EAGLE BANCORP INC - 10-K Annual Report

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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

[X] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the fiscal year ended December 31, 2002

[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the transition period from _________to _________

Commission file number: 0-25923

Eagle Bancorp, Inc
(Exact Name of Registrant as Specified in its Charter)

Maryland 52-2061461
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

7815 Woodmont Avenue, Bethesda, Maryland 20814
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including area code: (301) 986-1800

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock $.01
par value

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

Indicate by check mark if disclosure of delinquent filers in pursuant to Item
405 of Regulation S-K is not contained herein , and will not 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-K or any
amendment to this Form 10-K. [X]

Indicate by check mark whether this registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

The aggregate market value of the outstanding Common Stock held by nonaffiliates
as of June 30, 2002 was approximately $37,507,325.

As of March 25, 2003, the number of outstanding shares of the Common Stock, $.01
par value, of Eagle Bancorp, Inc. was 2,900,474.

DOCUMENTS INCORPORATED BY REFERENCE

Portionsof the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders, to be held on May 20, 2003 are
incorporated by reference in part III hereof.

PART I

ITEM 1. DESCRIPTION OF BUSINESS.

Eagle Bancorp, Inc. (the "Company") was incorporated under the laws of
the State of Maryland on October 28, 1997, to serve as the bank holding company
for a newly formed Maryland chartered commercial bank. The Company was formed by
a group of local businessmen and professionals with significant prior experience
in community banking in the Company's market area, together with an experienced
community bank senior management team. EagleBank, a Maryland chartered
commercial bank which is a member of the Federal Reserve System, the Company's
sole subsidiary, was chartered as a bank and commenced banking operations on
July 20, 1998. The Bank operates from five southern Montgomery County offices
located in Gaithersburg, Rockville, Bethesda and Silver Spring, Maryland. A
sixth location is located in the District of Columbia, at 20th and K Streets,
NW.

The Bank operates as a community bank alternative to the superregional
financial institutions which dominate its primary market area. The cornerstone
of the Bank's philosophy is to provide superior, personalized service to its
customers. The Bank focuses on relationship banking, providing each customer
with a number of services, familiarizing itself with, and addressing itself to,
customer needs in a proactive, personalized fashion.

Description of Services. The Bank offers full commercial banking
services to its business and professional clients as well as complete consumer
banking services to individuals living and/or working in the service area. The
Bank emphasizes providing commercial banking services to sole proprietorships,
small and medium-sized businesses, partnerships, corporations, non-profit
organizations and associations, and investors living and working in and near the
Bank's primary service area. A full range of retail banking services are offered
to accommodate the individual needs of both corporate customers as well as the
community the Bank serves.

The Bank has developed a loan portfolio consisting primarily of
business loans with variable rates and/or short maturities where the cash flow
of the borrower is the principal source of debt service with a secondary
emphasis on collateral. Real estate loans are made generally for commercial
purposes and are structured using fixed rates which adjust in three to five
years, with maturities of five to ten years. Consumer loans are made on the
traditional installment basis for a variety of purposes. The Bank has developed
significant expertise and commitment as an SBA lender, has been designated a
Preferred Lender, and is one of the largest SBA lenders, in dollar volume, in
the Washington metropolitan area.

All new business customers are screened to determine, in advance, their
credit qualifications and history. This practice permits the Bank to respond
quickly to credit requests as they arise.

In general, the Bank offers the following credit services:

1) Commercial loans for business purposes including working
capital, equipment purchases, real estate, lines of credit,
and government contract financing. Asset based lending and
accounts receivable financing are available on a selective
basis.

2) Real estate loans, including construction loan financing, for
business and investment purposes.

3) Lease financing for business equipment.

4) Traditional general purpose consumer installment loans
including automobile and personal loans. In addition, the Bank
offers personal lines of credit.

5) Credit card services are offered through an outside vendor.

The direct lending activities in which the Bank engages each carries
the risk that the borrowers will be unable to perform on their obligations. As
such, interest rate policies of the Federal Reserve Board and general economic
conditions, nationally and in the Bank's primary market area have a significant
impact on the Bank's and the Company's results of operations. To the extent that

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economic conditions deteriorate, business and individual borrowers may be less
able to meet their obligations to the Bank in full, in a timely manner,
resulting in decreased earnings or losses to the Bank. To the extent the Bank
makes fixed rate loans, general increases in interest rates will tend to reduce
the Bank's spread as the interest rates the Bank must pay for deposits increase
while interest income is flat. Economic conditions and interest rates may also
adversely affect the value of property pledged as security for loans.

The Bank constantly strives to mitigate risks in the event of
unforeseen threats to the loan portfolio as a results of economic downturn or
other negative influences. Our plans for mitigating inherent risks in managing
loan assets including; carefully enforcing loan policies and procedures,
evaluating each borrower's business plan during the underwriting process,
identifying and monitoring primary and alternative sources for repayment, and
obtaining collateral to minimize losses in the event of liquidation. Specific
loan reserves will be used to increase overall reserves based upon increased
credit and/or collateral risks on an individual loan bases. A risk rating system
is used to proactively determine loss exposure and provide a measuring system
for setting general and specific reserves allocations.

The Bank attempts to further mitigate commercial term loan losses by
using loan guarantee programs offered by the United States Small Business
Administration (SBA). The Bank has been approved for the SBA's preferred lender
program (PLP). SBA loans made using PLP by the Bank are not subject to SBA
preapproval. However, the Bank is very selective of these types of loans because
of the greater responsibility of acting as agents for the SBA.

The composition of the Bank's loan portfolio is heavily commercial real
estate, both owner occupied and investment real estate. At December 31, 2002,
commercial real estate secured loans represented 48.5% of the loan portfolio.
These loans are carefully underwritten to mitigate lending risks typical of this
type of loan such as drops in real estate values, changes in cash flow and
general economic conditions. The Bank requires a loan to values of 80% and cash
flow debt service of 1.2x to 1.0. In making commercial mortgage loans, the Bank
requires that interest rates adjust not less frequently than five years and
generally seeks more frequent adjustments. To date, the Bank's experience with
this type of credit has been excellent and it has experienced no commercial
mortgage loan losses or accounts that have been as much as ninety days past due.

The Bank is also an active general commercial loan lender providing
loans for a large variety of typical commercial loan purposes, including
equipment and account receivable financing. This category represents
approximately 27% of the loan portfolio and is generally characterized by
variably priced loans tied to an index such as prime or U. S. Treasury borrowing
rates. Subject to limitations in a particular loan agreement, interest rates on
variable rate loans change at the same time and at the some rate as the
designated index changes. As do all loans in the portfolio, commercial loans
must meet high underwriting standards with proper collateral, which may include
real estate, and cash flow needed to service the debt. Personal guarantees of
promoters and/or principals are required, although, may be limited. A growing
segment of the commercial loan portfolio is SBA loans.

In making SBA loans, the Company assumes the risk of nonpayment on the
uninsured portion of the credit, which comprises 20-25% of the aggregate loan
amount. The Company generally sells the insured portion of the loan. SBA loans
are subject to the same high underwriting standards, including cash flow
analyses and collateral requirements, as non guaranteed loans.

The balance of the loan portfolio is made up of home equity loans and
other consumer loans and construction loans. These loans, while making up a
smaller portion of the loan portfolio, demand the same emphasis on underwriting
and credit decision processes as the other types of loans advanced by the Bank.

The Bank at December 31, 2002, had a legal lending limit of $4 million
and had customers who had been approved for aggregate loans of this amount.
Because of the legal lending limitation, the Bank has regularly participated out
portions of credits to other area banks, an accepted practice in the industry.
The Bank has also participated loans to the Company. These have generally been
in nominal amounts and for relatively short terms, either until the Bank could
accommodate the participation under its legal limit or the loan could be
participated to another lender. The ability of the Company to assist the Bank
with these credits has expanded the flexibility and service the Bank can offer
its customers. From time to time the Company may make loans for its portfolio.
Such loans, which may be made to accommodate borrowers at the Bank level, may
have higher risk characteristics than loans made by the Bank, such as lower
priority security interests. The Company will generally make such loans only to

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borrowers in industries where the Company's directors or lending officers have
significant expertise, such as real estate development lending. The Company
seeks interest rates and compensation commensurate with the risks involved in
the particular loan.

Deposit services include business and personal checking accounts, NOW
accounts, and a tiered savings/Money Market Account basing the payment of
interest on balances on deposit. Certificates of Deposits are offered using a
tiered rate structure and various maturities. The acceptance of brokered
deposits is not a part of the current strategy, however, regulators require one
deposit relationship to be classified as a brokered deposit which management
considers a core deposit relationship with a well known party. A complete IRA
program is available. In cooperation with Goldman Sachs Asset Management, the
bank has introduced Eagle Asset Management Account, a sophisticated cash
management checking account that works like an investment account.

Other services for business accounts include cash management services
such as PC banking, sweep accounts, repurchase agreements, lock box, and account
reconciliation, credit card depository, safety deposit boxes and Automated
Clearing House origination. After hours depositories and ATM service are also
available. EagleCaptial was introduced during 2000, as a full service commercial
loan brokerage/placement. EagleCapital can place a variety of long-term,
favorably priced commercial mortgages. In addition, EagleCapital can provide
companion or mezzanine financing for such purposes as hard construction, tenant
improvements or bridge financing. EagleLeasing was also introduced in 2000, to
provide lease financing to small businesses for a variety of equipment
acquisitions.

Investment Portfolio Management, The ALCO Committee of the Bank which,
consists of thirteen directors and two senior officers, operates within
investment and funds management policies established by it and approved by the
Board of Directors. The Committee is the prime steering force setting parameters
for management while providing flexibility to meet changing circumstances
between its monthly meetings. Management, on a daily basis, administers the
investment portfolio and other non-lending, earning assets and prepares reports
and recommendations for the Committee. A typical Committee meeting includes
discussion of current economic conditions, interest rate expectations, report
reviews and consideration of recommendations for modification in strategies and
specific investment issues.

The investment policy limits the Company to investments of the highest
quality, US Treasury securities, US Government agency securities and high grade
municipal securities. High risk investments, derivatives and non traditional
investments are prohibited. Investment maturities are limited to seven years,
except as specifically approved by ALCO, and mortgage backed pass through
securities with average lives of generally seven years or less. The funds
management policy establishes limits on overnight funds purchases and sales,
percentage of holdings of various securities, investments in bank deposits and
other asset and liability instruments.

During 2002, the Committee expanded eligible investments to include
bank certificates of deposits of $100 thousand or less, except CDs issued by
significant regional banks which can be purchased in amounts up to $500
thousand. The addition of this investment vehicle provided additional yield and
flexibility to the portfolio.

During the past year and one-half, the investment strategy has been to
stay short expecting that interest rates would rise and to improve yields by
using mortgage backed pass through securities of short, generally fifteen year
final maturities, where repricing opportunities are provided by monthly cash
flow.

When rates do begin to rise the committee will invest with the rise in
rates improving income opportunities from maturities and cash flow of the
portfolio. When the expectation is for rates to peak, following the next
increase in rates, the Committee will explore the advisability of extending
maturities to accumulate a volume of higher earning investments.

Source of Business. Management believes that the market segments which
the Bank targets, small to medium sized businesses and the consumer base of the
Bank's market area, demand the convenience and personal service that a smaller,
independent financial institution such as the Bank can offer. It is these themes
of convenience and personal service that form the basis for the Bank's business
development strategies. The Bank provides services from its strategically
located main office in Bethesda, Maryland, and branches in Gaithersburg,
Rockville and two locations in Silver Spring. The Bank opened a branch in NW,
Washington, DC in 2001, to complement the needs of the Bank's existing and

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potential customers, and provide prospects for additional growth and expansion.
Subject to obtaining necessary regulatory approvals, capital adequacy, the
identification of appropriate sites, then current business demand and other
factors, the Company plans for the Bank to establish additional branch offices
over the next two years. There can be no assurance that the Bank will establish
any additional branches or that they will be profitable.

The Bank has capitalized upon the extensive business and personal
contacts and relationships of its Directors and Executive Officers to establish
the Bank's initial customer base. To introduce new customers to the Bank,
reliance is placed on aggressive officer-originated calling programs and
director, customer and shareholder referrals.

The risk of nonpayment (or deferred payment) of loans is inherent in
commercial banking. The Bank's marketing focus on small to medium-sized
businesses may result in the assumption by the Bank of certain lending risks
that are different from those attendant to loans to larger companies. Management
of the Bank carefully evaluates all loan applications and attempts to minimize
its credit risk exposure by use of thorough loan application, approval and
monitoring procedures; however, there can be no assurance that such procedures
can significantly reduce such lending risks.

In addition to holding all of the capital stock of the Bank, the
Company holds investments in securities and loan participation purchased from
the Bank or other financial institutions.

EMPLOYEES

At February 28, 2003 the Bank employed 81 persons on a full time basis,
five of which are executive officers of the Bank. Except for the Chairman of the
Board of Directors and the President of the Company, the Company (as
distinguished from the Bank) does not have any employees or officers who are not
employees or officers of the Bank. None of the Bank's employees are represented
by any collective bargaining group, and the Bank believes that its employee
relations are good. The Bank provides a benefit program which includes health
and dental insurance, a 401k plan, life and long term disability insurance for
substantially all full time employees. The Company has proposed for shareholder
approval an incentive stock option plan for key employees of the Company and
Bank.

MARKET AREA AND COMPETITION

Location and Market Area. The Bank's main office and the headquarters
of the Company and the Bank is located at 7815 Woodmont Avenue, Bethesda,
Maryland 20814. The Bank has five branches, located at 110 North Washington
Street, Rockville, 8677 Georgia Avenue, 850 Sligo Avenue, Silver Spring, Shady
Grove and Blackwood Roads, Gaithersburg, Maryland, and 20th and K Streets, NW,
Washington, DC.

The primary service area of the Bank is Montgomery County, Maryland,
with a secondary market area in the Washington D.C. RMA, particularly Washington
D.C., Prince George's County in Maryland, and Arlington and Fairfax Counties in
Virginia. The Washington, D.C. area attracts a substantial federal workforce as
well as supporting a variety of support industries such as attorneys, lobbyists,
government contractors, real estate developers and investors, non-profit
organizations, tourism and consultants.

