The following discussion provides information about the results of operations, and financial condition, liquidity, and capital resources of the Company and its subsidiaries as of the dates and periods indicated. This discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this report and the Management Discussion and Analysis in the Company's Annual Report on Form 10-K for the year ended December 31, 2007, as amended.

This report contains forward looking statements within the meaning of the Securities Exchange Act of 1934, as amended, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies and regarding general economic conditions. In some cases, forward looking statements can be identified by use of such words as "may", "will", "anticipate", "believes", "expects", "plans", "estimates", "potential", "continue", "should", and similar words or phases. These statements are based upon current and anticipated economic conditions, nationally and in the Company's market, interest rates and interest rate policy, competitive factors and other conditions which, by their nature, are not susceptible to accurate forecast, and are subject to significant uncertainty. Because of these uncertainties and the assumptions on which this discussion and the forward looking statements are based, actual future operations and results in the future may differ materially from those indicated herein. Readers are cautioned against placing undue reliance on any such forward looking statements.

GENERAL

The Company is a growth oriented, one-bank holding company headquartered in Bethesda, Maryland. The Company provides general commercial and consumer banking services through its wholly owned banking subsidiary (the "Bank"), a Maryland chartered bank which is a member of the Federal Reserve System. The Company was organized in October 1997, to be the holding company for the Bank. The Bank was organized as an independent, community oriented, full service banking alternative to the super regional financial institutions, which dominate the primary market area. The Company's philosophy is to provide superior, personalized service to its customers. The Company focuses on relationship banking, providing each customer with a number of services, becoming familiar with and addressing customer needs in a proactive, personalized fashion. The Bank currently has nine offices serving Montgomery County, five offices in the District of Columbia and one office in Fairfax County, Virginia.

The Company offers a broad range of commercial banking services to its business and professional clients as well as full service consumer banking services to individuals living and/or working primarily in the service area. The Company emphasizes providing commercial banking services to sole proprietors, small and medium-sized businesses, partnerships, corporations, non-profit organizations and associations, and investors living and working in and near the primary service area. A full range of retail banking services are offered to accommodate the individual

needs of both corporate customers as well as the community the Company serves. These services include the usual deposit functions of commercial banks, including business and personal checking accounts, "NOW" accounts and money market and savings accounts, business, construction, and commercial loans, equipment leasing, residential mortgages and consumer loans and cash management services. The Company has developed significant expertise and commitment as an SBA lender, has been designated a Preferred Lender by the Small Business Administration ("SBA"), and is a leading community bank SBA lender in the Washington D.C. district.

ACQUISITION COMPLETED

Eagle Bancorp, Inc. (the "Company") recently completed the acquisition of Fidelity & Trust Financial Corporation ("Fidelity") and Fidelity & Trust Bank ("F&T Bank") which added approximately $360 million in loans, $100 million in investments, $385 million in deposits, $70 million in customer repurchase agreements and $13 million in equity capital. Fidelity operated six branches in Montgomery County, Maryland, Washington, D.C. and Fairfax County, Virginia which became branches of the Bank. Refer to "Note 5 Acquisition" in the Notes to Consolidated Financial Statements for a description and further information on this transaction.

CRITICAL ACCOUNTING POLICIES

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as this information changes, the consolidated financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for investment securities available for sale are based either on quoted market prices or are provided by other third-party sources, when available.

The allowance for credit losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two principles of accounting: (a) Statement on Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies", which requires that losses be accrued when they are probable of occurring and are estimable and (b) SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"), which requires that losses be accrued when it is probable that the Company will not collect all principal and interest payments according to the contractual terms of the loan. The loss, if any, can be determined by the difference between the loan balance and the value of collateral, the present value of expected future cash flows, or values observable in the secondary markets.

Three components comprise our allowance for credit losses: a specific allowance, a formula allowance and a nonspecific or environmental factors allowance. Each component is determined based on estimates that can and do change when actual events occur.

The specific allowance allocates a reserve to identified impaired loans. Loans identified in the risk rating evaluation as substandard, doubtful and loss, (classified loans) are segregated from non-classified loans. Classified loans are assigned specific reserves based on an impairment analysis. Under SFAS 114, a loan for which reserves are individually allocated may show deficiencies in the borrower's overall financial condition, payment record, support available from financial guarantors and or the fair market value of collateral. When a loan is identified as impaired, a specific reserve is established based on the Company's assessment of the loss that may be associated with the individual loan.

The formula allowance is used to estimate the loss on internally risk rated loans, exclusive of those identified as requiring specific reserves. The portfolio of unimpaired loans is stratified by loan type and risk assessment. Allowance factors relate to the type of loan and level of the internal risk rating, with loans exhibiting higher risk and loss experience receiving a higher allowance factor and portfolio composition.

