8-K
Esquire Financial Holdings, Inc. (ESQ)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): January 23, 2025
Esquire Financial Holdings, Inc.
(Exact name of the registrant as specified in its charter)
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| Maryland | 001-38131 | 27- 5107901 |
| (State or other jurisdiction of<br><br>incorporation or organization) | (Commission File Number) | (IRS Employer<br><br>Identification No.) |
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|---|---|---|
| 100 Jericho Quadrangle , Suite 100 | | |
| Jericho , New York | | 11753 |
| (Address of principal executive offices) | | (Zip Code) |
( 516 ) 535-2002
(Registrant’s telephone number)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (See General Instruction A.2. below):
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| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4c) |
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading<br><br>Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.01 par value | ESQ | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02Results of Operations and Financial Condition.
On January 23, 2025, Esquire Financial Holdings, Inc. (the “Company”), the holding company for Esquire Bank, National Association (“Esquire Bank”), issued a press release announcing its earnings for the quarter and year ended December 31, 2024. A copy of the press release is attached as Exhibit 99.1 hereto and incorporated herein by reference.
The information contained in this Item 2.02 and Exhibit 99.1 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any filings made by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except as expressly set forth by specific reference in such filing.
Item 7.01Regulation FD Disclosure.
Esquire Financial Holdings, Inc. (the “Company”) intends to distribute and make available to investors, and to post on its website, the written presentation attached hereto as Exhibit 99.2. The presentation is furnished in this Current Report on Form 8-K, pursuant to this Item 7.01, as Exhibit 99.2, and is incorporated herein by reference.
The information contained in this Item 7.01 and Exhibit 99.2 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any filings made by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except as expressly set forth by specific reference in such filing.
Item 9.01Financial Statements and Exhibits.
(d) Exhibits.
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| Exhibit No. | | Description |
| 99.1 | | Press Release dated January 23, 2025. |
| 99.2 | | Written presentation to be distributed and made available to investors and posted<br><br>on the Company’s website. |
| 104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
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| | ESQUIRE FINANCIAL HOLDINGS, INC. |
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| Dated: January 23, 2025 | By:/s/ Andrew C. Sagliocca |
| | Andrew C. Sagliocca |
| | Vice Chairman, Chief Executive Officer and President |
Exhibit 99.1
ESQUIRE FINANCIAL HOLDINGS, INC.
REPORTS FOURTH QUARTER AND FULL YEAR 2024 RESULTS
Strong Commercial Loan and Deposit Growth Nationally Drives Record Earnings for 2024
Jericho, NY – January 23, 2025 – Esquire Financial Holdings, Inc. (NASDAQ: ESQ) (the “Company”), the financial holding company for Esquire Bank, National Association (“Esquire Bank” or the “Bank”), (collectively “Esquire”) today announced its operating results for the fourth quarter and full year 2024. Significant achievements and key performance metrics during the current quarter and year include:
| ● | Net income increased 19% to $11.8 million, or $1.37 per diluted share in the current quarter, as compared to $9.9 million, or $1.18 per diluted share, for the comparable quarter in 2023. Net income for the full year increased $2.6 million, or 7%, to $43.7 million, or $5.14 per diluted share, when compared to $41.0 million, or $4.91 per diluted share, in 2023. For the full year 2023, adjusted^(1)^net income and diluted earnings per share were $38.1 million (an increase of $5.6 million or 15% when compared to 2024) and $4.56, respectively, excluding the $4.0 million pre-tax gain on certain equity investments. |
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| ● | On a linked quarter basis, net income increased $393 thousand, or 4%, to $11.8 million despite a $700 thousand increase in the provision for credit losses, primarily due to commercial law firm loan growth in the current quarter. |
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| ● | Consistent industry leading returns on average assets and equity of 2.49% and 19.99% for the current quarter and 2.57% and 20.14% for the full year 2024, respectively, notwithstanding our continued investment in current resources for future growth. |
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| ● | Continued expansion of our total revenue base to $124.8 million for the full year 2024 fueled by an industry leading net interest margin of 6.06% and stable fee-based income (led by our payment processing platform) totaling $24.9 million, or 20% of total revenue. In the current quarter, our net interest margin of 5.87% was negatively impacted by approximately 13 basis points due to elevated average interest earning cash balances that were funded with core deposit growth. |
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| ● | Strong core deposit growth totaling $105.9 million, or 28% annualized, on a linked quarter basis to $1.63 billion, comprised of low-cost commercial relationship deposits with a cost-of-funds of 0.95% (including demand deposits). Deposit growth for the full year was $234.9 million, or 17%, when compared to 2023. Off-balance sheet sweep funds increased $276.4 million, or 99%, to $554.4 million when compared to year-end 2023, with approximately 77% available for additional on-balance sheet liquidity, while the associated administrative service payments (“ASP”) fee income totaled $714 thousand for the current quarter. Additional available liquidity totaled approximately $907 million, excluding cash and unsecured borrowing capacity. |
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| ● | Significant loan growth on a linked quarter basis totaling $99.6 million, or 31% annualized, to $1.40 billion. Growth was fueled by a $95.1 million or a 46% annualized increase in higher yielding commercial loans nationally, led by net draws on existing commercial litigation related loans. For the full year 2024, loans grew $189.6 million, or 16%, when compared to $1.21 billion in 2023 with commercial loan growth totaling $182.7 million or 25% (litigation related loans grew $223.4 million, or 37%, in 2024). These commercial loans have and will continue to create additional opportunities for future core deposit growth (noninterest bearing operating or DDA and escrow or IOLTA accounts nationally) through our full service commercial relationship banking programs and our branchless commercial cash management platform. |
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| ● | Interest earning asset growth, excluding cash and cash equivalents, was $127.7 million, or 32% annualized, on a linked quarter basis and totaled $1.71 billion. In early 2024, management elected to temper multifamily and commercial real estate loan growth in response to the economic environment and has ratably purchased short duration agency mortgage-backed securities with commensurate risk adjusted yields, enhancing our liquidity while improving the securities to total assets ratio to 17%. Interest earning asset growth, excluding cash and cash equivalents, for the full year was $301.0 million, or 21%, when compared to 2023. |
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| (1) | See non-GAAP reconciliation provided at the end of this news release. |
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1
| ● | Solid credit metrics, asset quality, and reserve coverage ratios with an allowance for credit losses to loans ratio of 1.50% and a nonperforming loan to total assets ratio of 0.58%, represented by one multifamily loan totaling $10.9 million. We have no exposure to commercial office space, no construction loans, and only $14.7 million in performing loans to the hospitality industry. |
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| ● | Stable and consistent fee income in the current quarter totaling $6.2 million, or 19% of total revenue, led by our payment processing platform with 88,000 small business clients nationally. Our technology-enabled payments platform facilitated the processing of $9.2 billion in credit and debit card payment volume across 145.7 million transactions for our clients in the current quarter. |
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| ● | Strong efficiency ratio of 47.5% and 48.7% for the fourth quarter and full year ended 2024, respectively, notwithstanding our investments in resources to support future growth and excellence in client service. |
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| ● | Strong capital foundation with common equity tier 1 (“CET1”) and tangible common equity to tangible asset^(1)^ (“TCE/TA”) ratios of 14.67% and 12.53%, respectively. Including the after-tax unrealized losses on both the available-for-sale and held-to-maturity securities portfolios of $14.3 million and $5.6 million, respectively, the adjusted^(1)^ CET1 and adjusted^(1)^TCE/TA ratios were 13.33% and 12.23%, respectively. Esquire Bank remains well above the bank regulatory “Well Capitalized” standards. |
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| ● | Included on the “2024 Fortune 100 Fastest-Growing Companies” list based on our revenue growth, earnings per share growth and three-year annualized return to shareholders for the period ending on June 30, 2024. |
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“Throughout 2024, our focus on creating long-term stakeholder value continued by leveraging our regional business development officers to significantly grow core deposits nationally as well as higher yielding commercial litigation or law firm loans,” stated Tony Coelho, Chairman of the Board. “We coupled this focus with tempering our New York metro real estate lending in response to the current market sentiment and instead invested excess cash flow from core deposits in short duration agency mortgage-backed securities with commensurate risk adjusted yields.”
