Summary of EAGLE BANCORP INC

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 2008.

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. For details on factors that could affect these expectations, see the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 and in other periodic and current reports filed by the Company with the Securities and Exchange Commission. 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 EagleBank, its wholly owned banking subsidiary, a Maryland-chartered bank which is a member of the Federal Reserve System (the "Bank"). 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 eight offices serving Montgomery County, Maryland, including an office in Potomac, Maryland, our fourteenth which opened in November 2009; five offices in the District of Columbia; and one office in Fairfax County, Virginia. A fourteenth office opened in early November in Potomac, Maryland.

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, savings, and time deposit accounts; business, construction, and commercial loans, residential mortgages and consumer loans and cash management services. The Company has developed significant expertise and commitment as an SBA lender, and has been designated a Preferred Lender by the Small Business Administration ("SBA").

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 a 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 Company's investment portfolio is categorized as available for sale with unrealized gains and losses net of income tax being a component of stockholders' equity and accumulated other comprehensive income.

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) the Financial Accounting Standards Board ("FASB") issued guidance on "Accounting for Contingencies," which requires that losses be accrued when they are probable of occurring and are estimable and (b) FASB issued guidance on "Accounting by Creditors for Impairment of a Loan," 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 or loss (classified loans), are segregated from non-classified loans. Classified loans are assigned specific reserves based on an impairment analysis. Under FASB issued guidance on "Accounting by Creditors for Impairment of a Loan," 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 for 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.

The environmental allowance is also used to estimate the loss associated with pools of non-classified loans. These non-classified 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 and environmental 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 provisions in the future. For additional information regarding the provision for credit losses, refer to the discussion under the caption "Provision for Credit Losses" below.

The Company follows the provisions of FASB issued guidance on "Share-Based Payment," which requires the expense recognition for the fair value of share based compensation awards, such as stock options, restricted stock, and performance based shares. 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.

In accounting for the acquisition of Fidelity, the Company followed the provisions of FASB issued guidance on "Business Combinations," which mandates the use of the purchase method of accounting and AICPA Statement of Position topic ASC - 310, "Accounting for Certain Loans or Debt Securities Acquired in a Transfer." Accordingly, the tangible assets and liabilities and identifiable intangibles acquired were recorded at their respective fair values on the date of acquisition, with any impaired loans acquired being recorded at fair value outside the allowance for credit losses. The valuation of the loan and time deposit portfolios acquired were made by independent analysis for the difference between the instruments stated interest rates and the instruments current origination interest rate, with premiums and discounts being amortized to interest income and interest expense to achieve an effective market interest rate. An identified intangible asset related to core deposits was recorded based on independent valuation. Deferred tax assets were recorded for the future value of a net operating loss and for the tax effect of timing differences between the accounting and tax basis of assets and liabilities. The Company recorded an unidentified intangible (goodwill) for the excess of the purchase price of the acquisition (including direct acquisition costs) over the fair value of net tangible and identifiable intangible assets acquired.

RESULTS OF OPERATIONS

Earnings Summary

On August 31, 2008 the Company completed the acquisition of Fidelity & Trust Financial Corporation ("Fidelity") and its subsidiary Fidelity & Trust Bank ("F&T Bank"), which added approximately $360 million in loans, $100 million in investments, $385 million in deposits, $47 million in customer repurchase agreements and $13 million in equity capital. The combined organization is reflected in the balance sheets at September 30, 2009 and December 31, 2008 and the results of operations for the nine and three months ended September 30, 2009 and reflects one month of combined results of operations for the nine and three months ended September 30, 2008.

On September 21, 2009, the Company completed a public offering of its common stock in a transaction which added 6,731,640 shares and approximately $51.8 million (which is net of underwriting discounts and expenses) to its stockholders equity. The additional common equity will be utilized for general corporate purposes, including to support future internal growth or potential acquisitions.

The Company reported net income of $7.5 million for the nine months ended September 30, 2009 as compared to $5.8 million for the same nine month period in 2008. Net income available to common stockholders (which is after accrual of preferred stock dividends) was $5.7 million for the nine months ended September 30, 2009 ($0.44 per basic and $0.43 per diluted common share), compared to $5.8 million ($0.53 per basic and $0.52 per diluted common share) for the same period in 2008, a decrease of 1%.

Net income available to common stockholders (which is after accrual of preferred stock dividends), was $2.1 million for the three months ended September 30, 2009 ($0.16 per basic and $0.15 per diluted common share), compared to $2.3 million ($0.20 per basic and $0.19 per diluted common share) for the same three months of 2008, a decrease of 5%.

The Company had an annualized return on average assets of 0.64% and an annualized return on average common equity of 7.02% for the first nine months of 2009, as compared to annualized returns on average assets and average common equity of 0.81% and 8.95%, respectively, for the same nine months of 2008.

