ESQ 10-K & 10-Q changes, risk factors and insider trading

At December 31, 2024,2025, our commercial loans totaled $920.6$1.25 million,billion, or 65.9%70.8% of our total loans, including $835.8$1.18 millionbillion of Commercial Litigation-Related Loans, which represented 90.8%94.6% of our commercial loans. We intend to increase our originations of commercial loans, including our Commercial Litigation-Related Loans, which consist of working capital lines of credit, case cost lines of credit, term loans to law firms, and other commercial litigation-related loans. These loans generally have more risk than 1 – 4 family mortgage loans and commercial loans secured by real estate. Since repayment of commercial loans, including our Commercial Litigation-Related Loans, depends on the successful receipt of settlement proceeds or the successful management and operation of the borrower’s businesses, repayment of such loans can be affected by adverse court decisions and adverse conditions in the local and national economy. Commercial Litigation-Related Loans present unique credit risks in that attorney or law firm revenues can be volatile depending on the number of cases, the timing of court decisions, the timing of the overall judicial process, and the timing of those settlements as well as related payments on those settlements. In our experience, an average case can take two to four years to litigate and settle. Determining the value of an attorney’s or law firm’s case inventory (borrowing base) is also inherently an imprecise exercise. Though repayment of case lines is not dependent on a favorable case settlement, unfavorable outcomes can ultimately impact the cash flows of the borrower. An adverse development with respect to one loan or one Commercial Litigation-Related Loan credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a 1 – 4 family mortgage loan or a commercial real estate loan. Because we plan to continue to increase our originations of these loans, commercial loans generally have a larger average size as compared with other loans such as commercial real estate loans, and the collateral for commercial loans is generally less readily-marketable, losses incurred on a small number of commercial loans could have a disproportionate and material adverse impact on our financial condition and results of operations.

Loan customers may not repay their loans according to the terms of their loans, and the collateral securing the payment of their loans may be insufficient to assure repayment. We may experience significant credit losses, which could have a material adverse effect on our operating results. Various assumptions and judgments about the collectability of the loan portfolio are made, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of many loans. In determining the amount of the allowance for credit losses, management reviews the loans and the loss and delinquency experience and evaluates economic conditions. At December 31, 2024,2025, our allowance for credit losses as a percentage of total loans, net of unearned income, was 1.50%.1.37%. The determination of the appropriate level of allowance is subject to judgment and requires us to make significant estimates of current credit risks and trends, all of which are subject to material changes. If assumptions prove to be incorrect, the allowance for credit losses may not cover probable incurred losses in the loan portfolio at the date of the financial statements. Significant additions to the allowance would materially decrease net income. WeNonperforming hadassets totaled $8.6 million as of December 31, 2025, and consisted of one nonperforming multifamily loan totaling $10.9$7.8 million atand Decemberone 31,commercial 2024.loan (a small business merchant uncorrelated to our primary commercial litigation lending platform and other commercial loans) totaling $736 thousand. Nonperforming loans may increase and nonperforming or delinquent loans may adversely affect future performance. In addition, federal and state regulators periodically review the allowance for credit losses and may require an increase in the allowance for credit losses or recognize further loan charge-offs. Any significant increase in our allowance for credit losses or loan charge-offs as required by these regulatory agencies could have a material adverse effect on our results of operations and financial condition. Bank regulators periodically review our allowance for credit losses and may require an increase to the provision for credit losses or further loan charge-offs. Any increase in our allowance for credit losses or loan charge-offs as required by these regulatory authorities may have a material adverse effect on our results of operations or financial condition.

Our New York City multifamily loan portfolio could be adversely impacted by changes in policy legislation or regulation which, in turn, could have a material adverse effect on our financial condition and results of operations.

From 2016 through 2024,2025, we experienced significant growth following our initial public offering, a capital raise and the conversion from a savings and loan holding company with a savings bank subsidiary to a bank holding company with a national bank subsidiary. On March 12, 2026, the Company announced the entry into a merger agreement with Signature that, if approved, will nearly double the size of the Company. As a result of our recent accelerated growth, our ability to forecast our future results of operations and plan for and model future growth is limited and subject to a number of uncertainties. We have encountered and will continue to encounter risks and uncertainties frequently experienced by growing companies in the financial services industry, such as the risks and uncertainties described herein. Accordingly, we may be unable to prepare accurate internal financial forecasts and our results of operations in future reporting periods may be below the expectations of investors. If we do not address these risks successfully, our results of operations could differ materially from our estimates and forecasts or the expectations of our stockholders, causing our business to suffer and our stock price to decline.

