Esquire Financial Holdings, Inc.
For the period ended Sep 30, 2026. Filed Nov 9, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2026 · Filed Nov 9, 2026
ESQ$133.43+3.3%Stored close · as of Nov 9, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2026-06-30; filed 2026-08-10.
0001104659-26-093295
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-09-30; filed 2026-11-09.
0001104659-26-124463
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 109 previous paragraphs and 123 current paragraphs.
37 unchanged; 52 reworded; 30 added; 16 removed; 4 previous and 4 current paragraphs rearranged.
Tables are not compared: 53 previous and 54 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (30)
Current report
Signature Merger
Current report
The September 30, 2026 financial position includes the acquired Signature assets and assumed liabilities. Results for the three and nine months ended September 30, 2026 include Signature’s operations from August 1, 2026 through September 30, 2026. The corresponding 2025 periods do not include Signature’s assets and assumed liabilities. Accordingly, changes in balances and operating results reflect both the Merger and changes in the existing business and are not directly comparable without considering the Merger.
Current report
Fair Value of Acquired Loans. In connection with the Signature Merger on August 1, 2026, the Company estimated the merger-date fair values of acquired loans with the assistance of a third-party valuation specialist. Management considers this valuation to be a critical accounting estimate because it involves significant judgment regarding expected future cash flows and market participant assumptions.
Current report
Estimated fair values were determined using discounted cash flow analyses incorporating assumptions regarding expected credit losses, prepayments, the timing of collections and discount rates. Discount rates reflected market participant return requirements, including funding costs, capital requirements, servicing costs, liquidity premiums and other applicable risk adjustments. Purchased credit-deteriorated loans were evaluated separately, incorporating assessments of expected collectability, collateral coverage, recovery timing and other loan-specific risk factors.
Current report
Different assumptions could materially affect the estimated fair values, resulting goodwill and subsequent recognition of interest income. Higher discount rates or greater expected credit losses would generally reduce estimated fair values. For valuations that remain provisional, adjustments may be recorded during the measurement period as additional information about facts and circumstances existing at the merger-date becomes available. See Note 2, “Business Combination”, in the accompanying unaudited Consolidated Interim Financial Statements for additional information.
Current report
The Company uses a Discounted Cash Flow methodology to calculate the quantitative component of expected credit losses for originated loans evaluated collectively. Effective August 1, 2026, the Company transitioned its legacy loan portfolio from a Weighted Average Remaining Maturity methodology to the Discounted Cash Flow methodology following the Signature Merger and management's reassessment of the estimation methodology appropriate for that portfolio. The model projects loan-level contractual principal and interest cash flows over the contractual term and incorporates expected prepayments or curtailments, forecasted probabilities of default, loss-given-default assumptions, recovery timing and other relevant assumptions. For originated loans, expected cash flows are discounted at the financial asset's effective interest rate. For variable-rate loans, the Company applies its approved and consistently applied
Current report
methodology for determining the effective interest rate and projecting contractual cash flows. The quantitative allowance equals the amount by which the amortized cost basis exceeds the present value of cash flows expected to be collected.
Current report
For acquired PSLs evaluated collectively, the Company uses a non-discounted expected cash flow methodology. Loan-level projections incorporate contractual repayment terms, expected prepayments or curtailments, probabilities of default, loss-given-default assumptions and reasonable and supportable economic forecasts. Expected losses are calculated by applying credit-loss assumptions to projected principal exposure without discounting. Acquired PCD loans are evaluated individually using borrower-specific expected collections and recovery information. Net deferred fees and costs, purchase premiums and discounts, and other components of amortized cost are incorporated in accordance with the Company's documented model configuration and accounting elections.
Current report
Model inputs are based on peer group historical default and loss information derived from FFIEC Call Report data for banks with comparable asset size and loan portfolio characteristics. Probabilities of default are developed from regression models that relate peer default rates to macroeconomic variables, principally the unemployment rate and gross domestic product, using Federal Open Market Committee forecasts. Loss given default is based on peer loss experience. The model projects loan-level contractual cash flows adjusted for prepayment and curtailment assumptions derived from industry benchmark data, probabilities of default, loss given default, and recovery timing of 24 months from charge-off (six months for consumer loans), and discounts expected cash flows at each loan's effective interest rate. Management evaluates the relevance and reliability of historical periods, peer groups, probability-of-default assumptions, loss-given-default assumptions, prepayment or curtailment speeds, recovery timing and other inputs at least annually.
Current report
The Company incorporates current conditions and reasonable and supportable forecasts into its quantitative allowance methodologies for the period over which management can develop or obtain supportable projections. Forecasts may affect expected default timing, loss severity, prepayments, recoveries and other cash flow assumptions. The Company applies a four-quarter reasonable and supportable forecast period using Federal Open Market Committee forecasts of the unemployment rate and gross domestic product, followed by a four-quarter straight-line reversion to historical loss information. The forecast horizon, reversion period, reversion method, economic variables and scenario selection are documented and reviewed at least annually.
Current report
Management may adjust the quantitative allowance estimates for current conditions, portfolio risks and forecast considerations that are not fully reflected in the model. Qualitative factors are evaluated by portfolio segment and address changes in lending policies and procedures; national and local economic conditions; changes in the nature, volume and terms of loans; the experience and depth of lending management and staff; trends in delinquencies, risk-rating migration and adversely classified loans; the quality of the loan review system; underlying collateral values; concentrations of credit; and other external factors. The Company also applies a separate commercial and industrial concentration adjustment for unusually large borrower exposures. Qualitative adjustments may be positive or negative and are supported by documented evidence, a defined measurement approach and management approval. Management evaluates each adjustment for overlap with quantitative model inputs to prevent the same risk from being captured more than once. Qualitative adjustments are reviewed at each reporting date and removed or revised when the underlying risk is reflected in the quantitative model or is no longer present.
Current report
Change in Allowance Methodology
Current report
During the quarter ended September 30, 2026, the Company changed the methodology used to estimate the allowance for credit losses on its legacy loan portfolio from a static pool Weighted Average Remaining Maturity methodology to a Discounted Cash Flow methodology, effective August 1, 2026. The change was made in conjunction with the Company's Merger with Signature and management's reassessment of the estimation methodology appropriate for the company on a prospective basis.
Current report
The DCF methodology replaced the Company's historical loss rates used under the WARM methodology with peer-group historical default and loss information, and introduced the probability-of-default regression models, loss-given-default, prepayment and curtailment, and recovery timing assumptions described above. Management determined that DCF better reflects the contractual cash-flow characteristics of the legacy portfolio and future new loans that will be originated by the Company.
Current report
Purchased seasoned loan pools from the Signature Merger are closed pools. Loans originated after August 1, 2026 are evaluated in the DCF pools. The acquired pools are evaluated using a non-discounted expected cash flow methodology that uses the same assumptions as the DCF methodology but does not discount expected cash flows. Acquired loans were recorded at fair value, which includes a purchase discount. A discounted methodology would require an effective interest rate that equates each loan's expected cash flows to its purchase price. Measuring on the unpaid principal balance is consistent with how the merger-date allowance was determined under the gross-up approach. It also keeps the remaining noncredit discount, which is recognized in interest income, separate from the allowance.
Current report
The change does not indicate that the former methodology was inappropriate when previously applied. Management concluded that the change reflects new information and changing risk characteristics of the loan portfolio resulting from the Signature Merger rather than a correction of an error or a change in accounting principle. The change was accounted for prospectively as a change in accounting estimate beginning August 1, 2026. Prior-period amounts were not restated or presented on a pro forma basis for this change in accounting estimate. The change resulted in no material impact to the allowance for credit losses and the related provision for credit losses in the current period.
Current report
During 2026, the composition of the Company's loan portfolio was impacted by the Signature Merger. The acquired portfolio expanded the Company's exposure across commercial and industrial, commercial real estate, multifamily, construction, residential and consumer lending segments. Management considered the characteristics of both legacy loans and acquired Signature loans when estimating expected credit losses and determining the allowance for credit losses at September 30, 2026.
Current report
Midwest Middle Market Commercial Banking. We are well positioned and maintain long-standing relationships to provide core banking services in the Chicago metropolitan and greater Midwest market, which includes a large, diverse base of privately held companies, family-owned businesses, entrepreneurs, and professional service firms that are underserved by large national and regional banks that are more transaction-oriented and less relationship-focused, as well as smaller community banks that provide an opportunity for us to differentiate through our commercial banking expertise, talent and product depth. In addition to deposit and treasury management services, lending products provided include revolving lines of credit, borrowing base facilities, term loans, equipment financing, acquisition financing and other customized business credit solutions.
