was due primarily to an increase on average
rates paid, and average balances. The average cost of deposits increased 10
basis points, to 2.67% in 2008 from 2.57% in 2007. Certificates of deposit were
the only category to show an increase in average balances in 2008. An increase
in the average balance of borrowings was partially offset by a decrease in the
average rate paid and resulted in an increase in interest paid on borrowings to
$2.266 million for the year ended June 30, 2008 from $1.775 million for the
year ended June 30, 2007. The average balance of borrowings increased to
$48.867 million for the year ended June 30, 2008, compared to $34.226 million
for the year ended June 30, 2007 and resulted principally from an increase in
FHLB borrowings. The average rate paid on borrowings increased to 4.64% in 2008
from 5.16% in 2007.

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 American Federal Savings Bank to
provide for probable loan losses based on prior loss experience, volume and
type of lending conducted by American Federal, 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 management
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. An adjustment to reduce the allowance for loan loss of
$175,000 was made for the year ended June 30, 2008, and no provision or
adjustment was made for the year ended June 30, 2007. This is a reflection of
the continued strong asset quality of American Federals loan portfolio, as
non-performing loan ratios continue to be low. Total classified assets
decreased to $106,000 at June 30, 2008 from $391,000 at June 30, 2007. Total
non-performing loans as a percentage of the total loan portfolio is 0.02% at
June 30, 2008, down from 0.13% at June 30, 2007. As of June 30, 2008, American
Federal Savings Bank had no real estate owned.

Noninterest Income.

Total
noninterest income decreased to $2.224 million for the year ended June 30,
2008, from $2.261 million for the year ended June 30, 2007, a decrease of
$37,000 or 1.64%. This decrease was primarily due to recognized losses of
$511,000 on Freddie Mac and Fannie Mae preferred stock that is accounted for
under Statement of Financial Accounting Standard (SFAS) No. 159 Fair Value
Option for Financial Assets and Financial Liabilities. Eagle implemented SFAS
on July 1, 2007. The preferred stock of Freddie Mac and Fannie Mae currently
held by the company constitutes $1.321 million or 0.47 percent of total assets
as of June 30, 2008. This stock continues to demonstrate high price volatility
and could negatively impact future earnings of the Company. As of July 31, 2008
it had a market value of $901,000. If that value remains to September 30, 2008,
the Company would recognize an additional loss of $420,000 in the first quarter
of fiscal year 2009. Net gain on sale of loans increased $158,000 to $801,000,
due to managements decision to sell a higher percentage of mortgage
originations. Service charges on deposit accounts increased $215,000 to
$711,000 for the year ending June 30, 2008 from $496,000 for the year ending
June 30, 2007. This was primarily due to an over-draft protection plan program
implemented by the Bank during the fiscal year. Other noninterest income
increased $16,000 to $609,000, primarily due to increased fee income on
electronic payments and higher fee income on loan products. The single largest
item in other noninterest income is earnings from bank owned life insurance of
$236,000.

28

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Noninterest Expense.

Noninterest
expense increased by $449,000 or 6.79% to $7.063 million for the year ended
June 30, 2008 from $6.614 million for the year ended June 30, 2007. This
increase was primarily due to increases in salaries and benefits of $348,000,
consulting fees of $37,000 and advertising expense of $46,000. The increase in
salaries and benefits was due to normal pay raises. Consulting fees increased
due to the use of market analysis and product development firms during the
fiscal year. Advertising expenses were higher due to increased promotion of
deposit products. Other categories of noninterest expense showed modest
changes.

Income Tax Expense.

Eagles income
tax expense was $662,000 for the year ended June 30, 2008, compared to $554,000
for the year ended June 30, 2007. The effective tax rate for the year ended
June 30, 2008 was 23.9% as opposed to 23.8% for the year ended June 30, 2007.

Liquidity and Capital Resources

The companys
subsidiary, American Federal Savings 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 the
previous regulatory definitions of liquidity. The Banks average liquidity
ratio average was 9.25% and 9.93% for the months ended June 30, 2008 and 2007,
respectively. The liquidity ratio declined due to an increase in the loan
portfolio (funded by other borrowings) while the investment portfolio and
deposits showed smaller increases.

The Banks
primary sources of funds are deposits, repayment of loans and mortgage-backed
securities, maturities of investments, funds provided from operations, 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.

Net cash
provided by (used by) the Companys operating activities, which is primarily
comprised of cash transactions affecting net income was $(2.997) million for
the year ended June 30, 2008 and $2.885 million for the year ended June 30,
2007. The change was primarily a result of a increase in the amount of loans
held for sale in 2007.

Net cash used
in the Companys investing activities, which is primarily comprised of cash
transactions from the investment securities and mortgage-backed securities
portfolios and the loan portfolio, was $28.934 million for the year ended June
30, 2008, and $18.796 million for the year ended June 30, 2007. The increase in
cash used was primarily due to more investment purchases in available-for-sale
securities in 2008 compared to 2007.

Net cash
provided by the Companys financing activities, which is primarily cash
transactions from net increases in deposits and net Federal Home Loan Bank
advances and other borrowings, totaled $32.952 million for the year ended June
30, 2008, and $16.109 million for the year ended June 30, 2007. This increase
in cash provided was primarily due to the increase in FHLB borrowings in 2008.

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 our
commitments to make loans and managements assessment of our ability to
generate funds.

At March 31,
2008 (the most recent report available), the Banks measure of sensitivity to
interest rate movements, as measured by the OTS, decreased slightly from the
previous quarter. The market value of the Banks capital position has decreased
slightly from the previous year. The Bank is well within the guidelines set
forth by the Board of Directors for interest rate sensitivity.

As of June 30,
2008, the Banks regulatory capital was in excess of all applicable regulatory
requirements. At June 30, 2008, the Banks tangible, core, and risk-based
capital ratios amounted to 9.40%, 9.40%, and 13.43%, respectively, compared to
regulatory requirements of 1.5%, 3.0%, and 8.0%, respectively.

29

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Impact of Inflation and Changing Prices

Our financial
statements and the accompanying notes, which are found in Item 7, 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.

Recent Accounting Pronouncements

In December
2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 46R, Consolidation of Variable Interest Entities an
Interpretation of ARB No. 51 (FIN 46R). This Interpretation, which replaces
FASB Interpretation No. 46, Consolidation of Variable Interest Entities,
clarifies the application of Accounting Research Bulletin No. 51, Consolidated
Financial Statements, for certain entities in which equity investors do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support.

On September
28, 2005, the Company issued trust-preferred securities through a wholly-owned
subsidiary trust, further described in Note 9 of the audited financial
statements. Under the provisions of FIN 46R, the Company accounts for its
investment in the trust as an asset and its junior subordinated debentures as a
liability. Additionally, the Company reports the dividends paid and received on
the securities in the statement of income as interest income and expense. In
February 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 155, Accounting for Certain Hybrid Financial Instruments, an
amendment of SFAS Statements No. 133 and 140. SFAS No. 155 improves financial
reporting by eliminating the exemption from applying SFAS No. 133 to interests
in securitized financial assets so that similar instruments are accounted for
similarly regardless of the form of the instruments.

This statement
also improves financial reporting by allowing a preparer to elect fair value
measurement at acquisition, at issuance, or when a previously recognized
financial instrument is subject to a remeasurement (new basis) event, on an
instrument-by-instrument basis, in cases in which a derivative would otherwise
have to be bifurcated. SFAS No. 155 is effective for all financial instruments
acquired, issued, or subject to a remeasurement (new basis) event occurring
after the beginning of the Companys first fiscal year that begins after
September 15, 2006. The Company does not anticipate that the adoption of this
new accounting principle will have a material effect on its financial position,
results of operations or cash flows.

On March 17,
2006, the FASB issued SFAS No. 156, Accounting
for Servicing of Financial Assets, an amendment of SFAS No. 140,
which permits, but does not require, an entity to account for one or more
classes of servicing rights (i.e., mortgage servicing rights, or MSRs) at fair
value, with the changes in fair value recorded in the Consolidated Statement of
Income. Management is currently evaluating the impact and timing of the
adoption of SFAS 156 on the Companys financial condition, results of
operations and cash flows.

In September
2006, the FASB issued SFAS No. 157, Fair
Value Measurements. SFAS No. 157 establishes a framework for
measuring fair value and expands disclosures about fair value measurements.
SFAS No. 157 clarifies the definition of exchange price as the price between
market participants in an orderly transaction to sell an asset or transfer a
liability in the market in which the reporting entity would transact for the
asset or liability, that is, the principal or most advantageous market for the
asset or liability. The changes to current practice resulting from the
application of this statement relate to the definition of fair value, the
methods used to measure fair value, and the expanded disclosures about fair
value measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years.

On February
15, 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities, which
allows an entity the irrevocable option to elect fair value for the initial and
subsequent measurement for certain financial assets and liabilities on a
contract-by-contract basis. Subsequent changes in fair value of these financial
assets and liabilities would be recognized in earnings when they occur. SFAS
No. 159 further establishes certain additional disclosure requirements. SFAS
No. 159 is effective for the Companys financial statements for the year
beginning on July 1, 2008, with earlier adoption permitted.

30

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In June 2006,
the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. FIN 48 provides
detailed guidance
for the financial statement recognition, measurement and disclosure of
uncertain tax positions recognized in an enterprises financial statements in
accordance with SFAS No. 109, Accounting for
Income Taxes. FIN 48 requires an entity to recognize the financial
statement impact of a tax position when it is more likely than not that the
position will be sustained upon examination. If the tax position meets the
more-likely-than-not recognition threshold, the tax effect is recognized at the
largest amount of the benefit that is greater than 50% likely of being realized
upon ultimate settlement. Any difference between the tax position taken in the
tax return and the tax position recognized in the financial statements using
the criteria above results in the recognition of a liability in the financial
statements for the unrecognized benefit. Similarly, if a tax position fails to
meet the more-likely-than-not recognition threshold, the benefit taken in tax
return will also result in the recognition of a liability in the financial
statements for the full amount of the unrecognized benefit.

FIN 48 will be
effective for fiscal years beginning after December 15, 2006 (including the
first interim period for calendar year companies) and the provisions of FIN 48
will be applied to all tax positions under SFAS No. 109 upon initial adoption.
The cumulative effect of applying the provisions of this interpretation will be
reported as an adjustment to the opening balance of retained earnings for that
fiscal year. The Company does not anticipate that the adoption of this new
accounting principle will have a material effect on its financial position,
results of operations or cash flows.

In November
2007, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings
(SAB 109). SAB No. 109 supersedes SAB 105, Application of Accounting
Principles to Loan Commitments, and indicates that the expected net future
cash flows related to the associated servicing of the loan should be included
in the measurement of all written loan commitments that are accounted for at
fair value through earnings. The guidance in SAB 109 is applied on a
prospective basis to derivative loan commitments issued or modified in fiscal
quarters beginning after December 15, 2007. SAB 109 is not expected to have a
material impact on the Companys financial position, results of operations or
cash flows.

In March 2007,
the FASB ratified Emerging Issues Task Force Issue No. 06-10 Accounting for
Collateral Assignment Split-Dollar Life Insurance Agreements (EITF 06-10).
EITF 06-10 provides guidance for determining a liability for the postretirement
benefit obligation as well as recognition and measurement of the associated
asset on the basis of the terms of the collateral assignment agreement. EITF
06-10 is effective for fiscal years beginning after December 15, 2007. The
Company is currently assessing the impact of EITF 06-10 on its consolidated
financial position and results of operations.

On September
7, 2006, the Task Force reached a conclusion on Emerging Issues Task Force No.
06-5, Accounting for Purchases of Life Insurance  Determining the Amount That
Could Be Realized in Accordance with FASB Technical Bulleting No. 85-4,
Accounting for Purchases of Life Insurance (EITF 06-5). The scope of EITF
06-5 consists of six separate issues relating to accounting for life insurance
policies purchases by entities protecting against the loss of key persons.
The six issues are clarifications of previously issued guidance on FASB
Technical Bulleting No. 85-4. EITF 06-5 is effective for fiscal years beginning
after December 15, 2006. The adoption of EITF 06-5 did not have a material
impact on the Companys consolidated financial statements.

In September
2006, the FASBs Emerging Issues Task Force issued EITF Issue No 06-4, Accounting
for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split Dollar Life Insurance Arrangements (EITF 06-4). EITF 06-4 requires the
recognition of a liability related to the postretirement benefits covered by an
endorsement split-dollar life insurance arrangement. The consensus highlights
that the employer (who is also the policyholder) has a liability for the
benefit it is providing to its employee. As such, if the policyholder has
agreed to maintain the insurance policy in force for the employees benefit
during his or her retirement, then the liability recognized during the
employees active service period should be based on the future cost of
insurance to be incurred during the employees retirement. Alternatively, if
the policy holder has agreed to provide the employee with a death benefit, then
the liability for the future death benefit should be recognized by following
the guidance in SFAS No. 106 or Accounting Principles Board (APB) Opinion No.
12, as appropriate. For transition, an entity can choose to apply the guidance
using either of the following approaches: (a) a change in accounting principle
through retrospective application to all periods presented or (b) a change in
accounting principle through a cumulative-effect adjustment to the balance in
retained earnings at the beginning of the year of adoption. The disclosures are
required in fiscal years beginning after December 15, 2007, with early adoption
permitted. The Company does not believe that the implementation of this
guidance will have a material impact on the Companys consolidated financial
statements.

31

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Application of Critical Accounting Policies

There are a
number of accounting estimates performed by the Company in preparing its
financial statements. Some of the estimates are developed internally, while
others are obtained from independent third parties. Examples of estimates using
external sources are the fair market value of investment securities, fair value
of mortgage servicing rights, deferred compensation, and appraised value of
foreclosed properties. It is managements assertion that the external sources
have access to resources, methodologies, and markets that provide adequate
assurances that no material impact would occur due to changes in assumptions.
The following accounting estimates are performed internally:

Allowance for Loan and Lease Losses (ALLL).

Management
applies its knowledge of current local economic and real estate market
conditions, historical experience, loan portfolio composition, and the
assessment of delinquent borrowers situations, to determine the adequacy of
its ALLL reserve. These factors are reviewed by the Banks federal banking
regulator and the Companys external auditors on a regular basis. The current
level of the ALLL reserve is deemed to be more than adequate given the above
factors, with no material impact expected due to a difference in the
assumptions.

Deferred Loan Fees.

Management
applies time study and statistical analysis to determine loan origination costs
to be capitalized under SFAS No. 91. The analysis is reviewed by the Companys
external auditors for reasonableness. No material impact is expected if
different assumptions are used, as many of our loans have a short duration.

Deferred Tax Assets.

Management
expects to realize the deferred tax assets due to the continued profitability
of the Company.

Fair Value of Other Financial Instruments.

Management
uses an internal model to determine fair value for its loan portfolio and
certificates of deposit. The assumptions entail spreads over the Treasury yield
curve at appropriate maturity benchmarks. Assumptions incorporating different
spreads would naturally deliver varying results; however, due to short-term
nature of the loan portfolio and certificates of deposit, changes in the
results would be mitigated. Currently, the fair value is only presented as
footnote information, and changes due to new assumptions would not, in
managements opinion, affect the readers opinion of the Companys financial
condition.

Economic Life of Fixed Assets.

Management
determines the useful life of its buildings, furniture, and equipment for
depreciation purposes. These estimates are reviewed by the Companys external
auditors for reasonableness. No material impact is expected if different
assumptions were to be used.

ITEM 7. FINANCIAL STATEMENTS.

Eagle
Bancorps audited financial statements, notes thereto, and auditors reports
are found immediately following Part III of this report.

ITEM 8A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We conducted
an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as
of June 30, 2008, to ensure that information required to be disclosed by us in
the reports filed or submitted by us under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the Securities
Exchange Commissions rules and forms, including to ensure that information
required to be disclosed by us in the reports filed or submitted by us under
the Exchange Act is accumulated and communicated to management to allow timely
decisions regarding required disclosure. Based on that evaluation, management
has concluded that as of June 30, 2008, our disclosure controls and procedures
were effective.

32

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Management Annual Report on Internal Control
over Financial Reporting

Our management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f)
and 15d-15(f). Our management conducted an assessment of the effectiveness of
our internal control over financial reporting. This assessment was based upon
the criteria for effective internal control over financial reporting
established in Internal Control - Integrated
Framework, issued by the Committee of Sponsoring Organizations of
the Treadway Commission.

The Companys
internal control over financial reporting involves a process designed to
provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Internal control over financial
reporting includes the controls themselves, as well as monitoring of the
controls and internal auditing practices and actions to correct deficiencies
identified. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect all misstatements.

Management
assessed the effectiveness of the Companys internal control over financial
reporting as of June 30, 2008. Based on this assessment, management concluded
that, as of June 30, 2008, the Companys internal control over financial
reporting was effective.

Changes in Internal Control over Financial
Reporting

There were no
changes in the Companys internal control over financial reporting identified
in connection with the evaluation required by paragraph (d) of the Securities
and Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended
June 30, 2008 that affected, or were reasonably likely to affect, the Companys
internal control over financial reporting.

ITEM 8B. OTHER INFORMATION

None.