Liquidity is essential to the Company’s business. The Company relies on its ability to generate deposits and effectively manage the repayment of its liabilities to ensure that there is adequate liquidity to fund operations. An inability to raise funds through deposits, borrowings, the sale and maturities of loans and securities and other sources could have a substantial negative effect on liquidity. The Company’s most important source of funds is its deposits. Deposit balances can decrease when customers perceive alternative investments as providing a better risk adjusted return, which are strongly influenced by such external factors as the direction of interest rates, local and national economic conditions and the availability and attractiveness of alternative investments. Further, the demand for deposits may be reduced due to a variety of factors such as current negative trends in the banking sector, the level of and/or composition of our uninsured deposits, demographic patterns, changes in customer preferences, reductions in consumers’ disposable income, the monetary policy of the FRB or regulatory actions that decrease customer access to particular products. If customers move money out of bank deposits and into other investments such as money market funds, the Company would lose a relatively low-cost source of funds, which would increase its funding costs and reduce net interest income. Any changes made to the rates offered on deposits to remain competitive with other financial institutions may also adversely affect profitability and liquidity. Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities and/or loans, brokered deposits, borrowings from the FHLB of New York and/or FRB discount window, and unsecured borrowings. The Company also may borrow funds from third-party lenders, such as other financial institutions. The Company’s access to funding sources in amounts adequate to finance or capitalize its activities, or on terms that are acceptable, could be impaired by factors that affect the Company directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry, a decrease in the level of the Company’s business activity as a result of a downturn in markets or by one or more adverse regulatory actions against the Company or the financial sector in general. Any decline in available funding could adversely impact the Company’s ability to originate loans, invest in securities, meet expenses, or to fulfill obligations such as meeting deposit withdrawal demands, any of which could have a material adverse impact on its liquidity, business, financial condition and results of operations.

The Bank has deposit accounts whose ownership is based on a fiduciary relationship. The FDIC's regulations generally state that the titling of the deposit account (together with the underlying records) must indicate the existence of the fiduciary relationship in order for insurance coverage to be available on a "pass-through" basis. Fiduciary relationships include, but are not limited to, relationships involving a trustee, agent, nominee, guardian, executor, or custodian. A bank with fiduciary deposit accounts with balances of more than $250,000 must diligently use the available data on these deposit accounts, including data indicating the existence of different principal and income beneficiaries to determine its best estimate of the uninsured portion of these accounts. As of December 31, 2024,2025, the Company had approximately $979.0$1.23 millionbillion of law firm escrow (or trust) deposits that were evaluated by management to identify an appropriate estimate of FDIC insurance coverage that passes through each deposit account to the beneficial owner of the funds held in the account. To a lesser extent, the Bank maintains fiduciary accounts for our qualified settlement fund relationships as well as bankruptcy trustee relationships where management estimates are also employed to determine FDIC coverage. Management’s uninsured balance estimate may understate the amount of the Bank’s uninsured deposits and may not reflect the assessment of the FDIC if the Bank is placed into receivership. Such understated amounts of uninsured deposits would result in less deposit insurance coverage available to our depositors and could materially and adversely affect our business, results of operations or financial condition.

Our business strategy is to continue to grow our assets and expand our operations, including through potential strategic acquisitions.acquisitions, such as our announced merger with Signature. Our ability to grow depends, in part, upon our ability to expand our market share, successfully attract core deposits, and to identify loan and investment opportunities as well as opportunities to generate fee-based income. We can provide no assurance that we will be successful in increasing the volume of our loans and deposits at acceptable levels and upon terms acceptable to us. We also can provide no assurance that we will be successful in expanding our operations organically or through strategic acquisition while managing the costs and implementation risks associated with this growth strategy. We expect to continue to experience growth in the number of our employees and customers and the scope of our operations. Our success will depend upon the ability of our officers and key employees to continue to implement and improve our operational and other systems, to manage multiple, concurrent customer relationships, and to hire, train and manage our employees. In the event that we are unable to perform all these tasks and meet these challenges effectively, including continuing to attract core deposits, our operations, and consequently our earnings, could be adversely impacted.

