ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the financial statements, which appear elsewhere in this Annual Report. You should read the information in this section in conjunction with the other business and financial information provided in this Annual Report.
Overview
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, and 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 areas (a subset of the New York and Los Angeles 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 income, 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.
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.
Proposed Signature Merger
On March 11, 2026, the Company, Esquire Merger Sub, Inc., a direct, wholly owned subsidiary of the Company (“Merger Sub”), and Signature Bancorporation, Inc. entered into an Agreement and Plan of Merger (as may be amended, modified or supplemented from time to time in accordance with its terms, the “merger agreement”), pursuant to which Esquire and Signature have agreed to combine their respective businesses.
Under the merger agreement, Merger Sub will merge with and into Signature, with Signature as the surviving entity (the “merger”), and immediately following the merger, Signature will merge with and into the Company, with the Company as the surviving entity (the “second step merger”). Immediately following the second step merger, Signature Bank, an Illinois-chartered non-member bank and a wholly owned subsidiary of Signature (“Signature Bank”), will merge with and into Esquire Bank, with Esquire Bank as the surviving bank (the “bank merger” and, together with the merger and the second step merger, the “mergers”).
Under the terms of the merger agreement, shareholders of Signature will receive a fixed exchange ratio of 2.63 shares of Esquire common stock for each share of Signature common stock, subject to adjustment. The per share value equates to $260.48 for Signature shareholders based on the closing price of Esquire common stock on March 11, 2026, or approximately $348.4 million in aggregate transaction value. The exchange ratio is subject to an adjustment based on the disposition value of certain Signature Bank loans with a total par value of approximately $70 million (“Schedule A Loans”). The adjusted exchange ratio at closing will be no higher than 2.80 and no lower than 2.50. Signature has initiated a sale process and is expected to dispose of Schedule A Loans prior to closing. The transaction remains subject to regulatory approval, approval of Esquire and Signature shareholders, and other customary closing conditions.
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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 this 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” 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 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 to a change in a key quantitative input.
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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 December 31, 2025, there was one collateral dependent multifamily loan secured by real estate totaling $7.8 million that was individually analyzed, 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.
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.
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Selected Financial Data
The following information is derived in part from the consolidated financial statements of Esquire Financial Holdings, Inc.
At or For the Years Ended December 31,
(Dollars in thousands, except share and per share data)
Balance Sheet Data:
Total assets
Cash and cash equivalents
Securities available-for-sale, at fair value
Securities held-to-maturity, at cost
Loans, held for investment
Total deposits
Total stockholders’ equity
Income Statement Data:
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Payment processing income
Other noninterest income
Total noninterest income
Employee compensation and benefits
Other expenses
Total noninterest expense
Net income before income taxes
Income tax expense
Net income
Per Share Data:
Earnings per share:
Basic
Diluted
Book value per share (1)
Tangible book value per share (2)
Selected Performance Ratios:
Return on average assets
Return on average equity
Interest rate spread
Net interest margin
Efficiency ratio (3)
Loan to deposit ratio
Average interest earning assets to average interest bearing liabilities
Average equity to average assets
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At or For the Years Ended December 31,
Asset Quality Ratios (Loans Held for Investment):
Allowance for credit losses to total loans
Allowance for credit losses to nonperforming loans (4)
Net charge-offs (recoveries) to average outstanding loans
Nonperforming loans to total loans (4)
Nonperforming loans to total assets (4)
Nonperforming assets to total assets (5)
Capital Ratios (Esquire Bank):
Total capital to risk weighted assets
Tier 1 capital to risk weighted assets
Tier 1 common equity to risk weighted assets
Tier 1 leverage capital ratio
Other:
Number of offices
Number of full-time equivalent employees
For purposes of computing book value per share, book value equals total common stockholders’ equity divided by total number of shares of common stock outstanding. Total common stockholders’ equity equals total stockholders’ equity, less preferred equity. Preferred equity was $0 as of the dates indicated.
The Company had no intangible assets as of the dates indicated. Thus, tangible book value per share is the same as book value per share for each of the periods indicated.
See “Non-GAAP Financial Measure Reconciliation” below for the computation of the efficiency ratio.
Nonperforming loans include nonaccrual loans, loans past due 90 days and still accruing interest and loans modified for borrowers experiencing financial difficulty.
Nonperforming assets include nonperforming loans, other real estate owned and other foreclosed assets.
Non-GAAP Financial Measure Reconciliation
The efficiency ratio is a non-GAAP measure of expense control relative to recurring revenue. We calculate the efficiency ratio by dividing total noninterest expenses excluding non-recurring items by the sum of total net interest income and total noninterest income as determined under GAAP, but excluding net gains on securities from this calculation and other non-recurring income sources, if applicable, which we refer to below as recurring revenue. We believe that this provides one reasonable measure of recurring expenses relative to recurring revenue.
