Eagle Bancorp (EGBN) 8-K/A Financial Statements and Exhibits

Exhibit 99.1

FIDELITY & TRUST FINANCIAL CORPORATION

Consolidated Financial Statements as of and for the Years Ended December 31, 2007 and 2006

TABLE OF CONTENTS

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	1
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006:
Balance Sheets	2
Statements of Operations	3
Statements of Comprehensive Income (Loss)	4
Statements of Changes in Shareholders’ Equity	5
Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7–29

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Fidelity & Trust Financial Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Fidelity & Trust Financial Corporation and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the years then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Fidelity & Trust Financial Corporation and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Washington, D.C.

May 8, 2008

FIDELITY & TRUST FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2007 AND 2006

(Dollars in thousands, except per share data)

	2007			2006
ASSETS
Cash and due from banks	$	7,691		$	9,647
Federal funds sold	7,461			38,993
Cash and cash equivalents	15,152			48,640
Securities available-for-sale at fair value	90,746			83,610
Loans held for sale — net, at fair value	11,898			139,338
Portfolio loans — net	319,402			195,103
Less: allowance for loan losses	(3,195		)	(2,150		)
Total portfolio loans — net	316,207			192,953
Receivables	168			5,007
Premises and equipment — net	3,929			3,533
Accrued interest receivable	2,400			2,391
Deferred tax asset — net	1,185			2,141
Other real estate owned	395			800
Other assets	4,449			3,151
TOTAL ASSETS	$	446,529		$	481,564
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Non-interest bearing deposits	$	56,680		$	49,912
Interest bearing deposits	309,018			284,569
Total deposits	365,698			334,481
Securities sold under repurchase agreements	49,165			30,203
Short-term borrowings	3,000			72,398
Accrued interest payable	22			628
Accrued expenses and other liabilities	3,163			4,055
Reserve for representations and warranties	175			1,911
Total liabilities	421,223			443,676
SHAREHOLDERS’ EQUITY:
Common stock, $0.01 par value — 20,000,000 shares authorized; and 4,207,016 shares issued and outstanding at December 31, 2007 and 4,205,152 shares issued and outstanding at December 31, 2006	42			42
Preferred stock, $0.01 par value, 5,000,000 shares authorized, none issued or outstanding at December 31, 2007 and 2006, respectively	—			—
Additional paid-in-capital	37,726			37,655
Retained earnings (deficit)	(12,807		)	571
Accumulated other comprehensive income (loss)	345			(380		)
Total shareholders’ equity	25,306			37,888
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	446,529		$	481,564

See notes to consolidated financial statements.

2

FIDELITY & TRUST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

(Dollars in thousands, except per share data)

	2007			2006
INTEREST INCOME:
Interest on federal funds sold and interest-bearing bank balances	$	753		$	1,506
Interest and dividends on securities	4,622			3,339
Interest and fees on loans	25,248			17,040
Total interest income	30,623			21,885
INTEREST EXPENSE:
Interest on deposits	13,299			9,171
Interest on securities sold under repurchase agreements	1,710			520
Interest on borrowings	20			2
Total interest expense	15,029			9,693
NET INTEREST INCOME	15,594			12,192
PROVISION FOR LOAN LOSSES	1,861			671
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	13,733			11,521
NON-INTEREST INCOME:
Service charges on deposits	231			121
Other income	334			193
Total non-interest income	565			314
NON-INTEREST EXPENSE:
Compensation and employee benefits	6,851			5,352
Occupancy	1,603			1,159
Consulting and professional fees	1,145			1,154
Depreciation and amortization	743			525
Equipment and software	320			218
Travel, meals, and entertainment	305			236
Legal	295			180
Data processing	504			368
Other	1,071			141
Total non-interest expense	12,837			9,333
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE	1,461			2,502
Income tax expense	541			792
INCOME FROM CONTINUING OPERATIONS	920			1,710
DISCONTINUED OPERATIONS:
LOSS FROM DISCONTINUED OPERATIONS	(15,855		)	(2,225		)
Income tax benefit	(1,557		)	(736		)
LOSS FROM DISCONTINUED OPERATIONS	(14,298		)	(1,489		)
NET INCOME (LOSS)	$	(13,378	)	$	221
EARNINGS PER SHARE FROM CONTINUING OPERATIONS	$	0.22		$	0.40
EARNINGS PER SHARE FROM CONTINUING OPERATIONS - assuming dilution	$	0.22		$	0.40
EARNINGS (LOSS) PER SHARE	$	(3.18	)	$	0.05
EARNINGS (LOSS) PER SHARE — assuming dilution	$	(3.16	)	$	0.05

See notes to consolidated financial statements.

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FIDELITY & TRUST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

(Dollars in thousands, except per share data)

	2007			2006
NET (LOSS) INCOME	$	(13,378	)	$	221
OTHER COMPREHENSIVE INCOME — net of income taxes:
Unrealized gains/(losses) on available-for-sale securities:
unrealized gains arising during period, net of related tax benefit of $480 and $22 at December 31, 2007 and 2006, respectively	725			33
COMPREHENSIVE INCOME (LOSS)	$	(12,653	)	$	254

See notes to consolidated financial statements.

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FIDELITY & TRUST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

(Dollars in thousands)

												Accumulated
						Additional			Retained			Other			Total
	Common					Paid-In			Earnings/			Comprehensive			Shareholders’
	Shares		Stock			Capital			(Deficit)			Income (Loss)			Equity
Balance — December 31, 2005	4,210,598		$	42		$	37,718		$	350		$	(413	)	$	37,697
Stock repurchased	(106,546	)	(1		)	(1,224		)	—			—			(1,225		)
Issuance of restricted stock	100,000		1			1,149			—			—			1,150
Exercise of options	1,100		—			11			—			—			11
Grant of options	—		—			1			—			—			1
Net income	—		—			—			221			—			221
Change in unrealized loss on securities available-for-sale — net of taxes	—		—			—			—			33			33
Balance — December 31, 2006	4,205,152		$	42		$	37,655		$	571		$	(380	)	$	37,888
Stock repurchased	(2,500	)	—			(29		)							(29		)
Issuance of restricted stock	4,364		—			50									50
Grant of options						50									50
Net loss									(13,378		)				(13,378		)
Change in unrealized loss on securities available-for-sale — net of taxes												725			725
Balance — December 31, 2007	4,207,016		$	42		$	37,726		$	(12,807	)	$	345		$	25,306

See notes to consolidated financial statements.