Montgomery County, with a total population of about 881,000, represents
the second largest suburban employment center in the Washington, D.C. area, with
approximately 444,634 jobs in 2001, and an unemployment rate below the national
average. While government employment provides a significant number of jobs,
approximately 82% of the jobs in the county involve private employers. In 2001,
there are 80,500 private sector high technology jobs in Montgomery county, which
is 22% of all private sector jobs in the county. Almost half of the county's
employment is located in the Bethesda, Rockville, North Bethesda area in which
the Bank has three branch locations. Much of the job growth and development is
located in that area and in the nearby I-270 technology corridor.

Montgomery County is home to nineteen major federal and private sector
research and development and regulatory agencies, including the National
Institute of Standards and Technology, the National Institutes of Health,
National Oceanic and Atmospheric Administration, Naval Research and Development
Center, Naval Surface Warfare Center, Nuclear Regulatory Commission and the Food
and Drug Administration.

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Montgomery County leads the State of Maryland and the nation's ten
largest metropolitan areas in high technology employment. Over fifty percent of
Maryland's biotechnology firms are located in the county.

Household income for Montgomery County in 2000 was established at
$125,090 compared to a national average for similar counties of $67,090. Per
capita income of $46,450 similarly exceeded the national average of $22,851.

Competition. Deregulation of financial institutions and holding company
acquisitions of banks across state lines has resulted in widespread, fundamental
changes in the financial services industry. This transformation, although
occurring nationwide, is particularly intense in the greater Washington, D.C.
metropolitan area because of the changes in the area's economic base in recent
years and changing state laws authorizing interstate mergers and acquisitions of
banks, and the interstate establishment or acquisition of branches.

In Montgomery County, Maryland, competition is exceptionally keen from
large banking institutions headquartered outside of Maryland. In addition, the
Bank competes with other community banks, savings and loan associations, credit
unions, mortgage companies, finance companies and others providing financial
services. Among the advantages that many of these institutions have over the
Bank are their abilities to finance extensive advertising campaigns, maintain
extensive branch networks and technology investments, and to directly offer
certain services, such as international banking and trust services, which are
not offered directly by the Bank. Further, the greater capitalization of the
larger institutions allows for substantially higher lending limits than the
Bank. Certain of these competitors have other advantages, such as tax exemption
in the case of credit unions, and lesser regulation in the case of mortgage
companies and finance companies.

REGULATION

The following summaries of statutes and regulations affecting bank
holding companies do not purport to be complete discussions of all aspects of
such statutes and regulations and are qualified in their entirety by reference
to the full text thereof.

The Company. The Company is a bank holding company registered under the
Bank Holding Company Act of 1956, as amended, (the "Act") and is subject to
supervision by the Federal Reserve Board. As a bank holding company, the Company
is required to file with the Federal Reserve Board an annual report and such
other additional information as the Federal Reserve Board may require pursuant
to the Act. The Federal Reserve Board may also make examinations of the Company
and each of its subsidiaries.

The Act requires approval of the Federal Reserve Board for, among other
things, the acquisition by a proposed bank holding company of control of more
than five percent (5%) of the voting shares, or substantially all the assets, of
any bank or the merger or consolidation by a bank holding company with another
bank holding company. The Act also generally permits the acquisition by a bank
holding company of control or substantially all the assets of any bank located
in a state other than the home state of the bank holding company, except where
the bank has not been in existence for the minimum period of time required by
state law, but if the bank is at least 5 years old, the Federal Reserve Board
may approve the acquisition.

With certain limited exceptions, a bank holding company is prohibited
from acquiring control of any voting shares of any company which is not a bank
or bank holding company and from engaging directly or indirectly in any activity
other than banking or managing or controlling banks or furnishing services to or
performing service for its authorized subsidiaries. A bank holding company may,
however, engage in or acquire an interest in, a company that engages in
activities which the Federal Reserve Board has determined by order or regulation
to be so closely related to banking or managing or controlling banks as to be
properly incident thereto. In making such a determination, the Federal Reserve
Board is required to consider whether the performance of such activities can
reasonably be expected to produce benefits to the public, such as convenience,
increased competition or gains in efficiency, which outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. The Federal
Reserve Board is also empowered to differentiate between activities commenced de
novo and activities commenced by the acquisition, in whole or in part, of a
going concern. Some of the activities that the Federal Reserve Board has

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determined by regulation to be closely related to banking include making or
servicing loans, performing certain data processing services, acting as a
fiduciary or investment or financial advisor, and making investments in
corporations or projects designed primarily to promote community welfare.

Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or any of its subsidiaries, or investments in the stock
or other securities thereof, and on the taking of such stock or securities as
collateral for loans to any borrower. Further, a holding company and any
subsidiary bank are prohibited from engaging in certain tie-in arrangements in
connection with the extension of credit. A subsidiary bank may not extend
credit, lease or sell property, or furnish any services, or fix or vary the
consideration for any of the foregoing on the condition that: (i) the customer
obtain or provide some additional credit, property or services from or to such
bank other than a loan, discount, deposit or trust service; (ii) the customer
obtain or provide some additional credit, property or service from or to the
Company or any other subsidiary of the Company; or (iii) the customer not obtain
some other credit, property or service from competitors, except for reasonable
requirements to assure the soundness of credit extended.

Effective on March 11, 2000, the Gramm Leach-Bliley Act of 1999 (the
"GLB Act") allows a bank holding company or other company to certify status as a
financial holding company, which allows such company to engage in activities
that are financial in nature, that are incidental to such activities, or are
complementary to such activities. The GLB Act enumerates certain activities that
are deemed financial in nature, such as underwriting insurance or acting as an
insurance principal, agent or broker, underwriting, dealing in or making markets
in securities, and engaging in merchant banking under certain restrictions. It
also authorizes the Federal Reserve Board to determine by regulation what other
activities are financial in nature, or incidental or complementary thereto. The
GLB Act allows a wider array of companies to own banks, which could result in
companies with resources substantially in excess of the Company's entering into
competition with the Company and the Bank.

The Bank. The Bank, as a Maryland chartered commercial bank which is a
member of the Federal Reserve System (a "state member bank") and whose accounts
will be insured by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation (the "FDIC") up to the maximum legal limits of the FDIC, is subject
to regulation, supervision and regular examination by the Maryland Department of
Financial Institutions and the Federal Reserve Board. The regulations of these
various agencies govern most aspects of the Bank's business, including required
reserves against deposits, loans, investments, mergers and acquisitions,
borrowing, dividends and location and number of branch offices. The laws and
regulations governing the Bank generally have been promulgated to protect
depositors and the deposit insurance funds, and not for the purpose of
protecting stockholders.

Competition among commercial banks, savings and loan associations, and
credit unions has increased following enactment of legislation which greatly
expanded the ability of banks and bank holding companies to engage in interstate
banking or acquisition activities. As a result of federal and state legislation,
banks in the Washington D.C./Maryland/Virginia area can, subject to limited
restrictions, acquire or merge with a bank in another of the jurisdictions, and
can branch de novo in any of the jurisdictions. Additionally, legislation has
been proposed which may result in non-banking companies being authorized to own
banks, which could result in companies with resources substantially in excess of
the Company's entering into competition with the Company and the Bank.

Banking is a business which depends on interest rate differentials. In
general, the differences between the interest paid by a bank on its deposits and
its other borrowings and the interest received by a bank on loans extended to
its customers and securities held in its investment portfolio constitute the
major portion of the bank's earnings. Thus, the earnings and growth of the Bank
will be subject to the influence of economic conditions generally, both domestic
and foreign, and also to the monetary and fiscal policies of the United States
and its agencies, particularly the Federal Reserve Board, which regulates the
supply of money through various means including open market dealings in United
States government securities. The nature and timing of changes in such policies
and their impact on the Bank cannot be predicted.

Branching and Interstate Banking. The federal banking agencies are
authorized to approve interstate bank merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks has opted out of the interstate bank merger provisions
of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the

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"Riegle-Neal Act") by adopting a law after the date of enactment of the
Riegle-Neal Act and prior to June 1, 1997 which applies equally to all
out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. Interstate acquisitions of branches are permitted only if
the law of the state in which the branch is located permits such acquisitions.
Such interstate bank mergers and branch acquisitions are also subject to the
nationwide and statewide insured deposit concentration limitations described in
the Riegle-Neal Act.

The Riegle-Neal Act authorizes the federal banking agencies to approve
interstate branching de novo by national and state banks in states which
specifically allow for such branching. The District of Columbia, Maryland and
Virginia have all enacted laws which permit interstate acquisitions of banks and
bank branches and permit out-of-state banks to establish de novo branches.

The GLB Act made substantial changes in the historic restrictions on
non-bank activities of bank holding companies, and allows affiliations between
types of companies that were previously prohibited. The GLB Act also allows
banks to engage in a wider array of non banking activities through "financial
subsidiaries."

Capital Adequacy Guidelines. The Federal Reserve Board and the FDIC
have adopted risk based capital adequacy guidelines pursuant to which they
assess the adequacy of capital in examining and supervising banks and bank
holding companies and in analyzing bank regulatory applications. Risk-based
capital requirements determine the adequacy of capital based on the risk
inherent in various classes of assets and off-balance sheet items.

State member banks are expected to meet a minimum ratio of total
qualifying capital (the sum of core capital (Tier 1) and supplementary capital
(Tier 2)) to risk weighted assets of 8%. At least half of this amount (4%)
should be in the form of core capital.

Tier 1 Capital generally consists of the sum of common stockholders'
equity and perpetual preferred stock (subject in the case of the latter to
limitations on the kind and amount of such stock which may be included as Tier 1
Capital), less goodwill, without adjustment for changes in the market value of
securities classified as "available for sale" in accordance with FAS 115. Tier 2
Capital consists of the following: hybrid capital instruments; perpetual
preferred stock which is not otherwise eligible to be included as Tier 1
Capital; term subordinated debt and intermediate-term preferred stock; and,
subject to limitations, general allowances for loan losses. Assets are adjusted
under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no risk-based
capital) for assets such as cash, to 100% for the bulk of assets which are
typically held by a bank holding company, including certain multi-family
residential and commercial real estate loans, commercial business loans and
consumer loans. Residential first mortgage loans on one to four family
residential real estate and certain seasoned multi-family residential real
estate loans, which are not 90 days or more past-due or non-performing and which
have been made in accordance with prudent underwriting standards are assigned a
50% level in the risk-weighing system, as are certain privately-issued
mortgage-backed securities representing indirect ownership of such loans.
Off-balance sheet items also are adjusted to take into account certain risk
characteristics.

In addition to the risk-based capital requirements, the Federal Reserve
Board has established a minimum 3.0% Leverage Capital Ratio (Tier 1 Capital to
total adjusted assets) requirement for the most highly-rated banks, with an
additional cushion of at least 100 to 200 basis points for all other banks,
which effectively increases the minimum Leverage Capital Ratio for such other
banks to 4.0% - 5.0% or more. The highest-rated banks are those that are not
anticipating or experiencing significant growth and have well diversified risk,
including no undue interest rate risk exposure, excellent asset quality, high
liquidity, good earnings and, in general, those which are considered a strong
banking organization. A bank having less than the minimum Leverage Capital Ratio
requirement shall, within 60 days of the date as of which it fails to comply
with such requirement, submit a reasonable plan describing the means and timing
by which the bank shall achieve its minimum Leverage Capital Ratio requirement.
A bank which fails to file such plan is deemed to be operating in an unsafe and
unsound manner, and could subject the bank to a cease-and-desist order. Any
insured depository institution with a Leverage Capital Ratio that is less than
2.0% is deemed to be operating in an unsafe or unsound condition pursuant to
Section 8(a) of the Federal Deposit Insurance Act (the "FDIA") and is subject to
potential termination of deposit insurance. However, such an institution will
not be subject to an enforcement proceeding solely on account of its capital
ratios, if it has entered into and is in compliance with a written agreement to
increase its Leverage Capital Ratio and to take such other action as may be
necessary for the institution to be operated in a safe and sound manner. The

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capital regulations also provide, among other things, for the issuance of a
capital directive, which is a final order issued to a bank that fails to
maintain minimum capital or to restore its capital to the minimum capital
requirement within a specified time period. Such directive is enforceable in the
same manner as a final cease-and-desist order.

Prompt Corrective Action. Under Section 38 of the FDIA, each federal
banking agency is required to implement a system of prompt corrective action for
institutions which it regulates. The federal banking agencies have promulgated
substantially similar regulations to implement the system of prompt corrective
action established by Section 38 of the FDIA. Under the regulations, a bank
shall be deemed to be: (i) "well capitalized" if it has a Total Risk Based
Capital Ratio of 10.0% or more, a Tier 1 Risk Based Capital Ratio of 6.0% or
more, a Leverage Capital Ratio of 5.0% or more and is not subject to any written
capital order or directive; (ii) "adequately capitalized" if it has a Total Risk
Based Capital Ratio of 8.0% or more, a Tier 1 Risk Based Capital Ratio of 4.0%
or more and a Tier 1 Leverage Capital Ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a Total Risk Based Capital Ratio that is less than
8.0%, a Tier 1 Risk based Capital Ratio that is less than 4.0% or a Leverage
Capital Ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a Total Risk Based Capital Ratio that
is less than 6.0%, a Tier 1 Risk Based Capital Ratio that is less than 3.0% or a
Leverage Capital Ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.

An institution generally must file a written capital restoration plan
which meets specified requirements with an appropriate federal banking agency
within 45 days of the date the institution receives notice or is deemed to have
notice that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. A federal banking agency must provide the institution with
written notice of approval or disapproval within 60 days after receiving a
capital restoration plan, subject to extensions by the applicable agency.

An institution which is required to submit a capital restoration plan
must concurrently submit a performance guaranty by each company that controls
the institution. Such guaranty shall be limited to the lesser of (i) an amount
equal to 5.0% of the institution's total assets at the time the institution was
notified or deemed to have notice that it was undercapitalized or (ii) the
amount necessary at such time to restore the relevant capital measures of the
institution to the levels required for the institution to be classified as
adequately capitalized. Such a guaranty shall expire after the federal banking
agency notifies the institution that it has remained adequately capitalized for
each of four consecutive calendar quarters. An institution which fails to submit
a written capital restoration plan within the requisite period, including any
required performance guaranty, or fails in any material respect to implement a
capital restoration plan, shall be subject to the restrictions in Section 38 of
the FDIA which are applicable to significantly undercapitalized institutions.

