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Eagle Bancorp 10-Q 2009
Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
( X )              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2009

OR

(   )              TRANSITION REPORT PURSUANT TO 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 of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
7815 Woodmont Avenue, Bethesda, Maryland
20814
     (Address of principal executive offices)
(Zip Code)

(301) 986-1800
(Registrant's telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)

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

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

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

Large accelerated filer [ ]
Accelerated filer [x]
Non-accelerated filer [ ]
Smaller Reporting Company [ ]

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

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

As of August 7, 2009, the registrant had 12,763,940 shares of Common Stock outstanding.
 
1

 
EAGLE BANCORP, INC.
TABLE OF CONTENTS

PART I.
FINANCIAL INFORMATION
   
       
Financial Statements (Unaudited)
   
     
     
     
     
     
       
   
     
     
     
       
   
       
   
       
   
       
   
       
   
       
   
       
   
       
   
       
   
       
   
       
     
 
2

 
Item 1 – Financial Statements

EAGLE BANCORP, INC.
Consolidated Balance Sheets
June 30, 2009 and December 31, 2008
(dollars in thousands, except per share data)
 
   
June 30,
   
December 31,
 
   
2009
   
2008
 
Assets
 
(Unaudited)
   
(Audited)
 
Cash and due from banks
  $ 28,187     $ 27,157  
Federal funds sold
    27,044       191  
Interest bearing deposits with banks and other short-term investments
    2,426       2,489  
Investment securities available for sale, at fair value
    177,710       169,079  
Loans held for sale
    10,502       2,718  
Loans
    1,313,394       1,265,640  
Less allowance for credit losses
    (19,650 )     (18,403 )
Loans, net
    1,293,744       1,247,237  
Premises and equipment, net
    9,245       9,666  
Deferred income taxes
    12,404       11,106  
Bank owned life insurance
    12,680       12,450  
Intangible assets, net
    4,392       2,533  
Other real estate owned
    3,081       909  
Other assets
    8,791       11,292  
Total Assets
  $ 1,590,206     $ 1,496,827  
                 
Liabilities
               
Deposits:
               
Noninterest bearing demand
  $ 231,171     $ 223,580  
Interest bearing transaction
    55,624       54,801  
Savings and money market
    375,007       271,791  
Time, $100,000 or more
    284,595       249,516  
Other time
    301,833       329,692  
Total deposits
    1,248,230       1,129,380  
Customer repurchase agreements
               
and federal funds purchased
    112,163       98,802  
Other short-term borrowings
    30,000       55,000  
Long-term borrowings
    32,150       62,150  
Other liabilities
    22,415       9,124  
Total liabilities
    1,444,958       1,354,456  
                 
Stockholders' Equity
               
Preferred stock, par value $.01 per share, shares authorized
               
1,000,000, Series A, $1,000 per share liquidation preference,
               
shares issued and outstanding 38,235 and 38,235 respectively,
               
discount of $1,725 and $1,892, respectively, net
    36,458       36,312  
Common stock, $.01 par value; shares authorized 50,000,000, shares
               
 issued and outstanding  12,763,940 (2009) and 12,714,355 (2008)
    127       127  
Warrants
    1,892       1,892  
Additional paid in capital
    77,099       76,822  
Retained earnings
    28,575       24,866  
Accumulated other comprehensive income
    1,097       2,352  
Total stockholders' equity
    145,248       142,371  
Total Liabilities and Stockholders' Equity
  $ 1,590,206     $ 1,496,827  
 
See notes to consolidated financial statements.
 
3

 
EAGLE BANCORP, INC.
Consolidated Statements of Operations
For the Six and Three Month Periods Ended June 30, 2009 and 2008 (Unaudited)
 (dollars in thousands, except per share data)
 
   
Six Months Ended
   
Three Months Ended
 
   
June 30,
   
June 30,
 
Interest Income
 
2009
   
2008
   
2009
   
2008
 
Interest and fees on loans
  $ 36,683     $ 25,824     $ 18,570     $ 12,944  
Interest and dividends on investment securities
    3,768       2,070       1,839       1,018  
Interest on balances with other banks and short-term investments
    37       57       18       14  
Interest on federal funds sold
    11       58       5       19  
Total interest income
    40,499       28,009       20,432       13,995  
Interest Expense
                               