33

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PART III

The
information required by Items 9, 10, 11, 12 and 14 of this part is presented in
the proxy statement issued by the Board of Directors in connection with the
annual meeting of stockholders to be held October 16, 2008, which is hereby
incorporated by reference into this annual report.

|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                           | 
|------------------ |  | -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Item 13. Exhibits. |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|A.                 |  | (1)      | The
 following documents are filed as part of this report: The audited
 Consolidated Statements of Financial Condition of Eagle Bancorp and
 subsidiary as of June 30, 2008 and June 30, 2007 and the related Consolidated
 Statements of Income, Consolidated Statements of Changes in Stockholder
 Equity and Consolidated Statements of Cash Flows for the years then ended,
 together with the related notes and independent auditors reports.
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  | (2)      | Schedules
 omitted as they are not applicable.                                                                                                                                                                                                                                                                                                                                                                                                     
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|B.                 |  | Exhibits |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  | *        | 2.1                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Amended and
 Restated Plan of Mutual Holding Company Reorganization and Stock Issuance                                                                                                                                   
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  | *        | 3.1                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Charter of
 Eagle Bancorp                                                                                                                                                                                                
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  | *        | 3.2                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Bylaws of
 Eagle Bancorp                                                                                                                                                                                                 
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  | *        | 4                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Form of
 Stock Certificate of Eagle Bancorp                                                                                                                                                                              
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  | *        | 10.1                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Employee
 Stock Ownership Plan and Trust                                                                                                                                                                                 
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  | **       | 10.2                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Stock Plan                                                                                                                                                                                                               
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  | ***      | 10.3                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Employment
 Contract of Peter J. Johnson                                                                                                                                                                                 
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  |          | 11                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Computation
 of per share earnings (incorporated by reference to Note 2 to Notes To
 Consolidated Statements of Financial Condition dated June 30, 2008)                                                                 
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  | ****     | 14                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Code of
 Ethics                                                                                                                                                                                                          
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  |          | 21.1                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Subsidiaries
 of Registrant (incorporated by reference to Part I, Subsidiary Activity)                                                                                                                                   
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  |          | 23.1                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Consent of
 Davis, Kinard & Co., P.C.                                                                                                                                                                                    
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  |          | 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
 of the Sarbanes-Oxley Act of 2002.              
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  |          | 31.2                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Certification
 by Clinton J. Morrison, Chief Financial Officer, pursuant to Rule 13a- 14(a)
 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302
 of the Sarbanes-Oxley Act of 2002.           
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  |          | 32.1                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Certification
 by Peter J. Johnson, Chief Executive Officer and Clinton 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.
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  |          | 99                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Consolidated
 Statements of Financial Condition                                                                                                                                                                          
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  | *        | Incorporated
 by reference to the identically numbered exhibit of the Registration
 Statement on Form SB-2 (File No. 333-93077) filed with the SEC on December
 20, 1999.                                                                                                                                                                                                                                                                          
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  | **       | Incorporated
 by reference to the proxy statement for 2000 Annual Meeting filed with the
 SEC on September 19, 2000.                                                                                                                                                                                                                                                                                                                               
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  | ***      | Incorporated
 by reference to the Form 8-K filed with the SEC on November 6, 2006.                                                                                                                                                                                                                                                                                                                                                                 
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  | ****     | Incorporated
 by reference to the Form 10-KSB filed with the SEC on September 16, 2004.                                                                                                                                                                                                                                                                                                                                                            
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          
|                   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                          

34

---



SIGNATURES

In accordance
with Section 13 or 15(d) of the Exchange Act, the registrant causes this report
to be signed on its behalf by the undersigned, thereunto duly authorized.

| |                                      |                       | 
| | ------------------------------------ | --------------------- | 
| | EAGLE
 BANCORP                       |                      
| |                                      |                       | 
| |                                      | /s/ Peter J.
 Johnson | 
| |                                      |                      
| | Peter J.
 Johnson                    |                      
| | President
 & Chief Executive Officer |                      

In accordance
with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.

|                     |                          |                                |                                  |  |         |  |      |  | 
|-------------------- | ------------------------ | ------------------------------ | -------------------------------- |  | ------- |  | ---- |  | 
|Signatures           |                          |                                | Title                            |  |         |  | Date |  | 
|                     |                          |                                |                                  |  |         |  |      |  | 
|                    
|                     |                          |                                | President
 & Chief Executive     |  |         | 
|                     | /s/ Peter J.
 Johnson    |                                | Officer                          |  | 9/15/08 | 
|                     |                          |                                |                                  |  |         | 
|Peter J.
 Johnson    |                          | Director
 (Principal Executive |                                  |  |        
|                     |                          |                                | Officer)                         |  |         | 
|                     |                          |                                |                                  |  |         |  |     
|                     | /s/ Clinton
 J. Morrison |                                | Senior Vice
 President and Chief |  | 9/15/08 | 
|                     |                          |                                |                                  |  |         | 
|Clinton J.
 Morrison |                          | Financial
 Officer (Principal  |                                  |  |        
|                     |                          |                                | Financial
 Officer               |  |         | 
|                     |                          |                                |                                  |  |         |  |     
|                     | /s/ Larry A.
 Dreyer     |                                | Chairman                         |  | 9/15/08 | 
|                     |                          |                                |                                  |  |         | 
|Larry A.
 Dreyer     |                          |                                |                                  |  |         | 
|                     |                          |                                |                                  |  |         |  |     
|                     | /s/ Don O.
 Campbell     |                                | Vice
 Chairman                   |  | 9/15/08 | 
|                     |                          |                                |                                  |  |         | 
|Don O.
 Campbell     |                          |                                |                                  |  |         | 
|                     |                          |                                |                                  |  |         |  |     
|                     | /s/ Rick F.
 Hays        |                                | Director                         |  | 9/15/08 | 
|                     |                          |                                |                                  |  |         | 
|Rick F. Hays         |                          |                                |                                  |  |         | 
|                     |                          |                                |                                  |  |         |  |     
|                     | /s/ Lynn E.
 Dickey      |                                | Director                         |  | 9/15/08 | 
|                     |                          |                                |                                  |  |         | 
|Lynn E.
 Dickey      |                          |                                |                                  |  |         | 
|                     |                          |                                |                                  |  |         |  |     
|                     | /s/ James A.
 Maierle    |                                | Director                         |  | 9/15/08 | 
|                     |                          |                                |                                  |  |         | 
|James A.
 Maierle    |                          |                                |                                  |  |         | 
|                     |                          |                                |                                  |  |         |  |     
|                     | /s/ Thomas
 J. McCarvel  |                                | Director                         |  | 9/15/08 | 
|                     |                          |                                |                                  |  |         | 
|Thomas J.
 McCarvel  |                          |                                |                                  |  |         | 

35

---



Exhibit 99  Consolidated Statements of Financial Condition

---



|                                                         
|---------------------------------------------------------
|(EAGLE BANCORP LOGO)                                     
|                                                         
|AND SUBSIDIARY                                           
|                                                         
|                                                         
|                                                         
|CONSOLIDATED FINANCIAL
 STATEMENTS                       
|                                                         
|and                                                      
|                                                         
|REPORT OF INDEPENDENT
 REGISTERED PUBLIC
 ACCOUNTING FIRM
|                                                         
|                                                         
|                                                         
|June 30, 2008 and 2007                                   

---



EAGLE BANCORP AND SUBSIDIARY

Contents

|                                                            |  |      | 
|----------------------------------------------------------- |  | ---- | 
|                                                            |  | Page
|                                                            |  |     
|                                                            |  |     
|Report of Independent Registered Public Accounting Firm     |  | 1    | 
|                                                            |  |      | 
|Financial
 Statements                                       |  |      | 
|                                                            |  |      | 
|Consolidated Statements of Financial
 Condition             |  | 2    | 
|                                                            |  |      | 
|Consolidated Statements of
Income                           |  | 3    | 
|                                                            |  |      | 
|Consolidated Statements of Changes in
 Stockholders Equity |  | 4    | 
|                                                            |  |      | 
|Consolidated Statements of Cash
Flows                       |  | 5    | 
|                                                            |  |      | 
|Notes to Consolidated Financial
Statements                  |  | 6    | 

---





Report of Independent
Registered Public Accounting Firm

To the Board
of Directors and Stockholders of Eagle Bancorp and Subsidiary

We have audited
the accompanying consolidated statements of financial condition of Eagle Bancorp and Subsidiaryas of June 30,
2008, and 2007 and the related consolidated statements of income, stockholders
equity and cash flows for years then ended. These financial statements are the
responsibility of the companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our
opinion, the 2008 and 2007 financial statements referred to above present
fairly, in all material respects, the financial position of Eagle Bancorp and Subsidiaryas of June 30,
2008 and 2007, and the results of its operations and its cash flows for years
then ended in conformity with accounting principles generally accepted in the
United States of America.



| | DAVIS, KINARD & CO., P.C.
| | -------------------------

Abilene, Texas
July 31, 2008

-1-

---



|                                                  
|--------------------------------------------------
|EAGLE BANCORP AND SUBSIDIARY                      
|Consolidated Statements of Financial Condition    
|June 30, 2008 and 2007                            
|(Dollars in Thousands, Except for Per Share
 Data)

|                                                                                                                                                                 |  |      |         |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                                                                                                                                                 |  | 2008 |         | 2007 |  
|                                                                                                                                                                 |  |      |         |      |  
|Assets                                                                                                                                                           |  |      |         |      |   |         |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|Cash and due from banks                                                                                                                                          |  | $    | 3,541   |      | $ | 2,709   |  
|Interest bearing deposits in banks                                                                                                                               |  |      | 549     |      |   | 360     |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|Cash and cash equivalents                                                                                                                                        |  |      | 4,090   |      |   | 3,069   |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|Securities available for sale                                                                                                                                    |  |      | 78,417  |      |   | 64,774  |  
|Securities held to maturity (fair value
 approximates $708 in 2008 and $930 in 2007)                                                                             |  |      | 697     |      |   | 921     |  
|Preferred stock - SFAS 159                                                                                                                                       |  |      | 1,321   |      |   |        |  
|FHLB stock restricted, at cost                                                                                                                                   |  |      | 1,715   |      |   | 1,315   |  
|Investment in Eagle Bancorp Statutory Trust
 I                                                                                                                   |  |      | 155     |      |   | 155     |  
|Mortgage loans held for sale                                                                                                                                     |  |      | 7,370   |      |   | 1,175   |  
|Loans receivable, net of deferred loan fees
 and allowance for loan losses of $300 in 2008 and $518 in 2007                                                      |  |      | 168,149 |      |   | 158,140 |  
|Accrued interest and dividend receivable                                                                                                                         |  |      | 1,426   |      |   | 1,333   |  
|Mortgage servicing rights, net                                                                                                                                   |  |      | 1,652   |      |   | 1,628   |  
|Premises and equipment, net                                                                                                                                      |  |      | 8,080   |      |   | 5,806   |  
|Cash surrender value of life insurance                                                                                                                           |  |      | 6,285   |      |   | 5,764   |  
|Other assets                                                                                                                                                     |  |      | 550     |      |   | 606     |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|                                                                                                                                                                 |  | $    | 279,907 |      | $ | 244,686 |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|Liabilities and Shareholders Equity                                                                                                                             |  |      |         |      |   |         |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|Noninterest bearing                                                                                                                                              |  | $    | 14,617  |      | $ | 13,694  |  
|Interest bearing                                                                                                                                                 |  |      | 164,234 |      |   | 165,953 |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|Total deposits                                                                                                                                                   |  |      | 178,851 |      |   | 179,647 |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|Accrued expenses and other liabilities                                                                                                                           |  |      | 2,045   |      |   | 1,996   |  
|Federal funds purchased                                                                                                                                          |  |      | 3,000   |      |   | 3,800   |  
|FHLB advances and other borrowings                                                                                                                               |  |      | 65,222  |      |   | 30,000  |  
|Subordinated debentures                                                                                                                                          |  |      | 5,155   |      |   | 5,155   |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|Total liabilities                                                                                                                                                |  |      | 254,273 |      |   | 220,598 |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|Shareholders equity                                                                                                                                             |  |      |         |      |   |         |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|Preferred stock, no par value;
 1,000,000 shares authorized, no shares issued or outstanding                                                                     |  |      |        |      |   |        |  
|Common stock, $0.01 par value; 9,000,000
 shares authorized, 1,223,572 shares issued; 1,076,072 and 1,084,357 shares outstanding
 in 2008 and 2007, respectively |  |      | 12      |      |   | 12      |  
|Capital surplus                                                                                                                                                  |  |      | 4,487   |      |   | 4,387   |  
|Unallocated common stock held by ESOP                                                                                                                            |  |      | (55     | )    |   | (92     | )
|Treasury stock, at cost                                                                                                                                          |  |      | (5,013  | )    |   | (4,759  | )
|Retained earnings                                                                                                                                                |  |      | 27,025  |      |   | 25,448  |  
|Net accumulated other comprehensive loss                                                                                                                         |  |      | (822    | )    |   | (908    | )
|                                                                                                                                                                 |  |      |         |      |   |         |  
|Total shareholders equity                                                                                                                                       |  |      | 25,634  |      |   | 24,088  |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|                                                                                                                                                                 |  |      |         |      |   |         |  
|                                                                                                                                                                 |  | $    | 279,907 |      | $ | 244,686 |  
|                                                                                                                                                                 |  |      |         |      |   |         |  

The
accompanying notes are an integral part of these consolidated financial statements.

-2-

---



EAGLE BANCORP
AND SUBSIDIARYConsolidated Statements of Income 
Years Ended June 30, 2008 and 2007(Dollars in Thousands, Except for Per Share
Data)

|                                                                    |  |      |        |      |   |        |  
|------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | -
|                                                                    |  | 2008 |        | 2007 |  
|                                                                    |  |      |        |      |  
|Interest and dividend income                                        |  |      |        |      |   |        |  
|Loans, including fees                                               |  | $    | 10,905 |      | $ | 9,731  |  
|Available for sale securities                                       |  |      | 3,071  |      |   | 2,811  |  
|Held to maturity securities                                         |  |      | 34     |      |   | 43     |  
|Trust preferred securities                                          |  |      | 9      |      |   | 9      |  
|Federal Home Loan Bank stock dividends                              |  |      | 16     |      |   | 7      |  
|Deposits with banks                                                 |  |      | 63     |      |   | 50     |  
|                                                                    |  |      |        |      |   |        |  
|Total interest income                                               |  |      | 14,098 |      |   | 12,651 |  
|                                                                    |  |      |        |      |   |        |  
|Interest expense                                                    |  |      |        |      |   |        |  
|Deposits                                                            |  |      | 4,387  |      |   | 4,191  |  
|FHLB advances and other borrowings                                  |  |      | 1,966  |      |   | 1,466  |  
|Subordinated debentures                                             |  |      | 309    |      |   | 309    |  
|                                                                    |  |      |        |      |   |        |  
|Total interest expense                                              |  |      | 6,662  |      |   | 5,966  |  
|                                                                    |  |      |        |      |   |        |  
|                                                                   
|Net interest income                                                 |  |      | 7,436  |      |   | 6,685  |  
|                                                                    |  |      |        |      |   |        |  
|Credit for loan losses                                              |  |      | (175   | )    |   |       |  
|                                                                    |  |      |        |      |   |        |  
|                                                                   
|Net interest income after provision for
 loan losses                |  |      | 7,611  |      |   | 6,685  |  
|                                                                   
|Noninterest income                                                  |  |      |        |      |   |        |  
|Service charges on deposit accounts                                 |  |      | 711    |      |   | 496    |  
|Net gain on sale of loans                                           |  |      | 801    |      |   | 643    |  
|Mortgage loan service fees                                          |  |      | 542    |      |   | 533    |  
|Net realized gain (loss) on sales of
 available for sale securities |  |      | 72     |      |   | (4     | )
|Net loss on preferred stock - SFAS 159                              |  |      | (511   | )    |   |       |  
|Other income                                                        |  |      | 609    |      |   | 593    |  
|                                                                    |  |      |        |      |   |        |  
|Total noninterest income                                            |  |      | 2,224  |      |   | 2,261  |  
|                                                                    |  |      |        |      |   |        |  
|Noninterest expenses                                                |  |      |        |      |   |        |  
|Salaries and employee benefits                                      |  |      | 3,965  |      |   | 3,617  |  
|Occupancy and equipment expense                                     |  |      | 818    |      |   | 824    |  
|Data processing                                                     |  |      | 297    |      |   | 286    |  
|Advertising                                                         |  |      | 293    |      |   | 247    |  
|Amortization of mortgage servicing rights                           |  |      | 313    |      |   | 305    |  
|Federal insurance premiums                                          |  |      | 20     |      |   | 21     |  
|Postage                                                             |  |      | 99     |      |   | 86     |  
|Legal, accounting, and examination fees                             |  |      | 220    |      |   | 232    |  
|Consulting fees                                                     |  |      | 116    |      |   | 79     |  
|ATM processing                                                      |  |      | 56     |      |   | 49     |  
|Other expense                                                       |  |      | 866    |      |   | 868    |  
|                                                                    |  |      |        |      |   |        |  
|Total noninterest expenses                                          |  |      | 7,063  |      |   | 6,614  |  
|                                                                    |  |      |        |      |   |        |  
|                                                                   
|Income before income taxes                                          |  |      | 2,772  |      |   | 2,332  |  
|                                                                   
|Income tax expense                                                  |  |      | 662    |      |   | 554    |  
|                                                                    |  |      |        |      |   |        |  
|                                                                   
|Net income                                                          |  | $    | 2,110  |      | $ | 1,778  |  
|                                                                    |  |      |        |      |   |        |  
|                                                                   
|Basic earnings per share                                            |  | $    | 1.97   |      | $ | 1.66   |  
|                                                                    |  |      |        |      |   |        |  
|                                                                   
|Diluted earnings per share                                          |  | $    | 1.74   |      | $ | 1.47   |  
|                                                                    |  |      |        |      |   |        |  

The accompanying notes are an integral part
of these consolidated financial statements.

