General
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.
Cautionary Note Regarding Forward-Looking Statements
This quarterly report contains forward-looking statements, which can be identified by the use of words such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “attribute,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “goal,” “target,” “aim,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements include, but are not limited to:
● statements of our goals, intentions and expectations;
● statements regarding our business plans, prospects, growth and operating strategies;
● statements regarding the quality of our loan and investment portfolios; and
● estimates of our risks and future costs and benefits.
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this quarterly report.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
● our ability to manage our operations under the current economic conditions nationally and in our market area;
● adverse changes in the financial industry, securities, credit, national and local real estate markets (including real estate values);
● risks related to a high concentration of loans secured by real estate located in our market area;
● risks related to a high concentration of loans and deposits dependent upon the legal and “litigation” market;
● the impact of any potential strategic transactions;
● unexpected outflows of uninsured deposits could require us to sell investment securities at a loss;
● our ability to enter new markets successfully and capitalize on growth opportunities;
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● significant increases in our credit losses, including as a result of our inability to resolve classified and nonperforming assets or reduce risks associated with our loans, and management’s assumptions in determining the adequacy of the allowance for credit losses;
● interest rate fluctuations, which could have an adverse effect on our profitability;
● the imposition of tariffs or other domestic or international governmental policies impacting the value of the products of our borrowers;
● external economic and/or market factors, such as changes in monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System (“FRB”), inflation or deflation, changes in the demand for loans, and fluctuations in consumer spending, borrowing and savings habits, which may have an adverse impact on our financial condition;
● continued or increasing competition from other financial institutions, credit unions, and non-bank financial services companies, many of which are subject to different regulations than we are;
● credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for credit losses and provision for credit losses;
● our success in increasing our legal and “litigation” market lending;
● our ability to attract and maintain deposits and our success in introducing new financial products;
● losses suffered by merchants or Independent Sales Organizations (“ISOs”) with whom we do business;
● our ability to effectively manage risks related to our payment processing business;
● changes in interest rates generally, including changes in the relative differences between short-term and long-term interest rates and in deposit interest rates, that may affect our net interest margin and funding sources;
● fluctuations in the demand for loans;
● technological changes that may be more difficult or expensive than expected;
● changes in consumer spending, borrowing and savings habits;
● declines in our payment processing income as a result of reduced demand, competition and changes in laws or government regulations or policies affecting financial institutions, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, regulatory fees and compliance costs;
● changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board (“FASB”), the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
● loan delinquencies and changes in the underlying cash flows of our borrowers;
● the impairment of our investment securities;
● our ability to control costs and expenses;
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● the failure or security breaches of computer systems on which we depend;
● acts of war, terrorism, natural disasters, global market disruptions, including global pandemics or political instability;
● the effects of any federal government shutdown or reduction in force;
● competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers, including retail businesses and technology companies;
● changes in our organization and management and our ability to retain or expand our management team and our board of directors, as necessary;
● the costs and effects of legal, compliance and regulatory actions, changes and developments, including the initiation and resolution of legal proceedings, regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations and reviews;
● the possibility that the anticipated benefits of the Merger will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where we do business;
● the possibility that we may be unable to achieve expected synergies and operating efficiencies in the Merger within the expected timeframes or at all and to successfully integrate Signature’s operations with our operations, and that such integration may be more difficult, time consuming or costly than expected;
● revenues following the Merger may be lower than expected;
● the ability of key third-party service providers to perform their obligations to us; and
● other economic, competitive, governmental, legal, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this Quarterly Report on Form 10-Q.
The foregoing factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in our Annual Report on Form 10-K for the year ended December 31, 2025, as supplemented by subsequent Quarterly Reports on Form 10-Q. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New risks and uncertainties arise from time to time, and it is not possible for us to predict those events or how they may affect us. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Subsequent Events - Signature Merger
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.
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Critical Accounting Estimates
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:
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.
The Company is required under the CECL Standard to estimate and record lifetime credit losses expected to be incurred on such financial instruments over the entire contractual term at the time they are recorded in the financial statements, such as with the funding or purchasing of a loan, or a commitment to lend unless the commitment is unconditionally cancellable. Because this allowance methodology follows a forward-looking lifetime expected loss approach, it is not necessary for a loss event to have been incurred before a credit loss is recognized. The estimation process in determining an appropriate level for the allowance for credit losses requires consideration of past events, current conditions, and reasonable and supportable forecasts, and involves a significant degree of management judgment. The Company determines the allowance for credit losses using methods it believes are appropriate given the characteristics of each loan portfolio and applies these methods consistently over time.