Current report
Funding**.** Total deposits increased $1.91 billion, or 92.8% to $3.98 billion at September 30, 2026 from $2.06 billion at December 31, 2025, primarily as a result of the Signature Merger which contributed $1.65 billion as well as organic growth totaling $263.8 million, or 12.8%, with the NOW/interest on lawyer trust accounts (“IOLTA”) and money market categories totaling $154.2 million and $222.7 million, respectively, offset by noninterest bearing demand decreasing $93.9 million. We remain focused on building full-service commercial banking relationships through lending, payment processing and tailored treasury management solutions, with deposit growth driven primarily by our client relationships rather than rate competition. The Merger with Signature strengthens this strategy by adding an established, relationship-focused commercial banking franchise with a diversified, low-cost core deposit base in the Chicago and Midwest markets. The Merger broadened our funding sources, reduced our reliance on litigation-related deposits and enhanced our capacity to support continued growth across our national platforms. Core deposits, which we define as total deposits excluding time deposits, totaled $3.91 billion at September 30, 2026, or 98.4% of total deposits, compared to $2.06 billion or 99.7% of total deposits at December 31, 2025. Litigation and payment processing deposits represent $2.29 billion, or 57.6%, of total deposits at September 30, 2026.
Current report
Our deposit strategy focuses on building full-service commercial banking relationships through lending, payment processing and tailored treasury management solutions, with deposit growth driven primarily by our client relationships rather than rate competition. Our longer duration IOLTA, escrow and settlement deposits represent $1.56 billion, or 39.3%,
Current report
Asset Quality. Nonperforming assets totaled $9.6 million as of September 30, 2026, and consisted of five nonperforming loans totaling $8.6 million and one property acquired in the Signature Merger in OREO totaling $1.0 million. Nonperforming assets totaled $8.6 million as of December 31, 2025 and consisted entirely of nonperforming loans. Nonperforming loans at September 30, 2026 included two legacy Esquire loans totaling $5.1 million, and three acquired Signature nonperforming loans totaling $3.5 million. These loans were individually evaluated based on borrower-specific credit information and expected recoveries and their carrying amount is deemed collectible. In the second quarter, we placed a multifamily loan on nonaccrual totaling $4.4 million, net of a $1.6 million charge-off.
Current report
The allowance for credit losses was $44.7 million, or 1.30% of total loans, as of September 30, 2026, as compared to $24.0 million, or 1.37% of total loans at December 31, 2025. The increase in the allowance for credit losses primarily related to the Merger with Signature, and to a lesser extent, organic loan growth. Based on management’s evaluation of current credit risk in our loan portfolio, the Signature Merger, increases in the general reserves considering loan growth, loan composition, and the current uncertain economic and short-term interest rate environment, management believes the allowance for credit losses is adequate at September 30, 2026.
Current report
Our net interest margin decreased 30 basis points to 5.74%, primarily due to the impact of the Signature Merger. The resilience of our combined net interest margin reflects the strength of both the legacy Esquire franchise and the Signature acquired net interest earning assets at fair value, driving industry leading returns. Our net interest margin was positively impacted by approximately 6 basis points in the current quarter as the acquired interest-earning assets and interest-bearing liabilities of Signature, at fair value, impacted the combined net interest margin for two out of the three months in the current quarter. Average loan yields decreased 41 basis points to 7.57%, primarily due to the composition of the acquired loans in the Merger. Average loans increased $1.36 billion (approximately $903.9 million related to the Signature Merger), or 88.7%, to $2.89 billion, with the remaining organic growth led by our litigation-related loans totaling $420.0 million, or 44.2%, to $1.37 billion in the current quarter. Average securities increased $142.1 million, or 42.1%, to $479.8 million with yields increasing 23 basis points to 4.04% with both increases related to the Signature Merger. Average deposits increased $1.49 billion ($1.08 billion related to the Signature Merger), or 80.6%, to $3.34 billion. We continue to generate core organic deposit growth led by our litigation-related (both IOLTA/NOW and money market) growth totaling $398.5 million, or 31.8%. Our cost of deposits, including noninterest bearing demand deposits, increased 10 basis points to 1.13%, primarily due to the Signature Merger.
Current report
million are primarily related to fee income generated by Signature’s existing banking platform and related commercial client base.
Current report
Noninterest expense increased primarily due to the Signature Merger, including two months of its operating expenses totaling $5.1 million following the August 1, 2026 closing, $8.9 million of merger expenses, and $1.8 million of core deposit intangible amortization. Employee compensation and benefits costs increased $5.1 million (primarily related to the Signature Merger), or 47.1%, to $16.0 million, reflecting the addition of Signature’s personnel and continued investment in our employees across all departments as well as technology to primarily support our national litigation franchise. Other noninterest expenses increased $2.0 million (primarily related to the Signature Merger) to $9.3 million, reflecting the expanded operating footprint and infrastructure of the combined company, together with ongoing investment in business development, client service and risk management.
Current report
Our net interest margin decreased 13 basis points to 5.88%, primarily from the impact of the Signature Merger. Average loan yields decreased 18 basis points to 7.71%, primarily due to the composition of the acquired loans in the Merger, while average loans increased $720.5 million ($304.6 million related to the Signature Merger), or 49.2%, to $2.18 billion, with average legacy litigation-related loan growth totaling $393.7 million, or 44.4%. Average securities increased $46.7 million to $379.6 million with yields increasing 13 basis points to 3.91%, with both increases related to the Signature Merger. Average deposits increased $759.6 million ($363.0 million related to the Signature Merger), or 43.2%, to $2.52 billion. We continue to generate core organic deposit growth, led by our litigation-related (both IOLTA/NOW and money market) growth totaling $368.4 million, or 31.3%. Our cost of deposits, including noninterest bearing demand deposits, increased 8 basis points to 1.07% primarily due to the Signature Merger.
Current report
Securities interest income increased $1.7 million, or 18.0%, to $11.1 million for the nine months ended September 30, 2026, with a $1.4 million increase attributable to average volume increases, as well as an increase of $339 thousand attributable to increases in average rate, with both increases related to the Signature Merger. Average securities increased $46.7 million, or 14.0%, to $379.6 million, as a result of the Merger.
Current report
Provision for Credit Losses. Our provision for credit losses was $7.4 million for the nine months ended September 30, 2026, an increase of $625 thousand from the provision for the nine months ended September 30, 2025. As of September
Current report
Noninterest expense increased primarily due to the Signature Merger, including two months of its operating expenses totaling $5.1 million following the August 1, 2026 closing, $11.2 million of merger expenses, and $1.8 million of core deposit intangible amortization. Employee compensation and benefits costs increased $9.7 million (primarily related to the Signature Merger), or 31.0%, to $40.8 million, reflecting the addition of Signature’s personnel and continued investment in employees across all departments as well as technology to primarily support our national litigation franchise.
Current report
Other noninterest expenses increased $3.1 million to $23.9 million (primarily related to the Signature Merger), reflecting the expanded operations of the combined company and continued investment to support organic growth.
Removed paragraphs (16)
Previous report
Subsequent Events - Signature Merger
Previous report
Effective on August 1, 2026, the Company completed its previously announced merger with Signature Bancorporation, Inc., an Illinois corporation, pursuant to the Merger Agreement by and among the Company, Merger Sub and Signature. See Note 1 - Basis of Presentation and Summary of Significant Accounting Policies, in Notes to Interim Consolidated Financial Statements for additional information regarding the Merger.
Previous report
The Company employs a static pool methodology for all loan segments. In a static pool approach, statistical information about a pool of loans originated during a specified period is tracked over its life (including losses, delinquencies, and prepayments). In general, this methodology operates by calculating a rate representing the current balance expected to not be collected for each pool. This loss rate is then applied against the current portfolio loans with similar characteristics of those established in the pool.
Previous report
The estimation of expected credit losses requires the use of forward-looking information that is both reasonable and supportable, including information that relates to economic forecasts and how those forecasts are expected to impact expected future losses. The Company incorporates reasonable and supportable forecasts as qualitative adjustments applied to the historical loss rates over the reasonable and supportable forecast period. The CECL Standard does not require a specific method for developing economic forecasts, nor does it require a specific timeframe over which a reasonable and supportable forecast should be employed in the Company’s CECL model. While the Company is not precluded from utilizing economic forecasts over the entire contractual term of a loan, the Company utilizes forecasts it believes are reasonable and supportable. The Company considers its methodologies to determine reasonable and supportable forecasts and reversion techniques to be accounting estimates rather than accounting policies or principles. For periods beyond which the Company is unable to determine a reasonable and supportable forecast, it will revert to unadjusted historical loss information in accordance with the CECL Standard. Management assesses the sensitivity of key assumptions by
Previous report
stressing the quantitative inputs utilized in its economic forecasts. This sensitivity analysis provides management with a hypothetical result to assess the sensitivity of our allowance for credit losses to a change in a key quantitative input.
Previous report
Qualitative factors are used to supplement the static pool methodology to determine total estimated expected credit losses during a given period. Because the static pool methodology estimates losses based on historical loss information, management utilizes qualitative factors to measure expected credit losses which are not sufficiently captured within the static pool model during a given period.