-3-

---



EAGLE BANCORP AND SUBSIDIARYConsolidated
Statements of Changes in Stockholders Equity 
Years Ended June 30, 2008 and 2007(Dollars in Thousands, Except for Per Share
Data)

|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | - | ------------- | - | ---------------------------- |  | ------------------------- | ----- | --------------- | - | ------------------ | - | --------------------------------------- | ------ | ----- | - | ------ | - | - | ------ | - | - | ------ | -
|                                                                                                                                               |  | Preferred
 Stock |   | Common
 Stock |   | Additional
 Paid-In
 Capital |  | Unallocated
 ESOP
 Shares |       | Treasury
 Stock |   | Retained
 Earnings |   | Accumulated
 Other
 Comprehensive
 Loss |        | Total |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |  
|                                                                                                                                              
|Balance at
 July 1, 2006                                                                                                                       |  | $                |  |               | $ | 12                           |  | $                         | 4,274 |                 | $ | (129               | ) | $                                       | (4,521 | )     | $ | 24,056 |   | $ | (1,147 | ) | $ | 22,545 |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|Net income                                                                                                                                     |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   | 1,778  |   |   |        |   |   | 1,778  |  
|Change in net unrealized depreciation on
 available for sale securities and cash flow hedges, net                                              |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   | 239    |   |   | 239    |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|Total comprehensive income                                                                                                                     |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   | 2,017  |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|Dividends paid ($.88 per share)                                                                                                                |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   | (386   | ) |   |        |   |   | (386   | )
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|Treasury stock purchased (3,100 shares @ $31.90;
 1,056 shares @ $32.00; 1,000 shares @ $32.60;
 1,200 shares @ $33.00; 1,000 shares @ $33.00; |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         | (238   | )     |   |        |   |   |        |   |   | (238   | )
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|ESOP shares allocated or committed to be released
for allocation
 (4,600) shares                                                               |  |                  |   |               |   |                              |  |                           | 113   |                 |   | 37                 |   |                                         |        |       |   |        |   |   |        |   |   | 150    |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|Balance at June 30, 2007                                                                                                                       |  |                  |  |               |   | 12                           |  |                           | 4,387 |                 |   | (92                | ) |                                         | (4,759 | )     |   | 25,448 |   |   | (908   | ) |   | 24,088 |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|Net income                                                                                                                                     |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   | 2,110  |   |   |        |   |   | 2,110  |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|Change in net unrealized depreciation on available
for sale securities
 and cash flow hedges, net                                              |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   | 86     |   |   | 86     |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|Total comprehensive income                                                                                                                     |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   | 2,196  |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|SFAS 159 Adjustment                                                                                                                            |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   | (118   | ) |   |        |   |   | (118   | )
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|Dividends paid ($.96 per share)                                                                                                                |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   | (415   | ) |   |        |   |   | (415   | )
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|Treasury stock purchased (1,250 shares @ $33.00;
 3,285 shares @ $32.75; 1,000 shares @ $27.25;
 750 shares @ $28.25; 2,000 shares @ $28.25;   |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         | (254   | )     |   |        |   |   |        |   |   | (254   | )
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|ESOP shares allocated or committed to be released
for allocation
 (4,600) shares                                                               |  |                  |   |               |   |                              |  |                           | 100   |                 |   | 37                 |   |                                         |        |       |   |        |   |   |        |   |   | 137    |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  
|                                                                                                                                              
|Balance at June 30, 2008                                                                                                                       |  | $                |  |               | $ | 12                           |  | $                         | 4,487 |                 | $ | (55                | ) | $                                       | (5,013 | )     | $ | 27,025 |   | $ | (822   | ) | $ | 25,634 |  
|                                                                                                                                               |  |                  |   |               |   |                              |  |                           |       |                 |   |                    |   |                                         |        |       |   |        |   |   |        |   |   |        |  

The accompanying notes are an
integral part of these consolidated financial statements.

-4-

---



|                                                  
|--------------------------------------------------
|EAGLE BANCORP AND SUBSIDIARY                      
|Consolidated Statements of Cash Flows             
|Years Ended June 30, 2008 and 2007                
|(Dollars in Thousands, Except for Per Share
 Data)

|                                                                                  |  |      |         |      |   |         |  
|--------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                                                                  |  | 2008 |         | 2007 |  
|                                                                                  |  |      |         |      |  
|Cash flows from operating activities                                              |  |      |         |      |   |         |  
|Net income                                                                        |  | $    | 2,110   |      | $ | 1,778   |  
|Adjustments to reconcile net income to net
 cash provided by operating activities |  |      |         |      |   |         |  
|Provision for mortgage servicing rights
 valuation losses                         |  |      |        |      |   |        |  
|Credit for loan losses                                                            |  |      | (175    | )    |   |        |  
|Depreciation                                                                      |  |      | 459     |      |   | 482     |  
|Net amortization of securities                                                    |  |      | 234     |      |   | 503     |  
|Amortization of capitalized mortgage
 servicing rights                            |  |      | 313     |      |   | 305     |  
|Net gain on sale of loans                                                         |  |      | (801    | )    |   | (643    | )
|Net realized (gain) loss on sales of
 available for sale securities               |  |      | (72     | )    |   | 4       |  
|Net realized loss on preferred stock - SFAS
 159                                  |  |      | 511     |      |   |        |  
|Net loss on sale of fixed assets                                                  |  |      | 3       |      |   |        |  
|Appreciation in cash surrender value of
 life insurance, net                      |  |      | (222    | )    |   | (191    | )
|Net change in                                                                     |  |      |         |      |   |         |  
|Loans held for sale                                                               |  |      | (5,366  | )    |   | 387     |  
|Accrued interest receivable                                                       |  |      | (95     | )    |   | (119    | )
|Other assets                                                                      |  |      | 414     |      |   | 210     |  
|Accrued expenses and other liabilities                                            |  |      | (311    | )    |   | 169     |  
|                                                                                  |  |      |         |      |   |         |  
|Net cash (used in) provided by operating
 activities                              |  |      | (2,998  | )    |   | 2,885   |  
|                                                                                  |  |      |         |      |   |         |  
|Cash flows from investing activities                                              |  |      |         |      |   |         |  
|Activity in available for sale securities                                         |  |      |         |      |   |         |  
|Sales                                                                             |  |      | 4,852   |      |   | 5,122   |  
|Maturities, prepayments and calls                                                 |  |      | 15,778  |      |   | 16,097  |  
|Purchases                                                                         |  |      | (36,176 | )    |   | (21,936 | )
|Activity in held to maturity securities                                           |  |      |         |      |   |         |  
|Maturities, prepayments and calls                                                 |  |      | 224     |      |   | 111     |  
|FHLB stock purchased                                                              |  |      | (400    | )    |   |        |  
|Loan originations and principal
 collections, net                                 |  |      | (10,175 | )    |   | (17,522 | )
|Purchase of bank owned life insurance                                             |  |      | (300    | )    |   | (342    | )
|Proceeds from sale of equipment                                                   |  |      | 9       |      |   |        |  
|Additions to premises and equipment                                               |  |      | (2,746  | )    |   | (326    | )
|                                                                                  |  |      |         |      |   |         |  
|Net cash used in investing activities                                             |  |      | (28,934 | )    |   | (18,796 | )
|                                                                                  |  |      |         |      |   |         |  
|Cash flows from financing
 activities                                             |  |      |         |      |   |         |  
|Net increase in deposits                                                          |  |      | (800    | )    |   | 5,305   |  
|Net change in federal funds purchased                                             |  |      | (800    | )    |   | 3,800   |  
|Net change in advances from the FHLB and
 other borrowings                        |  |      | 35,222  |      |   | 7,628   |  
|Purchase of treasury stock, at cost                                               |  |      | (254    | )    |   | (238    | )
|Dividends paid                                                                    |  |      | (415    | )    |   | (386    | )
|                                                                                  |  |      |         |      |   |         |  
|Net cash provided by financing activities                                         |  |      | 32,953  |      |   | 16,109  |  
|                                                                                  |  |      |         |      |   |         |  
|                                                                                  |  |      |         |      |   |         |  
|Net change in cash and cash equivalents                                           |  |      | 1,021   |      |   | 198     |  
|                                                                                  |  |      |         |      |   |         |  
|Cash and
 cash equivalents at beginning of year                                   |  |      | 3,069   |      |   | 2,871   |  
|                                                                                  |  |      |         |      |   |         |  
|                                                                                  |  |      |         |      |   |         |  
|Cash and cash equivalents at end of year                                          |  | $    | 4,090   |      | $ | 3,069   |  
|                                                                                  |  |      |         |      |   |         |  

The
accompanying notes are an integral part of these consolidated financial statements.

-5-

---



|                                          
|------------------------------------------
|EAGLE BANCORP AND SUBSIDIARY              
|Notes to Consolidated Financial Statements
|June 30, 2008 and 2007                    

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1: | Summary of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Nature of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Eagle
 Bancorp was organized in 2000 as the majority-owned subsidiary of Eagle
 Financial, MHC, (the Mutual Holding Company) and the sole parent of
 American Federal Savings Bank (the Bank). Collectively, Eagle Bancorp and
 the Bank are referred to herein as the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | The Bank is
 a federally chartered savings bank subject to the regulations of the Office
 of Thrift Supervision (OTS). The Bank is a member of the Federal Home Loan
 Bank System and its deposit accounts are insured to the applicable limits by
 the Federal Deposit Insurance Corporation (FDIC).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | The Bank is
 headquartered in Helena, Montana, and operates additional branches in Butte,
 Bozeman, and Townsend, Montana. The Banks market area is concentrated in
 south central Montana, to which it primarily offers commercial, residential,
 and consumer loans. The Banks principal business is accepting deposits and,
 together with funds generated from operations and borrowings, investing in
 various types of loans and securities.                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | The
 consolidated financial statements include the accounts of Eagle Bancorp and
 the Bank. All significant intercompany transactions and balances have been
 eliminated in consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | In preparing
 financial statements in conformity with U.S. generally accepted accounting
 principles, management is required to make estimates and assumptions that
 affect the reported amounts of assets and liabilities as of the date of the
 balance sheet and reported amounts of revenues and expenses during the reporting
 period. Actual results could differ from those estimates. Material estimates
 that are particularly susceptible to significant change in the near term
 relate to the determination of the allowance for loan losses, mortgage
 servicing rights, and the valuation of foreclosed assets. In connection with
 the determination of the estimated losses on loans, foreclosed assets,
 valuation of deferred tax assets and mortgage servicing rights management
 obtains independent appraisals and valuations.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Significant Group Concentrations of Credit
 Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Most of the
 Companys business activity is with customers located within the
 south-central Montana area. Note 3 discusses the types of securities that the
 Company invests in. Note 4 discusses the types of lending that the Company
 engages in. The Company does not have any significant concentrations to any
 one industry or customer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | The Company
 carries certain assets with other financial institutions which are subject to
 credit risk by the amount such assets exceed federal deposit insurance
 limits. At June 30, 2008 and June 30, 2007, no account balances were held
 with correspondent banks that were in excess of FDIC insured levels. Also,
 from time to time, the Company is due amounts in excess of FDIC insurance limits
 for checks and transit items. Management monitors the financial stability of
 correspondent banks and considers amounts advanced in excess of FDIC
 insurance limits to present no significant additional risk to the Company.                                                                                                                                                                                                        

-6-

---



|                                          
|------------------------------------------
|EAGLE BANCORP AND SUBSIDIARY              
|Notes to Consolidated Financial Statements
|June 30, 2008 and 2007                    

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1: | Summary of Significant Accounting Policies  continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | For the
 purpose of presentation in the consolidated statements of cash flows, cash
 and cash equivalents are defined as those amounts included in the balance
 sheet captions cash and due from banks, and interest-bearing deposits in
 banks, all of which mature within ninety days.                                                                                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | The Bank is
 required to maintain a reserve balance with the Federal Reserve Bank. The
 Bank properly maintained amounts in excess of required reserves of $50,000
 and $391,000 as of June 30, 2008 and 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | Investment Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | The Company
 designates debt and equity securities as held-to-maturity,
 available-for-sale, or trading.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | Held-to-maturity  Debt investment
 securities that management has the positive intent and ability to hold until
 maturity are classified as held-to-maturity and are carried at their
 remaining unpaid principal balance, net of unamortized premiums or unaccreted
 discounts. Premiums are amortized and discounts are accreted using the
 interest method over the period remaining until maturity.                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | Available-for-sale  Investment securities
 that will be held for indefinite periods of time, including securities that
 may be sold in response to changes in market interest or prepayment rates,
 need for liquidity, and changes in the availability of and the yield of
 alternative investments, are classified as available-for-sale. These assets
 are carried at fair value. Unrealized gains and losses, net of tax, are
 reported as other comprehensive income. Gains and losses on the sale of
 available-for-sale securities are recorded on the trade date and determined
 using the specific identification method.           
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | Declines in
 the fair value of individual held-to-maturity and available-for-sale
 securities below their cost that are other than temporary are recognized by
 write-downs of the individual securities to their fair value. Such
 write-downs would be included in earnings as realized losses.                                                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | Trading  No investment securities were
 designated as trading at June 30, 2008 and 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | Securities  SFAS 159 Beginning fiscal
 year, July 1, 2007 the Company elected to account for its preferred stock
 under SFAS No. 159, which allows an entity the irrevocable option to elect
 fair value for the initial and subsequent measurement for certain financial
 assets and liabilities on a contract-by-contract basis. Subsequent changes in
 fair value of these assets are recognized in earning when incurred. On July
 1, 2007 a charge to retained earnings for $118,000 was recorded in accordance
 with the implementation of SFAS No. 159 to record the unrealized loss (net of
 taxes) on preferred stock at that date.

-7-

---



|                                          
|------------------------------------------
|EAGLE BANCORP AND SUBSIDIARY              
|Notes to Consolidated Financial Statements
|June 30, 2008 and 2007                    

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1: | Summary of Significant Accounting Policies  continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | Federal Home Loan Bank Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | The
 Companys investment in Federal Home Loan Bank (FHLB) stock is a restricted
 investment carried at cost ($100 per share par value), which approximates its
 fair value. As a member of the FHLB system, the Company is required to
 maintain a minimum level of investment in FHLB stock based on specific
 percentages of its outstanding FHLB advances. The Company may request
 redemption at par value of any stock in excess of the amount it is required
 to hold. Stock redemptions are made at the discretion of the FHLB. The FHLB
 redeemed no shares during the years ended June 30, 2008 and 2007.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | Mortgage Loans Held-for-Sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | Mortgage
 loans originated and intended for sale in the secondary market are carried at
 the lower of cost or estimated market value, determined in aggregate, plus
 the fair value of associated derivative financial instruments. Net unrealized
 losses, if any, are recognized in a valuation allowance by a charge to
 income.                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | The Company
 grants mortgage, commercial and consumer loans to customers. A substantial
 portion of the loan portfolio is represented by mortgage loans in south
 central Montana. The ability of the Companys debtors to honor their
 contracts is dependent upon the general economic conditions in this area.                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | Loans
 receivable that management has the intent and ability to hold until maturity
 are reported at the outstanding principal balance adjusted for any
 charge-offs, allowance for loan losses, and any deferred fees or costs on
 originated loans and unamortized premiums or unaccreted discounts on
 purchased loans. Loan origination fees, net of certain direct origination
 costs are deferred and amortized over the contractual life of the loan, as an
 adjustment of the yield, using the interest method.                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | The accrual
 of interest on loans is discontinued at the time the loan is 90 days
 delinquent unless the credit is well secured and in process of collection.
 Personal loans are typically charged off no later than 180 days past due.
 Past due status is based on the contractual terms of the loan. In all cases,
 loans are placed on nonaccrual or charged off at an earlier date if
 collection of principal or interest is considered doubtful.                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | All interest
 accrued but not collected for loans that are placed on nonaccrual or charged
 off is reversed against interest income. The interest on these loans is
 accounted for on the cash-basis or cost-recovery method, until qualifying for
 return to accrual. Loans are returned to accrual status when all the
 principal and interest amounts contractually due are brought current and
 future payments are reasonably assured.                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | Allowance for Loan Losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | The
 allowance for loans losses is established as losses are estimated to have
 occurred through a provision for loan losses charged to earnings. Loan losses
 are charged against the allowance when management believes the
 uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
 any, are credited to the allowance.                                                                                                                                                                                                                                                                       

-8-

---



|                                          
|------------------------------------------
|EAGLE BANCORP AND SUBSIDIARY              
|Notes to Consolidated Financial Statements
|June 30, 2008 and 2007                    

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1: | Summary of Significant Accounting Policies  continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | The
 allowance for loan losses is evaluated on a regular basis by management and
 is based upon managements periodic review of the collectibility of the loans
 in light of historical experience, the nature and volume of the loan
 portfolio, adverse situations that may affect the borrowers ability to
 repay, estimated value of any underlying collateral and prevailing economic
 conditions. This evaluation is inherently subjective as it requires estimates
 that are susceptible to significant revisions as more information becomes
 available.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | The
 allowance consists of specific, general and unallocated components. For such
 loans that are classified as impaired, an allowance is established when the
 discounted cash flows (or collateral value or observable market price) of the
 impaired loan is lower than the carrying value of that loan. The general
 component covers non-classified loans and is based on historical loss experience
 adjusted for qualitative factors. An unallocated component is maintained to
 cover uncertainties that could affect managements estimate of probable
 losses. The unallocated component of the allowance reflects the margin of
 imprecision inherent in the underlying assumptions used in the methodologies
 for estimating specific and general losses in the portfolio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | A loan is
 considered impaired when, based on current information and events, it is
 probable that the Company will be unable to collect the scheduled payments of
 principal or interest when due according to the contractual terms of the loan
 agreement. Factors considered by management in determining impairment include
 payment status, collateral value, and the probability of collecting scheduled
 principal and interest payments when due. Loans that experience insignificant
 payment delays and payment shortfalls generally are not classified as
 impaired. Management determines the significance of payment delays and
 payment shortfalls on a case-by-case basis, taking into consideration all the
 circumstances surrounding the loan and the borrower, including the length of
 delay, the reasons for the delay, the borrowers prior payment record, and
 the amount of the shortfall in relation to the principal and interest owed.
 Impairment is measured on a loan by loan basis for commercial and
 construction loans by either the present value of expected future cash flows
 discounted at the loans effective interest rate, the loans obtainable
 market price, or the fair value of the collateral if the loan is collateral
 dependent.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | Large groups
 of smaller balance homogeneous loans are collectively evaluated for
 impairment. Accordingly, the Company does not separately identify individual
 consumer and residential loans for impairment disclosures, unless such loans
 are subject of a restructuring agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | Mortgage Servicing Rights                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | Servicing
 assets are recognized as separate assets when rights are acquired through
 purchase or through sale of financial assets. Generally, purchased servicing
 rights are capitalized at the cost to acquire the rights. For sales of
 mortgage loans, a portion of the cost of originating the loan is allocated to
 the servicing right based on relative fair value. Fair value is based on a market
 price valuation model that calculates the present value of estimated future
 net servicing income. The valuation model incorporates assumptions that
 market participants would use in estimating future net servicing income, such
 as the cost to service, the discount rate, the custodial earnings rate, an
 inflation rate, ancillary income, prepayment speeds and default rates and
 losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

-9-

---



|                                          
|------------------------------------------
|EAGLE BANCORP AND SUBSIDIARY              
|Notes to Consolidated Financial Statements
|June 30, 2008 and 2007                    

