EAGLE BANCORP INC

RESULTS OF OPERATIONS

Three Months Ended March 31, 2025 Compared with Three Months Ended March 31, 2024

Overview

Net income for the three months ended March 31, 2025 was $1.7 million, as compared to net loss of $0.3 million, for the same period in 2024. This increase was primarily attributable to lower provision for credit losses and higher noninterest income, partially offset by lower net interest income and higher noninterest expense during the current period. See the discussion below for more information on these drivers and the components of these changes.

Net interest income decreased to $65.6 million for three months ended March 31, 2025 compared to $74.7 million for the three months ended March 31, 2024. The net interest margin, which measures the difference between interest income and interest expense as a percentage of earning assets, was 2.28% for three months ended March 31, 2025 and 2.43% for three months ended March 31, 2024, a decrease of 15 basis points. For further information on the components and drivers of these changes, see the "Net Interest Income and Net Interest Margin" section below.

Total noninterest income in three months ended March 31, 2025 was $8.2 million, as compared to $3.6 million in three months ended March 31, 2024, a 129% increase, primarily driven by higher income from bank owned life insurance (“BOLI”) during the current period. See "Other Earnings Assets" section below for further discussion on BOLI.

The provision for credit losses in the three months ended March 31, 2025 was $26.3 million as compared to $35.2 million in three months ended March 31, 2024. For information on the components and drivers of these changes see "Provision for Credit Losses" section below.

Noninterest expenses in three months ended March 31, 2025 totaled $45.5 million, as compared to $40.0 million for the same period in 2024, a 14% increase. The increase was primarily attributable to higher FDIC insurance assessments during the current period. Additional details on these expenses and other noninterest expenses are provided in "Noninterest Expense" section below.

The efficiency ratio, which measures the ratio of noninterest expense to total net revenue (the sum of net interest income and non-interest income), was 61.54% for three months ended March 31, 2025 as compared to 51.09% for same period in 2024.

In terms of the average asset composition or mix, loans, which generally have higher yields than securities and other earning assets, represented 68% and 65% of average earning assets for three months ended March 31, 2025 and 2024, respectively. For three months ended March 31, 2025, as compared to same period in 2024, average loans, excluding loans held for sale, decreased by $55.2 million, or 1%, driven by payoffs and paydowns that outpaced originations and advances.

Average investment securities for three months ended March 31, 2025 were 19% of average earning assets compared to 20% for same period in 2024. The combination of federal funds sold and interest bearing deposits with other banks represented 12% and 15% of average earning assets for three months ended March 31, 2025 and 2024, respectively.

The ratio of common equity to total assets was relatively flat at 11.00% as of March 31, 2025, compared to 11.02% as of December 31, 2024. For three months ended March 31, 2025, the return on average assets (“ROAA”) was 0.06%, as compared to (0.01)% for same period in 2024. Total shareholders’ equity was $1.24 billion as of March 31, 2025 as compared to $1.23 billion as of December 31, 2024, an increase of 2%. The return on average common equity (“ROACE”) for three months ended March 31, 2025 was 0.55% as compared to (0.11)% for same period in 2024.

Net Interest Income and Net Interest Margin

Net interest income is the difference between interest income on earning assets and the cost of funds supporting those assets. Earning assets are composed primarily of loans, investment securities and interest bearing deposits with other banks and other short term investments. The cost of funds represents interest expense on deposits, customer repurchase agreements and other borrowings, which consist primarily of federal funds purchased, advances from secured financing arrangements, including the Federal Home Loan Bank of Atlanta ("FHLB") and Discount Window, and senior notes. Noninterest bearing deposits and capital are other components representing funding sources. Changes in the volume and mix of assets and funding sources, along with the changes in yields earned and rates paid, determine changes in net interest income.