“Our current quarter’s net interest margin was negatively impacted by both elevated interest earning cash balance and short-term market interest rates on our variable rate commercial loan portfolio on a linked quarter basis,” stated Andrew C. Sagliocca, Vice Chairman, CEO, and President. “Our active asset-liability management including, but not limited to, managing our client centric commercial law firm lending renewals including interest rate spreads and floors, measured and flexible deposit-liability management, and continued commercial loan and core deposit growth will continue to produce industry leading growth, earnings, returns, and performance metrics in the future. Lastly, as in previous years, we anticipate that a portion of the elevated draws on existing commercial litigation related loans may paydown, tempering first quarter loan growth. However, based on our current commercial loan pipeline, we anticipate 2025 loan growth to be commensurate to prior years.”
| (1) | See non-GAAP reconciliation provided at the end of this news release. |
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2
Fourth Quarter Earnings
Net income for the quarter ended December 31, 2024 was $11.8 million, or $1.37 per diluted share, compared to $9.9 million, or $1.18 per diluted share for the same period in 2023. Returns on average assets and equity for the current quarter were 2.49% and 19.99%, respectively, compared to 2.59% and 20.78% for the same period of 2023.
Net interest income for the fourth quarter of 2024 increased $4.2 million, or 18.6%, to $26.9 million, due to growth in average interest earning assets (funded with low-cost core deposits) totaling $353.0 million, or 24.0%, to $1.82 billion when compared to the fourth quarter of 2023. Our net interest margin remained strong at 5.87%, decreasing 25 basis points when compared to the same period in 2023. Our net interest margin was negatively impacted by changes in our average interest earning asset composition including cash and securities as well as decreases in short-term market interest rates. Average loan yields decreased 3 basis points to 7.78% while average loans increased $146.0 million, or 12.5%, to $1.32 billion, primarily due to growth in our national commercial litigation related lending. Loan interest income increased $2.7 million, or 11.7%, to $25.7 million with the increase in average loan balances (primarily commercial) comprising $3.4 million of the increase, offset by a $742 thousand decrease in average rate due to decreases in short-term market interest rates. Our loan-to-deposit ratio was 85% as our low-cost deposit base increased $234.9 million, or 17.0%, primarily due to growth in our longer duration escrow or IOLTA deposit relationships while our cost of funds on interest bearing deposits remained relatively unchanged. Based on our decision to proactively moderate commercial real estate growth in 2024 due to market sentiment, excess funding was invested in short duration agency mortgage-backed securities with commensurate risk adjusted yields, enhancing our liquidity while improving the securities to total assets ratio to 16.6%. Average securities in the quarter increased $84.9 million to $303.0 million and yields increased 82 basis points to 3.44%, increasing securities income by $1.2 million with $653 thousand attributable to average volume increases and $527 thousand attributable to increases in average rate. Due to the significant increase in core deposits during the current quarter, average interest earning cash balances increased $122.2 million, or 147%, to $205.3 million when comparing the current quarter to the comparable quarter in 2023, negatively impacting our net interest margin by approximately 13 basis points. By year-end 2024, the majority of this excess cash was deployed into higher yielding commercial loans.
The provision for credit losses was $1.7 million for the fourth quarter of 2024, a $200 thousand increase from the fourth quarter 2023 provision. As of December 31, 2024, our allowance to loans ratio was 1.50% as compared to 1.38% as of December 31, 2023. The increase in the allowance as a percentage of loans was general reserve driven considering elevated loan growth/net draws in the current quarter and qualitative factors associated with the current short-term interest rate environment as well as the current uncertain economic environment including, but not limited to, its potential impact on the New York metro multifamily and commercial real estate market.
Noninterest income totaled $6.2 million for the fourth quarter of 2024 as compared to $6.3 million in the same period for 2023. Payment processing income was $5.1 million for the fourth quarter of 2024, a $330 thousand decrease from the same period in 2023, primarily due to anticipated ISO and merchant attrition and changes in the volumes of our overall merchant risk profile. Payment processing volumes for the credit and debit card processing platform increased $727.2 million, or 8.6%, to $9.2 billion and transactions decreased 10.1 million, or 6.5%, to 145.7 million, for the current quarter, as compared to the same period in 2023. We continue to focus on the expansion of sales channels through ISOs, prudently managing risk while focusing on new merchant originations, increasing overall volumes as well as risk profiles, and expanding our technology and other resources in the payments vertical. The Company utilizes proprietary and industry leading/customized technology to ensure card brand and regulatory compliance, supports multiple processing platforms, manages daily risk across 88,000 small business merchants in all 50 states, and performs commercial treasury clearing services for $9.2 billion in volume across 145.7 million in transactions in the current quarter. ASP fee income increased $134 thousand to $714 thousand for the fourth quarter of 2024. ASP fee income is directly impacted by the average balances of off-balance sheet sweep funds as well as current short-term market interest rates. Other noninterest income increased $99 thousand to $367 thousand when compared to the prior year quarter primarily due to increases in loan and other banking fees.
