Esquire Financial Holdings, Inc. (ESQ)

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis of financial condition at March 31, 2026 and December 31, 2025 and results of operations for the three months ended March 31, 2026 and 2025 is intended to assist in understanding the financial condition and results of operations of Esquire Financial Holdings, Inc. The information contained in this section should be read in conjunction with the unaudited Consolidated Financial Statements and the notes thereto appearing in Part I, Item 1, of this quarterly report on Form 10-Q and the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

Cautionary Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “attribute,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “goal,” “target,” “aim,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements include, but are not limited to:

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this quarterly report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

23

Table of Contents

24

Table of Contents

The foregoing factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in our Annual Report on Form 10-K for the year ended December 31, 2025, as supplemented by subsequent Quarterly Reports on Form 10-Q. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New risks and uncertainties arise from time to time, and it is not possible for us to predict those events or how they may affect us. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Recent Events - 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 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

25

Table of Contents

with and into Esquire Bank,

[Excerpt truncated for page length; source filing is linked above.]

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.

49

Table of Contents

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 losses to a change in a key quantitative input.

50

Table of Contents

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.

​

51

Table of Contents

Selected Financial Data

The following information is derived in part from the consolidated financial statements of Esquire Financial Holdings, Inc.

​

52

Table of Contents

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.

​

53

Table of Contents

​

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.

​

The following table sets forth the composition of our held for investment Litigation-Related Loan portfolio by type of loan at the dates indicated.

54

Table of Contents

​

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.

​

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.

​

55

Table of Contents

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.

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

56

Table of Contents

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.

​

The following table presents average loans and credit loss experience for the periods indicated.

57

Table of Contents

​

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.

​

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

58

Table of Contents

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.

​

59

Table of Contents

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.

​

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.

​

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

60

Table of Contents

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.

​

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.

​

61

Table of Contents

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.

​

​

62

Table of Contents

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.

​

​

​

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

63

Table of Contents

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

64

Table of Contents

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: