Esquire Financial Hldgs (NASDAQ:ESQ) reported first-quarter financial results on Thursday. The transcript from the company's first-quarter earnings call has been provided below.

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The full earnings call is available at https://events.q4inc.com/attendee/524642349

Summary

Esquire Financial Hldgs reported Q1 2026 GAAP net income of $12.2 million ($1.40 per diluted share), with adjusted net income at $13.8 million ($1.58 per diluted share), reflecting a 21% increase over Q1 2025.

The company's loan growth was strong, with a notable 13% annualized increase reaching $1.82 billion, fueled by a 15% annualized net growth in its litigation loan portfolio.

Esquire Financial Hldgs is progressing on its pending merger with Signature Bank Corporation, viewing it as transformational and aiming to solidify its foothold in major markets like New York, Los Angeles, and Chicago.

The company maintains a strong capital position with equity assets at 12.44%, and it announced a 14% increase in its regular quarterly cash dividend to 20 cents per share.

Management emphasized the core strategic importance of its payment processing platform despite its static revenue contribution, highlighting its role in the company's broader strategy.

Full Transcript

Kate (Conference Operator)

Thank you for standing by. My name is Kate and I'll be your conference operator today. At this time, I would like to welcome everyone to the Q1 2026 earnings release conference call. All lights have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star followed with the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would like to turn the call over to Andrew Segliaca, Vice Chairman, Chief Executive Officer and President. Please go ahead.

Andrew Segliaca (Vice Chairman, Chief Executive Officer and President)

Thank you, Kate and good morning all. I want to welcome you all to Esquire's first formal conference call for the first quarter earnings release. On the call with me is Eric Bader, our EVP and COO, and Michael Lucapria, our SVP and CFO. Our format for our first call will be simple. I plan to hand the call over to Michael to give you a financial update for the first quarter. After Michael is done, I'll have a few comments and update you on several items that I feel are important. And finally, we'll open the call up to questions from our investors, analysts and other guests on the call. At this time, I'll hand the call over to Michael.

Michael Lucapria (Senior Vice President and Chief Financial Officer)

Thank you, Andrew. To those in attendance on the call, I intend to provide a brief summary of our performance highlighted in the earnings release and investor presentation published premarket this morning. Let me start with our first quarter net income for the current quarter. We printed GAAP net income of $12.2 million or $1.4 per diluted share. These results included $1.7 million of elevated pre tax non interest costs, of which $1.3 million were merger costs associated with our acquisition of Signature Bank Corporation and $398,000 in accelerated stock compensation expense related to the previously announced departure of two board members. Excluding these two items, our adjusted net income was $13.8 million or $1.58 per diluted share. These adjusted results are in line with adjusted fourth quarter 2025 net income of 13.6 million or $1.57 per share, and represent a $2.4 million or 21% increase over the first quarter 2025 net income of $11.4 million, or $1.33 per diluted share. Our adjusted returns on average assets and equity continue to be industry leading at 2.37% and 18.95% respectively. While we invest in our current resources to support future growth and maintain excellence in client service from which our customers have grown accustomed. Our net interest margin remained resilient at 604 basis points fairly consistent with prior periods. Despite our asset sensitive balance sheet and significant declines in short term interest rates over these past three years. Loan growth on a linked quarter basis was 56.7 million or 13% annualized reaching 1.82 billion. This growth consisted of 30 million in commercial loans and 23.3 million in commercial real estate which was tempered by 53.1 million in anticipated litigation loan paydowns. In response to seasonal elevated commercial loan draws we saw linked to the prior quarter as it relates to our litigation loan portfolio, we saw 44 million or 15% annualized net growth bringing our litigation book to 1.22 billion at a yield of approximately 9% for the quarter on an average basis our overall loan portfolio grew 115.6 million were 28% annualized compared to the trailing quarter fueled by our national litigation platform. Deposit growth on a linked quarter basis was 39.6 million or 8% annualized where our total deposits reached 2.1 billion at a cost of funds inclusive of demand remaining flat at 1%. This quarter's deposit growth was again tempered by a the anticipated escrow and IOPA disbursements from elevated settlement balances in the prior quarter. Off balance sheet Sweep funds totaled $1 billion where approximately 33% is available for on balance sheet liquidity. Our administrative service fees associated with These funds totaled $1.1 million. Additional available liquidity including cash borrowings and additional sweep balances totaled approximately 1.1 billion. Asset quality remains strong. Our allowance coverage was 1.3% with non performing loans totaling 736,000 at a ratio to total assets of only 3 basis points. We have zero exposure to commercial office space or construction and vacant land loans. As far as credit activity for the quarter we foreclosed on the Property securing our $17.8 million non accrual multifamily loan and sold it to an unrelated third party recognizing a $3.2 million net charge off non interest income was stable was stable at 6.5 million or 16% of total revenue led by our payment processing platform that services 93,000 small business clients and processed $9.7 billion across 137 million transactions this quarter. Adjusted operational expenses of $19 million were in line with the trailing quarter driving an industry leading adjusted efficiency ratio of 46.9%. As we continue to invest in our platform, our capital foundation is strong and well capitalized with equity assets of 12.44% and bank level regulatory leverage and CET1 ratios at 11.85% and 14.25% respectively. From a corporate perspective, we increased our regular quarterly cash dividend by 14% to 20 cents per share paid this past March. Now I'll turn it over to Andrew to provide commentary on the business.