Previous report
On a quarterly basis, management determines the extent to which qualitative factors are used to bring the allowance for credit losses to a level deemed appropriate. These adjustments to the allowance for credit losses may be positive or negative to the quantitatively modeled results from the static pool methodology. Final qualitative adjustments to the allowance for credit losses are subject to management judgment.
Previous report
Funding**.** Total deposits increased $116.7 million, or 5.7% to $2.18 billion at June 30, 2026 from $2.06 billion at December 31, 2025, primarily due to our focus on developing full service commercial banking relationships nationally with our clients through commercial lending facilities, payment processing, and other unique commercial cash management services in our two national verticals. Core deposits, which we define as total deposits excluding time deposits, totaled $2.17 billion at June 30, 2026, or 99.7% of total deposits, compared to $2.06 billion or 99.7% of total deposits at December 31, 2025. Litigation and payment processing deposits represent $1.86 billion, or 85.3%, of total deposits at June 30, 2026. Savings, NOW and money market deposits increased $141.4 million, or 9.6%, to $1.62 billion while noninterest bearing demand deposits decreased $24.3 million, or 4.2%, to $552.1 million at June 30, 2026.
Previous report
From a credit risk management perspective, the combined multifamily and CRE portfolio, excluding one multifamily nonaccrual loan, totaled $524.6 million and has a current weighted average debt service coverage ratio (“DSCR”) and an original loan-to value (“LTV”) (defined as unpaid principal balance as of June 30, 2026 divided by appraised value at origination) of approximately 1.67 and 54%, respectively.
Previous report
Our net interest margin of 5.96% decreased 7 basis points from the comparable period in 2025, primarily due to a $53.1 million increase in average interest earning cash balances to $205.0 million in the current quarter coupled with decreases in short-term market interest rates over the same period. Average loan yields decreased 11 basis points to 7.78%, primarily due to our litigation related loan yields, while average loans increased $414.5 million, or 28.3%, to $1.88 billion, with average litigation related loan growth totaling $405.7 million, or 46.1%. Average securities decreased $10.2 million, or 3.1%, to $322.8 million with yields remaining relatively flat at 3.79%. Average deposits increased $412.7 million, or 23.6%, to $2.16 billion, led by increases in litigation related escrow or IOLTA, commercial money market, and noninterest bearing commercial demand deposits totaling $297.5 million, $90.0 million, and $19.1 million, respectively. Our cost of deposits, including noninterest bearing demand deposits, increased 5 basis points to 1.03% due to changes in deposit composition.
Previous report
Employee compensation and benefits costs increased $2.4 million, or 23.4%, primarily due to increases in year-end salaries, staffing, stock grants and related stock-based compensation, regional business development officer (“BDO”) incentive pay (sales commissions) and year-end bonus accruals. The increase in BDO incentive pay is directly correlated to our litigation related/commercial loan and related core commercial deposit growth, attracting full-service commercial banking clients nationally. In connection with the announced merger with Signature, we incurred merger related costs (advisory, legal, accounting, valuation, and other professional or consulting fees, and general administrative costs) of $1.1 million in the second quarter of 2026. Data processing costs increased $343 thousand due to increases in core banking processing volumes and the continued implementation/improvement of technology supporting client relationships and lead acquisition initiatives (CRM platform, digital marketing, business development, and lending) as well as overall risk management across all platforms. Advertising and marketing costs increased $193 thousand, as we continued to grow our brand, targeting digital marketing platform, and expand our thought leadership in our national verticals. Occupancy and equipment costs increased $176 thousand due to costs associated with the operation of our Los Angeles branch which opened in late 2025.
Previous report
Our net interest margin of 6.00% increased 1 basis point from the comparable period in 2025, primarily due to growth in higher yielding commercial loan production nationally. Average loan yields decreased 2 basis points to 7.82%, while average loans increased $395.6 million, or 27.7%, to $1.82 billion, with average litigation related loan growth totaling $380.3 million, or 44.5%. Average securities decreased $1.8 million to $328.6 million with yields increasing 5 basis points to 3.82%. Average deposits increased $388.6 million, or 22.7%, to $2.10 billion, led by increases in litigation related escrow or IOLTA, commercial money market, and noninterest bearing commercial demand deposits totaling $256.9 million, $92.8 million, and $30.5 million, respectively. Our cost of deposits, including noninterest bearing demand deposits, increased 5 basis points to 1.01% due to changes in deposit composition.
Previous report
Securities interest income increased $55 thousand, or 0.9%, to $6.2 million for the six months ended June 30, 2026, with an $88 thousand increase attributable to average rate increases, offset by a decrease of $33 thousand attributable to decreases in average balances. Average securities decreased $1.8 million, or 0.6%, to $328.7 million with a securities to assets ratio of 12% at June 30, 2026.
Previous report
Provision for Credit Losses. Our provision for credit losses was $5.6 million for the six months ended June 30, 2026, an increase of $575 thousand from the $5.0 million provision for the six months ended June 30, 2025, primarily due to management’s revaluation of credit risk in our loan portfolio subsequent to certain charge-offs and related credit downgrades in both periods, offset by provisioning for primarily commercial loan growth. In 2026, there were $4.7 million
Previous report
Employee compensation and benefits costs increased $4.5 million, or 22.4%, primarily due to increases in year-end salaries, stock grants and related stock-based compensation, staffing, regional BDO incentive pay (sales commissions), and year-end bonus accruals. The increase in BDO incentive pay is directly correlated to our litigation related/commercial loan and related core commercial deposit growth, attracting full-service commercial banking clients nationally. Due to the departure of two board members for personal reasons in the first quarter of 2026, we incurred compensation charges related to accelerated stock grant expense totaling $398 thousand. In connection with the Signature merger, we incurred merger
Previous report
related costs (advisory, legal, accounting, valuation, and other professional or consulting fees, as well as general administrative costs) of $2.3 million for the six months ended June 30, 2026. Data processing costs increased $792 thousand due to increases in core banking processing volumes and the continued implementation/improvement of technology supporting client relationships and lead acquisition initiatives (CRM platform, digital marketing, business development, and lending) as well as overall risk management across all platforms. Advertising and marketing costs increased $340 thousand, as we continued to grow our brand, targeting digital marketing platform, and expand our thought leadership in our national verticals. Occupancy and equipment costs increased $300 thousand primarily due to costs associated with the operation of our Los Angeles branch which opened in late 2025.
Reworded paragraphs (52)
Previous wording
Management’s discussion and analysis of financial condition at June 30, 2026 and December 31, 2025 and results of operations for the three and six months ended June 30, 2026 and 2025 is intended to assist in understanding the financial condition and results of operations of Esquire Financial Holdings, Inc. The information contained in this section should be read in conjunction with the unaudited Consolidated Financial Statements and the notes thereto appearing in Part I, Item 1, of this quarterly report on Form 10-Q and the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
Current wording
Management’s discussion and analysis of financial condition at September 30, 2026 and December 31, 2025 and results of operations for the three and nine months ended September 30, 2026 and 2025 is intended to assist in understanding the financial condition and results of operations of Esquire Financial Holdings, Inc. The information contained in this section should be read in conjunction with the unaudited Consolidated Financial Statements and the notes thereto appearing in Part I, Item 1, of this quarterly report on Form 10-Q and the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
Previous wording
A summary of our significant accounting policies is described in Note 1 to the Consolidated Financial Statements included in our Annual Report. Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes that the most critical accounting policies, which involve the most complex or subjective decisions or assessments, are as follows:
Current wording
A summary of our significant accounting policies is described in Note 1 to the Consolidated Financial Statements included in our Annual Report. Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting estimates are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes that the most critical accounting estimates, which involve the most complex or subjective decisions or assessments, are as follows:
Previous wording
Allowance for Credit Losses on Loans Held for Investment. Management considers the accounting policy relating to the allowance for credit losses on loans held for investment to be a critical accounting policy given the inherent subjectivity and uncertainty in estimating the levels of the allowance required to cover credit losses in the portfolio and the material effect that such judgments can have on the results of operations*.*See Note 1 “Business and Summary of Significant Accounting Policies” in our Annual Report for discussion of our allowance for credit losses on loans held for investment policy.
Current wording
Allowance for Credit Losses on Loans Held for Investment. Management considers the accounting estimate relating to the allowance for credit losses on loans held for investment to be a critical accounting estimate given the inherent subjectivity and uncertainty in estimating the levels of the allowance required to cover credit losses in the portfolio and the material effect that such judgments can have on the results of operations*.*See Note 1 “Basis of Presentation and Summary of Significant Accounting Policies” in the accompanying unaudited Consolidated Interim Financial Statements for discussion of our allowance for credit losses on loans held for investment policy.
Previous wording
In accordance with the CECL Standard, the Company must estimate expected credit losses over the contractual term of a loan, adjusted for expected prepayments. In estimating the life of a loan, the Company cannot extend the contractual term of a loan for expected extensions, renewals, and modifications, unless there is a borrower-held extension or renewal option that is not unconditionally cancelable. In developing the estimate of expected credit losses, the Company must reflect information about past events, current conditions, and reasonable and supportable forecasts. This information should include what is reasonably available without undue cost and effort and may include information sourced internally, externally, or a combination of both.