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1: | Summary of Significant Accounting Policies  continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | Mortgage Servicing Rights - continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | Servicing
 assets are evaluated for impairment based upon the fair value of the rights
 as compared to amortized cost. Impairment is determined by stratifying rights
 into tranches based on predominant characteristics, such as interest rate,
 loan type and investor type. Impairment is recognized through a valuation
 allowance for an individual tranche, to the extent that the fair value is
 less than the capitalized amount for the tranches. If the Bank later
 determines that all or a portion of the impairment no longer exists for a
 particular tranche, a reduction of the allowance may be recorded as an
 increase to income. Capitalized servicing rights are reported in other assets
 and are amortized into noninterest income in proportion to, and over the
 period of, the estimated future net servicing income of the underlying
 financial assets.                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | Servicing
 fee income is recorded for fees earned for servicing loans. The fees are
 based on a contractual percentage of the outstanding principal and are
 recorded as income when earned. The amortization of mortgage servicing rights
 is netted against loan servicing fee income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | Cash Surrender Value of Life Insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | Life insurance
 policies are initially recorded at cost at the date of purchase. Subsequent
 to purchase, the policies are periodically adjusted for fair value. The
 adjustment to fair value increases or decreases the carrying value of the
 policies and is recorded as an income or expense on the consolidated
 statement of income. For the years ended June 30, 2008 and 2007 there were no
 adjustments to fair value that were outside the normal appreciation in cash
 surrender value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | Foreclosed Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | Assets acquired
 through, or in lieu of, loan foreclosure are initially recorded at the lower
 of the Companys carrying amount or fair value less estimated selling cost at
 the date of foreclosure. All write-downs based on the assets fair value at
 the date of acquisition are charged to the allowance for loan losses. After
 foreclosure, property held for sale is carried at the lower of the new cost
 basis or fair value less cost to sell. Impairment losses on property to be
 held and used are measured as the amount by which the carrying amount of a
 property exceeds its fair value. Costs of significant property improvements
 are capitalized, whereas costs relating to holding property are expensed.
 Valuations are periodically performed by management, and any subsequent
 write-downs are recorded as a charge to operations, if necessary, to reduce
 the carrying value of a property to the lower of its cost or fair value less
 cost to sell.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | Premises and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | Land is
 carried at cost. Property and equipment is recorded at cost less accumulated
 depreciation. Depreciation is computed using the straight-line method over
 the expected useful lives of the assets, ranging from 3 to 35 years. The
 costs of maintenance and repairs are expensed as incurred, while major
 expenditures for renewals and betterments are capitalized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

-10-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements 
June 30, 2008 and 2007

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1: | Summary of Significant Accounting Policies  continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Income taxes
 are accounted for under the asset and liability method. Accordingly, deferred
 taxes are recognized for the estimated future tax effects attributable to
 temporary differences between the financial statement carrying amounts and
 the tax basis of existing assets and liabilities. Deferred tax assets and
 liabilities are measured using enacted tax rates expected to apply to taxable
 income in the years in which the temporary differences are expected to be
 recovered or settled. The effect on deferred tax assets and liabilities of a
 change in tax laws or rates is recognized in income tax expense in the period
 that includes the enactment date of the change. A deferred tax liability is
 recognized for all temporary differences that will result in future taxable
 income. A deferred tax asset is recognized for all temporary differences that
 will result in future tax deductions, subject to reduction of the asset by a
 valuation allowance in certain circumstances. This valuation allowance is
 recognized if, based on an analysis of available evidence, management
 determines that it is more likely than not that some portion or all of the
 deferred tax asset will not be realized. The valuation allowance is subject
 to ongoing adjustment based on changes in circumstances that affect
 managements judgment about the realizability of the deferred tax asset.
 Adjustments to increase or decrease the valuation allowance are charged or
 credited, respectively, to income tax expense.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Treasury Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Treasury
 stock is accounted for on the cost method and consists of 147,500 shares in
 2008 and 139,215 shares in 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Advertising Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | The Company
 expenses advertising costs as they are incurred. Advertising costs were
 approximately $293,000 and $247,000 for the years ended June 30, 2008 and
 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Employee Stock Ownership Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Compensation
 expense recognized for the Companys ESOP equals the fair value of shares
 that have been allocated or committed to be released for allocation to
 participants. Any difference between the fair value of the shares at the time
 and the ESOPs original acquisition cost is charged or credited to
 stockholders equity (capital surplus). The cost of ESOP shares that have not
 yet been allocated or committed to be released is deducted from stockholders
 equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Basic
 earnings per share (EPS) is calculated by dividing net income by the
 weighted average number of common shares outstanding for the period. Diluted
 EPS is calculated by dividing net income by the weighted average number of
 common shares used to compute basic EPS plus the incremental amount of
 potential common stock determined by the treasury stock method. For purposes
 of computing EPS, outstanding common shares include all shares issued to the
 Mutual Holding Company but exclude ESOP shares that have not been allocated
 or committed to be released for allocation to participants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

-11-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements 
June 30, 2008 and 2007

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1: | Summary of Significant Accounting Policies  continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | All
 derivative financial instruments that qualify for hedge accounting are
 recognized in the financial statements and measured at fair value regardless
 of the purpose or intent for holding them. Changes in the fair value of
 derivative financial instruments used as cash flow hedges are recognized as a
 component of comprehensive income. At June 30, 2008 and 2007, the Company was
 holding forward delivery commitments that qualify as derivative financial
 instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | The carrying
 value of the Companys financial instruments approximates fair value. The
 fair value of the Companys financial instruments is generally determined by
 a third partys valuation of the underlying asset.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | In December
 2003, the Financial Accounting Standards Board (FASB) issued FASB
 Interpretation No. 46R, Consolidation of Variable Interest Entities an
 Interpretation of ARB No. 51 (FIN 46R). This Interpretation, which
 replaces FASB Interpretation No. 46, Consolidation of Variable Interest
 Entities, clarifies the application of Accounting Research Bulletin No. 51,
 Consolidated Financial Statements, for certain entities in which equity
 investors do not have the characteristics of a controlling financial interest
 or do not have sufficient equity at risk for the entity to finance its
 activities without additional subordinated financial support.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | On September
 28, 2005, the Company issued trust-preferred securities through a
 wholly-owned subsidiary trust, further described in Note 9. Under the
 provisions of FIN 46R, the Company accounts for its investment in the trust
 as an asset and its junior subordinated debentures as a liability.
 Additionally, the Company reports the dividends paid and received on the
 securities in the statement of income as interest income and expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | In February
 2006, the FASB issued Statement of Financial Accounting Standards (SFAS)
 No. 155, Accounting for Certain Hybrid
 Financial Instruments, an amendment of FASB Statements No. 133 and 140.
 SFAS No. 155 improves financial reporting by eliminating the exemption from
 applying SFAS No. 133 to interests in securitized financial assets so that
 similar instruments are accounted for similarly regardless of the form of the
 instruments. This statement also improves financial reporting by allowing a
 preparer to elect fair value measurement at acquisition, at issuance, or when
 a previously recognized financial instrument is subject to a remeasurement
 (new basis) event, on an instrument-by-instrument basis, in cases in which a
 derivative would otherwise have to be bifurcated. SFAS No. 155 is effective
 for all financial instruments acquired, issued, or subject to a remeasurement
 (new basis) event occurring after the beginning of the Companys first fiscal
 year that begins after September 15, 2006. The Company does not anticipate
 that the adoption of this new accounting principle will have a material
 effect on its financial position, results of operations or cash flows.

-12-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements 
June 30, 2008 and 2007

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1: | Summary of Significant Accounting Policies  continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | Recent Accounting Pronouncements -
 continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | On March 17,
 2006, the FASB issued SFAS No. 156, Accounting
 for Servicing of Financial Assets, an amendment of SFAS No. 140,
 which permits, but does not require, an entity to account for one or more
 classes of servicing rights (i.e., mortgage servicing rights, or MSRs) at
 fair value, with the changes in fair value recorded in the Consolidated
 Statement of Income. Management is currently evaluating the impact and timing
 of the adoption of SFAS 156 on the Companys financial condition, results of
 operations and cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | In September
 2006, the FASB issued SFAS No. 157, Fair
 Value Measurements. SFAS No. 157 establishes a framework for
 measuring fair value and expands disclosures about fair value measurements.
 SFAS No. 157 clarifies the definition of exchange price as the price between
 market participants in an orderly transaction to sell an asset or transfer a
 liability in the market in which the reporting entity would transact for the
 asset or liability, that is, the principal or most advantageous market for
 the asset or liability. The changes to current practice resulting from the
 application of this statement relate to the definition of fair value, the
 methods used to measure fair value, and the expanded disclosures about fair
 value measurements. SFAS No. 157 is effective for fiscal years beginning
 after November 15, 2007 and interim periods within those fiscal years. The
 Company does not anticipate that the adoption of this new accounting
 principle will have a material effect on its financial position, results of
 operations or cash flows.                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | On February
 15, 2007, the FASB issued SFAS No. 159, The
 Fair Value Option for Financial Assets and Financial Liabilities,
 which allows an entity the irrevocable option to elect fair value for the
 initial and subsequent measurement for certain financial assets and
 liabilities on a contract-by-contract basis. Subsequent changes in fair value
 of these financial assets and liabilities would be recognized in earnings
 when they occur. SFAS No. 159 further establishes certain additional
 disclosure requirements. SFAS No. 159 is effective for the Companys
 financial statements for the year beginning on July 1, 2007, with earlier
 adoption permitted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | In June
 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. FIN 48
provides detailed guidance
 for the financial statement recognition, measurement and disclosure of
 uncertain tax positions recognized in an enterprises financial statements in
 accordance with SFAS No. 109, Accounting
 for Income Taxes. FIN 48 requires an entity to recognize the
 financial statement impact of a tax position when it is more likely than not
 that the position will be sustained upon examination. If the tax position
 meets the more-likely-than-not recognition threshold, the tax effect is
 recognized at the largest amount of the benefit that is greater than 50%
 likely of being realized upon ultimate settlement. Any difference between the
 tax position taken in the tax return and the tax position recognized in the
 financial statements using the criteria above results in the recognition of a
 liability in the financial statements for the unrecognized benefit.
 Similarly, if a tax position fails to meet the more-likely-than-not
 recognition threshold, the benefit taken in tax return will also result in
 the recognition of a liability in the financial statements for the full
 amount of the unrecognized benefit.

-13-

---



EAGLE BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements 
June 30, 2008 and 2007

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1: | Summary of Significant Accounting Policies  continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | Recent Accounting Pronouncements -
 continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | FIN 48 was
 effective for fiscal years that began after December 15, 2006 (including the
 first interim period for calendar year companies) and the provisions of FIN
 48 were applied to all tax positions under SFAS No. 109 upon initial
 adoption. The cumulative effect of applying the provisions of this
 interpretation were reported as an adjustment to the opening balance of
 retained earnings for that fiscal year. The adoption of this new accounting
 principle did not have a material effect on its financial position, results
 of operations or cash flows.                                                                                                                                                                                                                                                                                            
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | In November
 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin
 No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings
 (SAB 109). SAB No. 109 supersedes SAB 105, Application of Accounting
 Principles to Loan Commitments, and indicates that the expected net future
 cash flows related to the associated servicing of the loan should be included
 in the measurement of all written loan commitments that are accounted for at
 fair value through earnings. The guidance in SAB 109 is applied on a
 prospective basis to derivative loan commitments issued or modified in fiscal
 quarters beginning after December 15, 2007. SAB 109 is not expected to have a
 material impact on the Companys financial position, results of operations or
 cash flows.                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | In March
 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10
 Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements
 (EITF 06-10). EITF 06-10 provides guidance for determining a liability for
 the postretirement benefit obligation as well as recognition and measurement
 of the associated asset on the basis of the terms of the collateral
 assignment agreement. EITF 06-10 is effective for fiscal years beginning
 after December 15, 2007. The Company is currently assessing the impact of
 EITF 06-10 on its consolidated financial position and results of operations.                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | On September
 7, 2006, the Task Force reached a conclusion on Emerging Issues Task Force
 No. 06-5, Accounting for Purchases of Life Insurance  Determining the
 Amount That Could Be Realized in Accordance with FASB Technical Bulleting No.
 85-4, Accounting for Purchases of Life Insurance (EITF 06-5). The scope of
 EITF 06-5 consists of six separate issues relating to accounting for life
 insurance policies purchases by entities protecting against the loss of key
 persons. The six issues are clarifications of previously issued guidance on
 FASB Technical Bulleting No. 85-4. EITF 06-5 is effective for fiscal years
 beginning after December 15, 2006. The adoption of EITF 06-5 did not have a
 material impact on the Companys consolidated financial statements.                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | In September
 2006, the FASBs Emerging Issues Task Force issued EITF Issue No 06-4,
 Accounting for Deferred Compensation and Postretirement Benefit Aspects of
 Endorsement Split Dollar Life Insurance Arrangements (EITF 06-4). EITF
 06-4 requires the recognition of a liability related to the postretirement
 benefits covered by an endorsement split-dollar life insurance arrangement.
 The consensus highlights that the employer (who is also the policyholder) has
 a liability for the benefit it is providing to its employee. As such, if the
 policyholder has agreed to maintain the insurance policy in force for the
 employees benefit during his or her retirement, then the liability
 recognized during the employees active service period should be based on the
 future cost of insurance to be incurred during the employees retirement.

-14-

---



EAGLE BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements 
June 30, 2008 and 2007

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1: | Summary of Significant Accounting Policies  continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Recent Accounting Pronouncements -
 continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Alternatively,
 if the policy holder has agreed to provide the employee with a death benefit,
 then the liability for the future death benefit should be recognized by
 following the guidance in SFAS No. 106 or Accounting Principles Board (APB)
 Opinion No. 12, as appropriate. For transition, an entity can choose to apply
 the guidance using either of the following approaches: (a) a change in
 accounting principle through retrospective application to all periods
 presented or (b) a change in accounting principle through a cumulative-effect
 adjustment to the balance in retained earnings at the beginning of the year
 of adoption. The disclosures are required in fiscal years beginning after
 December 15, 2007, with early adoption permitted. The Company does not
 believe that the implementation of this guidance will have a material impact
 on the Companys consolidated financial statements.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Certain 2007
 amounts have been reclassified to conform to the 2008 presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|NOTE 2: | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | The
 following table sets forth the computation of basic and diluted earnings per
 share for the years ended June 30:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                                                                                                     |  |      |       |      |   |       | 
|---------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | ----- | 
|(In Thousands)                                                                                       |  | 2008 |       | 2007 |  
|                                                                                                     |  |      |       |      |  
|Weighted average shares outstanding during
 the year on which basic earnings per share is calculated |  |      | 1,071 |      |   | 1,073 | 
|Add: weighted average of stock held in
 treasury                                                     |  |      | 143   |      |   | 137   | 
|                                                                                                     |  |      |       |      |   |       | 
|Average outstanding shares on which diluted
 earnings per share is calculated                        |  |      | 1,214 |      |   | 1,210 | 
|                                                                                                     |  |      |       |      |   |       | 
|                                                                                                     |  |      |       |      |   |       | 
|Net income applicable to common
 stockholders                                                        |  | $    | 2,110 |      | $ | 1,778 | 
|                                                                                                     |  |      |       |      |   |       | 
|Basic earnings per share                                                                             |  | $    | 1.97  |      | $ | 1.66  | 
|                                                                                                     |  |      |       |      |   |       | 
|Diluted earnings per share                                                                           |  | $    | 1.74  |      | $ | 1.47  | 
|                                                                                                     |  |      |       |      |   |       | 

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 3: | Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | The
 Companys investment policy requires that the Company purchase only
 high-grade investment securities. Municipal obligations are categorized as
 AAA or better by a nationally recognized statistical rating organization.
 These ratings are achieved because the securities are backed by the full faith
 and credit of the municipality and also supported by third-party credit
 insurance policies. Mortgage backed securities and collateralized mortgage
 obligations are issued by government sponsored corporations, including
 Federal Home Loan Mortgage Corporation, Fannie Mae, and the Guaranteed
 National Mortgage Association. The amortized cost and estimated fair values
 of securities, together with unrealized gains and losses, are as follows:

-15-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements 
June 30, 2008 and 2007

|        |                       
|------- | ----------------------
|NOTE 3: | Securities  continued

|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|------------------------------------ |  | --------------- | ------ | ------------------------ | - | ------------------------- |  | ------------------------ | ------ | - | - | ------ | 
|                                     |  | June 30, 2008   |       
|                                     |  |                 |       
|(Dollars
in Thousands)               |  | Amortized
 Cost |        | Gross
 Unrealized
 Gains |   | Gross
 Unrealized
 Losses |  | Estimated
 Market
 Value |       
|                                     |  |                 |        |                          |   |                           |  |                          |       
|Available for Sale                   |  |                 |        |                          |   |                           |  |                          |       
|U.S. Government and agency           |  | $               | 2,242  |                          | $ | 6                         |  | $                        | (16    | ) | $ | 2,232  | 
|Municipal obligations                |  |                 | 22,790 |                          |   | 60                        |  |                          | (660   | ) |   | 22,190 | 
|Corporate obligations                |  |                 | 12,811 |                          |   | 53                        |  |                          | (142   | ) |   | 12,722 | 
|Mortgage-backed securites            |  |                 | 13,135 |                          |   | 8                         |  |                          | (127   | ) |   | 13,016 | 
|CMOs                                 |  |                 | 28,580 |                          |   | 36                        |  |                          | (392   | ) |   | 28,224 | 
|Common Stock                         |  |                 | 82     |                          |   |                           |  |                          | (49    | ) |   | 33     | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|Total
 securities available for sale |  | $               | 79,640 |                          | $ | 163                       |  | $                        | (1,386 | ) | $ | 78,417 | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|Held to Maturity                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|Municipal obligations                |  | $               | 675    |                          | $ | 11                        |  | $                        |       |   | $ | 686    | 
|Mortgage-backed securites            |  |                 | 22     |                          |   |                          |  |                          |       |   |   | 22     | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|Total
 securities held to maturity   |  | $               | 697    |                          | $ | 11                        |  | $                        |       |   | $ | 708    | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 

|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|------------------------------------ |  | --------------- | ------ | ------------------------ | - | ------------------------- |  | ------------------------ | ------ | - | - | ------ | 
|                                     |  | June 30, 2007   |       
|                                     |  |                 |       
|(Dollars in Thousands)               |  | Amortized
 Cost |        | Gross
 Unrealized
 Gains |   | Gross
 Unrealized
 Losses |  | Estimated
 Market
 Value |       
|                                     |  |                 |        |                          |   |                           |  |                          |       
|Available for Sale                   |  |                 |        |                          |   |                           |  |                          |       
|U.S. Government and agency           |  | $               | 3,690  |                          | $ | 5                         |  | $                        | (52    | ) | $ | 3,643  | 
|Municipal obligations                |  |                 | 21,198 |                          |   | 58                        |  |                          | (528   | ) |   | 20,728 | 
|Corporate obligations                |  |                 | 13,847 |                          |   |                          |  |                          | (224   | ) |   | 13,623 | 
|Mortgage-backed securites            |  |                 | 8,107  |                          |   | 3                         |  |                          | (238   | ) |   | 7,872  | 
|CMOs                                 |  |                 | 17,408 |                          |   | 4                         |  |                          | (337   | ) |   | 17,075 | 
|Corporate preferred stock            |  |                 | 2,000  |                          |   |                          |  |                          | (167   | ) |   | 1,833  | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|Total
 securities available for sale |  | $               | 66,250 |                          | $ | 70                        |  | $                        | (1,546 | ) | $ | 64,774 | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|Held to Maturity                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|Municipal obligations                |  | $               | 826    |                          | $ | 9                         |  | $                        |       |   | $ | 835    | 
|Mortgage-backed securites            |  |                 | 95     |                          |   |                          |  |                          |       |   |   | 95     | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 
|Total
 securities held to maturity   |  | $               | 921    |                          | $ | 9                         |  | $                        |       |   | $ | 930    | 
|                                     |  |                 |        |                          |   |                           |  |                          |        |   |   |        | 