We are a financial holding company headquartered in Jericho, New York and registered under the BHC Act. Through our wholly owned bank subsidiary, Esquire Bank, National Association, we are a full service commercial bank dedicated to serving the financial needs of the legal and small business communities (as well as their owners and employees) on a national basis, as well asand commercial and retail customers in the New York metropolitan market. 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 area.areas (a subset of the New York and Los Angeles markets).

A summary of our significant accounting policies is described in Note 1 to the Consolidated Financial Statements included in this annualAnnual report.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:

On January 1, 2023, we adopted the CECL Standard. 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 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 December 31, 2024,2025, there was one collateral dependent multifamily loan secured by real estate totaling $10.9$7.8 million that was individually analyzedanalyzed, and one collateral dependent commercial loan secured by business assets totaling $736 thousand that was individually analyzed, with no associated specific reserve on either loan on the Consolidated Statements of Financial Condition.

Loan Portfolio Analysis. At December 31, 2024,2025, loans were $1.76 billion, or 74.3% of total assets, compared to $1.40 billion, or 73.8% of total assets, comparedat December 31, 2024. Our higher yielding variable rate commercial loans increased $325.0 million, or 35.3%, to $1.21$1.25 billion, or 74.7% of total assets,billion at December 31, 2023.2025 Our higher yielding commercial loans increased $182.7 million, or 24.8%, tofrom $920.6 million at December 31, 2024 from $737.9 million at December 31, 2023 where commercial litigation related loan growth was $223.4$342.5 million, or 36.5%,41.0%, to $835.8$1.18 billion in 2025. Commercial real estate loans increased $20.3 million, or 23.3%, to $107.3 million inat December 31, 2025 from $87.0 million at December 31, 2024. Multifamily loans increased $6.9$17.6 million, or 2.0%,5.0%, to $372.8 million at December 31, 2025 from $355.2 million at December 31, 20242024. fromConsumer $348.2loans increased $3.4 million or 17.7%, to $22.8 million at December 31, 2023.2025 Consumer loans increased $4.8 million or 33.5%, tofrom $19.3 million at December 31, 2024 from $14.5 million at December 31, 2023. Commercial real estate loans decreased $2.5 million, or 2.7%, to $87.0 million at December 31, 2024 from $89.5 million at December 31, 2023.2024. 1 – 4 family loans decreased $3.3$4.8 million, or 18.2%,32.9%, to $9.8 million at December 31, 2025 from $14.7 million at December 31, 2024 from $17.9 million at December 31, 2023.2024.

At December 31, 2024,2025, our Litigation-Related Loans, which include commercial and consumer lending to attorneys, law firms and plaintiffs/claimants, totaled $838.6$1.18 million,billion, or 60.0%67.2% of our total loan portfolio, compared to $614.9$838.6 million at December 31, 2023.2024. We also had Commercial Litigation-Related committed and uncommitted undrawn lines of credit totaling $106.9 million and $797.5 million, respectively, at December 31, 2025, compared to $85.0 million and $580.3 million, respectively, at December 31, 2024.

At December 31, 2024,2025, substantially all of our $920.6$1.25 millionbillion commercial loans are variable rate and tied to prime, comprising approximately 66%71% of our loan portfolio. Additionally, approximately 90% of our commercial loans have interest rate floor protection as of December 31, 2024.2025.

Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed real estate until it is sold. When property is acquired, it is initially recorded at the fair value less costs to sell at the date of foreclosure, establishing a new cost basis. Holding costs and declines in fair value after acquisition of the property result in charges against income. At December 31, 2025, 2024 and 2023, we did not have any foreclosed assets.