Current wording
In accordance with the CECL Standard, the Company estimates expected credit losses over the contractual term of a loan, adjusted for expected prepayments. The contractual term of a loan excludes expected extensions, renewals, and modifications unless there is a borrower-held extension or renewal option that is not unconditionally cancelable by the Company. In developing the estimate of expected credit losses, the Company reflects information about past events, current conditions, and reasonable and supportable forecasts. This information includes what is reasonably available without undue cost and effort and may include information sourced internally, externally, or a combination of both.
Previous wording
The Company measures the allowance for credit losses on a collective basis by pooling loans according to similar risk characteristics. When a loan is deemed to no longer share risk characteristics similar to others in the portfolio, the Company evaluates such loans on an individual basis. Management may consider changes to a borrower’s circumstances impacting cash collections, delinquency and non-accrual status, probability of default, industry, or other facts and circumstances when determining whether a loan shares risk characteristics with other loans in a pool. For a loan that does not share risk characteristics with other loans in a pool and is not collateral dependent, expected credit loss is measured based on the discounted value of the expected future cash flows and the amortized cost of the loan. If an entity determines that foreclosure of the collateral is probable, the CECL Standard requires the entity to measure expected credit losses of collateral dependent loans based on the difference between the current fair value of the collateral and the amortized cost basis of the financial asset. As of June 30, 2026, there was one collateral dependent multifamily loan secured by real estate totaling $4.4 million and one collateral dependent commercial loan secured by business assets totaling $736 thousand that was individually analyzed, with no associated specific reserve on the Consolidated Statements of Financial Condition.
Current wording
For a loan that does not share risk characteristics with other loans in a pool and is not collateral dependent, expected credit loss is measured based on the discounted value of the expected future cash flows and the amortized cost of the loan. If an entity determines that foreclosure of the collateral is probable, the CECL Standard requires the entity to measure expected credit losses of collateral dependent loans based on the difference between the current fair value of the collateral, less estimated costs to sell, if applicable, and the amortized cost basis of the financial asset. As of September 30, 2026, there was one collateral dependent multifamily loan secured by real estate totaling $4.4 million, one collateral dependent commercial loan secured by business assets totaling $711 thousand that was individually analyzed, with no associated specific reserve on the Consolidated Statements of Financial Condition. Loans acquired in the Signature Merger that were individually evaluated totaled $3.5 million, including PCD loans of $2.4 million, and had no associated allowance at September 30, 2026. The PCD loans are not collateral dependent and are measured using borrower-specific expected collections. The allowance on these loans at the merger-date was charged off in conjunction with the Merger.
Previous wording
We are a financial holding company headquartered in Jericho, New York and registered under the Bank Holding Company Act of 1956, as amended. Through our wholly owned bank subsidiary, Esquire Bank, National Association (“Esquire Bank” or the “Bank”), we are a full service commercial bank dedicated to serving the financial needs of the legal and small business communities on a national basis, and commercial and retail customers in the New York and Los Angeles metropolitan markets. We offer tailored products and solutions to the legal community and their clients as well as dynamic and flexible payment processing solutions to small business owners, both on a national basis. We also offer traditional banking products for businesses and consumers in our local market areas (a subset of the New York and Los Angeles metropolitan markets).
Current wording
We are a financial holding company headquartered in Jericho, New York and registered under the Bank Holding Company Act of 1956, as amended. Through our wholly owned bank subsidiary, Esquire Bank, National Association (“Esquire Bank” or the “Bank”), we are a full service commercial bank, with five branch offices in Jericho, NY, Los Angeles, CA, and Chicago, IL, as well as an administrative office in Boca Raton, Florida. The Bank is dedicated to serving the financial needs of the litigation industry and small businesses nationally, as well as commercial and retail customers in the New York, Chicago, and Los Angeles metropolitan areas. The Bank offers tailored financial and payment processing solutions to the litigation community and their clients as well as dynamic and flexible payment processing solutions to small business owners. We also offer traditional banking products for businesses and consumers in our local market areas (a subset of the New York, Los Angeles and Chicago metropolitan markets).
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The Company’s foundation for success has been our nationwide branchless litigation and payment processing verticals supported by our forward-thinking senior managers, outstanding client service teams, and inclusive corporate culture. The future of our success will be the ability to continue developing and embracing cutting-edge technology to significantly leverage these verticals, differentiating us from other technology enabled financial firms and creating the catalyst for industry leading growth and returns.
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The Company’s foundation for success has been our nationwide branch-lite litigation and payment processing verticals supported by our forward-thinking senior managers, outstanding client service teams, and inclusive corporate culture. The future of our success will be the ability to continue developing and embracing cutting-edge technology to significantly leverage these verticals, differentiating us from other technology enabled financial firms and creating the catalyst for industry leading growth and returns.
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Litigation Market Commercial Banking. The litigation market has been and will continue to be a significant growth opportunity for our Company as we offer focused and tailored products and services to law firms nationally. U.S. tort actions alone are estimated to consume approximately 2.1% of U.S. GDP annually according to the U.S. Chamber of Commerce Institute for Legal Reform (“Tort Costs in America – An Empirical Analysis of Costs and Compensation of U.S. Tort System”) published in November 2024 with an estimated total addressable market (“TAM”) of $529 billion for 2022. We do not compete directly with non-bank finance companies, the primary funders in this market, and believe there are various and significant barriers to entry including, but not limited to, our clear industry track record for decades, extensive in-house experience, deep relationships with respected firms nationally, and unique products tailored to commercial law firms’ needs and wants.
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Litigation Market Commercial Banking. The litigation market has been and will continue to be a significant growth opportunity for our Company as we offer focused and tailored products and services to law firms nationally. U.S. tort actions alone are estimated to consume approximately 2.1% of U.S. GDP annually according to the U.S. Chamber of Commerce Institute for Legal Reform (“Tort Costs in America – An Empirical Analysis of Costs and Compensation of U.S. Tort System”) published in November 2024 with an estimated total addressable market (“TAM”) of $529 billion for 2022. We do not compete directly with non-bank finance companies, the primary funders in this market, and believe there are various and significant barriers to entry including, but not limited to, our clear industry track record for decades, extensive in-house experience, established relationships with respected firms nationally, and unique products tailored to commercial law firms’ needs and wants.
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We currently have lending clients in 33 states and our larger markets include California, New York and Texas. Our success is tied to our unique ability to couple traditional commercial underwriting with non-traditional asset-based underwriting. Our team understands law firms’ contingent case inventory valuation process (as well as traditional hourly billing firms). Typically, these inventories of claims for injured consumers or claimants have a duration of 2 to 3 years, significantly longer than traditional accounts receivables or inventories of goods that can have a duration of 30 to 60 days or 120 days, respectively. These factors (the unique industry, contingent collateral, longer durations of the law firms’ inventories, atypical revenue streams of the law firms and more) coupled with the TAM create a unique and valuable opportunity for the Company with minimal incumbent competition. This unique risk profile translates into a blended 8.80% variable rate asset yield on these commercial loans for the quarter ended June 30, 2026. More importantly, since our commercial banking platform is focused on full service relationship banking, for every $1.00 we advance on these loans we receive on average $1.33 of low-cost core operating and escrow deposits from these law firms through our branchless platform, fueling and funding additional growth in our other asset classes. Our extremely low historic delinquency rates and low charge-off rates clearly demonstrate our strong underwriting process and expertise in the litigation vertical. Our longer duration escrow or claimant trust settlement deposits represent accounts where the law firm is trustee for the claimant settlement funds and represent $1.31 billion, or 60%, of total deposits at June 30, 2026. These law firm escrow accounts as well as other fiduciary deposit accounts are for the benefit of the law firm’s customers (or claimants) and are titled in a manner to ensure that the maximum amount of FDIC insurance coverage passes through the account to the beneficial owner of the funds held in the account. Therefore, these law firm escrow accounts carry FDIC insurance at the claimant settlement level, not at the deposit account level. Coupling these types of commercial relationships with our off-balance sheet (“OBS”) commercial litigation funds of $1.0 billion at June 30, 2026, makes this litigation vertical a highly desirable core low-cost funding platform fueling bank-wide growth.
