Esquire Financial Holdings, Inc. Common Stock 2026 Q3 Earnings Call

Good morning, everybody. I am joined in my office by Michael Lacapria, our SVP and CFO, and Eric Bader, our EVP and COO. I would like to start the call by thanking and welcoming everybody, including our investors, analysts, board members, managers, and employees, including our new business partners from our new Signature division out of Chicago. I am going to start the call with some high-level thoughts and comments, then turn the call over to Michael for a financial update, and then we will address any questions from those on the call. During the quarter, we successfully closed the Signature Bank merger on August 1, 2026, which diversified our loan portfolio and funding sources, and we also continued to show strong organic growth and performance on a combined basis. At closing, Signature had total assets, loans, and deposits of approximately $1.9 billion, $1.4 billion, and $1.7 billion respectively.

The combined results for Signature for the third quarter includes only two months out of the three months of Signature activity. Most importantly, the merger unites two highly talented management teams and employee bases with a strong client relationship and market expertise, positioning the combined company for continued industry-leading growth, performance metrics, and enhanced success. Regarding the conversion, our core system conversions are in progress and targeted for April 2027. There has been no material client attrition to date. Our growth and performance metrics remain materially unchanged from announcement, with certain performance metrics improving as noted in our earnings release. Couple of quick highlights. Excluding the merger, we still experienced strong organic growth in loans and deposits over the past 12 months, totaling approximately $500 million in loan growth and about $450 million in deposit growth.

On a linked quarter basis, we continue to demonstrate similar organic loan and deposit growth as the 12-month period. We have solid credit metrics, asset quality, and reserve coverage ratios. When we exclude the merger expenses and certain discrete tax benefit items in the tax line, our adjusted diluted earnings per share was $2.12, and our adjusted return on average assets and return on average tangible equity was 2.34% and 23% respectively. The Signature merger, coupled with our combined asset size, enhanced resources, and diversified loan and deposit platforms, positions our company for continued strong growth and performance, and we believe we will exceed our initial earnings expectations when we announce the merger on March 12, 2026. With that said, I turn it over to Michael to give you his financial update and financial highlights.

Michael? Thank you, Andrew, and good morning.

I will provide a brief overview of our third quarter 2026 financial results, as highlighted in our earnings release and investor presentation published earlier this morning. Like Andrew said, please note that this is our first quarter reflecting the post-merger combined company, and the results include two months of Signature's activity from the August 1st closing date. This successful merger closed at a purchase price of $466 million, which is 10% accretive to tangible book value on day one, giving rise to a combined company that is $4.8 billion in assets, $3.4 billion in loans, $4 billion in deposits, and $492 million in tangible equity, net of $247 million in goodwill and a $47 million core deposit intangible as of September 30th. Let me start with net income.

For the third quarter, we reported GAAP net income of $17.5 million, or $1.57 per diluted share. These results included $8.9 million of pre-tax merger expenses, which is $7.1 million net of tax and $938,000 of discrete tax benefits related to share-based compensation. Excluding these items, our adjusted net income is $23.6 million or $2.12 per diluted share, which exceeds consensus estimates. This compares to an adjusted net income of $14 million or $1.60 per diluted share on a linked quarter basis, representing a 69% increase. Our adjusted returns on average assets and average tangible equity were 2.34% and 23.1% respectively for the quarter. These remain industry-leading metrics while we continue to invest in our current resources to support future growth and maintain excellence in client service that our customers have come to expect. Our net interest margin for the quarter was 5.74% compared to 5.96% for the trailing quarter.

That being said, our normalized net interest margin was approximately 5.68% or six basis points less than the full quarter's result since Signature was included for two of the three months in the current quarter. This decline from prior quarters appropriately reflects the change in the combined asset and funding mix following the acquisition. Loans increased $1.5 billion or 80% to $3.43 billion from June 30th. Of which $1.4 billion was attributable to the Signature merger, while the remaining increase was primarily attributable to organic litigation-related loan growth of $160 million or 49% annualized, bringing our litigation book to $1.46 billion. Our litigation book now represents 42% of loans as compared to 67% in the trailing quarter, provided for by the expected diversification benefit of the combination. On a year-over-year basis, organic loan growth was $497 million, or 32%.

As it relates to our litigation loan portfolio, we continue to see strong organic growth, healthy client activity levels, and a tremendous opportunity in the untapped Midwest market. The litigation vertical remains a primary strategic focus, which is a key source of low-cost core funding to the bank that supports asset growth across the balance sheet. Deposits increased $1.8 billion or 83% to $3.8 billion from June 30th. Of which, $1.65 billion was attributable to the Signature merger, and the remaining $147 million was primarily organic litigation-related deposit growth. From the August 1 closing date, deposits increased $55 million or 8% annualized, and on a year-over-year basis, organic deposit growth was $447 million or 24%. Our litigation-related deposits concentration decreased from 79% to 54% as the merger diversified our exposure as expected. Our cost of funds for the quarter, including demand, was 113 basis points.

Off-balance sheet sweeps remain a reliable source of liquidity at $776 million with approximately $255 million or 33% available for liquidity if needed. Administrative service payment fee income on these balances totaled $1.1 million for the quarter. Total liquidity, including cash, off-balance sheet sweeps, and other borrowing capacity, was approximately $1.6 billion as of quarter end. Turning over to credit. Credit quality remains solid. Our allowance for credit losses remained at 1.3% of loans consistent with the prior quarter, and we have six non-performing assets totaling $9.7 million, representing 20 basis points on total assets. The 4% increase in NPAs from the trailing quarter is due to the merger. There are also no material charge-offs or significant downgrades to report. Non-interest income increased $1.5 million or 24% as compared to the trailing quarter to $7.9 million, representing 13% of total revenue.

Our payments platform continues to be a meaningful contributor to earnings and client engagement. During the quarter, we supported 94,000 small business clients nationwide, processing approximately $10.5 billion in payment volume across 152 million transactions. Operating expenses increased $14.9 million or 71% as compared to the trailing quarter to $36 million, which is attributable to normal Signature operating expenses of $5.2 million, incremental merger expenses of $7.8 million, and $1.8 million of core deposit intangible amortization. Excluding merger expenses and CDI amortization, the adjusted efficiency ratio was an industry-leading 41.1%. Merger expenses incurred inception to date was $11.6 million and is consistent with the guidance at announcement date. Our capital foundation remains strong. The bank Tier 1 leverage and total risk-based capital ratios were 11.2% and 13.65% respectively, positioning us well above regulatory well-capitalized standards. Now I'll turn the call back over to Andrew for his remarks.

Thank you, Michael, for that thorough update. Kenneth, we're going to turn the call back over to you for the Q&A session.