Andrew Segliaca (Vice Chairman, Chief Executive Officer and President)

Thank you Michael. I'd like to take a moment before we get started on any comments to recognize one of our former board members who just retired for health reasons. Zig Diocese, Zig is a founding board member and he's been with us 20 years. I want to thank Zig for his vision, stewardship, dedication, belief in all of us, and last but not least, his friendship. For over two decades he's been invaluable to the institution and has been our Chairman of our Directors' Loan Committee, which has been an invaluable role for the institution. So thank you. As Michael noted, we had another strong quarter including or excluding certain adjustments totaling 1.7 million related to the pending Signature merger and certain acceleration on stock grants related to the two former board members. So I don't want to go back over Michael's comments. It was very thorough, but just to add to Michael's growth and performance metrics comments I think it's worth noting that this quarter is not an anomaly for our institution and in order to demonstrate this, I'll give you a few highlights about our compounded annual growth rate over the past five years. Loans Loan compounded annual growth rate over five years was 21%. Within the loan category, commercial litigation related loans grew 31%. Our deposit compounded annual growth rate over the last five years was 20%. Within that, the commercial litigation deposit growth was 25%. Equity has grown for the same five years 18% and it's all generated from earnings with no associated capital raise. This has caused revenue to grow over the last five years at 23%, diluted EPS to grow at 29%. All this while maintaining a net interest margin north of 6% since 2023 despite significant short term rate declines since 23 and despite S4 being asset sensitive. Last but not least, our return on average assets has been north of 2.25% since 2022 and our return on equity has been north of 8% since 2022. I'll give you a quick update on our pending merger with Signature We've made strong progress on the Signature merger to date, including filing all regulatory applications following our form S4 with the SEC. We've engaged a nationally recognized advisory firm to assist with the merger and integration milestones and to keep us on task and on point. And we've already conducted various key merger and integration planning sessions with both management teams for MAS Wire and Signature. For anyone from Signature on the Line, we want to thank you for your trust in us and also for working closely with us before the announcement and obviously after. We believe, as we've disclosed in the past, that the Signature merger is transformational for us and the next foothold in one of the three largest markets that we see by both population and number of contingent fee law firms, that being the New York market where we are headquartered, the Los Angeles market, which is our second largest market, where we recently at the end of 25, opened our Los Angeles branch. And we also have 2 regional BDOS servicing the area besides our Los Angeles branch staff, and obviously the Chicago metro area, which is key to the signature acquisition. So we're going to focus on rolling up our sleeves, making sure the integration is flawless, making sure we continue to service our clients, and also making sure we continue to grow in a safe and sound manner. With that being said, I will now turn it back over to Kate to open it up for any questions.

Kate (Conference Operator)

At this time, I would like to remind everyone, in order to ask the question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q and A roster. Your first question comes from the line of Thomas Reed with Raymond James. Your line is open.