LoansThe ratedallowance specialfor mentioncredit totaledlosses $4.0to millionnonperforming loans was 280% as of December 31, 2024,2025, comparableas compared to the same period in 2023. Loans rated substandard totaled $10.9 million192% as of December 31, 2024,2024. comparableThe allowance for credit losses to the same period in 2023, driven by one nonaccrual multifamily loan. Our special mention and substandard loans as a percentage ofnonperforming loans was 0.3% and 0.8%152% as of December 31, 2024, respectively, and 0.3% and 0.9% as of December 31, 2023, respectively.2023. The allowance for credit losses as a percentage of loans was 1.50%1.37% and 1.38%1.50% as of December 31, 20242025 and 2023,2024, respectively. The increase in the allowance as a percentage of loans was general reserve driven considering loan growth and the qualitative factors associated with the current uncertain economic environment including, but not limited to, its potential impact on the New York metro commercial real estate market. The allowance for credit losses as a percentage of loans was 1.38% as of December 31, 2023.

At December 31, 20242025 and 2023,2024, all debt securities available-for-sale were carried at fair value and we had no investments in a single company or entity, other than government and government agency securities, which had an aggregate book value in excess of 10% of our equity. Securities available-for-sale totaled $246.5 million at December 31, 2025, as compared to $241.7 million at December 31, 2024, assupported comparedby purchases at current market interest rates totaling $47.6 million, offsetting portfolio amortization totaling $50.6 million. Securities held-to-maturity decreased $8.5 million due to $122.1portfolio amortization and totaled $60.2 million at December 31, 2023,2025, as managementcompared deployed excess liquidity into securities. Securities held-to-maturity totaledto $68.7 million at December 31, 2024, as compared to $77.0 million at December 31, 2023, due to paydowns and portfolio amortization.2024.

Total deposits increased $234.9$420.8 million, or 16.7%,25.6%, to $2.06 billion at December 31, 2025 from $1.64 billion at December 31, 20242024, fromprimarily $1.41due billionto atour Decemberfocus 31,on 2023.client acquisition and expansion/growth in our national litigation platform. We continue to focus on the acquisition and expansion of core deposit relationships, which we define as all deposits except for certificates of deposit. Core deposits totaled $1.63$2.06 billion at December 31, 2024,2025, or 99.1%99.7% of total deposits at that date. Certificates of deposit totaled $14.1$6.2 million at December 31, 2024,2025, or 0.9%0.3% of total deposits at that date.

Our deposit strategy primarily focuses on developing full service branchless 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, rather than competing with other institutions on rate. As of December 31, 2024,2025, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000) was $463.9$685.1 million, or 28.2%,33.2%, of our total Bank deposits of $1.64$2.06 billion, excluding $12.4$12.1 million of the Company’s deposits held by the Bank. 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. At December 31, 2024,2025, our off-balance sheet sweeps funds totaled $554.4$736.6 million, of which $424.2$449.0 million, or 76.5%,61.0%, was able to be swept on balance sheet as reciprocal client relationship money market deposits. Our core low-cost deposit growth and off-balance sheet client funds continue to clearly demonstrate our highly efficientefficient, branchlessfull service commercial relationships and technologytech-enabled enabledcash depositmanagement platforms.platform.

As of December 31, 2023, the aggregate amount of uninsured deposits was $381.6 million, or 27.1%, of our total Bank deposits of $1.41 billion, excluding $5.5 million of the Company’s deposits held by the Bank. As of December 31, 2024,2025, the Company had approximately $979.0$1.23 millionbillion of longer duration law firm escrow (or trust) deposits with the majority of these law firms also having a commercial lending relationship with the Bank. 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. The FDIC insured and uninsured deposited balances reflect management’s determination of settlement claims deposited as of period end. In addition, as of December 31, 2024,2025, the aggregate amount of our uninsured certificates of deposit was $6.8$3.0 million. We have no deposits that are uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance. The following table sets forth the maturity of the uninsured certificates of deposit as of December 31, 2024.2025.

At December 31, 2024,2025, we had the ability to borrow a total of $431.7$455.5 million from the FHLB of New York.FHLB. We also had a borrowing capacity with the FRB of New York discount window of $51.4$48.1 million. At December 31, 2024,2025, we also had $17.5$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 December 31, 20242025 and December 31, 2023.2024.

Total stockholders’ equity increased $38.5$52.5 million, or 19.4%,22.1%, to $289.6 million at December 31, 2025, from $237.1 million at December 31, 2024, from $198.6 million at December 31, 2023.2024. The increase for the year ended December 31, 20242025 was primarily due to net income of $43.7$50.8 millionmillion, decreases in other comprehensive losses related to net unrealized gains in our available-for-sale securities portfolio of $5.8 million, and amortization of share-based compensation of $3.8$5.0 million, partially offset by dividends declared to common stockholders of $5.0$6.0 million, and shares receivedfrom employees related to income tax withholding ofon $3.4share-based million, and other comprehensive losscompensation of $1.1$4.0 million.