A "critically undercapitalized institution" is to be placed in
conservatorship or receivership within 90 days unless the FDIC formally
determines that forbearance from such action would better protect the deposit
insurance fund. Unless the FDIC or other appropriate federal banking regulatory
agency makes specific further findings and certifies that the institution is
viable and is not expected to fail, an institution that remains critically
undercapitalized on average during the fourth calendar quarter after the date it
becomes critically undercapitalized must be placed in receivership. The general
rule is that the FDIC will be appointed as receiver within 90 days after a bank
becomes critically undercapitalized unless extremely good cause is shown and an
extension is agreed to by the federal regulators. In general, good cause is
defined as capital which has been raised and is imminently available for
infusion into the Bank except for certain technical requirements which may delay
the infusion for a period of time beyond the 90 day time period.

Immediately upon becoming undercapitalized, an institution shall become
subject to the provisions of Section 38 of the FDIA, which (i) restrict payment
of capital distributions and management fees; (ii) require that the appropriate
federal banking agency monitor the condition of the institution and its efforts
to restore its capital; (iii) require submission of a capital restoration plan;
(iv) restrict the growth of the institution's assets; and (v) require prior
approval of certain expansion proposals. The appropriate federal banking agency
for an undercapitalized institution also may take any number of discretionary
supervisory actions if the agency determines that any of these actions is
necessary to resolve the problems of the institution at the least possible
long-term cost to the deposit insurance fund, subject in certain cases to
specified procedures. These discretionary supervisory actions include: requiring
the institution to raise additional capital; restricting transactions with

9

affiliates; requiring divestiture of the institution or the sale of the
institution to a willing purchaser; and any other supervisory action that the
agency deems appropriate. These and additional mandatory and permissive
supervisory actions may be taken with respect to significantly undercapitalized
and critically undercapitalized institutions.

Additionally, under Section 11(c)(5) of the FDIA, a conservator or
receiver may be appointed for an institution where: (i) an institution's
obligations exceed its assets; (ii) there is substantial dissipation of the
institution's assets or earnings as a result of any violation of law or any
unsafe or unsound practice; (iii) the institution is in an unsafe or unsound
condition; (iv) there is a willful violation of a cease-and-desist order; (v)
the institution is unable to pay its obligations in the ordinary course of
business; (vi) losses or threatened losses deplete all or substantially all of
an institution's capital, and there is no reasonable prospect of becoming
"adequately capitalized" without assistance; (vii) there is any violation of law
or unsafe or unsound practice or condition that is likely to cause insolvency or
substantial dissipation of assets or earnings, weaken the institution's
condition, or otherwise seriously prejudice the interests of depositors or the
insurance fund; (viii) an institution ceases to be insured; (ix) the institution
is undercapitalized and has no reasonable prospect that it will become
adequately capitalized, fails to become adequately capitalized when required to
do so, or fails to submit or materially implement a capital restoration plan; or
(x) the institution is critically undercapitalized or otherwise has
substantially insufficient capital.

Regulatory Enforcement Authority. Federal banking law grants
substantial enforcement powers to federal banking regulators. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties. In general, these enforcement actions may be initiated for violations
of laws and regulations and unsafe or unsound practices. Other actions or
inactions may provide the basis for enforcement action, including misleading or
untimely reports filed with regulatory authorities.

Deposit Insurance Premiums. The FDIA establishes a risk based deposit
insurance assessment system. Under applicable regulations, deposit premium
assessments are determined based upon a matrix formed utilizing capital
categories - well capitalized, adequately capitalized and undercapitalized -
defined in the same manner as those categories are defined for purposes of
Section 38 of the FDIA. Each of these groups is then divided into three
subgroups which reflect varying levels of supervisory concern, from those which
are considered healthy to those which are considered to be of substantial
supervisory concern. The matrix so created results in nine assessment risk
classifications, with rates ranging from 0.04% of insured deposits for well
capitalized institutions having the lowest level of supervisory concern, to
0.31% of insured deposits for undercapitalized institutions having the highest
level of supervisory concern. In general, while the Bank Insurance Fund of the
FDIC ("BIF") maintains a reserve ratio of 1.25% or greater, no deposit insurance
premiums are required. When the BIF reserve ratio falls below that level, all
insured banks would be required to pay premiums. The payment of deposit
insurance premiums will have an adverse effect on earnings.

ITEM 2. DESCRIPTION OF PROPERTY.

The main office of the Bank and the executive offices of the Bank and
the Company are located at 7815 Woodmont Avenue, Bethesda, Maryland, in a 12,000
square foot, two story masonry structure (plus basement), with parking. The
Company leases the building under a five year lease which commenced in April
1998, at an initial annual rent $142,500, subject to annual increase based on
the CPI, not to exceed 4% per year. The Company has three five year renewal
options, and an option to purchase the building at a price to be negotiated. The
Silver Spring branch of the Bank is located at 8677 Georgia Avenue, Silver
Spring, Maryland and consists of 2,794 square feet. The property is occupied
under a five year lease, commenced April 1998, at an initial annual rent of
$55,878, subject to annual increase based on the CPI, plus additional rent
relating to common area fees and taxes. The Company has one five year renewal
option. The Rockville branch is located at 110 North Washington Street,
Rockville, Maryland, and consists of 2,000 square feet. The property is occupied
under a five year lease commenced April 1998, at an initial annual rent of
$35,000, subject to annual increase based upon the CPI, with a minimum 3% annual
increase, plus additional rent relating to common area fees and taxes. The
Company has one five-year renewal option. The Sligo branch of the Bank is
located at 850 Sligo Ave, Silver Spring, Maryland and consists of 2,400 square
feet. The property is occupied under a five year lease, commenced August 1999,
at an initial annual rent of $38,400, subject to annual increase based on the

10

CPI, plus additional rent relating to insurance and taxes. The Company has two
five-year renewal options. The K Street branch of the Bank is located at 2001 K
Street NW, Washington, DC and consists of 4,154 square feet. The property is
occupied under a ten year lease, commenced February 2001, at an initial annual
rent of $186,930, subject to annual increase based on the CPI, plus additional
rent relating to common area fees and taxes. The Company has two five-year
renewal options. The Shady Grove/Gaithersburg branch is located at 9600
Blackwood Road, Rockville, Maryland, and consists of 2,326 square feet. The
property is occupied under a ten year lease, commenced February 2002, at an
initial annual rent of $70,361, subject to annual increase based on the CPI,
plus additional rent relating to common area fees and taxes. The Company has one
five-year renewal options.

In January 2002, the Company occupied a new operations center in
Bethesda, consisting of 2,698 square feet, under a 10 year lease, commencing
January 2002, with one five year renewal option, at an initial base rent of
$67,450 per year with a 3% annual increase, plus additional rent relating to
common area fees and taxes.

ITEM 3. LEGAL PROCEEDINGS.

From time to time the Company is a participant in various legal
proceedings incidental to its business. In the opinion of management, the
liabilities (if any) resulting from such legal proceedings will not have a
material effect on the financial position of the Company.

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

No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 2002.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market for Common Stock and Dividends. The Company's Common Stock is
listed for trading on the Nasdaq Small Cap Market under the symbol "EGBN". To
date, trading in the common stock has been sporadic and volume has been light.
No assurance can be given that an active trading market will develop in the
foreseeable future. The following table sets forth the high and low bid prices
for the Common Stock during each calendar quarter during the last two fiscal
years, and through January 31, 2003. These quotations reflect interdealer
prices, without retail markup, markdown or commission, and may not represent
actual transactions. These quotations do not necessarily reflect the intrinsic
or market values of the Common Stock. Prices have been adjusted to reflect a
seven for five stock split in the form of a 40% stock dividend paid as of June
15, 2001. As of December 31, 2002, there were 2,897,704 shares of Common Stock
outstanding, held by approximately 943 total beneficial shareholders, including
approximately 420 shareholders of record.

Dividends. The Company has not paid any cash dividends to date. In
March 2000, the Company effected a five for four stock split in the form of a
25% stock dividend. In June 2001 the Company effected a seven for five stock
split in the form of a 40% stock dividend. The payment of cash dividends by the
Company will depend largely upon the ability of the Bank, its sole operating
business, to declare and pay dividends to the Company, as the principal source
of the Company's revenue, other than earnings on retained proceeds of the
Company's initial offering of Common Stock, will initially be from dividends

11

paid by the Bank Dividends will depend primarily upon the Bank's earnings,
financial condition, and need for funds, as well as governmental policies and
regulations applicable to the Company and the Bank. Even if the Bank and the
Company have earnings in an amount sufficient to pay dividends, the Board of
Directors may determine, and it is the present intention of the Board of
Directors, to retain earnings for the purpose of funding the growth of the
Company and the Bank.

Regulations of the Federal Reserve Board and Maryland law place limits
on the amount of dividends the Bank may pay to the Company without prior
approval. Prior regulatory approval is required to pay dividends which exceed
the Bank's net profits for the current year plus its retained net profits for
the preceding two calendar years, less required transfers to surplus. State and
federal bank regulatory agencies also have authority to prohibit a bank from
paying dividends if such payment is deemed to be an unsafe or unsound practice,
and the Federal Reserve Board has the same authority over bank holding
companies.

The Federal Reserve Board has established guidelines with respect to
the maintenance of appropriate levels of capital by registered bank holding
companies. Compliance with such standards, as presently in effect, or as they
may be amended from time to time, could possibly limit the amount of dividends
that the Company may pay in the future. In 1985, the Federal Reserve Board
issued a policy statement on the payment of cash dividends by bank holding
companies. In the statement, the Federal Reserve Board expressed its view that a
holding company experiencing earnings weaknesses should not pay cash dividends
exceeding its net income, or which could only be funded in ways that weaken the
holding company's financial health, such as by borrowing. As a depository
institution, the deposits of which are insured by the FDIC, the Bank may not pay
dividends or distribute any of its capital assets while it remains in default on
any assessment due the FDIC. The Bank currently is not in default under any of
its obligations to the FDIC.

Use of Proceeds: Not Applicable.

12

ITEM 6. SELECTED FINANCIAL DATA.

The following table shows selected historical consolidated financial
data for the Company. You should read it together with the Company's audited
consolidated financial statements for the years ended December 31, 2002, 2001
and 2000. The Company was a development stage company, without significant
assets or any operations other than those related to organization, from October
28, 1997 to June 22, 1998, and the Bank did not open for business until July 20,
1998. Therefore, financial information for 1998 does not represent a full year
of banking operations.

(1)Adjusted for all years presented giving retroactive effect to the five for
four stock split in the form of a 25% stock dividend paid on March 31, 2000,
and a seven for five stock split in the form of a 40% stock dividend paid on
June 15, 2001.
(2)Computed by dividing noninterest expense by the sum of net interest income
on a tax equivalent basis and noninterest income, net of securities gains or
losses. This is a non-GAAP financial measure, which we believe provides
investors with important information regarding our operational efficiency.
Comparison of our efficiency ratio with those of other companies may not be
possible, because other companies may calculate the efficiency ratio
differently.

13

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.

The following discussion provides information about the results of
operations, and financial condition, liquidity, and capital resources of the
Company and its subsidiary the Bank. This discussion and analysis should be read
in conjunction with the audited Consolidated Financial Statements and Notes
thereto, appearing elsewhere in this report.

This report contains forward looking statements within the meaning of
the Securities Exchange Act of 1934, as amended, including statements of goals,
intentions, and expectations as to future trends, plans, events or results of
Company operations and policies and regarding general economic conditions. In
some cases, forward looking statements can be identified by use of such words as
"may", "will", "anticipate", "believes", "expects", "plans", "estimates",
"potential", "continue", "should", and similar words or phases. These statements
are based upon current and anticipated economic conditions, nationally and in
the Company's market, interest rates and interest rate policy, competitive
factors and other conditions which, by their nature, are not susceptible to
accurate forecast, and are subject to significant uncertainty. Because of these
uncertainties and the assumptions on which this discussion and the forward
looking statements are based, actual future operations and results in the future
may differ materially from those indicated herein. Readers are cautioned against
placing undue reliance on any such forward looking statements. The Company does
not undertake to update any forward looking statements to reflect occurrences or
events which may not have been anticipated as of the date of such statements.

GENERAL

Eagle Bancorp, Inc. is a growing, one-bank holding company
headquartered in Bethesda, Maryland. We provide general commercial and consumer
banking services through our wholly owned banking subsidiary EagleBank, a
Maryland chartered bank which is a member of the Federal Reserve System. We were
organized in October 1997 to be the holding company for the Bank. The Bank, our
only subsidiary, was organized as an independent, community oriented,
full-service alternative to the super regional financial institutions, which
dominate our primary market area. The cornerstone of our philosophy is to
provide superior, personalized service to our customers. We focus on
relationship banking, providing each customer with a number of services,
becoming familiar with and addressing customer needs in a proactive,
personalized fashion. The Bank has five offices serving the southern portion of
Montgomery County and one office in the District of Columbia.

The Company offers full commercial banking services to our business and
professional clients as well as complete consumer banking services to
individuals living and/or working in the service area. We emphasize providing
commercial banking services to sole proprietors, small and medium-sized
businesses, partnerships, corporations, non-profit organizations and
associations, and investors living and working in and near our primary service
area. A full range of retail banking services are offered to accommodate the
individual needs of both corporate customers as well as the community we serve.
These services include the usual deposit functions of commercial banks,
including business and personal checking accounts, "NOW" accounts and savings
accounts, business, construction, and commercial loans, equipment leasing,
residential mortgages and consumer loans and cash management services. We have
developed significant expertise and commitment as an SBA lender, have been
designated a Preferred Lender, and are one of the largest SBA lenders, in dollar
volume, in the Washington Metropolitan area.