Thomas Reed (Equity Analyst)

Hey, good morning, guys. Good morning. It's been about a year since you announced the JV agreement with Fortress. Can you maybe talk about how that relationship's going and if there's the potential to maybe scale that up post signature? Given the step down in litigation and deposit concentrations?

Andrew Segliaca (Vice Chairman, Chief Executive Officer and President)

Sure. The relationship with Fortress is going well. We speak to their senior and executive team fairly frequently. We've shared information and notes on the vertical, that being the litigation vertical. We've worked on various opportunities. A handful have come to fruition. I would say that with the Signature merger and our legal lending limit significantly increasing from right around 40 odd million to as much as 70 or 80 million on a pro forma basis. The need for them would be less logically. Logically. But Fortress can and will be a good business partner for us on longer duration type inventories that law firms carry, and those usually revolve around mass tort and class actions. But the relationship has been good. We've been able to get a couple of deals done together. Us as the bank and them as the non bank finance company in a very synergistic way. And it continues to build momentum. But I don't think we're slowing Fortress down from their growth that they've experienced over decades. And certainly we're doing well with or without the relationship looking forward.

Thomas Reed (Equity Analyst)

Okay, that's, that's good color there. Appreciate that. And you know, excuse me, you know, payment processing business just hasn't really grown in a meaningful way. It's kind of becoming a smaller part of the overall franchise. And I know you did the Paisley transaction a couple years ago. Is that business something that you view as core to the overall strategy or would you be open to potentially divesting from that?

Andrew Segliaca (Vice Chairman, Chief Executive Officer and President)

That is absolutely core to the overall strategy. If you look at the payments business, we've grown about 10% in volume A year. So it has grown volume wise. But a $12 billion industry, in the US is a commodity. Everybody has prepaid cards and debit cards and credit cards in their wallets. Everybody uses them. There's less than 100 banks that are merchant acquiring banks in the industry. So we believe the platform is very valuable and we have no plans on divesting of it. But it is a commodity. There are a thousand plus independent sales organizations. There are huge, if you want to call them mega ISOs. Believe it or not, Fiserv First Data is not only a platform, but they board their own merchants and work with ISOs and banks. Probably one of the biggest, obviously Chase and Citi and Wells are all part of it. The platform as we've established it is a low risk focus with about 75, 80% of it being low risk. But if you think about it mathematically, maybe the, maybe the revenue is fairly static, the volumes grow and quite honestly when we were had a more normal net interest margin of four and a half or 475, you know, it represented 20 plus percent of the revenue. So just because it's less of the overall revenue base doesn't make it less valuable. We don't garnish any to speak of fee income from our commercial clients other than our ASP fee income on managing mass torts. So the platform is invaluable and we have no notion or thought of divesting it and we will continue to grow it and we will continue to look towards doing direct business with merchants,, especially with the pending signature merger, rather than the indirect business that we do almost holistically now through the ISO networks that we have.

Thomas Reed (Equity Analyst)

Makes sense. Thanks for taking my questions and congrats on a good quarter.

Andrew Segliaca (Vice Chairman, Chief Executive Officer and President)

Excellent. Thank you.

Kate (Conference Operator)

Your next question comes from the line of Tim Switzer with kbw. Your line is open.

Tim Switzer (Equity Analyst)

Hey, good morning. Thanks for taking my question. Absolutely. Good morning. So the first one I have is with Signature. Both banks have I think pretty unique, but seems like similar cultures. Can you talk about how the reception has been from the signature side of things, especially in terms of you know, shifting their focus a little bit towards that litigation related lending a little bit more and like how quickly can Signature get up to speed on Esquire's style of litigation lending and like ramp up volume there, you know like efforts and training started already or is that post acquisition?