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.

At December 31, 2024,2025, through pledging of our securities and certain loans, we had the ability to borrow a total of $431.7$455.5 million from the FHLB of New York and $54.9$48.1 million from the FRB of New York discount window. At December 31, 2024,2025, we also had $17.5$29.0 million in aggregated unsecured lines of credit with unaffiliated correspondent banks. No amounts were outstanding on any of the aforementioned lines as of December 31, 2024.2025.

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. At December 31, 2024, Esquire Bank was classified as well-capitalized.

TheThere have been no material changes in the risk factors that were previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, have beenas supplemented by theour CompanyQuarterly Report on Form 10-Q for the quarter ended March 31, 2026 as follows:2026.

Management’s discussion and analysis of financial condition at MarchJune 31,30, 2026 and December 31, 2025 and results of operations for the three and six months ended MarchJune 31,30, 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.

RecentSubsequent Events - Proposed Signature Merger

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 MarchJune 31,30, 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.

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 approximately into a blended 9%8.80% variable rate asset yield on these commercial loans for the quarter ended MarchJune 31,30, 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 $1.32$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 $1.17$1.31 billion, or 56%,60%, of total deposits at MarchJune 31,30, 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 MarchJune 31,30, 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 $10$11 billion in volume across 137153 million in transactions in the quarter ended MarchJune 31,30, 2026.

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 MarchJune 31,30, 2026, we have produced industry leading returns including, but not limited to, an average return on assets and equity of 2.10%2.09% and 16.82%,17.06%, respectively; industry leading net interest margin of 6.04%5.96%; strong efficiency ratio of 51.1%50.1%; and diversified revenue streams as demonstrated by a strong net interest margin and stable fee income representing 16%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 $1.10$1.19 billion with no outstanding borrowings, positions our Company for future growth and success.

Comparison of Financial Condition at MarchJune 31,30, 2026 and December 31, 2025

Assets. Our total assets were $2.42$2.51 billion at MarchJune 31,30, 2026, an increase of $55.5$145.4 million, or 2.3%,6.1%, from $2.37 billion at December 31, 2025, due to growth in loans held for investment of $56.7$143.8 million, or 3.2%,8.2%, and increases in securities available-for-sale of $11.5 million, or 4.7%, offset by decreases in cash and cash equivalents of $13.7$6.3 million, or 5.8%.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 MarchJune 31,30, 2026, loans, net of deferred fees and unearned premiums, were $1.82$1.90 billion, or 86.3%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 $30.0$91.6 million, or 2.4%,7.4%, to $1.28$1.34 billion at MarchJune 31,30, 2026 from $1.25 billion at December 31, 2025. Multifamily loans increased $16.2 million, or 4.3%, to $389.0 million at March 31, 2026 from $372.8 million at December 31, 2025. Commercial real estate loans increased $7.1$25.8 million, or 6.6%,24.0%, to $114.4$133.1 million at MarchJune 31,30, 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.

At MarchJune 31,30, 2026, our Litigation-Related loans, which include commercial and consumer lending to attorneys, law firms and plaintiffs/claimants, totaled $1.23$1.30 billion, or 67.5%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 $136.8$113.2 million and $812.9$924.0 million, respectively, at MarchJune 31,30, 2026.

Litigation-Related post-settlement consumer loans decreased $77$271 thousand to $3.1$2.9 million as of MarchJune 31,30, 2026, from $3.1 million as of December 31, 2025.

Debt Securities Portfolio. Securities available-for-sale increaseddecreased $11.5$6.4 million, or 4.7%,2.6%, to $258.0$240.1 million at MarchJune 31,30, 2026 from $246.5 million at December 31, 2025, due to securities purchases of $29.7 million, offset by portfolio amortization of $17.2$34.4 million and increases in unrealized losses of $1.0$1.5 million, offset by securities purchases of $29.7 million. Securities held-to-maturity decreased $1.9$4.1 million, or 3.1%,6.8%, to $58.3$56.1 million at MarchJune 31,30, 2026 from $60.2 million at December 31, 2025, driven by portfolio amortization.