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FIDELITY & TRUST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

(Dollars in thousands)

	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(13,378	)	$	221
Loss from discontinued operations	(14,298		)	(1,489		)
Income from continuing operations	920			1,710
Adjustments to reconcile net income from continuing operations to net cash provided by (used in) operating activities:
Depreciation and amortization	743			525
Discount accretion and premium amortization on securities — net	(42		)	(80		)
Loss on sale of other real estate owned	24			—
Stock compensation expense	50			1
Provision for loan losses	1,861			671
Change in accrued interest receivable	(514		)	(599		)
Change in deferred taxes	(800		)	(340		)
Change in other assets	(223		)	(546		)
Change in accrued expenses and other liabilities	1,498			694
Net cash provided by operating activities from continuing operations	3,517			2,036
Net cash provided by (used in) operating activities from discontinued operations	113,964			(17,567		)
Net cash provided by (used in) operating activities	117,481			(15,531		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchase of fixed assets	(1,934		)	(1,570		)
Net increase in portfolio loans	(125,534		)	(69,548		)
Purchases of securities available-for-sale	(37,343		)	(37,274		)
Proceeds from maturities and paydowns of securities available-for-sale	31,450			10,101
Net cash (used in) investing activities from continuing operations	(133,361		)	(98,291		)
Net cash provided by investing activities from discontinued operations	1,589			707
Net cash (used in) investing activities	(131,772		)	(97,584		)
CASH FLOWS FROM FINANCING ACTIVITES:
Net increase in deposits	31,217			78,540
Net increase in securities sold under repurchase agreements	18,963			30,203
Proceeds from notes payable and short-term borrowings	3,000			—
Exercise of stock options	—			11
Repurchase of common stock	(29		)	(1,225		)
Sale of treasury stock	50			1,150
Net cash provided by financing activities from continuing operations	53,201			108,679
Net cash (used in) provided by financing activities from discontinued operations	(72,398		)	2,403
Net cash (used in) provided by financing activities	(19,197		)	111,082
Net decrease in cash and cash equivalents	(33,488		)	(2,033		)
CASH AND CASH EQUIVALENTS — Beginning of year	48,640			50,673
CASH AND CASH EQUIVALENTS — End of year	$	15,152		$	48,640
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	$	18,147		$	13,214
Income taxes paid	$	3		$	1,726
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES:
Loans transferred to other real estate owned	$	1,238		$	1,973

See notes to consolidated financial statements.

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FIDELITY & TRUST FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

1.NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Description of Business — Fidelity & Trust Financial Corporation (“F&T Financial”) is a state-chartered bank holding company that was incorporated in the state of Maryland on July 29, 2003. The principal activity of F&T Financial is the ownership of Fidelity & Trust Bank (“F&T Bank”). F&T Bank is the parent company of Fidelity & Trust Mortgage, Inc. (“F&T Mortgage”), a residential mortgage banking company.

F&T Financial is headquartered in Bethesda, Maryland and commenced business on November 14, 2003. On November 14, 2003, F&T Financial issued 1,466,905 shares of common stock, of which 855,555 common shares were issued to F&T Mortgage for all of its outstanding common and preferred stock. Also, on November 14, 2003, F&T Financial acquired all of the outstanding shares of F&T Bank, while F&T Bank acquired all of the outstanding shares of F&T Mortgage.

F&T Bank is a state-chartered commercial bank primarily engaged in the business of providing general commercial and consumer banking services to small-and medium-sized businesses, professionals, and consumers, as well as providing banking services to customers of F&T Mortgage. F&T Bank commenced operations on November 17, 2003 and operates from three branches in Maryland: Bethesda, Silver Spring and Rockville; two branches in Washington, DC: Eye Street and Georgetown; and one branch in Tysons Corner, Virginia.  F&T Bank was managed as two business units, a Community Banking unit and a Mortgage Banking unit.

F&T Mortgage was incorporated in the state of Maryland on November 14, 2000, and commenced operations on August 1, 2001. F&T Mortgage was a full-service residential mortgage banking company that offered a broad array of home mortgage products through a team of loan originators and multiple lending offices. F&T Mortgage was headquartered in Chevy Chase, Maryland until August 20, 2007, when certain assets were sold and the sales force and lending offices were transferred to the purchaser.  F&T Mortgage discontinued originating loans on that date and a small wind-down staff was retained to fund the remaining pipeline and sell the mortgage loans held for sale.  Note 21 discusses the impact of the discontinued operations.

The accounting and reporting policies of F&T Financial are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. The more significant of these policies are discussed below.

Principles of Consolidation — The consolidated financial statements include the accounts of F&T Financial, F&T Bank, and F&T Mortgage (collectively, “Fidelity & Trust”). All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates — Management of Fidelity & Trust has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the

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reserve for representations and warranties and the valuation of deferred tax assets.  Actual results could differ from those estimates.

Significant Group Concentrations of Credit Risk — Most of Fidelity & Trust’s activities are with customers located within the metropolitan Washington, D.C. region.  Note 3 discusses the types of securities in which Fidelity & Trust invests.  Notes 4 and 5 discuss the types of lending in which Fidelity & Trust engages.  Fidelity & Trust does not have any significant concentrations to any one industry or customer.

Cash and Cash Equivalents — For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold, all of which mature in 90 days or less.

Investment Securities — Investments in debt and equity securities classified as available-for-sale are stated at fair value, based on quoted market prices, with net unrealized gains and losses, net of tax, reported as a separate component of shareholders’ equity.

A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed other-than-temporary is charged to earnings resulting in the establishment of a new cost basis for the security. There were no such charges in 2007 or 2006.

Dividend and interest income is recognized when earned. Realized gains and losses for securities classified as available-for-sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold.

Derivative Instruments and Hedging Activities — Fidelity & Trust adopted the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Certain Hedging Activities, SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activity, an amendment of SFAS No. 133, SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities and SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of SFAS No. 133.