Andrew Segliaca (Vice Chairman, Chief Executive Officer and President)

Good question, Tim. So the integration is going really well. The reception has been outstanding. We've been to their shop in Chicago and met with all their employees. Not just a handful, not just management, all of their employees over the course of an entire day, day and a half call it. Not only was the feedback outstanding when we were there, but the feedback after we left has been great. And the collaboration to date on the merger and integration because as I've said we've already had numerous meetings over the last couple of weeks, more than I anticipated, which is good. The collaboration and communication between the management teams at the merger and integration level has been really strong. Vice versa. The Signature team came out to Jericho, and not only met with the senior management team, but met with all employees in all departments. And the reception here was excellent. So I hate to say check the box, but check the box. Things are going really well. As you know, the deal in it financially has minimal cost savings and from a people perspective that's a good thing. So that makes people a little more comfortable that to compare and contrast an in market acquisition. As you know there'd be a lot more cost savings which not only comes down to systems but would come down to overlapping people. But that's not the case here as far as the litigations vertical is concerned. We've started working internally before the merger announcement on the data and data analytics and CRM and how we're going to focus on marketing. We already have a senior business development officer in the Midwest out of Minneapolis. That individual has already met with some of the signature business development officers at an event, a litigation event out in the Midwest. We've been talking to myself and Ari Kornhaver who runs our business development vertical for litigation. We've been on various calls with their senior executive team and their business development team. And yes, we plan on discussing planning towards and the like prior to closing so as far as training, as far as training goes, you know, probably the best way to answer that question is we have a really robust commercial underwriting team over here. So I'm not concerned about the signature team on the lending side worrying about underwriting, especially when we merge and even thereafter, call it shortly thereafter, business development wise. They have great business development people over there and yes, we plan on sitting with them in quote, training, I guess, for lack of a better term. But you know, the best way to go about this is to go out and visit law firms in the Chicago market that are either their clients or that they know and are aware of signature or their clients know. And the best way to get it done is to go to those meetings with both sets of teams because that's the best on the job training you could ask for. And ironically, last but not least, the National Trial association for AHA is in Chicago this July. So we're already planning for that event with both sets of teams. Great.

Tim Switzer (Equity Analyst)

Appreciate the full answer there, Andrew. Moving to a different topic, how should we think about the NIM trajectory going forward? And just to make it simple, let's assume no rate cuts.

Andrew Segliaca (Vice Chairman, Chief Executive Officer and President)

Sure. Well, you know, Michael and I, we've already done that, Tim. So we're looking at. Yeah, I know you see us sitting at 604 for the quarter. So in round numbers we look to FHN for their forecast. Not that it's better or worse than anybody, it covers a two year period and it's traditionally what we've used and it's traditionally what Eric uses internally for asset liability management and the Alco models and all that good stuff. So we just want to stay consistent there. So if you look at their rate forecast, they have no rate cuts for 26 and then they have 50 basis points for two rate cuts for 27 starting in June to 350 from 375 and then going from 325 to 350 in the 9Q27. So we see the NIM on average being around 590 ish, low, call it 590 through the end of the year. We do see some compression from 604 and then we see another 10 basis points in 27.

Tim Switzer (Equity Analyst)

Gotcha. Very helpful. And then the last one, sort of related, you know, what are your plans to deploy excess deposits, if any, like the time period for that you have, you know, I think it's a billion dollars off balance sheet on the liquidity from signature might add just more to that. So we'd love to get your guys Thoughts on, you know, if that's an opportunity for you at all.

Andrew Segliaca (Vice Chairman, Chief Executive Officer and President)

Sure. So if we start with liquidity at the top of the house, we keep around around 100 million over the weekend. Closer to 150 million on the balance sheet for the merchant platform, Obviously with, with almost $10 billion clearing a quarter, there's a lot clearing through our Fed account. Eric has secured significant daylight overdraft lines at the Fed. So we don't worry, but we also don't want to make our friends at the Fed worry. So we'd rather keep the excess cash on hand. So call it on average about $100 million. That make us comfortable and our friends at the Fed comfortable managing our merchant platform. I think any excess liquidity can be deployed fairly quickly. Quarters with what we're going to do on a combined basis, my hope and prayer is that we always have excess liquidity. I'd always, I'd rather have the NIM compress a little bit and have a lot of dry powder on the balance sheet and be talking to you about, you know, a 5 or 10 basis point miss on the NIM for the quarter because we have excess liquidity than the latter, which is no core excess liquidity. Not that I'm afraid to borrow or any of us here are. It's part of traditional banking. We've been very blessed and fortunate that we do not have to borrow to date, but I think on a, you know, on a pro forma basis, when you look at either us independent of signature today or pro forma combined. Looking forward, where we run now, about 85% loan to deposit ratio is probably a good ratio before and after the merger is consummated.