-16-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 3: | Securities  continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Beginning
 July 1, 2007 the Company elected to account for its FHLMC and FNMA preferred
 stock under SFAS No. 159 Fair Value Option for Financial Assets and Financial
 Liabilities, which allows an entity the irrevocable option to elect fair
 value for the initial and subsequent measurement for certain financial assets
 and liabilities on a contract-by-contract basis. Subsequent changes in fair
 value of these assets are recognized in earnings when incurred. Management
 elected to invoke the option to carry its preferred stock at fair value to
 more accurately reflect the estimated realizability of the preferred stock at
 each financial reporting date. The market value of preferred stock was
 $1,321,000, and $1,832,000 at June 30, 2008, and July 1, 2007, respectively,
 resulting in a loss in value of $511,000 for the twelve month period ending
 June 30, 2008, and is included in noninterest income. See Note 21 for further
 information.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | The Company
 has not entered into any interest rate swaps, options, or futures contracts
 relating to investment securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Gross
 recognized gains on securities available-for-sale were $87,240 and $27,996
 for the years ended June 30, 2008 and 2007, respectively. Gross recognized
 losses on securities available-for-sale were $14,768 and $32,332 for the
 years ended June 30, 2008 and 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | The
 amortized cost and estimated fair value of securities at June 30, 2008 by
 contractual maturity are shown below. Expected maturities will differ from
 contractual maturities because borrowers may have the right to call or prepay
 obligations with or without call or prepayment penalties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                            |  |                  |     |                          |   |                 |  |                          |        |  |   |        | 
|--------------------------- |  | ---------------- | --- | ------------------------ | - | --------------- |  | ------------------------ | ------ |  | - | ------ | 
|                            |  | June 30, 2008    |    
|                            |  |                  |    
|                            |  |                  |     |                          |  
|                            |  | Held to Maturity |     | Available for Sale       |  
|                            |  |                  |     |                          |  
|                            |  |                  |     |                          |   |                 |  |                          |        |  |   |        | 
|(Dollars in Thousands)      |  | Amortized
 Cost  |     | Estimated
 Market
 Value |   | Amortized
 Cost |  | Estimated
 Market
 Value |       
|                            |  |                  |     |                          |   |                 |  |                          |       
|                            |  |                  |     |                          |   |                 |  |                          |        |  |   |        | 
|Due in one
 year or less    |  | $                | 300 |                          | $ | 300             |  | $                        | 4,528  |  | $ | 4,538  | 
|Due from one
 to five years |  |                  | 235 |                          |   | 244             |  |                          | 7,119  |  |   | 7,072  | 
|Due from
 five to ten years |  |                  | 140 |                          |   | 142             |  |                          | 4,840  |  |   | 4,777  | 
|Due after
 ten years        |  |                  |    |                          |   |                |  |                          | 21,356 |  |   | 20,757 | 
|                            |  |                  |     |                          |   |                 |  |                          |        |  |   |        | 
|                            |  |                  |     |                          |   |                 |  |                          |        |  |   |        | 
|                            |  |                  | 675 |                          |   | 686             |  |                          | 37,843 |  |   | 37,144 | 
|                            |  |                  |     |                          |   |                 |  |                          |        |  |   |        | 
|Mortgage-backed             |  |                  | 22  |                          |   | 22              |  |                          | 13,135 |  |   | 13,016 | 
|CMOs                        |  |                  |    |                          |   |                |  |                          | 28,580 |  |   | 28,224 | 
|Common stock                |  |                  |    |                          |   |                |  |                          | 82     |  |   | 33     | 
|                            |  |                  |     |                          |   |                 |  |                          |        |  |   |        | 
|                            |  |                  |     |                          |   |                 |  |                          |        |  |   |        | 
|Total                       |  | $                | 697 |                          | $ | 708             |  | $                        | 79,640 |  | $ | 78,417 | 
|                            |  |                  |     |                          |   |                 |  |                          |        |  |   |        | 

| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Maturities
 of securities do not reflect repricing opportunities present in adjustable
 rate securities.

-17-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|        |                                                                                                                                                                                                                                                                              
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 3: | Securities  continued                                                                                                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                              
|        | At June 30,
 2008 and 2007, securities with a carrying value of $33,880,023 and
 $24,452,665, respectively, were pledged to secure public deposits and for
 other purposes required or permitted by law.                                                                     
|        |                                                                                                                                                                                                                                                                              
|        | The
 following table discloses, as of June 30, 2008 and 2007, the Companys
 investment securities that have been in a continuous unrealized-loss position
 for less than 12 months and those that have been in a continuous unrealized
 loss position for 12 or more months:

|                            |  |                          |        |                           |   |                          |  |                           |        |  |   |     | 
|--------------------------- |  | ------------------------ | ------ | ------------------------- | - | ------------------------ |  | ------------------------- | ------ |  | - | --- | 
|                            |  | June 30, 2008            |       
|                            |  |                          |       
|                            |  |                          |        |                           |  
|                            |  | Less than 12 months      |        | 12 months or longer       |  
|                            |  |                          |        |                           |  
|(Dollars in Thousands)      |  |                          |        |                           |  
|                            |  | Estimated
 Market
 Value |        | Gross
 Unrealized
 Losses |   | Estimated
 Market
 Value |  | Gross
 Unrealized
 Losses |       
|                            |  |                          |        |                           |   |                          |  |                           |       
|                            |  |                          |        |                           |   |                          |  |                           |        |  |   |     | 
|U.S.
 Government and agency |  | $                        | 964    |                           | $ | 16                       |  | $                         |       |  | $ |    | 
|Municipal
 obligations      |  |                          | 13,272 |                           |   | 460                      |  |                           | 3,067  |  |   | 200 | 
|Corporate
 obligations      |  |                          | 7,973  |                           |   | 218                      |  |                           |       |  |   |    | 
|Mortgage-backed
 & CMOs     |  |                          | 32,191 |                           |   | 404                      |  |                           | 1,991  |  |   | 39  | 
|Common stock                |  |                          | 33     |                           |   | 49                       |  |                           |        |  |   |     | 
|                            |  |                          |        |                           |   |                          |  |                           |        |  |   |     | 
|                            |  |                          |        |                           |   |                          |  |                           |        |  |   |     | 
|Total                       |  | $                        | 54,433 |                           | $ | 1,147                    |  | $                         | 5,058  |  | $ | 239 | 
|                            |  |                          |        |                           |   |                          |  |                           |        |  |   |     | 
|                            |  |                          |        |                           |   |                          |  |                           |        |  |   |     | 
|                            |  | June 30, 2007            |       
|                            |  |                          |       
|                            |  |                          |        |                           |   |                          |  |                           |        |  |   |     | 
|U.S.
 Government and agency |  | $                        |       |                           | $ |                         |  | $                         | 2,820  |  | $ | 52  | 
|Municipal
 obligations      |  |                          | 12,338 |                           |   | 369                      |  |                           | 4,023  |  |   | 159 | 
|Corporate
 obligations      |  |                          | 4,075  |                           |   | 75                       |  |                           | 9,548  |  |   | 149 | 
|Mortgage-backed
 & CMOs     |  |                          | 6,617  |                           |   | 183                      |  |                           | 15,292 |  |   | 392 | 
|Preferred
 stock            |  |                          | 380    |                           |   | 20                       |  |                           | 1,453  |  |   | 147 | 
|                            |  |                          |        |                           |   |                          |  |                           |        |  |   |     | 
|                            |  |                          |        |                           |   |                          |  |                           |        |  |   |     | 
|Total                       |  | $                        | 23,410 |                           | $ | 647                      |  | $                         | 33,136 |  | $ | 899 | 
|                            |  |                          |        |                           |   |                          |  |                           |        |  |   |     | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The table
 above shows the Companys investment gross unrealized losses and fair values,
 aggregated by investment category and length of time that the individual
 securities have been in a continuous unrealized loss position at June 30,
 2008 and 2007. 140 and 168 securities are in an unrealized loss position as
 of June 30, 2008 and 2007, respectively.                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Management
 evaluates securities for other-than-temporary impairment at least on a
 quarterly basis, and more frequently when economic or market concerns warrant
 such evaluation. Consideration is given to (1) the length of time and the extent
 to which the fair value has been less than cost, (2) the financial condition
 and near-term prospects of the issuer, and (3) the intent and ability of the
 Bank to retain its investment in the issuer for a period of time sufficient
 to allow for any anticipated recovery in fair value.

-18-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 3: | Securities  continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | At June 30,
 2008, fifty-seven U.S. Government and agency securities and municipal
 obligations have unrealized losses with aggregate depreciation of less than
 4% from the Companys amortized cost basis. These unrealized losses are
 principally due to rising interest rates. In analyzing an issuers financial
 condition, management considers whether the securities are issued by the
 federal government or its agencies, whether downgrades by bond rating
 agencies have occurred, and industry analysts reports. As management has the
 ability to hold debt securities until maturity, or for the foreseeable future
 if classified as available for sale, no declines are deemed to be other than
 temporary.                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | At June 30,
 2008, eighty-five mortgage backed and CMO securities have unrealized losses
 with aggregate depreciation of less than 2% from the Companys cost basis.
 These unrealized losses are principally due to rising interest rates. No
 credit issues have been identified that cause management to believe the
 declines in market value are other than temporary. In analyzing the issuers
 financial condition, management considers industry analysts reports,
 financial performance and projected target prices of investment analysts
 within a one-year time frame. As management has the ability to hold debt
 securities until maturity, or for the foreseeable future if classified as
 available for sale, no declines are deemed to be other than temporary.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | At June 30,
 2008, seventeen corporate obligations have unrealized losses with aggregate
 depreciation of less than 3% from the Companys cost basis. These unrealized losses
 are principally due to rising interest rates. No credit issues have been
 identified that cause management to believe the declines in market value are
 other than temporary. In analyzing the issuers financial condition,
 management considers industry analysts reports, financial performance and
 projected target prices of investment analysts within a one-year time frame.
 As management has the ability to hold debt securities until maturity, or for
 the foreseeable future if classified as available for sale, no declines are
 deemed to be other than temporary.               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | At June 30,
 2008, one common stock had unrealized losses with aggregate depreciation of
 60% from the Companys cost basis. Its cost basis represents less than 0.03
 percent of the Companys total assets. These unrealized losses are
 principally due to market volatility particularly occurring in late June
 2008. Much of the loss had been recovered subsequently. As such, no declines
 are deemed to be other than temporary.                                                                                                                                                                                                                                                                                                                                         

-19-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|        |                                             
|------- | --------------------------------------------
|NOTE 4: | Loans                                       
|        |                                             
|        | A summary of
 the balances of loans follows:

|                                  |  |          |         |      |   |         |  
|--------------------------------- |  | -------- | ------- | ---- | - | ------- | -
|                                  |  | June 30, |        
|                                  |  |          |        
|                                  |  |          |         |      |  
|(Dollars in Thousands)            |  | 2008     |         | 2007 |  
|                                  |  |          |         |      |  
|First
 mortgage loans:            |  |          |         |      |   |         |  
|Residential mortgage (1-4 family) |  | $        | 86,751  |      | $ | 81,958  |  
|Commercial real estate            |  |          | 28,197  |      |   | 25,621  |  
|Real estate construction          |  |          | 7,317   |      |   | 8,253   |  
|Other loans:                      |  |          |         |      |   |         |  
|Home equity                       |  |          | 28,034  |      |   | 24,956  |  
|Consumer                          |  |          | 11,558  |      |   | 11,438  |  
|Commercial                        |  |          | 6,502   |      |   | 6,366   |  
|                                  |  |          |         |      |   |         |  
|Subtotal                          |  |          | 168,359 |      |   | 158,592 |  
|Less:
 Allowance for loan losses  |  |          | (300    | )    |   | (518    | )
|Deferred loan fees, net           |  |          | 90      |      |   | 66      |  
|                                  |  |          |         |      |   |         |  
|                                  |  |          |         |      |   |         |  
|Total loans,
 net                 |  | $        | 168,149 |      | $ | 158,140 |  
|                                  |  |          |         |      |   |         |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Loans net of
 related allowance for loan losses on which the accrual of interest has been
 discontinued were $0 and $21,470 at June 30, 2008 and 2007, respectively.
 Interest income not accrued on these loans and cash interest income was
 immaterial for the years ended June 30, 2008 and 2007. The allowance for loan
 losses on nonaccrual loans as of June 30, 2008 and 2007 was $32,320 and
 $35,509, respectively. The Company expects to collect all amounts due on
 nonaccrual loans, including interest accrued at contractual rates. There were
 $32,320 and $0 loans considered impaired at June 30, 2008 and 2007,
 respectively. As of June 30, 2008 and 2007, the Company had $0 and $191,000,
 respectively, of loans past due greater than ninety days that were still
 accruing interest.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The
 following is a summary of changes in the allowance for loan losses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                                  |  |          |      |      |   |     |  
|------------------------------------------------- |  | -------- | ---- | ---- | - | --- | -
|                                                  |  | June 30, |     
|                                                  |  |          |     
|                                                  |  |          |      |      |  
|(Dollars in Thousands)                            |  | 2008     |      | 2007 |  
|                                                  |  |          |      |      |  
|Balance at
 beginning of period                   |  | $        | 518  |      | $ | 535 |  
|Reclassification to repossessed property
 reserve |  |          |     |      |   |    |  
|Credit for loan losses                            |  |          | (175 | )    |   |    |  
|Loans charged off                                 |  |          | (54  | )    |   | (29 | )
|Recoveries of loans previously charged off        |  |          | 11   |      |   | 12  |  
|                                                  |  |          |      |      |   |     |  
|                                                  |  |          |      |      |   |     |  
|Balance at
 end of period                         |  | $        | 300  |      | $ | 518 |  
|                                                  |  |          |      |      |   |     |  

-20-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 4: | Loans  continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | Loans are
 granted to directors and officers of the Company in the ordinary course of
 business. Such loans are made in accordance with policies established for all
 loans of the Company, except that directors, officers, and employees may be
 eligible to receive discounts on loan origination costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | Loans
 receivable from directors and senior officers, and their related parties, of
 the Company at June 30, 2008 and 2007, were $7,808,639 and $152,901, respectively.
 During the year ended June 30, 2008, total principal additions amounted to
 $7,865,205 and total principal payments amounted to $197,731. Of that, one
 loan was to a company that is a related party of a director, and accounts for
 $7,500,000 of the $7,865,205 principle additions noted previously. On July 9th,
 2008 $6,000,000 of this loan was sold to the Montana Board of Investments
 under an existing commitment established February 28, 2007. Interest income
 from these loans was $229,617 and $8,905 for the years ended June 30, 2008
 and 2007, respectively.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|NOTE 5: | Mortgage Servicing Rights                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | The Company
 is servicing loans for the benefit of others totaling approximately
 $204,654,000 and $194,624,000 at June 30, 2008 and 2007, respectively.
 Servicing loans for others generally consists of collecting mortgage
 payments, maintaining escrow accounts, disbursing payments to investors, and
 foreclosure processing.                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | Custodial
 escrow balances maintained in connection with the foregoing loan servicing,
 and included in demand deposits, were approximately $2,219,000 and $1,946,000
 at June 30, 2008 and 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | The
 following is a summary of activity in mortgage servicing rights and the
 valuation allowance:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                          |  |                      |       |      |   |       |  
|----------------------------------------- |  | -------------------- | ----- | ---- | - | ----- | -
|                                          |  | Years Ended June 30, |      
|                                          |  |                      |      
|                                          |  |                      |       |      |  
|(Dollars in Thousands)                    |  | 2008                 |       | 2007 |  
|                                          |  |                      |       |      |  
|Mortgage
 servicing rights                |  |                      |       |      |   |       |  
|Balance at beginning of period            |  | $                    | 1,628 |      | $ | 1,722 |  
|Mortgage servicing rights capitalized     |  |                      | 337   |      |   | 211   |  
|Amortization of mortgage servicing rights |  |                      | (313  | )    |   | (305  | )
|                                          |  |                      |       |      |   |       |  
|Balance at end of period                  |  |                      | 1,652 |      |   | 1,628 |  
|Valuation
 allowance                      |  |                      |       |      |   |       |  
|Balance at beginning of period            |  |                      |       |      |   |      |  
|Provision (credited) to operations        |  |                      |       |      |   |      |  
|                                          |  |                      |       |      |   |       |  
|Balance at end of period                  |  |                      |      |      |   |      |  
|                                          |  |                      |       |      |   |       |  
|                                          |  |                      |       |      |   |       |  
|Net mortgage
 servicing rights            |  | $                    | 1,652 |      | $ | 1,628 |  
|                                          |  |                      |       |      |   |       |  