Net interest income for the three months ended March 31, 2025 was $65.6 million compared to $74.7 million for the same period in 2024. The 12% decrease for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily due to increases in average deposits ($8.0 billion compared to $7.4 billion, respectively) offset by decreases in average deposit rates (3.91% compared to 4.29%, respectively), and by a decrease in the level of other short term borrowings ($682.2 million compared to $1.8 billion, respectively) partially offset by an increase in the interest rate paid on other short-term borrowings (5.19% compared to 4.75%, respectively). Additionally, average loan balances ($7.9 billion compared to $8.0 billion, respectively) and yields (6.45% compared to 6.95%, respectively) were slightly lower.

Net interest margin decreased by 15 basis points to 2.28% in three months ended March 31, 2025 from 2.43% in three months ended March 31, 2024. The decrease reflects the increase in deposits and related cost of funds and the decrease in the yield on loans. The cost of funds on interest-bearing liabilities decreased 23 basis points from 3.58% in three months ended March 31, 2024 to 3.35% in three months ended March 31, 2025, while the yield on interest-earning assets decreased by 35 basis points from 5.71% in three months ended March 31, 2024 to 5.36% in three months ended March 31, 2025.

Average loans held for investment were $7.9 billion for the three months ended March 31, 2025, compared to $8.0 billion for the same period in 2024. Average investment securities were $2.3 billion for the three months ended March 31, 2025, compared to $2.5 billion for the same period in 2024. Average interest-bearing deposits with other banks and other short term investments were $1.4 billion for three months ended March 31, 2025 compared to $1.8 billion for the same period in 2024. Interest income on loans, the largest component of interest income on earning assets, had a yield of 6.45% in three months ended March 31, 2025, compared to 6.95% in same period in 2024, a decrease of 50 basis points.

Average interest-bearing deposits increased from $7.4 billion in the three months ended March 31, 2024 to $8.0 billion in the three months ended March 31, 2025, while average noninterest bearing demand deposits decreased to $1.9 billion for the three months ended March 31, 2025 from $2.1 billion for the three months ended March 31, 2024.

Average borrowings decreased from $1.8 billion in the three months ended March 31, 2024 to $0.8 billion in the three months ended March 31, 2025. Refer to the "Deposits and Other Borrowings" section below for further discussion of deposits and borrowings.

The table below presents the average balances and rates of the major categories of the Company's assets and liabilities for the three months ended March 31, 2025 and 2024. Included in the table are measurements of interest rate spread and margin. Interest rate spread is the difference (expressed as a percentage) between the interest rate earned on earning assets less the interest rate paid on interest bearing liabilities. While the interest rate spread provides a quick comparison of earnings rates versus cost of funds, management believes that margin, together with net interest income, provides a better measurement of performance. The net interest margin (as compared to net interest spread) includes the effect of noninterest bearing sources in its calculation. Net interest margin is net interest income expressed as a percentage of average earning assets.

Eagle Bancorp, Inc.

Consolidated Average Balances, Interest Yields And Rates (Unaudited)

(1)Loans placed on nonaccrual status are included in average balances. Net loan fees and late charges included in interest income on loans totaled $3.8 million and $5.1 million, for the three months ended March 31, 2025, and 2024, respectively.

(2)Interest and fees on loans and investments exclude tax equivalent adjustments.

Rate/Volume Analysis of Net Interest Income

The rate/volume table below presents the composition of the change in net interest income for the period indicated, as allocated between the change in net interest income due to changes in the volume of average earning assets and interest bearing liabilities, and the changes in net interest income due to changes in interest rates.

Provision for Credit Losses

The provision for credit losses represents the amount of expense charged to current earnings to record the ACL on loans and the ACL on HTM investment securities. The amount of the ACL on loans is based on management's assessment of current expected credit losses in the portfolio. Those factors include historical losses based on internal and peer data, economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio, and internal loan processes of the Company.

Refer to the discussion under “Critical Accounting Policies and Estimates” above and in Note 1 to the Consolidated Financial Statements for an overview of the methodology management employs on a quarterly basis to assess the adequacy of the allowance and the provisions charged to expense. Also, refer to the table in the "Allowance for Credit Losses" section which reflects activity in the ACL.