In 2006, F&T Mortgage initiated the use of mortgage-backed securities, a type of derivative instrument, and continued the use of U.S. Treasury futures, another type of derivative instrument, to mitigate the risk of uncommitted mortgage loans. A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet as assets or liabilities, at their respective fair values, regardless of the purpose or intent for holding the derivative. If a derivative does not qualify as a hedge under SFAS No. 133, all gains or losses from the change in the derivative’s estimated fair value are recognized in earnings. The gains or losses from the change in estimated fair value of derivatives that qualify as hedges under SFAS No. 133 are recognized in earnings or other comprehensive income depending on the type of hedge relationship. Fidelity & Trust does not qualify for fair value or cash flow hedge accounting treatment, therefore all gains or losses are recognized in earnings for 2007 and 2006.  F&T Mortgage ceased derivative activity in the second quarter of 2007.

Portfolio Loans — Loans are stated at the principal amount outstanding, net of unearned income and deferred costs. Interest income is accrued on loans as earned on the outstanding principal balances. Nonrefundable loan fees and direct origination costs are deferred and recognized over the lives of the related loans as adjustments of yield. Accrual of interest is discontinued when management believes, after considering economic business conditions and collection efforts, the borrower’s financial condition is such that collection of interest is doubtful. Any accrued interest considered uncollectible is charged against interest income.

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The allowance for loan losses is established through a provision for loan losses, which is charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is a current estimate of the probable losses inherent in the current loan portfolio based upon management’s evaluation of that portfolio. Estimates of probable losses inherent in the portfolio involve the exercise of judgment and the use of assumptions. The evaluation takes into consideration such factors as changes in the nature, volume and quality of the loan portfolio, prior loss experience, level of nonperforming loans, current and anticipated general economic conditions and the value and adequacy of collateral.

A loan is considered impaired when, based on all current information and events, it is probable that Fidelity & Trust will be unable to collect all amounts due according to the contractual terms of the agreement, including all scheduled principal and interest payments. Such impaired loans are measured based on the present value of the expected future cash flows, discounted at the loan’s effective interest rate or, as a practical expedient, impairment may be measured based on the loan’s observable market price, or if, the loan is collateral-dependent, the fair value of the collateral. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance. Loans for which foreclosure is probable continue to be accounted for as loans. Upon foreclosure, loans are reclassified as other real estate owned.

Each impaired loan is evaluated to determine the income recognition policy. Payments received are applied in accordance with the contractual terms of the note or as a reduction of principal.

Loans Held for Sale — SFAS No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, requires the deferral of loan origination fees and direct loan origination costs over the estimated life of the loans for loans originated and not sold as of the end of the year. Fidelity & Trust has deferred the fees and costs attributable to these loans and will recognize them at the time of sale of the loans.

In March 2004, the U.S. Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 105 to provide accounting guidance related to the timing of recognition of income on loan commitments. The pronouncement stated that all loan income is deferred until the loan is sold. Fidelity & Trust instituted this policy during the second quarter of 2004.

In April 2002, the FASB issued final accounting guidance related to interest rate lock commitments. Based on the operations of Fidelity & Trust, all interest rate lock commitments are considered derivatives.  Fidelity & Trust stopped making interest rate lock commitments on August 20, 2007 and the final commitment was honored on September 11, 2007.

Mortgage loans held for sale are recorded in the aggregate at the lower of cost or fair value. Fair value is based on contractually established prices at which mortgage loans will be sold or, if loans are not committed for sale, at current market prices for similar loans. Gains and losses from the sale of mortgage loans, which are not reflected in the basis adjustment on closed loans in accordance with SFAS No. 133, are recognized at the time of sale and are determined by the difference between the net sales proceeds of the loans and related servicing and the carrying value of the mortgage loans sold.

Recognition of gains and losses is based on SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, which was effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after March 31, 2001. SFAS No. 140 is based on consistent application of a financial-concepts approach that focuses on control. Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and

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the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished.

Receivables — Receivables consist of funds due from various investors and borrowers.

Premises and Equipment — Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or, for leasehold improvements, the shorter of the estimated useful life or the term of the underlying lease. These estimated useful lives range from one to ten years. Expenditures for maintenance and repairs are charged to expense as incurred and improvements are capitalized. The cost and accumulated depreciation and amortization of assets retired or otherwise disposed of are removed from the books, and gain or loss on disposition is credited or charged to earnings.

Income Taxes — Pursuant to SFAS No. 109, Accounting for Income Taxes, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.

Comprehensive Income (Loss) — Comprehensive income (loss) represents all changes in equity of an enterprise that result from recognized transactions and other economic events during the period. Other comprehensive income refers to revenues, expenses, gains, and losses that under accounting principles generally accepted in the United States of America are included in comprehensive income (loss) but excluded from net income (loss). Unrealized gains and losses on available-for-sale securities are the components of Fidelity & Trust’s other comprehensive income (loss).

Earnings per Share — Earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period.

Earnings per share, assuming dilution, is computed by dividing net income available to common shareholders by the weighted average common shares outstanding and the additional common shares that would have been outstanding if any dilutive potential common shares had been issued.

Other Real Estate Owned — Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new book value. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less costs to sell. Changes in the valuation allowance are included in net expenses from foreclosed assets.

Recent Accounting Pronouncements — Below are the new accounting pronouncements that relate to activities in which Fidelity & Trust is engaged.

SFAS No. 157 Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement prescribes a definition of the term “fair value”, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements. Statement No. 157 is effective for fiscal

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years beginning after November 15, 2007. Fidelity & Trust is evaluating the impact of this new standard, but currently believes that adoption will not have a material impact on its consolidated financial statements.

SFAS No. 159 The Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This statement allows entities the option to measure eligible financial instruments at fair value as of specified dates.  Such election, which may be applied on an instrument-by-instrument basis, is typically irrevocable once elected.  Statement No. 159 is effective for fiscal years beginning after November 15, 2007, and early application is allowed under certain circumstances. The adoption did not have a material impact on Fidelity & Trust’s consolidated financial statements.

FIN No. 48 Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. FIN 48 clarifies when tax benefits should be recorded in financial statements, requires certain disclosures of uncertain tax matters and indicates how any tax reserves should be classified in a balance sheet. FIN 48 is effective for Fidelity & Trust in the first quarter of fiscal 2008. The application of FIN 48 is not anticipated to have a material impact on Fidelity & Trust’s consolidated financial statements.

Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements

In September 2006, the Securities and Exchange Commission (SEC) issued SAB No. 108,  Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. This bulletin provides interpretive guidance on the consideration of prior year misstatements in quantifying the materiality of current year misstatements. SAB No. 108 is effective for fiscal years ending after November 15, 2006. The adoption of this bulletin did not have a material impact on Fidelity & Trust’s consolidated financial statements.

Reclassifications — Reclassifications to prior year amounts have been made to conform to current year presentation for the discontinued operations identified during 2007, as noted in Note 21.

2.CASH AND DUE FROM BANKS

Under Federal Reserve Bank (FRB) regulations, banks are required to maintain cash reserves based upon average deposits. Assets qualified to meet these reserve requirements consist of vault cash and balances on deposit with the FRB. F&T Bank’s reserve requirements were $897,000 and $718,000 for the periods ending December 31, 2007 and 2006, respectively.

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3.SECURITIES AVAILABLE-FOR-SALE

The amortized cost and fair value of securities available-for-sale are as follows:

	December 31, 2007
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
U.S. government agencies	$	41,384	$	279	$	—	$	41,663
Mortgage-backed securities	46,918		284		—		47,202
Equity securities	1,876		5		—		1,881
Total securities available-for-sale	$	90,178	$	568	$	—	$	90,746

	December 31, 2006
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollars in thousands)	Cost		Gains		Losses			Value
U.S. government agencies	$	55,067	$	—	$	(390	)	$	54,677
Mortgage-backed securities	27,249		—		(248		)	27,001
Equity securities	1,927		5		—			1,932
Total securities available-for-sale	$	84,243	$	5	$	(638	)	$	83,610

The remaining contractual maturity distribution of debt securities available-for-sale at December 31, 2007 is as follows:

	Amortized		Fair		Unrealized
(Dollars in thousands)	Cost		Value		Gain/(Loss)
Due
Within one year	$	9,999	$	10,008	$	9
After one year through five years	21,682		21,678		(4		)
After five years through ten years	15,203		15,424		221
After ten years	41,418		41,755		337
	$	88,302	$	88,865	$	563

For the years ended December 31, 2007 and 2006, there were no sales of securities available-for-sale.

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F&T Bank regularly reviews its investment portfolio for factors that may indicate that a decline in fair value of an investment is other than temporary. Based on its evaluation, F&T Bank has concluded that the declines in the fair values of the investments at December 31, 2007 are temporary.

4.PORTFOLIO LOANS

Major categories of portfolio loans at December 31, 2007 and 2006, are as follows:

(Dollars in thousands)	2007			2006
Real estate	$	222,227		$	119,691
Commercial	95,918			73,939
Consumer	1,639			1,699
Total	319,784			195,329
Deferred fees and costs—net	(382		)	(226		)
Portfolio loans—net, before allowance for loan losses	$	319,402		$	195,103

Primarily all of F&T Bank’s portfolio loans at December 31, 2007 and 2006, consist of loans made within the greater Washington, DC metropolitan area. This includes real estate loans made for acquisition, renovation, or development for which a deed of trust on the subject property is the primary collateral.

Allowance for Portfolio Loan Losses — While management uses available information to recognize losses on portfolio loans, future additions to the allowance for existing loans may be necessary based on changes in economic and borrower conditions. Management believes that adequate allowances have been established to reflect possible losses on loans as of December 31, 2007 and 2006.

Changes in the allowance for portfolio loan losses for the years ended December 31, 2007 and 2006, are as follows:

(Dollars in thousands)	2007			2006
Balance — January 1	$	2,150		$	1,508
Provision for portfolio loan losses	1,861			671
Loans charged off	(828		)	(29		)
Recoveries	12			—
Balance — December 31	$	3,195		$	2,150

Various regulatory agencies, as an integral part of the examination process, periodically review the allowance based on their judgments about information available to them at the time of their examination.

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Related-Party Loans — F&T Bank, in the normal course of business, makes loans to executive officers, directors and principal shareholders, as well as to companies and individuals affiliated with those officers and directors. In the opinion of management, these loans are consistent with sound banking practices, are within regulatory lending limits, and do not involve more than normal risk of collectibility. Activity in such loans at December 31, 2007 and 2006, is summarized as follows:

(Dollars in thousands)	2007			2006
Balance — January 1	$	142		$	1,578
New loans	1,882			175
Repayments	(1,607		)	(1,611		)
Balance — December 31	$	417		$	142

Impaired Portfolio Loans – F&T Bank held loans deemed to be impaired totaling $2.0 million and $2.1 million as of December 31, 2007 and 2006, respectively.  These loans are commercial purpose loans primarily secured by real estate collateral.  As of December 31, 2007 and 2006, F&T Bank had no other loans on nonaccrual other than those deemed to be impaired loans.

5.LOANS HELD FOR SALE

Mortgage loans that F&T Mortgage originated with the intent to sell in the foreseeable future are initially recorded at cost including any premium or discount. Loans held for sale are carried on the books at the lower of cost or fair value calculated on an aggregate basis by type of loan. A lower of cost or market adjustment is recorded against mortgage loans held for sale when an aggregate pool of loans has a fair value below its cost. Mortgage loans held for sale, net, as of December 31, 2007 and 2006, are as follows:

(Dollars in thousands)	2007			2006
First mortgages — residential 1–4 units	$	10,839		$	112,700
Second mortgages — closed end	5,443			24,839
Second mortgages — open end	59			1,433
Unamortized deferred costs — net	77			527
Lower of cost or market adjustment	(4,520		)	(161		)
Total loans held for sale — net	$	11,898		$	139,338

Reserve for Representations and Warranties — The reserve for representations and warranties is established for contingencies related to loans sold to investors with recourse. F&T Mortgage sold loans with recourse related to issues of fraud, early payment defaults or early loan payoffs. The reserve is established through charges to gains on sales of mortgage loans when management believes there is the likelihood that losses will be incurred on sold loans. Estimates of losses involve the exercise of judgment and the use of assumptions. The evaluations take into consideration such factors as changes in the nature, volume and quality of the loans held for sale portfolio, prior loss experience and current and anticipated general economic conditions.

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(Dollars in thousands)	2007			2006
Balance — January 1	$	1,911		$	348
Provision for representations and warranties	(74		)	2,293
Loans charged off	(1,954		)	(1,455		)
Recoveries	292			725
Balance — December 31	$	175		$	1,911

Various regulatory agencies, as an integral part of the examination process, periodically review the lower of cost or market adjustment and reserve based on their judgments about information available to them at the time of their examination.