Interest on deposits
    10,609       8,336       5,052       3,908  
Interest on customer repurchase agreements and
                               
federal funds purchased
    574       695       293       301  
Interest on other short-term borrowings
    158       298       118       108  
Interest on long-term borrowings
    1,375       838       649       436  
Total interest expense
    12,716       10,167       6,112       4,753  
Net Interest Income
    27,783       17,842       14,320       9,242  
Provision for Credit Losses
    3,284       1,534       1,718       814  
Net Interest Income After Provision For Credit Losses
    24,499       16,308       12,602       8,428  
                                 
Noninterest Income
                               
Service charges on deposits
    1,455       761       717       402  
Gain on sale of loans
    658       279       527       152  
Gain on sale of investment securities
    1,537       10       1,405       -  
Increase in the cash surrender value of bank owned life insurance
    230       233       116       117  
Other income
    655       627       338       299  
Total noninterest income
    4,535       1,910       3,103       970  
Noninterest Expense
                               
Salaries and employee benefits
    10,349       7,286       5,044       3,646  
Premises and equipment expenses
    3,702       2,183       1,827       1,103  
Marketing and advertising
    557       195       242       114  
Data processing
    1,122       743       575       403  
Legal, accounting and professional fees
    1,377       408       787       238  
FDIC insurance premiums
    1,915       247       1,474       137  
Other expenses
    2,844       1,678       1,624       891  
Total noninterest expense
    21,866       12,740       11,573       6,532  
Income Before Income Tax Expense
    7,168       5,478       4,132       2,866  
Income Tax Expense
    2,442       1,972       1,481       1,011  
Net Income
    4,726       3,506       2,651       1,855  
Preferred Stock Dividends and Discount Accretion
    1,172       -       589       -  
Net Income Available to Common Shareholders
  $ 3,554     $ 3,506     $ 2,062     $ 1,855  
                                 
Earnings Per Common Share
                               
Basic
  $ 0.28     $ 0.33     $ 0.16     $ 0.17  
Diluted
  $ 0.28     $ 0.32     $ 0.16     $ 0.17  
Dividends Declared Per Common Share
  $ -     $ 0.1091     $ -     $ 0.0545  
 
See notes to consolidated financial statements.
 
4

 
EAGLE BANCORP, INC.
Consolidated Statements of Cash Flows
For the Six Month Periods Ended June 30, 2009 and 2008 (Unaudited)
 (dollars in thousands, except per share data)
 
   
2009
   
2008
 
Cash Flows From Operating Activities
           
Net income
  $ 4,726     $ 3,506  
Adjustments to reconcile net income to net cash
               
provided by operating activities
               
Provision for credit losses
    3,284       1,534  
Depreciation and amortization
    1,130       663  
Gains on sale of loans
    (658 )     (279 )
Origination of loans held for sale
    (72,270 )     (18,204 )
Proceeds from sale of loans held for sale
    65,144       19,176  
Increase in cash surrender value of BOLI
    (230 )     (233 )
Gain on sale of investment securities
    (1,537 )     (10 )
Stock-based compensation expense
    277       126  
Excess tax benefit from exercise of non-qualified stock options
    -       (192 )
Increase in other assets
    (4,196 )     (93 )
Increase (decrease) in other liabilities
    13,291       (262 )
Net cash provided by operating activities
    8,961       5,732  
                 
Cash Flows From Investing Activities
               
Decrease in interest bearing deposits with other banks
               
 and short term investments
    63       3,099  
Purchases of available for sale investment securities
    (94,285 )     (5,879 )
Proceeds from maturities and principal payments
               
     of available for sale securities
    37,871       4,764  
Proceeds from sale/call of available for sale securities
    49,320       8,010  
Net increase in loans
    (49,791 )     (78,842 )
Bank premises and equipment acquired
    (617 )     (523 )
Net cash used in investing activities
    (57,439 )     (69,371 )
                 
Cash Flows From Financing Activities
               
Increase in deposits
    118,850       67,505  
Increase (decrease) in customer repurchase agreements and
               
 federal funds purchased
    13,361       (13,698 )
Decrease in other short-term borrowings
    (25,000 )     (7,000 )
(Decrease) increase in long-term borrowings
    (30,000 )     20,000  
Payment of dividends on preferred stock
    (850 )     -  
Issuance of common stock
    -       794  
Excess tax benefit from exercise of non-qualified stock options
    -       192  
Payment of dividends and payment in lieu of fractional shares
    -       (1,178 )
Net cash provided by financing activities
    76,361       66,615  
                 
Net Increase In Cash And Due From Banks
    27,883       2,976  
                 
Cash And Due From Banks At Beginning Of Period
    27,348       15,652  
                 
Cash and Due from Banks At End Of Period
  $ 55,231     $ 18,628  
                 
Supplemental Cash Flows Information
               
    Interest paid
  $ 10,562     $ 9,894  
    Income taxes paid
  $ 3,096     $ 3,052  
Non-Cash Investing Activities
               
  Transfers from loans to other real estate owned
  $ 2,300     $ -  
 
See notes to consolidated financial statements.
 
5

 
EAGLE BANCORP, INC.
Consolidated Statements of Changes in Stockholders’ Equity
For the Six Month Periods Ended June 30, 2009 and 2008 (Unaudited)
 (dollars in thousands, except per share data)
 
                                 
Accumulated
       
                                 
Other
   
Total
 
   
Preferred
 
Common
         
Additional Paid
   
Retained
   
Comprehensive
   
Stockholders'
 
   
Stock
   
Stock
   
Warrants
 
in Capital
   
Earnings
   
Income (Loss)
   
Equity
 
Balance, January 1, 2009
  $ 36,312     $ 127     $ 1,892     $ 76,822     $ 24,866     $ 2,352     $ 142,371  
Comprehensive Income
                                                       
Net Income
                                    4,726               4,726  
Other comprehensive income:
                                                       
Unrealized gain on
securities available
for sale (net of taxes)
                              (271 )     (271 )
Less: reclassification
adjustment for gains net
of taxes of $553 included
in net income
              (984 )     (984 )
Total Comprehensive Income
                         
`
                      3,471  
Preferred stock dividends  ($22.22 per share)
                                    (850 )             (850 )
Stock-based compensation
                            277                       277  
Preferred stock:
                                                       
Issuance costs
    (21 )                                             (21 )
Discount accretion
    167                               (167 )             -  
Balance, June 30, 2009
  $ 36,458     $ 127     $ 1,892     $ 77,099     $ 28,575     $ 1,097     $ 145,248  
                                                         
Balance, January 1, 2008
  $ -     $ 97     $ -     $ 52,290     $ 28,195     $ 584     $ 81,166  
Comprehensive Income
                                                       
Net Income
                                    3,506               3,506  
Other comprehensive income:
                                                       
Unrealized gain on
securities available
for sale (net of taxes)
                              (387 )     (387 )
Less: reclassification
adjustment for gains net
of taxes of $4 included
in net income
              (6 )     (6 )
Total Comprehensive Income
                         
`
                      3,113  
Cash Dividend ($0.1091 per share)
                                    (1,178 )             (1,178 )
Shares issued under dividend
reinvestment plan -
                              .                  
  47,567 shares
                            523                       523  
Stock-based compensation
                            126                       126  
Exercise of options for 85,814 shares of common stock
    -       1       -       270                       271  
Tax benefit on non-qualified options exercise
                            192                       192  
Balance, June 30, 2008
  $ -     $ 98     $ -     $ 53,401     $ 30,523     $ 191     $ 84,213  
 
See notes to consolidated financial statements.
 
6

 
EAGLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2009 and 2008 (Unaudited)


1. BASIS OF PRESENTATION

The consolidated financial statements of Eagle Bancorp, Inc. (the “Company”) included herein are unaudited.  The consolidated financial statements reflect all adjustments, consisting only of normal recurring accruals that in the opinion of Management, are necessary to present fairly the results for the periods presented. The amounts as of and for the year ended December 31, 2008 were derived from audited consolidated financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. There have been no significant changes to the Company’s Accounting Policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.  The Company believes that the disclosures are adequate to make the information presented not misleading. The results of operations for the three and six months ended June 30, 2009 are not necessarily indicative of the results of operations to be expected for the remainder of the year, or for any other period. Certain reclassifications have been made to amounts previously reported to conform to the classifications made in 2009.

Management has evaluated subsequent events for potential recognition and/or disclosure through August 10, 2009, which is the date that the Company’s financial statements included in this Quarterly Report on Form 10Q were issued.  No material subsequent events have occurred since June 30, 2009 that required recognition or disclosure in these financial statements.
 
2. NATURE OF OPERATIONS

The Company, through EagleBank, its bank subsidiary (the “Bank”), conducts a full service community banking business, primarily in Montgomery County, Maryland, Washington, D.C. and Fairfax County in Northern Virginia. On August 31, 2008, the Company completed the acquisition of Fidelity & Trust Financial Corporation (“Fidelity”) and Fidelity & Trust Bank (“F&T Bank”).  The primary financial services offered by the Bank include real estate, commercial and consumer lending, as well as traditional deposit and repurchase agreement products. The Bank is also active in the origination and sale of residential mortgage loans and the origination of small business loans. The guaranteed portion of small business loans is typically sold through the Small Business Administration, in a transaction apart from the loan’s origination. The Bank currently offers its products and services through thirteen banking offices and various electronic capabilities, including remote deposit services. Eagle Commercial Ventures, LLC (“ECV”), a direct subsidiary of the Company provides subordinated financing for the acquisition, development and construction of real estate projects, where the primary financing is provided by the Bank. Refer to Note 4 - Higher Risk Lending – Revenue Recognition below.
 
3. CASH FLOWS

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, and federal funds sold (items with an original maturity of three months or less).
 
4. HIGHER RISK LENDING – REVENUE RECOGNITION

The Company has occasionally made higher risk acquisition, development, and construction (“ADC”) loans that entail higher risks than ADC loans made following normal underwriting practices (“higher risk loan transactions”). These higher risk loan transactions are made through the Company’s subsidiary, ECV. This activity is limited as to individual transaction amount and total exposure amounts based on capital levels and is carefully monitored. The loans are carried on the balance sheet at amounts outstanding and meet the loan classification
 
7

 
requirements of the Accounting Standards Executive Committee (“AcSEC”) guidance reprinted from the CPA Letter, Special Supplement, dated February 10, 1986 (also referred to as Exhibit 1 to AcSEC Practice Bulletin No. 1). Additional interest earned on these higher risk loan transactions (as defined in the individual loan agreements) is recognized as realized under the provisions contained in  Exhibit 1 to AcSEC Practice Bulletin No.1 and Staff Accounting Bulletin (“SAB”) No. 101 (Revenue Recognition in Financial Statements). The additional interest is included as a component of noninterest income. The Bank had one higher risk lending transaction, amounting to $1.7 million and $1.8 million, outstanding as of June 30, 2009 and December 31, 2008, respectively.

5. OTHER REAL ESTATE OWNED (OREO)

Assets acquired through loan foreclosure are held for sale and are initially recorded at the lower of cost or fair value less estimated selling costs when acquired, establishing a new cost basis. The new basis is supported by recent appraisals. Costs after acquisition are generally expensed. If the fair value of the asset declines, a write-down is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions or review by regulatory examiners.

 
6. INVESTMENT SECURITIES AVAILABLE FOR SALE
 
Amortized cost and estimated fair value of securities available for sale are summarized as follows:
 
         
Gross
   
Gross
   
Estimated
 
 
 
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
June 30, 2009
 
Cost
   
Gains
   
Losses
   
Value
 
(dollars in thousands)
                       
U. S. Government agency securities
  $ 15,722     $ 322     $ 19     $ 16,025  
Mortgage backed securities - GSEs
    128,813       2,388       334       130,867  
Municipal bonds
    20,895       -       474       20,421  
Federal Reserve and Federal Home Loan Bank stock
    10,045       -       -       10,045  
Other equity investments
    396       -       44       352  
    $ 175,871     $ 2,710     $ 871     $ 177,710  
                                 
                                 
                                 
           
Gross
   
Gross
   
Estimated
 
 
 
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
December 31, 2008
 
Cost
   
Gains
   
Losses
   
Value
 
(dollars in thousands)
                               
U. S. Government agency securities
  $ 71,837     $ 2,197     $ 5     $ 74,029  
Mortgage backed securities - GSEs
    77,242       2,559       31       79,770  
Municipal bonds
    5,061       -       353       4,708  
Federal Reserve and Federal Home Loan Bank stock
    9,599       -       -       9,599  
Other equity investments
    1,396       -       423       973  
    $ 165,135     $ 4,756     $ 812     $ 169,079  
 
8

 
Gross unrealized losses and fair value by length of time that the individual available for sale securities have been in a continuous unrealized loss position are as follows:
 
   
Less than
   
12 Months
       
   
12 Months
   
or Greater
   
Total
 
   
Estimated
         
Estimated
         
Estimated
       
 
 
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
June 30, 2009
 
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
(dollars in thousands)
                                   