Noninterest expense increased $1.8 million, or 12.8%, to $15.7 million for the fourth quarter of 2024, as compared to the same period in 2023. This increase was primarily due to increases in employee compensation and benefits, data processing, advertising and marketing, and occupancy and equipment. Employee compensation and benefits costs increased $873 thousand, or 10.0%, due to the impact of year end salary increases, bonuses, incentive pay to business development officers (“BDOs”), and stock-based compensation increases. Data processing costs increased $329 thousand due to increases in core banking processing volumes and additional costs related to enhanced risk management systems and other technology implementations. Advertising and marketing costs increased $205 thousand as we continued to advance our digital marketing platform across our commercial litigation platform nationally, expand our thought leadership in this national vertical, and directly support our regional BDOs with targeted hyper-personalized account based marketing (“ABM”) campaigns. Occupancy and equipment costs increased $170 thousand due to amortization of internally developed software to support our digital marketing and risk management platforms and additional office space to support our growth. Our investment in current resources has and will continue to support future growth.
The Company’s efficiency ratio was 47.5% for the three months ended December 31, 2024, as compared to 48.0% in 2023. Our strong efficiency ratio is a result of our continued growth primarily driven by our core national platforms that have (and will continue to) benefit from our investments in technology/risk management, digital marketing, employees, and other branchless infrastructure that support our industry leading returns. 3
The effective tax rate was 25.0% for the fourth quarter of 2024, as compared to 27.0% for the fourth quarter of 2023, resulting from certain discrete tax benefits related to stock-based compensation.
Full Year Earnings
Net income for the year ended December 31, 2024 was $43.7 million, or $5.14 per diluted share, compared to $41.0 million, or $4.91 per diluted share for the same period in 2023. Returns on average assets and equity for the year ended December 31, 2024 were 2.57% and 20.14%, respectively, compared to 2.89% and 23.20% for the same period of 2023. Excluding the gain of $4.0 million ($2.9 million after-tax or $0.35 per diluted share) on our equity investments in 2023, adjusted^(1)^ net income, diluted earnings per share, return on average assets, and return on average common equity for the year ended December 31, 2023 was $38.1 million, $4.56, 2.68% and 21.54%, respectively.
Net interest income for the year ended December 31, 2024 increased $16.2 million, or 19.3%, to $99.9 million, due to growth in average interest earning assets totaling $273.2 million, or 19.9%, to $1.65 billion as compared to the same period in 2023, as well as our strong net interest margin of 6.06%. Our net interest income was positively impacted primarily by growth in higher yielding variable rate commercial loans and growth in lower-cost escrow or IOLTA deposits nationally. The average yield on loans increased 10 basis points to 7.82%, primarily driven by growth in higher yielding variable rate commercial loans. During 2024, average loans for the year ended December 31, 2024 increased $207.0 million, or 19.7%, to $1.26 billion, primarily due to growth in our national commercial lending platform and, to a lesser extent, growth in our regional multifamily loan portfolio primarily during the latter part of 2023. Loan interest income increased $17.3 million, or 21.3%, to $98.5 million with increases in average loan balances (primarily commercial) comprising $16.7 million of the increase and $588 thousand (primarily multifamily) representing increases in average rate. During 2024, average deposits increased $230.0 million, or 31.6%, to $958 million, primarily due to growth in escrow or IOLTA deposits nationally. Our deposit cost-of-funds, excluding demand deposits, increased 29 basis points in the current year when compared to the same period in 2023 due to increases in short-term interest rates as well as management proactively increasing rates on IOLTA accounts in the certain states where we operate. Deposit expense increased $5.3 million to $13.4 million for the year ended December 31, 2024 with increases in average rate comprising $3.3 million and $2.0 million attributable to increases in average balances. Average securities for the year ended December 31, 2024 increased $54.9 million to $265.7 million and yields increased 87 basis points to 3.25% due to our previously noted balance sheet strategy. In 2024, the combined increase in average loans and securities totaled $261.9 million, or approximately 20.7%, to $1.52 billion as compared to 2023.
The provision for credit losses was $4.7 million for the year ended December 31, 2024, a $175 thousand increase from the same period in 2023. As of December 31, 2024, our allowance to loans ratio was 1.50% as compared to 1.38% as of December 31, 2023. The increase in the allowance as a percentage of loans was general reserve driven considering loan growth and qualitative factors associated with the current short-term interest rate environment as well as the current uncertain economic environment including, but not limited to, its potential impact on the New York metro multifamily and commercial real estate market.
Noninterest income totaled $24.9 million for the year ended December 31, 2024 as compared to $29.8 million in the same period for 2023. Excluding the $4.0 million gain on our equity investments in 2023, adjusted^(1)^ noninterest income was $25.7 million. In 2024, payment processing income was $20.9 million, a $1.4 million decrease when compared to 2023, primarily due to anticipated ISO attrition and changes in our overall merchant risk profile. Payment processing volumes and transactions for the credit and debit card processing platform increased $3.3 billion, or 10.0%, to $36.3 billion and transactions decreased 9.0 million, or 1.5%, to 603.7 million transactions, respectively, when comparing the full-year 2024 to 2023. We continue to focus on the expansion of sales channels through ISOs, prudently managing risk while focusing on new merchant originations, increasing overall volumes as well as risk profiles, and expanding our technology and other resources in this vertical. The Company utilizes proprietary and industry leading/customized technology to ensure card brand and regulatory compliance, supports multiple processing platforms, manages daily risk across 88,000 small business merchants in all 50 states, and performs commercial treasury clearing services for $36.3 billion in volume across 603.7 million in transactions in the current year. In 2024, ASP fee income increased $271 thousand to $2.7 million when compared to 2023. ASP fee income is directly impacted by the average balances of off-balance sheet sweep funds as well as current short-term market interest rates. Other noninterest income increased $327 thousand to $1.3 million when comparing 2023 to 2024, primarily due to increases in loan and other banking related fees.