Tim Switzer (Equity Analyst)

Awesome. Thanks, Angie. That's all I got.

Andrew Segliaca (Vice Chairman, Chief Executive Officer and President)

Thank you.

Kate (Conference Operator)

Your next question comes from the line of Justin Crowley with Piper Sandler. Your line is open.

Bader

Hey, good morning guys. This is Bader, just filling in for Justin Crowley today. Good morning. I just had a question about the litigation book. I know we've seen impressive growth over the past couple of quarters and as you mentioned, you know, this quarter came in at a slightly lower pace with the anticipated paydowns and I know the segment can be a little lumpy. Could you give us a sense for maybe the current pipeline, new law firm relationships and maybe the loan demand you're seeing in that segment, whether it's accelerating or decelerating in the near term?

Andrew Segliaca (Vice Chairman, Chief Executive Officer and President)

Yeah, I don't see it decelerating. You know, I gave you the five year CAGR for the litigation book. It's 32% and you would think that's weighed towards the earlier periods and it's not. It's more. More weighted towards the latter periods. The latter periods were in the high 30s for that litigation book. As far as growth, you know, there's a bullet or part of a bullet in the earnings release and in the investor deck that talks about the analysis we did. We initially included this in the signature merger announcement back on March 12, and it's pretty important. And we spent multiple quarters on this to make sure that we were accurate with the data. But the compounded annual growth rate for loans and deposits for customers that have been with us four years or more, so that's customer growth based on facilities they use, that we supply, that they use to then grow their business, and then they come back every year and are looking for more availability. That's 15% on the loan side and 30% on the deposit side. So our legacy customers, year in and year out grow with us internally because they use the facilities correctly to grow their book of business, to grow their revenue stream, and then to earn the right to come back to us and ask us for more availability. So you got two items going on here in the loan book. You have new customer origination that is very robust and strong. And we're very comfortable with, and comfortable with the independent street estimates with us standing around 15 to 17% long growth. God willing, we do more. I'd love to do more overall on a blended basis. But you have a second piece which is unique, certainly unique for me after 38 years of doing this where you have your own customers growing with you internally because they're using our lending facilities the way that most people think of capital. So we're very comfortable. The sales pipeline or business development pipeline is very robust. It is certainly not at a low water mark. It's closer to a high water mark. The business development teams around the regions that we hired them in are doing excellent. Significantly increased the lending back office team and the underwriting team and the servicing team, both in lending and in operations. And we're very comfortable where the loan pipeline stands today. And last but not least, we usually grow. Certainly my recollection is last year and maybe the last two years in the first quarter by a minimal 4 or 5%, 6% annualized growth because of those pay downs happening from the fourth quarter, high watermark draws. So we're very pleased with the 13% annualized growth this quarter, quite honestly, myself pleasantly surprised.

Bader

Got it. Thank you for the color. That. That's all for me. Thanks for taking that question.

Andrew Segliaca (Vice Chairman, Chief Executive Officer and President)

Excellent. Thank you.

Kate (Conference Operator)

I'll now turn the call back to Michael DiCapria, chief financial officer for closing remarks. I think I'll turn that over to you. Okay. Those are, I assume, Kate, those are all the questions. We want to thank everybody for joining us on our first investor call conference call. Obviously, we'll continue to do it our earnings this way going forward. I think it's more efficient and effective not only for us but hopefully for the people on the phone. Certainly saves Eric and Michael and I a lot of time from having multiple calls that were only accelerating. And obviously with the pending signature merger, my hope is that, you know, the earnings calls become more robust as we combine not only the banks but the investor base across both companies. So I want to thank everybody and wish everybody a great weekend and thank you all, ladies and gentlemen. That concludes today's call. Thank you all for joining. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.