We believe that this non-GAAP financial measure provides information that is important to investors and that is useful in understanding our financial position, results and ratios. However, this non-GAAP financial measure is supplemental and is not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for this measure, this presentation may not be comparable to other similarly titled measures by other companies.
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For the Years Ended December 31,
(Dollars in thousands)
Efficiency Ratio:
Net interest income
Noninterest income
Less: net gain on equity investments
Recurring revenue
Total noninterest expense
Efficiency ratio
Discussion and Analysis of Financial Condition for the Years Ended December 31, 2025 and 2024
Assets . Our total assets were $2.37 billion at December 31, 2025, an increase of $473.2 million from $1.89 billion at December 31, 2024, due to growth in loans held for investment of $361.4 million, or 25.9%, and increases in cash and cash equivalents of $109.6 million, or 86.7%.
Loan Portfolio Analysis. At December 31, 2025, loans were $1.76 billion, or 74.3% of total assets, compared to $1.40 billion, or 73.8% of total assets, at December 31, 2024. Our higher yielding variable rate commercial loans increased $325.0 million, or 35.3%, to $1.25 billion at December 31, 2025 from $920.6 million at December 31, 2024 where commercial litigation related loan growth was $342.5 million, or 41.0%, to $1.18 billion in 2025. Commercial real estate loans increased $20.3 million, or 23.3%, to $107.3 million at December 31, 2025 from $87.0 million at December 31, 2024. Multifamily loans increased $17.6 million, or 5.0%, to $372.8 million at December 31, 2025 from $355.2 million at December 31, 2024. Consumer loans increased $3.4 million or 17.7%, to $22.8 million at December 31, 2025 from $19.3 million at December 31, 2024. 1 – 4 family loans decreased $4.8 million, or 32.9%, to $9.8 million at December 31, 2025 from $14.7 million at December 31, 2024.
Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated.
December 31,
Amount
Percent
Amount
Percent
Amount
Percent
(Dollars in thousands)
Real estate:
Multifamily
Commercial real estate
1 – 4 family
Total real estate
Commercial
Consumer
Total loans held for investment
Deferred loan fees and unearned premiums, net
Allowance for credit losses
Loans held for investment, net
The following table sets forth the composition of our held for investment Litigation-Related Loan portfolio by type of loan at the dates indicated.
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December 31,
Amount
Percent
Amount
Percent
Amount
Percent
(Dollars in thousands)
Litigation-Related Loans:
Commercial Litigation-Related:
Working capital lines of credit
Case cost lines of credit
Term loans
Total Commercial Litigation-Related
Consumer Litigation-Related:
Post-settlement consumer loans
Structured settlement loans
Total Consumer Litigation-Related
Total Litigation-Related Loans
At December 31, 2025, our Litigation-Related Loans, which include commercial and consumer lending to attorneys, law firms and plaintiffs/claimants, totaled $1.18 billion, or 67.2% of our total loan portfolio, compared to $838.6 million at December 31, 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.
Litigation-Related post-settlement consumer loans increased $414 thousand to $3.1 million as of December 31, 2025, from $2.7 million as of December 31, 2024.
Loan Maturity. The following table sets forth certain information at December 31, 2025 regarding the contractual maturity of our held for investment loan portfolio. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. The table does not include any estimate of prepayments that could significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below.
Commercial
December 31, 2025
Multifamily
Real Estate
1 – 4 Family
Commercial
Consumer
Total
(In thousands)
Amounts due in:
One year or less
More than one to five years
More than five to fifteen years
More than fifteen years
Total
The following table sets forth fixed and adjustable-rate held for investment loans at December 31, 2025 that are contractually due after December 31, 2026.
Due After December 31, 2026
Fixed
Adjustable
Total
(In thousands)
Real estate:
Multifamily
Commercial real estate
1 – 4 family
Commercial
Consumer
Total
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At December 31, 2025, substantially all of our $1.25 billion commercial loans are variable rate and tied to prime, comprising approximately 71% of our loan portfolio. Additionally, approximately 90% of our commercial loans have interest rate floor protection as of December 31, 2025.
Nonperforming Assets
Nonperforming assets include loans that are 90 or more days past due or on nonaccrual status, including real estate and other loan collateral acquired through foreclosure and repossession. Loans 90 days or greater past due may remain on an accrual basis if adequately collateralized and in the process of collection.
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.
Nonperforming assets totaled $8.6 million as of December 31, 2025, and consisted of one multifamily loan totaling $7.8 million and 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 $10.9 million as of December 31, 2024.
The following table sets forth information regarding our nonperforming assets at the dates indicated.
