Q2 2026 Esquire Financial Holdings Inc Earnings Call

July 23, 2026

Operator: Hello, everyone. Thank you for joining us, welcome to the Esquire Financial Holdings Q2 2026 Earnings Release Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Andrew Sagliocca, CEO, Vice Chairman, and President. Andrew, please go ahead.

Operator: Hello, everyone. Thank you for joining us, welcome to the Esquire Financial Holdings Q2 2026 Earnings Release Conference Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Andrew Sagliocca, CEO, Vice Chairman, and President. Andrew, please go ahead.

Speaker #1: If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Andrew Sagliocca, CEO, Vice Chairman, and President.

Speaker #1: Andrew, please go ahead.

Speaker #2: Thank you, Paige. I want to let everyone know on the call that I'm joined in the room with Michael LaCapria, our SVP and Chief Financial Officer.

Andrew Sagliocca: Thank you, Paige. I want to let everyone know on the call that I'm joined in the room with Michael LaCapria, our SVP and Chief Financial Officer, as well as Eric Bader, our EVP and Chief Operating Officer. I'd like to start by thanking everybody and welcoming everybody to the investor call, including our current investors, analysts, board members, and employees, as well as our business partners and Signature stakeholders, including their board, employees, and investors, too. As Paige indicated, I'm going to kick off this call with some high-level thoughts and comments, then turn it over to Michael for a financial update, and then we can address any questions that any of the callers have. As highlighted in the earnings release, the Signature merger is scheduled to close on 1 August 2026.

Andrew Sagliocca: Thank you, Paige. I want to let everyone know on the call that I'm joined in the room with Michael Lacapria, our SVP and Chief Financial Officer, as well as Eric Bader, our EVP and Chief Operating Officer. I'd like to start by thanking everybody and welcoming everybody to the investor call, including our current investors, analysts, board members, and employees, as well as our business partners and Signature stakeholders, including their board, employees, and investors, too. As Paige indicated, I'm going to kick off this call with some high-level thoughts and comments, then turn it over to Michael for a financial update, and then we can address any questions that any of the callers have. As highlighted in the earnings release, the Signature merger is scheduled to close on 1 August 2026.

Speaker #2: As well as Eric Bader, our EVP and Chief Operating Officer. I'd like to start by thanking everybody and welcome everybody to the Investor Call, including our current investors, analysts, board members, and employees.

Speaker #2: As well as our business partners and signature stakeholders, including their board, employees, and investors, too. As Paige indicated, I'm going to kick off this call with some high-level thoughts and comments, then turn it over to Michael for a financial update, and then we can address any questions that any of the callers have.

Speaker #2: As highlighted in the earnings release, the signature merger is scheduled to close on August 1, 2026. The Chicago Metro market represents one of the top three largest markets in the country, including New York City and Los Angeles.

Andrew Sagliocca: The Chicago metro market represents one of the top three largest markets in the country, including New York City and Los Angeles, for both population and contingent fee law firms, which is our primary focus or vertical. As we previously noted, we believe the Signature merger will accelerate growth in the Chicago and Midwest markets in the future, where Esquire, on a standalone basis, currently underserves this very robust metro area. This is primarily because Signature has a well-established and well-known Chicago-based management team and brand. If we couple this with Esquire's deep understanding of this extremely large, complex, and fragmented national litigation vertical, which is approximately half a trillion dollars a year in settlements, we believe the combined company with its strong brand, culture, and foundation will drive sustained growth, industry-leading performance metrics, and industry-leading returns in the future.

Speaker #2: For both population and contingent fee law firms, which is our primary focus or vertical, as we previously noted, we believe the Signature merger will accelerate growth in the Chicago and Midwest markets.

Speaker #2: In the future, where Esquire on a standalone basis currently underserves this very robust metro area. This is primarily because Signature has a well-established and well-known Chicago-based management team and brand.

Speaker #2: And if we couple this with Esquire's deep understanding of this extremely large, complex, and fragmented national litigation vertical—which is approximately $500 billion a year in settlements—we believe the combined company, with its strong brand, culture, and foundation, will drive sustained growth, industry-leading performance metrics, and industry-leading returns in the future.

Speaker #2: With that said, I'll turn it over to Michael to give you a financial update for the second quarter. Michael?

Andrew Sagliocca: With that said, I'll turn it over to Michael to give you a financial update for Q2. Michael?

Speaker #3: Thank you, Andrew. To those joining us on the call, I will provide a brief overview of our second quarter financial results. As highlighted in our earnings release, an investor presentation published earlier this morning.

Michael LaCapria: Thank you, Andrew. To those joining us on the call, I will provide a brief overview of our Q2 financial results, as highlighted in our earnings release and investor presentation published earlier this morning. For the current quarter, we printed GAAP net income of $13 million, or $1.49 per diluted share. These results included approximately $1.1 million of pre-tax merger-related expenses associated with our acquisition of Signature Bank Corporation. Excluding these expenses, adjusted net income totaled $14 million, or $1.60 per diluted share. Adjusted earnings increased 16% as compared to the prior year quarter, demonstrating continued strength across our business as we also continue to invest in our platform. Our average returns on assets and average equity were 2.09% and 17.06% respectively. Excluding merger-related expenses, adjusted returns on average assets and equity were 2.25% and 18.33% respectively.