U. S. Government agency securities
  $ 2,965     $ 19     $ -     $ -     $ 2,965     $ 19  
Mortgage backed securities - GSEs
    53,176       334       -       -       53,176       334  
Municipal bonds
    6,982       474       -       -       6,982       474  
Other equity investments
    134       44       -       -       134       44  
    $ 63,257     $ 871     $ -     $ -     $ 63,257     $ 871  
                                                 
                     
   
Less than
   
12 Months
         
   
12 Months
   
or Greater
   
Total
 
   
Estimated
           
Estimated
           
Estimated
         
 
 
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
December 31, 2008
 
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
(dollars in thousands)
                                               
U. S. Government agency securities
  $ 4,480     $ 5     $ -     $ -     $ 4,480     $ 5  
Mortgage backed securities - GSEs
    7,715       31       -       -       7,715       31  
Municipal bonds
    4,707       353       -       -       4,707       353  
Other equity investments
    576       423       -       -       576       423  
    $ 17,478     $ 812     $ -     $ -     $ 17,478     $ 812  
 
The unrealized losses that exist are the result of changes in market interest rates since original purchases.  The weighted average duration of debt securities, which comprise 94% of total investment securities, is relatively short at 3.1 years. The Company does not believe that the investment securities that were in an unrealized loss position as of June 30, 2009 represent an other-than-temporary impairment.  Total gross unrealized losses were primarily attributed to changes in market interest rates since the original purchases, and not due to the credit quality of the investment securities.  The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity.

The amortized cost and estimated fair value of investments available for sale at June 30, 2009, by contractual maturity, are shown in the table below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
9

 

   
Available-for-Sale
 
   
Amortized
   
Estimated
 
(dollars in thousands)
 
Cost
   
Fair Value
 
Amounts maturing
           
U. S. Government agency securities maturing:
           
   One year or less
  $ 1,999     $ 2,089  
   After one year through five years
    13,723       13,936  
Mortgage backed securities - GSEs
    128,813       130,867  
Municipal bonds maturing:
               
   Five years through ten years
    3,034       3,028  
   After ten years
    17,861       17,393  
FRB, FHLB and  other equity securities
    10,441       10,397  
    $ 175,871     $ 177,710  
 
The carrying value of securities pledged as collateral for certain government deposits, securities sold under agreement to repurchase, and certain lines of credit with correspondent banks at June 30, 2009 was $155 million. As of June 30, 2009 and December 31, 2008, there were no holdings of securities of any one issuer, other than the U.S. Government and U.S. Government agency securities that exceeded ten percent of shareholders’ equity.
 
7. INCOME TAXES
 
The Company employs the liability method of accounting for income taxes as required by Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” Under the liability method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities (i.e., temporary differences) and are measured at the enacted rates that will be in effect when these differences reverse.  The Company utilizes statutory requirements for its income tax accounting, and avoids risks associated with potentially problematic tax positions that may incur challenge upon audit, where an adverse outcome is more likely than not. Therefore, no provisions are made for either uncertain tax positions or accompanying potential tax penalties and interest for underpayments of income taxes in the Company’s tax reserves. In accordance with SFAS No.109, the Company may establish a reserve against deferred tax assets in those cases where realization is less than certain.
 
8. EARNINGS PER SHARE

The calculation of net income per common share for the six and three months ended June 30 was as follows:
 
10

 
 
   
Six Months Ended
   
Three Months Ended
 
   
June 30,
   
June 30,
 
(dollars and shares in thousands)
 
2009
   
2008
   
2009
   
2008
 
Basic
                       
Net income available to common stockholders
  $ 3,554     $ 3,506     $ 2,062     $ 1,855  
Average common shares outstanding
    12,747       10,788       12,750       10,759  
Basic net income per common  share
  $ 0.28     $ 0.33     $ 0.16     $ 0.17  
                                 
Diluted
                               
Net income available to common stockholders
  $ 3,554     $ 3,506     $ 2,062     $ 1,855  
Average common shares outstanding
    12,747       10,788       12,750       10,759  
Adjustment for common share equivalents
    70       131       137       160  
Average common shares outstanding-diluted
    12,817       10,919       12,887       10,919  
Diluted net income per common share
  $ 0.28     $ 0.32     $ 0.16     $ 0.17  
 
Per share amounts and the number of outstanding shares have been adjusted to give effect to the 10% common stock dividend paid on October 1, 2008
 
9. STOCK-BASED COMPENSATION
 
The Company maintains the 1998 Stock Option Plan (“1998 Plan”) and the 2006 Stock Plan (“2006 Plan”). No additional options may be granted under the 1998 Plan.

