Esquire Financial Q3 Earnings Call Highlights

Key Points

• Signature Bank merger significantly expanded Esquire Financial’s scale: The transaction added approximately $1.9 billion in assets, $1.4 billion in loans and $1.7 billion in deposits, bringing the combined company to $4.8 billion in assets and $3.4 billion in loans. Management reported no material client attrition, with system conversion targeted for April 2027.
• Adjusted third-quarter earnings increased substantially despite merger costs: Adjusted net income reached $23.6 million, or $2.12 per diluted share, while GAAP results included $8.9 million in pretax merger expenses. Loan growth also remained strong, including $160 million of organic litigation-related growth.
• Management expects continued growth and stable credit quality: Esquire projects roughly $500 million of loan growth, $400 million–$450 million of deposit growth and about $9 in diluted EPS for 2027. Credit metrics remained stable, with a 1.3% allowance for credit losses and capital ratios above well-capitalized regulatory standards.

Esquire Financial NASDAQ: ESQ reported third-quarter results that included two months of operations from Signature Bank following the August 1 closing of its merger, as the company highlighted continued organic growth, a diversified balance sheet and expectations for higher-than-initially-projected earnings following the transaction.

CEO, Vice Chairman and President Andrew Sagliocca said Signature had approximately $1.9 billion of assets, $1.4 billion of loans and $1.7 billion of deposits at closing. The combination increased Esquire’s scale while adding commercial banking capabilities in Chicago and the broader Midwest, where the company also sees an opportunity to expand its litigation-focused banking business.

“The merger unites two highly talented management teams and employee bases with a strong client relationship and market expertise,” Sagliocca said. He added that there had been no material client attrition to date and that core-system conversions were underway, with completion targeted for April 2027.

Third-Quarter Results Include Merger Costs

SVP and CFO Michael Lacapria said Esquire reported GAAP net income of $17.5 million, or $1.57 per diluted share, for the third quarter. Results included $8.9 million of pretax merger expenses, equivalent to $7.1 million after taxes, as well as $938,000 of discrete tax benefits related to share-based compensation.

Excluding those items, adjusted net income was $23.6 million, or $2.12 per diluted share, compared with $14 million, or $1.60 per share, in the prior quarter. Adjusted return on average assets was 2.34%, while adjusted return on average tangible equity was 23.1%.

The company said the merger closed at a purchase price of $466 million and was 10% accretive to tangible book value on the first day. As of Sept. 30, the combined company had $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.

• Net interest margin was 5.74%, compared with 5.96% in the prior quarter.
• Normalized net interest margin was approximately 5.68%, reflecting that Signature contributed to only two months of the quarter.
• Noninterest income rose 24% sequentially to $7.9 million, or 13% of total revenue.
• Operating expenses increased 71% sequentially to $36 million, including Signature operating costs, merger expenses and core deposit intangible amortization.
• The adjusted efficiency ratio, excluding merger expenses and core deposit intangible amortization, was 41.1%.

Loan and Deposit Growth Continue

Loans increased $1.5 billion, or 80%, from June 30 to $3.43 billion. About $1.4 billion of the increase came from the Signature merger, while the remaining growth was primarily driven by $160 million of organic litigation-related loan growth. The litigation portfolio reached $1.46 billion and accounted for 42% of total loans, down from 67% in the prior quarter as a result of the merger’s diversification effect.

On a year-over-year basis, Esquire reported $497 million of organic loan growth, or 32%. Deposits increased $1.8 billion, or 83%, from the prior quarter to $3.8 billion. Signature contributed $1.65 billion of that increase, while $147 million was primarily tied to organic litigation-related deposit growth. Organic deposits grew $447 million, or 24%, from a year earlier.

The merger reduced litigation-related deposits as a percentage of total deposits to 54% from 79% in the prior quarter. The company’s cost of funds, including demand deposits, was 113 basis points.

Esquire said off-balance-sheet sweeps totaled $776 million, including about $255 million available for liquidity if needed. Total liquidity, including cash, off-balance-sheet sweeps and other borrowing capacity, was approximately $1.6 billion at quarter-end.

Chicago Expansion and 2027 Outlook

During the question-and-answer session, Sagliocca said Signature’s established commercial banking platform and local relationships offer Esquire an opportunity to grow commercial and industrial lending, select commercial real estate lending and litigation-related banking in Chicago and the Midwest.

He described Chicago as the third- or fourth-largest U.S. market for plaintiff law firms, a core client group for Esquire’s litigation banking vertical. Signature had already developed deposit relationships in the market and maintained a smaller lending operation, he said.

For 2027, Sagliocca said the company was modeling approximately $500 million of loan growth, representing roughly 14% growth. He said management expects to generate about $400 million to $450 million in deposit growth to support that expansion. The company expects net interest margin to range from 5.70% to 5.75% during 2027, based on its interest-rate assumptions.

Sagliocca also outlined management’s preliminary 2027 outlook, which includes approximately $33 million to $34 million in fee income, $138 million to $140 million in noninterest expense, a normalized tax rate of roughly 28.5% and diluted earnings per share of about $9.

“We are going to continue to invest in resources, and that is people and technology,” Sagliocca said, citing business development, relationship management, lending and technology investments as the company manages growth and integrates the acquired business.

Credit Quality and Capital

Credit quality remained stable, according to Lacapria. The allowance for credit losses was 1.3% of loans, unchanged from the prior quarter. Nonperforming assets totaled $9.7 million across six assets, representing 20 basis points of total assets. The company reported no material charge-offs or significant downgrades.

Esquire’s bank Tier 1 leverage ratio was 11.2%, and its total risk-based capital ratio was 13.65%, both above regulatory well-capitalized standards. Sagliocca said management will continue to weigh growth needs and total risk-based capital requirements when evaluating its dividend policy, which had historically represented a payout ratio of roughly 10% to 12% of earnings.

About Esquire Financial (NASDAQ:ESQ)

Esquire Financial Holdings, Inc is the bank holding company for Esquire Bank, a federally chartered community bank headquartered in Jericho, New York. Esquire Bank primarily serves law firms, attorneys, and other professional-service businesses, as well as small and middle-market companies, entrepreneurs, and individuals.

The bank provides commercial banking products and services that include business checking and savings accounts, commercial loans, lines of credit, commercial real estate financing, construction lending, and small business lending.

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