CRITICAL ACCOUNTING POLICIES

The Company's consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP") and follow general practices within the industry in which it
operates. Application of these principles requires management to make estimates,
assumptions, and judgments that affect the amounts reported in the financial
statements and accompanying notes. These estimates, assumptions and judgments
are based on information available as of the date of the financial statements;
accordingly, as this information changes, the financial statements could reflect
different estimates, assumptions, and judgments. Certain policies inherently
have a greater reliance on the use of estimates, assumptions and judgments and
as such have a greater possibility of producing results that could be materially

14

different than originally reported. Estimates, assumptions, and judgments are
necessary when assets and liabilities are required to be recorded at fair value,
when a decline in the value of an asset not carried on the financial statements
at fair value warrants an impairment write-down or valuation reserve to be
established, or when an asset or liability needs to be recorded contingent upon
a future event. Carrying assets and liabilities at fair value inherently results
in more financial statement volatility. The fair values and the information used
to record valuation adjustments for certain assets and liabilities are based
either on quoted market prices or are provided by other third-party sources,
when available.

The allowance for credit losses is an estimate of the losses that may
be sustained in our loan portfolio. The allowance is based on two principles of
accounting: (a) Statement on Financial Accounting Standards ("SFAS") 5,
"Accounting for Contingencies", which requires that losses be accrued when they
are probable of occurring and are estimable and (b) SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan", which requires that losses be accrued when
it is probable that the Company will not collect all principal and interest
payments according to the contractual terms of the loan. The loss, if any, is
determined by the difference between the loan balance and the value of
collateral, the present value of expected future cash flows, or values
observable in the secondary markets.

Three basic components comprise our allowance for credit losses: a
specific allowance, a formula allowance and a nonspecific allowance. Each
component is determined based on estimates that can and do change when the
actual events occur. The specific allowance is used to individually allocate an
allowance to loans identified as impaired. An impaired loan may show
deficiencies in the borrower's overall financial condition, payment record,
support available from financial guarantors and/or the fair market value of
collateral. When a loan is identified as impaired a specific reserve is
established based on the Company's assessment of the loss that may be associated
with the individual loan. The formula allowance is used to estimate the loss on
internally risk rated loans, exclusive of those identified as impaired. Loans
identified as special mention, substandard, doubtful and loss, as well as
impaired, are segregated from performing loans. Remaining loans are then grouped
by type (commercial, commercial real estate, construction, home equity or
consumer). Each loan type is assigned an allowance factor based on management's
estimate of the risk, complexity and size of individual loans within a
particular category. Classified loans are assigned higher allowance factors than
non-rated loans due to management's concerns regarding collectibility or
management's knowledge of particular elements regarding the borrower. Allowance
factors grow with the worsening of the internal risk rating. The nonspecific
formula is used to estimate the loss of non-classified loans stemming from more
global factors such as delinquencies, loss history, trends in volume and terms
of loans, effects of changes in lending policy, the experience and depth of
management, national and local economic trends, concentrations of credit,
quality of loan review system and the effect of external factors such as
competition and regulatory requirements. The nonspecific allowance captures
losses whose impact on the portfolio have occurred but have yet to be recognized
in either the formula or specific allowance.

Management has significant discretion in making the judgments inherent
in the determination of the provision and allowance for credit losses, including
in connection with the valuation of collateral, a borrower's prospects of
repayment, and in establishing allowance factors on the formula allowance and
nonspecific allowance components of the allowance. The establishment of
allowance factors is a continuing exercise, based on management's continuing
assessment of the global factors discussed above and their impact on the
portfolio, and allowance factors may change from period to period, resulting in
an increase or decrease in the amount of the provision or allowance, based upon
the same volume and classification of loans. Changes in allowance factors will
have a direct impact on the amount of the provision, and a corresponding effect
on net income. Errors in management's perception and assessment of the global
factors and their impact on the portfolio could result in the allowance not
being adequate to cover losses in the portfolio, and may result in additional
provisions or charge-offs. For additional information regarding the allowance
for credit losses, refer to Notes 1 and 4 to the Consolidated Financial
Statements and the discussion under the caption "Allowance for Credit Losses"
below.

RESULTS OF OPERATIONS

The Company reported net income of $2.67 million for the year ended
December 31, 2002, as compared to income of $1.75 million for the year ended
December 31, 2001 and income of $1.06 million for the year ended December 31,
2000. Income per basic share was $0.92 for the year ended December 31, 2002, as
compared to $0.61 for 2001 and $0.36 for 2000. Income per diluted share was

15

$0.86 for 2002, $0.58 for 2001 and $0.36 for 2000. The Company enjoyed a return
on average assets of 0.92% and return on average equity of 14.51% in 2002, as
compared to returns on average assets and average equity of 0.88% and 10.56%
respectively in 2001 and 0.78% and 7.41% in 2000. The Company recorded an income
tax expense of $1.5 million for 2002, the first full year for which it
recognized tax expense. During 2001, the Company recorded $269 thousand in
income tax expense. The Company did not incur any income tax expense prior to
the third quarter of 2001.

During 2002, the Company recorded a provision for credit losses in the
amount of $843 thousand. At December 31, 2002, the allowance for credit losses
was $2.8 million, as compared to $2.1 million at December 31, 2001. The Company
had net charge-offs of $188 thousand in 2002, less than 0.1% of average loans.

During the year, the Company contributed $3.7 million in additional
capital to the Bank from funds provided through a line of credit obtained by the
Company and discussed later in this analysis. The contributions were made to
support the Bank's growth and in order to maintain the Bank's status as "well
capitalized" as defined by regulatory guidelines.

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income is the difference between interest income on
earning assets and the cost of funds supporting those assets. Earning assets are
composed primarily of loans and investment securities. The cost of funds
represents interest expense on deposits, customer repurchase agreements and
other borrowings. Noninterest bearing deposits and capital are other components
representing funding sources. Changes in the volume and mix of assets and
funding sources, along with the changes in yields earned and rates paid,
determine changes in net interest income. Net interest income in 2002 was $11.49
million compared to $8.12 million in 2001 and $5.95 million in 2000.

The table labeled "Average Balances, Interest Yields and Rates and Net
Interest Margin" shows the average balances and rates of the various categories
of the Company's assets and liabilities. Included in the table is a measurement
of interest rate spread and margin. Interest spread is the difference between
the rate earned on assets less the cost of funds expressed as a percentage.
While spread provides a quick comparison of earnings rates versus cost of funds,
management believes that margin provides a better measurement of performance.
Margin includes the effect of noninterest bearing liabilities in its calculation
and is net interest income expressed as a percentage of total earning assets.
Interest spread increased in 2002 from 2001 by 21 basis points, 3.75% from
3.54%; however, margin decreased 15 basis points, 4.16% from 4.31%. The decrease
in margin while the spread increased is attributable to changes in mix in both
earning assets and interest bearing liabilities. While there was an increase of
45% in average earning assets there was only an increase of 41% in net interest
income reflecting the decline in margin. Following the average balance tables is
a rate volume analysis table that clearly demonstrates the significance of a
much larger base of earning assets contributing to income while the margin
declined.

The yield on earning assets decreased from 7.50% for the year ended
December 31, 2001 to 6.03% for the year ended December 31, 2002, and the rates
paid on interest bearing liabilities decreased from 3.96% for the year ended
December 31, 2001 to 2.28% for the year ended December 31, 2002. The average
yield on loans fell 125 basis points from 2001 to 2002, following a decline of
105 basis points from 2000 to 2001. These declines reflect the continued impact
of the significant rate reductions effected by the Federal Reserve in 2001. The
effect of the 2001 reductions in market rates continued through 2002, reflecting
the lagging repricing of the fixed rate portion of the loan portfolio and the
reduction of rates on new fixed rate loans. The investment portfolio yield
declined from 2001 to 2002 by 186 basis points as the Bank maintained a
portfolio of short term fixed rate securities and GNMA pass through mortgage
backed securities. The yield on GNMA securities declined as mortgage refinancing
accelerated, resulting in earlier repayment of mortgage backed securities, and
reinvestment of the proceeds at lower current market rates. The decline in yield
from 2001 to 2002 followed a decline of 72 basis points from 2000 to 2001. The
federal funds rate had fallen to 1.75% by the end of 2001 and for 2002 averaged
1.56%, 227 basis points less than the average yield of 3.83% for 2001 and 456
basis points less than the 2000 average yield of 6.12%. In order to keep the
investment portfolio short for liquidity and expectations that rates would start
to move upward, and to obtain better short term yields, the Bank invested $6
million in interest bearing deposits with other banks, yielding 2.67%, a

16

relatively attractive rate given their short term nature and low risk, as
compared to the rates offered on federal funds and Treasury Bills. The decline
in the yield on interest earning assets continues into 2003 following the
Federal Reserve's November 2002 cut in the federal funds rate.

On the liability side, management aggressively reduced rates on deposit
accounts. The reduction in the rate on total interest bearing liabilities from
2001 to 2002 was 168 basis points which compares to a reduction of 147 basis
points in the yield on earning assets over the same period. This follows a
reduction in the cost of funds of 51 basis points from 2000 to 2001. The
reduction in the rates paid by the Bank reduced the average rate on the cost of
funds below 2% in the latter part of 2002. The cost of funds continued to
decline into the first quarter of 2003 as management further reduced rates
following the Federal Reserve's November cut and as a result of continued
repricing of maturing certificates of deposit.

It is anticipated that any further reductions in interest rates will
have a significant adverse effect on earnings as rates paid on interest bearing
liabilities, which are as low as 0.25% on NOW accounts, cannot continue to
decline at the same rate as yields on loans and investments.

17

AVERAGE BALANCES, INTEREST YIELDS AND RATES, AND NET INTEREST MARGIN
(dollars in thousands)

18

AVERAGE BALANCES, INTEREST YIELDS AND RATES, AND NET INTEREST MARGIN
(dollars in thousands)

19

The rate/volume table shows the composition of the net change in net
interest income for the periods indicated, as allocated between the change in
net interest income due to changes in the volume of average earning assets and
interest bearing liabilities, and the changes in net interest income due to
changes in interest rates. As the table shows, the increases in net interest
income in 2002 as compared to 2001 is due to the growth in the volume of earning
assets, augmented by average rate related declines in interest expense. For 2001
compared to 2000, the increase in net interest income primarily resulted from
increased volume of earning assets.

RATE /VOLUME ANALYSIS OF NET INTEREST INCOME
(dollars in thousands)

NONINTEREST INCOME

Noninterest income is exclusively from Bank operations and represents
primarily service charge income and fees on deposit relationships, security
gains/losses and gains on the sale of loans. The emphasis management placed on
noninterest income resulted in a 64% increase in noninterest income from $1.3
million in 2001 to $2.1 million in 2002. Noninterest income increased 278% from
2000 to 2001, from $351 thousand to $1.3 million. The increase in noninterest
income from 2000 to 2002 reflects the growth of the Bank and expanded sources of
noninterest income. During the period the Bank concentrated on expanding both
its SBA and residential mortgage lending activities, and in 2002 purchased bank
owned life insurance contracts ("BOLI") which produced non- taxable income in
2002 of $85 thousand. Bank owned life insurance is a whole life insurance policy
on certain directors and officers of the Bank with the Bank as beneficiary in
the event of death of the director or officer. Income is recognized as the
appreciation in underlying cash surrender value and is not taxable under current
tax regulations. If the policy is redeemed for its cash value the appreciation
in value becomes taxable. BOLI is carried as an asset on the books of the Bank
under the category "Other assets".

The increase in noninterest income reflected an increase in deposit
account service charges, which increased 47% during 2002, from $704 thousand for
the year ended December 31, 2001 to $1 million for the year ended December 31,
2002. Deposit account service charges increased 101% from $350 thousand in 2000
to $704 thousand in 2001. Increases in deposit account charges reflect the
increased number of accounts and also the lower interest rate environment. As

20

interest rates decline so do the earnings allowances (which are used to offset
service charges) on demand deposit accounts so that an account, with the same
activity, which paid no service charge when interest rates were high may
currently be paying a charge because the earnings allowance is insufficient to
cover activity charges. The Company is an active originator of SBA loans and
sells the insured portion of those loans at a premium. Income from this source
increased from $96 thousand in 2001 to $327 thousand in 2002. During 2002, the
maximum loan eligible for an SBA guarantee was reduced, contributing to a slow
down in this activity during the fourth quarter of 2002. While it can not be
certain, management does not expect that the reduced level of activity will
significantly affect the growth the Company has experienced in this source of
income. The Company also originates residential construction and permanent loans
on a pre-sold basis, servicing released. Sales of these mortgage loans yielded
gains of $164 thousand in 2002 compared to $52 thousand in 2001. The success of
the mortgage program is directly affected by the low interest rate environment
in 2002 and this source of income may decline when interest rates begin to rise.

Other items in noninterest income increased 158% in 2002 from $114
thousand for the year ended December 31, 2001 to $294 thousand for the same
period in 2002. This category includes noninterest income fees such as
documentation preparation and prepayment penalties. Also included in other
noninterest income are SBA loan servicing fees and income from BOLI, both new
sources of income in 2002. Income for the year ended December 31, 2002 was $45
thousand from SBA servicing fees and $85 thousand from BOLI. SBA loan servicing
income is expected to increase as the number of loans originated and serviced by
the Bank increases. Income from BOLI is expected to increase to $210 thousand in
2003 and remain stable thereafter.

NONINTEREST EXPENSE

Noninterest expenses were $8.58 million in 2002, a 33% increase over
the $6.44 million noninterest expense in 2001, which was a 38% increase over
noninterest expense of $4.66 million in 2000. The increases in noninterest
expense are consistent with the overall growth in assets of 112% from December
31, 2000 to December 31, 2002, and management's internal expectations.

The most significant noninterest expense item is salaries and employee
benefits, which were $4.50 million for the year ended December 31, 2002 an
increase of 31% over the $3.45 million for the year ended December 31, 2001,
which reflected a 41% increase over the $2.45 million for 2000. In 2002, the
additional salary and benefit costs reflected the staffing of the new
Gaithersburg office and additional staffing in the loan and operations areas,
required to keep pace with the growth of the Bank, as well as compensation
increases for existing staff. Increases in 2001 primarily reflected staffing of
the K Street office and normal annual compensation increases. The increase in
premises and equipment expenses of 35% from 2001 to 2002, $1.22 million to $1.65
million can be attributed to a full year of expenses for the K Street office,
opened in 2001, the new Gaithersburg office and a new operations center opened
in January 2002. The new operations center was added to accommodate the growing
activities of the Bank.