December 31,
(Dollars in thousands)
Nonaccrual loans:
Multifamily
Commercial real estate
1 – 4 family
Commercial
Consumer
Total nonaccrual loans
Other real estate owned
Loans past due 90 days and still accruing
Total nonperforming assets
Total loans held for investment (1)
Total assets
Allowance for credit losses
Total nonaccrual loans to total loans
Total nonperforming assets to total assets
Allowance for credit losses to nonaccrual loans
Allowance for credit losses to nonperforming loans
Allowance for credit losses to total loans at end of the period (1)
Loans are presented before the allowance for credit losses and include net deferred loan fees and unearned premiums.
Allowance for Credit Losses
Please see “— Critical Accounting Policies — Allowance for Credit losses” for additional discussion of our allowance policy.
The allowance for credit losses is maintained at levels considered adequate by management to provide for probable credit losses inherent in the loan portfolio as of the Consolidated Statements of Financial Condition reporting dates. The
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allowance for credit losses is based on management’s assessment of various factors affecting the loan portfolio, including portfolio composition, delinquent and nonaccrual loans, national and local business conditions and loss experience and an overall evaluation of the quality of the underlying collateral.
The following table sets forth activity in our allowance for credit losses for the periods indicated.
Years Ended December 31,
(In thousands)
Allowance at beginning of year
Impact of CECL adoption
Provision for credit losses
Charge-offs:
Multifamily
Commercial real estate
1 – 4 family
Commercial
Consumer
Total charge-offs
Recoveries:
Multifamily
Commercial real estate
1 – 4 family
Commercial
Consumer
Total recoveries
Allowance at end of year
The following table presents average loans and credit loss experience for the periods indicated.
Years Ended December 31,
Net
Net
Net
Charge-offs
Charge-offs
Charge-offs
Average
Net
to Average
Average
Net
to Average
Average
Net
to Average
Loans (1)
Charge-offs
Loans
Loans (1)
Charge-offs
Loans
Loans (1)
Charge-offs
Loans
(Dollars in thousands)
Multifamily
Commercial real estate
1 – 4 family
Commercial
Consumer
Total
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Excludes net deferred loan fees and unearned premiums.
Allocation of Allowance for Credit losses. The following tables set forth the allowance for credit losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated. The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
December 31,
Percent of
Percent of
Percent of
Percent of
Percent of
Percent of
Allowance
Loans in
Allowance
Loans in
Allowance
Loans in
for Credit
Each
for Credit
Each
for Credit
Each
Allowance
Losses to
Category
Allowance
Losses to
Category
Allowance
Losses to
Category
for Credit
Total
to Total
for Credit
Total
to Total
for Credit
Total
to Total
Losses
Allowance
Loans
Losses
Allowance
Loans
Losses
Allowance
Loans
(Dollars in thousands)
Multifamily
Commercial real estate
1 – 4 family
Commercial
Consumer
Total allocated allowance
At December 31, 2025, special mention and substandard loans totaled $12.3 million and $8.6 million, respectively, compared to $4.0 million and $10.9 million, respectively, as of December 31, 2024. The $8.3 million increase in special mention balances primarily relates to law firm related commercial loans totaling $6.3 million and a $6.0 million multifamily loan (to the same sponsor as the $7.8 million nonaccrual substandard loan) offset by the transfer of a non-litigation related loan to substandard. Loans rated special mention and substandard totaled $4.0 million and $10.9 million, respectively, as of December 31, 2023. Substandard loans were driven by the one nonaccrual multifamily loan as of December 31, 2023.
Our special mention and substandard loans as a percentage of loans was 0.7% and 0.5% as of December 31, 2025, respectively, and 0.3% and 0.8% as of December 31, 2024, respectively. Our special mention and substandard loans as a percentage of loans was 0.3% and 0.9% as of December 31, 2023, respectively. The ratio of nonperforming loans to total loans and total assets was 0.49% and 0.36%, respectively, as of December 31, 2025, as compared to 0.78% and 0.58%, respectively, as of December 31, 2024. The ratio of nonperforming loans to total loans and total assets was 0.91% and 0.68%, respectively, as of December 31, 2023.
The allowance for credit losses to nonperforming loans was 280% as of December 31, 2025, as compared to 192% as of December 31, 2024. The allowance for credit losses to nonperforming loans was 152% as of December 31, 2023. The allowance for credit losses as a percentage of loans was 1.37% and 1.50% as of December 31, 2025 and 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.
Although we believe that we use the best information available to establish the allowance for credit losses, future adjustments to the allowance for credit losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for credit losses in conformity with generally accepted accounting principles in the United States of America, there can be no assurance that regulators, in reviewing our loan portfolio, will not require us to increase our allowance for credit losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for credit losses is adequate or that
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increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for credit losses may adversely affect our financial condition and results of operations.
