EAGLE BANCORP INC

Asset/Liability Management and Quantitative and Qualitative Disclosures about Market Risk

A fundamental risk in banking is exposure to market risk, specifically interest rate risk, since a bank’s earnings are largely dependent on net interest income. The Bank’s ALCO formulates and monitors the management of interest rate risk through policies and guidelines established by it and overseen by the Audit Committee and the full Board of Directors and through review of detailed reports discussed quarterly. In its consideration of risk limits, the ALCO considers the impact on earnings and capital, the level and direction of interest rates, liquidity, local economic conditions, outside threats and other factors. Banking is generally a business of managing the maturity and repricing mismatch inherent in its asset and liability cash flows to provide stable net interest income growth consistent with the Company’s profit objectives.

The Company, through its ALCO and ongoing financial management practices, monitors the interest rate environment in which it operates and adjusts the rates and maturities of its assets and liabilities to remain competitive and to achieve its overall financial objectives subject to established risk limits.

The loan portfolio decreased 4.7% during the first quarter of 2026. The re-pricing duration on the loan portfolio was 9 months as of March 31, 2026 and 9 months as of December 31, 2025, with fixed-rate loans amounting to 31.4% and 33.4% of total loans as of March 31, 2026 and December 31, 2025, respectively. Variable and adjustable rate loans comprised 68.6% and 66.6% of total loans as of March 31, 2026 and December 31, 2025, respectively. Variable rate loans are generally indexed to the Secured Overnight Funding Rate ("SOFR") or the Wall Street Journal prime interest rate, while adjustable rate loans are indexed primarily to the five year U.S. Treasury interest rate.

The table below presents the percentage mix of securities in the investment portfolio.

In the current and expected future interest rate environment, the Company has been maintaining its investment portfolio to manage the balance between yield and risk in its portfolio of MBS. Further, the Company has been principally collecting cash flows from the investment portfolio to reduce brokered deposits. As of March 31, 2026, the amortized cost less allowance of the investment portfolio decreased by $59.9 million, or 3.1%, as compared to the balance as of December 31, 2025.

The duration of the deposit portfolio decreased to 13 months as of March 31, 2026 from 22 months as of December 31, 2025. This decrease was attributable to a shift in deposit mix and modeling assumption updates. The Company experienced a total deposit decrease of $542.1 million for the quarter ended March 31, 2026 as compared to a total loan decrease of $341.9 million for the same period. Refer to the "Deposits and Other Borrowings" section above for further discussion of deposits and borrowings.

The net unrealized loss before income tax on the AFS securities portfolio was $78.5 million and $78.4 million as of March 31, 2026 and December 31, 2025, respectively. As of March 31, 2026, the net unrealized loss position represented 7.8% of the investment portfolio's book value.

Management relies on the use of models in order to measure the expected future impact on interest income of various interest rate environments, as described below. Through its modeling, the Company makes certain estimates that may vary from actual results. There can be no assurance that the Company will be able to successfully achieve its optimal asset liability mix, given competitive pressures, customer preferences and the inability to forecast future interest rates and movements with complete accuracy.

The Company employs a net interest income simulation model on a monthly basis to monitor its interest rate sensitivity and risk and to model its balance sheet cash flows and the effects in different interest rate scenarios. The model utilizes current balance sheet data and attributes and is adjusted for assumptions as to investment maturities including prepayments, loan prepayments, interest rates, and deposit decay rates. The data is then subjected to a "shock test" which assumes a simultaneous change in interest rates up and down 100, 200, 300 and 400 basis points, along the entire yield curve, but not below zero. The results are analyzed as to the impact on net interest income over the next twelve and twenty-four month periods and the economic value of equity. Further discussion of the limitations of this analysis are listed below and included in Risk Factors in the Company's 2025 10-K, and in other periodic and current reports filed by the Company with the SEC.

Our rate risk modeling showed minimal net interest margin expansion in an increased interest rate environment while showing moderate net interest margin compression in a declining interest rate environment. The model's prediction in a rising rate environment is the result of increases in both interest income on variable and adjustable rate loans and interest expense on its deposit liabilities, based on our funding needs, market conditions and certain contractual obligations but with no changes in the mix of assets or liabilities or the spreads we are able to earn. The opposite is true in a falling interest rate environment as decreases in both interest income on variable and adjustable rate loans and interest expense on deposit liabilities drive modest margin compression. The model also assumes a stable interest rate environment after the programmed changes in the yields, which assumes repricing of assets and liabilities as scheduled in a stable environment, which may be quite different than real world conditions.

For the analysis presented below, as of March 31, 2026, the change in interest rates on interest-bearing deposits was less than the change in market interest rates with a floor of 0 basis points. The Bank also has deposits with contractual rate terms that mean these deposits will change 100 basis points for every 100 basis points change in market rates. Thus, the overall change in rates on deposits versus change in market rates can be less than 100%.

