EAGLE BANCORP INC

Liquidity is a measure of the Company’s and Bank’s ability to meet loan demand and to satisfy depositor withdrawal requirements in an orderly manner. The Bank’s primary sources of liquidity consist of cash and cash balances due from correspondent banks, excess reserves at the Federal Reserve, loan repayments, federal funds sold and other short-term investments, maturities and sales of investment securities, income from operations and new core deposits into the Bank. Approximately 57% of the Company's investment portfolio of debt securities is held in an available-for-sale status which allows for flexibility to generate cash from sales as needed to meet ongoing loan demand. These securities can also be utilized as pledged assets that provide secondary liquidity through the form of additional available borrowings. Investment securities that are classified as held-to-maturity can also be used as collateral to pledge against additional borrowings. These sources of liquidity are considered primary and are supplemented by the ability of the Company and Bank to borrow funds or issue brokered deposits, which are termed secondary sources of liquidity.

The following table summarizes the Company's secondary sources of liquidity in use and available as of March 31, 2025:

(1)The available liquidity from the unsecured brokered deposits represents unsecured funds under one-way CDARS and ICS brokered deposits that would require then current market rates and be dependent on the availability of funds in those networks.

(2)Unpledged assets are comprised of unencumbered assets that could be liquidated or used as collateral to obtain additional liquidity through debt financing.

The funding mix has continued to change throughout the three months ended March 31, 2025. Deposits were $9.3 billion and $9.1 billion as of March 31, 2025 and December 31, 2024, respectively. The increase was primarily attributable to a $408.1 million increase in interest bearing time deposits, and a $63.4 million increase in noninterest bearing deposits, offset by a $285.1 million reduction in interest-bearing transaction accounts and a $40.3 million reduction in savings and money market accounts. The growth in interest bearing deposits was driven by the increase in time deposits through the digital acquisition channel during the three months ended March 31, 2025, as discussed in "Deposits and Other Borrowings" above. Short-term borrowings were $490.0 million as of March 31, 2025 and December 31, 2024.

Additionally, the Bank can purchase up to $145.0 million in federal funds on an unsecured basis from its correspondents, against which there were no amounts outstanding as of March 31, 2025 and can borrow unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.1 billion, against which there was $82 million outstanding as of March 31, 2025. As of March 31, 2025, the Bank also has custodial agreements with various broker-dealers through IntraFi's IND program which provided $812.0 million of brokered deposits.

As of March 31, 2025, the Bank was also eligible to draw advances from the FHLB up to $1.6 billion based on assets pledged as collateral to the FHLB, against which the Bank borrowed $490.0 million as of March 31, 2025.

The Bank may enter into repurchase agreements as well as obtain additional borrowing capabilities from the FHLB provided adequate collateral exists to secure these lending relationships. The Bank also has a back-up borrowing facility through the Discount Window at the Federal Reserve Bank of Richmond (“Federal Reserve Bank”). This facility, which can be used to borrow up to $1.8 billion, is collateralized with specific loan assets identified to the Federal Reserve Bank. It is anticipated that, except for periodic testing, this facility would be utilized for contingency funding only. There can be no assurance, however, that these alternative sources of liquidity will continue to be available or will be sufficient to meet our ongoing liquidity needs.

In total, the Bank's aggregate borrowing capacity as of March 31, 2025 was $4.2 billion, which consists of $1.1 billion and $1.8 billion additional aggregate capacity to borrow from the FHLB and the Federal Reserve's Discount Window, respectively, on existing pledged assets. The Bank's aggregate borrowing capacity also includes unencumbered securities totaling approximately $1.3 billion available for pledging to the FHLB or Federal Reserve for additional borrowing capacity.

The loss of deposits, including through disintermediation, is one of the primary risks to liquidity. Disintermediation occurs most commonly when rates rise and depositors withdraw deposits seeking higher rates in alternative savings and investment sources than the Bank may offer. The Bank makes competitive deposit interest rate comparisons weekly and makes adjustments from time to time to ensure its interest rate offerings are competitive.

There is, however, a risk that the cost of funds will increase significantly as the Bank competes for deposits or that some deposits would be lost if rates were to increase and the Bank elected not to remain competitive with its deposit rates. Under those conditions, the Bank believes that it is well positioned to use other sources of funds such as FHLB borrowings, brokered deposits, repurchase agreements and correspondent banks’ lines of credit to offset a decline in deposits in the short run, but the use of such sources may negatively impact our net interest margin and our earnings. The continuing elevated cost of funding has negatively impacted our net interest margin.

There can be no assurance that the mix of sources of funds available to us at any particular time in the future will be adequate to meet our future liquidity needs. However, the market for customer and brokered deposits is highly competitive and the risk of disintermediation is high, particularly in a high interest rate environment. Most of our noninterest bearing deposits are operating deposits or compensating balances that are held in connection with lending relationships. The potential outflow of such deposits is a risk unless we pay a more competitive rate of interest on them, which could significantly and negatively impact the Bank’s interest expense and net interest margin, as the transfer of some noninterest-bearing deposits to interest-bearing deposits did in 2025. Over the long-term, an adjustment in assets and change in business emphasis could compensate for a potential loss of deposits. The Bank also maintains a marketable investment portfolio to provide flexibility in the event of significant liquidity needs. The Asset Liability Committee ("ALCO") has adopted policy guidelines, which emphasize the importance of core deposits, adequate asset liquidity and a contingency funding plan.

The Company believes it maintains sufficient primary and secondary sources of liquidity to fund its operations. During the three months ended March 31, 2025, average short term liquidity was $2.8 billion comprising interest bearing deposits with other banks and other short-term investments and AFS securities, which is above the Bank's average needs. Secondary sources of liquidity as of March 31, 2025 were $5.6 billion, which include the FHLB, other insured brokered deposit sweep programs, unpledged securities, Fed funds lines, and the FRB Discount Window. As of March 31, 2025, the Company held total securities available to be pledged with an estimated fair value of $1.3 billion. As of March 31, 2025, under the Bank’s liquidity formula, it had $6.5 billion of primary and secondary liquidity sources. Management believes the amount is adequate to meet current and projected funding needs.