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We currently have lending clients in 33 states and our larger markets include California, New York and Texas. Our success is tied to our unique ability to couple traditional commercial underwriting with non-traditional asset-based underwriting. Our team understands law firms’ contingent case inventory valuation process (as well as traditional hourly billing firms). Typically, these inventories of claims for injured consumers or claimants have a duration of 2 to 3 years, significantly longer than traditional accounts receivables or inventories of goods that can have a duration of 30 to 60 days or 120 days, respectively. These factors (the unique industry, contingent collateral, longer durations of the law firms’ inventories, atypical revenue streams of the law firms and more) coupled with the TAM create a unique and valuable opportunity for the Company with minimal incumbent competition. This unique risk profile translates into a blended 8.81% variable rate asset yield on these commercial loans for the quarter ended September 30, 2026. More importantly, since our commercial banking platform is focused on full service relationship banking, for every $1.00 we advance on these loans we receive on average $1.58 of low-cost core operating and escrow deposits from these law firms through our branch-lite
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Payment Processing. The payment processing (merchant acquiring) market will continue to be a growth opportunity for our company, as we offer focused and tailored products and services to small businesses nationally. The payment industry grew approximately 8% on a compound annual growth rate from 2021 to 2025 with payment volumes or TAM of $12.2 trillion according to company records on U.S. payment industry trends. Couple this with the fact that there are less than 100 acquiring financial institutions in the U.S., this vertical represents a growth opportunity for our Company. We believe there are various and significant barriers to entry to this market including, but not limited to, our industry track record, extensive in-house experience, strong relationships with non-bank acquirers, and our unique approach to servicing these small business merchants and their respective verticals. We use proprietary and industry leading/customized technology to ensure card brand and regulatory compliance, to support multiple processing platforms, to manage daily risk across approximately 93,000 small business merchants in all 50 states, and to perform commercial treasury clearing services for approximately $11 billion in volume across 153 million in transactions in the quarter ended June 30, 2026.
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Payment Processing. The payment processing (merchant acquiring) market will continue to be a growth opportunity for our company, as we offer focused and tailored products and services to small businesses nationally. The payment industry grew approximately 8% on a compound annual growth rate from 2021 to 2025 with payment volumes or TAM of $12.2 trillion according to company records on U.S. payment industry trends. Couple this with the fact that there are less than 100 acquiring financial institutions in the U.S., this vertical represents a growth opportunity for our Company. We believe there are various and significant barriers to entry to this market including, but not limited to, our industry track record, extensive in-house experience, strong relationships with non-bank acquirers, and our unique approach to servicing these small business merchants and their respective verticals. We use proprietary and industry leading/customized technology to ensure card brand and regulatory compliance, to support multiple processing platforms, to manage daily risk across approximately 94,000 small business merchants in all 50 states, and to perform commercial treasury clearing services for approximately $11 billion in volume across 152 million in transactions in the quarter ended September 30, 2026.
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Proprietary Technology. We are a digital-first organization utilizing highly specialized, proprietary technology to drive growth and maintain industry-leading client retention. Built upon a foundation of safety and soundness, our core banking platforms are uniquely customized to align with our clients in the legal industry. This specialized focus ensures
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Proprietary Technology. We are a digital-first organization utilizing highly specialized, proprietary technology to drive growth and maintain industry-leading client retention. Built upon a foundation of safety and soundness, our core banking platforms are uniquely customized to align with our clients in the legal industry. This specialized focus ensures our clients have access to tailored banking solutions that foster relationship building and long-term brand loyalty. Furthermore, our continued investment in an integrated CRM and loan platforms - built on Salesforce and nCino - enables superior client service and precision marketing on a national scale.
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The success of our national litigation and payment processing verticals coupled with our focus on financial technology (“fin-tech”) has led to industry leading performance. For the quarter ended June 30, 2026, we have produced industry leading returns including, but not limited to, an average return on assets and equity of 2.09% and 17.06%, respectively; industry leading net interest margin of 5.96%; strong efficiency ratio of 50.1%; and diversified revenue streams as demonstrated by a strong net interest margin and stable fee income representing 15% of total revenue. Coupling these performance metrics with strong balance sheet management including, but not limited to, loan portfolio diversification, an asset sensitive balance sheet with approximately 70% of our loans being variable rate and tied to prime (with interest rate floors in place on 90% of our variable rate loan portfolio), solid credit metrics, a stable low cost deposit base, and strong available liquidity of $1.19 billion with no outstanding borrowings, positions our Company for future growth and success.
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The success of our national litigation and payment processing verticals coupled with our focus on financial technology has led to industry leading performance. The addition of our Midwest commercial banking platform strengthens our growth potential by adding an established franchise with experienced bankers / business development officers (“BDOs”) with established relationships in the nation’s fourth largest market for contingent fee plaintiff law firms. Coupling our performance with strong balance sheet management including, but not limited to, loan portfolio diversification, an asset sensitive balance sheet with approximately 62% of our loans being variable rate and tied to prime (with interest rate floors in place on 75% of our variable rate loan portfolio), solid credit metrics, a stable low cost deposit base, and strong available liquidity of $1.63 billion, positions our Company for future growth and success.
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Assets. Our total assets were $2.51 billion at June 30, 2026, an increase of $145.4 million, or 6.1%, from $2.37 billion at December 31, 2025, due to growth in loans held for investment of $143.8 million, or 8.2%, and increases in cash and cash equivalents of $6.3 million, or 2.7%, offset by decreases in securities available-for-sale of $6.4 million, or 2.6% and decreases in securities held-to-maturity of $4.1 million, or 6.8%.
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Assets. Our total assets were $4.81 billion at September 30, 2026, an increase of $2.44 billion, or 103.1%, from $2.37 billion at December 31, 2025, due to $1.90 billion from the Signature Merger, organic growth in loans held for investment of $285.9 million, or 16.3%, and organic increases in cash and cash equivalents of $130.8 million, or 55.5%.
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Loan Portfolio Analysis. At June 30, 2026, loans, net of deferred fees and unearned premiums, were $1.90 billion, or 87.3% of total deposits, compared to $1.76 billion, or 85.2% of total deposits, at December 31, 2025. The growth in loans was primarily driven by net production in commercial loans and to a lesser extent, multifamily and commercial real estate loans. Commercial loans increased $91.6 million, or 7.4%, to $1.34 billion at June 30, 2026 from $1.25 billion at December 31, 2025. Commercial real estate loans increased $25.8 million, or 24.0%, to $133.1 million at June 30, 2026 from $107.3 million at December 31, 2025. Multifamily loans increased $23.1 million, or 6.2%, to $395.9 million at June 30, 2026 from $372.8 million at December 31, 2025.
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Loan Portfolio Analysis. At September 30, 2026, loans, net of deferred fees and unearned premiums, were $3.43 billion, or 86.1% of total deposits, compared to $1.76 billion, or 85.2% of total deposits, at December 31, 2025. The growth in loans was primarily attributable to $1.38 billion from the Merger with Signature as well as organic growth of $285.9 million driven by net production in commercial loans and to a lesser extent, multifamily and commercial real estate loans. Commercial loans increased $888.9 million, or 71.4%, to $2.13 billion at September 30, 2026 from $1.25 billion at December 31, 2025. Commercial loan growth was primarily driven by $667.6 million in acquired loans from the Merger, as well as $221.3 million, or 17.8%, of organic growth. Commercial Litigation-Related loan growth, all of which was organic, totaled $276.1 million, or 23.4%, to $1.45 billion at September 30, 2026 from $1.18 billion at December 31, 2025. Commercial real estate loans increased $426.8 million, or 397.8%, to $534.1 million at September 30, 2026 from $107.3 million at December 31, 2025. Commercial real estate loan growth was primarily driven by $405.9 million in acquired loans from the Merger, as well as $20.9 million, or 19.4%, of organic growth. Multifamily loans increased $82.8 million, or 22.2%, to $455.6 million at September 30, 2026 from $372.8 million at December 31, 2025. Multifamily loan growth was primarily driven by $42.8 million in acquired loans from the Merger, as well as $39.9 million, or 10.7%, of organic growth. Consumer loans increased $136.9 million, or 601.6%, to $159.7 million at September 30, 2026 from $22.8 million at December 31, 2025. Consumer loan growth was primarily driven by $110.9 million in acquired loans from the Merger, as well as $26.1 million, or 114.5%, of organic growth. Construction loans totaled $99.3 million at September 30, 2026 and there were no construction loans at December 31, 2025. Construction loan growth was entirely driven by acquired loans from the Merger. 1-4 family loans increased $32.3 million, or 328.1%, to $42.1 million at September 30, 2026 from $9.8 million at December 31, 2025, primarily driven by the Merger.
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At June 30, 2026, our Litigation-Related loans, which include commercial and consumer lending to attorneys, law firms and plaintiffs/claimants, totaled $1.30 billion, or 68.2% of our total loan portfolio, compared to $1.18 billion, or 67.2% of our total loan portfolio at December 31, 2025. We also had Commercial Litigation-Related committed and uncommitted undrawn lines of credit totaling $113.2 million and $924.0 million, respectively, at June 30, 2026.
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At September 30, 2026, our Litigation-Related loans, which include commercial and consumer lending to attorneys, law firms and plaintiffs/claimants, totaled $1.46 billion, or 42.6% of our total loan portfolio, compared to $1.18 billion, or 67.2% of our total loan portfolio at December 31, 2025. The decrease in Litigation-Related loans as a percentage of our total loan portfolio at September 30, 2026 when compared to December 31, 2025, was driven by the merger with Signature. We also had Commercial Litigation-Related committed and uncommitted undrawn lines of credit totaling $99.6 million and $1.01 billion, respectively, at September 30, 2026 compared to $106.9 million and $797.5 million, respectively, at December 31, 2025.