The provision for credit losses on loans for the three months ended March 31, 2025 was $26.3 million and there were $11.2 million of net charge offs in its ACL compared to $35.2 million and $21.4 million respectively, during the same period in 2024.

The change in the provision for credit losses on the loan portfolio for the three months ended March 31, 2025 was primarily attributable to the replenishment of the reserve following net charge-offs of $11.2 million, as mentioned above, and an increase in the qualitative overlay. The increase in the overlay relates to updated assumptions associated with the probability of default and probability of loss associated with commercial real estate office loans. For a discussion of the adverse effects changes in government spending and the size of the federal workforce have had on our loan portfolio and provision for credit losses, and the associated risks of future increases in our provision for credit losses from these or further such changes, see "Item 1A. Risk Factors" below.

The provision for credit losses for the held-to-maturity securities portfolio was recorded primarily on several corporate bonds. During the three months ended March 31, 2025, there was a reversal of provision for credit losses of $54 thousand for the held-to-maturity securities portfolios, compared to a provision expense of $1 thousand for the three months ended March 31, 2024.

The provision for credit losses for unfunded commitments is presented separately on the Statement of Operations. This provision considers the probability that unfunded commitments will fund among other factors. There was a reversal of $297 thousand in three months ended March 31, 2025, compared to a provision expense of $456 thousand in three months ended March 31, 2024, primarily due to lower unfunded commitments in our construction portfolio during the current period.

Noninterest Income

Noninterest income includes service charges on deposits, gain on sale of investment securities, income from BOLI and other income. The following table summarizes the comparative noninterest income for the three months ended March 31, 2025 and 2024:

Total noninterest income for the three months ended March 31, 2025 was $8.2 million as compared to $3.6 million for the three months ended March 31, 2024. This 129% increase was primarily driven by a new BOLI investment of $200 million in the quarter ended March 31, 2025.

Noninterest Expense

Total noninterest expense includes salaries and employee benefits, premises and equipment expenses, marketing and advertising, data processing, legal, accounting and professional fees, FDIC insurance assessments and other expenses. The following table summarizes the comparative noninterest expense for the three months ended March 31, 2025 and 2024:

Total noninterest expense was $45.5 million for the three months ended March 31, 2025, as compared to $40.0 million for the three months ended March 31, 2024. This 14% increase was primarily due to higher FDIC deposit insurance assessments during the current period. FDIC insurance expense was $9.0 million for the three months ended March 31, 2025 as compared to $6.4 million for same period in 2024, an increase of $2.5 million, or 40%.

The major components of other expenses include regulatory assessment fees, director compensation, real estate taxes, and insurance expenses. Other expenses were $2.8 million for three months ended March 31, 2025 as compared to $2.1 million for same period in 2024, an increase of 33%. The increase in three months ended March 31, 2025, as compared to 2024, was primarily due to an increase in real estate taxes.

The efficiency ratio, which measures the ratio of noninterest expense to total net revenue, was 61.54% for the three months ended March 31, 2025 as compared to 51.09% for the same period in 2024. This increase in the efficiency ratio was primarily driven by higher FDIC insurance, as discussed above, and a decrease in net interest income.

As a percentage of average assets, total noninterest expense (annualized) was 1.52% for the three months ended March 31, 2025 as compared to 1.26% for the same period in 2024. The increase for the three months ended March 31, 2025 as compared to the same period 2024 was primarily due to a decrease in average interest earning assets and an increase in FDIC assessment.

Income Tax Expense

Income tax expense was $772 thousand for the three months ended March 31, 2025 as compared to $3.0 million for the three months ended March 31, 2024. The decrease in the income tax provisions was primarily driven by a decrease in the pre-tax income, and lower tax expense related to the vesting of stock-based compensation.

The effective tax rate for the three months ended March 31, 2025 was 31.5%. The effective tax rate for the first three months of 2025 varies from the 21% statutory rate primarily due to the tax expense related to the excess initial fair values of stock awards that were expensed compared to the fair market value at vesting, net with the tax benefit of tax-exempt interest income and tax-exempt income from the increase in the cash surrender value of BOLI.