| (1) | See non-GAAP reconciliation provided at the end of this news release. |
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4
Noninterest expense increased $7.7 million, or 14.5%, to $60.8 million for the year ended December 31, 2024, as compared to the same period in 2023. This increase was primarily due to increases in employee compensation and benefits, advertising and marketing, data processing, and occupancy and equipment, partially offset by decreases in professional services costs. Employee compensation and benefits costs increased $5.4 million, or 16.5%, due to the full year’s impact of key hires (throughout 2023) to support future growth and excellence in client service as well as the impact of year end salary increases, bonuses, incentive pay to BDOs, and stock-based compensation increases. During 2024, we experienced the full year impact of our 2023 key hires including, but not limited to, our regional senior BDOs, sales support, lending underwriting/lending support, and risk management staffing initiatives. Advertising and marketing costs increased $1.7 million as we continued to advance our digital marketing platform across our commercial litigation platform nationally, expand our thought leadership in this national vertical, and directly support our regional BDOs with targeted ABM campaigns. Data processing costs increased $1.5 million due to increases in core banking processing volumes and additional costs related to enhanced risk management systems and other technology implementations. Occupancy and equipment costs increased $730 thousand due to amortization of internally developed software to support our digital marketing and risk management platforms and additional office space to support growth. Professional services costs decreased $1.6 million primarily due to our 2023 hiring initiatives noted above and related costs associated with the executive search firm utilized. Our investment in current resources has and will continue to support our future growth.
The Company’s efficiency ratio was 48.7% for the year ended December 31, 2024, as compared to 46.8% for the same period in 2023. The adjusted^(1)^ efficiency ratio was 48.5% for the year ended December 31, 2023, excluding the aforementioned $4.0 million pre-tax gain. Our strong efficiency ratio is a result of our continued growth primarily driven by our core national platforms. These platforms have benefited from our investments in technology/risk management systems, digital marketing, employees, and other branchless infrastructure that support our industry leading returns.
The effective tax rate was 26.4% for the year ended December 31, 2024, compared to 26.6% for the same period in 2023.
Asset Quality
At December 31, 2024, we had one nonperforming multifamily loan totaling $10.9 million, no exposure to commercial office space nor construction loans, and $14.7 million in performing loans to the hospitality industry. The allowance for credit losses was $21.0 million, or 1.50% of total loans, as compared to $16.6 million, or 1.38% of total loans at December 31, 2023. The ratio of nonperforming loans to total loans and total assets was 0.78% and 0.58%, respectively. The allowance for credit losses to nonperforming loans was 192%. The increase in the allowance as a percentage of loans was general reserve driven considering loan growth and qualitative factors associated with the current short-term interest rate environment as well as the current uncertain economic environment including, but not limited to, its potential impact on the New York metro multifamily and commercial real estate market.
Due to increases in market interest rates since 2022, management enhanced its ongoing credit risk management monitoring of its commercial real estate loan portfolio. The following is a brief summary of our risk management results for our multifamily and CRE portfolios as of December 31, 2024:
| ● | The multifamily portfolio, excluding one nonperforming loan, totaling $344.2 million, has a current weighted average DSCR and an original LTV (defined as unpaid principal balance as of December 31, 2024 divided by appraised value at origination) of approximately 1.64 and 54%, respectively, and the CRE portfolio, totaling $87.0 million, has a current weighted average DSCR and an original LTV of approximately 1.48 and 58%, respectively. |
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| ● | Multifamily loans maturing in less than one year totaled $59.5 million and had a current weighted average DSCR and an original LTV of approximately 1.34 and 57%, respectively. CRE loans maturing in less than one year totaled $1.7 million and had a current weighted average DSCR and an original LTV of approximately 1.60 and 66%, respectively. |
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| ● | Multifamily loans maturing in one to two years totaled $48.4 million and had a current weighted average DSCR and an original LTV of approximately 1.39 and 66%, respectively. CRE loans maturing in one to two years totaled $3.8 million and had a current weighted average DSCR and an original LTV of approximately 1.39 and 55%, respectively. |
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| (1) | See non-GAAP reconciliation provided at the end of this news release. |
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5
Balance Sheet
At December 31, 2024, total assets were $1.89 billion, reflecting a $275.6 million, or 17.0% increase from December 31, 2023. This increase was primarily attributable to growth in loans totaling $189.6 million, or 15.7%, to $1.40 billion. Our higher yielding variable rate commercial loans increased $182.7 million, or 24.8%, during this same period (litigation related loans increased $223.4 million, or 36.5%, to $835.8 million). Our commercial relationship banking sales pipeline remained robust, anchored by our national platforms, regional BDOs, and supported by our competitive advantages in data, analytics and digital marketing. Our available-for-sale securities portfolio increased $119.6 million to $241.7 million as compared to December 31, 2023, as management deployed excess liquidity into securities as part of our previously mentioned balance sheet management strategy. Our held-to-maturity securities portfolio totaled $68.7 million, a decrease of $8.3 million, or 10.8%, due to portfolio amortization. In the third quarter of 2023, management elected to close out its reverse repurchase agreements and reinvest these funds into higher yielding commercial loans. Our total securities to assets ratio was 16.6% at December 31, 2024 as compared to 12.5% in the comparable prior year, enhancing our liquidity position, asset composition, and flexibility in the future.