Related-Party Loans Held for Sale — Mortgage loans to executive officers and directors of Fidelity & Trust were made with interest rates, terms and collateral requirements consistent with those required of other borrowers. There were no loans provided to executive officers and directors during 2007 or loans sold to third-party investors as of December 31, 2007.  The aggregate amount of loans provided to executive officers and directors was $706,000 during 2006, of which $706,000 were sold to third-party investors as of December 31, 2006.

Impaired Loans on Loans Held for Sale — F&T Mortgage held no loans deemed to be impaired as of December 31, 2007 and $1.3 million deemed to be impaired as of December 31, 2006. These loans are residential mortgage loans which management considers as smaller-balance homogeneous loans. As such, management collectively evaluates them for impairment taking into consideration such factors as past loss experience, recent economic factors and portfolio delinquency rates. As of December 31, 2007 and 2006, F&T Mortgage had no other loans on nonaccrual other than those deemed to be impaired loans.

6.PREMISES AND EQUIPMENT

Investments in premises and equipment at December 31, 2007 and 2006, are as follows:

(Dollars in thousands)	2007			2006
Furniture, fixtures, and equipment	$	1,963		$	2,105
Computer hardware and software	1,424			2,253
Leasehold improvements	2,623			2,039
	6,010			6,397
Less accumulated depreciation and amortization	(2,081		)	(2,864		)
Total premises and equipment	$	3,929		$	3,533

Total depreciation and amortization was $743,000 and $525,000 for the years ended December 31, 2007 and 2006, respectively.

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7.DEPOSITS

Major classifications of deposits at December 31, 2007 and 2006, are as follows:

(Dollars in thousands)	2007		2006
Non-interest bearing deposits	$	56,680	$	49,912
Interest bearing deposits:
NOW accounts	5,834		4,619
Money market accounts	95,063		116,110
Savings accounts	210		128
Certificates less than $100,000	75,228		55,861
Certificates of $100,000 and over	132,683		107,851
Total interest bearing deposits	309,018		284,569
Total deposits	$	365,698	$	334,481

Checking and savings accounts, money market accounts, and certificates of deposit payable to executive officers and directors, or their related interests, were $12.6 million and $9.7 million as of December 31, 2007 and 2006, respectively, representing 3.4% and 2.9% of total deposits for the periods so ended. At December 31, 2007 and 2006, there were no brokered deposits.

Maturities of certificates of deposit at December 31, 2007, are as follows:

(Dollars in thousands)	Balance		Interest Rate
Due in one year	$	161,583	5.26	%
Due in two years	15,028		4.42	%
Due in three years	28,320		4.62	%
Due in four years	2,522		4.37	%
Due in five years	249		4.91	%
Due thereafter	209		4.88	%
	$	207,911

8.SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

Securities sold under repurchase agreements are borrowings collateralized by securities of U.S. government agencies and have overnight maturities. They are entered into primarily as accommodations to F&T Bank’s large commercial deposit customers. Several of these customer relationships in the aggregate exceed 10% of F&T Financial’s shareholders’ equity. All of the collateral provided under these agreements is maintained under F&T Bank’s control.

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Securities sold under repurchase agreements are summarized as follows:

	2007				2006
(Dollars in thousands)	Amount		Rate		Amount		Rate
Average for the year	$	43,496	3.93	%	$	13,329	3.90	%
Balance at year end	$	49,165	3.07	%	$	30,203	4.11	%
Maximum month-end balance	$	64,316			$	30,203

9.SHORT-TERM BORROWINGS

On August 24, 2006, F&T Mortgage entered into a Loan Participation Sale Agreement (LPS) with a warehouse lender. The commitment amount was $100 million. F&T Mortgage had no loans sold to the investor on the LPS line as of December 31, 2007 and $47.3 million of mortgage loans sold to the investor on the LPS line as of December 31, 2006. The loans are considered sold; however, the service release premium is paid subsequent to the sale date, based on predetermined criteria. There was no outstanding receivable balance due as of December 31, 2007 and an outstanding receivable balance of $1.0 million was due at December 31, 2006.

At December 31, 2006, F&T Mortgage maintained a warehouse line of credit with an investor with a commitment amount of $100 million. The warehouse line of credit was secured by the underlying loans held for sale and was repaid upon the sale of the mortgage loans. F&T Mortgage had a total of $72.4 million at December 31, 2006 in outstanding borrowings under this facility. F&T Bank purchased the line of credit from the investor, including the security interest in the underlying loans held for sale, on October 4, 2007.

The interest rates on the warehouse lines of credit as of December 31, 2006 ranged from 30-day LIBOR plus 1.50% to 3.50% based on the type of loan and lending requirements. At December 31, 2006, the interest rates on the amounts outstanding under the warehouse lines of credit were approximately 6.95%.  F&T Mortgage has no warehouse lines of credit outstanding as of December 31, 2007.

At December 31, 2007, F&T Financial maintained a $7 million revolving line of credit with EagleBank.  The line is secured by F&T Financial’s stock in F&T Bank.  F&T Financial had a total of $3 million at December 31, 2007 in outstanding borrowings under this line.  The interest rate on the line is prime minus 0.25% and the line expires on September 29, 2008.  At December 31, 2007, the interest rate on the line was 7%.  The line is expected to be paid in full at the time of the merger with Eagle Bancorp, Inc.