Funding. Total deposits increased $39.6$116.7 million, or 1.9%5.7% to $2.10$2.18 billion at MarchJune 31,30, 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 $2.09$2.17 billion at MarchJune 31,30, 2026, or 99.3%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 $1.77$1.86 billion, or 84.2%,85.3%, of total deposits at MarchJune 31,30, 2026. Savings, NOW and money market deposits increased $61.9$141.4 million, or 4.2%,9.6%, to $1.54$1.62 billion while noninterest bearing demand deposits decreased $30.6$24.3 million, or 5.3%,4.2%, to $545.9$552.1 million at MarchJune 31,30, 2026.

Core commercial relationship banking clients in our two national verticals represent approximately 75% of our $2.10$2.18 billion deposit base at MarchJune 31,30, 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 $1.17$1.31 billion, or 55.8%,59.9%, of total deposits. As of MarchJune 31,30, 2026, uninsured deposits were $623.0$722.4 million, or 30%,33%, of our total deposits, excluding $17.9$18.9 million of the Company’s deposits held at the Bank. Approximately 70%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, 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 MarchJune 31,30, 2026, off-balance sheetOBS sweep funds totaled approximately $1.00$1.03 billion, of which approximately $330.4$392.5 million, or 33.0%,38.0%, was available to be swept onto our balance sheet as reciprocal client relationship deposits. Our core low-cost deposit growth and off-balance sheetOBS client funds continue to clearly demonstrate our highly efficient, full service commercial relationship and tech-enabled cash management platform.

At MarchJune 31,30, 2026, we had the ability to borrow, on a secured basis, up to $475.1$477.6 million from the Federal Home Loan Bank of New York and $46.5$45.0 million from the Federal Reserve Bank of New York discount window. At MarchJune 31,30, 2026, we also had $29.0 million in aggregate unsecured lines of credit with unaffiliated correspondent banks. No borrowing amounts were outstanding during the firstsecond 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 $11.7$24.3 million to $301.3$313.9 million at MarchJune 31,30, 2026, from $289.6 million at December 31, 2025, primarily due to net income of $12.2$25.2 million, and amortization of share-based compensation of $2.0$3.7 million, partially offset by dividends declared to common stockholders of $1.7$3.5 million and other comprehensive loss of $960$1.3 thousand,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 $736$5.1 thousandmillion as of MarchJune 31,30, 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 the onea 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 $13.9$13.7 million in performing loans to the hospitality industry. The allowance for credit losses was $23.5$24.7 million, or 1.30% of total loans, as of MarchJune 31,30, 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 as well as increases in the general reserve considering loan growth, loan composition, and the current uncertain economic and short-term interest rate environment,portfolios, management believes the allowance for credit losses is adequate at MarchJune 31,30, 2026.

At MarchJune 31,30, 2026, there were no special mention loans and $5.1 million in substandard loans totaled $12.3 million and $736 thousand, respectively,loans, compared to $12.3 million and $8.6 million, special mention and substandard loans, respectively, as of December 31, 2025. The $7.8$12.3 million decrease in substandardspecial mention balances relates to the above mentioned OREOmultifamily foreclosureloan that was placed on nonaccrual and sale.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 0.04%0.27% and 0.03%,0.20%, respectively, as of MarchJune 31,30, 2026, as compared to 0.49% and 0.36%, respectively, as of December 31, 2025. The allowance for credit losses to nonperforming loans was 3,198%481% as of MarchJune 31,30, 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 $503.4$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 MarchJune 31,30, 2026 divided by appraised value at origination) of approximately 1.611.67 and 56%,54%, respectively. When further evaluating this population, loans with below current market rates maturing in (1) less than one year totaled $66.8 million and had a current weighted average DSCR and an original LTV of approximately 1.38 and 66%, respectively; and (2) one to two years totaled $29.2 million and had a current weighted average DSCR and an original LTV of approximately 1.29 and 69%, respectively.

Comparison of Operating Results for the Three Months Ended MarchJune 31,30, 2026 and 2025

General. Net income increased $804$1.1 thousand,million, or 7.0%,9.2%, to $12.2$13.0 million for the three months ended MarchJune 31,30, 2026 from $11.4$11.9 million for the three months ended MarchJune 31,30, 2025. The increase resulted from a $6.4$6.5 million increase in net interest income, partially offset by a $3.9$4.0 million increase in noninterest expense, and a $1.2$1.8 million increase toin theincome provisiontax for credit losses.expense.