Because competitive market behavior does not necessarily track the trend of interest rates but at times moves ahead of financial market influences, the change in the cost of liabilities may be different than anticipated by the interest rate risk model. If this were to occur, the effects of a rising or declining interest rate environment may not be in accordance with management’s expectations.

As quantified in the table below, the Company’s analysis as of March 31, 2026 shows the effect on net interest income over the next 12 months, as well as the effect on the economic value of equity when interest rates are shocked up and down 100, 200, 300 and 400 basis points. As of March 31, 2026, the repricing duration of (a) the investment portfolio was 3.7 years, (b) the loan portfolio 0.8 years, (c) the interest-bearing deposit portfolio was 0.8 years, and (d) the borrowed funds portfolio was 2.9 years.

The table below displays the result of the simulation analysis on the asset and liability balances.

The decrease in 12-month net interest income of 2.8% given a 100 basis point decrease in market interest rates as of March 31, 2026 compared to a decrease of 0.7% for the same period in 2025. In contrast to 2025, primarily due to modeling enhancements and balance sheet composition changes, our analysis shows that we will experience a decrease in our economic value of equity and an increase in net interest income with an increase in interest rates. The changes in net interest income and the economic value of equity in higher, and lower, interest rate shock scenarios as of March 31, 2026 are not believed to be excessive and are within policy limits.

As part of the Company’s ongoing enhancement of the simulation analysis, the Company has been making updates to its model to incorporate, among other things, improvements to certain assumptions, as well as assumptions related to deposits. The difference in the results of the simulation analysis between the first quarter of 2026 and the fourth quarter of 2025 is attributable to these model updates.

Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or repricing periods, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that limit changes in interest rates on a short-term basis and over the life of the loan. Further, in the event of a change in interest rates, prepayment and early withdrawal levels could deviate significantly from those assumed in calculating the tables. Finally, the ability of many borrowers to service their debt may decrease in the event of a significant interest rate increase.

While an instantaneous parallel shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, we believe that a non-immediate parallel shifts in interest rates would have a more modest impact. Further, the earnings simulation model does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, the various rate indexes do not move in parallel (e.g., SOFR, Fed Funds), hedging activities we might take and changing product spreads that could mitigate or exacerbate any potential beneficial or adverse impact of changes in interest rates.

Another key factor to consider is the behavior of our deposit portfolio. The projected impact on net interest income in the table above assumes no change in deposit portfolio size or mix from the baseline forecast in alternative rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher cost deposits or market-based funding would reduce the assumed benefit of those deposits. The projected impact on net interest income in the table above also assumes a static non-maturity deposit beta which may not be an accurate predictor of actual deposit rate changes realized in scenarios of smaller and/or non-parallel interest rate movements.

Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income or economic value of equity will be affected by current and future changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. In addition, certain assets, such as adjustable-rate mortgage loans, have features (generally referred to as interest rate caps and floors) that limit changes in interest rates. Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. ALCO reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of its responsibility to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing and capital policies.

Interest Rate and Balance Sheet Risk Management

Management actively monitors the Company’s exposure to interest rate risk arising from the composition and duration profile of its balance sheet. Our objective is to maintain a stable and predictable earnings and capital profile by mitigating the impact of interest‑rate volatility on both net interest income and the economic value of equity. Consistent with this objective, the Company employs a macro balance sheet hedging program designed to manage interest rate risk at the portfolio level rather than through instrument‑specific hedges.

In 2025, the Company reinitiated the use of derivative instruments to hedge macro interest rate risk. This decision reflects management’s reassessment of the Company’s asset‑liability profile. Management determined that reestablishing a macro hedging program was prudent to mitigate potential variability in earnings and capital arising from interest‑rate movements.

Hedging Strategy and Risk Management Framework

Our macro hedging approach incorporates derivatives — primarily interest rate swaps — to align the interest‑rate sensitivity of assets and liabilities with the Company’s risk appetite. Macro hedging enables management to address exposures that evolve dynamically as new assets and liabilities are originated and existing positions mature, consistent with regulatory expectations that hedging strategies reflect material trends and uncertainties affecting future performance.

Under U.S. GAAP, the Company applies the hedge accounting framework under ASC 815, as amended by ASU 2017‑12, which expands the range of permissible hedging strategies and enhances the alignment between accounting outcomes and risk management activities. The Company designates qualifying hedges where appropriate and evaluates hedge effectiveness in accordance with ASC 815’s criteria. Refer to "Note 6 – Derivatives and Hedging Activities" to the Consolidated Financial Statements for further discussion on the Company's derivative instruments and hedging activities.