-21-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|        |                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 5: | Mortgage Servicing Rights  continued                                                                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                                
|        | The fair
 values of these rights were $2,078,000 and $2,114,000 at June 30, 2008 and
 June 30, 2007, respectively. The fair value of servicing rights was
 determined using discount rates ranging from 10% to 18%, prepayment speeds
 ranging from 120% to 325%, depending on stratification of the specific right.
 The fair value was also adjusted for the affect of potential past dues and
 foreclosures.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                
|NOTE 6: | Premises and Equipment                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                
|        | A summary of
 the cost and accumulated depreciation of premises and equipment follows:                                                                                                                                                                                                                                                                                                                         

|                                   |  |          |        |      |   |        |  
|---------------------------------- |  | -------- | ------ | ---- | - | ------ | -
|                                   |  | June 30, |       
|                                   |  |          |       
|                                   |  |          |       
|(Dollars in Thousands)             |  | 2008     |        | 2007 |  
|                                   |  |          |        |      |  
|Land,
 buildings, and improvements |  | $        | 10,571 |      | $ | 8,094  |  
|Furniture
 and equipment           |  |          | 4,261  |      |   | 4,231  |  
|                                   |  |          |        |      |   |        |  
|                                   |  |          | 14,832 |      |   | 12,325 |  
|Accumulated
 depreciation          |  |          | (6,752 | )    |   | (6,519 | )
|                                   |  |          |        |      |   |        |  
|                                   |  |          |        |      |   |        |  
|                                   |  | $        | 8,080  |      | $ | 5,806  |  
|                                   |  |          |        |      |   |        |  

|        |                                                                                                               
|------- | --------------------------------------------------------------------------------------------------------------
|        | Depreciation
 expense totaled $458,964 and $482,580 for the years ended June 30, 2008 and
 2007, respectively.
|        |                                                                                                               
|NOTE 7: | Deposits                                                                                                      
|        |                                                                                                               
|        | Deposits are
 summarized as follows:                                                                          

|                                                                           |  |          |         |      |   |         | 
|-------------------------------------------------------------------------- |  | -------- | ------- | ---- | - | ------- | 
|                                                                           |  | June 30, |        
|                                                                           |  |          |        
|                                                                           |  |          |         |      |   |         | 
|(Dollars in Thousands)                                                     |  | 2008     |         | 2007 |  
|                                                                           |  |          |         |      |  
|Noninterest checking                                                       |  | $        | 14,617  |      | $ | 13,694  | 
|Interest bearing checking (0.38%, 0.21%)                                   |  |          | 30,720  |      |   | 30,953  | 
|Passbook savings (0.65%, 0.65%)                                            |  |          | 23,906  |      |   | 22,521  | 
|Money market accounts (1.75%, 2.12%)                                       |  |          | 25,275  |      |   | 23,292  | 
|Time certificates of deposits(2008 - 1.98%
 - 5.35%, 2007 - 2.71% - 5.35%) |  |          | 84,333  |      |   | 89,187  | 
|                                                                           |  |          |         |      |   |         | 
|                                                                           |  |          |         |      |   |         | 
|                                                                           |  | $        | 178,851 |      | $ | 179,647 | 
|                                                                           |  |          |         |      |   |         | 

| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | The weighted
 average cost of funds was 1.94% and 2.64% at June 30, 2008 and 2007,
 respectively.

-22-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|        |                                                                             
|------- | ----------------------------------------------------------------------------
|NOTE 7: | Deposits  continued                                                        
|        |                                                                             
|        | At June 30,
 2008, the scheduled maturities of time deposits are as follows:

|                       |  |   |        | 
|---------------------- |  | - | ------ | 
|(Dollars
in Thousands) |  |   |        | 
|Within one
 year       |  | $ | 71,160 | 
|One to two
 years      |  |   | 10,962 | 
|Two to three
 years    |  |   | 1,825  | 
|Three to
 four years   |  |   | 139    | 
|Thereafter             |  |   | 247    | 
|                       |  |   |        | 
|                       |  |   |        | 
|Total                  |  | $ | 84,333 | 
|                       |  |   |        | 

| |                                                        
| | -------------------------------------------------------
| | Interest
 expense on deposits is summarized as follows:

|                               |  |                      |       |      |   |       | 
|------------------------------ |  | -------------------- | ----- | ---- | - | ----- | 
|                               |  | Years Ended June 30, |      
|                               |  |                      |      
|                               |  |                      |       |      |   |       | 
|(Dollars in Thousands)         |  | 2008                 |       | 2007 |  
|                               |  |                      |       |      |  
|Checking                       |  | $                    | 71    |      | $ | 64    | 
|Passbook
 savings              |  |                      | 150   |      |   | 151   | 
|Money market
 accounts         |  |                      | 420   |      |   | 525   | 
|Time
 certificates of deposits |  |                      | 3,746 |      |   | 3,451 | 
|                               |  |                      |       |      |   |       | 
|                               |  |                      |       |      |   |       | 
|                               |  | $                    | 4,387 |      | $ | 4,191 | 
|                               |  |                      |       |      |   |       | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective
 April 1, 2006 FDIC insurance increased to $250,000 for qualified retirement
 accounts. For nonqualified retirement accounts, the coverage remains at
 $100,000. At June 30, 2008 and 2007, the Company held $37,211,000 and
 $34,859,000, respectively, in non-retirement deposit accounts that included
 balances in excess of $100,000 or more. At June 30, 2008 and 2007, the
 Company held $285,000 and $275,000, respectively, in qualified retirement
 deposit accounts that included balances in excess of $250,000. Deposit
 amounts above $100,000, and $250,000 for retirement accounts may not be
 insured by the FDIC, depending upon the underlying ownership of the account.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | At June 30,
 2008 and 2007, the Company reclassified $43,710 and $21,322, respectively, in
 overdrawn deposits as loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Directors
 and senior officers deposit accounts at June 30, 2008 and 2007, were
 $201,128 and $289,049, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

-23-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|        |                                                                                              
|------- | ---------------------------------------------------------------------------------------------
|NOTE 8: | Advances from the Federal Home Loan Bank and other borrowings                                
|        |                                                                                              
|        | Advances
 from the Federal Home Loan Bank of Seattle and other borrowings mature as
 follows:

|                       |  |          |        |      |   |        | 
|---------------------- |  | -------- | ------ | ---- | - | ------ | 
|                       |  | June 30, |       
|                       |  |          |       
|                       |  |          |        |      |   |        | 
|(Dollars in Thousands) |  | 2008     |        | 2007 |  
|                       |  |          |        |      |  
|Within one
 year       |  | $        | 9,167  |      | $ | 2,000  | 
|One to two
 years      |  |          | 15,666 |      |   | 2,000  | 
|Two to three
 years    |  |          | 3,389  |      |   | 7,000  | 
|Three to
 four years   |  |          | 16,000 |      |   |       | 
|Four to five
 years    |  |          | 16,000 |      |   | 19,000 | 
|Thereafter             |  |          | 5,000  |      |   |       | 
|                       |  |          |        |      |   |        | 
|                       |  |          |        |      |   |        | 
|Total                  |  | $        | 65,222 |      | $ | 30,000 | 
|                       |  |          |        |      |   |        | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Federal Home Loan Advances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The advances
 are due at maturity, with the exception of a $5,000,000 advance that is
 callable at the FHLB of Seattles option. The advances are subject to
 prepayment penalties. The interest rates on advances are fixed, with the
 exception of one advance which is adjustable (tied to the three month LIBOR).
 The advances are collateralized by investment securities pledged to the FHLB
 of Seattle and a blanket pledge of the Banks 1-4 family residential mortgage
 portfolio. The carrying value of the securities collateralized for these
 advances was $2,847,084 as of June 30, 2007. At June 30, 2007 and 2006, the
 Company exceeded the collateral requirements of the FHLB. The Companys
 investment in FHLB stock is also pledged as collateral on these advances. The
 total FHLB funding line available to the Company at June 30, 2008, was 30% of
 total Bank assets, or approximately $82,375,000. The balance of advances was
 $42,222,000 and $16,000,000 at June 30, 2008 and 2007, respectively.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Other Borrowings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The Bank had
 $23,000,000 and $14,000,000 in structured repurchase agreements with PNC
 Financial Service Group, Inc. (PNC) at June 30, 2008, and 2007,
 respectively. These agreements are collateralized by corporate and municipal
 securities. The carrying value of these securities was $33,886,000 as of June
 30, 2008. These agreements include terms, under certain conditions, which
 allow PNC to exercise a call option.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Federal Funds Purchased                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The Bank has
 a $6,000,000 Federal Funds line of credit with PNC. The balance was
 $3,000,000 and $3,800,000 as of June 30, 2008 and 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

-24-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 8:  | Advances from the Federal Home Loan Bank and other borrowings 
 continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | Federal Reserve Bank Discount Window                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | For
 additional liquidity sources, the Bank opened a credit facility at the
 Federal Reserve Banks Discount Window. The amount available to the Bank is
 limited by various collateral requirements. The Bank has pledged one Agency
 security at the Federal Reserve Bank that had a carrying value of $1,004,000
 as of June 30, 2008. The account had no balance as of June 30, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | For all
 borrowings the weighted average interest rate for advances at June 30, 2008
 and 2007 was 3.94% and 4.90% respectively. The weighted average amount
 outstanding was $43,712,000 and $29,071,000 for the years ended June 30, 2008
 and 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | The maximum
 amount outstanding at any month-end was $68,222,222 and $36,695,185 during
 the years ended June 30, 2008 and 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|NOTE 9:  | Subordinated Debentures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | On September
 28, 2005, the Company completed the private placement of $5,155,000 in subordinated
 debentures to Eagle Bancorp Statutory Trust I (the Trust). The Trust funded
 the purchase of the subordinated debentures through the sale of trust
 preferred securities to First Tennessee Bank, N.A. with a liquidation value
 of $5,155,000. Using interest payments made by the Company on the debentures,
 the Trust began paying quarterly dividends to preferred security holders on
 December 15, 2005. The annual percentage rate of the interest payable on the
 subordinated debentures and distributions payable on the preferred securities
 is fixed at 6.02% until December 15, 2010 then becomes variable at 3-Month
 LIBOR plus 1.42%. Dividends on the preferred securities are cumulative and
 the Trust may defer the payments for up to five years. The preferred securities
 mature in December 15, 2035 unless the Company elects and obtains regulatory
 approval to accelerate the maturity date to as early as December 15, 2010.
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | For the
 years ended June 30, 2008 and June 30, 2007, interest expense on the
 subordinated debentures was $309,000 and 309,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | Subordinated
 debt may be included in regulatory Tier 1 capital subject to a limitation
 that such amounts not exceed 25% of Tier 1 capital. The remainder of
 subordinated debt is included in Tier II capital. There is no limitation for
 inclusion of subordinated debt in total risk-based capital and, as such, all
 subordinated debt was included in total risk-based capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|NOTE 10: | Legal Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | Various
 legal claims also arise from time to time in the normal course of business
 which, in the opinion of management, will have no material effect on the
 Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

-25-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|         |                                                                      
|-------- | ---------------------------------------------------------------------
|NOTE 11: | Income Taxes                                                         
|         |                                                                      
|         | The
 components of the Companys income tax provision are as follows:

| |                                                                                                                                                                                                   |  |                       |      |      |   |     |  
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ---- | ---- | - | --- | -
| |                                                                                                                                                                                                   |  | Years
 Ended June 30, |     
| |                                                                                                                                                                                                   |  |                       |     
| |                                                                                                                                                                                                   |  |                       |      |      |   |     |  
| | (Dollars in Thousands)                                                                                                                                                                            |  | 2008                  |      | 2007 |  
| |                                                                                                                                                                                                   |  |                       |      |      |  
| | Current                                                                                                                                                                                           |  |                       |      |      |   |     |  
| | U.S. federal                                                                                                                                                                                      |  | $                     | 678  |      | $ | 492 |  
| | Montana                                                                                                                                                                                           |  |                       | 198  |      |   | 154 |  
| |                                                                                                                                                                                                   |  |                       |      |      |   |     |  
| |                                                                                                                                                                                                   |  |                       | 876  |      |   | 646 |  
| |                                                                                                                                                                                                   |  |                       |      |      |   |     |  
| | Deferred                                                                                                                                                                                          |  |                       |      |      |   |     |  
| | U.S. federal                                                                                                                                                                                      |  |                       | (165 | )    |   | (76 | )
| | Montana                                                                                                                                                                                           |  |                       | (49  | )    |   | (16 | )
| |                                                                                                                                                                                                   |  |                       |      |      |   |     |  
| |                                                                                                                                                                                                   |  |                       | (214 | )    |   | (92 | )
| |                                                                                                                                                                                                   |  |                       |      |      |   |     |  
| |                                                                                                                                                                                                   |  |                       |      |      |   |     |  
| | Total                                                                                                                                                                                             |  | $                     | 662  |      | $ | 554 |  
| |                                                                                                                                                                                                   |  |                       |      |      |   |     |  
| |                                                                                                                                                                                                   |  |                       |      |      |   |     |  
| | The nature
 and components of deferred tax assets and liabilities, which are a component
 of other assets in 2008 and 2007 in the accompanying statement of financial
 condition, are as follows:

| |                                                                                                                                                                                                                         |  |          |     |      |   |     | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | --- | ---- | - | --- | 
| |                                                                                                                                                                                                                         |  | June 30, |    
| |                                                                                                                                                                                                                         |  |          |    
| |                                                                                                                                                                                                                         |  |          |     |      |   |     | 
| | (Dollars in Thousands)                                                                                                                                                                                                  |  | 2008     |     | 2007 |  
| |                                                                                                                                                                                                                         |  |          |     |      |  
| | Deferred tax
 assets:                                                                                                                                                                                                   |  |          |     |      |   |     | 
| | Deferred compensation                                                                                                                                                                                                   |  | $        | 267 |      | $ | 323 | 
| | Loans receivable                                                                                                                                                                                                        |  |          | 20  |      |   | 57  | 
| | Securities available for sale                                                                                                                                                                                           |  |          | 567 |      |   | 548 | 
| | Other                                                                                                                                                                                                                   |  |          | 22  |      |   | 23  | 
| |                                                                                                                                                                                                                         |  |          |     |      |   |     | 
| | Total deferred tax assets                                                                                                                                                                                               |  |          | 876 |      |   | 951 | 
| |                                                                                                                                                                                                                         |  |          |     |      |   |     | 
| | Deferred tax
 liabilities:                                                                                                                                                                                              |  |          |     |      |   |     | 
| | Premises and equipment                                                                                                                                                                                                  |  |          | 112 |      |   | 175 | 
| | Deferred loan fees                                                                                                                                                                                                      |  |          | 23  |      |   | 12  | 
| | FHLB stock                                                                                                                                                                                                              |  |          | 389 |      |   | 490 | 
| | Unrealized gain on hedging                                                                                                                                                                                              |  |          | 14  |      |   | 7   | 
| | Other                                                                                                                                                                                                                   |  |          | 11  |      |   |    | 
| |                                                                                                                                                                                                                         |  |          |     |      |   |     | 
| | Total deferred tax liabilities                                                                                                                                                                                          |  |          | 549 |      |   | 684 | 
| |                                                                                                                                                                                                                         |  |          |     |      |   |     | 
| |                                                                                                                                                                                                                         |  |          |     |      |   |     | 
| | Net deferred
 tax asset                                                                                                                                                                                                 |  | $        | 327 |      | $ | 267 | 
| |                                                                                                                                                                                                                         |  |          |     |      |   |     | 
| |                                                                                                                                                                                                                         |  |          |     |      |   |     | 
| | The Company
 believes, based upon the available evidence, that all deferred tax assets
 will be realized in the normal course of operations. Accordingly, these
 assets have not been reduced by a valuation allowance.

-26-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|         |                                                                                                                           
|-------- | --------------------------------------------------------------------------------------------------------------------------
|NOTE 11: | Income Taxes  continued                                                                                                  
|         |                                                                                                                           
|         | A
 reconciliation of the Companys effective income tax provision to the
 statutory federal income tax rate is as follows:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                       |      |      |   |      |  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ---- | ---- | - | ---- | -
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Years
 Ended June 30, |     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                       |     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                       |      |      |   |      |  
| | (Dollars in Thousands)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | 2008                  |      | 2007 |  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                       |      |      |  
| | Federal income taxes at the statutory rate
 of 30%
 and 34%, respectively                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | $                     | 942  |      | $ | 793  |  
| | State income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                       | 150  |      |   | 138  |  
| | Nontaxable income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                       | (409 | )    |   | (333 | )
| | Other, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                       | (21  | )    |   | (44  | )
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                       |      |      |   |      |  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                       |      |      |   |      |  
| | Income tax expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | $                     | 662  |      | $ | 554  |  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                       |      |      |   |      |  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                       |      |      |   |      |  
| | Effective tax rate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                       | 23.9 | %    |   | 23.8 | %
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                       |      |      |   |      |  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                       |      |      |   |      |  
| | Prior to
 January 1, 1987, the Company was allowed a special bad debt deduction limited
 generally in the current year to 32% (net of preference tax) of otherwise
 taxable income and subject to certain limitations based on aggregate loans
 and savings account balances at the end of the year. If the amounts that
 qualified as deductions for federal income tax purposes are later used for
 purposes other than for bad debt losses, they will be subject to federal
 income tax at the then current corporate rate. Retained earnings include
 approximately $300,000 at June 30, 2008 and 2007, for which federal income
 tax has not been provided.