For the three months ended September 30, 2009, the Company had an annualized return on average assets of 0.67% and an annualized return on average common equity of 7.62%, as compared to annualized returns on average assets and average common equity of 0.82% and 9.97%, respectively, for the same period in 2008.

For the nine months ended September 30, 2009, net interest income showed an increase of 49% as compared to the same period in 2008 on growth in average earning assets of 64%. For the nine months ended September 30, 2009 as compared to the same period in 2008, the Company experienced a decline in its net interest margin from 4.20% to 3.81% or 39 basis points. This change was primarily due to margin compression, reflecting declines in market interest rates on earning assets resulting from Federal Reserve activities which have not been matched by comparable declines in rates on interest bearing liabilities and by a lesser benefit of noninterest funding sources in a much lower interest rate environment.

For the three months ended September 30, 2009, net interest income showed an increase of 38% as compared to the same period in 2008 on growth in average earning assets of 49%. For the three months ended September 30, 2009 as compared to the same period in 2008, the Company experienced a decline in its net interest margin from 4.11% to 3.77% or 34 basis points. The decrease for the three months ended September 30, 2009 is due to the same reason stated above for the decline in the margin for the nine months ended September 30, 2009.

For the nine months ended September 30, 2009 and 2008, average interest bearing liabilities were 78% of average earning assets. Additionally, while the average rate on earning assets for the nine month period ended September 30, 2009 has declined by 102 basis points from 6.54% to 5.52%, as compared to the same period in 2008, the cost of interest bearing liabilities has decreased by 81 basis points from 3.00% to 2.19%, resulting in a decrease in the net interest spread of 21 basis points from 3.54% for the nine months ended September 30, 2008 to 3.33% for the nine months ended September 30, 2009. The 39 basis point decline in the net interest margin compares to a smaller decrease in the net interest spread as the benefit of average noninterest sources funding earning assets declined from 66 basis points for the nine months ended September 30, 2008 to 48 basis points for the nine months ended September 30, 2009. This decline was due to the significantly lower level of interest rates during the nine months ended September 30, 2009 as compared to 2008.

For the three months ended September 30, 2009 and 2008, average interest bearing liabilities were 78% and 79%, respectively, of average earning assets. Additionally, while the average rate on earning assets for the three months ended September 30, 2009 has declined by 92 basis points from 6.30% to 5.38%, as compared to 2008, the cost of interest bearing liabilities has decreased by 72 basis points from 2.78% to 2.06%, resulting in a decrease in the net interest spread of 20 basis points from 3.52% for the quarter ended September 30, 2008 to 3.32% for the three months ended September 30, 2009. The net interest margin decreased 34 basis points from 4.11% for the three months ended September 30, 2008 to 3.77% for the three months ended September 30, 2009. The net interest margin decline in the three months ended September 30, 2009 as compared to September 30, 2008 (of 34 basis points) exceeded the decline in the net interest spread during the same period (of 20 basis points) due to a decrease in the

value of noninterest sources funding earning assets from 59 basis points for the three months ended September 30, 2008 to 45 basis points for the three months ended September 30, 2009. As with the nine month period comparisons, this decline was due to the lower level of interest rates in 2009 as compared to 2008.

The Company believes it has effectively managed its net interest margin and net interest income over the past twelve months as market interest rates have declined. This factor has been significant to overall earnings performance over the past twelve months as net interest income represents the most significant component of the Company's revenues.

Due to favorable core deposit growth over the past nine months, the need to meet loan funding objectives has not required the use of alternative funding sources, such as Federal Home Loan Bank ("FHLB") advances, correspondent bank lines of credit and brokered time deposits, the balances of which have declined since December 31, 2008. The major component of the growth in core deposits has been growth in a special money market account which was originally being advertised but which has been reliant in the past three months on more direct sales effort by the business development staff.

In terms of the average balance sheet composition or mix, loans, which generally have higher yields than securities and other earning assets, decreased slightly from 88% of average earning assets in the first nine months of 2008 to 87% of average earning assets for the same period of 2009. Investment securities for the first nine months of 2009 amounted to 11% of average earning assets, an increase of 1% from an average of 10% for the same period in 2008. Federal funds sold averaged 2.0% of average earning assets in the first nine months of 2009 and 1.1% for the same period in 2008.

For the three months ended September 30, 2009 average loans were 83% of average earning assets or a decrease of 4%, as compared to 87% for the same period in 2008. Loan growth amounted to $4 million in the third quarter, as compared to $84 million of deposit growth. The slower loan growth is attributable to both seasonality and to anticipated loan fundings in the third quarter which carried into the fourth quarter of 2009. Investment securities for the three months ended September 30, 2009 amounted to 12% of average earning assets, an increase of 1% from an average of 11% for the same period in 2008 federal funds sold averaged 4.6% of average earning assets for the three months ended September 30, 2009 as compared to 1.9% for the same period in 2008. The higher average level of investments and federal funds sold in the third quarter of 2009 (i.e. higher average liquidity) contributed to a decline in the net interest margin in the most recent quarter, as compared to the second quarter of 2009.