Net Interest Income. Net interest income increased $6.4$6.5 million, or 23.2%,22.2%, to $34.0$35.7 million for the three months ended MarchJune 31,30, 2026 from $27.6$29.3 million for the three months ended MarchJune 31,30, 2025, due to a $7.5$7.8 million increase in interest income, partially offset by a $1.1$1.3 million increase in interest expense.

Our net interest margin of 6.04%5.96% increaseddecreased 87 basis points from the comparable period in 2025, ledprimarily bydue growthto a $53.1 million increase in higheraverage yieldinginterest commercialearning loancash productionbalances nationally.to $205.0 million in the current quarter coupled with decreases in short-term market interest rates over the same period. Average loan yields increaseddecreased 511 basis points to 7.85%7.78%, primarily due to our litigation related loan yields, while average loans increased $376.4$414.5 million, or 27.0%,28.3%, to $1.77$1.88 billion, with average litigation related loan growth totaling $354.6$405.7 million, or 42.7%.46.1%. Average securities increaseddecreased $6.6$10.2 million, or 2.0%,3.1%, to $334.5$322.8 million with ayields securitiesremaining torelatively assets ratio of 13%flat at March 31, 2026.3.79%. Average deposits increased $364.2$412.7 million, or 21.7%,23.6%, to $2.04$2.16 billion, led by increases in litigation related escrow or IOLTA, commercial money marketmarket, and noninterest bearing commercial demand deposits totaling $215.8$297.5 million, $96.9$90.0 million, and $42.0$19.1 million, respectively. Our cost of deposits, including noninterest bearing demand deposits, increased 65 basis points to 1.00%1.03% due to changes in deposit composition.

Interest Income. Interest income increased $7.5$7.8 million, or 23.9%,23.2%, to $39.0$41.3 million for the three months ended MarchJune 31,30, 2026 from $31.5$33.5 million for the three months ended MarchJune 31,30, 2025 and was attributable to increases in income on loans and securities,interest earning cash, offset slightly by a decrease in interest earning cashsecurities income.

Loan interest income increased $7.5$7.7 million, or 27.9%,26.6%, to $34.3$36.4 million for the three months ended MarchJune 31,30, 2026 from $26.8$28.8 million for the three months ended MarchJune 31,30, 2025. This increase was attributable to a $376.4$414.5 million, or 27.0%,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 $354.6$405.7 million, or 42.7%,46.1%, increasingsupporting total loan yields byof 5 basis points to 7.85%.7.78%. The increase in loan interest income was driven by an increase of $7.3$8.0 million related to growth in average loan volumes, led by litigation related commercial growth, andoffset $200by $392 thousand due to ana increasedecrease in average loan rates. Overall, the commercial loan portfolio average balance increased $323.6$354.5 million to $1.25$1.33 billion, driving average commercial loan yields to approximately 9%8.77% for the three months ended MarchJune 31,30, 2026.

Securities interest income increaseddecreased $136$81 thousand, or 4.5%,2.6%, to $3.2$3.0 million in the current quarter with $62a $95 thousand decrease attributable to average volume increasesdecreases, andoffset $74by an increase of $14 thousand attributable to increases in average rate. Average securities increaseddecreased $6.6$10.2 million, or 2.0%,3.1%, to $334.5$322.8 million with a securities to assets ratio of 13%12% at MarchJune 31,30, 2026.

Income on interest earning cash decreasedincreased $104$191 thousand to $1.6$1.8 million for the three months ended MarchJune 31,30, 2026 with $306 thousand due to decreases in short-term rates, offset by a $202$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 $20.5$53.1 million, or 13.2%,35.0%, to $176.3$205.0 million.