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10.INCOME TAXES

The components of the income tax expense for the years ended December 31, 2007 and 2006, are as follows:

(Dollars in thousands)	2007			2006
Current:
Federal	$	1,394		$	1,063
State	(47		)	14
	1,347			1,077
Deferred:
Federal	(706		)	(265		)
State	(100		)	(20		)
	(806		)	(285		)
Income tax expense from continuing operations	541			792
Income tax benefit from discontinued operations	(1,557		)	(736		)
Total income tax expense (benefit)	$	(1,016	)	$	56

Differences between income tax expense calculated at the statutory rate and that shown on the Consolidated Statements of Operations for the years ended December 31, 2007 and 2006, are summarized as follows:

	2007					2006
(Dollars in thousands)	Rate		2007			Rate		2006
Statutory federal income tax rate	34.0	%	$	561		34.0	%	$	851
State income tax rate	(2.8	)%	(47		)	0.6	%	14
Meals and entertainment	1.6	%	27			1.2	%	30
Other						(4.1	)%	(103		)
Income tax expense from continuing operations	32.8	%	541			31.7	%	792
Income tax benefit from discontinued operations	9.8	%	(1,557		)	33.1	%	(736		)
Total tax expense (benefit)			$	(1,016	)			$	56

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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2007 and 2006, are as follows:

(Dollars in thousands)	2007			2006
Deferred tax assets:
Allowance for loan losses	$	1,257		$	742
Organizational and start-up expenses	45			88
Net unrealized gains on loans held for sale				359
Net unrealized gains on securities				271
Reserves for representations and warranties	68			650
Deferred lease expense	107			83
Property	115
Net operating loss carryforward	4,419
Valuation allowance	(4,544		)
Other	93
Total gross deferred tax assets	1,560			2,193
Deferred tax liabilities:
Property				30
Prepaid insurance	37			22
Other	338			—
Total gross deferred tax liabilities	375			52
Deferred tax assets — net	$	1,185		$	2,141

Fidelity & Trust believes that a valuation allowance with respect to the realization of the total gross deferred tax assets related to F&T Mortgage is necessary due to the magnitude of the losses incurred by F&T Mortgage and the discontinuation of its operations. Based on Fidelity & Trust’s historical taxable income, future expectations of taxable income, and the reversal of gross deferred tax liabilities, management believes it is more likely than not that Fidelity & Trust will realize all of the gross deferred tax assets existing at December 31, 2007 related to its continuing operations. However, there can be no assurance that Fidelity & Trust will generate taxable income in any future period or that the reversal of temporary differences attributable to gross deferred tax liabilities will occur during the future tax periods as currently expected.

11.REGULATORY CAPITAL REQUIREMENTS

F&T Bank is subject to various regulatory requirements. 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 F&T Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, F&T Bank must meet specific capital guidelines that involve the quantitative measures of its assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.

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The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by the regulation to ensure capital adequacy require F&T Bank to maintain minimum amounts and ratios (set forth in the following table) of total and 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, 2007, that F&T Bank met all capital adequacy requirements.

As of December 31, 2007, the most recent notification from the Federal Deposit Insurance Corporation categorized F&T Bank as “adequately capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized”, F&T Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios, as set forth below. There are no conditions or events since that notification that management believes have changed the Bank’s category.

A summary of F&T Bank’s required and actual capital components is as follows:

					To be Adequately				To be Well
	Actual				Capitalized				Capitalized
(Dollars in thousands)	Amount		Ratio %		Amount		Ratio %		Amount		Ratio %
As of December 31, 2007
Tier 1 leverage
(to average assets)	$	24,510	5.45	%	$	17,980	4.00	%	$	22,475	5.00	%
Tier 1 capital
(to risk-weighted assets)	24,510		6.88	%	14,249		4.00	%	21,374		6.00	%
Total risk-based capital
(to risk-weighted assets)	30,880		8.67	%	28,499		8.00	%	35,623		10.00	%
As of December 31, 2006
Tier 1 leverage
(to average assets)	$	35,790	8.70	%	$	16,461	4.00	%	$	20,576	5.00	%
Tier 1 capital
(to risk-weighted assets)	35,790		11.68	%	12,254		4.00	%	18,381		6.00	%
Total risk-based capital
(to risk-weighted assets)	39,622		12.93	%	24,508		8.00	%	30,635		10.00	%

12.SHAREHOLDERS’ EQUITY

During 2007, F&T Financial repurchased 2,500 shares of stock at $11.50 per share and subsequently sold 4,364 shares to “accredited investors”, as defined under the Securities Act of 1933, at $11.50 per share.

During 2006, F&T Financial issued 1,100 shares upon exercise of its stock options. Also during 2006, F&T Financial repurchased 106,546 shares of stock at $11.50 per share and subsequently sold 100,000 shares to “accredited investors”, as defined under the Securities Act of 1933, at $11.50 per share.

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Long-Term Incentive Plan — Fidelity & Trust’s 2005 and 2004 Long-Term Incentive Plans (“the Plans”), which are shareholder-approved, permits the grant of stock options and shares to its employees, consultants, or other independent contractors and any nonemployee directors for up to 211,500 shares and 315,500 shares of Common Stock, respectively. As options are exercised, new shares are issued from common stock authorized but not yet issued. Fidelity & Trust believes that such awards better align the interests of its employees, consultants and directors with those of its shareholders. Option awards are granted with an exercise price equal to the market price of F&T Financial’s stock on the date of grant, which, as the stock is not publicly traded, is the fair market value determined by the Board in good faith. The option awards generally vest based on 4 years of continuous service and have 10-year contractual terms. No share awards have been issued. Option awards provide for accelerated vesting if there is a change in control (as defined in the Plans).

Fidelity & Trust implemented SFAS No. 123 (R), Accounting for Stock-based Compensation, on January 1, 2006, and is now required to recognize an expense over the required service period for any stock options granted after that date. Prior to January 1, 2006, Fidelity & Trust accounted for its stock-based compensation in accordance with the Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, which did not require recognition of compensation cost. The compensation cost that was charged against income for the Plans was $50,000 and $1,000 for 2007 and 2006, respectively. The total income tax benefit recognized in the income statement was $9,000 and less than $1,000 for 2007 and 2006, respectively.

The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option valuation model that uses the assumptions noted in the following table. Expected volatility is based on historical volatility of F&T Financial’s stock and other factors. Fidelity & Trust uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

	2007		2006
Expected volatility	5.0	%	5.0	%
Weighted-average volatility	5.0	%	5.0	%
Expected dividends	0.0	%	0.0	%
Expected term (in years)	9.8		9.9
Risk-free rate	4.6	%	4.5	%

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A summary of option activity under the Plans as of December 31, 2007, and changes during the year then ended is summarized as follows:

					Weighted-
					Average	Aggregate
			Weighted-		Remaining	Intrinsic
			Average		Contractual Term	Value
	Options		Exercise Price		(in years)	(in thousands)
Outstanding at January 1, 2007	457,820		$	10.66
Granted	60,500		11.50
Exercised	—		—
Forfeited	(11,250	)	11.26
Outstanding at December 31, 2007	507,070		$	10.75	6.2	$	382
Exercisable at December 31, 2007	334,070		$	10.64	5.8

The weighted-average grant-date fair value of options granted during the years 2007 and 2006 was $4.31 and $4.19, respectively. The total intrinsic value of options exercised during the year ended December 31, 2006 was $2,000.  There were no options exercised during the year ended December 31, 2007.