Other expenses increased 37% from the year ended December 31, 2001 to
the year ended December 31, 2002, including a 37% increase in advertising
expense from $144 thousand in 2001 to $197 thousand in 2002, and a 40% increase
in outside data processing expense. Other expenses increased 36% from $1.3
million in 2001 to $1.7 million in 2002 and increased 33% from $968 thousand in
2000 to $1.3 million in 2001. In 2003, the Company expects that there will be a
substantial increase in insurance premium expense upon renewal of policies, not
only as a result of the growth of the Company but also as a result of general
increases in premiums since September 11, 2001. In future periods, noninterest
expenses to which the Company has not been subject to date, such as deposit
insurance premiums which may be required as a result of declines in the reserve
ratios of the deposit insurance funds, may have an adverse affect on the results
of operations of the Company.

INCOME TAX

The Company had income tax expense of $1.55 million in 2002 compared to
$269 thousand in 2001, resulting in an effective tax rate of 36.9% and 13.3%
respectively. In 2001, the Company recorded previously unrecorded deferred tax
assets and began recognizing tax on its income on a fully taxable basis. The

21

Company recognized no federal income tax expense during 2000. It is expected
that the Company will continue to record income tax expense based upon its
taxable income in future years.

FINANCIAL CONDITION

The Company ended the year with total assets of $347.8 million, an
increase of 47% from assets of $236.8 million at December 31, 2001. At December
31, 2002 deposits were $278.4 million as compared to $195.7 million at December
31, 2001, an increase of 43%. Gross loans were at $236.9 million at December 31,
2002 as compared to $182.3 million at December 31, 2001, an increase of 30%.
Other liabilities consisting of customer repurchase agreements, Federal Home
Loan Bank ("FHLB") borrowings and advances under the Company's line of credit
increased 109% from $23 million at December 31, 2001 to $48 million at December
31, 2002. Net loans increased 30% from $189.1 million at December 31, 2001 to
$234.1 million at December 31, 2002. Other earning assets (investment
securities, federal funds sold and interest bearing deposits) increased $40.2
million or 101%.

INVESTMENT SECURITIES AND OTHER EARNING ASSETS

The Company's investment securities portfolio is comprised primarily of
U. S. Treasury and Agency securities with maturities not exceeding seven years,
except mortgage pass-through securities which have average expected lives of
less than six years but contractual maturities of up to thirty years. Federal
funds sold also represent a significant earning asset and are sold, on an
unsecured basis, only to highly rated banks, in limited amounts both in the
aggregate and to any one bank.

The investment portfolio balance averaged approximately $58 million in
2002 compared to $32 million in 2001. The increase in investment securities
resulted from the strong growth in deposits and increased borrowings which
occurred in the second half of 2002. The rate of growth in liabilities out-paced
loan growth during 2002 and excess funds were invested in the investment
portfolio. The following tables and Note 3 to the Consolidated Financial
Statements provide additional information regarding the Company's investment
securities.

The Company classifies all investment securities as available for sale
("AFS"). This method of accounting requires that investment securities be
reported at their fair value and the difference between the fair value and
amortized cost (the purchase price adjusted by any accretion or amortization) be
reported in the equity section as accumulated other comprehensive income, net of
deferred taxes. At December 31, 2002, the Company reported an unrealized gain in
AFS securities of $593 thousand and at December 31, 2001, an unrealized gain in
AFS securities of $285 thousand. The accumulated comprehensive component of
these unrealized gains was $392 thousand and $189 thousand respectively. The
Company, except in a planned investment strategy or for liquidity needs, has no
present plan or intention to sell these securities.

In 2002, the Bank began using excess liquidity to invest in
certificates of deposit of other banks, which generally offer more favorable
rates than traditional short term investment securities. These deposits are in
insured institutions, and are generally in amounts of $100 thousand or less. At
December 31, 2002 the Bank had $6 million of this type of investment.

The following table provides information regarding the composition of
the Company's investment portfolio at the dates indicated. Amounts are reported
at estimated fair value.

(dollars in thousands)

22

The following table provides information, on an amortized cost basis,
regarding the contractual maturity and weighted average yield of the investment
portfolio at December 31, 2002. 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.

(dollars in thousands)

At December 31, 2002, there were no issuers, other than the U.S.
Government and its agencies, whose securities owned by the Company had a book or
fair value exceeding ten percent of the Company's stockholders' equity.

LOAN PORTFOLIO

In its lending activities, the Bank seeks to develop sound credits with
customers who will grow with the Bank. There has not been an effort to rapidly
build the loan portfolio and earnings at the sacrifice of asset quality.
However, loan growth in 2002, 2001 and 2000 was good with loans outstanding
reaching $236.8 million at December 31, 2002 from $182.3 million at December 31,
2001, an increase of $54.5 million or 30%.

During 2001, the Bank became active in the origination and selling of
both residential mortgage loans and the insured portion of SBA loans. In 2002,
in addition to the loans the Bank held for its portfolio it originated
approximately $19 million in loans which were sold. At December 31, 2002, there
were $5.5 million of loans held for sale and at December 31, 2001 there were
$5.9 million of such loans.

The Bank is primarily business oriented in its development focus. This
is demonstrated by the 86% of the loan portfolio which is in commercial, real
estate-commercial and construction loans as compared to 14% in home equity and
other consumer loans.

The following table shows the composition of the loan portfolio by type
of loan at the dates indicated.

23

(dollars in thousands)

Loan Maturity:

The following table sets forth the term to contractual maturity of the loan
portfolio as of December 31, 2002.

(dollars in thousands)

Loan which have adjustable rates and fixed rate are all shown in the
period of contractual maturity. Demand loans, having no contractual maturity,
and overdrafts are reported as due in one year or less.

ALLOWANCE FOR CREDIT LOSSES

The provision for credit losses represents the expense recognized to
fund the allowance for credit losses. The amount of the allowance for credit
losses is based on many factors which reflect management's assessment of the
risk in the loan portfolio. Those factors include economic conditions and
trends, the value and adequacy of collateral, volume and mix of the portfolio,
performance of the portfolio, and internal loan processes of the Company and
Bank.

Management has developed a comprehensive review process to monitor the
adequacy of the allowance for credit losses. The review process and guidelines
were developed utilizing guidance from federal banking regulatory agencies. The

24

results of this review process, in combination with conclusions of the Bank's
outside loan review consultant, support management's view as to the adequacy of
the allowance as of the balance sheet date. During 2002, a provision for credit
losses was made in the amount of $843 thousand before net charge-offs of $188
thousand. A full discussion of the accounting for allowance for credit losses is
contained in Note 1 to the Consolidated Financial Statements; activity in the
allowance for credit losses is contained in Note 4 to the Consolidated Financial
Statements. Please refer to the discussion under the caption, "Critical
Accounting Policies" for an overview of the underlying methodology management
employs on a quarterly basis to maintain the allowance.

At December 31, 2002, the Company had one loan classified as nonaccrual
in the amount of $147 thousand of which $126 thousand was guaranteed by the SBA.
There was one loan past due over ninety days and still accruing interest at
December 31, 2002, in the amount of $818 thousand. Both of these loans are
considered impaired as defined by Statement of Financial Accounting Standards
No. 114. Please refer to Note 1 of the notes to the Consolidated Financial
Statements under the heading Loans for a discussion of the Company's policy
regarding impairment of loans.

As part of its comprehensive loan review process, the Bank's Board of
Director's Loan Committee and/or Board of Directors Credit Review Committee
carefully evaluates loans over thirty days past due and considers if such loans
should be classified as nonaccrual. The Committee(s) makes a thorough assessment
of the conditions and circumstances surrounding each past due loan. The Bank's
loan policy requires that loans be placed on nonaccrual if they are ninety days
past due, unless they are well secured and in the process of collection. After
reviewing the circumstances surrounding the $818 thousand loan, the Credit
Review Committee determined that it was appropriate to continue the accrual of
interest. The loan was extended to an automobile leasing company for the purpose
of funding individual leases. During 2002, the loan became delinquent, and
management worked with the borrower in efforts to return the loan to a current
status. During the third quarter of 2002, management discovered that payments on
the underlying leases were being diverted and not being used to service the loan
as required by the loan agreement. The Bank exercised its rights under the loan
agreement and instructed the lessees of the underlying leases to send all future
lease payments directly to the Bank under a lockbox arrangement. The diversion
of funds is believed to be the primary reason for the loan's delinquency.
Subsequently, the borrower declared bankruptcy, however, the trustee assigned in
the bankruptcy proceedings allowed the Bank to continue to collect payments
directly from the lessees.

In determining the accrual status of the loan, management and the
Credit Review Committee evaluated the expected cash flow of the leases, the
current underlying collateral value of the leases and the residual value of the
underlying vehicles at the end of the leases.

This evaluation resulted in a projected cash flow that was considered
sufficient to amortize the net loan balance including interest. A specific
reserve of $150 thousand was established for this loan. As of December 31, 2002,
this specific reserve had been reduced by $52 thousand in charge-offs resulting
in a remaining specific reserve of $98 thousand.

The provision for credit losses was $843 thousand in 2002 compared to a
provision for credit losses of $979 thousand in 2001. The higher provision in
2001 was as a result of the economic uncertainties surrounding the events of
September 11, 2001 which affected some of the qualitative and quantitative
factors that are imbedded in the analysis of the adequacy of the allowance for
credit losses. The result of these factors was a provision that was $398
thousand higher in 2001 than the provision recorded in 2002. The 2002 provision
was affected by $188 thousand in net charge-offs and $965 thousand in loans that
were classified as impaired as of December 31, 2002. There were no loans
classified as impaired during 2000 and 2001. The unallocated portion of the
allowance to the total allowance remained consistent from December 31, 2001 to
2002 at 6% and 7% respectively.

As the portfolio and allowance review process matures, there will be
changes to different elements of the allowance and this may have an effect on
the overall level of the allowance maintained. To date the Bank has enjoyed a
very high quality portfolio with minimal net charge offs and very low
delinquency. The maintenance of a high quality portfolio will continue to be
management's prime objective as it relates to the lending process and to the
allowance for credit losses.

25

Management, aware of the strong loan growth experienced by the Company
and the problems which could develop in an unmonitored environment, is intent on
maintaining a strong credit review system and risk rating process. In January
2003, the Company established a credit department to perform interim analysis,
manage classified credits and develop a credit scoring system for small business
credits. Over time, this department will increase its review of credit analysis
and processes. The Company is also reviewing its risk rating systems and is
exploring the implementation of additional analytical procedures for risk
ratings. The entire loan portfolio analysis process is an ongoing and evolving
practice directed at maintaining a portfolio of quality credits and quickly
identifying any weaknesses before they become irremediable.

The following table sets forth activity in the allowance for credit
losses for the periods indicated.

(dollars in thousands)

At December 31, 2000, 1999 and 1998, the Company had not allocated any
portion of the allowance for credit losses to any individual loan or any
category of loans. In 2001, the Company began an allocation process which is
reflected in the following table. The allocation of the allowance to each
category is not necessarily indicative of future losses or charge-offs and does
not restrict the use of the allowance to absorb losses in any category.

26

(dollars in thousand)

(1) Represents the percent of loans in category to gross loans

NON-PERFORMING ASSETS

The Company's non-performing assets, which are comprised of loans
delinquent 90 days or more, non-accrual loans, and other real estate owned,
totaled $965 thousand at December 31, 2002 compared to $19 thousand at December
31, 2001. The percentage of non-performing assets to total assets was 0.28% at
December 31, 2002 compared to 0.01% at December 31, 2001.

Non-performing loans constituted all of the non-performing assets at
December 31, 2002 and December 31, 2001. Non-performing loans at December 31,
2002 consist of loans in non-accrual status in the amount of $147 thousand and
loans past due over ninety days of $818 thousand compared to no non-accrual
loans and loans past due over ninety days of $19 thousand at December 31, 2001.

The Company had no other real estate owned at either December 31, 2002
or 2001.

The following table shows the amounts of non-performing assets at the
dates indicated.

(dollars in thousands)

At December 31, 2002, there were no performing loans considered
potential problem loans, defined as loans which are not included in the past

27

due, nonaccrual or restructured categories, but for which known information
about possible credit problems causes management to be uncertain as to the
ability of the borrowers to comply with the present loan repayment terms.

DEPOSITS AND OTHER BORROWINGS

The principal sources of funds for the Bank are core deposits,
consisting of demand deposits, NOW accounts, money market accounts, savings
accounts and relationship certificates of deposits, from the local market areas
surrounding the Bank's offices. The Bank also considers as part of its core
deposits approximately $16 million of deposits from a local customer with a
longstanding relationship with the Bank. These deposits are required to be
classified as brokered deposits for regulatory purposes. The Bank's deposit base
includes transaction accounts, time and savings accounts and accounts which
customers use for cash management and which provide the Bank with a source of
fee income and cross-marketing opportunities as well as a low-cost source of
funds. Time and savings accounts, including money market deposit accounts, also
provide a relatively stable and low-cost source of funding.

One third of the Bank's deposits are made up of certificates of
deposits, which are generally the most expensive form of deposit because of
their fixed term. Certificates of deposit in denominations of $100 thousand or
more can be more volatile and more expensive than certificates of less than $100
thousand. However, because the Bank focuses on relationship banking and does not
accept brokered certificates, its historical experience has been that large
certificates of deposit have not been more volatile or significantly more
expensive than smaller denomination certificates. It has been the practice of
the Bank to pay posted rates on its certificates of deposit whether under or
over $100 thousand. The Bank has paid negotiated rates for deposits in excess of
$500 thousand but the rates paid have rarely been more than 25 to 50 basis
points higher than posted rates and deposits have been negotiated at below
market rates. In late 2000, to fund strong loan demand, the Bank began accepting
certificates of deposits, generally in denominations of less than $100 thousand
on a non brokered basis, from bank and credit union subscribers to a wholesale
deposit rate line. The Bank has found rates on these deposits to be generally
competitive with rates in our market given the speed and minimal noninterest
cost at which deposits can be acquired, although it is possible for rates to
significantly exceed local market rates. At December 31, 2002 the Bank held
$16.4 million of these deposits at an average rate of 3.99% as compared to $12.3
million of these deposits, at an average rate of 4.52% at December 31, 2001.
With the strong core deposit growth experienced by the Bank in 2002 these
deposits are being allowed to mature and may not be renewed. However, the Bank
has found this source of funds to be an effective funds management tool and may
accept more of these deposits in the future.