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.
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.
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
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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.
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.
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.
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.
When applying this critical accounting estimate, management’s inputs and estimates of the timing and amounts of future losses are subject to significant judgment as these projected cash flows rely upon factors that depend on current or expected future conditions. Management expects there to be differences between actual and estimated results.
Future changes to the allowance for credit losses may be necessary based on changes in economic, market, or other conditions. Changes to estimates could result in a material change in the allowance for credit losses and charges to provision for credit losses would materially decrease the Company’s net income. The Company’s loan portfolio may experience significant credit losses, which could have a material adverse effect on our operating results.
Overview
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).
Our results of operations depend primarily on our net interest income which is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for credit losses, noninterest income and noninterest expense. Noninterest income currently consists primarily of payment processing fees, administrative service payment (“ASP”) fee income and customer related fees and charges. Noninterest expense currently consists primarily of employee compensation and benefits, data processing costs, occupancy and equipment costs and professional and consulting services. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies, the litigation market and actions of regulatory authorities.
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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.
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.
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.
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.
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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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.
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.
Comparison of Financial Condition at June 30, 2026 and December 31, 2025
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%.
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.
Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated:
June 30, December 31,
2026 2025
Amount Percent Amount Percent
(Dollars in thousands)
Real estate:
Multifamily $ 395,886 20.8 % $ 372,800 21.2 %
Commercial real estate 133,096 7.0 107,293 6.1
1 – 4 family 8,959 0.5 9,835 0.6
Total real estate 537,941 28.3 489,928 27.9
Commercial 1,337,108 70.3 1,245,555 70.8
Consumer 26,756 1.4 22,762 1.3
Total loans held for investment $ 1,901,805 100.0 % $ 1,758,245 100.0 %
Deferred loan fees and unearned premiums, net 466 182
Allowance for credit losses (24,724) (24,022)
Loans held for investment, net $ 1,877,547 $ 1,734,405
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The following table sets forth the composition of our held for investment Litigation-Related Loan portfolio by type of loan at the dates indicated:
June 30, December 31,
2026 2025
Amount Percent Amount Percent
(Dollars in thousands)
Litigation-Related Loans:
Commercial Litigation-Related:
Working capital lines of credit $ 854,293 65.8 % $ 782,182 66.2 %
Case cost lines of credit 257,629 19.9 209,469 17.7
Term loans 182,970 14.1 186,674 15.8
Total Commercial Litigation-Related 1,294,892 99.8 1,178,325 99.7
Consumer Litigation-Related:
Post-settlement consumer loans 2,860 0.2 3,130 0.3
Total Consumer Litigation-Related 2,860 0.2 3,130 0.3
Total Litigation-Related Loans $ 1,297,752 100.0 % $ 1,181,455 100.0 %
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.
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.
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.
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.
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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but not limited to, law firm operating accounts, law firm IOLTA/escrow accounts, merchant reserves, ISO reserves, ACH processing, and custodial accounts.
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.
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.
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.
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.
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.
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.
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Average Balance Sheets and Rate/Volume Analysis
The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for periods indicated. The average balances are daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of net premium amortization and net deferred loan origination fees accounted for as yield adjustments. No tax-equivalent yield adjustments have been made as we have no tax exempt investments.