The following table provides information regarding the composition of our loan portfolio for the periods presented:
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| | | December 31, | | | September 30, | | | December 31, | ||||||||||
| | | 2024 | | | 2024 | | | 2023 | ||||||||||
| | | (Dollars in thousands) | **** | |||||||||||||||
| Real estate: | | | | | | | ||||||||||||
| Multifamily | | $ | 355,165 | 25.4 | % | | $ | 350,857 | 27.0 | % | | $ | 348,241 | 28.8 | % | |||
| Commercial real estate | | 87,038 | 6.2 | | | 87,544 | 6.8 | | | 89,498 | 7.4 | | ||||||
| 1 – 4 family | | | 14,665 | 1.1 | | | | 14,749 | 1.1 | | | | 17,937 | 1.5 | | |||
| Total real estate | | 456,868 | 32.7 | | | 453,150 | 34.9 | | | 455,676 | 37.7 | | ||||||
| Commercial: | | | | | | | | | | | | | ||||||
| Litigation related | | | 835,839 | | 59.8 | | | | 727,749 | | 56.1 | | | | 612,457 | | 50.7 | |
| Other | | | 84,728 | | 6.1 | | | | 97,690 | | 7.5 | | | | 125,457 | | 10.4 | |
| Total commercial | | 920,567 | 65.9 | | | 825,439 | 63.6 | | | 737,914 | 61.1 | | ||||||
| Consumer | | 19,339 | 1.4 | | | 18,874 | 1.5 | | | 14,491 | 1.2 | | ||||||
| Total loans held for investment | | $ | 1,396,774 | 100.0 | % | | $ | 1,297,463 | 100.0 | % | | $ | 1,208,081 | 100.0 | % | |||
| Deferred loan fees and unearned premiums, net | | 247 | | | (20) | | | (668) | | |||||||||
| Loans, held for investment | | $ | 1,397,021 | | | $ | 1,297,443 | | | $ | 1,207,413 | |
Total deposits were $1.64 billion as of December 31, 2024, a $234.9 million, or 16.7%, increase from December 31, 2023. This was primarily due to a $203.9 million, or 22.0%, increase in Savings, NOW and Money Market deposits, primarily driven by our IOLTA and other escrow deposits as well as a $24.7 million, or 5.2%, increase in noninterest bearing demand deposits. Our deposit strategy primarily focuses on developing full service branchless commercial banking relationships nationally with our clients through commercial lending facilities, payment processing, and other unique commercial cash management services in our two national verticals, rather than competing with other institutions on rate. Our longer duration IOLTA, escrow and settlement deposits represent $979.0 million, or 59.6%, of total deposits. As of December 31, 2024, uninsured deposits were $463.9 million, or 28%, of our total deposits of $1.64 billion, excluding $12.4 million of affiliate deposits held by the Bank. Approximately 80% of our uninsured deposits represent clients with full commercial relationship banking with us (i.e.-commercial loans, payment processing, and other commercial service-oriented relationships) including, but not limited to, law firm operating accounts, law firm IOLTA/escrow accounts, merchant reserves, ISO reserves, ACH processing, and custodial accounts.
Due to the nature of our larger mass tort and class action settlements related to the litigation vertical, we participate in FDIC insured sweep programs as well as treasury secured money market funds. As of December 31, 2024, off-balance sheet sweep funds totaled approximately $554.4 million, of which approximately $424.2 million, or 76.5%, was available to be swept on balance sheet as reciprocal client relationship deposits. Our deposit growth and off-balance sheet funds continue to demonstrate our highly efficient branchless and technology enabled deposit platforms.
At December 31, 2024, we had the ability to borrow, on a secured basis, up to $431.7 million from the FHLB of New York and $51.4 million from the FRB of New York discount window. **** No borrowing amounts were outstanding during the fourth quarter of 2024. Historically, we have not leveraged our balance sheet to generate earnings and have always utilized core client deposits to fund our asset growth and related earnings.
Stockholders’ equity increased $38.5 million to $237.1 million as of December 31, 2024, when compared to December 31, 2023, primarily driven by increases in retained earnings (net income). During the fourth quarter 2024, the increase in retained earnings (net income) was offset by increases in (1) other comprehensive losses (unrealized net losses on securities available-for-sale, net of taxes) of $4.0 million to $14.3 million due to changes in market interest rates and (2) increases in treasury stock of $3.1 million to $5.7 million due to the vesting of stock grants. 6
Esquire Bank remains well above bank regulatory “Well Capitalized” standards.
About Esquire Financial Holdings, Inc.
Esquire Financial Holdings, Inc. is a financial holding company headquartered in Jericho, New York, with one branch office in Jericho, New York and an administrative office in Boca Raton, Florida. Its wholly-owned subsidiary, Esquire Bank, National Association, is a full-service commercial bank dedicated to serving the financial needs of the litigation industry and small businesses nationally, as well as commercial and retail clients in the New York metropolitan area. The Bank offers tailored financial and payment processing solutions to the litigation community and their clients as well as dynamic and flexible payment processing solutions to small business owners. For more information, visit www.esquirebank.com.
Cautionary Note Regarding Forward-Looking Statements
This press release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 relating to future results of the Company. Forward-looking statements are subject to many risks and uncertainties, including, but not limited to: changes in business plans as circumstances warrant; changes in general economic, business and political conditions, including changes in the financial markets; and other risks detailed in the “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and other sections of the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission. The forward-looking statements included in this press release are not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology 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 similar terminology. Any forward-looking statements presented herein are made only as of the date of this press release, and the Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise, except as may be required by law.
Contact Information:
Eric S. Bader
Executive Vice President and Chief Operating Officer
Esquire Financial Holdings, Inc.
(516) 535-2002
eric.bader@esqbank.com
7
ESQUIRE FINANCIAL HOLDINGS, INC.