Michael Lacapria: Thank you, Andrew. To those joining us on the call, I will provide a brief overview of our Q2 financial results, as highlighted in our earnings release and investor presentation published earlier this morning. For the current quarter, we printed GAAP net income of $13 million, or $1.49 per diluted share. These results included approximately $1.1 million of pre-tax merger-related expenses associated with our acquisition of Signature Bank Corporation. Excluding these expenses, adjusted net income totaled $14 million, or $1.60 per diluted share. Adjusted earnings increased 16% as compared to the prior year quarter, demonstrating continued strength across our business as we also continue to invest in our platform. Our average returns on assets and average equity were 2.09% and 17.06% respectively. Excluding merger-related expenses, adjusted returns on average assets and equity were 2.25% and 18.33% respectively.

Speaker #3: For the current quarter, we printed gap net income of $13 million or $1.49 per diluted share. These results included approximately $1.1 million of pre-tax merger-related expenses associated with our acquisition of signature bank corporation.

Speaker #3: Excluding these expenses, adjusted net income totaled $14 million or $1.60 per diluted share. Adjusted earnings increased 16% as compared to the prior year quarter, demonstrating continued strength across our business as we also continue to invest in our platform.

Speaker #3: Our average returns on assets and average equity were 2.09% and 17.06% respectively, excluding merger-related expenses. Adjusted returns on average assets and equity were 2.25% and 18.33% respectively.

Speaker #3: These results reflect the pace of our profitable growth and our operational efficiencies. Our net interest margin remained resilient at 596 basis points, despite the significant decline in short-term interest rates from peak levels experienced over the past several years.

Michael LaCapria: These results reflect the pace of our profitable growth and our operational efficiencies. Our net interest margin remained resilient at 596 basis points. That's despite the significant decline in short-term interest rates from peak levels experienced over the past several years. Further, our margin was negatively impacted by approximately 10 basis points due to elevated interest earning cash balances funded by our core deposit franchise. Loan growth remained exceptionally strong. On a linked quarter basis, total loans increased $87.2 million, or 19% annualized, reaching $1.9 billion, while experiencing $76.1 million in loan payoffs during the quarter. This growth was driven by commercial loan and real estate loan production of $61.6 million and $25.6 million, respectively. As it relates to our litigation loan portfolio, we saw $72.6 million, or 24% annualized net growth, bringing our litigation book to $1.29 billion at a blended yield of 8.8%.

Michael Lacapria: These results reflect the pace of our profitable growth and our operational efficiencies. Our net interest margin remained resilient at 596 basis points. That's despite the significant decline in short-term interest rates from peak levels experienced over the past several years. Further, our margin was negatively impacted by approximately 10 basis points due to elevated interest earning cash balances funded by our core deposit franchise. Loan growth remained exceptionally strong. On a linked quarter basis, total loans increased $87.2 million, or 19% annualized, reaching $1.9 billion, while experiencing $76.1 million in loan payoffs during the quarter. This growth was driven by commercial loan and real estate loan production of $61.6 million and $25.6 million, respectively. As it relates to our litigation loan portfolio, we saw $72.6 million, or 24% annualized net growth, bringing our litigation book to $1.29 billion at a blended yield of 8.8%.

Speaker #3: Further, our margin was negatively impacted by approximately 10 basis points due to elevated interest-earning cash balances funded by our core deposit franchise. Loan growth remained exceptionally strong.

Speaker #3: On a linked-quarter basis, total loans increased $87.2 million, or 19% annualized, reaching $1.9 billion, while experiencing $76.1 million in loan payoffs during the quarter.

Speaker #3: This growth was driven by commercial loan and real estate loan production of 61.6 million dollars and 25.6 million dollars respectively. As it relates to our litigation loan portfolio, we saw a 72.6 million dollars or 24% annualized net growth, bringing our litigation book to $1.29 billion at a blended yield of 8.8%.

Speaker #3: This translates to 41% loan growth year over year. It is important to also note that client activity levels and production pipelines remain healthy as we enter the second half of the year.

Michael LaCapria: This translates to 41% loan growth year over year. It is important to also note that client activity levels and production pipelines remain healthy as we enter the H2. Deposit loan growth was equally strong. Total deposits increased $77.1 million on a linked quarter basis, or 15% annualized, reaching $2.18 billion. Our cost of funds remains relatively flat at 1.03% as we continue to effectively manage our funding base. This growth was fueled by litigation-related escrow and IOLTA deposits, reflecting the continued success of our relationship focused commercial banking strategy. Off-balance sheet sweep balances totaled $1 billion, with approximately 38% of that available for liquidity purposes if needed. Administrative service payment fee income on these balances totaled $1.1 million for the quarter. Total liquidity, including both cash and borrowing capacity, was $1.2 billion as of quarter end. Credit quality remains solid.