Payment Processing Credit Risk
From a payment processing perspective, we continuously evaluate credit exposure, primarily defined as merchant returns and chargebacks, by merchant industry type and category. We have also assessed the level and adequacy of our ISO and merchant reserves held on deposit at Esquire Bank. Currently, based on our assessments, we have not identified any elevated credit risk and our returns and chargeback ratios are within normal levels and commensurate to the merchant portfolio risk profile.
Debt Securities Portfolio
At December 31, 2025 and 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, supported by 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 portfolio amortization and totaled $60.2 million at December 31, 2025, as compared to $68.7 million at December 31, 2024.
Management evaluates securities available-for-sale in unrealized loss positions to determine whether the impairment is due to credit-related factors. Due to the decline in fair value being attributable to changes in interest rates, not credit quality and because the Company does not have the intent to sell the securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider the securities to be impaired at December 31, 2025.
As of December 31, 2025 and December 31, 2024, none of the Company’s available-for-sale securities were in an unrealized loss position due to credit, and therefore no allowance for credit losses on available-for-sale securities was required. Additionally, there was no allowance for credit losses on securities held-to-maturity due to the high credit quality composition consisting of issuances from government sponsored agencies.
No impairment charges were recorded for the years ended December 31, 2025, 2024 and 2023.
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Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio at December 31, 2025, are summarized in the following table. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or early redemptions that may occur. No tax-equivalent yield adjustments have been made as we have no tax free interest earning assets.
December 31, 2025
More Than One Year
More Than Five Years
One Year or Less
through Five Years
Through Ten Years
More Than Ten Years
Total
Weighted
Weighted
Weighted
Weighted
Weighted
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
(Dollars in thousands)
Securities available-for-sale:
Mortgage backed securities-agency
Collateralized mortgage obligations-agency
Total securities available-for-sale
Securities held-to-maturity:
Collateralized mortgage obligations-agency
Total securities held-to-maturity
Deposits
Total deposits increased $420.8 million, or 25.6%, to $2.06 billion at December 31, 2025 from $1.64 billion at December 31, 2024, primarily due to our focus on 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 $2.06 billion at December 31, 2025, or 99.7% of total deposits at that date. Certificates of deposit totaled $6.2 million at December 31, 2025, or 0.3% of total deposits at that date.
The following tables set forth the distribution of average deposits by account type at the dates indicated.
Years Ended December 31,
Average
Average
Average
Average
Average
Average
Balance
Percent
Cost
Balance
Percent
Cost
Balance
Percent
Cost
(Dollars in thousands)
Demand (noninterest bearing)
Savings, NOW and Money Market
Time
Total deposits
Our deposit strategy primarily focuses 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, rather than competing with other institutions on rate. As of December
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31, 2025, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000) was $685.1 million, or 33.2%, of our total Bank deposits of $2.06 billion, excluding $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, 2025, our off-balance sheet sweeps funds totaled $736.6 million, of which $449.0 million, or 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 efficient, full service commercial relationships and tech-enabled cash management platform.
As of December 31, 2024, the aggregate amount of uninsured deposits was $463.9 million, or 28.2%, of our total Bank deposits of $1.64 billion, excluding $12.4 million of the Company’s deposits held by the Bank. 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, 2025, the Company had approximately $1.23 billion 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, 2025, the aggregate amount of our uninsured certificates of deposit was $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, 2025.
December 31, 2025
(In thousands)
Maturing period:
Three months or less
Over three months through six months
Over six months through twelve months
Over twelve months
Total
Borrowings
At December 31, 2025, we had the ability to borrow a total of $455.5 million from the FHLB. We also had a borrowing capacity with the FRB discount window of $48.1 million. At December 31, 2025, 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 December 31, 2025 and December 31, 2024.
Stockholders’ Equity
Total stockholders’ equity increased $52.5 million, or 22.1%, to $289.6 million at December 31, 2025, from $237.1 million at December 31, 2024. The increase for the year ended December 31, 2025 was primarily due to net income of $50.8 million, 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 $5.0 million, partially offset by dividends declared to common stockholders of $6.0 million, and shares from employees related to income tax withholding on share-based compensation of $4.0 million.
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Average Balance Sheets and Related Yields and Rates
The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the years ended December 31, 2025, 2024 and 2023. 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 adjustments have been made as we have no tax exempt investments.
Years Ended December 31,
Average
Average
Average
Average
Average
Average
Balance
Interest
Yield/Cost
Balance
Interest
Yield/Cost
Balance
Interest
Yield/Cost
(Dollars in thousands)
INTEREST EARNING ASSETS
Loans held for investment
Securities, includes restricted stock
Securities purchased under agreements to resell
Interest earning cash and other
Total interest earning assets
NONINTEREST EARNING ASSETS
TOTAL AVERAGE ASSETS
INTEREST BEARING LIABILITIES
Savings, NOW, money market deposits
Time deposits
Total deposits
Borrowings
Total interest bearing liabilities
NONINTEREST BEARING LIABILITIES
Demand deposits
Other liabilities
Total noninterest bearing liabilities
Stockholders' equity
TOTAL AVG. LIABILITIES AND EQUITY
Net interest income
Net interest spread
Net interest margin
Deposits (including nonint. demand deposits)
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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.