The environmental allowance is also used to estimate the loss associated with pools of non-classified loans. These unclassified loans are also stratified by loan type, and environmental allowance factors are assigned by management based upon a number of conditions, including delinquencies, loss history, changes in lending policy and procedures, changes in business and economic conditions, changes in the nature and volume of the portfolio, management expertise, concentrations within the portfolio, quality of internal and external loan review systems, competition, and legal and regulatory requirements.

The allowance captures losses inherent in the portfolio which have not yet been recognized. Allowance factors and the overall size of the allowance may change from period to period based upon management's assessment of the above described factors, the relative weights given to each factor, and portfolio composition.

Management has significant discretion in making the judgments inherent in the determination of the provision and allowance for credit losses, including, in connection with the valuation of collateral, a borrower's prospects of repayment, and in establishing allowance factors on the formula allowance and environmental allowance components of the allowance. The establishment of allowance factors involves a continuing evaluation, based on management's ongoing assessment of the global factors discussed above and their impact on the portfolio. The allowance factors may change from period to period, resulting in an increase or decrease in the amount of the provision or allowance, based upon the same volume and classification of loans. Changes in allowance factors can have a direct impact on the amount of the provision, and a related after tax effect on net income. Errors in management's perception and assessment of the global factors and their impact on the portfolio could result in the allowance not being adequate to cover losses in the portfolio, and may result in additional provisions or charge-offs. Alternatively, errors in management's perception and assessment of the global factors and their impact on the portfolio could result in the allowance being in excess of amounts necessary to cover losses in the portfolio, and may result in lower provision in the future. For additional information regarding the allowance for credit losses, refer to the discussion under the caption "Allowance for Credit Losses" below.

The Company follows the provisions of SFAS No. 123R, "Share-Based Payment",which requires the expense recognition for the fair value of share based compensation awards, such as stock options, restricted stock units, and performance based shares and the like. This standard allows management to establish modeling assumptions as to expected stock price volatility, option terms, forfeiture rates and dividend rates which directly impact estimated fair value. The accounting standard also allows for the use of alternative option pricing models which may impact fair value as determined. The Company's practice is to utilize reasonable and supportable assumptions which are reviewed with the appropriate Board Committee.

RESULTS OF OPERATIONS

Summary

The following discussion of the results of operations includes the results of operation of Fidelity acquired as of August 31, 2008 for the month of September 2008 only.

The Company reported net income of $5.8 million for the nine months ended September 30, 2008, as compared to net income of $5.4 million for the nine months ended September 30, 2007, an increase of 7%. Income per basic share was $0.58 for the nine month period ended September 30, 2008, as compared to $0.57 for the same period in 2007. Income per diluted share was $0.57 for the nine months ended September 30, 2008, as compared to $0.55 for the same period in 2007.

For the three months ended September 30, 2008, the Company reported net income of $2.3 million as compared to $1.8 million for the same period in 2007, an increase of 29%. Income per basic share was $0.22 for the three months ended September 30, 2008, as compared to $0.18 per basic share for the same period in 2007. Income

per diluted share was $0.21 for the three months ended September 30, 2008, as compared to $0.18 for the same period in 2007, an increase of 17%.

The Company had an annualized return on average assets of 0.81% and an annualized return on average equity of 8.95% for the first nine months of 2008, as compared to returns on average assets and average equity of 0.92% and 9.57%, respectively, for the same nine months of 2007.

For the three months ended September 30, 2008, the Company had an annualized return on average assets of 0.82% and an annualized return on average equity of 9.97%, as compared to an annualized return on average assets of 0.87% and annualized return on average equity of 8.99% for the same period in 2007.

For the nine months ended September 30, 2008, net interest income showed an increase of 17% as compared to the same period in 2007 on growth in average earning assets of 23%. For the nine months ended September 30, 2008 as compared to the same period in 2007, the Company experienced a decline in its net interest margin from 4.40% to 4.20% or 20 basis points. This change was primarily due to the lower levels of benefits from noninterest sources of funding in a lower interest rate environment. Additionally, a small portion of the decline was due to lower margins on the assets and liabilities acquired from Fidelity as of August 31, 2008.

For the three months ended September 30, 2008, net interest income showed an increase of 31% as compared to the same period in 2007 on growth in average earning assets of 39%. For the three months ended September 30, 2008 as compared to the same period in 2007, the Company experienced a decline in its net interest margin from 4.34% to 4.11% or 23 basis points. The decrease for the three months ended September 30, 2008 is due to the same reason stated above for the decline in the margin for the nine months ended September 30, 2008.