A summary of the status of Fidelity & Trust’s nonvested shares as of December 31, 2007, and changes during the year ended December 31, 2007, is presented below:

			Weighted-
			Average
			Grant-Date
Nonvested Options	Options		Fair Value
Nonvested at January 1, 2007	248,379		$	4.34
Granted	44,800		4.31
Vested	(115,029	)	4.30
Forfeited	(5,150	)	4.37
Nonvested at December 31, 2007	173,000		$	4.31

At the time of the sale of F&T Mortgage assets and the cessation of mortgage company operations, F&T Mortgage Company employees held 37,029 non-vested options.  Those options became fully vested as of August 20, 2007 and are exercisable during the fourth quarter of 2008 at a weighted average exercise price of $10.72.

As of December 31, 2007, there was $198,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period of 3.9 years. The total fair value of shares vested during the years ended December 31, 2007 and 2006 was $97,000 and $77,000, respectively.

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13.EARNINGS PER SHARE

The earnings per share calculation using the weighted average number of shares outstanding and the dilutive effect of options vested for the years ended December 31, 2007 and 2006, is as follows:

(Dollars and shares in thousands, except per share data)	2007			2006
Basic:
Income from continuing operations	$	920		$	1,710
Loss from discontinued operations	(14,298		)	(1,489		)
Net (loss) income	$	(13,378	)	$	221
Basic weighted-average shares outstanding	4,206			4,208
Diluted:
Net (loss) income	$	(13,378	)	$	221
Basic weighted-average shares outstanding	4,206			4,208
Weighted average options	25			17
Diluted weighted-average shares outstanding	4,231			4,225
PER SHARE:
Basic income per share:
Income per share from continuing operations	$	0.22		$	0.40
Loss per share from discontinued operations	(3.40		)	(0.35		)
Net (loss) income per share	$	(3.18	)	$	0.05
Diluted income per share:
Income per share from continuing operations	$	0.22		$	0.40
Loss per share from discontinued operations	(3.38		)	(0.35		)
Net (loss) income per share	$	(3.16	)	$	0.05

14.EMPLOYMENT AGREEMENTS

At December 31, 2007, Fidelity & Trust had employment agreements with several officers. These agreements have various terms, and automatically renew for additional periods unless either Fidelity & Trust or the officer gives written notice to terminate prior to the expiration of the initial term.

15.     401(K) PLAN

Fidelity & Trust has a defined contribution 401(k) plan. All employees who are at least 18 years of age are eligible to participate on the first day of the month following their hire date. Under the Plan, employees may contribute a percentage or dollar amount of their annual salary, subject to statutory limitations. Under the terms of the Plan, Fidelity & Trust may make discretionary contributions but is not required to do so.  Fidelity & Trust made discretionary contributions totaling $78,000 and $144,000 for the years ended December 31, 2007 and 2006, respectively.

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16.LEASE COMMITMENTS

Fidelity & Trust leases certain real property under long-term operating lease agreements. A schedule summarizing future minimum lease payments under these operating leases at December 31, 2007 is as follows:

(Dollars in thousands)
Years ending December 31	Amount
2008	$	1,378
2009	1,418
2010	1,334
2011	1,227
2012	1,264
2013 and thereafter	3,739
Total minimum lease payments	$	10,360

Rent expense under operating leases was $2.4 million and $2.5 million in 2007 and 2006, respectively. It is expected that in the normal course of business, most leases that expire will be renewed.

17.FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

Fidelity & Trust is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet its investment and funding needs and the financing needs of its customers. These financial instruments include commitments to purchase investment securities and commitments to extend credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized or disclosed in the consolidated financial statements. The contractual or notional amounts of those instruments reflect the extent of involvement Fidelity & Trust has in particular classes of financial instruments.

Fidelity & Trust’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual or notional amount of those instruments. Fidelity & Trust uses the same credit and collateral policies in making commitments to extend credit as it does for on-balance-sheet instruments.

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 some commitments may expire without being funded, the commitment amounts do not necessarily represent future cash requirements. Fidelity & Trust evaluates each customer’s creditworthiness on a case-by-case basis.

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Commitments to lend at December 31, 2007 and 2006 are summarized as follows:

(Dollars in thousands)	2007		2006
Mortgage loan origination commitments	$	—	$	21,428
Commitments to extend credit	97,834		58,608
Standby letters of credit	6,214		4,124

18.LEGAL CONTINGENCIES

Various legal claims can arise from time to time in the normal course of business. There were no significant asserted claims or assessments that management believes could result in a material impact to the results of operations, financial condition, or cash flows of Fidelity & Trust at the balance sheet date.  In connection with the discontinuation of F&T Mortgage operations, several mortgage loan purchasers have entered into actions against F&T Mortgage in connection with certain mortgage loan sales.  Based on the opinion of counsel, management believes the results of those actions would be restricted to F&T Mortgage only.  The total range of loss, if any, is not known at this time however, reserves of $175,000 have been established for some of these claims.

19.FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate fair value of each class of financial instruments for which it is practical to estimate that value:

(a)Cash and Cash Equivalents — For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

(b)Securities Available-for-Sale — For U.S. agencies, quoted market prices are used to estimate fair value. If a quoted market price is not readily available, as is the case for equity securities such as Federal Reserve Bank stock, management believes that the carrying amount is a reasonable estimate of fair value.

(c)Portfolio Loans — The fair value of performing loans is estimated by discounting the estimated future cash flows of the loans using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

(d)       Loans Held for Sale — The carrying amount is a reasonable estimate of fair value.

(e)       Receivables — The carrying amount is a reasonable estimate of fair value.

(f)Non-Interest Bearing Deposits — The fair values of these deposits is the amount payable on demand at the reporting date, since generally accepted accounting standards does not permit an assumption of core deposit value.

