Esquire Financial (NASDAQ:ESQ) reported second-quarter GAAP net income of $13 million, or $1.49 per diluted share, as management highlighted continued loan and deposit growth, a resilient net interest margin and preparations for its pending acquisition of Signature Bancorporation Inc.
Michael Lacapria, Esquire’s senior vice president and chief financial officer, said results included approximately $1.1 million of pre-tax merger-related expenses tied to the Signature transaction. Excluding those costs, adjusted net income was $14 million, or $1.60 per diluted share, up 16% from the prior-year quarter.
Signature Merger Expected to Support Chicago Expansion
Andrew Sagliocca, Esquire’s vice chairman, chief executive officer and president, said the Signature merger is scheduled to close on Aug. 1. He said the Chicago metro market is one of the three largest U.S. markets, along with New York City and Los Angeles, for population and contingent fee law firms, Esquire’s primary banking vertical.
Sagliocca said Esquire currently underserves the Chicago and Midwest markets on a standalone basis and that Signature brings a “well-established and well-known Chicago-based management team and brand.” He said combining that with Esquire’s experience in the national litigation market could help drive sustained growth and returns.
In response to a question from Emily Lee of KBW, Sagliocca said integration planning has gone “extremely well,” with extensive collaboration between the two companies. He said Esquire has been working with Signature’s team on lending, business development, underwriting plaintiff law firms and identifying prospective law firm clients in Chicago and the Midwest.
“At this point, I really have no concerns heading into the 8/1 date,” Sagliocca said, adding that legal day-one readiness is in place.
Loan and Deposit Growth Remain Strong
Lacapria said total loans increased $87.2 million from the prior quarter, or 19% annualized, reaching $1.9 billion. That growth came despite $76.1 million in loan payoffs during the quarter. Commercial loan production totaled $61.6 million, while real estate loan production was $25.6 million.
The litigation loan portfolio grew $72.6 million on a net basis, or 24% annualized, to $1.29 billion at a blended yield of 8.8%. Lacapria said litigation loans were up 41% year over year and that client activity levels and production pipelines remained healthy entering the second half of the year.
Total deposits increased $77.1 million from the prior quarter, or 15% annualized, to $2.18 billion. Lacapria said deposit growth was driven by litigation-related escrow and IOLTA deposits, reflecting the company’s relationship-focused commercial banking strategy. Esquire’s cost of funds remained relatively flat at 1.03%.
During the question-and-answer session, Sagliocca said Esquire’s primary focus remains national growth in its litigation platform. He characterized the quarter’s $25 million of commercial real estate growth as modest for the company and said Esquire continues to seek CRE opportunities that meet its standards for debt service coverage and loan-to-value ratios.
Net Interest Margin Holds Near 6%
Esquire’s net interest margin was 5.96% in the quarter. Lacapria said the margin remained resilient despite a significant decline in short-term rates from peak levels over the past several years. He also said elevated interest-earning cash balances funded by the company’s core deposit franchise reduced the margin by about 10 basis points.
Sagliocca said management is focused on maintaining the company’s standalone net interest margin near 6%, though he noted Esquire will soon no longer be standalone following the Signature closing. He said the combined company’s net interest margin is expected to be around 5.40% to 5.50% on day one, with 5.45% as a central estimate.
He added that the margin could improve over time as the combined company builds higher-yielding litigation assets in Signature’s market and attracts low-cost core funding associated with that vertical.
Credit Quality and Capital Remain in Focus
Lacapria said Esquire’s allowance for credit losses was 1.3% of total loans, unchanged from the prior quarter. The company had two non-performing loans totaling $5.1 million, representing 20 basis points of total assets.
During the quarter, Esquire transferred a previously criticized multifamily credit to non-accrual status and recorded a $1.6 million charge-off. Lacapria said the company has no additional exposure to that real estate sponsor, no other real estate credits classified as special mention or substandard, no exposure to commercial office and limited hospitality exposure of $13.17 million.
Sagliocca said the multifamily debt service coverage metrics referenced by the company are current measures, based on annual updates for loans above a certain size. He said management is comfortable with the multifamily portfolio looking over the next one to two years.
Esquire’s capital levels remained above regulatory well-capitalized standards. Lacapria said consolidated equity to assets was approximately 12.5% at quarter end, while the bank-level Tier 1 capital ratio was approximately 14.2%.
Payments Platform Continues to Contribute
Non-interest income was $6.4 million, representing about 15% of total revenue. Lacapria said Esquire’s payments platform remains a meaningful contributor to earnings and client engagement.
During the quarter, the company supported 93,000 small business clients nationwide and processed approximately $10.6 billion in payment volume across 153 million transactions. Off-balance sheet sweep balances totaled $1 billion, with about 38% available for liquidity if needed. Administrative service payment fee income on those balances was $1.1 million for the quarter.
Asked about plans to pursue more direct merchant business after the Signature acquisition, Sagliocca said Esquire expects the current merchant model to grow slowly over the next four to six quarters. He said volume in the indirect model tends to grow around 10%, while revenue tends to grow around 3% to 5%, excluding the impact of certain independent sales organizations leaving after selling their platforms.
Sagliocca said Esquire plans to focus on Signature’s non-litigation commercial customers and seek to move some of them to a direct merchant acquiring platform, though he described that shift as “a slow and steady process.”
In closing remarks, Sagliocca said he expects the December quarter to provide a clearer view of how the combined company will perform following the merger.
About Esquire Financial (NASDAQ:ESQ)
Esquire Financial Holdings, Inc is a bank holding company whose principal subsidiary, Esquire Bank, specializes in residential mortgage lending and community banking services. Headquartered in Kansas City, Missouri, the company operates through multiple distribution channels, including retail branches, wholesale and correspondent lending divisions. Esquire Financial focuses on tailored home financing solutions while maintaining a community-oriented approach to banking.
In its mortgage lending business, Esquire Bank originates and services a range of home loan products, including government-insured mortgages (FHA, VA and USDA) as well as conventional conforming and jumbo loans.