Interest Expense. Interest expense increased $1.1$1.3 million, or 28.8%,29.7%, to $5.0$5.6 million for the three months ended MarchJune 31,30, 2026 from $3.9$4.3 million for the three months ended MarchJune 31,30, 2025, with $1.1$1.4 million attributable to increases in average deposit balances (primarily commercial money market and litigation related escrow or IOLTA), andoffset $44by a decrease of $109 thousand attributable to increasesdecreases in rate as a result of changes in deposit composition (primarily money market). Average deposits increased $364.2$412.7 million, or 21.7%,23.6%, to $2.0$2.16 billion, led by increases in litigation related escrow or IOLTA, commercial money market, and noninterest bearing demand deposits totaling $215.8$297.5 million, $96.9$90.0 million, and $42.0$19.1 million, respectively.

Provision for Credit Losses. Our provision for credit losses was $2.7$2.9 million for the three months ended MarchJune 31,30, 2026, ana increasedecrease of $1.2$625 millionthousand from the $1.5$3.5 million provision for the three months ended MarchJune 31,30, 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 $3.2$4.4 million charge-offmultifamily loan, net of a $1.6 million charge-off, that was reported as wecriticized foreclosedin prior periods was placed on the property securing our one nonaccrual multifamily loan (totaling $7.8 million), recorded it as OREO, and sold the OREO to an unrelated third party.nonaccrual. As of MarchJune 31,30, 2026, our allowance to loans ratio was 1.30%1.30%, asconsistent compared to 1.37% as of March 31, 2025. The decrease inwith the allowanceprior asyear a percentage of loans was a result of management’s evaluation of credit risk in our multifamily portfolio subsequent to the above-mentioned transaction, which was partially offset by an increase in the general reserve considering loan growth, loan composition, and the current uncertain economic and short-term interest rate environment.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 MarchJune 31,30, 2026.

Payment processing income was $5.1 million for the quarter ended MarchJune 31,30, 2026, aconsistent $231 thousand increase fromwith 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 $421.7$432.6 million, or 4.6%,4.3%, to $9.7$10.6 billion while transactions volume totaled 137.3152.6 million for the quarter ended MarchJune 31,30, 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 $9.7$10.6 billion in volume across 137.3152.6 million transactions in the current quarter. ASP fee incomefees increased $257$449 thousand, or 29.2%,69.8%, to $1.1 million for the quarter ended MarchJune 31,30, 2026, and isare directly impacted by the average balances of off-balance sheetOBS sweep funds as well as current short-term market interest rates. Off-balance sheetOBS sweep funds totaled $1.0$1.03 billion at MarchJune 31,30, 2026, demonstrating our highly efficient, full service commercial relationships and tech-enabled cash management platform. Other income decreased $184$230 thousand, or 51.3%,58.2%, to $175$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.

Employee compensation and benefits costs increased $2.4 million, or 23.4%, primarily due to increases in year-end salaries, employee benefit costs,staffing, stock grants and related stock-based compensation, staffing, regional business development officer (“BDO”) incentive pay or (sales commissions,commissions) and year-end bonuses.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, we incurred one time compensation charges related to accelerated stock grant amortization totaling $398 thousand. 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 $1.3$1.1 million in the firstsecond 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 $4.9$5.1 million for the three months ended MarchJune 31,30, 2026, reflecting an effective tax rate of 28.6%,28.4%, compared to $4.1$3.4 million, or 26.5%,22.0%, for the three months ended MarchJune 31,30, 2025. The increase in the effective tax rate was primarily due to thecertain impactdiscrete oftax non-deductible mergerbenefits related costs.to share-based compensation in the prior year quarter.

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 MarchJune 31,30, 2026.

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 off-balance sheetOBS 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 MarchJune 31,30, 2026.

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 MarchJune 31,30, 2026, cash and cash equivalents totaled $222.2$242.2 million.

At MarchJune 31,30, 2026, through pledging of our securities and certain loans, we had the ability to borrow, on a secured basis, up to $475.1$477.6 million from the FHLB of New York and $46.5$45.0 million from the FRB of New York discount window. At MarchJune 31,30, 2026, we also had $29.0 million in aggregatedaggregate unsecured lines of credit with unaffiliated correspondent banks. No amounts were outstanding on any of the aforementioned lines as of MarchJune 31,30, 2026.

At MarchJune 31,30, 2026, our off-balanceOBS sheet sweepssweep funds totaled $1.00$1.03 billion, of which $330.4$392.5 million, or 33.0%,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 $1.10$1.19 billion at MarchJune 31,30, 2026, or 53%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 thanthen setas forth below.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.