Michael Lacapria: This translates to 41% loan growth year over year. It is important to also note that client activity levels and production pipelines remain healthy as we enter the H2. Deposit loan growth was equally strong. Total deposits increased $77.1 million on a linked quarter basis, or 15% annualized, reaching $2.18 billion. Our cost of funds remains relatively flat at 1.03% as we continue to effectively manage our funding base. This growth was fueled by litigation-related escrow and IOLTA deposits, reflecting the continued success of our relationship focused commercial banking strategy. Off-balance sheet sweep balances totaled $1 billion, with approximately 38% of that available for liquidity purposes if needed. Administrative service payment fee income on these balances totaled $1.1 million for the quarter. Total liquidity, including both cash and borrowing capacity, was $1.2 billion as of quarter end. Credit quality remains solid.

Speaker #3: Despite deposit loan growth was equally strong. Total deposits increased 77.1 million dollars on a linked quarter basis or 15% annualized, reaching 2.18 billion. Our cost of funds remained relatively flat at $1.03% as we effectively as we continue to effectively manage our funding base.

Speaker #3: This growth was fueled by litigation-related escrow and IOLTA deposits, reflecting the continued success of our relationship-focused commercial banking strategy. Off-balance sheet sweep balances totaled $1 billion with approximately 38% of that available for liquidity purposes if needed.

Speaker #3: Administrative service payment fee income on these balances totaled $1.1 million for the quarter. Total liquidity including both cash and borrowing capacity was $1.2 billion as of quarter end.

Speaker #3: Credit quality remained solid. Our allowance for credit losses remained at 1.3% of total loans, consistent with the prior quarter, and we have two non-performing loans totaling $5.1 million, representing 20 basis points of total assets.

Michael LaCapria: Our allowance for credit losses remained at 1.3% of total loans, consistent with the prior quarter, and we have 2 non-performing loans totaling $5.1 million, representing 20 basis points on total assets. During the quarter, we transferred a previously criticized multifamily credit to non-accrual status and recognized a $1.6 million charge-off. Importantly, we have no additional exposures to that real estate sponsor, no other real estate credits assessed as special mention of substandard, no exposure to commercial office, and limited exposure to hospitality at $13.17 million. As far as our litigation loan portfolio is concerned, it's worth noting we have no current exposure assessed as special mention or substandard. Non-interest income remains stable at $6.4 million, representing approximately 15% of total revenue. Our payments platform continues to be a meaningful contributor to earnings and client engagement.

Michael Lacapria: Our allowance for credit losses remained at 1.3% of total loans, consistent with the prior quarter, and we have 2 non-performing loans totaling $5.1 million, representing 20 basis points on total assets. During the quarter, we transferred a previously criticized multifamily credit to non-accrual status and recognized a $1.6 million charge-off. Importantly, we have no additional exposures to that real estate sponsor, no other real estate credits assessed as special mention of substandard, no exposure to commercial office, and limited exposure to hospitality at $13.17 million. As far as our litigation loan portfolio is concerned, it's worth noting we have no current exposure assessed as special mention or substandard. Non-interest income remains stable at $6.4 million, representing approximately 15% of total revenue. Our payments platform continues to be a meaningful contributor to earnings and client engagement.

Speaker #3: During the quarter, we transferred a previously criticized multifamily credit to non-accrual status and recognized a $1.6 million charge-off. Importantly, we have no additional exposures to that real estate sponsor, no other real estate credits assessed as special mention or substandard, no exposure to commercial office, and limited exposure to hospitality at $13.17 million.

Speaker #3: As far as our litigation loan portfolio is concerned, it's worth noting we have no current exposure assessed as special mention or substandard. Non-interest income remained stable at $6.4 million, representing approximately 15% of total revenue.

Speaker #3: Our payments platform continues to be a meaningful contributor to earnings and client engagement. During the quarter, we supported 93,000 small business clients nationwide, processing approximately 10.6 billion in payment volume across 153 million transactions.

Michael LaCapria: During the quarter, we supported 93,000 small business clients nationwide, processing approximately $10.6 billion in payment volume across 153 million transactions. Operational expenses continue to reflect disciplined investment in future growth. Total non-interest expense was $21.1 million, including merger-related costs associated with the pending Signature acquisition. Excluding these expenses, our adjusted efficiency ratio was 47.6%, reflecting continued operating leverage while we invest in technology, business development, risk management, and client service initiatives. Our capital foundation also remains strong. At quarter end, consolidated equity to assets and the bank level Tier 1 capital ratios were approximately 12.5% and 14.2% respectively. This positioning us well above regulatory well-capitalized standards and provides us substantial flexibility as we approach the closing of the Signature transaction. With that, I'll turn it back over to Andrew for his additional comments.