Consolidated Statement of Condition (unaudited)
(dollars in thousands except per share data)
| | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|
| | | December 31, | | September 30, | | December 31, | | |||
| | **** | 2024 | **** | 2024 | **** | 2023 | **** | |||
| ASSETS | **** | | **** | | | |||||
| Cash and cash equivalents | | $ | 126,329 | | $ | 147,663 | | $ | 165,209 | |
| Securities available-for-sale, at fair value | | 241,746 | | 211,460 | | 122,107 | | |||
| Securities held-to-maturity, at cost | | 68,660 | | 70,794 | | 77,001 | | |||
| Securities, restricted at cost | | 3,034 | | 3,034 | | 2,928 | | |||
| Loans, held for investment | | 1,397,021 | | 1,297,443 | | 1,207,413 | | |||
| Less: allowance for credit losses | | (20,979) | | (19,451) | | (16,631) | | |||
| Loans, net of allowance | | 1,376,042 | | 1,277,992 | | 1,190,782 | | |||
| Premises and equipment, net | | 2,436 | | 2,610 | | 2,602 | | |||
| Other assets | | 74,256 | | 68,921 | | 56,247 | | |||
| Total Assets | | $ | 1,892,503 | | $ | 1,782,474 | | $ | 1,616,876 | |
| | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | **** | **** | | **** | **** | | **** | | |
| Demand deposits | | $ | 497,958 | | $ | 539,434 | | $ | 473,274 | |
| Savings, NOW and money market deposits | | 1,130,174 | | 982,816 | | 926,264 | | |||
| Certificates of deposit | | 14,104 | | 14,145 | | 7,761 | | |||
| Total deposits | | 1,642,236 | | 1,536,395 | | 1,407,299 | | |||
| Other liabilities | | 13,173 | | 13,511 | | 11,022 | | |||
| Total liabilities | | 1,655,409 | | 1,549,906 | | 1,418,321 | | |||
| Total stockholders' equity | | 237,094 | | 232,568 | | 198,555 | | |||
| Total Liabilities and Stockholders' Equity | | $ | 1,892,503 | | $ | 1,782,474 | | $ | 1,616,876 | |
| | | | | | | | | | | |
| Selected Financial Data | | **** | | **** | **** | | | |||
| Common shares outstanding | | 8,354,753 | | 8,320,317 | | 8,287,848 | | |||
| Book value per share | | $ | 28.38 | | $ | 27.95 | | $ | 23.96 | |
| Equity to assets | | 12.53 | % | 13.05 | % | 12.28 | % | |||
| | | | | | | | | | | |
| Capital Ratios ^(1)^ | | **** | | **** | **** | | | |||
| Tier 1 leverage ratio | | 11.70 | % | 12.60 | % | 12.07 | % | |||
| Common equity tier 1 capital ratio | | 14.67 | | 15.39 | | 14.13 | | |||
| Tier 1 capital ratio | | 14.67 | | 15.39 | | 14.13 | | |||
| Total capital ratio | | 15.92 | | 16.64 | | 15.38 | | |||
| | | | | | | | | | | |
| Asset Quality | | **** | **** | | **** | **** | | | ||
| Nonperforming loans | | $ | 10,940 | | $ | 10,940 | | $ | 10,940 | |
| Allowance for credit losses to total loans | | 1.50 | % | 1.50 | % | 1.38 | % | |||
| Nonperforming loans to total loans | | 0.78 | | 0.84 | | 0.91 | | |||
| Nonperforming assets to total assets | | 0.58 | | 0.61 | | 0.68 | | |||
| Allowance to nonperforming loans | | | 192 | | 178 | | | 152 | |
| (1) | Regulatory capital ratios presented on bank-only basis. The Bank has no recorded intangible assets on the Statement of Financial Condition, and accordingly, tangible common equity is equal to common equity. The decrease in bank-only capital ratios are a result of a $10 million dividend from the Bank to the Company during the fourth quarter of 2024. |
|---|
NM – Not meaningful
8
ESQUIRE FINANCIAL HOLDINGS, INC.
Consolidated Income Statement (unaudited)
(dollars in thousands except per share data)
| | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | | Year Ended | **** | |||||||||||
| | | December 31, | | September 30, | | December 31, | | December 31, | **** | |||||||
| | **** | 2024 | **** | 2024 | **** | 2023 | **** | 2024 | **** | 2023 | **** | |||||
| Interest income | | $ | 30,784 | | $ | 29,131 | | $ | 25,567 | | $ | 113,373 | | $ | 91,888 | |
| Interest expense | | 3,898 | | 3,273 | | 2,897 | | 13,444 | | 8,115 | | |||||
| Net interest income | | 26,886 | | 25,858 | | 22,670 | | 99,929 | | 83,773 | | |||||
| Provision for credit losses | | 1,700 | | 1,000 | | 1,500 | | 4,700 | | 4,525 | | |||||
| Net interest income after provision for credit losses | | 25,186 | | 24,858 | | 21,170 | | 95,229 | | 79,248 | | |||||
| | | | | | | | | | | | | | | | | |
| Noninterest income: | | | | | | | ||||||||||
| Payment processing fees | | 5,088 | | 5,169 | | 5,418 | | 20,875 | | 22,316 | | |||||
| Net gain on equity investments | | — | | — | | — | | — | | 4,013 | | |||||
| Other noninterest income | | 1,081 | | 893 | | 848 | | 4,020 | | 3,422 | | |||||
| Total noninterest income | | 6,169 | | 6,062 | | 6,266 | | 24,895 | | 29,751 | | |||||
| | | | | | | | | | | | | | | | | |
| Noninterest expense: | | | | | | | ||||||||||
| Employee compensation and benefits | | 9,634 | | 9,525 | | 8,761 | | 37,845 | | 32,481 | | |||||
| Other expenses | | 6,051 | | 5,833 | | 5,140 | | 22,998 | | 20,636 | | |||||
| Total noninterest expense | | 15,685 | | 15,358 | | 13,901 | | 60,843 | | 53,117 | | |||||
| Income before income taxes | | 15,670 | | 15,562 | | 13,535 | | 59,281 | | 55,882 | | |||||
| Income taxes | | 3,917 | | 4,202 | | 3,653 | | 15,623 | | 14,871 | | |||||
| Net income | | $ | 11,753 | | $ | 11,360 | | $ | 9,882 | | $ | 43,658 | | $ | 41,011 | |
| | | | | | | | | | | | | | | | | |
| Earnings Per Share | | | | | | | ||||||||||
| Basic | | $ | 1.49 | | $ | 1.45 | | $ | 1.28 | | $ | 5.58 | | $ | 5.31 | |
| Diluted | | | 1.37 | | | 1.34 | | | 1.18 | | | 5.14 | | | 4.91 | |
| Basic - adjusted ^(1)^ | | | 1.49 | | | 1.45 | | | 1.28 | | | 5.58 | | | 4.94 | |
| Diluted - adjusted ^(1)^ | | | 1.37 | | | 1.34 | | | 1.18 | | | 5.14 | | | 4.56 | |
| | | | | | | | | | | | | | | | | |
| Selected Financial Data | | | | | | | ||||||||||
| Return on average assets | | 2.49 | % | 2.62 | % | 2.59 | % | 2.57 | % | 2.89 | % | |||||
| Return on average equity | | 19.99 | | 20.29 | | 20.78 | | 20.14 | | 23.20 | | |||||
| Adjusted return on average assets ^(1)^ | | 2.49 | | 2.62 | | 2.59 | | 2.57 | | 2.68 | | |||||
| Adjusted return on average equity ^(1)^ | | 19.99 | | 20.29 | | 20.78 | | 20.14 | | 21.54 | | |||||
| Net interest margin | | 5.87 | | 6.16 | | 6.12 | | 6.06 | | 6.09 | | |||||
| Efficiency ratio ^(1)^ | | 47.5 | | 48.1 | | 48.0 | | 48.7 | | 46.8 | | |||||
| Adjusted efficiency ratio ^(1)^ | | 47.5 | | 48.1 | | 48.0 | | 48.7 | | 48.5 | | |||||
| | | | | | | | | | | | | | | | | |
| Cash dividends paid per common share | | $ | 0.150 | | $ | 0.150 | | $ | 0.125 | | $ | 0.600 | | $ | 0.475 | |
| | | | | | | | | | | | | | | | | |
| Weighted average basic shares | | | 7,869,435 | | | 7,815,197 | | | 7,730,151 | | | 7,817,626 | | | 7,716,367 | |
| Weighted average diluted shares | | | 8,588,925 | | | 8,503,966 | | | 8,387,587 | | | 8,487,041 | | | 8,345,586 | |
| (1) | See non-GAAP reconciliation provided elsewhere herein. |
|---|
9
ESQUIRE FINANCIAL HOLDINGS, INC.