At December 31, 2002, the Company had approximately $64 million in
noninterest bearing demand deposits, representing an 80% increase from $37
million in demand deposits at December 31, 2001. The percentage of demand
deposits to total deposits from 2001 to 2002 rose by 4%, from 19% to 23%. These
are primarily business checking accounts on which the payment of interest is
prohibited by regulations of the Federal Reserve. Proposed legislation has been
introduced in each of the last several Congresses which would permit banks to
pay interest on checking and demand deposit accounts established by businesses.
If legislation effectively permitting the payment of interest on business demand
deposits is enacted, of which there can be no assurance, it is likely that we
may be required to pay interest on some portion of our noninterest bearing
deposits in order to compete with other banks. Payment of interest on these
deposits could have a significant negative impact on our net income, net
interest income, interest margin, return on assets and equity, and indices of
financial performance. For additional information relating to the composition of
the Bank's deposit base, see average balance tables above and Note 6 to the
Consolidated Financial Statements.

As an enhancement to the basic noninterest bearing demand deposit
account, the Company offers a sweep account, "customer repurchase agreement",
allowing qualifying businesses to earn interest on short term excess funds which
are not suited for either a CD investment or a money market account. The
balances in these accounts were $25 million at December 31, 2002, an 86%
increase over December 31, 2001 balance of $13.5 million. Customer repurchase
agreements are not deposits and are not FDIC insured but are secured by US
Treasury and/or US government agency securities. These accounts are particularly
suitable to businesses with significant change in the peaks and valleys of cash
flow over a very short time frame often measured in days. Attorney and title
company escrow accounts are an example of accounts which can benefit from this
product, as are customers who may require collateral for deposits in excess of

28

$100 thousand but do not qualify for other pledging arrangements. This program
requires the Company to maintain a sufficient investment securities level to
accommodate the fluctuations in balances which may occur in these accounts.

At December 31, 2002, the Company had drawn $4.6 million against a line
of credit provided by a correspondent bank as compared to $1.7 million at
December 31, 2001. These borrowings are principally to fund additions of capital
to the Bank in order to maintain its "well capitalized" ratio. At December 31,
2002, the Bank had $18.3 million of FHLB borrowings, as compared to $8 million
at December 31, 2001. These advances are secured 50% by US government agency
securities and 50% by a blanket lien on qualifying loans in the Bank's
commercial mortgage loan portfolio. For additional information regarding other
borrowings, see Note 7 of the Consolidated Financial Statements.

The following table provides information regarding the Bank's deposit
composition at the dated indicated.

(dollars in thousands)

The following table indicates the time remaining until maturity for the Bank's
certificates of deposit of $100,000 or more as of December 31, 2002.

Due in:

3 months or less $ 9,523
Over 3 through 6 months 31,629
Over 6 through 12 months 5,365
Over 12 months 472
--------
Total $ 46,989
========

The following table provides information regarding the Company's
short-term borrowings for the periods indicated. See Note 7 to the Consolidated
Financial Statements for additional information regarding the Company's
borrowings.

29

(dollars in thousands)

LIQUIDITY MANAGEMENT

Liquidity is the measure of the Bank's ability to meet the demands
required for the funding of loans and to meet depositor requirements for use of
their funds. The Bank's sources of liquidity consist of cash balances, due from
banks, loan repayments, federal funds sold and short term investments. These
sources of liquidity are supplemented by the ability of the Company and Bank to
borrow funds. During 2002, the Company increased an established line of credit,
with a correspondent bank, from $5 million to $10 million, against which it had
drawn $4.6 million as of December 31, 2002. The Bank can purchase up to $11.6
million in federal funds on an unsecured basis and enter into reverse repurchase
agreements up to $10 million. At year end 2002, the Bank was also eligible to
take FHLB advances of up to $52 million, of which it had advances outstanding of
$18.3 million.

The loss of deposits, through disintermediation, is one of the greater
risks to liquidity. Disintermediation occurs most commonly when rates rise and
depositors withdraw deposits seeking higher rates than the Bank may offer. The
Bank was founded under a philosophy of relationship banking and, therefore,
believes that it has less of an exposure to disintermediation and resultant
liquidity concerns than do banks which build an asset base on non-core deposits
and other borrowings. The history of the Bank, while only four and one-half
years, includes a period of rising interest rates and significant competition
for deposit dollars. During that period the Bank grew its core business without
sacrificing its interest margin in higher deposit rates for non-core deposits.
There is, however, a risk that some deposits would be lost if rates were to
spike up and the Bank elected not to meet the market. Under those conditions the
Bank believes that it is well positioned to use other liability management
instruments such as FHLB borrowing, reverse repurchase agreements and Bank lines
to offset a decline in deposits in the short run. Over the long term an
adjustment in assets and change in business emphasis could compensate for a loss
of deposits. Under these circumstances, further asset growth could be limited as
the Bank utilizes its liquidity sources to replace, rather than supplement, core
deposits.

Certificates of deposit acquired through the subscription service may
be more sensitive to rate changes and pose a greater risk of disintermediation
than deposits acquired in the local community. The Bank has limited the amount
of such deposits to less than 15% of total assets, an amount which it believes
it could replace with alternative liquidity sources, although there can be no
assurance of this.

The mature earning pattern of the Bank is also a liquidity management
resource for the Bank. The earnings of the Bank are now at a level that allows
the Bank to pay higher rates to retain deposits over a short period, while it
adjusts it asset base repricing to offset a higher cost of funds. The cost of
retaining business in the short run and the associated reduction in earnings can
be preferable to reducing deposit and asset levels and restricting growth.

At year end 2002, under the Bank's liquidity formula, it had $61
million of liquidity representing 17.5% of total Bank assets.

30

INTEREST RATE RISK MANAGEMENT

ASSET/LIABILITY MANAGEMENT AND QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK

A fundamental risk in banking, outside of credit risk, is exposure to
market risk, or interest rate risk, since a bank's net income is largely
dependent on net interest income. The Bank's Asset Liability Committee (ALCO) of
the Board of Directors formulates and monitors the management of interest rate
risk within policies established by it and the Board of Directors. In its
consideration of establishing guidelines for levels and/or limits on market
risk, the ALCO committee considers the impact on earnings and capital, the level
and direction of interest rates, liquidity, local economic conditions, outside
threats and other factors. Banking is generally a business of attempting to
match asset and liability components to produce a spread sufficient to provide
net income to the bank at nominal rate risk. The Company, through ALCO,
continually monitors the interest rate environment in which it operates and
adjusts rates and maturities of its assets and liabilities to meet the market
conditions. In the current low interest rate environment, the Company is keeping
its assets either variably priced or with short term maturities or short average
lives. At the same time it strives to attract longer term liabilities to lock in
the lower cost of funds. In the current market, due to competitive factors and
customer preferences, the effort to attract longer term fixed priced liabilities
has not been as successful as the Company's best case asset liability mix would
prefer. When interest rates begin to rise, the Company expects that it will seek
to keep asset maturities and repricing periods short until rates appear to be
nearing their top and then extend maturities to extend the benefit of higher
rates. There can be no assurance that the Company will be able to successfully
carry out this intention, as a result of competitive pressures, customer
preferences and the inability to perfectly forecast future interest rates.

One of the tools used by the Company to manage its interest rate risk
is a static GAP analysis presented below. The Company also uses an earning
simulation model on a quarterly basis to closely monitor interest sensitivity
and to expose its balance sheet and income statement to different scenarios. The
model is based on current Company data and adjusted by assumptions as to growth
patterns, noninterest income and noninterest expense and interest rate
sensitivity, based on historical data, for both assets and liabilities. The
model is then subjected to a "shock test" assuming a sudden interest rate
increase of 200 basis points or a decrease of 200 basis points, but not below
zero. The results are measured by the effect on net income. The Company, in its
latest model, shows a positive effect on income when interest rates immediately
rise 200 basis points because of the short maturities of assets and a negative
impact if rates were to decline further. With rates already at historic lows, a
further reduction would reduce income on earning assets which could not be
offset by a corresponding reduction in the cost of funds.

The following table reflects the result of a "shock test" simulation on
the December 31, 2002, earning assets and interest bearing liabilities and the
change in net interest income resulting from the simulated immediate increase
and decrease in interest of 100 and 200 basis points. Also shown is the change
in the Market Value Portfolio Equity resulting from the simulation. The model as
presented is projected for one year.

Certain shortcomings are inherent in the method of analysis presented
in the foregoing table. For example, although certain assets and liabilities may
have similar maturities or repricing periods, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as adjustable-rate mortgage
loans, have features that restrict changes in interest rates on a short-term

31

basis and over the life of the loan. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels could deviate
significantly from those assumed in calculating the tables. Finally, the ability
of many borrowers to service their debt may decrease in the event of a
significant interest rate increase.

GAP

Banks and other financial institutions are dependent upon net interest
income, the difference between interest earned on interest earning assets and
interest paid on interest bearing liabilities. In falling interest rate
environments, net interest income is maximized with longer term, higher yielding
assets being funded by lower yielding short-term funds; however, when interest
rates trend upward this asset/liability structure can result in a significant
adverse impact on interest income. The current interest rate environment is
signaling steady to possibly higher rates. Management has for a number of months
shortened maturities in the Bank's investment portfolio and where possible also
has shorten repricing opportunities for new loan requests. While management
believes that this will help minimize interest rate risk in a rising
environment, there can be no assurance as to actual results.

GAP, a measure of the difference in volume between interest earning
assets and interest bearing liabilities, is a means of monitoring the
sensitivity of a financial institution to changes in interest rates. The chart
below provides an indicator of the rate sensitivity of the Company. A negative
GAP indicates the degree to which the volume of repriceable liabilities exceeds
repriceable assets in particular time periods. At December 31, 2002, the Bank
has a positive GAP of 16.15% out to three months and a cumulative negative GAP
of 8.29% out to twelve months.

If interest rates were to continue to decline further, the Bank's
interest income and margin may be adversely effected. Because of the positive
GAP measure in the 0 - 3 month period, continued decline in the prime lending
rate will reduce income on repriceable assets within thirty to sixty days, while
the repricing of liabilities will occur in later time periods. This will cause a
short term decline in net interest income and net income in a static
environment. Management has carefully considered its strategy to maximize
interest income by reviewing interest rate levels, economic indicators and call
features of some of its assets. These factors have been thoroughly discussed
with the Board of Directors Asset Liability Committee and management believes
that current strategies are appropriate to current economic and interest rate
trends. The negative GAP is carefully monitored and will be adjusted as
conditions change.

32

GAP ANALYSIS

(dollars in thousands)

Although, NOW and MMA accounts are subject to immediate repricing, the
Bank's GAP model has incorporated a repricing schedule to account for the
historical lag in effecting rate changes and the amount of those rate changes
relative to the amount of rate change in assets.

CAPITAL RESOURCES AND ADEQUACY

The assessment of capital adequacy depends on a number of factors such
as asset quality, liquidity, earnings performance, changing competitive
conditions and economic forces, and the overall level of growth. The adequacy of
the Company's current and future capital needs is monitored by management on an
ongoing basis. Management seeks to maintain a capital structure that will assure
an adequate level of capital to support anticipated asset growth and to absorb
potential losses.

The capital position of the Company's wholly-owned subsidiary, the
Bank, continues to meet regulatory requirements. The primary indicators relied
on by bank regulators in measuring the capital position are the Tier 1
risk-based capital, total risk-based capital, and leverage ratios. Tier 1
capital consists of common and qualifying preferred stockholders' equity less
goodwill. Total risk-based capital consists of Tier 1 capital, qualifying
subordinated debt, and a portion of the allowance for credit losses. Risk-based
capital ratios are calculated with reference to risk-weighted assets. The
leverage ratio compares Tier1 capital to total average assets. At December 31,
2002, the Company's and Bank's capital ratios were in excess of the mandated
minimum requirements. The Company's and Bank's capital ratios are presented in
Note 14 to the consolidated Financial Statements.

During 2002, the Company continued to borrow funds under a line of
credit with a correspondent bank in order to provide capital to fund anticipated
growth and expansion at the Bank in excess of the growth permitted by

33

reinvestment of earnings. At December 31, 2002, the amount outstanding under the
line of credit was $4.6 million. The ability of the Company to continue to grow
is dependent on its earnings and the ability to obtain additional funds for
contribution to the Bank's capital, through additional borrowing, the sale of
additional common stock, the sale of preferred stock, or through the issuance of
additional qualifying equity equivalents, such as subordinated debt or trust
preferred securities. The Company is currently proposing to raise additional
equity through the sale of additional shares of common stock. To the extent that
the Company is unsuccessful in raising additional equity, it will be required to
seek alternative sources, such as increased reliance on, or expansion of, its
line of credit or the issuance of trust preferred securities. Increased
borrowings or trust preferred securities will have an immediate interest cost,
which will have an adverse impact on earnings, although they may require a lower
internal rate of return on equity than common stock. To the extent that they are
floating or variable rate, the future cost of additional borrowings or trust
preferred securities may increase over time, while the cost of equity will
remain fixed.

In the event that the Company is unable to obtain additional capital
for the Bank on a timely basis, the growth of the Company and the Bank may be
curtailed, and the Company and the Bank may be required to reduce their level of
assets in order to maintain compliance with regulatory capital requirements.
Under those circumstances net income and the rate of growth of net income may be
adversely affected.

IMPACT OF INFLATION AND CHANGING PRICES

The Consolidated Financial Statements and Notes thereto have been
prepared in accordance with accounting principles generally accepted in the
United States of America, which require the measurement of financial position
and operating results in terms of historical dollars without considering the
changes in the relative purchasing power of money over time due to inflation.
The impact of inflation is reflected in the increased cost of operations. Unlike
most industrial companies, nearly all of our assets and liabilities are monetary
in nature. As a result, interest rates have a greater impact on our performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the price of
goods or services.