Years Ended
December 31,
Increase
Total
(Decrease) due to
Increase
Volume
Rate
(Decrease)
(In thousands)
Interest earned on:
Loans held for investment
Securities, includes restricted stock
Interest earning cash and other
Total interest income
Interest paid on:
Savings, NOW, money market deposits
Time deposits
Total deposits
Borrowings
Total interest expense
Change in net interest income
Years Ended
December 31,
Increase
Total
(Decrease) due to
Increase
Volume
Rate
(Decrease)
(In thousands)
Interest earned on:
Loans held for investment
Securities, includes restricted stock
Securities purchased under agreements to resell
Interest earning cash and other
Total interest income
Interest paid on:
Savings, NOW, money market deposits
Time deposits
Total deposits
Borrowings
Total interest expense
Change in net interest income
Comparison of Operating Results for the Years Ended December 31, 2025 and 2024
General. Net income increased $7.2 million, or 16.4%, to $50.8 million for the year ended December 31, 2025 from $43.7 million for the year ended December 31, 2024. The increase resulted from a $21.6 million increase in net interest
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income, and a decrease in tax expense of $793 thousand, partially offset by an increase in noninterest expense of $10.4 million and in increase in the provision for credit losses of $5.0 million.
Net Interest Income. Net interest income increased $21.6 million, or 21.6%, to $121.5 million for the year ended December 31, 2025 from $99.9 million for the year ended December 31, 2024, due to a $26.0 million increase in interest income, partially offset by a $4.5 million increase in interest expense.
Our net interest margin decreased 4 basis points to 6.02% for the year ended December 31, 2025 from 6.06% for the year ended December 31, 2024, primarily due to elevated average interest earning cash balances of $49.1 million that negatively impacted our net interest margin by approximately 8 basis points. Average loan yields increased 9 basis points to 7.91% while average loans increased $253.1 million, or 20.1%, to $1.51 billion, led by higher yielding litigation related loan growth of $253.7 million, or 37.2%. Average securities increased $67.5 million, or 25.4%, to $333.3 million and securities yields increased by 53 basis points to 3.78%. Average deposits increased $340.2 million, or 23.2%, to $1.81 billion, led by increases in litigation related escrow or IOLTA, money market (primarily commercial), and noninterest bearing commercial demand deposits totaling $208.4 million, $80.4 million, and $60.0 million, respectively. Our cost of deposits, including noninterest bearing demand deposits, increased 8 basis points to 0.99% due to changes in deposit composition.
Interest Income. Interest income increased $26.0 million, or 23.0%, to $139.4 million for the year ended December 31, 2025 from $113.4 million for the year ended December 31, 2024 and was attributable to increases in income on loans, securities and interest earning cash.
Loan interest income increased $21.1 million, or 21.4%, to $119.6 million for the year ended December 31, 2025 from $98.5 million for the year ended December 31, 2024. This increase was attributable to a $253.1 million, or 20.1%, increase in the average loan balance primarily due to commercial loan growth focused in our higher yielding litigation related loans that grew $253.7 million, or 37.2%, increasing total loan yields by 9 basis points to 7.91%. The increase in loan interest income was driven by an increase of $20.0 million related to growth in average loan volumes (substantially all litigation related commercial loans) and $1.1 million due to increases in average loan rates. Overall, the commercial loan portfolio average balance increased $235.4 million to $1.02 billion, driving commercial loan yields to 9.37% for the year ended December 31, 2025.
Securities interest income increased $4.0 million, or 45.9%, to $12.6 million for the year ended December 31, 2025 from $8.6 million for the year ended December 31, 2024 with $2.4 million attributable to average volume increases and $1.5 million attributable to increases in average rate. Average securities increased $67.5 million, or 25.4%, to $333.3 million and securities yields increased by 53 basis points to 3.78%.
Income on interest earning cash increased $964 thousand, to $7.2 million for the year ended December 31, 2025 with $2.2 million attributable to average volume increases (funded with core deposits), offset by $1.2 million due to decreases in short-term rates. Average interest earning cash balances increased $49.1 million, or 39.7%, to $172.9 million, negatively impacting our net interest margin by approximately 8 basis points as cash is one of our lowest yielding assets at 4.19% .
Interest Expense. Interest expense increased $4.5 million, or 33.4%, to $17.9 million for the year ended December 31, 2025 from $13.4 million for the year ended December 31, 2024, with $3.9 million attributable to increases in average deposit balances (primarily commercial money market and litigation related escrow or IOLTA), as well as a $635 thousand increase due to changes in deposit composition. Average deposits increased $340.2 million, or 23.2%, to $1.81 billion, led by increases in litigation related escrow or IOLTA, commercial money market and noninterest bearing demand deposits totaling $208.4 million, $80.4 million, and $60.0 million, respectively.