Michael Lacapria: During the quarter, we supported 93,000 small business clients nationwide, processing approximately $10.6 billion in payment volume across 153 million transactions. Operational expenses continue to reflect disciplined investment in future growth. Total non-interest expense was $21.1 million, including merger-related costs associated with the pending Signature acquisition. Excluding these expenses, our adjusted efficiency ratio was 47.6%, reflecting continued operating leverage while we invest in technology, business development, risk management, and client service initiatives. Our capital foundation also remains strong. At quarter end, consolidated equity to assets and the bank level Tier 1 capital ratios were approximately 12.5% and 14.2% respectively. This positioning us well above regulatory well-capitalized standards and provides us substantial flexibility as we approach the closing of the Signature transaction. With that, I'll turn it back over to Andrew for his additional comments.

Speaker #3: Operational expenses continue to reflect disciplined investment in future growth. Total non-interest expense was $21.1 million, including merger-related costs associated with the pending Signature acquisition.

Speaker #3: Excluding these expenses, our adjusted efficiency ratio was 47.6%, reflecting continued operating leverage while we invest in technology, business development, risk management, and client service initiatives.

Speaker #3: Our capital foundation also remained strong. At quarter-end, consolidated equity-to-assets and the bank-level Tier 1 capital ratios were approximately 12.5% and 14.2%, respectively.

Speaker #3: This positions us well above regulatory well-capitalized standards and provides us substantial flexibility as we approach the closing of the Signature transaction. With that, I'll turn it back over to Andrew for his additional comments.

Speaker #2: Thank you, Michael. No, that was very thorough. I'm going to turn it back over to Paige for any questions that our guests on the call may have.

Andrew Sagliocca: Thank you, Michael. That was very thorough. I'm going to turn it back over to Paige for any questions that our guests on the call have.

Speaker #1: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile a Q&A roster. Your first question comes from the line of Steve Moss with Raymond James. Your line is open. Please go ahead.

Speaker #1: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Steve Moss with Raymond James.

Speaker #1: Your line is open. Please go ahead.

Speaker #4: Hey, guys. Good morning. This is Chase on for Steve.

[Analyst] (Raymond James): Hey, guys. Good morning. This is Chase on for Steve.

Chase O'Malley: Hey, guys. Good morning. This is Chase on for Steve.

Speaker #2: Hey, Chase. How are you?

Andrew Sagliocca: Hey, Chase. How are you?

Speaker #4: I'm doing good. So, litigation growth was strong as per usual, but there was strong CRE growth in the mix as well this quarter. How do you think about that mix going forward as well?

[Analyst] (Raymond James): I'm doing good. Litigation growth was strong as per usual, but there's strong CRE growth in the mix as well this quarter. How do you think about that mix going forward as well?

Chase O'Malley: I'm doing good. Litigation growth was strong as per usual, but there's strong CRE growth in the mix as well this quarter. How do you think about that mix going forward as well?

Andrew Sagliocca: As we've talked about in the past, our focus is on national growth in the litigation platform. The CRE growth, I think, was only about $25 million for the quarter. I guess that's strong for us. It's a small number for us. There's opportunities in the market, which is a very large CRE multifamily market out there. Our focus, very simply, is our national litigation platform. That's primary. That is an overall higher-yielding blend. Also brings core funding to the bank not only for loan growth, but it funds the entire balance sheet for asset growth. We are always looking in the CRE market for opportunities that meet our criteria. We're looking for strong debt service coverage and strong loan to values. If we have to sacrifice some yield to get those, we will, since our litigation portfolio bolsters our overall net interest margin.

Speaker #2: As we've talked about in the past, our focus is on national growth in the litigation platform. The CRE growth, I think, was only about 25 million dollars for the quarter.

Speaker #2: So I guess that's strong for us. It's a small number. For us, there is opportunities in the market, which is a very large CRE multifamily market out there.

Speaker #2: But our focus, very simply, is our national litigation platform. That's primary. That is an overall higher-yielding blend and also brings core funding to the bank, not only for loan growth, but it funds the entire balance sheet for asset growth.

Speaker #2: So, we are always looking in the CRE market for opportunities that meet our criteria. We're looking for strong debt service coverage and strong loan-to-values, and if we have to sacrifice some yield to get those, we will, since our litigation portfolio bolsters our overall net interest margin.

Speaker #4: Got it. Appreciate that color there. Where are new litigation loans coming on these days? How are those yields holding up?

[Analyst] (Raymond James): Got it. Appreciate that color there. Where are new litigation loans coming on at these days? How are those yields holding up?

Chase O'Malley: Got it. Appreciate that color there. Where are new litigation loans coming on at these days? How are those yields holding up?

Speaker #2: Yields are holding up strong. If you look at past quarters, we were close to 9%, and where we are today is 8.80%.

Andrew Sagliocca: Yields are holding up strong. If you look at past quarters, we were closer to 9% than where we are today at 880. I know we, I and my executive group and senior management group, focus on our overall margin. If we can manage the margin prior to Signature, which will change the complexion of the margin, as I think we all understand. If we can manage the margin around 6%, I think that's a pretty good net interest margin and obviously generates really good returns. If we can manage that overall margin around 6%, I'm not worried about the individual loan composition that comprises that. We printed a 596 margin, but compared to a year ago, cash is about $50 million elevated. Compared to a quarter ago, it's about $30 million elevated. We only need about $100 million on average in cash to run our two national platforms.

