EAGLE BANCORP INC

Summary of Consolidated Statements of Operations

This section discusses our condensed consolidated results of operations and should be read together with our consolidated financial statements and the accompanying notes.

Net loss for the three and nine months ended September 30, 2025, compared to three and nine months ended September 30, 2024, was primarily due to higher provision for credit losses, partially offset by the corresponding income tax benefit. See respective subsections below for the primary drivers of change and further discussion on net interest income, provision for credit losses, noninterest income, noninterest expenses, and income tax expenses.

When the impact of the provision is excluded, pre-provision net revenue ("PPNR"), a non-GAAP measure, was $28.8 million for three months ended September 30, 2025, as compared to $35.2 million for the same period in 2024. The decrease was primarily due to lower noninterest income driven by losses on sale of loans and investment securities during the current period. For further discussion of drivers for this change, see the "Noninterest Income" section below.

PPNR was $87.9 million for the nine months ended September 30, 2025, as compared to $3.7 million for the same period in 2024. The increase was primarily due to lower noninterest expenses in the current period driven by the recognition of one-time goodwill impairment of $104.2 million during 2024 which resulted in higher noninterest expense in the prior period. For further discussion of drivers for this change, see the "Noninterest Expense" section below.

Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

The efficiency ratio, which measures the ratio of noninterest expense to total net revenue (the sum of net interest income and noninterest income), was 59.3% and 59.8%, respectively, for three and nine months ended September 30, 2025 compared to 55.4% and 98.4% for the same periods in 2024. The improvement in the nine months ended September 30, 2025 over the same period in 2024 was primarily driven by the recognition of one-time goodwill impairment of $104.2 million during the second quarter of 2024.

Net interest margin, which measures net interest income as a percentage of earning assets, was 2.43% and 2.37% for the three and nine months ended September 30, 2025 compared to 2.37% and 2.40% for the same periods in 2024, an increase of 6 basis points and a decrease of 3 basis points, respectively. For further information on the components and drivers of these changes, see the "Net Interest Income and Net Interest Margin" section below.

Loans, which generally have higher yields than securities and other earning assets, represented 69% and 66% of average earning assets for nine months ended September 30, 2025 and 2024, respectively. Refer to the "Loan Portfolio" below for further discussion on loans.

Average investment securities for nine months ended September 30, 2025 were 18.8% of average earning assets compared to 20.5% for the same period in 2024. The combination of federal funds sold and interest-bearing deposits with other banks represented 12.4% and 13.5% of average earning assets for nine months ended September 30, 2025 and 2024, respectively.

The ratio of common equity to total assets decreased to 10.39% as of September 30, 2025, compared to 11.02% as of December 31, 2024. For three and nine months ended September 30, 2025, the return (loss) on average assets ("ROAA") was (2.31)% and (1.53)%, respectively, as compared to 0.70% and (0.67)% for the same periods in 2024. Total shareholders’ equity was $1.12 billion as of September 30, 2025 as compared to $1.23 billion as of December 31, 2024, a decrease of 8%, driven by losses in the first nine months of 2025. The return (loss) on average common equity for three and nine months ended September 30, 2025 was (22.66)% and (14.79)% respectively, as compared to 7.22% and (6.65)% for the same periods 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.

The table below presents the average balances and rates of the major categories of the Company's assets and liabilities. Included in the tables 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.

(1)Loans placed on nonaccrual status are included in average balances. Net loan fees and late charges included in interest income on loans totaled $3.7 million and $11.1 million for the three and nine months ended 2025, respectively, and $3.9 million and $12.9 million for the three and nine months ended 2024, respectively.

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

Net interest income decreased for the third quarter of 2025 compared to the third quarter of 2024, primarily due to lower average balances and lower yields on loans and lower average balance of securities as well interest bearing deposits with other banks. Both interest income and interest expense declined during the quarter, reflecting the impact of lower market rates and declining average balances.

Net interest margin increased for the third quarter of 2025 compared to the third quarter of 2024, primarily due to reduction in interest earning assets associated with a decline in nonaccrual loan balances in the commercial real estate ("CRE") loan portfolio as well as securities in the investment portfolio. The cost of funds on interest-bearing liabilities had a decrease of 53 basis points from 3.69% for the three months ended September 30, 2024 to 3.16% for the three months ended September 30, 2025, while the yield on interest-earning assets had an decrease of 38 basis points from 5.73% for the three months ended September 30, 2024 to 5.35% for the three months ended September 30, 2025.

Net interest income decreased for the first nine months of 2025 compared to the first nine months of 2024, primarily due to a larger decrease in interest-earning assets compared to interest-bearing liabilities. Additionally, average loan yields were lower in 2025 compared to the prior year, partially offset by lower yields on interest-bearing liabilities.

Net interest margin decreased for the first nine months of 2025 compared to the first nine months of 2024, primarily due to a decrease in the yield on loans and lower average balances of interest-earning assets, partially offset by lower yields on interest-bearing liabilities. The cost of funds on interest-bearing liabilities decreased by 40 basis points from 3.63% for the nine months ended September 30, 2024 to 3.23% for the nine months ended September 30, 2025, while the yield on interest-earning assets had a decrease of 38 basis points from 5.72% for the nine months ended September 30, 2024 to 5.34% for the nine months ended September 30, 2025.

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.

The table below presents a breakdown of the current provision for credit losses included in our Consolidated Statements of Operations.

The change in the provision for credit losses on the loan portfolio for the three and nine months ended September 30, 2025 was primarily attributable to the replenishment of the reserve following net charge-offs, as reported in the table above, and an increase in the qualitative overlay.