Three Months Ended June 30,
2026 2025
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
(Dollars in thousands)
INTEREST EARNING ASSETS
Loans, held for investment $ 1,876,857 $ 36,417 7.78 % $ 1,462,401 $ 28,762 7.89 %
Securities, includes restricted stock 322,761 3,046 3.79 % 332,965 3,127 3.77 %
Interest earning cash and other 205,031 1,838 3.60 % 151,915 1,647 4.35 %
Total interest earning assets 2,404,649 41,301 6.89 % 1,947,281 33,536 6.91 %
NONINTEREST EARNING ASSETS 80,188 69,289
TOTAL AVERAGE ASSETS $ 2,484,837 $ 2,016,570
INTEREST BEARING LIABILITIES
Savings, NOW, Money Market deposits $ 1,571,288 $ 5,502 1.40 % $ 1,178,058 $ 4,225 1.44 %
Time deposits 6,415 50 3.13 % 6,037 56 3.72 %
Total interest bearing deposits 1,577,703 5,552 1.41 % 1,184,095 4,281 1.45 %
Borrowings 42 1 9.55 % 42 1 9.55 %
Total interest bearing liabilities 1,577,745 5,553 1.41 % 1,184,137 4,282 1.45 %
NONINTEREST BEARING LIABILITIES
Demand deposits 581,150 562,056
Other liabilities 20,752 15,902
Total noninterest bearing liabilities 601,902 577,958
Stockholders' equity 305,190 254,475
TOTAL AVG. LIABILITIES AND EQUITY $ 2,484,837 $ 2,016,570
Net interest income $ 35,748 $ 29,254
Net interest spread 5.48 % 5.46 %
Net interest margin 5.96 % 6.03 %
Deposits (including nonint. demand deposits) $ 2,158,853 $ 5,552 1.03 % $ 1,746,151 $ 4,281 0.98 %
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Six Months Ended June 30,
2026 2025
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
(Dollars in thousands)
INTEREST EARNING ASSETS
Loans, held for investment $ 1,824,222 $ 70,715 7.82 % $ 1,428,689 $ 55,572 7.84 %
Securities, includes restricted stock 328,577 6,224 3.82 % 330,416 6,169 3.77 %
Interest earning cash and other 190,729 3,395 3.59 % 153,831 3,308 4.34 %
Total interest earning assets 2,343,528 80,334 6.91 % 1,912,936 65,049 6.86 %
NONINTEREST EARNING ASSETS 77,438 65,107
TOTAL AVERAGE ASSETS $ 2,420,966 $ 1,978,043
INTEREST BEARING LIABILITIES
Savings, NOW, Money Market deposits $ 1,515,446 $ 10,459 1.39 % $ 1,156,200 $ 8,009 1.40 %
Time deposits 7,277 117 3.24 % 8,409 175 4.20 %
Total interest bearing deposits 1,522,723 10,576 1.40 % 1,164,609 8,184 1.42 %
Borrowings 206 6 5.87 % 43 2 9.38 %
Total interest bearing liabilities 1,522,929 10,582 1.40 % 1,164,652 8,186 1.42 %
NONINTEREST BEARING LIABILITIES
Demand deposits 579,183 548,693
Other liabilities 19,038 16,519
Total noninterest bearing liabilities 598,221 565,212
Stockholders' equity 299,816 248,179
TOTAL AVG. LIABILITIES AND EQUITY $ 2,420,966 $ 1,978,043
Net interest income $ 69,752 $ 56,863
Net interest spread 5.51 % 5.44 %
Net interest margin 6.00 % 5.99 %
Deposits (including nonint. demand deposits) $ 2,101,906 $ 10,576 1.01 % $ 1,713,302 $ 8,184 0.96 %
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The following table presents the dollar amount of changes in interest income and interest expense for major components of interest earning assets and interest bearing liabilities for the periods indicated. The table distinguishes between: (1) changes attributable to volume (changes in volume multiplied by the prior period’s rate); (2) changes attributable to rate (change in rate multiplied by the prior year’s volume); and (3) total increase (decrease) (the sum of the previous columns). Changes attributable to both volume and rate are allocated ratably between the volume and rate categories.
Three Months Ended Six Months Ended
June 30, June 30,
2026 vs. 2025 2026 vs. 2025
Increase Total Increase Total
(Decrease) due to Increase (Decrease) due to Increase
Volume Rate (Decrease) Volume Rate (Decrease)
(In thousands)
Interest earned on:
Loans held for investment $ 8,047 $ (392) $ 7,655 $ 15,335 $ (192) $ 15,143
Securities, includes restricted stock (95) 14 (81) (33) 88 55
Interest earning cash and other 512 (321) 191 714 (627) 87
Total interest income 8,464 (699) 7,765 16,016 (731) 15,285
Interest paid on:
Savings, NOW, money market deposits 1,376 (99) 1,277 2,479 (29) 2,450
Time deposits 4 (10) (6) (22) (36) (58)
Total deposits 1,380 (109) 1,271 2,457 (65) 2,392
Borrowings — — — 5 (1) 4
Total interest expense 1,380 (109) 1,271 2,462 (66) 2,396
Change in net interest income $ 7,084 $ (590) $ 6,494 $ 13,554 $ (665) $ 12,889
Comparison of Operating Results for the Three Months Ended June 30, 2026 and 2025
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.
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.
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.
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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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.
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.
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.
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.
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.
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Noninterest Income. Noninterest income information is as follows:
Three Months Ended
June 30, Change
2026 2025 Amount Percent
(Dollars in thousands)
Payment processing fees:
Payment processing income $ 4,950 $ 4,950 $ — — %
ACH income 176 157 19 12.1
Total payment processing fees 5,126 5,107 19 0.4
Customer related fees, service charges and other:
Administrative service income 1,092 643 449 69.8
Gain on equity investment — 432 (432) (100.0)
Other 165 395 (230) (58.2)
Total customer related fees, service charges and other 1,257 1,470 (213) (14.5)
Total noninterest income $ 6,383 $ 6,577 $ (194) (2.9) %
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
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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.