Speaker #2: But I know we I and my executive group and senior management group focus on our overall margin. If we can manage the margin prior to signature, which will change the complexion of the margin as I think we all understand, if we can manage the margin around 6%, I think that's a pretty good net interest margin and obviously generates really good returns.

Speaker #2: If we can manage that overall margin around 6%, I'm not worried about the individual loan composition that comprises that. We printed a 596 basis point margin, but compared to a year ago, cash is about $50 million elevated compared to a quarter ago.

Speaker #2: It's about $30 million elevated. We only need about $100 million, on average, in cash to run our two national platforms. Most of that cash is for our payments platform.

Andrew Sagliocca: Most of that cash is for our payments platform. In round numbers, we have about $100 million of excess cash sitting on the balance sheet to deploy in the loan portfolio. If we deployed even 50 of that, our margin would've been 10 basis points higher or about 605, 606.

Speaker #2: So, in round numbers, we have about $100 million of excess cash sitting on the balance sheet to deploy in the loan portfolio. If we deployed even $50 million of that, our margin would have been 10 basis points higher, or about 6.05%, 6.06%.

Speaker #4: All right. Thanks for all the color there, Andrew. I'm going to step back. Thank you.

[Analyst] (Raymond James): All right. Thanks for all the color there, Andrew. I'm going to step back. Thank you.

Chase O'Malley: All right. Thanks for all the color there, Andrew. I'm going to step back. Thank you.

Speaker #2: Thank you.

Andrew Sagliocca: Thank you.

Speaker #1: As a reminder, if you would like to ask a question, press star 1 to raise your hand. Your next question comes from the line of Emily Lee with KBW.

Operator: As a reminder, if you would like to ask a question, press star one to raise your hand. Your next question comes from the line of Emily Lee with KBW. Your line is open. Please go ahead.

Speaker #1: Your line is open. Please go ahead.

Speaker #5: Hey, everyone. It's Emily, stepping in for Tim. Thanks for taking my question.

Emily Lee: Hey, everyone. It's Emily, stepping in for Tim. Thanks for taking my question.

Speaker #2: Absolutely. Hello, Emily. How are you?

Andrew Sagliocca: Absolutely. Hello, Emily. How are you?

Speaker #5: I'm good. So, with the Signature merger scheduled to close on August 1, and last quarter you noted that the integration and reception have been outstanding.

Emily Lee: I'm good. With the Signature merger scheduled for 1 August close, and last quarter, you noted that the integration and reception has been outstanding. Can you just provide an update on how that process is going and just remind us how quickly Signature's team can get up to speed on Esquire style litigation lending and ramping up that volume?

Speaker #5: Can you just provide an update on how that process is going and remind us how quickly the Signatures team can get up to speed on Esquire’s style of litigation lending, and ramping up that volume?

Speaker #2: Absolutely. So the process has gone extremely well. The cooperation and partnership have been outstanding. We've both been in each other's shops. Obviously, we at Esquire have been out to Chicago a lot more than they've needed to be here at this time.

Andrew Sagliocca: Absolutely. The process has gone extremely well. The cooperation and partnership has been outstanding. We've both been in each other's shops. Obviously, we at Esquire have been out to Chicago a lot more than they need to be here at this time. There's been a lot of trips out there besides phone calls and Teams Zoom calls. At this point, I really have no concerns heading into the eight one date. The legal day one integration and readiness is there. There are no concerns. And we've been working over the last two months with Mick and his team on the lending side and business development side to review how we view And underwrite the litigation vertical or plaintiff law firms, along with working with them on prospective clients within our CRM database.

Speaker #2: So there's been a lot of trips out there besides phone calls and Team Zoom calls. At this point, I really have no concerns heading into the 8/1 date.

Speaker #2: The legal day one integration and readiness is there. There are no concerns. And we've been working over the last two months with Mick and his team on the lending side and business development side to review how we view approach and underwrite the litigation vertical or plaintiff law firms along with working with them on prospective clients within our CRM database and for lack of a better phrase, cross-checking with them on who they know at those law firms and I think we're going to have a pretty good start to putting the companies together.

Andrew Sagliocca: For lack of a better phrase, cross-checking with them on who they know at those law firms. I think we're going to have a pretty good start to putting the companies together. We're not waiting to put the companies together, Emily, to have those discussions. Not only about the litigation vertical and our business development approach and our underwriting, but probably more important than all of that, identifying key prospective law firms in the Chicago and Midwest market that we can focus on as a combined team.

Speaker #2: We're not waiting to put the companies together, Emily, to have those discussions. Not only about the litigation vertical and the our business development approach and our underwriting, but probably more important than all of that, identifying key prospective law firms in the Chicago and Midwest market that we can focus on as a combined team.

Speaker #5: That's great to hear. Thank you. And then I guess shifting over to the payments side of things, last quarter you mentioned your intent to move towards more direct doing more direct business with merchants post-signature.