Net charge-offs of $235.9 million during the first nine months of 2025 represented 4.02% of average loans held for investment on an annualized basis, an increase from net charge-offs of $29.0 million during same period in 2024, which represented 0.48% of average loans held for investment on an annualized basis. Charge-offs during the first nine months of 2025 were driven by elevated losses primarily on office loans and other real estate loans with underlying office exposure, and to a lesser extent on land, multifamily, and senior living loans. The increase in charge-offs was primarily driven by the receipt of new information regarding collateral valuations and borrower performance, particularly within the office sector. During the second quarter of 2025, we disclosed our strategy for resolving criticized and classified loans with the goal of accelerating dispositions and reducing future asset quality risk. In furtherance of this strategy, we obtained updated valuations in the third quarter of 2025 on the underlying collateral for certain loans that resulted in significant charge offs related to actual and expected dispositions.

Additionally, during the third quarter of 2025 we identified for disposition certain loans that were transferred to loans held-for-sale (HFS), which resulted in additional charge-offs of $109.5 million to record those loans at their fair value at the time of transfer. Charge-offs related to loans transferred to HFS or sold during the nine months ended September 30, 2025 totaled $170.3 million, of which $124.1 million was related to HFS loans on our balance sheet as of September 30, 2025. Our actions during the first nine months of 2025 reflect a disciplined approach to credit risk management that incorporates updated market and borrower data into our loss estimates.

The CRE office overlay decreased in the third quarter relative to the second quarter as office loans were moved to HFS. However, updated assumptions associated with the PD and LGD rates, as well as downward risk rating migration, as further discussed in the "Allowance for Credit Losses" section below, impacted the office overlay in the third quarter. Although loans were transferred to held-for-sale in the second and third quarter of 2025, reducing the office overlay population, the resulting charge-offs on those loans informed higher loss factors on the remaining loans addressed by the qualitative overlay, contributing to the elevated overlay for the first nine months of 2025. The increase in the qualitative reserve for the first nine months of 2025 reflects management’s assessment of continued uncertainty in the CRE market, particularly within the office sector, as well as potential lag effects from interest-rate sensitivity, valuation declines, and refinancing risk. Management continues to monitor trends in occupancy, capitalization rates, and market liquidity across key metropolitan areas and may adjust qualitative reserves further as these factors evolve.

The ACL coverage ratio remains within management’s target range and reflects the current asset quality profile, though further provision expense may be required if collateral values or borrower performance continue to deteriorate.

The provision for credit losses for the held-to-maturity securities portfolio was recorded primarily on several corporate bonds. During the three and nine months ended September 30, 2025, there was a reversal of provision for credit losses of $30 thousand and $129 thousand, respectively, for the held-to-maturity securities portfolio, compared to a reversal of provision expense of $775 thousand and $719 thousand, respectively, for the three and nine months ended September 30, 2024.

The provision for credit losses for unfunded commitments is presented separately on the Consolidated Statements of Operations. This provision considers the probability that unfunded commitments will fund, among other factors. There was a reversal of provision of $38 thousand and provision expense of $1.4 million, respectively, for the three and nine months ended September 30, 2025, compared to a reversal of provision of $1.6 million and $529 thousand, respectively, for the three and nine months ended September 30, 2024, primarily due to higher unfunded commitments in our commercial and industrial portfolio during the current period.

Refer to the discussion under "Critical Accounting Policies and Estimates" above and in "Note 1 – Summary of Significant Accounting Policies" 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.

Noninterest Income

Noninterest income includes service charges on deposits, gain/(loss) on sale of investment securities, income from BOLI and other income. The table below summarizes the comparative noninterest income.

The decrease in total noninterest income in the third quarter of 2025 compared to the third quarter of 2024 was primarily driven by $3.6 million loss on sale of loans and a $2.0 million loss on sale of securities in the investment portfolio, partially offset by increases in the cash surrender value of BOLI investments during the third quarter of 2025.

The increase in total noninterest income in the first nine months of 2025 as compared to the first nine months of 2024 was primarily driven by increases in the cash surrender value of BOLI investments in the first nine months of 2025, partially offset by losses on the sale of loans and investment securities.

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 table below summarizes the comparative noninterest expense.

The decrease in total noninterest expense in the third quarter of 2025, as compared to the third quarter of 2024, was primarily due to lower legal, accounting and professional fees and lower FDIC insurance assessments in the current period.

The decrease in total noninterest expense in the first nine months of 2025 as compared to the first nine months of 2024 was primarily due to the $104.2 million 2024 goodwill impairment, partially offset by higher FDIC insurance assessments and higher data processing costs during the first nine months of 2025.

The major components of other expenses include regulatory assessment fees, director compensation, real estate taxes, and insurance expenses.

As a percentage of average assets, total noninterest expense (annualized) was 1.43% and 1.47% for the three and nine months ended September 30, 2025 as compared to 1.40% and 2.46% for the same period in 2024. The third quarter 2025 percentage compared to third quarter of 2024 was relatively flat while the decrease for the nine months ended September 30, 2025 as compared to the same period 2024 was primarily due to no goodwill impairment during the current period.

Income Tax Expense

For the three and nine months ended September 30, 2025, income tax benefit was $16.9 million and $55.6 million, respectively, compared to income tax expense of $4.9 million and $12.3 million for the three and nine months ended September 30, 2024, respectively. The decrease in the income tax expense compared to prior year was primarily due to a decrease in the pre-tax income during the first nine months of 2025, and the 2024 goodwill impairment that was not deductible for tax purposes.

The effective tax rate for the three and nine months ended September 30, 2025 was 20.0% and 29.1%, respectively. The effective tax rate for the first nine months of 2025 varies from the 21% statutory rate primarily due to the tax benefit from the low-income housing tax credit equity investment, tax-exempt interest income and tax-exempt income from the increase in the cash surrender value of BOLI.