For the nine month periods ended September 30, 2008 and 2007, average interest bearing liabilities funding average earning assets was 78%. Additionally, while the average rate on earning assets for the nine month period ended September 30, 2008, as compared to 2007 has declined by 104 basis points from 7.58% to 6.54%, the cost of interest bearing liabilities has decreased by 115 basis points from 4.15% to 3.00%, resulting in an increase in the net interest spread of 11 basis points from 3.43% for the nine months ended September 30, 2007 to 3.54% for the nine months ended September 30, 2008. The 20 basis point decline in the net interest margin compares to an increase in the net interest spread as the benefit of average noninterest sources funding earning assets declined from 96 basis points for the nine months ended September 30, 2007 to 66 basis points for the nine months ended September 30, 2008. This decline was due to the significantly lower level of interest rates during the nine months ended September 30, 2008 as compared to 2007.

For the three month periods ended September 30, 2008 and 2007, average interest bearing liabilities funding average earning assets was 79%. Additionally, while the average rate on earning assets for the three months ended September 30, 2007, as compared to 2008 has declined by 117 basis points from 7.47% to 6.30%, the cost of interest bearing liabilities has decreased by 131 basis points from 4.09% to 2.78%, resulting in an increase in the net interest spread of 14 basis points from 3.38% for the quarter ended September 30, 2007 to 3.52% for the three months ended September 30, 2008. The net interest margin decreased 23 basis points from 4.34% for the three months ended September 30, 2007 to 4.11% for the three months ended September 30, 2007 and compares to an increase in the net interest spread as the benefit of average noninterest sources funding earning assets declined from 96 basis points for the three months ended September 30, 2007 to 59 basis points for the three months ended September 30, 2008, also due to the significantly lower level of interest rates in 2008 as compared to 2007.

Due to the need to meet loan funding objectives in excess of deposit growth, the bank has relied to a larger extent on alternative funding sources, such as Federal Home Loan Bank ("FHLB") advances and brokered time deposits which costs have been judged reasonable as an alternative to more core funding. If significant reliance on alternative funding sources continues, the Company's earnings could be adversely impacted, depending on the cost of those funds when needed.

In terms of the average balance sheet composition or mix, loans, which generally have higher yields than securities and other earning assets, increased from 87% of average earning assets in the first nine months of 2007 to 88% of average earning assets for the same period of 2008. Investment securities for the first nine months of 2008 amounted to 10% of average earning assets, a decline of 1% from an average of 11% for the same period in 2007. Federal funds sold averaged 1.1% in the first nine months of 2008 versus 1.5% of average earning assets for the same period of 2007.

For the three month periods ended September 30, 2008 and September 30, 2007 average loans were 87% of average earning assets. Investment securities were 11% of average earning assets for the three months ended September 30, 2008, an increase of 1% from an average of 10% for the same period in 2007. Federal funds sold averaged 1.9% of average earning assets for the three months ended September 30, 2008 as compared to 2.3% for the same period in 2007.

The provision for credit losses was $2.5 million for the first nine months of 2008 as compared to $760 thousand for the same period in 2007. The higher provisioning in the first nine months of 2008 as compared to 2007 is attributable to substantially higher levels of loan growth ($94 million excluding the Fidelity acquisition for the nine months ended September 30, 2008 versus $53 million for the same period in 2007) and to higher levels of net charge-offs, risk migration within the portfolio, and increases in reserve allocations on classified loans.

The provision for credit losses was $995 thousand for the three months ended September 30, 2008 as compared to $421 thousand for the three months ended September 30, 2007. The higher provisioning in the third quarter of 2008 as compared to the third quarter of 2007 is primarily attributable to increases in specific reserves for problem and potential problem loans, and higher levels of net charge-offs in the third quarter of 2008 as compared to the third quarter of 2007.

In total, the ratio of annualized net charge-offs to average loans was 0.16% for the first nine months of 2008 as compared to 0.15% for the first nine months of 2007. The continued management of a quality loan portfolio remains a key objective of the Company. For the nine months ended September 30, 2008, net charge-offs totaled $957 thousand versus $727 thousand for the nine months ended September 30, 2007. Net charge-offs in the nine months ended September 30, 2008 were attributable to charge-offs in commercial construction and land development loans ($283 thousand of total), the un-guaranteed portion of SBA loans ($257 thousand of total), non-real estate commercial business loans ($206 thousand of total), consumer loans ($182 thousand of total), and commercial real estate investment property loans ($29 thousand of total).

In total, the ratio of annualized net charge-offs to average loans was 0.23% for the three months ended September 30, 2008 as compared to 0.18% for the same three month period of 2007. For the three months ended September 30, 2008, the Company recorded net charge-offs of $540 thousand as compared to $303 thousand of net charge-offs for the three months ended September 30, 2007. Net charge-offs in the third quarter of 2008 were attributable to charge-offs in commercial construction and land development loans ($284 thousand of total), the un-guaranteed portion of SBA loans ($126 thousand of total), non-real estate commercial business loans ($101 thousand of total) and commercial real estate investment property loans ($29 thousand of total).