Emily Lee: That's great to hear. Thank you. Then I guess shifting over to the payments side of things. Last quarter, you mentioned your intent to move towards doing more direct business with merchants post Signature and sort of moving away from that indirect ISO model. Is there any update on that push and how will that impact fees, I guess?

Speaker #5: And, sort of moving away from that indirect ISO model, is there any update on that push? And how will that impact fees, I guess?

Speaker #2: Sure. So for the time being, over the next year, if not year and a half, as you know, 2026 is coming to a close quickly.

Andrew Sagliocca: Sure. For the time being over the next year, if not year and a half, as you know, 2026 is coming to a close quickly. For the next four to six quarters, the merchant model is more of a battleship. The volume will grow somewhere around 10%. The only reason the volume is down year-over-year is one or two ISOs that we banked sold their platform to other ISOs in the market, which obviously impacts us if they're no longer with us. Barring that, the volume tends to grow at about 10%. The revenue tends to grow somewhere around 3% or 5%. That's on the indirect model on the merchant platform. Yes, with the acquisition of Signature, we will focus on their non-litigation commercial customers in their market and hopefully be able to move them to a direct merchant acquiring platform with us.

Speaker #2: So, for the next four to six quarters, the merchant model is more of a battleship. The volume will grow, somewhere around 10%. The only reason the volume is down year over year is one or two ISOs that we banked sold their platform to other ISOs in the market, which obviously impacts us if they're no longer with us.

Speaker #2: But barring that, the volume tends to grow at about 10%. The revenue tends to grow somewhere around 3% to 5%. That's on the indirect model on the merchant platform.

Speaker #2: And yes, with the acquisition of Signature, we will focus on there. Non-litigation commercial customers in their market and hopefully be able to move them to a direct merchant acquiring platform with us.

Speaker #2: But once again, that's a slow and steady process. Nothing's going to turn on a dime. So, I know our friends at KBW have us in merchant processing fee income, and it's still consistent with how we see it on our side.

Andrew Sagliocca: Once again, that's a slow and steady process. Nothing's going to turn on a dime. I know where our friends at KBW have us in merchant processing fee income is still consistent with how we see it on our side.

Speaker #5: All right. Great. And then if I could squeeze in one more now that you're in towards an M around 6%, what factors would you anticipate bringing that below or above that range?

Emily Lee: All right, great. If I could squeeze in one more.

Andrew Sagliocca: Absolutely.

Emily Lee: Now that you're aimed towards a NIM around 6%, what factors would you anticipate bringing that below or above that range?

Speaker #2: Yeah. I mean, our standalone NIM is going to hang around 6, but we're not going to be standalone for much longer. We only have about eight days until we're no longer standalone.

Andrew Sagliocca: Yeah. Our standalone NIM is going to hang around six, but we're not going to be standalone for much longer. We only have about eight days until we're no longer standalone. I think you know, Emily, that Signature in round numbers is about a $2 billion platform. Where we see the NIM going, and we've provided guidance to your firm and the other firms that cover us, is right around, call it 540, 545 overall on a combined basis, day one. I say day one because obviously we are going to work as a combined company. We are going to focus on those higher-yielding assets, specifically the litigation vertical in their market. That brings low-cost core funding to the table. As you know, math is math.

Speaker #2: And I think you know, Emily, that Signature, in round numbers, is about a $2 billion platform. So, where we see the NIM going—and we've provided guidance to your firm and the other firms that cover us—is right around, call it, 540, 545 overall on a combined basis.

Speaker #2: Day one— and I say day one because, obviously, we are going to work as a combined company, and we are going to focus on those higher-yielding assets, specifically the litigation vertical in their market that brings low-cost core funding to the table.

Speaker #2: And as you know, math is math. So the more we elevate that concentration of a vertical like that over time, the better the margin is going to do over time.

Andrew Sagliocca: The more we elevate that concentration of a vertical like that over time, the better the margin's going to do over time. We see it starting right in that 540, 550 range overall, call it 545 as the net interest margin day one. Probably more reflective in a full quarter for December than in a partial quarter for September. We take it from there.

Speaker #2: But we see it starting right in that 540, 550 range overall, call it 545 as the net interest margin day one. Probably more reflective in a full quarter.

Speaker #2: For December, rather than in a partial quarter for September. And we take it from there.

Speaker #5: Okay. Awesome. Thank you for taking my questions, guys.

Emily Lee: Okay, awesome. Thank you for taking my questions, guys.

Speaker #2: Absolutely.

Andrew Sagliocca: Absolutely.

Speaker #1: Your next question comes from the line of Alan Strauss. With Ithaca, your line is open. Please go ahead.

Operator: Your next question comes from the line of Alan Strauss with Ithaca. Your line is open. Please go ahead.

Speaker #3: Yeah. Just a quick question. Post-merger, what happens to the interest rate sensitivity of the balance sheet?

Alan Strauss: Yes, just a quick question. Post-merger, what happens to the interest rate sensitivity of the balance sheet?

[Analyst] (Ithaca): Yes, just a quick question. Post-merger, what happens to the interest rate sensitivity of the balance sheet?