-27-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|         |                                                                                                                                                                                                                                                                            
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 12: | Comprehensive Income                                                                                                                                                                                                                                                       
|         |                                                                                                                                                                                                                                                                            
|         | Comprehensive
 income represents the sum of net income and items of other comprehensive
 income that are reported directly in stockholders equity, such as the
 change during the period in the after-tax net unrealized gain or loss on
 securities available-for-sale.
|         |                                                                                                                                                                                                                                                                            
|         | The
 Companys other comprehensive income (loss) is summarized as follows for the
 years ended June 30:                                                                                                                                                                    

| |                                                                                                                                                        |  |      |      |      |   |     |  
| | ------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---- | ---- | - | --- | -
| | (Dollars in Thousands)                                                                                                                                 |  | 2008 |      | 2007 |  
| |                                                                                                                                                        |  |      |      |      |  
| | Net unrealized holding gain or loss arising
 during the year:                                                                                          |  |      |      |      |   |     |  
| | Available for sale securities, net of
 related income tax (benefit) expense of $48 and $144, respectively                                              |  | $    | 112  |      | $ | 239 |  
| |                                                                                                                                                        |  |      |      |      |   |     |  
| | Forward delivery commitments, net of
 related income tax (benefit) expense of $8 and $(1), respectively                                                |  |      | 20   |      |   | 2   |  
| |                                                                                                                                                        |  |      |      |      |   |     |  
| | FAS 159 Reclassification on July 1, 2007                                                                                                               |  |      | 118  |      |   |    |  
| |                                                                                                                                                        |  |      |      |      |   |     |  
| | Change in effective tax rate 
 (on beginning balance of other comprehensive income(loss)
 of ($908) at July 1, 2007)                                   |  |      | (114 | )    |   |    |  
| |                                                                                                                                                        |  |      |      |      |   |     |  
| | Reclassification adjustment for net
 realized
 gain included in net income, net of related
 income tax expense (benefit) of $22 and $(2), respectively |  |      | (50  | )    |   | (2  | )
| |                                                                                                                                                        |  |      |      |      |   |     |  
| |                                                                                                                                                        |  |      |      |      |   |     |  
| | Other comprehensive (loss) income                                                                                                                      |  | $    | 86   |      | $ | 239 |  
| |                                                                                                                                                        |  |      |      |      |   |     |  

-28-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|         |                                   
|-------- | ----------------------------------
|NOTE 13: | Supplemental Cash Flow Information

| |                                                             |  |                       |       |      |   |       |  
| | ----------------------------------------------------------- |  | --------------------- | ----- | ---- | - | ----- | -
| |                                                             |  | Years
 Ended June 30, |      
| |                                                             |  |                       |      
| |                                                             |  |                       |       |      |   |       |  
| | (Dollars in Thousands)                                      |  | 2008                  |       | 2007 |  
| |                                                             |  |                       |       |      |  
| | Supplemental Cash Flow
 Information                         |  |                       |       |      |   |       |  
| | Cash paid during the year for interest                      |  | $                     | 6,565 |      | $ | 6,018 |  
| | Cash paid during the year for income taxes                  |  |                       | 919   |      |   | 531   |  
| | Non-Cash Investing Activities                               |  |                       |       |      |   |       |  
| | Decrease in market 
 value of securities available for sale |  | $                     | (88   | )    | $ | (382  | )
| | Mortgage servicing rights capitalized                       |  |                       | 338   |      |   | 211   |  
| | ESOP shares released                                        |  |                       | 137   |      |   | 149   |  

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 14: | Regulatory Capital Requirements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | The Bank is
 subject to various regulatory capital requirements administered by federal
 banking agencies. Failure to meet minimum capital requirements can initiate
 certain mandatory  and possibly additional discretionary  actions by
 regulators that, if undertaken, could have a direct material effect on the
 Banks financial statements. Under capital adequacy guidelines and the
 regulatory framework for prompt corrective action, the Bank must meet
 specific capital guidelines that involve quantitative measures of the Banks
 assets, liabilities, and certain off-balance-sheet items as calculated under
 regulatory accounting practices. The Banks capital amounts and
 classifications are also subject to qualitative judgments by the regulators
 about components, risk weightings, and other factors.
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | Quantitative
 measures established by regulation to ensure capital adequacy require the
 Bank to maintain minimum amounts and ratios (set forth in the table below) of
 tangible and core capital (as defined in the regulations) to total adjusted
 assets (as defined), and of risk-based capital (as defined) to risk-weighted
 assets (as defined). Management believes, as of June 30, 2008 and 2007, that
 the Bank meets all capital adequacy requirements to which it is subject.                                                                                                                                                                                                                                                                                                                                               
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | The most
 recent notification from the Office of Thrift Supervision (OTS) (as of June
 4, 2007) categorized the Bank as well capitalized under the regulatory
 framework for prompt corrective action. To be categorized as
 well-capitalized, the Bank must maintain minimum tangible, core, and
 risk-based ratios as set forth in the table below. The Banks actual capital
 amounts (in thousands) and ratios are presented in the table below:                                                                                                                                                                                                                                                                                                                                                                                  

-29-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|         |                                            
|-------- | -------------------------------------------
|NOTE 14: | Regulatory Capital Requirements  continued

| |                                                   |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | ------------------------------------------------- |  | ------ | ------ | ----------------------------- |  | ---------------------------------------------------------------------------- | - | ----- | ------ | ------ |  | ----- | - |  | ------ |  |  | ----- | 
| |                                                   |  | Actual |        | Minimum
 Capital
 Requirement |  | Minimum
 To Be Well
 Capitalized Under
 Prompt Corrective
 Action Provisions |  
| |                                                   |  |        |        |                               |  |                                                                              |  
| | (Dollars in Thousands)                            |  | Amount |        | Ratio                         |  | Amount                                                                       |   | Ratio |        | Amount |  | Ratio |  
| |                                                   |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |  
| |                                                   |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |  
| | June 30, 2008:                                    |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Total Risk-based Capital
 to Risk Weighted Assets |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Consolidated                                      |  | $      | 31,875 |                               |  | 16.24                                                                        | % | $     | 15,702 |        |  | 8.00  | % |  | N/A    |  |  | N/A   | 
| | Bank                                              |  |        | 26,192 |                               |  | 13.43                                                                        |   |       | 15,599 |        |  | 8.00  |   |  | 19,498 |  |  | 10.00 | 
| |                                                   |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Tier I Capital to
 Risk Weighted Assets           |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Consolidated                                      |  |        | 31,611 |                               |  | 16.11                                                                        |   |       | 7,851  |        |  | 4.00  |   |  | N/A    |  |  | N/A   | 
| | Bank                                              |  |        | 25,928 |                               |  | 13.30                                                                        |   |       | 7,799  |        |  | 4.00  |   |  | 11,699 |  |  | 6.00  | 
| |                                                   |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Tier I Capital to
 Adjusted Total Assets          |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Consolidated                                      |  |        | 31,611 |                               |  | 11.25                                                                        |   |       | 8,433  |        |  | 3.00  |   |  | N/A    |  |  | N/A   | 
| | Bank                                              |  |        | 25,928 |                               |  | 9.40                                                                         |   |       | 8,272  |        |  | 3.00  |   |  | 13,787 |  |  | 5.00  | 
| |                                                   |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Tangible Capital to
 Adjusted Total Assets        |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Consolidated                                      |  |        | 31,611 |                               |  | 11.25                                                                        |   |       | 4,216  |        |  | 1.50  |   |  | N/A    |  |  | N/A   | 
| | Bank                                              |  |        | 25,928 |                               |  | 9.40                                                                         |   |       | 4,136  |        |  | 1.50  |   |  | N/A    |  |  | N/A   | 
| |                                                   |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | June 30, 2007:                                    |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| |                                                   |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Total Risk-based Capitalto
 Risk Weighted Assets  |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Consolidated                                      |  | $      | 30,382 |                               |  | 17.30                                                                        | % | $     | 14,048 |        |  | 8.00  | % |  | N/A    |  |  | N/A   | 
| | Bank                                              |  |        | 25,797 |                               |  | 14.78                                                                        |   |       | 13,967 |        |  | 8.00  |   |  | 17,459 |  |  | 10.00 | 
| |                                                   |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Tier I Capital to
 Risk Weighted Assets           |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Consolidated                                      |  |        | 29,899 |                               |  | 17.03                                                                        |   |       | 7,024  |        |  | 4.00  |   |  | N/A    |  |  | N/A   | 
| | Bank                                              |  |        | 25,314 |                               |  | 14.50                                                                        |   |       | 6,984  |        |  | 4.00  |   |  | 10,475 |  |  | 6.00  | 
| |                                                   |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Tier I Capital to
 Adjusted Total Assets          |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Consolidated                                      |  |        | 29,899 |                               |  | 12.15                                                                        |   |       | 7,375  |        |  | 3.00  |   |  | N/A    |  |  | N/A   | 
| | Bank                                              |  |        | 25,314 |                               |  | 10.48                                                                        |   |       | 7,246  |        |  | 3.00  |   |  | 12,076 |  |  | 5.00  | 
| |                                                   |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Tangible Capital to
 Adjusted Total Assets        |  |        |        |                               |  |                                                                              |   |       |        |        |  |       |   |  |        |  |  |       | 
| | Consolidated                                      |  |        | 29,899 |                               |  | 12.15                                                                        |   |       | 3,687  |        |  | 1.50  |   |  | N/A    |  |  | N/A   | 
| | Bank                                              |  |        | 25,314 |                               |  | 10.48                                                                        |   |       | 3,623  |        |  | 1.50  |   |  | N/A    |  |  | N/A   | 

-30-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|         |                                                                                                                                                                           
|-------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 14: | Regulatory Capital Requirements  continued                                                                                                                               
|         |                                                                                                                                                                           
|         | A
 reconciliation of the Banks capital (in thousands) determined by generally
 accepted accounting principles to capital defined for regulatory purposes, is
 as follows:

| |                                                                 |  |          |        |      |   |        |  
| | --------------------------------------------------------------- |  | -------- | ------ | ---- | - | ------ | -
| |                                                                 |  | June 30, |       
| |                                                                 |  |          |       
| |                                                                 |  |          |        |      |   |        |  
| | (Dollars in Thousands)                                          |  | 2008     |        | 2007 |  
| |                                                                 |  |          |        |      |  
| | Capital determined by generally accepted
 accounting principles |  | $        | 25,282 |      | $ | 24,595 |  
| | Unrealized loss on securities
 available-for-sale               |  |          | 678    |      |   | 826    |  
| | Unrealized loss on equity securities                            |  |          |       |      |   | (96    | )
| | Unrealized gain on forward delivery
 commitments                |  |          | (32    | )    |   | (11    | )
| |                                                                 |  |          |        |      |   |        |  
| | Tier I (core) capital                                           |  |          | 25,928 |      |   | 25,314 |  
| | General allowance for loan losses                               |  |          | 264    |      |   | 483    |  
| |                                                                 |  |          |        |      |   |        |  
| |                                                                 |  |          |        |      |   |        |  
| | Total risk based capital                                        |  | $        | 26,192 |      | $ | 25,797 |  
| |                                                                 |  |          |        |      |   |        |  



|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         | Dividend Limitations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         | Under OTS
 regulations that became effective April 1, 1999, savings associations such as
 the Bank generally may declare annual cash dividends up to an amount equal to
 net income for the current year plus net income retained for the two
 preceding years. Dividends in excess of such amount require OTS approval. The
 Bank has paid dividends totaling $1,600,021 and $1,716,904 to the Company
 during the years ended June 30, 2008, and 2007, respectively. The Company had
 paid four quarterly dividends of $0.24 per share to its shareholders for the
 year ended June 30, 2008, and four quarterly dividends of $0.22 per share to
 its shareholders for the year ended June 30, 2007.
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         | Liquidation Rights                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         | All
 depositors who had liquidation rights with respect to the Bank as of the
 effective date of the Reorganization continue to have such rights solely with
 respect to the Mutual Holding Company, as long as they continue to hold
 deposit accounts with the Bank. In addition, all persons who become
 depositors of the Bank subsequent to the Reorganization will have liquidation
 rights with respect to the Mutual Holding Company.                                                                                                                                                                                                                                                         
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|NOTE 15: | Related Party Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         | The Bank has
 contracted with a subsidiary of a company which is partially owned by one of
 the Companys directors. The Bank paid $34,756 during the year ended June 30,
 2008 for support services, and an additional $136,956 for computer hardware
 and software used by the Bank for its computer network. For the year ended
 June 30, 2007, expenditures were $21,885 for support services and $94,056 for
 computer hardware and software.                                                                                                                                                                                                                                                    
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         | In 2007, the
 Bank also made a construction loan, in the normal course of lending, to this
 same affiliated entity for the construction of an office building. At the
 years ending June 30, 2008 and 2007, $6,010,903 ($1,569,734 net of
 participation sold) and $1,489,097 had been disbursed, respectively.                                                                                                                                                                                                                                                                                                                                                                                       

-31-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements
June 30, 2008 and 2007

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 16: | Employee Benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | Profit Sharing Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | The Company
 provides a noncontributory profit sharing plan for eligible employees who
 have completed one year of service. The amount of the Companys annual
 contribution, limited to a maximum of 15% of qualified employees salaries,
 is determined by the Board of Directors. Profit sharing expense was $158,653
 and $148,730 for the years ended June 30, 2008 and 2007, respectively.                                                                                                                                                                                                                                                                                                          
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | The
 Companys profit sharing plan includes a 401(k) feature. At the discretion of
 the Board of Directors, the Company may match up to 50% of participants
 contributions up to a maximum of 4% of participants salaries. For the years
 ended June 30, 2008 and 2007, the Companys match totaled $43,030 and
 $38,439, respectively.                                                                                                                                                                                                                                                                                                                                                                  
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | Deferred Compensation Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | The Company
 has entered into deferred compensation contracts with current key employees.
 The contracts provide fixed benefits payable in equal annual installments
 upon retirement. The Company purchased life insurance contracts that may be
 used to fund the payments. The charge to expense is based on the present
 value computations of anticipated liabilities. For the years ended June 30,
 2008 and 2007, the total expense was $105,071 and $93,646, respectively. The
 Company has recorded a liability for the deferred compensation plan of
 $889,959 and $858,433 at June 30, 2008 and 2007, respectively, which is
 included in the balance of accrued expenses and other liabilities.
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | Employee Stock Ownership Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | The Company
 has established an ESOP for eligible employees who meet certain age and
 service requirements. At inception the ESOP borrowed $368,048 from Eagle Bancorp
 and used the funds to purchase 46,006 shares of common stock in the offering.
 The Bank makes periodic contributions to the ESOP sufficient to satisfy the
 debt service requirements of the loan that has a ten-year term and bears
 interest at 8%. The ESOP uses these contributions, and any dividends received
 by the ESOP on unallocated shares, to make principal and interest payments on
 the loan.                                                                                                                      
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | Shares
 purchased by the ESOP are held in a suspense account by the plan trustee
 until allocated to participant accounts. Shares released from the suspense
 account are allocated to participants on the basis of their relative
 compensation in the year of allocation. Participants become vested in the
 allocated shares over a period not to exceed seven years. Any forfeited
 shares are allocated to other participants in the same proportion as
 contributions.                                                                                                                                                                                                                               
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | Total ESOP
 expenses of $127,508 and $134,713 were recognized in fiscal 2008 and 2007,
 respectively, for 4,600 shares committed to be released to participants during
 the years ended June 30, 2008 and 2007 with respect to the plan years ending
 December 31, 2007 and 2006. The cost of the 6,906 ESOP shares ($55,248 at
 June 30, 2008) that have not yet been allocated or committed to be released
 to participants is deducted from stockholders equity. The fair value of
 these shares was approximately $186,462 at that date.                                                                                                                                                              

-32-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements 
June 30, 2008 and 2007

|         |                              
|-------- | -----------------------------
|NOTE 16: | Employee Benefits  continued

Stock Incentive Plan

The Company
adopted the Stock Incentive Plan (the Plan) on October 19, 2000. The Plan
provides for different types of awards including stock options, restricted
stock and performance shares. Under the Plan, 23,000 shares of restricted stock
were granted to directors and certain officers during fiscal 2001. These shares
of restricted stock vest in equal installments over five years beginning one
year from the grant date.

There were no
stock options granted under the Plan as of June 30, 2008.

|         |                                                       
|-------- | ------------------------------------------------------
|NOTE 17: | Financial Instruments and Off-Balance-Sheet Activities

All financial
instruments held or issued by the Company are held or issued for purposes other
than trading. In the ordinary course of business, the Company enters into
off-balance-sheet financial instruments consisting of commitments to extend
credit and forward delivery commitments for the sale of whole loans to the
secondary market.

Commitments to extend credit
 In response to marketplace demands, the Company routinely makes commitments
to extend credit for fixed rate and variable rate loans with or without rate
lock guarantees. When rate lock guarantees are made to customers, the Company
becomes subject to market risk for changes in interest rates that occur between
the rate lock date and the date that a firm commitment to purchase the loan is
made by a secondary market investor.

Generally, as
interest rates increase, the market value of the loan commitment goes down. The
opposite effect takes place when interest rates decline.

Commitments to
extend credit are agreements to lend to a customer as long as the borrower
satisfies the Companys underwriting standards and related provisions of the
borrowing agreements. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. The Company uses
the same credit policies in making commitments to extend credit as it does for
on-balance-sheet instruments. Collateral is required for substantially all
loans, and normally consists of real property. The Companys experience has
been that substantially all loan commitments are completed or terminated by the
borrower within 3 to 12 months.

The notional
amount of the Companys commitments to extend credit at fixed and variable
interest rates were approximately $8,374,000 and $5,823,000 at June 30, 2008
and 2007, respectively. Fixed rate commitments are extended at rates ranging
from 4.50% to 6.75% and 4.75% to 8.25% at June 30, 2008 and 2007, respectively.
The Company has lines of credit representing credit risk of approximately
$43,751,000 and $36,092,000 at June 30, 2008 and 2007, respectively, of which
approximately $21,026,000 and $18,047,000 had been drawn at June 30, 2008 and
2007, respectively. The Company has credit cards issued representing credit
risk of approximately $640,000 and $624,000 at June 30, 2008 and 2007,
respectively, of which approximately $24,000 and $23,000 had been drawn at June
30, 2008 and 2007, respectively. The Company has letters of credits issued
representing credit risk of approximately $2,440,000 and $1,532,000 at June 30,
2008 and 2007, respectively.

-33-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements 
June 30, 2008 and 2007

|         |                                                                   
|-------- | ------------------------------------------------------------------
|NOTE 17: | Financial Instruments and Off-Balance-Sheet Activities  continued

Forward delivery commitments
 The Company uses mandatory sell forward delivery commitments to sell whole
loans. These commitments are also used as a hedge against exposure to
interest-rate risks resulting from rate locked loan origination commitments on
certain mortgage loans held-for-sale. Gains and losses in the items hedged are
deferred and recognized in other comprehensive income until the commitments are
completed. At the completion of the commitments the gains and losses are
recognized in the Companys income statement.