(g)Interest Bearing Deposits — The carrying values of passbook and money market savings accounts are reasonable estimates of fair value. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

(h)Securities Sold Under Repurchase Agreements — The carrying amount is a reasonable estimate of fair value.

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(i)Short-Term Borrowings — The fair values for short-term borrowings are determined based on interest rates currently available for debt with similar terms and remaining maturities.

(j)Derivative Financial Instruments — The fair values for securities futures contracts are based on the amounts required to settle the contracts.

(k)Off-Balance Sheet Credit-Related Instruments  — Fair values for off-balance sheet credit-related instruments, commitments to extend credit and stand-by letters of credit,  are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

The estimated fair values of Fidelity & Trust’s financial instruments at December 31, 2007 and 2006, are as follows:

	2007				2006
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
(Dollars in thousands)	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	15,152	$	15,152	$	48,640	$	48,640
Securities available-for-sale	90,746		90,746		83,610		83,610
Portfolio loans — net	319,402		319,689		195,103		195,306
Loans held for sale — net	11,898		11,898		139,338		139,338
Receivables	2,568		2,568		7,398		7,398
Financial liabilities:
Non-interest bearing deposits	56,680		56,680		49,912		49,912
Interest bearing deposits	309,018		309,709		284,569		285,235
Securities sold under repurchase agreements	49,165		49,165		30,203		30,203
Short-term borrowings	3,000		3,000		72,398		72,398
On-balance sheet derivative financial instruments:
Futures contracts:
Assets	—		—		258		258
Off-balance sheet credit related financial instruments:	—		1		—		7

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20.    DERIVATIVE FINANCIAL INSTRUMENTS

F&T Mortgage had derivative financial instruments in the form of Treasury and mortgage-backed securities futures contracts which were used to manage interest rate risk in the mortgage loan pipeline.  F&T Mortgage has no derivative financial instruments as of December 31, 2007.

As of December 31, 2006, F&T Mortgage was party to multiple Treasury futures contracts totaling $37.1 million in notional amount which expired in March 2007 and mortgage-backed securities futures contracts totaling $18 million in notional amount which expired in January 2007. These contracts were used to manage the interest rate risk on the mortgage loan pipeline held for sale under bulk trades.

The derivative financial instruments did not qualify as hedges for accounting purposes as defined by SFAS No. 133. As such, the fair value of the derivative financial instruments was reflected as an asset or a liability in the accompanying consolidated balance sheets with the offset recorded as an unrealized gain or loss on derivative instruments, net, in the consolidated statements of operations. The fair values of the derivative financial instruments were gains of $258,000 as of December 31, 2006.

21.    DISCONTINUED OPERATIONS

On August 20, 2007, F&T Mortgage and F&T Bank executed an Asset Purchase Agreement to sell certain assets of F&T Mortgage.  This action resulted in the discontinuance of F&T Mortgage’s active business operations of originating residential mortgage loans for resale.  As part of the asset sale, all F&T Mortgage branch locations and branch personnel transferred to the purchaser.  Substantially all of the remaining mortgage loans held for sale have been sold and F&T Mortgage’s corporate headquarters closed as of December 31, 2007.

The major asset and liability categories of net discontinued operations as of December 31, 2007 and 2006 are as follows (in thousands):

	2007			2006
Loans held for sale — net	$	11,898		$	139,338
Premises and equipment — net	163			958
Deferred tax asset — net	117			1,397
Other assets	3,538			8,950
Other liabilities	(915		)	(78,046		)
Net assets of discontinued operations	$	14,801		$	72,597

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F&T Mortgage’s operations had previously been reported in the consolidated financial statements.  All results have been removed from F&T Financial’s continuing operations for all periods presented.  The results of F&T Mortgage, presented as discontinued operations in the Consolidated Statements of Operations, are as follows:

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

(Dollars in thousands, except per share data)

	2007			2006
INTEREST INCOME:
Interest and fees on loans held for sale	$	5,342		$	8,552
Total interest income	5,342			8,552
INTEREST EXPENSE:
Interest on borrowings	5,347			7,194
Total interest expense	5,347			7,194
NET INTEREST INCOME	(5		)	1,358
NON-INTEREST INCOME:
Gains on sales of mortgage loans	(1,094		)	14,391
Realized (loss)/gain on derivative transactions, net	(76		)	196
Unrealized gain on derivative transactions, net	—			258
Other income	73			14
Total non-interest income	(1,097		)	14,859
NON-INTEREST EXPENSE:
Compensation and employee benefits	7,787			8,057
Occupancy	1,014			1,419
Consulting and professional fees	609			673
Depreciation and amortization	460			544
Equipment and software	386			544
Advertising and marketing	271			555
Travel, meals, and entertainment	109			297
Legal	1,092			602
Telecommunications	452			518
Data processing	117			170
Other	2,456			5,063
Total non-interest expense	14,753			18,442
LOSS FROM DISCONTINUED OPERATIONS BEFORE INCOME TAX BENEFIT	(15,855		)	(2,225		)
Income tax benefit	(1,557		)	(736		)
LOSS FROM DISCONTINUED OPERATIONS	$	(14,298	)	$	(1,489	)
EARNINGS (LOSS) PER SHARE FROM DISCONTINUED OPERATIONS	$	(3.40	)	$	(0.35	)
EARNINGS )LOSS) PER SHARE FROM DISCONTINUED OPERATIONS - assuming dilution	$	(3.38	)	$	(0.35	)

The results of discontinued operations include interest expense which was allocated based upon borrowings which were specifically attributable to F&T Mortgage’s operations through intercompany transactions.  For the years ended December 31, 2007 and 2006, the amount of interest expense reclassified to discontinued operations was $2.8 million and $3.5 million, respectively.

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22.   SUBSEQUENT EVENTS

On December 2, 2007, F& T Financial and Eagle Bancorp, Inc. entered into a definitive merger agreement providing for the acquisition of F&T Financial by Eagle Bancorp.  The combination is structured as a stock-for-stock exchange, under which F&T Financial’s shareholders will receive 0.9202 shares of Eagle common stock owned, subject to possible reductions under certain circumstances set forth in the merger agreement.  In connection with the transaction, F&T Bank will be merged into EagleBank, with EagleBank being the surviving entity.  The transaction is subject to regulatory and shareholder approvals and the satisfaction of other conditions as set forth in the merger agreement and is expected to close mid-2008.

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