The provision for credit losses was $5.1 million for the first nine months of 2009 as compared to $2.5 million for the same period in 2008. The higher provisioning in the first nine months of 2009 as compared to 2008 is attributable to higher net charge-offs in 2009, risk migration within the portfolio and increased reserves for problem loans.

The provision for credit losses was $1.9 million for the three months ended September 30, 2009 as compared to $995 thousand for the three months ended September 30, 2008. The higher provisioning in the third quarter of 2009 as compared to the third quarter of 2008 is primarily attributable to higher levels of net credit losses and to risk migration within the loan portfolio due to assessments of general weakness in current economic conditions in the third quarter of 2009.

The ratio of net charge-offs to average loans was 0.37% for the first nine months of 2009 as compared to 0.16% for the first nine months of 2008. The management of a quality loan portfolio remains a key objective of the Company, and the Company believes its results in this area are favorable to peer banks. For the nine months ended September 30, 2009, net charge-offs totaled $3.6 million versus $957 thousand for the nine months ended September 30, 2008.

The ratio of net charge-offs to average loans was 0.48% for the three months ended September 30, 2009 as compared to 0.27% for the same three month period of 2008. For the three months ended September 30, 2009, the Company recorded net charge-offs of $1.6 million as compared to $540 thousand of net charge-offs for the three months ended September 30, 2008.

Total noninterest income was $6.0 million for the first nine months of 2009 as compared to $3.1 million for the same period in 2008, a 94% increase. This increase was due primarily to higher service charges on deposit accounts of $889 thousand resulting primarily from increased number of deposit accounts, gains realized on the sale of residential and SBA loans of $544 thousand, and gains realized on the investment securities portfolio of $1.5

million. Investment gains realized in 2009 are the result of asset/liability management decisions to reduce call risk in the portfolio of U.S. Agency securities, to reduce potential extension risk in longer term U.S. Agency mortgage backed securities and to better position the investment portfolio for potentially higher interest rates over future years. Increased gains from mortgage banking activities in 2009 reflect higher levels of mortgage refinancing given lower market interest rates.

Total noninterest income for the three months ended September 30, 2009 increased 24% from the same period in 2008 from $1.2 million to $1.5 million. This increase was due primarily to higher service charges on deposit accounts of $197 thousand resulting primarily from increased number of deposit accounts, and gains realized on the sale of residential and SBA loans of $165 thousand.

Total noninterest expenses increased from $20.3 million in the first nine months of 2008 to $32.1 million for the first nine months of 2009, an increase of 58%. The primary reason for this increase was the Fidelity acquisition which increased the size of the organization resulting in higher staff levels and related personnel costs of $4.0 million, increased occupancy costs of $1.9 million, and data processing of $627 thousand. In addition, higher costs were incurred for marketing and advertising of $465 thousand, legal, accounting and professional fees of $1.4 million, and FDIC insurance premium of $2.1 million which includes the special FDIC assessment of approximately $723 thousand recorded in the second quarter of 2009 and also reflects higher base rates and increased levels of insured deposits. Other expenses increased $1.3 million primarily due to $199 thousand in OREO expenses, a $224 thousand director fee agreement termination payment, and $573 thousand in general and administrative costs due to the growth of the organization subsequent to the Fidelity acquisition and to increases in loan collection expenses. The efficiency ratio, which measures the level of non-interest expense to total revenue (defined as the sum of net interest income and noninterest income) was 65.84% for the nine months ended September 30, 2009, as compared to 63.74% for the nine months ended September 30, 2008. The increase in the efficiency ratio is due to higher costs resulting from maintaining a larger organization following the Fidelity acquisition which was offset by the gains realized on the investment securities portfolio of $1.5 million.

For the three months ended September 30, 2009, total noninterest expenses were $10.3 million, as compared to $7.6 million for the same period in 2008, an increase of 36%. The Fidelity acquisition increased the size of the organization resulting in higher staff levels and related personnel costs of $956 thousand, increased occupancy costs of $418 thousand, and higher data processing of $247 thousand. In addition, higher costs were incurred for marketing and advertising of $103 thousand, legal, accounting and professional fees of $416 thousand, and FDIC insurance premium increased $398 thousand. Other expenses increased $172 thousand primarily due to $37 thousand in OREO expenses, $33 thousand in record management and storage costs, $45 thousand in amortization of core deposits and $57 thousand in general and administrative costs. The efficiency ratio for the three months ended September 30, 2009 was 62.29% as compared to 62.51% for the same period in 2008. While the Company continues to make strategic investments in infrastructure, more attention to overall cost management and post-merger integration is being emphasized.

For the nine months ended September 30, 2009 as compared to 2008, the increase in net interest income from increased volumes, offset by the combination of a . . .