Speaker #2: It's, believe it or not, Alan—and thank you for the question—it's relatively unchanged. Eric Bader is here with me in the office. Eric, besides being COO, also runs the treasury function.

Andrew Sagliocca: Believe it or not, Alan, and thank you for the question, it's relatively unchanged. Eric Bader is here with me in the office. Eric, besides being COO also runs the treasury function. Maybe Eric can give you a little more color than me, but we've already simulated the model using, I believe, December and March on a pro forma combined basis. If I know Eric well enough, and I do know him 25 plus years, I'm sure he's going to do the same with the June quarter year-end. Eric?

Speaker #2: So maybe Eric can give you a little more color than me. But we've already simulated the model using, I believe, December and March on a pro forma combined basis.

Speaker #2: And if I know, Eric, well enough and I do know him 25-plus years, I'm sure he's going to do the same with the June quarter year-end.

Speaker #2: So Eric?

Speaker #4: Yeah. No. Thank you, Andrew. You're correct. Hey, Alan, football as well. As Andrew indicated, we've ran a couple of pro forma models of the combined institution through our systems.

Eric Bader: Yeah. No, thank you, Andrew. You're correct. Hey, Alan. Hope all is well. As Andrew indicated, we've ran a couple of pro forma models of the combined institution through our systems, and there's really no significant change. They have a lot of floating rate assets like we do, so we don't anticipate any significant changes to how the balance sheet is managed from an interest rate risk perspective at this time.

Speaker #4: And there's really no significant change. They have a lot of floating rate assets like we do. So we don't anticipate any significant changes to how the balance sheet is managed from an interest rate risk perspective at this time.

Speaker #3: So we would assume that it's slightly asset-sensitive?

Alan Strauss: We would assume that it's slightly asset sensitive?

[Analyst] (Ithaca): We would assume that it's slightly asset sensitive?

Speaker #4: Yeah. Yes. You got it, Alan.

Andrew Sagliocca: Yes.

Eric Bader: Yes. You got it, Alan.

Speaker #2: Yeah. Alan, the best answer I can give you is, you know, we're going to give you in our Qs and in our investor deck the models and simulation models that, being a regulated entity, have to conform to industry standards and regulatory standards.

Andrew Sagliocca: Yeah, Alan, the best answer I can give you is you know we're going to give you in our Qs and in our investor deck the models and simulation models that, being a regulated entity, have to conform to industry standards and regulatory standards so they can compare them across companies. The best answer I can give you is rates are down about 300 basis points since 2023, our margin has moved maybe 10 basis points, 15 basis points from a high watermark of about 615 to about six. If you normalize the cash, which is significant, and rates are down significantly on interest earning cash or even Fed funds sold.

Speaker #2: So they can compare them across I can give you is rates are down about 300 basis points since '23. And our margin has moved maybe 10 basis points, 15 basis points from a high watermark of about 615 to about 6.

Speaker #2: And if you normalize the cash, which is significant, and rates are down significantly on interest-earning cash or even Fed funds sold, we've been able to hang in around that 6% range.

Andrew Sagliocca: We've been able to hang in around that 6% range for several years now, even though if you look back at our modeling assumptions in our Q back in 2023 and 2024, the impact should have been greater than what actually happens. The Signature team, which from an interest rate risk standpoint will be managed, centralized under Eric going forward, have experienced the same kind of sensitivity. They're asset sensitive. Their internal reports reflected that. They've been able to do a good job managing their net interest margin too, over time.

Speaker #2: For several years now, even though if you look back at our modeling assumptions in our Q back in '23 and '24, the impact should have been greater than what we what actually happened.

Speaker #2: So the signature team, which from an interest rate risk standpoint will be managed centralized under Eric going forward, have experienced the same kind of sensitivity.

Speaker #2: Their asset-sensitive, their internal reports reflected that. But they've been able to do a good job managing their net interest margin too over time.

Speaker #3: Okay. Great. And thanks. Thanks for that. Congrats on being one of the few asset-sensitive, slightly asset-sensitive banks in the country. Just one other question, just clarification.

Alan Strauss: Okay, great. Thanks. Thanks for that. Congrats on being one of the few slightly asset sensitive banks in the country. Just one other question, just clarification. The debt service coverage that you wrote about for the multifamily portfolio, that is on current debt service coverage as of 30 June for the multifamily portfolio or at time of origination?

[Analyst] (Ithaca): Okay, great. Thanks. Thanks for that. Congrats on being one of the few slightly asset sensitive banks in the country. Just one other question, just clarification. The debt service coverage that you wrote about for the multifamily portfolio, that is on current debt service coverage as of 30 June for the multifamily portfolio or at time of origination?

Speaker #3: The debt service coverage that you wrote about for the multifamily portfolio, that is on current debt service coverage as of June 30th for the multifamily portfolio or at time of origination?

Speaker #2: No, it's current. It's current, Alan. So we annually, for loans over a certain size—I believe it's $3 million—so for very small loans, we don't get annual updates.