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Litigation-Related post-settlement consumer loans decreased $271 thousand to $2.9 million as of June 30, 2026, from $3.1 million as of December 31, 2025.
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Litigation-Related post-settlement consumer loans increased $103 thousand to $3.2 million as of September 30, 2026, from $3.1 million as of December 31, 2025.
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Debt Securities Portfolio. Securities available-for-sale decreased $6.4 million, or 2.6%, to $240.1 million at June 30, 2026 from $246.5 million at December 31, 2025, due to portfolio amortization of $34.4 million and increases in unrealized losses of $1.5 million, offset by securities purchases of $29.7 million. Securities held-to-maturity decreased $4.1 million, or 6.8%, to $56.1 million at June 30, 2026 from $60.2 million at December 31, 2025, driven by portfolio amortization.
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Debt Securities Portfolio. Securities available-for-sale increased $212.2 million, or 86.1%, to $458.7 million at September 30, 2026 from $246.5 million at December 31, 2025, due to net purchases of $276.7 million primarily as a result of the Signature Merger, offset by portfolio amortization of $51.0 million and increases in unrealized losses of $16.4 million. Concurrent with the Merger, the Company sold $340.0 million of securities available-for-sale, net of paydowns, acquired from Signature and reinvested the proceeds into higher yielding securities that align with the Company’s current portfolio. Securities held-to-maturity decreased $6.2 million, or 10.3%, to $54.0 million at September 30, 2026 from $60.2 million at December 31, 2025, driven by portfolio amortization.
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Core commercial relationship banking clients in our two national verticals represent approximately 75% of our $2.18 billion deposit base at June 30, 2026. These relationship banking clients are derived from coupling lending facilities, payment processing, and other unique custodial banking needs with commercial cash management depository services. Our deposit strategy primarily focuses on developing full service commercial banking relationships with our clients through commercial lending facilities, payment processing, and other unique commercial cash management services in our two national verticals, rather than competing with other institutions on rate. Our longer duration interest on lawyer trust accounts (“IOLTA”), escrow and settlement deposits represent $1.31 billion, or 59.9%, of total deposits. As of June 30, 2026, uninsured deposits were $722.4 million, or 33%, of our total deposits, excluding $18.9 million of the Company’s deposits held at the Bank. Approximately 65% of our uninsured deposits represent clients with full commercial relationship banking with us (commercial loans, payment processing, and other commercial service-oriented relationships) including,
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of total deposits. As of September 30, 2026, uninsured deposits were $1.67 billion, or 42.1%, of our total deposits, excluding $24.1 million of the Company’s deposits held at the Bank. Approximately 50% of our uninsured deposits represent clients with full commercial relationship banking with us including, but not limited to, commercial loans, payment processing, and various commercial service-oriented relationships including law firm operating accounts, law firm IOLTA/escrow accounts, merchant reserves, ISO reserves, ACH processing, and custodial accounts.
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Due to the nature of our larger mass tort and class action settlements related to the litigation vertical, we participate in FDIC insured sweep programs as well as treasury secured money market funds. As of June 30, 2026, OBS sweep funds totaled approximately $1.03 billion, of which approximately $392.5 million, or 38.0%, was available to be swept onto our balance sheet as reciprocal client relationship deposits. Our core low-cost deposit growth and OBS client funds continue to clearly demonstrate our highly efficient, full service commercial relationship and tech-enabled cash management platform.
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Due to the nature of our larger mass tort and class action settlements related to the litigation vertical, we participate in FDIC insured sweep programs as well as treasury secured money market funds. As of September 30, 2026, OBS sweep funds totaled approximately $775.5 million, of which approximately $255.4 million, or 32.9%, was available to be swept onto our balance sheet as reciprocal client relationship deposits. Our core low-cost deposit growth and off-balance sheet client funds continue to clearly demonstrate our highly efficient, full service commercial relationships and tech-enabled cash management platform on a national basis.
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At June 30, 2026, we had the ability to borrow, on a secured basis, up to $477.6 million from the Federal Home Loan Bank of New York and $45.0 million from the Federal Reserve Bank of New York discount window. At June 30, 2026, we also had $29.0 million in aggregate unsecured lines of credit with unaffiliated correspondent banks. No borrowing amounts were outstanding during the second quarter of 2026. Historically, we have not leveraged our balance sheet to generate earnings and have always utilized core client deposits to fund our asset growth and related earnings.
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At September 30, 2026, we had the ability to borrow, on a secured basis, up to $823.2 million from the Federal Home Loan Bank of New York and $42.0 million from the Federal Reserve Bank of New York discount window. At September 30, 2026, we also had $39.0 million in aggregate unsecured lines of credit with unaffiliated correspondent banks. At September 30, 2026 we had a $2.2 million outstanding borrowing with the FHLB of Chicago and $7.0 million of subordinated debt assumed as a result of the Merger. Historically, we have not leveraged our balance sheet to generate earnings and have always utilized core client deposits to fund our asset growth and related earnings.
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Stockholders’ Equity. Total stockholders’ equity increased $24.3 million to $313.9 million at June 30, 2026, from $289.6 million at December 31, 2025, primarily due to net income of $25.2 million, and amortization of share-based compensation of $3.7 million, partially offset by dividends declared to common stockholders of $3.5 million and other comprehensive loss of $1.3 million, as unrealized losses on our securities available-for-sale increased due to fluctuations in short-term market interest rates.
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Stockholders’ Equity. Total stockholders’ equity increased $497.0 million to $786.6 million at September 30, 2026, from $289.6 million at December 31, 2025, primarily due to equity consideration of $466.1 million as a result of the Signature Merger, as well as net income of $42.7 million, and amortization of share-based compensation of $5.5 million, partially offset by dividends declared to common stockholders of $5.9 million and other comprehensive loss of $12.2 million, as unrealized losses on our securities available-for-sale increased due to fluctuations in short-term market interest rates.
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Asset Quality. Nonperforming assets totaled $5.1 million as of June 30, 2026, and consisted of one multifamily loan totaling $4.4 million and of one commercial loan (a small business merchant uncorrelated to our primary commercial litigation lending platform and other commercial loans) totaling $736 thousand. Nonperforming assets totaled $8.6 million as of December 31, 2025. During the current quarter, we placed a multifamily loan on nonaccrual totaling $4.4 million, net of a $1.6 million charge-off. In the prior quarter, we foreclosed on the property securing a nonaccrual multifamily loan (totaling $7.8 million), recorded it as OREO, recorded a charge-off totaling $3.2 million (consisting of principal and certain costs to perfect its lien), and sold the OREO to an unrelated third party. We had no exposure to commercial office space, no construction loans, and $13.7 million in performing loans to the hospitality industry. The allowance for credit losses was $24.7 million, or 1.30% of total loans, as of June 30, 2026, as compared to $24.0 million, or 1.37% of total loans at December 31, 2025. Based on management’s evaluation of current credit risk in our commercial real estate and commercial portfolios, management believes the allowance for credit losses is adequate at June 30, 2026.
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In the first quarter, we foreclosed on the property securing a nonaccrual multifamily loan (totaling $7.8 million), recorded it as OREO, recorded a charge-off totaling $3.2 million (consisting of principal and certain costs to perfect its lien), and sold the OREO to an unrelated third party.
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At June 30, 2026, there were no special mention loans and $5.1 million in substandard loans, compared to $12.3 million and $8.6 million, special mention and substandard loans, respectively, as of December 31, 2025. The $12.3 million decrease in special mention balances relates to the above mentioned multifamily loan that was placed on nonaccrual and classified as substandard during the current quarter as well as a commercial loan that paid off. The ratio of nonperforming loans to total loans and total assets was 0.27% and 0.20%, respectively, as of June 30, 2026, as compared to 0.49% and 0.36%, respectively, as of December 31, 2025. The allowance for credit losses to nonperforming loans was 481% as of June 30, 2026, as compared to 280% as of December 31, 2025.
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At September 30, 2026, there were $22.5 million in special mention loans and $8.6 million in substandard loans, compared to $12.3 million and $8.6 million, special mention and substandard loans, respectively, as of December 31, 2025. The $10.2 million increase in special mention balances relates to acquired loans as a result of the Merger. Substandard loans remained flat as the above mentioned substandard multifamily loan totaling $7.8 million at December 31, 2025 was charged-off and sold in the first quarter, offset by the above mentioned $4.4 million multifamily loan in the second quarter of 2026 in addition to $3.5 million of acquired nonperforming loans. The ratio of nonperforming loans to total loans and total assets was 0.25% and 0.18%, respectively, as of September 30, 2026, as compared to 0.49% and
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General. Net income increased $1.1 million, or 9.2%, to $13.0 million for the three months ended June 30, 2026 from $11.9 million for the three months ended June 30, 2025. The increase resulted from a $6.5 million increase in net interest income, partially offset by a $4.0 million increase in noninterest expense, and a $1.8 million increase in income tax expense.