Provision for Credit losses. Our provision for credit losses increased $5.0 million to $9.7 million for the year ended December 31, 2025 from $4.7 million for the year ended December 31, 2024. This increase was driven by $6.6 million in net charge-offs primarily comprised of (1) a small business merchant related commercial loan charge-off totaling $3.3 million ($736 thousand on nonaccrual as of December 31, 2025) in the second quarter of 2025; and (2) a multifamily loan charge-off totaling $2.9 million in the first quarter of 2025 ($7.8 million on nonaccrual as of December 31, 2025). As of December 31, 2025, our allowance to loans ratio was 1.37% as compared to 1.50% as of December 31, 2024. Based on
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management’s evaluation of current credit risk in our commercial real estate and commercial portfolios as well as increases in the general reserves considering loan growth, loan composition, and the current uncertain economic and short-term interest rate environment, management believes the allowance for credit losses is adequate at December 31, 2025.
Noninterest Income. Noninterest income information is as follows:
Year Ended
December 31,
Change
Amount
Percent
(Dollars in thousands)
Payment processing fees:
Payment processing income
ACH income
Total payment processing fees
Customer related fees, service charges and other:
Administrative service income
Gain on equity investment
Other
Total customer related fees, service charges and other
Total noninterest income
Payment processing income was $20.2 million for the year ended December 31, 2025, a $660 thousand decrease from the same period in 2024, 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 $3.1 billion, or 8.6%, to $39.5 billion while transactions volume totaled 590.4 million for the year ended December 31, 2025. ASP fee income increased $257 thousand to $3.0 million for the year ended December 31, 2025 as compared to the same period in 2024. ASP fee income is directly impacted by the average balances of off-balance sheet sweep funds as well as current short-term market interest rates. Other income increased $156 thousand, or 12.2%, to $1.4 million due to increases in loan and other banking fees. For the year ended December 31, 2025, the Company recognized a $432 thousand gain on certain equity investments.
Noninterest Expense. Noninterest expense information is as follows:
Year Ended
December 31,
Change
Amount
Percent
(Dollars in thousands)
Noninterest expense:
Employee compensation and benefits
Occupancy and equipment
Professional and consulting services
FDIC and regulatory assessments
Advertising and marketing
Travel and business relations
Data processing
Other operating expenses
Total noninterest expense
Employee compensation and benefits costs increased primarily due to increases in regional BDO incentive pay or sales commissions, year-end bonuses, employee benefit costs, stock grants and related stock-based compensation, and, to a lesser extent, the impact of year end salary increases and employee hires. The increase in BDO incentive pay is directly tied to our litigation related/commercial loan and core deposit growth, attracting full-service commercial banking clients nationally. Data processing costs increased 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. Professional and consulting services costs increased due to continuously evaluating business development opportunities,
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increased insurance and accounting costs, and costs related to staffing needs, including our new Los Angeles branch. Occupancy and equipment costs increased due to the replacement and accelerated amortization of certain internally developed software to support our digital marketing and risk management platforms and costs related to our new Los Angeles branch. Travel and business relations expenses increased resulting from our high touch sales efforts that complement our digital marketing efforts and additional travel related to the opening and associated training for our new Los Angeles branch.
Income Tax Expense. We recorded income tax expense of $14.8 million for the year ended December 31, 2025, reflecting an effective tax rate of 22.6%, compared to $15.6 million, or an effective tax rate of 26.4%, for the year ended December 31, 2024. The decrease in effective tax rate resulted from certain discrete tax benefits related to share-based compensation.
Comparison of Operating Results for the Years Ended December 31, 2024 and 2023
General. Net income increased $2.6 million, or 6.5%, to $43.7 million for the year ended December 31, 2024 from $41.0 million for the year ended December 31, 2023. The increase resulted from a $16.2 million increase in net interest income, partially offset by an increase in noninterest expense of $7.7 million and a decrease in noninterest income of $4.9 million.
Net Interest Income. Net interest income increased $16.2 million, or 19.3%, to $99.9 million for the year ended December 31, 2024 from $83.8 million for the year ended December 31, 2023, due to a $21.5 million increase in interest income, partially offset by a $5.3 million increase in interest expense.
Our net interest margin decreased 3 basis points to 6.06% for the year ended December 31, 2024 from 6.09% for the year ended December 31, 2023. Our net interest margin was positively impacted by growth in higher yielding variable rate commercial loans and growth in lower-cost escrow or IOLTA deposits nationally. Interest earning asset yields increased 20 basis points, primarily due to growth in higher yielding variable rate commercials loans and the cost of interest bearing liabilities increased 29 basis points, due to increases in short-term interest rates as well as management proactively increasing rates on IOLTA accounts in certain states where we operate. Interest earning asset growth was primarily funded by a $200.1 million, or 33.7%, increase in average IOLTA deposits to $793.7 million for the year ended December 31, 2024 from $593.6 million for the year ended December 31, 2023.