NEW ACCOUNTING STANDARDS

Refer to Note 1 of the Notes to Consolidated Financial Statements for
statements on New Accounting Standards.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Please refer to Item 7 of this report, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", under the caption
"Interest Rate Risk Management - Asset/Liability Management and Quantitative and
Qualitative Disclosure About Market Risk."

34

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEPENDENT AUDITORS' REPORT

Audit Committee of the
Board of Directors and
Stockholders of Eagle Bancorp, Inc.

We have audited the accompanying consolidated balance sheet of Eagle Bancorp,
Inc as of December 31, 2002 and 2001, and the related consolidated statements of
operation, changes in stock holders' equity, and cash flows for each of the
three years in the period ended December 31, 2002. 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 have conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
states are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Eagle Bancorp Inc.
as of December 31, 2002 and 2001, and the consolidated results of the operations
and cash flows for each of the three years in the period ending December 31,
202, in conformity with accounting principals generally accepted in the Unite
States of America.

/s/ Stegman & Company
---------------------

Stegman & Company
Baltimore, Maryland
February 7, 2003

35

EAGLE BANCORP, INC.
Consolidated Balance Sheets December 31, 2002 and 2001
(dollars in thousands)

See notes to consolidated financial statements.
- --------------------------------------------------------------------------------

36

EAGLE BANCORP, INC.
Consolidated Statements of Operations for the years ended December 31, 2002,
2001 and 2000
(dollars in thousands, except per share data)

See notes to consolidated financial statements.

37

EAGLE BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 2002, 2001 and 2000
(dollars in thousands)

See notes to consolidated financial statements.

38

EAGLE BANCORP, INC.
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002,
2001 and 2000
(dollars in thousands)

See notes to consolidated financial statements.

39

EAGLE BANCORP, INC.
Notes to Consolidated Financial Statements for the Years Ended December 31,
2002, 2001 and 2000

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements include the accounts of Eagle Bancorp,
Inc. (the "Company") and its subsidiary, EagleBank (the "Bank") with all
significant intercompany transactions eliminated. The investment in subsidiary
is recorded on the Company's books (Parent Only) on the basis of its equity in
the net assets of the subsidiary. The accounting and reporting policies of the
Company conform to accounting principles generally accepted in the United States
of America and to general practices in the banking industry. Certain
reclassifications have been made to amounts previously reported to conform to
the classification made in 2002. The following is a summary of the more
significant accounting policies.

NATURE OF OPERATIONS

The Company, through its bank subsidiary, provides domestic financial
services primarily in Montgomery County, Maryland and Washington, D.C.
The primary financial services include real estate, commercial and
consumer lending, as well as traditional demand deposits and savings
products.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.

CASH FLOWS

For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks and federal funds sold (items with an original
maturity of three months of less).

LOANS HELD FOR SALE

The Company engages in sales of residential mortgage loans and the
guaranteed portion of Small Business Administration ("SBA") loans
originated by the Bank. Loans held for sale are carried at the lower of
aggregate cost or fair value. Fair value is derived from secondary
market quotations for similar instruments. Gains and losses on sales of
these loans are recorded as a component of noninterest income in the
Consolidated Statements of Operations.

When the Company retains the servicing rights to collect and remit
principal and interest payments, manage escrow account matters and
handle borrower relationships on mortgage loans sold, resulting service
fee income is included in noninterest income. The Company's current
practice is to sell residential mortgage loans on a servicing released
basis, and, therefore, it has no intangible asset recorded for the
value of such servicing as of December 31, 2002.

INVESTMENT SECURITIES

The Company and Bank have elected to account for all investment
securities as available for sale. Those securities are carried at
estimated fair value. Unrealized gains and losses on investment
securities available for sale, net of related deferred income taxes,
are recognized as accumulated other comprehensive income, a separate
component of stockholders' equity. The cost of investment securities
sold is determined using the specific identification method.

40

LOANS

Loans are stated at the principal amount outstanding, net of
origination costs and fees. Interest income on loans is accrued at the
contractual rate on the principal amount outstanding. It is the
Company's policy to discontinue the accrual of interest when
circumstances indicate that collection is doubtful. Fees charged and
costs capitalized for originating loans are being amortized on the
interest method over the term of the loan.

Management considers loans impaired when, based on current information,
it is probable that the Company will not collect all principal and
interest payments according to contractual terms. Loans are tested for
impairment once principal or interest payments become ninety days or
more past due and they are placed on nonaccrual. Management also
considers the financial condition of the borrower, cash flows of the
loan and the value of the related collateral. Impaired loans do not
include large groups of smaller balance homogeneous loans such as
residential real estate and consumer installment loans which are
evaluated collectively for impairment. Loans specifically reviewed for
impairment are not considered impaired during periods of "minimal
delay" in payment (ninety days or less) provided eventual collection of
all amounts due is expected. The impairment of a loan is measured based
on the present value of expected future cash flows discounted at the
loan's effective interest rate, or the fair value of the collateral if
repayment is expected to be provided by the collateral. Generally, the
Company's impairment on such loans is measured by reference to the fair
value of the collateral. Interest income on impaired loans is
recognized on the cash basis.

ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses represents an amount which, in
management's judgment, will be adequate to absorb probable losses on
existing loans and other extensions of credit that may become
uncollectible. The adequacy of the allowance for credit losses is
determined through careful and continuous review and evaluation of the
loan portfolio and involves the balancing of a number of factors to
establish a prudent level. Among the factors considered are lending
risks associated with growth and entry into new markets, loss
allocations for specific nonperforming credits, the level of the
allowance to nonperforming loans, historical loss experience, economic
conditions, portfolio trends and credit concentrations, changes in the
size and character of the loan portfolio, and management's judgment
with respect to current and expected economic conditions and their
impact on the existing loan portfolio. Allowances for impaired loans
are generally determined based on collateral values. Loans deemed
uncollectible are charged against, while recoveries are credited to,
the allowance. Management adjusts the level of the allowance through
the provision for credit losses, which is recorded as a current period
operating expense. The allowance for credit losses may consist of an
allocated component and an unallocated component.

The components of the allowance for credit losses represent an
estimation done pursuant to either Statement of Financial Accounting
Standards ("SFAS") No. 5, "Accounting for Contingencies," or SFAS No.
114, "Accounting by Creditors for Impairment of a Loan." Specific
allowances are established in cases where management has identified
significant conditions or circumstances related to a credit that
management believes indicate the probability that a loss may be
incurred in an amount different from the amount determined by
application of the formula allowance. For other problem graded credits,
allowances are established according to the application of credit risk
factors. These factors are set by management to reflect its assessment
of the relative level of risk inherent in each grade. The nonspecific
allowance is based upon management's evaluation of various conditions
that are not directly measured in the determination of the formula and
specific allowances. Such conditions include general economic and
business conditions affecting key lending areas, credit quality trends
(including trends in delinquencies and nonperforming loans expected to
result from existing conditions), loan volumes and concentrations,
specific industry conditions within portfolio categories, recent loss
experience in particular loan categories, duration of the current
business cycle, bank regulatory examination results, findings of
outside review consultants, and management's judgment with respect to
various other conditions including credit administration and management
and the quality of risk identification systems. Executive management
reviews these conditions quarterly.

Management believes that the allowance for credit losses is adequate,
however, determination of the allowance is inherently subjective and
requires significant estimates. While management uses available

41

information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions.
Evaluation of the potential effects of these factors on estimated
losses involves a high degree of uncertainty, including the strength
and timing of economic cycles and concerns over the effects of a
prolonged economic downturn in the current cycle. In addition, various
regulatory agencies, as an integral part of their examination process,
and independent consultants engaged by the Bank periodically review the
Bank's loan portfolio and allowance for credit losses. Such review may
result in recognition of additions to the allowance based on their
judgments of information available to them at the time of their
examination.

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated depreciation
and amortization computed using the straight-line method. Premises and
equipment are depreciated over the useful lives of the assets, which
generally range from three to ten years for furniture, fixtures and
equipment, three to five years for computer software and hardware, and
ten to forty years for buildings and building improvements. Leasehold
improvements are amortized over the terms of the respective leases or
the estimated useful lives of the improvements, whichever are shorter.
The costs of major renewals and betterments are capitalized, while the
costs of ordinary maintenance and repairs are expensed as incurred.

ADVERTISING

Advertising costs are generally expensed as incurred.

INCOME TAXES

The Company uses the liability method of accounting for income taxes.
Under the liability method, deferred-tax assets and liabilities are
determined based on differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities
(i.e., temporary differences) and are measured at the enacted rates
that will be in effect when these differences are settled. During 2001,
management determined that the realization of previously unrecorded net
deferred tax assets were more likely than not and therefore recorded
previously unrecognized net deferred tax assets. Subsequent to the
recognition of the net deferred tax assets the Company recorded current
income tax expense. The Company did not record any tax expense or
benefit for years prior to 2001.

NET INCOME PER COMMON SHARE

Basic net income per common share is computed by dividing net income
available to common stockholders by the weighted average number of
common shares outstanding during the year. Diluted net income per
common share is computed by dividing net income available to common
stockholders by the weighted average number of common shares
outstanding during the year including any potential dilutive effects of
common stock equivalents, such as options and warrants.

NEW ACCOUNTING STANDARDS

In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," which supercedes both SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of" and the accounting
and reporting provisions of APB Opinion No. 30, "Reporting the Results
of Operations-Reporting the Effects of Disposal of a segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions" (Opinion 30), for the disposal of a segment of a
business (a previously defined in that Opinion). SFAS No. 144 retains
the fundamental provisions in SFAS No. 121 for recognizing and
measuring impairment losses in long-lived assets held for use and
long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with SFAS No. 121. The
provisions of SFAS No. 144 are effective for years beginning after
December 15, 2001. The adoption of SFAS No. 144 did not affect the
financial position or results of operations of the Company.

42

In December 2002, the Financial accounting Standards Board issued SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" which amends SFAS No. 123, "Accounting for Stock Based
Compensation". SFAS No. 148 provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require additional and more
frequent disclosures in financial statements about the effects of
stock-based compensation. Adoption of SFAS No. 148 had no effect on the
financial position or results of operations of the Company.

2. CASH AND DUE FROM BANKS

Regulation D of the Federal Reserve Act requires that banks maintain reserve
balances with the Federal Reserve Bank based principally on the type and amount
of their deposits. During 2002, the Bank maintained balances at the Federal
Reserve (in addition to vault cash) to meet the reserve requirements as well as
balances to partially compensate for services. Additionally, the Bank

3. INVESTMENTS AVAILABLE FOR SALE

The amortized cost and estimated fair values of investments available for sale
at December 31, 2002 and 2001 are as follows:

The amortized cost and estimated fair values of investments available for sale
at December 31, 2002 and 2001 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.

43

Realized gains on sales of investment securities were $343 thousand and realized
losses on sales of investment securities were $6 thousand in 2002, the realized
gains on sales of investment securities were $375 thousand and realized losses
on sales of investment securities were $17 thousand in 2001 and the realized
losses on sales of investment securities were $71 thousand in 2000. Proceeds
from sales of securities in 2002 were $20.6 million, in 2001 were $9.41 million
and in 2000 were $9.9 million.

At December 31, 2002, $37.9 million fair value of securities were pledged as
collateral for certain government deposits, FHLB advances and the Bank's
customer repurchase agreement program. The outstanding balance of no single
issuer, except for U. S. Government and U. S. Government agency securities,
exceeded ten percent of stockholders' equity at December 31, 2002 or 2001.

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The Bank makes loans to customers primarily in Montgomery County, Maryland and
surrounding communities. A substantial portion of the Bank's loan portfolio
consists of loans to businesses secured by real estate and other business
assets.

Loans, net of unamortized deferred fees, at December 31, 2002 and 2001 are
summarized by type as follows:

(dollars in thousands)

2002 2001
---- ----
Commercial $ 64,869 $ 49,432
Real estate - commercial 114,961 86,553
Construction 23,180 15,512
Home equity 30,631 26,656
Other consumer 3,219 4,103
--------- ---------
Total loans 236,860 182,256
Less: allowance for credit losses (2,766) (2,111)
--------- ---------
Loans, net $ 234,094 $ 180,145
========= =========

Activity in the allowance for credit losses for the years ended December 31,
2002, 2001 and 2000 is shown below:

2002 2001 2000
------- ------- -------
Balance at beginning of year $ 2,111 $ 1,142 $ 579
Provision for credit losses 843 979 581
Loan charge-offs (232) (23) (18)
Loan recoveries 44 13 --
------- ------- -------
Balance at end of year $ 2,766 $ 2,111 $ 1,142
======= ======= =======

44

Information regarding impaired loans at December 31, 2002 and 2001 is as
follows:

5. PREMISES AND EQUIPMENT

Premises and equipment include the following at December 31:

(dollars in thousands)

2002 2001
---- ----
Leasehold improvements $ 2,041 $ 1,826
Furniture and equipment 3,227 2,456
Premises and equipment 5,268 4,282
Less accumulated depreciation
and amortization (1,667) (1,110)
------- -------
Total premises and equipment, net $ 3,601 $ 3,172
======= =======

The Company occupies banking and office space in seven locations under
noncancellable lease arrangements accounted for as operating leases. The initial
lease periods range from 5 to 10 years and provide for one or more 5-year
renewal options. The leases provide for percentage annual rent escalations and
require that the lessee pay certain operating expenses applicable to the leased
space. Rent expense applicable to operating leases amounted to $769 thousand in
2002, $546 thousand in 2001, and $357 thousand in 2000. At December 31, 2002,
future minimum lease payments under noncancellable operating leases having an
initial term in excess of one year are as follows:

Years ending December 31:
2003 $ 793
2004 795
2005 783
2006 809
2007 830
Thereafter 1,876
------
Total minimum lease payments $5,886
======

6. DEPOSITS

(dollars in thousands)

The remaining maturity of certificates of deposit $100,000 or more at December
31, 2002 and 2001 are as follows:

45

2002 2001
--------------------
Three months or less $ 9,523 $ 9,074
More than three months
through six months 31,629 9,058
More than six months
through twelve months 5,365 15,698
Over twelve months 472 1,563
------- -------
Total $46,989 $35,393
======= =======

Interest expense on deposits for the years ended December 31, 2002, 2001 and
2000 is as follows:

2002 2001 2000
------ ------ ------
Interest bearing transaction $ 95 $ 232 $ 295
Savings and money market 1,599 1,843 1,772
Time, $100,000 or more 1,337 2,006 1,325
Other time 1,301 1,405 640
------ ------ ------
Total $4,332 $5,486 $4,032
====== ====== ======

As of December 31, 2001, the Bank held $16 million in deposits, from one
relationship, which, for regulatory reporting purposes, are considered brokered
deposits.

