Esquire Financial Holdings, Inc. Q2 FY2026 earnings call

• Merger Update

  • The pending Signature Bank Corporation merger is scheduled to close on August 1, 2026; integration preparation has proceeded extremely well with no outstanding concerns around day-one readiness
  • The combined firm will gain an established Chicago brand and management team to expand in the underserved Chicago/Midwest market, targeting the large, fragmented $0.5 trillion annual national litigation settlement vertical
  • Pre-tax merger-related expenses totaled $1.1 million in Q2 2026

• Overall Financial Performance

  • GAAP net income was $13 million ($1.49 per diluted share); adjusted net income (excluding merger costs) was $14 million ($1.60 per diluted share), a 16% increase year-over-year
  • Excluding merger expenses, adjusted average return on assets was 2.25% and adjusted average return on equity was 18.33%, with an adjusted efficiency ratio of 47.6% reflecting disciplined operating leverage during ongoing investment
  • Net interest margin (NIM) remained resilient at 596 basis points despite broad declines in short-term interest rates, with a 10 basis point drag from elevated interest-earning cash balances
  • Capital ratios remain well above regulatory well-capitalized standards: consolidated equity to assets was 12.5%, and bank-level tier one capital ratio was 14.2%, providing ample flexibility for the merger

• Balance Sheet and Credit Quality

  • Total loan growth was $87.2 million linked-quarter (19% annualized), with $76.1 million in loan payoffs during the period
  • Total deposits grew $77.1 million linked-quarter (15% annualized) to $2.18 billion, with cost of funds holding steady at 1.03%; growth was driven by litigation-related escrow and IOLTA deposits
  • Total liquidity (cash + borrowing capacity) was $1.2 billion as of quarter-end, with 38% of $1 billion in off-balance sheet sweep balances available for liquidity if needed
  • Credit quality remained solid: allowance for credit losses held at 1.3% of total loans, non-performing loans totaled $5.1 million (0.20% of total assets), with no special mention/substandard exposure in the litigation loan portfolio, no commercial office exposure, and only $13.17 million in limited hospitality exposure

Esquire Financial Holdings operates across three primary lending and fee-generating segments: 1) Litigation Lending: Net annualized growth of 24% linked-quarter, 41% year-over-year, reaching a total portfolio of $1.29 billion with a blended yield of 8.8%. This segment is the highest-yielding core asset, and drives low-cost core deposit growth for the bank. 2) Commercial Real Estate (CRE) Lending: Produced $25.6 million in new loan volume during the quarter, representing a minor share of total loan growth. Total loans across the commercial and CRE segments reached $1.9 billion as of quarter-end. 3) Payments Platform: Non-interest income totaled $6.4 million for the quarter, representing approximately 15% of total firm revenue. The platform served 93,000 small business clients, processed $10.6 billion in payment volume across 153 million transactions, and generated $1.1 million in administrative service payment fees for off-balance sheet sweep balances totaling $1 billion.

• Management maintained the target of a ~6% NIM for the standalone Esquire business, and confirmed the previously provided guidance of a combined day-one NIM of ~540-545 basis points after the Signature merger closes, with the full quarterly NIM expected to be reflected in the Q4 2026 period rather than the partial Q3 2026 period
• Over time, management expects combined NIM to improve as the firm increases concentration of higher-yielding litigation lending in the Chicago/Midwest market, which also brings low-cost core funding to the balance sheet
• Indirect merchant payment volume is expected to grow approximately 10% annually over the next 1-1.5 years, with associated revenue growing 3-5% annually, as the firm gradually shifts to more direct merchant acquiring relationships over a slow, steady timeline

• Elevated interest-earning cash balances created a 10 basis point drag on net interest margin in Q2 2026; the firm holds ~$100 million in excess cash beyond operating needs, which will be deployed into new loans to improve margin over time
• One previously criticized multifamily CRE loan from a single sponsor was transferred to non-accrual status, with a $1.6 million charge-off recognized in the quarter; management noted the firm has no additional exposure to this sponsor, and is comfortable with the remainder of the multifamily portfolio
• Indirect merchant processing revenue has been impacted by the sale of a small number of independent service organization (ISO) platforms to third parties, leading to modest year-over-year volume declines; any future ISO exits could create continued near-term headwinds for payment segment growth

Q: Asked about the future asset mix between litigation lending and stronger than expected CRE growth this quarter, and current new litigation loan yields. / A: Management confirmed national litigation lending remains the primary focus, as it delivers higher yields and low-cost core funding that supports the entire balance sheet. CRE growth is opportunistic only for loans meeting strict debt service coverage and loan-to-value criteria, with Q2 CRE volume totaling just $25 million, a small share of total growth. Yields have held near 8.8% (slightly below prior ~9% levels), and management expects to maintain overall NIM around 6% for the standalone business, with 10 additional basis points of NIM upside once excess cash is deployed into new loans.

Q: Asked for an update on Signature merger integration progress, the timeline to ramp up litigation lending in Chicago, and the shift to direct merchant relationships post-merger. / A: Management reports integration preparation has gone extremely well, with all day-one legal and operational readiness complete, and pre-close collaboration already underway to target prospective Chicago/Midwest plaintiff law firms. For the payments business, the shift from the indirect ISO model to direct merchant acquiring will be a slow gradual process over the next 1-1.5 years, with indirect volume expected to grow ~10% annually, with revenue growing 3-5% annually. Signature's non-litigation commercial clients will be transitioned to the direct platform over time with no immediate change.

Q: Asked what factors could move combined NIM away from the 540-545 basis point day-one target, and what the post-merger interest rate sensitivity profile will be. / A: Management confirmed interest rate sensitivity will remain largely unchanged post-merger, as both firms have primarily floating-rate assets and are similarly modestly asset sensitive, with no material change to balance sheet risk management. Over time, increasing allocation to higher-yielding litigation lending (which brings low-cost core deposits) will push combined NIM gradually higher from the day-one level. No factors are expected to push NIM meaningfully below the target range barring unforeseen large rate shifts.