Interest Income. Interest income increased $21.5 million, or 23.4%, to $113.4 million for the year ended December 31, 2024 from $91.9 million for the year ended December 31, 2023 and was attributable to an increase in loan, securities, interest earning cash and other. In early 2024, management elected to temper multifamily and commercial real estate loan growth in response to the economic environment and has ratably purchased short duration agency mortgage backed securities with commensurate risk adjusted yields, enhancing our liquidity while improving the securities to total assets ratio to 17%.
Loan interest income increased $17.3 million, or 21.3%, to $98.5 million for the year ended December 31, 2024 from $81.2 million for the year ended December 31, 2023. This increase was attributable to a $207.0 million, or 19.7%, increase in the average loan balance primarily due to growth in our higher yielding national litigation lending platform and, to a lesser extent, our regional multifamily loan portfolio as we tempered multifamily production as a matter of strategy in 2024, and a 10 basis point increase in loan yields to 7.82%. Our commercial loan platform drove a $15.1 million increase in interest income, of which $16.1 million was due to higher average loan balances, offset by a $933 thousand decrease due to a yield decrease of 15 basis points, driving a portfolio yield of 9.72%. Additionally, our multifamily platform contributed $3.1 million to the increase in interest income, of which, $1.8 million was due to increased volume and $1.2 million was due to a 38 basis point increase in yields, driving a portfolio yield of 4.29%. Approximately 66% of our loan portfolio is comprised of variable rate commercial loans tied to prime that were positively impacted by increases in short-term interest rates.
Securities interest income increased $3.6 million, or 72.0%, to $8.6 million for the year ended December 31, 2024 from $5.0 million for the year ended December 31, 2023. This increase was attributable to an 87 basis point increase in yields, driven by our investing strategy of deploying excess cash flow into short duration agency mortgage-backed
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securities while tempering our real estate lending, as well as a $54.9 million, or 26.1%, increase in average securities balances. The increase in securities income was comprised of a $2.1 million increase as a result of the increases in average rate and a $1.5 million increase due to increases in average balance.
Interest earning cash and other interest income increased $2.1 million, to $6.3 million for the year ended December 31, 2024 from $4.2 million for the year ended December 31, 2023. This increase was attributable to a 21 basis point increase in yields driven by the movement in short-term interest rates.
Securities purchased under agreements to resell interest income decreased $1.5 million, or 100.0%, to $0 for the year ended December 31, 2024 from $1.5 million for the year ended December 31, 2023. In the third quarter of 2023, management elected to close out its reverse repurchase agreements and reinvest these funds into higher yielding commercial loans.
Interest Expense. Interest expense increased $5.3 million, or 65.7%, to $13.4 million for the year ended December 31, 2024 from $8.1 million for the year ended December 31, 2023, primarily attributable to increases in average rate (primarily IOLTA) comprising $3.4 million of the increase and the remaining increase of $2.0 million (primarily IOLTA) attributable to average deposit balances. Average interest bearing deposit balances (primarily IOLTA) increased $230.0 million, or 31.6%, to $958.2 million, when compared to December 31, 2023. Our deposit cost-of-funds, excluding demand deposits, increased 29 basis points for the year ended December 31, 2024 as compared to the year ended December 31, 2023, due to increases in short-term interest rates as well as management proactively increasing rates on IOLTA accounts in the various states we operate.
Provision for Credit losses. Our provision for credit losses was $4.7 million for the year ended December 31, 2024 compared to $4.5 million for the year ended December 31, 2023. This increase was general reserve driven considering loan growth and qualitative factors associated with the current short-term interest rate environment as well as the current uncertain economic environment including, but not limited to, its potential impact on the New York metro multifamily commercial real estate market.