Andrew Sagliocca: No, it's current, Alan. We annually for loans over a certain size, I believe it's $3 million. Very small loans, we don't get annual updates. The bulk of our loans, as you can imagine, are above that amount. Annually we get new rent rolls and new net operating statements from the sponsors, and we update those debt service coverage ratios currently, and those are what are in the model, where we summarize it into one bullet. You are exactly right. It is current debt service coverage. I think more importantly, Alan, by looking out over the next year or two, because we look at it by loan, not by groupings in portfolio.

Speaker #2: The bulk of our loans, as you can imagine, are above that amount. So, annually, we get new rent rolls and new net operating statements from the sponsors, and we update those debt service coverage ratios.

Speaker #2: Currently, and those are what are in the model where we summarized it in the one bullet. So you are exactly right. It is current debt service coverage.

Speaker #2: And I think more importantly, Alan, by looking out over the next year or two, because we look at it by loan, not by groupings in portfolio, this one multifamily loan that we put on non-accrual we've been signaling to the market and telling our analysts for over a year it's been in the queue.

Andrew Sagliocca: This one multifamily loan that we put on non-accrual, we've been signaling to the market and telling our analysts for over a year, it's been in the Q that we have one other $6 million loan to the same sponsor that was special mentioned. Unfortunately, it went non-accrual. I'm not shocked. I'm also not happy. Looking forward over the rest of this year, a year forward and one to two years forward, we are very comfortable with what's sitting in our multifamily portfolio also at this point.

Speaker #2: That we have one other $6 million loan to the same sponsor that was special mentioned. So unfortunately, it went not accrual. I'm not shocked.

Speaker #2: I'm also not happy. But looking forward over the rest of this year, a year forward, and one to two years forward, we are very comfortable with what's sitting in our multifamily portfolio at this point.

Speaker #3: Great. Okay, great. And the bank has become large enough that you can absorb these slight nicks anyway on this portfolio.

Alan Strauss: Great. Okay, great. The bank has become large enough, you can absorb these slight nicks anyway on this portfolio.

[Analyst] (Ithaca): Great. Okay, great. The bank has become large enough, you can absorb these slight nicks anyway on this portfolio.

Speaker #2: Yeah. Yeah. I mean, even at Great Point, Alan, even at two and a half billion dollars where we are now in round numbers, this $1.6 million charge-off, we still hit or exceeded earnings estimates even with this charge-off.

Andrew Sagliocca: Yeah. I mean, even at great point, Alan, even at $2.5 billion where we are now in round numbers, this $1.6 million charge-off, we still hit or exceeded earnings estimates, even with this charge-off. You're absolutely right. With the amount of earnings and capital we generate just from earnings at a, call it a two and a quarter ROA, or above, really helps fortify and protect the overall balance sheet and portfolio. To your point, absorbing what are smaller losses as we get bigger becomes more normalized than when we were a billion and a half not too long ago.

Speaker #2: So you're absolutely right. With the amount of earnings and capital we generate just from earnings at a, call it, a two and a quarter ROA, or above, really helps fortify and protect the overall balance sheet and portfolio and to your point, absorbing what our smaller losses as we get bigger becomes more normalized than when we were a billion and a half not too long ago.

Speaker #3: Okay. All right. I'll let somebody else ask any questions.

Alan Strauss: Great. All right, I'll let somebody else ask any questions.

[Analyst] (Ithaca): Great. All right, I'll let somebody else ask any questions.

Speaker #2: Thank you, Alan.

Andrew Sagliocca: Thank you, Alan.

Speaker #1: There are no further questions at this time. I will now turn the call back to Andrew for closing remarks.

Operator: There are no further questions at this time. I will now turn the call back to Andrew for closing remarks.

Speaker #2: Excellent. Well, I want to thank everybody for joining us again. We at Esquire, and the team led by Mick over at Signature in Chicago, are really excited to get this deal closed.

Andrew Sagliocca: Excellent. Well, I want to thank everybody for joining us again. We at Esquire and the team led by Mick over at Signature in Chicago are really excited to get this deal closed next Saturday on 1 August. It's going to be a great business combination. I believe the best is in front of us, not behind us. We will continue to perform at the top of the market and both in growth and performance metrics and returns. I look forward to speaking to everybody at quarter end September and October. Quite honestly, I think the end of the year with the full quarter December is going to be really exciting and a good telltale sign of how the combined entity is going to perform going forward. Thank you, everybody. I appreciate your time today.

Speaker #2: Next Saturday on the 1st, it's going to be a great business combination. And I believe the best is in front of us, not behind us.

Speaker #2: And we will continue to perform at the top of the market and both in growth and performance metrics and returns. So I look forward to speaking to everybody at Quarter End September and October.

Speaker #2: And quite honestly, I think the end of the year with the full quarter—December—is going to be really exciting and a good telltale sign of how the combined entity is going to perform going forward.

Speaker #2: So, thank you, everybody. I appreciate your time today.

Speaker #1: This concludes today's call. Thank you for attending. You may now disconnect.

Operator: This concludes today's call. Thank you for attending. You may now disconnect. This event has now concluded. Thank you for joining Q2 2024

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