Consolidated Average Balance Sheets and Average Yield/Cost (unaudited)
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | | ||||||||||||||||||||||
| | | December 31, | | September 30, | | December 31, | | ||||||||||||||||||
| | | 2024 | | 2024 | **** | 2023 | **** | ||||||||||||||||||
| | | Average | | **** | | | Average | | Average | | **** | | | Average | **** | Average | | **** | | | Average | **** | |||
| | **** | Balance | **** | Interest | **** | Yield/Cost | **** | Balance | **** | Interest | **** | Yield/Cost | **** | Balance | **** | Interest | **** | Yield/Cost | **** | ||||||
| INTEREST EARNING ASSETS | | | | | | | | | |||||||||||||||||
| Loans, held for investment | | $ | 1,315,392 | | $ | 25,731 | 7.78 | % | $ | 1,270,491 | | $ | 25,122 | 7.87 | % | $ | 1,169,411 | | $ | 23,028 | 7.81 | % | |||
| Securities, includes restricted stock | | 303,017 | | 2,619 | 3.44 | % | 279,768 | | 2,389 | 3.40 | % | 218,130 | | 1,439 | 2.62 | % | |||||||||
| Interest earning cash and other | | 205,281 | | 2,434 | 4.72 | % | 120,316 | | 1,620 | 5.36 | % | 83,103 | | 1,100 | 5.25 | % | |||||||||
| Total interest earning assets | | 1,823,690 | | 30,784 | 6.72 | % | 1,670,575 | | 29,131 | 6.94 | % | 1,470,644 | | 25,567 | 6.90 | % | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| NONINTEREST EARNING ASSETS | | 57,283 | | | 52,008 | | | 44,805 | | | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| TOTAL AVERAGE ASSETS | | $ | 1,880,973 | | | | | | $ | 1,722,583 | | | | | | $ | 1,515,449 | | | | | | |||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| INTEREST BEARING LIABILITIES | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Savings, NOW, Money Market deposits | | $ | 1,081,662 | | $ | 3,730 | 1.37 | % | $ | 940,920 | | $ | 3,129 | 1.32 | % | $ | 814,089 | | $ | 2,826 | 1.38 | % | |||
| Time deposits | | 14,111 | | 167 | 4.71 | % | 12,251 | | 143 | 4.64 | % | 8,366 | | 70 | 3.32 | % | |||||||||
| Total interest bearing deposits | | 1,095,773 | | 3,897 | 1.41 | % | 953,171 | | 3,272 | 1.37 | % | 822,455 | | 2,896 | 1.40 | % | |||||||||
| Borrowings | | 44 | | 1 | 9.04 | % | 44 | | 1 | 9.04 | % | 45 | | 1 | 8.82 | % | |||||||||
| Total interest bearing liabilities | | 1,095,817 | | 3,898 | 1.42 | % | | 953,215 | | 3,273 | 1.37 | % | | 822,500 | | 2,897 | 1.40 | % | |||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| NONINTEREST BEARING LIABILITIES | | | | | | | | ||||||||||||||||||
| Demand deposits | | 534,747 | | | 531,864 | | | 484,690 | | | |||||||||||||||
| Other liabilities | | 16,555 | | | 14,762 | | | 19,614 | | | |||||||||||||||
| Total noninterest bearing liabilities | | 551,302 | | | 546,626 | | | 504,304 | | | |||||||||||||||
| Stockholders' equity | | 233,854 | | | 222,742 | | | 188,645 | | | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| TOTAL AVG. LIABILITIES AND EQUITY | | $ | 1,880,973 | | | $ | 1,722,583 | | | $ | 1,515,449 | | | ||||||||||||
| Net interest income | | | $ | 26,886 | | | | $ | 25,858 | | | | $ | 22,670 | | | |||||||||
| Net interest spread | | | | | | | | 5.30 | % | | | | | | | 5.57 | % | | | | | | | 5.50 | % |
| Net interest margin | | | 5.87 | % | | 6.16 | % | | 6.12 | % | |||||||||||||||
| Deposits (including noninterest bearing demand deposits) | | $ | 1,630,520 | | $ | 3,897 | 0.95 | % | $ | 1,485,035 | | $ | 3,272 | 0.88 | % | $ | 1,307,145 | | $ | 2,896 | 0.88 | % |
10
ESQUIRE FINANCIAL HOLDINGS, INC.