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General. Net income increased $3.4 million, or 24.4%, to $17.5 million for the three months ended September 30, 2026 from $14.1 million for the three months ended September 30, 2025. The increase resulted from a $22.2 million increase in net interest income, partially offset by a $17.6 million increase in noninterest expense, and a $2.7 million increase in income tax expense.
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Net Interest Income. Net interest income increased $6.5 million, or 22.2%, to $35.7 million for the three months ended June 30, 2026 from $29.3 million for the three months ended June 30, 2025, due to a $7.8 million increase in interest income, partially offset by a $1.3 million increase in interest expense.
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Net Interest Income. Net interest income increased $22.2 million, or 70.7%, to $53.5 million for the three months ended September 30, 2026 from $31.3 million for the three months ended September 30, 2025, due to a $27.0 million increase in interest income, partially offset by a $4.8 million increase in interest expense.
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Interest Income. Interest income increased $7.8 million, or 23.2%, to $41.3 million for the three months ended June 30, 2026 from $33.5 million for the three months ended June 30, 2025 and was attributable to increases in income on loans and interest earning cash, offset slightly by a decrease in securities income.
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Interest Income. Interest income increased $27.0 million, or 74.7%, to $63.1 million for the three months ended September 30, 2026 from $36.1 million for the three months ended September 30, 2025 and was attributable to increases in income on loans, securities and interest earning cash.
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Loan interest income increased $7.7 million, or 26.6%, to $36.4 million for the three months ended June 30, 2026 from $28.8 million for the three months ended June 30, 2025. This increase was attributable to a $414.5 million, or 28.3%, increase in the average loan balance primarily due to commercial loan growth focused in our higher yielding law firm commercial loans that grew $405.7 million, or 46.1%, supporting total loan yields of 7.78%. The increase in loan interest income was driven by an increase of $8.0 million related to growth in average loan volumes, led by litigation related commercial growth, offset by $392 thousand due to a decrease in average loan rates. Overall, the commercial loan portfolio average balance increased $354.5 million to $1.33 billion, driving average commercial loan yields to 8.77% for the three months ended June 30, 2026.
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Loan interest income increased $24.4 million, or 79.0%, to $55.2 million for the three months ended September 30, 2026 from $30.8 million for the three months ended September 30, 2025. This increase was attributable to a $1.36 billion, or 88.7%, increase in the average loan balance primarily due to $903.9 million related to the Signature Merger, with the remaining organic growth led by our litigation-related loans totaling $420.0 million, or 44.2%, to $1.37 billion. The increase in loan interest income was driven by an increase of $26.3 million related to growth in average loan volumes, led by Merger and litigation-related commercial loan growth, offset by $1.9 million due to a decrease in average loan rates. Overall, the commercial loan portfolio average balance increased $818.9 million to $1.85 billion, driving average commercial loan yields to 8.38% for the three months ended September 30, 2026.
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Securities interest income decreased $81 thousand, or 2.6%, to $3.0 million in the current quarter with a $95 thousand decrease attributable to average volume decreases, offset by an increase of $14 thousand attributable to increases in average rate. Average securities decreased $10.2 million, or 3.1%, to $322.8 million with a securities to assets ratio of 12% at June 30, 2026.
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Securities interest income increased $1.6 million, or 50.6%, to $4.9 million in the current quarter with a $1.4 million increase attributable to average volume increases, as well as an increase of $251 thousand attributable to increases in average rate, with both increases related to the Signature Merger. Average securities increased $142.1 million, or 42.1%, to $479.8 million, as a result of the Merger, with a securities to assets ratio of 11% at September 30, 2026.
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Income on interest earning cash increased $191 thousand to $1.8 million for the three months ended June 30, 2026 with a $512 thousand increase attributable to average volume increases (funded with core deposits), offset by a $321 thousand decrease due to decreases in short-term rates. Average interest earning cash balances increased $53.1 million, or 35.0%, to $205.0 million.
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Income on interest earning cash increased $1.0 million to $3.0 million for the three months ended September 30, 2026 with a $1.3 million increase attributable to average volume increases (funded with core deposits), offset by a $326 thousand decrease due to decreases in short-term rates. Average interest earning cash balances increased $139.4 million, or 73.6%, to $328.8 million, primarily as a result of the Merger.
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Interest Expense. Interest expense increased $1.3 million, or 29.7%, to $5.6 million for the three months ended June 30, 2026 from $4.3 million for the three months ended June 30, 2025, with $1.4 million attributable to increases in average deposit balances (primarily commercial money market and litigation related escrow or IOLTA), offset by a decrease of $109 thousand attributable to decreases in rate (primarily money market). Average deposits increased $412.7 million, or 23.6%, to $2.16 billion, led by increases in litigation related escrow or IOLTA, commercial money market, and noninterest bearing demand deposits totaling $297.5 million, $90.0 million, and $19.1 million, respectively.
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Interest Expense. Interest expense increased $4.8 million, or 101.0%, to $9.6 million for the three months ended September 30, 2026 from $4.8 million for the three months ended September 30, 2025, with $4.4 million attributable to increases in average deposit balances (primarily related to the Merger and commercial money market and litigation related escrow or IOLTA), as well as an increase of $399 thousand attributable to decreases in rate (primarily money market). Average deposits increased $1.49 billion ($1.08 billion related to the Signature Merger), or 80.6%, to $3.34 billion. We continue to generate core organic deposit growth led by our litigation-related (both IOLTA/NOW and money market) growth totaling $398.5 million, or 31.8%.
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Provision for Credit Losses. Our provision for credit losses was $2.9 million for the three months ended June 30, 2026, a decrease of $625 thousand from the $3.5 million provision for the three months ended June 30, 2025, primarily due to management’s revaluation of credit risk in our loan portfolio subsequent to certain charge-offs and related credit downgrades in both quarters, offset by provisioning for primarily commercial loan growth. During the current quarter, a $4.4 million multifamily loan, net of a $1.6 million charge-off, that was reported as criticized in prior periods was placed on nonaccrual. As of June 30, 2026, our allowance to loans ratio was 1.30%, consistent with the prior year quarter. Based on management’s evaluation of current credit risk in our commercial real estate and commercial portfolios, management believes the allowance for credit losses is adequate at June 30, 2026.
Current wording
Provision for Credit Losses. Our provision for credit losses was $1.8 million for the three months ended September 30, 2026, an increase of $50 thousand from the provision for the three months ended September 30, 2025. As of September 30, 2026, our allowance to loans ratio was 1.30%, as compared to 1.37% in the prior year quarter. Based on management’s evaluation of current credit risk in our loan portfolio, including the acquired loans from the Signature Merger, management believes the allowance for credit losses is adequate at September 30, 2026.
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Payment processing income was $5.1 million for the quarter ended June 30, 2026, consistent with the same period in 2025. Growth in payment processing income has been muted, primarily due to changes in our overall merchant risk profile and merchant composition. Payment processing volumes for the credit and debit card processing platform increased $432.6 million, or 4.3%, to $10.6 billion while transactions volume totaled 152.6 million for the quarter ended June 30, 2026. We continue to focus on the expansion of merchant sales channels through our current and future ISOs, new merchant originations, active management of our merchant risk profiles, and by expanding our technology and other resources in the payment vertical. The Company utilizes proprietary and industry leading/customized technology to ensure card brand and regulatory compliance, to support multiple processing platforms, to manage daily risk across 93,000 small business merchants in all 50 states, and to perform commercial treasury clearing services for $10.6 billion in volume across 152.6 million transactions in the current quarter. ASP fees increased $449 thousand, or 69.8%, to $1.1 million for the quarter ended June 30, 2026, and are directly impacted by the average balances of OBS sweep funds as well as current short-term market interest rates. OBS sweep funds totaled $1.03 billion at June 30, 2026, demonstrating our highly efficient, full service commercial relationships and tech-enabled cash management platform. Other income decreased $230
Current wording
Total payment processing fees were $5.4 million for the quarter ended September 30, 2026, an increase of $375 thousand compared to the prior year quarter, as fee income growth has been muted in the legacy Esquire payment processing platform, primarily due to changes in our overall merchant risk profile and merchant composition. Payment processing volumes for the legacy Esquire credit and debit card processing platform increased $416.0 million, or 4.1%, to $10.5 billion while transaction volume totaled 152.2 million for the current quarter. We continue to focus on the expansion of merchant sales channels through our current and future ISOs, new merchant originations, active management of our merchant risk profiles, potential commercial clients in the Chicago and Midwest markets from our Signature Merger, and by expanding our technology and other resources in the payment vertical. The Company utilizes proprietary and industry leading/customized technology to ensure card brand and regulatory compliance, to support multiple processing platforms, to manage daily risk across 94,000 small business merchants in all 50 states, and to perform commercial treasury clearing services for $10.5 billion in volume across 152.2 million transactions in the current quarter. ASP fees totaled $1.1 million, an increase of $321 thousand from the prior year quarter, and are directly impacted by the average balance of OBS sweep funds as well as current short-term market interest rates. Other customer related fees and services charges totaling $1.4
Previous wording
Income Tax Expense. We recorded income tax expense of $5.1 million for the three months ended June 30, 2026, reflecting an effective tax rate of 28.4%, compared to $3.4 million, or 22.0%, for the three months ended June 30, 2025. The increase was primarily due to certain discrete tax benefits related to share-based compensation in the prior year quarter.