Noninterest Expense. Noninterest expense information is as follows:
Three Months Ended
June 30, Change
2026 2025 Amount Percent
(Dollars in thousands)
Noninterest expense:
Employee compensation and benefits $ 12,605 $ 10,216 $ 2,389 23.4 %
Occupancy and equipment 1,344 1,168 176 15.1
Professional and consulting services 1,038 1,291 (253) (19.6)
FDIC and regulatory assessments 327 293 34 11.6
Advertising and marketing 1,004 811 193 23.8
Travel and business relations 271 303 (32) (10.6)
Data processing 2,403 2,060 343 16.7
Merger expenses 1,070 — 1,070 NA
Other operating expenses 1,043 920 123 13.4
Total noninterest expense $ 21,105 $ 17,062 $ 4,043 23.7 %
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.
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.
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Comparison of Operating Results for the Six Months Ended June 30, 2026 and 2025
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.
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.
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.
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.
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.
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.
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.
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.
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
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in charge-offs related to two multifamily loans to the same sponsor. As of June 30, 2026, our allowance to loans ratio was 1.30%. 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.
Noninterest Income. Noninterest income information is as follows:
Six Months Ended
June 30, Change
2026 2025 Amount Percent
(Dollars in thousands)
Payment processing fees:
Payment processing income $ 9,920 $ 9,700 $ 220 2.3 %
ACH income 349 319 30 9.4
Total payment processing fees 10,269 10,019 250 2.5
Customer related fees, service charges and other:
Administrative service income 2,229 1,523 706 46.4
Gain on equity investment — 432 (432) (100.0)
Other 340 754 (414) (54.9)
Total customer related fees, service charges and other 2,569 2,709 (140) (5.2)
Total noninterest income $ 12,838 $ 12,728 $ 110 0.9 %
Payment processing income was $10.3 million for the six months ended June 30, 2026, an increase of $250 thousand from 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 $854.3 million, or 4.4%, to $20.2 billion while transactions volume totaled 289.9 million for the six months ended June 30, 2026. ASP fees increased $706 thousand, or 46.4%, to $2.2 million for the six months 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. During the second quarter 2025, we recognized a $432 thousand gain on the sale of a fintech investment.
Noninterest Expense. Noninterest expense information is as follows:
Six Months Ended
June 30, Change
2026 2025 Amount Percent
(Dollars in thousands)
Noninterest expense:
Employee compensation and benefits $ 24,826 $ 20,281 $ 4,545 22.4 %
Occupancy and equipment 2,600 2,300 300 13.0
Professional and consulting services 2,011 2,555 (544) (21.3)
FDIC and regulatory assessments 630 563 67 11.9
Advertising and marketing 2,002 1,662 340 20.5
Travel and business relations 577 609 (32) (5.3)
Data processing 4,772 3,980 792 19.9
Merger Expenses 2,342 — 2,342 NA
Other operating expenses 2,002 1,860 142 7.6
Total noninterest expense $ 41,762 $ 33,810 $ 7,952 23.5 %
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
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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.
Income Tax Expense. We recorded income tax expense of $10.0 million for the six months ended June 30, 2026, reflecting an effective tax rate of 28.5%, compared to $7.5 million, or 24.3%, for the six months ended June 30, 2025. The increase was primarily due to certain discrete tax benefits related to share-based compensation in the prior year period.
Management of Market Risk
General. The principal objective of our asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The board of directors of our bank has oversight of our asset and liability management function, which is managed by our Asset/Liability Management Committee. Our Asset/Liability Management Committee meets regularly to review, among other things, the sensitivity of our assets and liabilities to market interest rate changes, local and national market conditions and market interest rates. That group also reviews our liquidity, capital, deposit mix, loan mix and investment positions.
As a financial institution, our primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the fair value of all interest earning assets and interest bearing liabilities, other than those which have a short-term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
We manage our exposure to interest rates primarily by structuring our balance sheet in the ordinary course of business. We do not typically enter into derivative contracts for the purpose of managing interest rate risk, but we may do so in the future. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.
Net Interest Income Simulation. We use an interest rate risk simulation model to test the interest rate sensitivity of net interest income and the balance sheet. Instantaneous parallel rate shift scenarios are modeled and utilized to evaluate risk and establish exposure limits for acceptable changes in net interest margin. These scenarios, known as rate shocks, simulate an instantaneous change in interest rates and use various assumptions, including, but not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows.