The 2006 Plan provides for the issuance of awards of incentive options, nonqualifying options, restricted stock and stock appreciation rights to selected key employees and members of the Board. The 2006 Plan shares were increased from 715,000 to 1,215,000 on May 21, 2009 by approval of an amendment by the shareholders. Option awards were made with an exercise price equal to the market price of the Company’s shares at the date of grant.

In January 2009, the Company awarded options to purchase 315,437 shares of common stock and 30,763 shares of restricted stock to employees, senior officers and to a Director. Of the total options awarded, 263,700 have a ten-year term and vest in five substantially equal installments beginning on the first year anniversary of the date of grant. The remaining options have a ten-year term and vest over a four-year period beginning on the seventh year anniversary of the date of grant. The restricted stock is service based, which vest in five substantially equal installments beginning on the first year anniversary of the date of grant. The restricted stock is being recognized as compensation expense over a five-year period based on the market value of shares at the date of grant.
 
In April 2009, the Company awarded options to purchase 1,500 shares to an employee under the 2006 Plan which have a ten-year term and vest in five substantially equal installments on the first through fifth anniversaries of the date of grant.
 
In June 2009, the Company awarded 18,822 shares of restricted stock to eighteen nonemployee Directors of the Company and Bank. The restricted stock vests in three substantially equal installments beginning on the first year anniversary of the date of grant. The restricted stock is being recognized as compensation expense over a three-year period based on the market value of shares at the date of grant.

 The fair value of each option grant and other equity based award is estimated on the date of grant using the Black-Scholes option pricing model with the assumptions shown in the table below used for grants during the six months ended June 30, 2009 and the twelve months ended December 31, 2008 and 2007.

Below is a summary of changes in shares under option plans (split adjusted) for the six months ended June 30, 2009. The information excludes restricted stock awards.
 
11

 
 
                 
Weighted-Average
   
Weighted-Average
   
Aggregate
 
           
Weighted-Average
   
Remaining
   
Grant Date
   
Intrinsic
 
As of 1/1/2009
   
Stock Options
   
Exercise Price
   
Contractual Life
   
Fair Value
   
Value
 
Outstanding
      1,028,754     $ 13.01       -     $ 2.57       -  
Vested
      800,058       13.05       -       2.43       -  
Nonvested
      228,696       12.86       -       3.07       -  
                                           
Period Activity
                                         
Issued
      316,937     $ 6.34       -     $ 2.00       -  
Exercised
      -       -       -       -       -  
Forfeited
      3,980       9.38       -       2.24       -  
Expired
      10,936       12.89       -       3.17       -  
                                           
As of 6/30/2009
                                         
Outstanding
      1,330,775     $ 11.43       5.30     $ 2.43     $ 1,610,323  
Vested
      854,925       13.04       3.85       2.43       826,895  
Nonvested
      475,850       8.53       7.90       2.44       783,428  
                                           
                                           
                                           
Outstanding:
                   
Weighted-Average
                 
Range of
   
Stock Options
   
Weighted-Average
   
Remaining
                 
Exercise Prices
   
Outstanding
   
Exercise Price
   
Contractual Life
                 
$2.98 - $8.10       559,722     $ 5.90       6.33                  
$8.11 - $11.07       246,215       10.24       4.94                  
$11.08 - $15.43       247,673       13.01       4.08                  
$15.44 - $26.86       277,165       22.27       4.62                  
          1,330,775       11.43       5.30                  
                                             
Exercisable:
                                         
 Range of      Stock Options      Weighted-Average                          
Exercise Prices
   
Outstanding
   
Exercise Price
                         
$2.98 - $8.10       222,023     $ 5.05                          
$8.11 - $11.07       244,214       10.24                          
$11.08 - $15.43       131,835       12.92                          
$15.44 - $26.86       256,853       22.68                          
          854,925       13.04                          
                                             
Assumptions:
                                         
       
Six Months Ended
   
Year Ended
   
Year Ended
                 
       
June 30, 2009
      2008       2007                  
Expected Volatility
      25.9% - 41.2 %     23.7% - 78.5 %     18.5% - 24.4 %                
Weighted-Average Volatility
      25.97 %     35.47 %     20.12 %                
Expected Dividends
      0.0 %     0.8 %     1.4 %                
Expected Term (In years)
      7.0 - 8.5       0.1 - 9.0       3.1 - 4.0                  
Risk-Free Rate
      0.83 %