As of June 30,
2008 and 2007, the Company had entered into commitments to deliver
approximately $7,425,000 and $1,201,000 respectively, in loans to various
investors, all at fixed interest rates ranging from 5.25% to 6.38% and 2.75% to
6.50%, at June 30, 2008 and 2007, respectively. The Company had approximately
$46,000 and $18,000 of gains deferred as a result of the forward delivery
commitments entered into as of June 30, 2008 and 2007, respectively. The total
amount of the gain is expected to be taken into income within the next twelve
months.

The Company
did not have any gains or losses reclassified into earnings as a result of the
ineffectiveness of its hedging activities. The Company considers its hedging
activities to be highly effective.

The Company
did not have any gains or losses reclassified into earnings as a result of the
discontinuance of cash flow hedges because it was probable that the original
forecasted transaction would not occur by the end of the originally specified
time frame as of June 30, 2008.

The Company
has no other off-balance-sheet arrangements or transactions with
unconsolidated, special purpose entities that would expose the Company to
liability that is not reflected on the face of the financial statements.

|         |                                    
|-------- | -----------------------------------
|NOTE 18: | Fair Value of Financial Instruments

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 necessarily 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.

-34-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements 
June 30, 2008 and 2007

|         |                                                
|-------- | -----------------------------------------------
|NOTE 18: | Fair Value of Financial Instruments  continued

|                                          |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|----------------------------------------- |  | ---------------- | ------- | ---------------------- | - | ---------------- |  | ---------------------- | ------- |  | - | ------- | 
|                                          |  | June 30,         |        
|                                          |  |                  |        
|                                         
|                                          |  | 2008             |         | 2007                   |  
|                                          |  |                  |         |                        |  
|                                         
|(Dollars
in Thousands)                    |  | Carrying
 Amount |         | Estimated
 Fair
 Value |   | Carrying
 Amount |  | Estimated
 Fair
 Value |        
|                                          |  |                  |         |                        |   |                  |  |                        |        
|                                          |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|Financial Assets:                         |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|Cash and cash equivalents                 |  | $                | 4,090   |                        | $ | 4,090            |  | $                      | 3,069   |  | $ | 3,069   | 
|Securities available-for-sale             |  |                  | 78,417  |                        |   | 78,417           |  |                        | 64,774  |  |   | 64,774  | 
|Securities held-to-maturity               |  |                  | 697     |                        |   | 708              |  |                        | 921     |  |   | 930     | 
|FHLB stock                                |  |                  | 1,715   |                        |   | 1,715            |  |                        | 1,315   |  |   | 1,315   | 
|Mortgage loans held-for-sale              |  |                  | 7,370   |                        |   | 7,370            |  |                        | 1,175   |  |   | 1,175   | 
|Loans receivable, net                     |  |                  | 168,149 |                        |   | 169,027          |  |                        | 158,140 |  |   | 157,883 | 
|Mortgage servicing rights                 |  |                  | 1,652   |                        |   | 2,078            |  |                        | 1,628   |  |   | 2,114   | 
|Cash value of life insurance              |  |                  | 6,285   |                        |   | 6,285            |  |                        | 5,764   |  |   | 5,764   | 
|Financial Liabilities:                    |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|Deposits                                  |  |                  | 94,518  |                        |   | 94,518           |  |                        | 90,460  |  |   | 90,460  | 
|Time certificates of deposit              |  |                  | 84,333  |                        |   | 85,241           |  |                        | 89,187  |  |   | 88,144  | 
|Advances from the FHLB & other borrowings |  |                  | 65,222  |                        |   | 66,575           |  |                        | 30,000  |  |   | 29,717  | 
|Subordinated debentures                   |  |                  | 5,155   |                        |   | 4,833            |  |                        | 5,155   |  |   | 5,007   | 

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.

Investment securities and stock in the FHLB
 The fair value of investment securities is estimated based on bid quotations
received from securities dealers. The fair value of stock in the FHLB
approximates redemption value.

Loans receivable and mortgage loans
held-for-sale 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.

For mortgage
loans, including loans held-for-sale, 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.

-35-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements 
June 30, 2008 and 2007

|         |                                                
|-------- | -----------------------------------------------
|NOTE 18: | Fair Value of Financial Instruments  continued

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 judgmentally determined using specific borrower
information, internal credit quality analysis, and historical information on
segmented loan categories for non-specific borrowers.

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. 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.

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 June 30, 2008 & 2007, respectively if
the borrowings repriced according to their stated terms.

|         |                                              
|-------- | ---------------------------------------------
|NOTE 19: | Condensed Parent Company Financial Statements

Set forth
below is the condensed statements of financial condition as of June 30, 2008
and 2007, of Eagle Bancorp together with the related condensed statements of
income and cash flows for the years ended June 30, 2008 and 2007.

-36-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements 
June 30, 2008 and 2007

|         |                                                          
|-------- | ---------------------------------------------------------
|NOTE 19: | Condensed Parent Company Financial Statements  continued

Condensed Statements of Financial Condition(Dollars in Thousands)

|                                               |  |      |        |      |   |        | 
|---------------------------------------------- |  | ---- | ------ | ---- | - | ------ | 
|                                               |  | 2008 |        | 2007 |  
|                                               |  |      |        |      |  
|                                              
|Assets                                         |  |      |        |      |   |        | 
|Cash and cash equivalents                      |  | $    | 237    |      | $ | 90     | 
|Securities available for sale                  |  |      | 4,666  |      |   | 4,108  | 
|Preferred stock - SFAS 159                     |  |      | 141    |      |   |       | 
|Investment in Eagle Bancorp Statutory Trust
 I |  |      | 155    |      |   | 155    | 
|Investment in American Federal Savings
Bank    |  |      | 25,282 |      |   | 24,596 | 
|Other assets                                   |  |      | 321    |      |   | 307    | 
|                                               |  |      |        |      |   |        | 
|                                               |  |      |        |      |   |        | 
|Total assets                                   |  | $    | 30,802 |      | $ | 29,256 | 
|                                               |  |      |        |      |   |        | 
|                                               |  |      |        |      |   |        | 
|Liabilities
 and stockholders equity          |  |      |        |      |   |        | 
|Accounts payable and accrued expenses          |  |      | 13     |      |   | 13     | 
|Long-term subordinated debt                    |  |      | 5,155  |      |   | 5,155  | 
|Stockholders Equity                           |  |      | 25,634 |      |   | 24,088 | 
|                                               |  |      |        |      |   |        | 
|                                               |  |      |        |      |   |        | 
|Total liabilities and stockholders
equity     |  | $    | 30,802 |      | $ | 29,256 | 
|                                               |  |      |        |      |   |        | 

Condensed Statements of Income(Dollars in Thousands)

|                                                                               |  |      |       |      |   |       |  
|------------------------------------------------------------------------------ |  | ---- | ----- | ---- | - | ----- | -
|                                                                               |  | 2008 |       | 2007 |  
|                                                                               |  |      |       |      |  
|                                                                               |  |      |       |      |   |       |  
|Interest income                                                                |  | $    | 166   |      | $ | 162   |  
|Interest expense                                                               |  |      | (310  | )    |   | (311  | )
|Noninterest expense                                                            |  |      | (117  | )    |   | (123  | )
|                                                                               |  |      |       |      |   |       |  
|Loss before income taxes                                                       |  |      | (261  | )    |   | (272  | )
|Income tax benefit                                                             |  |      | (144  | )    |   | (149  | )
|                                                                               |  |      |       |      |   |       |  
|Loss before equity in undistributed
 earnings of American Federal Savings Bank |  |      | (117  | )    |   | (123  | )
|Equity in undistributed earnings of
 American Federal Savings Bank             |  |      | 2,227 |      |   | 1,901 |  
|                                                                               |  |      |       |      |   |       |  
|                                                                               |  |      |       |      |   |       |  
|Net income                                                                     |  | $    | 2,110 |      | $ | 1,778 |  
|                                                                               |  |      |       |      |   |       |  

-37-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements 
June 30, 2008 and 2007

|         |                                                          
|-------- | ---------------------------------------------------------
|NOTE 19: | Condensed Parent Company Financial Statements  continued

Condensed Statements of Cash Flow(Dollars in Thousands)

|                                                                               |  |      |        |      |   |        |  
|------------------------------------------------------------------------------ |  | ---- | ------ | ---- | - | ------ | -
|                                                                               |  | 2008 |        | 2007 |  
|                                                                               |  |      |        |      |  
|                                                                               |  |      |        |      |   |        |  
|Cash flows from operating activities                                           |  |      |        |      |   |        |  
|Net income                                                                     |  | $    | 2,109  |      | $ | 1,778  |  
|Adjustments to reconcile net income to net
 cash used in operating activities: |  |      |        |      |   |        |  
|Equity in undistributed earnings of
 American Federal Savings Bank             |  |      | (2,227 | )    |   | (1,901 | )
|Restricted stock awards                                                        |  |      |       |      |   |       |  
|Other adjustments, net                                                         |  |      | 7      |      |   | 10     |  
|                                                                               |  |      |        |      |   |        |  
|Net cash used in operating activities                                          |  |      | (111   | )    |   | (113   | )
|                                                                               |  |      |        |      |   |        |  
|Cash flows from investing activities                                           |  |      |        |      |   |        |  
|Cash contribution from American Federal
 Savings Bank                          |  |      | 1,600  |      |   | 1,717  |  
|Activity in available for sale securities                                      |  |      |        |      |   |        |  
|Sales                                                                          |  |      |       |      |   |       |  
|Maturities, prepayments and calls                                              |  |      | 89     |      |   | 30     |  
|Purchases                                                                      |  |      | (908   | )    |   | (1,382 | )
|Investment in Eagle Bancorp Statutory Trust
 I                                 |  |      |       |      |   |       |  
|                                                                               |  |      |        |      |   |        |  
|Net cash provided by investing activities                                      |  |      | 781    |      |   | 365    |  
|                                                                               |  |      |        |      |   |        |  
|Cash flows from financing activities                                           |  |      |        |      |   |        |  
|ESOP payments and dividends                                                    |  |      | 146    |      |   | 146    |  
|Payments to purchase treasury stock                                            |  |      | (254   | )    |   | (238   | )
|Net changes in notes payable advances                                          |  |      |       |      |   |       |  
|Proceeds from subordinated debentures                                          |  |      |       |      |   |       |  
|Dividends paid                                                                 |  |      | (415   | )    |   | (386   | )
|                                                                               |  |      |        |      |   |        |  
|Net cash used in financing activities                                          |  |      | (523   | )    |   | (478   | )
|                                                                               |  |      |        |      |   |        |  
|Net change in cash and cash equivalents                                        |  |      | 147    |      |   | (226   | )
|Cash and cash equivalents at beginning of
 period                              |  |      | 90     |      |   | 316    |  
|                                                                               |  |      |        |      |   |        |  
|                                                                               |  |      |        |      |   |        |  
|Cash and cash equivalents at end of period                                     |  | $    | 237    |      | $ | 90     |  
|                                                                               |  |      |        |      |   |        |  

-38-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements 
June 30, 2008 and 2007

|         |                                                                                                                      
|-------- | ---------------------------------------------------------------------------------------------------------------------
|NOTE 20: | Quarterly Results of Operations (Unaudited)                                                                          
|         |                                                                                                                      
|         | The
 following is a condensed summary of quarterly results of operations for the
 years ended June 30, 2008 and 2007:

|                                              |  |                          |       |                 |   |                |  |                 |       |  |   |       |  
|--------------------------------------------- |  | ------------------------ | ----- | --------------- | - | -------------- |  | --------------- | ----- |  | - | ----- | -
|                                              |  | Year ended June 30, 2008 |      
|                                              |  |                          |      
|                                             
|(Dollars in Thousands, except per share data) |  | First
 Quarter           |       | Second
 Quarter |   | Third
 Quarter |  | Fourth
 Quarter |      
|                                              |  |                          |       |                 |   |                |  |                 |      
|Interest and dividend income                  |  | $                        | 3,408 |                 | $ | 3,494          |  | $               | 3,474 |  | $ | 3,713 |  
|Interest expense                              |  |                          | 1,699 |                 |   | 1,717          |  |                 | 1,639 |  |   | 1,598 |  
|                                              |  |                          |       |                 |   |                |  |                 |       |  |   |       |  
|Net interest income                           |  |                          | 1,709 |                 |   | 1,777          |  |                 | 1,835 |  |   | 2,115 |  
|Loan loss provision                           |  |                          |      |                 |   |               |  |                 |      |  |   | (175  | )
|Net interest income after loan loss provision |  |                          | 1,709 |                 |   | 1,777          |  |                 | 1,835 |  |   | 2,290 |  
|Non interest income                           |  |                          | 584   |                 |   | 269            |  |                 | 619   |  |   | 752   |  
|Non interest expense                          |  |                          | 1,668 |                 |   | 1,787          |  |                 | 1,761 |  |   | 1,847 |  
|                                              |  |                          |       |                 |   |                |  |                 |       |  |   |       |  
|Income before income tax expense              |  |                          | 625   |                 |   | 259            |  |                 | 693   |  |   | 1,195 |  
|Income tax expense                            |  |                          | 161   |                 |   | 40             |  |                 | 155   |  |   | 306   |  
|                                              |  |                          |       |                 |   |                |  |                 |       |  |   |       |  
|Net income                                    |  | $                        | 464   |                 | $ | 219            |  | $               | 538   |  | $ | 889   |  
|                                              |  |                          |       |                 |   |                |  |                 |       |  |   |       |  
|                                              |  |                          |       |                 |   |                |  |                 |       |  |   |       |  
|Comprehensive income
 (loss)                  |  | $                        | 556   |                 | $ | 215            |  | $               | 236   |  | $ | (921  | )
|                                              |  |                          |       |                 |   |                |  |                 |       |  |   |       |  
|Basic earnings per common
 share              |  | $                        | 0.43  |                 | $ | 0.20           |  | $               | 0.50  |  | $ | 0.83  |  
|                                              |  |                          |       |                 |   |                |  |                 |       |  |   |       |  
|Diluted earnings per
 common share            |  | $                        | 0.38  |                 | $ | 0.18           |  | $               | 0.44  |  | $ | 0.73  |  
|                                              |  |                          |       |                 |   |                |  |                 |       |  |   |       |  

|                                   |  |                          |       |  |   |       |  |   |       |  |   |       |  
|---------------------------------- |  | ------------------------ | ----- |  | - | ----- |  | - | ----- |  | - | ----- | -
|                                   |  | Year ended June 30, 2007 |      
|                                   |  |                          |      
|                                   |  |                          |       |  |   |       |  |   |       |  |   |       |  
|Interest and dividend income       |  | $                        | 2,994 |  | $ | 3,102 |  | $ | 3,260 |  | $ | 3,288 |  
|Interest expense                   |  |                          | 1,340 |  |   | 1,472 |  |   | 1,532 |  |   | 1,615 |  
|                                   |  |                          |       |  |   |       |  |   |       |  |   |       |  
|Net interest income                |  |                          | 1,654 |  |   | 1,630 |  |   | 1,728 |  |   | 1,673 |  
|Non interest income                |  |                          | 537   |  |   | 592   |  |   | 544   |  |   | 588   |  
|Non interest expense               |  |                          | 1,616 |  |   | 1,661 |  |   | 1,660 |  |   | 1,677 |  
|                                   |  |                          |       |  |   |       |  |   |       |  |   |       |  
|Income before income tax expense   |  |                          | 575   |  |   | 561   |  |   | 612   |  |   | 584   |  
|Income tax expense                 |  |                          | 153   |  |   | 100   |  |   | 159   |  |   | 142   |  
|                                   |  |                          |       |  |   |       |  |   |       |  |   |       |  
|Net income                         |  | $                        | 422   |  | $ | 461   |  | $ | 453   |  | $ | 442   |  
|                                   |  |                          |       |  |   |       |  |   |       |  |   |       |  
|                                   |  |                          |       |  |   |       |  |   |       |  |   |       |  
|Comprehensive loss                 |  | $                        | 670   |  | $ | 55    |  | $ | 156   |  | $ | (642  | )
|                                   |  |                          |       |  |   |       |  |   |       |  |   |       |  
|Basic earnings per common
 share   |  | $                        | 0.39  |  | $ | 0.43  |  | $ | 0.42  |  | $ | 0.41  |  
|                                   |  |                          |       |  |   |       |  |   |       |  |   |       |  
|Diluted earnings per
 common share |  | $                        | 0.35  |  | $ | 0.38  |  | $ | 0.37  |  | $ | 0.37  |  
|                                   |  |                          |       |  |   |       |  |   |       |  |   |       |  

-39-

---



EAGLE BANCORP AND SUBSIDIARYNotes to Consolidated Financial Statements 
June 30, 2008 and 2007

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 21: | Subsequent Events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | The Board
 announced on July 17, 2008 the declaration of a cash dividend of $0.255 per
 share for the fourth quarter. It is payable August 22, 2008 to shareholders of
 record at the close of business August 3, 2007. Eagle Financial MHC, Eagle
 Bancorps mutual holding company, has waived its right to receive dividends
 on the 648,493 shares of Eagle Bancorp that Eagle Financial MHC holds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | Recent
 events and concerns occurring in the marketplace subsequent to June 30, 2008,
 have resulted in significant decreases in the share prices of FHLMC and FNMA
 preferred stock. The concerns include deterioration of the financial
 condition of the government sponsored entities, concerns over the
 constriction of FHLMC and FNMAs financial flexibility to manage potential
 volatility in its mortgage risk exposures and the uncertainty with respect to
 the impact on the preferred stock of the recently enacted housing and
 economic recovery bill including the authorization for the U.S. Treasury
 Department to purchase equity in both FHLMC and FNMA. The preferred stock,
 which is carried at fair value, had a carrying value of $1,321,000 at June
 30, 2008. Subsequent to June 30, 2008, the fair value of the preferred stock
 declined $420,000 to $901,000 at July 31, 2008. To the extent that the market
 conditions do not improve and the values for these securities do not
 stabilize, it is possible that the Company could recognize additional fair
 value declines in its operating results in future periods.

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