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The following table presents the estimated changes in net interest income of Esquire Bank, National Association, calculated on a bank-only basis, which would result from changes in market interest rates over a twelve-month period beginning June 30, 2026.
June 30,
2026
Estimated
Changes in 12-Months
Interest Rates Net Interest
(Basis Points) Income Change
(Dollars in thousands)
300 $ 196,990 $ 36,706
200 183,715 23,431
100 171,242 10,958
0 160,284 —
-100 150,518 (9,766)
-200 140,421 (19,863)
-300 130,166 (30,118)
Economic Value of Equity Simulation. We also analyze our sensitivity to changes in interest rates through an economic value of equity (“EVE”) model. EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of OBS contracts. EVE attempts to quantify our economic value using a discounted cash flow methodology. We estimate what our EVE would be as of a specific date. We then calculate what EVE would be as of the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve.
The following table presents the estimated changes in EVE of Esquire Bank, National Association, calculated on a bank-only basis that would result from changes in market interest rates at June 30, 2026.
June 30,
2026
Changes in Economic
Interest Rates Value of
(Basis Points) Equity Change
(Dollars in thousands)
300 $ 619,079 $ 101,261
200 588,510 70,692
100 554,983 37,165
0 517,818 —
-100 473,818 (44,000)
-200 423,354 (94,464)
-300 366,684 (151,134)
Many assumptions are used to calculate the impact of interest rate fluctuations. Actual results may be significantly different than our projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. The computations of interest rate risk shown above do not include actions that our management may undertake to manage the risks in response to anticipated changes in interest rates, and actual results may also differ due to any actions taken in response to the changing rates.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.
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We regularly review the need to adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest earning deposits and securities, and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest earning deposits and short duration securities.
Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At June 30, 2026, cash and cash equivalents totaled $242.2 million.
At June 30, 2026, through pledging of our securities and certain loans, we had the ability to borrow, on a secured basis, up to $477.6 million from the FHLB of New York and $45.0 million from the FRB 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 amounts were outstanding on any of the aforementioned lines as of June 30, 2026.
At June 30, 2026, our OBS sweep funds totaled $1.03 billion, of which $392.5 million, or 38.0%, was available to be swept on balance sheet as reciprocal client deposits.
Our overall liquidity position (cash, borrowing capacity, and available reciprocal client sweep balances) totaled $1.19 billion at June 30, 2026, or 54% of total deposits, creating a highly liquid and unlevered balance sheet.
We have no material commitments or demands that are likely to affect our liquidity other then as follows. In the event loan demand were to increase faster than expected, or any unforeseen demand or commitment were to occur, we could access our borrowing capacity with the FHLB, FRB, correspondent bank lines or through reciprocal deposits.
Esquire Bank is subject to various regulatory capital requirements administered by the Office of the Comptroller of the Currency (the “OCC”), and the Federal Deposit Insurance Corporation. At June 30, 2026, Esquire Bank exceeded all applicable regulatory capital requirements, and was considered “well capitalized” under regulatory guidelines.
We manage our capital to comply with our internal planning targets and regulatory capital standards administered by the OCC and review capital levels on a monthly basis.
The following table presents our capital ratios as of the indicated dates for Esquire Bank.
For Capital Adequacy
Purposes
Minimum Capital with Actual
“Well Capitalized” Conservation Buffer At June 30, 2026
Total Risk-based Capital Ratio
Bank 10.00 % 10.50 % 15.49 %
Tier 1 Risk-based Capital Ratio
Bank 8.00 % 8.50 % 14.24 %
Common Equity Tier 1 Capital Ratio
Bank 6.50 % 7.00 % 14.24 %
Tier 1 Leverage Ratio
Bank 5.00 % 4.00 % 11.68 %
Effective January 1, 2020, the federal banking agencies adopted a rule to establish for institutions with assets of less than $10 billion that meet other specified criteria a “community bank leverage ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) of 9% that such institutions may elect to utilize in lieu of the generally applicable leverage and risk-based capital requirements noted above. A “qualifying community bank” with capital
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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.
Effects of Inflation. The impact of inflation, as it affects banks, differs substantially from the impact on non-financial institutions. Banks have assets which are primarily monetary in nature and which tend to move with inflation. This is especially true for banks with a high percentage of rate sensitive interest-earning assets and interest-bearing liabilities. A bank can further reduce the impact of inflation with proper management of its rate sensitivity gap. This gap represents the difference between interest rate sensitive assets and interest rate sensitive liabilities. The Company attempts to structure its assets and liabilities and manages its gap to protect against substantial changes in interest rate scenarios, in order to minimize the potential effects of inflation.