EAGLE BANCORP INC

Use of Non-GAAP Financial Measures

Management uses non-GAAP measures because they provide information to investors about the underlying operational performance and trends of the Company. These disclosures should not be considered in isolation or as a substitute for results determined in accordance with GAAP and are not necessarily comparable to non-GAAP performance measures which may be presented by other bank holding companies. Management compensates for these limitations by providing detailed reconciliations between GAAP information and the non-GAAP financial measures.

The table below reconciles the GAAP financial measures to the associated non-GAAP financial measures.

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 year ended December 31, 2025, compared to the same period in 2024, was primarily due to higher provision for credit losses, partially offset by the corresponding income tax benefit and lower noninterest expense. 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 $98.5 million for the year ended December 31, 2025, as compared to $34.0 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 67.06% for 2025 compared to 88.99% for 2024. This improvement 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.

Net interest margin, which measures net interest income as a percentage of earning assets, was flat at 2.37% for the year ended December 31, 2025 compared to 2.37% for the same period in 2024. 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 68% and 66% of average earning assets for years ended December 31, 2025 and 2024, respectively. Refer to the "Loan Portfolio" below for further discussion on loans.

Average investment securities for year ended December 31, 2025 were 18.3% of average earning assets compared to 20.2% for the same period in 2024. Interest-bearing deposits with other banks represented 14.0% and 14.1% of average earning assets for years ended December 31, 2025 and 2024, respectively. Refer to the "Investment Securities and Short-Term Investments" section below for further discussion on investment securities.

The ratio of common equity to total assets decreased to 10.78% as of December 31, 2025, compared to 11.02% as of December 31, 2024. For December 31, 2025, the return (loss) on average assets ("ROAA") was (1.16)%, compared to (0.38)% for the same period in 2024. Total shareholders’ equity was $1.13 billion as of December 31, 2025, compared to $1.23 billion as of December 31, 2024, a decrease of 8%. The return (loss) on average common equity for December 31, 2025 was (11.47)%, compared to (3.77)% for the same period in 2024. All these decreases were primarily driven by higher credit losses in 2025.

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.

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 $15.1 million, $17.2 million and $16.7 million for the years ended 2025, 2024 and 2023, respectively.

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

Net interest income decreased in 2025 compared to 2024, primarily due to a larger decrease in interest-earning assets compared to interest-bearing liabilities. Additionally, average loan yields and interest bearing deposits with other banks and short term investments yields were lower in 2025 compared to the prior year, partially offset by lower rates on interest-bearing liabilities.

Net interest margin remained flat in 2025 compared to 2024. The cost of funds on interest-bearing liabilities decreased by 42 basis points from 3.59% for 2024 to 3.17% for 2025, while the yield on interest-earning assets had a decrease of 34 basis points from 5.65% for 2024 to 5.31% for 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 December 31, 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 reserve for CRE office loans ("office overlay").

Net charge-offs of $248.2 million during 2025 represented 3.22% of average loans held for investment, an increase from net charge-offs of $38.6 million in 2024, which represented 0.48% of average loans held for investment. During 2025, we began executing on a revised strategy for resolving criticized and classified loans with the goal of accelerating dispositions and reducing asset quality risk. In furtherance of this strategy, we obtained updated valuations in 2025 on the underlying collateral for certain loans and incorporated new information about borrower performance. Updated valuations obtained during the year reflected the rapidly changing commercial real estate market in the D.C. metro area, in many cases showing substantial declines. This information resulted in significant charge offs during 2025, 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.

Additionally, certain loans were transferred to loans held-for-sale ("HFS") in 2025, which resulted in additional charge-offs to record those loans at their fair value at the time of transfer. Total charge-offs in 2025 related to loans that were transferred to HFS or sold during 2025 were $176.5 million. We believe our actions in 2025 reflect a disciplined approach to credit risk management that incorporates updated market and borrower data into our loss estimates.

The office overlay increased in 2025 relative to 2024, impacted by 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. Although loans were transferred to held-for-sale, reducing the CRE office loan population, the resulting charge-offs on those loans informed higher loss factors on the remaining loans addressed by the office overlay, contributing to its elevated level for 2025. The increase in the office overlay for 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, including 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 year ended December 31, 2025, there was a reversal of provision for credit losses of $295 thousand for the held-to-maturity securities portfolio, compared to a reversal of provision expense of $645 thousand for the year ended December 31, 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 provision expense of $1.6 million for the year ended December 31, 2025, compared to a reversal of provision of $2.1 million for the year ended December 31, 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 and loans, income from Bank-Owned Life Insurance ("BOLI") and other income. The table below summarizes the comparative noninterest income.

The increase in total noninterest income in 2025 as compared to 2024 was primarily due to increases in the cash surrender value of BOLI investments in 2025 driven by additional BOLI investment of $200 million made in the first quarter of 2025, partially offset by elevated losses on the sale of HFS loans and AFS 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 for 2025 as compared to 2024, was primarily due to no goodwill impairment during the current period, partially offset by elevated other expenses driven by disposition costs associated with the sale of certain HFS loans and further valuation adjustment on the remaining HFS portfolio during the fourth quarter of 2025. Additionally, a legal contingency of $10 million was recognized in 2025 for an outstanding legal matter. See "Note 19 – Commitments and Contingent Liabilities" for further details.

The major components of other expenses include regulatory assessment fees, director compensation, real estate taxes, and insurance expenses. Additionally, other expenses were elevated for the current period primarily due to $6.3 million in disposition costs related to HFS loan sales and $8.4 million in valuation adjustment on the remaining HFS portfolio.

As a percentage of average assets, total noninterest expense was 1.69% for the year ended December 31, 2025 as compared to 2.19% in 2024, primarily due to no goodwill impairment during the current period.

Income Tax Expense

For the December 31, 2025, income tax benefit was $58.1 million, compared to income tax expense of $16.8 million for the December 31, 2024. The switch from income tax expense in 2024 to income tax benefit in 2025 was primarily due to a pre-tax loss of $196.2 million in 2025.

The effective tax rate for the year ended December 31, 2025 was 29.63%. The effective tax rate represents the percentage of income tax benefit against the pre-tax loss in 2025. The effective tax rate for 2025 varies from the 21% statutory rate primarily due to the tax benefit from the solar investment tax credits purchased at discount, 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.