7. BORROWINGS

Information relating to short and long term borrowings is as follows for the
years ended December 31:

46

The Company offers its business customers a repurchase agreement sweep account
in which it sells to the customer U. S. Government and U. S. Government agency
securities segregated in its investment portfolio for this purpose. By entering
into the agreement the customer agrees to have the Bank repurchase the
designated securities on the business day following the initial transaction in
consideration of the payment of interest at the rate prevailing on the day of
the transaction.

The Bank has commitments from correspondent banks under which it can purchase up
to $11.6 million in federal funds and $10 million in secured reverse repurchase
agreements on a short-term basis. The Bank also can draw Federal Home Loan Bank
advances up to $52 million against which it had $18.3 million outstanding at
December 31, 2002. The Company has a line of credit approved for $10 million
secured by stock in the Bank against which it had borrowings outstanding of $4.6
million at December 31, 2002.

8. INCOME TAXES

Federal and state income tax expense (benefit) consist of the following:

Periods Ended December 31
2002 2001 2000
---------------------------------
Current federal income tax $ 1,434 $ 601 $ --
Current state income tax 318 59
Total current 1,752 660 --
--------------------------------
Deferred federal income
tax expense (benefit) (159) (313) --
Deferred state income
tax expense (benefit) (35) (78) --
--------------------------------
Total deferred (194) (391) --
--------------------------------
Total income tax expense (benefit) $ 1,558 $ 269 $ --
================================

The following table is a summary of the tax effect of temporary differences that
give rise to significant portions of deferred tax assets:

Periods Ended December 31
2002 2001 2000
--------------------------------
Deferred tax assets:
Allowance for credit losses $ 731 $ 531 $ 258
Deferred loan fees and costs -- -- 44
Other 29 57 30
Net operating loss carryforwards -- -- 166
Gross deferred tax assets 760 588 498
Less valuation allowance (--) (--) (279)
--------------------------------
Total deferred tax assets 760 588 219
--------------------------------

Deferred tax liabilities:
Unrealized gain on securities
available for sale (218) (97) (128)
Premises and equipment (78) (88) (91)
Deferred loan fees and costs -- (12) --
--------------------------------
Total deferred tax liabilities (296) (197) (219)
Net deferred income taxes $ 464 $ 391 $ 0
================================

During 2001, management determined that the realization of previously unrecorded
deferred tax assets was more likely than not. Accordingly the valuation
allowance was removed in 2001.

47

A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate follows:

Periods Ended December 31
2002 2001 2000
----------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal
income tax benefit 3.8 -- --
Non-taxable income (0.7) -- --
Valuation allowance -- (20.9) (34.0)
Other (0.2) 0.2 --
----------------------------
Effective tax rates 36.9% 13.3% 0.0%
============================

9. INCOME PER COMMON SHARE

In the following table, basic earnings per share is derived by dividing net
income available to common stockholders by the weighted-average number of common
shares outstanding during the year. The diluted earnings per share is calculated
by dividing net income by the weighted-average number of shares outstanding,
adjusted for the dilutive effect of outstanding stock options. Historical
amounts have been restated as a result of the seven-for-five stock split in the
form of a 40% stock dividend declared in 2001.

The calculation of net income per common share for the years ended December 31
was as follows:

As of December 31, 2002, there were 1,150 shares, and as of December 31, 2001
and 2000 there were -0-shares excluded from the diluted net income per share
computation because the option price exceeded the market price and therefore,
their effect would be anti-dilutive.

10. RELATED PARTY TRANSACTIONS

Certain directors and executive officers have had loan transactions with the
Company. Such loans were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with outsiders. The following
table summarizes changes in amounts of loans outstanding, both direct and
indirect, to those persons during 2001 and 2000.

48

2002 2001
---------------------
Balance at January 1 $ 2,256 $ 2,001
Additions 1,476 531
Repayments (776) (276)
---------------------
Balance at December 31 $ 2,956 $ 2,256
=====================

11. STOCK OPTION PLAN

The stockholders, at their May 14, 1998 meeting, approved the Eagle Bancorp,
Inc. 1998 Stock Option Plan (the "Plan") which was amended at the May 21, 2002
meeting. The plan provides for the periodic granting of incentive and
nonqualifying options to selected key employees and members of the Board on a
periodic basis. Options for not more than 579,025 shares of common stock may be
granted under the Plan and the term of such options shall not exceed ten years.

Following is a summary of changes in shares under option for the years
indicated:

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants during the years ended December 31, 2002, 2001 and 2000.

2002 2001 2000
---- ---- ----
Dividend yield 0.00% 0.00% 0.00%
Expected volatility 20.00% 10.00% 10.00%
Risk free interest 5.04% 4.84 - 5.68% 5.28%-6.46%
Expected lives (in years) 10 10 10

49

The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and SFAS 148 "Accounting for
Stock-Based Compensation-Transition and Disclosure", but applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its Plan. No compensation expense related to the Plan was recorded during the
three years ended December 31, 2002. If the Company had elected to recognize
compensation cost based on fair value at the grant dates for awards under the
Plan consistent with the method prescribed by SFAS No. 123, net income and
earnings per share would have been changed to the pro forma amounts as follows
for the years ended December 31.

The pro forma amounts are not representative of the effects on reported net
income for future years.

12. EMPLOYEE BENEFIT PLANS

The Company has a 401(k) Plan covering all employees who have reached the age of
21 and have completed at least one month of service as defined by the Plan. The
Company made contributions to the Plan of approximately $87 thousand, $62
thousand and $46 thousand in 2002, 2001 and 2000, respectively. These amounts
are included in salaries and employee benefits in the accompanying Consolidated
Statements of Operations.

13. COMMITMENTS AND CONTINGENCIES

Various commitments to extend credit are made in the normal course of banking
business. Letters of credit are also issued for the benefit of customers. These
commitments are subject to loan underwriting standards and geographic boundaries
consistent with the Company's loans outstanding.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.

Outstanding loan commitments and lines and letters of credit at December 31,
2002 and 2001 are as follows:

2002 2001
-------------------------
Loan commitments $ 49,140 $ 32,295
Unused lines of credit 72,349 47,885
Letters of credit 2,233 1,757

Because most of the Company's business activity is with customers located in the
Washington, DC, metropolitan area, a geographic concentration of credit risk
exists within the loan portfolio, and, as such, its performance will be
influenced by the economy of the region.

At December 31, 2002 the Company also had commitments to vendors for leasehold
improvement and equipment acquisitions associated with the Bank's new Shady

50

Grove office and completion of a new operations center. The amount of these
commitments at December 31, 2002 was $553 thousand.

In the normal course of business, the Company may become involved in litigation
arising from banking, financial, and other activities. At December 31, 2002, the
Company was not involved in any litigation.

14. REGULATORY MATTERS

The Company and Bank are subject to various regulatory capital requirements
administered by the 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 Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and Bank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weighting, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank and Company to maintain amounts and ratios (set forth in the
table below) of total Tier 1 capital (as defined in the regulations) to
risk-weighted assets(as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2002 and 2001, that
the Company and Bank met all capital adequacy requirements to which they are
subject.

The actual capital amounts and ratios for the Company and Bank as of December
31, 2002 and 2001 are presented in the table below:

(In Thousands of Dollars)

* Applies to Bank only

Bank and holding company regulations, as well as Maryland law, impose certain
restrictions on dividend payments by the Bank, as well as restricting extensions
of credit and transfers of assets between the Bank and the Company. At December
31, 2002, the Bank was limited from paying dividends to its parent company by
the positive amount of retained earnings it held and the requirement to meet
certain capital ratios. In October 2002, and December 2001 the Bank paid
dividends of $200 thousand and $150 thousand, respectively, to the Company.

51

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
the disclosure of estimated fair values for financial instruments. Quoted market
prices, if available, are utilized as an estimate of the fair value of financial
instruments. Because no quoted market prices exist for a portion of the
Company's financial instruments, the fair value of such instruments has been
derived based on management's assumptions with respect to future economic
conditions, the amount and timing of future cash flows and estimated discount
rates. Different assumptions could significantly affect these estimates.
Accordingly, the net realizable value could be materially different from the
estimates presented below. In addition, the estimates are only indicative of
individual financial istruments' values and should not be considered an
indication of the fair value of the Company taken as a whole.

Cash and federal funds sold: For cash and due from banks, and federal funds sold
the carrying amount approximates fair value.

Investment securities: For these instruments, fair values are based on published
market or dealer quotes.

Loans net of unearned interest: For variable rate loans that reprice on a
scheduled basis, fair values are based on carrying values.

The fair value of the remaining loans are estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining term.

Noninterest bearing deposits: The fair value of these deposits is the amount
payable on demand at the reporting date.

Interest bearing deposits: The fair value of interest bearing transaction,
savings, and money market deposits with no defined maturity is the amount
payable on demand at the reporting date. The fair value of certificates of
deposit is estimated by discounting the future cash flows using the current
rates at which similar deposits would be accepted.

Customer repurchase agreements and other borrowings: The carrying amount for
variable rate borrowings approximate the fair values at the reporting date. All
of the Company's borrowings are on a variable rate basis.

Off-balance sheet items: Management has reviewed the unfunded portion of
commitments to extend credit, as well as standby and other letters of credit,
and has determined that the fair value of such instruments is not material.

The estimated fair values of the Company's financial instruments at December 31,
2002 and 2001 are as follows:

* Includes loans held for sale

52

16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table reports the unaudited results of operations for each quarter
during 2002, 2001 and 2000:

17. PARENT COMPANY FINANCIAL INFORMATION

Condensed financial information for Eagle Bancorp, Inc. (Parent Company only)
is as follows:

CONDENSED BALANCE SHEETS
December 31, 2002, and 2001

54

CONDENSED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2002, 2001, and 2000

55

CONDENSED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2002, 2001 and 2000

56

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this Item is incorporated by reference to,
the material appearing under the captions "Election of Directors", "Executive
Officers who are Not Directors" and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" in the Company's definitive proxy statement for
the Annual Meeting of Shareholders to be held on May 20, 2003.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this Item is incorporated by reference to
the material appearing under the captions "Election of Directors - Director's
Compensation" ; "- Executive Compensation" and "- Report of the Compensation
Committee" and "Stock Performance Comparison" in the Company's definitive proxy
statement for the Annual Meeting of Shareholders to be held on May 20, 2003.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

Securities Authorized for Issuance Under Equity Compensation Plans. The
following table sets forth information regarding outstanding options and other
rights to purchase common stock granted under the Company's compensation plans
as of December 31, 2002:

(1) Consists of the Company's Stock Option Plan described further in Note 11 to
the consolidated financial statements, and under the caption in the proxy
materials for the Company's Annual Meeting of Shareholders to be held on
May 20, 2003, which is incorporated by reference herein. An employment
agreement of the Company, which has not individually been approved by
shareholders, and which is described in the proxy statement under the
caption "Executive Compensation - Employment Agreements" call for the
issuance of options to purchase common stock under the Company's Stock
Option Plan, which has been approved by shareholders.

The other information required by this Item is incorporated by
reference to the material appearing under the caption "Voting Securities and
Principal Shareholders" in the Company's definitive proxy statement for the
Annual Meeting of Shareholders to be held on May 20, 2003 .

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item is incorporated by reference to,
the material appearing under the caption "- Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the Annual Meeting
of Shareholders to be held on May 20, 2003.

57

ITEM 14. CONTROLS AND PROCEDURES.

Within the ninety days prior to the filing of this report, the
Company's management, under the supervision and with the participation of the
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of the Company's disclosure controls and procedures,
as defined in Rule 13a-14 under the Securities Exchange Act of 1934. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were adequate.
There were no significant changes (including corrective actions with regard to
significant deficiencies or material weaknesses) in the Company's internal
controls or in other factors subsequent to the date of the evaluation that would
significantly affect those controls.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1) Financial Statements

Consolidated Balance Sheets at December 31, 2002 and 2001
Consolidated Statements of Income for the years ended December
31, 2002, 2001 and 2000 Consolidated Statements of Cash Flows
for the years ended December 31, 2002, 2001 and 2000
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 2002, 2001 and 2000 Notes to the
Consolidated Financial Statements Report of Independent
Auditors

(2) Financial Statement Schedules

All financial statement schedules have been omitted as the required
information is either inapplicable or included in the consolidated
financial statements or related notes.

(3) Exhibits

- -----------------------------
(1) Incorporated by reference to the exhibit of the same number to the
Company's Quarterly Report on Form 10-QSB for the period ended
September 30, 2002.

(2) Incorporated by reference to Exhibit 3(b) to the Company's Registration
Statement on Form SB-2, dated December 12, 1997.

(3) Incorporated by reference to Exhibit 10.1 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998.

(4) Incorporated by reference to the exhibit of the same number in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2000.

58

(B) REPORTS ON FORM 8-K

No reports on Form 8-K were filed in the fourth quarter of 2002.

59

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

EAGLE BANCORP, INC.

March 27, 2003 By: /s/ Ronald D. Paul
----------------------------------------
Ronald D. Paul, President

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

60

CERTIFICATION

I, Ronald D. Paul , certify that:

1. I have reviewed this annual report on Form 10-K of Eagle Bancorp, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 27, 2003 /s/ Ronald D. Paul
------------------------------------
President and Chief Executive Officer

CERTIFICATION

I, Wilmer L. Tinley, certify that:

1. I have reviewed this annual report on Form 10-K of Eagle Bancorp, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 27, 2003 /s/ Wilmer L. Tinley
-----------------------
Chief Financial Officer