Current wording
Income Tax Expense. We recorded income tax expense of $6.1 million for the three months ended September 30, 2026, reflecting an effective tax rate of 26.0%, compared to $3.4 million, or 19.5%, for the three months ended September 30, 2025. The increase was primarily due to certain incremental discrete tax benefits related to share-based compensation in the prior year quarter.
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Comparison of Operating Results for the Six Months Ended June 30, 2026 and 2025
Current wording
Comparison of Operating Results for the Nine months Ended September 30, 2026 and 2025
Previous wording
General. Net income increased $1.9 million, or 8.1%, to $25.2 million for the six months ended June 30, 2026 from $23.3 million for the six months ended June 30, 2025. The increase resulted from a $12.9 million increase in net interest income, partially offset by a $8.0 million increase in noninterest expense, and a $2.6 million increase in income tax expense.
Current wording
General. Net income increased $5.3 million, or 14.2%, to $42.7 million for the nine months ended September 30, 2026 from $37.4 million for the nine months ended September 30, 2025. The increase resulted from a $35.1 million increase in net interest income, partially offset by a $25.6 million increase in noninterest expense, and a $5.3 million increase in income tax expense.
Previous wording
Net Interest Income. Net interest income increased $12.9 million, or 22.7%, to $69.8 million for the six months ended June 30, 2026 from $56.9 million for the six months ended June 30, 2025, due to a $15.3 million increase in interest income, partially offset by a $2.4 million increase in interest expense.
Current wording
Net Interest Income. Net interest income increased $35.1 million, or 39.7%, to $123.3 million for the nine months ended September 30, 2026 from $88.2 million for the nine months ended September 30, 2025, due to a $42.3 million increase in interest income, partially offset by a $7.2 million increase in interest expense.
Previous wording
Interest Income. Interest income increased $15.3 million, or 23.5%, to $80.3 million for the six months ended June 30, 2026 from $65.0 million for the six months ended June 30, 2025 and was primarily attributable to increases in income on loans.
Current wording
Interest Income. Interest income increased $42.3 million, or 41.8%, to $143.5 million for the nine months ended September 30, 2026 from $101.2 million for the nine months ended September 30, 2025, and was attributable to increases in income on loans, securities and interest earning cash.
Previous wording
Loan interest income increased $15.1 million, or 27.2%, to $70.7 million for the six months ended June 30, 2026 from $55.6 million for the six months ended June 30, 2025. This increase was attributable to a $395.6 million, or 27.7%, increase in the average loan balance primarily due to commercial loan growth focused in our higher yielding law firm commercial loans that grew $380.3 million, or 44.5%, supporting total loan yields of 7.82%. The increase in loan interest income was driven by an increase of $15.3 million related to growth in average loan volumes, led by litigation related commercial growth, offset by $192 thousand due to a decrease in average loan rates. Overall, the commercial loan portfolio average balance increased $339.1 million to $1.29 billion, driving average commercial loan yields to 8.85% for the six months ended June 30, 2026.
Current wording
Loan interest income increased $39.5 million, or 45.7%, to $125.9 million for the nine months ended September 30, 2026 from $86.4 million for the nine months ended September 30, 2025. This increase was attributable to a $720.5 million, or 49.2%, increase in the average loan balance primarily due to $304.6 million related to the Signature Merger, with the remaining organic growth led by our litigation-related loans totaling $393.7 million, or 44.3%, to $1.28 billion. The increase in loan interest income was driven by an increase of $41.6 million related to growth in average loan volumes, led by Merger and litigation-related commercial loan growth, offset by $2.1 million due to a decrease in average loan rates. Overall, the commercial loan portfolio average balance increased $500.8 million to $1.48 billion, driving average commercial loan yields to 8.72% for the nine months ended September 30, 2026.
Previous wording
Income on interest earning cash increased $87 thousand to $3.4 million for the six months ended June 30, 2026 with a $714 thousand increase attributable to average volume increases (funded with core deposits), offset by a $627 thousand decrease due to decreases in short-term rates. Average interest earning cash balances increased $36.9 million, or 24.0%, to $190.7 million.
Current wording
Income on interest earning cash increased $1.1 million to $6.4 million for the nine months ended September 30, 2026 with a $2.0 million increase attributable to average volume increases (funded with core deposits), offset by a $953 thousand decrease due to decreases in short-term rates. Average interest earning cash balances increased $71.4 million, or 43.0%, to $237.2 million, primarily as a result of the Merger.
Previous wording
Interest Expense. Interest expense increased $2.4 million, or 29.3%, to $10.6 million for the six months ended June 30, 2026 from $8.2 million for the six months ended June 30, 2025, with $2.5 million attributable to increases in average deposit balances (primarily commercial money market and litigation related escrow or IOLTA), offset by a decrease of $66 thousand attributable to decreases in rate (primarily money market). Average deposits increased $388.6 million, or 22.7%, to $2.10 billion, led by increases in litigation related escrow or IOLTA, commercial money market, and noninterest bearing demand deposits totaling $256.9 million, $92.8 million, and $30.5 million, respectively.
Current wording
Interest Expense. Interest expense increased $7.2 million, or 55.8%, to $20.2 million for the nine months ended September 30, 2026 from $13.0 million for the nine months ended September 30, 2025, with $6.9 million attributable to increases in average deposit balances (primarily related to the Merger and commercial money market and litigation related escrow or IOLTA), as well as an increase of $334 thousand attributable to decreases in rate (primarily money market). Average deposits increased $759.6 million ($363.0 million related to the Signature Merger), or 43.2%, to $2.52 billion. We continue to generate core organic deposit growth led by our litigation-related (both IOLTA/NOW and money market) growth totaling $368.4 million, or 31.3%.
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Current report — wording carried from elsewhere
The Company measures the allowance for credit losses on a collective basis by pooling loans according to similar risk characteristics. When a loan is deemed to no longer share risk characteristics similar to others in the portfolio, the Company evaluates such loans on an individual basis. Management may consider changes to a borrower’s circumstances
Current report — wording carried from elsewhere
impacting cash collections, delinquency and non-accrual status, probability of default, industry, or other facts and circumstances when determining whether a loan shares risk characteristics with other loans in a pool.
Current report — wording carried from elsewhere
platform, fueling and funding additional growth in our other asset classes. We believe our extremely low historic delinquency rates and low charge-off rates clearly demonstrate our strong underwriting process and expertise in the litigation vertical. Our longer duration escrow or claimant trust settlement deposits represent accounts where the law firm is trustee for the claimant settlement funds and represent $1.56 billion, or 39%, of total deposits at September 30, 2026. These law firm escrow accounts as well as other fiduciary deposit accounts are for the benefit of the law firm’s customers (or claimants) and are titled in a manner to ensure that the maximum amount of FDIC insurance coverage passes through the account to the beneficial owner of the funds held in the account. Therefore, these law firm escrow accounts carry FDIC insurance at the claimant settlement level, not at the deposit account level. Coupling these types of commercial relationships with our off-balance sheet (“OBS”) commercial litigation funds of $775.5 million at September 30, 2026, makes this litigation vertical a highly desirable core low-cost funding platform fueling bank-wide growth.
Current report — wording carried from elsewhere
0.36%, respectively, as of December 31, 2025. The allowance for credit losses to nonperforming loans was 520% as of September 30, 2026, as compared to 280% as of December 31, 2025.
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Previous report — wording carried elsewhere
our clients have access to tailored banking solutions that foster relationship building and long-term brand loyalty. Furthermore, our continued investment in an integrated CRM and loan platforms - built on Salesforce and nCino - enables superior client service and precision marketing on a national scale.
Previous report — wording carried elsewhere
but not limited to, law firm operating accounts, law firm IOLTA/escrow accounts, merchant reserves, ISO reserves, ACH processing, and custodial accounts.
Previous report — wording carried elsewhere
thousand, or 58.2%, to $165 thousand due to decreases in loan and other banking fees. During the second quarter 2025, we recognized a $432 thousand gain on the sale of a fintech investment.
Previous report — wording carried elsewhere
exceeding 9% will be considered compliant with all applicable regulatory capital and leverage requirements, including the requirement to be “well capitalized”. For the current period, Esquire Bank has elected to continue to utilize the generally applicable leverage and risk based requirements and not apply the community bank leverage ratio.