Noninterest Income. Noninterest income information is as follows:
Years Ended
December 31,
Change
Amount
Percent
(Dollars in thousands)
Payment processing fees:
Payment processing income
ACH income
Total payment processing fees
Customer related fees, service charges and other:
Administrative service income
Net gain on equity investments
Other
Total customer related fees, service charges and other
Total noninterest income
Payment processing income was $20.9 million in 2024, a $1.4 million decrease when compared to 2023, primarily due to anticipated ISO attrition and changes in our overall merchant risk profile. Payment processing volumes and transactions for the credit and debit card processing platform increased $3.3 billion, or 10.0%, to $36.3 billion and transactions decreased 9.0 million, or 1.5%, to 603.7 million transactions, respectively, for the year ended December 31, 2024, as compared to the same period in 2023. We continue to focus on the expansion of sales channels through ISOs, prudently managing risk while focusing on new merchant originations, increasing overall volumes as well as risk profiles, and expanding our technology and other resources in this vertical. The Company utilizes proprietary and industry leading customized technology to ensure card brand and regulatory compliance, supports multiple processing platforms, manages
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daily risk across 88,000 small business merchants in all 50 states, and performed commercial treasury clearing services for $36.3 billion in volume across 603.7 million transactions in 2024. Administrative service income increased $271 thousand, or 11.0%, to $2.7 million for the year ended December 31, 2024. Off-balance sheet sweep funds totaled $554.4 million at December 31, 2024, demonstrating the continued strength of our branchless core business model. Other income increased $327 thousand, or 34.2%, to $1.3 million primarily due to loan and other banking related fees. Net gain on equity investments decreased $4.0 million due to a nonrecurring gain on our Litify fintech investment in the first quarter of 2023. In 2023, Litify, Inc. (“Litify”) was reorganized into a partnership and an unrelated third party acquired a majority ownership in the reorganized entity. As an equity holder and party to the reorganization and sale transaction, a majority of the Company’s partnership interests were exchanged for cash and undiscounted noncash consideration of approximately $5.3 million. As a result, the Company recognized a gain on its investment of $4.0 million in 2023. In 2024, the Company received cash consideration resulting in a realized gain on its Litify investment of approximately $500 thousand, offset by an equity method loss of approximately $500 thousand recognized on its investment in a third party sponsored NFL consumer post settlement loan fund.
Noninterest Expense. Noninterest expense information is as follows:
Years Ended
December 31,
Change
Amount
Percent
(Dollars in thousands)
Noninterest expense:
Employee compensation and benefits
Occupancy and equipment
Professional and consulting services
FDIC and regulatory assessments
Advertising and marketing
Travel and business relations
Data processing
Other operating expenses
Total noninterest expense
Employee compensation and benefits costs increased due to the full year’s impact of key hires (throughout 2023) to support future growth and excellence in client service as well as the impact of year end salary increases, bonuses, incentive pay to BDOs, and stock-based compensation increases. During 2024, we experienced the full year impact of our 2023 key hires including, but not limited to, our regional senior BDOs, sales support, lending underwriting/lending support, and risk management staffing initiatives. Advertising and marketing costs increased as we continued to advance our digital marketing platform across our commercial litigation platform nationally, expand our thought leadership in this national vertical, and directly support our regional BDOs with targeted ABM campaigns. Data processing costs increased due to increases in core banking processing volumes and additional costs related to enhanced risk management systems and other technology implementations. Occupancy and equipment costs increased due to amortization of internally developed software to support our digital marketing and risk management platforms and additional office space to support growth. Professional services costs decreased primarily due to our 2023 hiring initiatives noted above and related costs associated with the executive search firm utilized. Our investment in current resources has and will continue to support our future growth.
Income Tax Expense. We recorded income tax expense of $15.6 million for the year ended December 31, 2024, reflecting an effective tax rate of 26.4%, compared to $14.9 million, or an effective tax rate of 26.6%, for the year ended December 31, 2023.
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
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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.
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 twelve-month periods beginning December 31, 2025.
December 31,
Estimated
Changes in
12-Months
Interest Rates
Net Interest
(Basis Points)
Income
Change
(Dollars in thousands)
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 sheet 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.
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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 as of December 31, 2025.
December 31,
Changes in
Economic
Interest Rates
Value of
(Basis Points)
Equity
Change
(Dollars in thousands)
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.
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-and intermediate-term 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 December 31, 2025 and 2024, cash and cash equivalents totaled $235.9 million and $126.3 million, respectively.
At December 31, 2025, through pledging of our securities and certain loans, we had the ability to borrow a total of $455.5 million from the FHLB and $48.1 million from the FRB discount window. At December 31, 2025, we also had $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, 2025.
At December 31, 2025, our off-balance sheet sweeps funds totaled $736.6 million, of which $449.0 million, or 61.0%, was able to be swept on balance sheet as reciprocal client relationship deposits.
Our overall liquidity position (cash, borrowing capacity, and available reciprocal client sweep balances) totaled $1.22 billion at December 31, 2025, or 59.0% 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 than set forth below. 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, other correspondent bank lines or obtain additional funds through reciprocal deposits.
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Esquire Bank is subject to various regulatory capital requirements administered by Office of the Comptroller of the Currency (the “OCC”), and the Federal Deposit Insurance Corporation. At December 31, 2025 and 2024, 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 December 31, 2025
Total Risk-based Capital Ratio
Bank
Tier 1 Risk-based Capital Ratio
Bank
Common Equity Tier 1 Capital Ratio
Bank
Tier 1 Leverage Ratio
Bank
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 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.