Total noninterest income was $3.1 million for the first nine months of 2008 as compared to $3.2 million for the same period in 2007, a decline of 4%. The decrease was attributed primarily to lower gains on the sale of SBA and residential mortgage loans ($406 thousand versus $816 thousand) and no income from subordinated financing of real estate projects in 2008 versus $252 thousand in the prior year. Income from subordinated financing activities is subject to wide variances, as it is based on the sales progress of a limited number of development projects. Partially offsetting the decline in total noninterest income for the nine month period, the Company recorded an increase in service charges on deposit accounts of $472 thousand.

Total noninterest income for the three months ended September 30, 2008 increased 16% from the same period in 2007 from $1.0 million to $1.2 million. This increase was due primarily to higher service charges on deposit accounts and sales of investment securities offset by a lower volume of SBA and residential mortgage loan sales activity, which activity is subject to significant quarterly variances.

Total noninterest expenses increased from $18.5 million in the first nine months of 2007 to $20.3 million for the first nine months of 2008, an increase of 10%. The primary reasons for this increase were merit increases and related personnel cost increases, increased broker fees, higher internet and license agreement fees, increased legal, accounting and professional fees and merger related expenses. The efficiency ratio for the first nine months of 2008 improved to 63.74% as compared to 66.54% for the same period in 2007.

For the three months ended September 30, 2008, total noninterest expenses were $7.6 million, as compared to $6.2 million for the same period in 2007, an increase of 23%. This increase was due to the same factors mentioned above which affected the increase for the nine month period. The efficiency ratio for the three months ended September 30, 2008 improved to 62.51% as compared to 65.88% for the same period in 2007. The noninterest expenses for the three months ended September 30, 2008 include the acquired entity Fidelity for the month of September.

For the nine months ended September 30, 2008 as compared to 2007, the increase in net interest income from increased volumes, offset by the combination of a higher provision for credit losses, lower levels of noninterest income, a lower net interest margin and higher levels of noninterest expenses, resulted in increased net income during the both the nine and three months ended September 30, 2008 as compared to the same period in 2007.

The ratio of average equity to average assets declined from 9.66% for the first nine months of 2007 to 9.06% for the first nine months of 2008, as the effect of additional growth in the balance sheet was not proportionately offset by growth in capital. As discussed below, the capital ratios of the Bank remain above well capitalized levels.

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 and investment securities. The cost of funds represents interest expense on deposits, customer repurchase agreements and other borrowings. Noninterest bearing deposits and capital are other components representing funding sources (refer to discussion above under Results of Operations). 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 first nine months of 2008 was $28.8 million compared to $24.5 million for the first nine months of 2007, a 17% increase. This increase in net interest income for the nine months ended September 30, 2008 was attributable in part to an increased volume of earning assets of 23% offset somewhat by a 5% decline in the net interest margin from 4.40% to 4.20%. For the three months ended September 30, 2008, net interest income was $10.9 million as compared to $8.3 million for the same period in 2007, a 31% increase. This increase was attributable to an increased volume of earning assets of 39% offset somewhat by a 5% decline in the net interest margin from 4.34% to 4.11%. As earlier mentioned, the decline in the net interest margin in both the three and nine month periods ended September 30, 2008 as compared to the same periods in 2007 was due to a lower benefit of noninterest funding sources as market interest rates were substantially lower in 2008 as compared to 2007. In an effort to combat a weaker economic climate, the Federal Reserve lowered its targeted federal funds rate from 4.75% at September 30, 2007 to 2.00% at September 30, 2008 and further reduced the targeted rate another 100 basis points to 1.00% during October 2008.

The tables below labeled "Average Balances, Interest Yields and Rates and Net Interest Margin" present the average balances and rates of the various categories of the Company's assets and liabilities for the nine and three months ended 2008 and 2007. Included in the table is a measurement of interest rate spread and margin. Interest spread is the difference (expressed as a percentage) between the interest rate earned on earning assets less the interest expense on interest bearing liabilities. While net interest spread provides a quick comparison of earnings rates versus cost of funds, management believes that margin provides a better measurement of performance. Margin includes the effect of noninterest bearing sources in its calculation and is net interest income expressed as a percentage of average earning assets.

                              EAGLE BANCORP, INC.

      Average Balances, Interest Yields and Rates, and Net Interest Margin

                             (dollars in thousands)



                                                Nine Months Ended September 30,
                                          2008                                    2007
                           Average                   Average       Average                   Average
                           Balance     Interest     Yield/Rate     Balance     Interest     Yield/Rate
ASSETS:
Interest earning
assets:
Interest bearing
deposits with other
banks and other
short-term investments    $   2,776    $      74          3.56 %  $   4,528    $     181          5.34 %
Loans (1) (2) (3)           808,337       41,098          6.79 %    649,826       38,632          7.95 %
Investment securities
. . .