Consolidated Average Balance Sheets and Average Yield/Cost (unaudited)
(dollars in thousands)
| | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year Ended December 31, | | ||||||||||||||
| | | 2024 | | 2023 | **** | ||||||||||||
| | | Average | | **** | | | Average | | Average | | **** | | | Average | **** | ||
| | **** | Balance | **** | Interest | **** | Yield/Cost | **** | Balance | **** | Interest | **** | Yield/Cost | **** | ||||
| INTEREST EARNING ASSETS | | | | | | ||||||||||||
| Loans, held for investment | | $ | 1,258,914 | | $ | 98,458 | 7.82 | % | $ | 1,051,903 | | $ | 81,188 | 7.72 | % | ||
| Securities, includes restricted stock | | 265,714 | | 8,636 | 3.25 | % | 210,776 | | 5,020 | 2.38 | % | ||||||
| Securities purchased under agreements to resell | | — | | — | — | | 27,142 | | 1,526 | 5.62 | % | ||||||
| Interest earning cash and other | | 123,805 | | 6,279 | 5.07 | % | 85,454 | | 4,154 | 4.86 | % | ||||||
| Total interest earning assets | | 1,648,433 | | 113,373 | 6.88 | % | 1,375,275 | | 91,888 | 6.68 | % | ||||||
| | | | | | | | | | | | | | | | | | |
| NONINTEREST EARNING ASSETS | | 52,157 | | | 45,703 | | | ||||||||||
| | | | | | | | | | | | | | | | | | |
| TOTAL AVERAGE ASSETS | | $ | 1,700,590 | | | | | | $ | 1,420,978 | | | | | | ||
| | | | | | | | | | | | | | | | | | |
| INTEREST BEARING LIABILITIES | | | | | | ||||||||||||
| | | | | | | | | | | | | | | | | | |
| Savings, NOW, Money Market deposits | | $ | 945,899 | | $ | 12,889 | 1.36 | % | $ | 715,004 | | $ | 7,635 | 1.07 | % | ||
| Time deposits | | 12,281 | | 551 | 4.49 | % | 13,159 | | 476 | 3.62 | % | ||||||
| Total interest bearing deposits | | 958,180 | | 13,440 | 1.40 | % | 728,163 | | 8,111 | 1.11 | % | ||||||
| Borrowings | | 44 | | 4 | 9.09 | % | 46 | | 4 | 8.70 | % | ||||||
| Total interest bearing liabilities | | 958,224 | | 13,444 | 1.40 | % | | 728,209 | | 8,115 | 1.11 | % | |||||
| | | | | | | | | | | | | | | | | | |
| NONINTEREST BEARING LIABILITIES | | | | | | ||||||||||||
| Demand deposits | | 510,868 | | | 497,795 | | | ||||||||||
| Other liabilities | | 14,755 | | | 18,210 | | | ||||||||||
| Total noninterest bearing liabilities | | 525,623 | | | 516,005 | | | ||||||||||
| Stockholders' equity | | 216,743 | | | 176,764 | | | ||||||||||
| | | | | | | | | | | | | | | | | | |
| TOTAL AVG. LIABILITIES AND EQUITY | | $ | 1,700,590 | | | $ | 1,420,978 | | | ||||||||
| Net interest income | | | $ | 99,929 | | | | $ | 83,773 | | | ||||||
| Net interest spread | | | | | | | | 5.48 | % | | | | | | | 5.57 | % |
| Net interest margin | | | 6.06 | % | | 6.09 | % | ||||||||||
| Deposits (including noninterest bearing demand deposits) | | $ | 1,469,048 | | $ | 13,440 | 0.91 | % | $ | 1,225,958 | | $ | 8,111 | 0.66 | % |
11
ESQUIRE FINANCIAL HOLDINGS, INC.
Consolidated Non-GAAP Financial Measure Reconciliation (unaudited)
(all dollars in thousands except per share data)
We believe that these non-GAAP financial measures provide information that is important to investors and that is useful in understanding our financial position, results and ratios. However, these non-GAAP financial measures are supplemental and are 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.
Adjusted net income, which is used to compute adjusted return on average assets, adjusted return on average equity and adjusted earnings per share, excludes the impact of the recognized gain, net of tax, on the Company’s equity investments.
| | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Three Months Ended | | Year Ended | | |||||||||||
| | December 31, | | September 30, | | December 31, | | December 31, | | |||||||
| | 2024 | | 2024 | | 2023 | | 2024 | | 2023 | | |||||
| Net income – GAAP | $ | 11,753 | | $ | 11,360 | | $ | 9,882 | | $ | 43,658 | | $ | 41,011 | |
| Less: Net gain on equity investments | | — | | | — | | | — | | | — | | | (4,013) | |
| Add: income tax impact | | — | | | — | | | — | | | — | | | 1,083 | |
| Adjusted net income | $ | 11,753 | | $ | 11,360 | | $ | 9,882 | | $ | 43,658 | | $ | 38,081 | |
| | | | | | | | | | | | | | | | |
| Return on average assets – GAAP | | 2.49 | % | | 2.62 | % | | 2.59 | % | | 2.57 | % | | 2.89 | % |
| Adjusted return on average assets | | 2.49 | % | | 2.62 | % | | 2.59 | % | | 2.57 | % | | 2.68 | % |
| | | | | | | | | | | | | | | | |
| Return on average equity – GAAP | | 19.99 | % | | 20.29 | % | | 20.78 | % | | 20.14 | % | | 23.20 | % |
| Adjusted return on average equity | | 19.99 | % | | 20.29 | % | | 20.78 | % | | 20.14 | % | | 21.54 | % |
| | | | | | | | | | | | | | | | |
| Basic earnings per share – GAAP | $ | 1.49 | | $ | 1.45 | | $ | 1.28 | | $ | 5.58 | | $ | 5.31 | |
| Adjusted basic earnings per share | $ | 1.49 | | $ | 1.45 | | $ | 1.28 | | $ | 5.58 | | $ | 4.94 | |
| | | | | | | | | | | | | | | | |
| Diluted earnings per share – GAAP | $ | 1.37 | | $ | 1.34 | | $ | 1.18 | | $ | 5.14 | | $ | 4.91 | |
| Adjusted diluted earnings per share | $ | 1.37 | | $ | 1.34 | | $ | 1.18 | | $ | 5.14 | | $ | 4.56 | |
The following table presents a reconciliation of efficiency ratio (non-GAAP) and adjusted efficiency ratio (non-GAAP).
| | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Three Months Ended | | Year Ended | | |||||||||||
| | December 31, | | September 30, | | December 31, | | December 31, | | |||||||
| | 2024 | | 2024 | | 2023 | | 2024 | | 2023 | | |||||
| Efficiency ratio – non-GAAP^(1)^ | | 47.5 | % | | 48.1 | % | | 48.0 | % | | 48.7 | % | | 46.8 | % |
| Noninterest expense – GAAP | $ | 15,685 | | $ | 15,358 | | $ | 13,901 | | $ | 60,843 | | $ | 53,117 | |
| Net interest income – GAAP | | 26,886 | | | 25,858 | | | 22,670 | | | 99,929 | | | 83,773 | |
| Noninterest income – GAAP | | 6,169 | | | 6,062 | | | 6,266 | | | 24,895 | | | 29,751 | |
| Less: Net gain on equity investments | | — | | | — | | | — | | | — | | | (4,013) | |
| Adjusted noninterest income – non-GAAP | $ | 6,169 | | $ | 6,062 | | $ | 6,266 | | $ | 24,895 | | $ | 25,738 | |
| Adjusted efficiency ratio – non-GAAP^(2)^ | | 47.5 | % | | 48.1 | % | | 48.0 | % | | 48.7 | % | | 48.5 | % |
| (1) | The reported efficiency ratio is a non-GAAP measure calculated by dividing GAAP noninterest expense by the sum of GAAP net interest income and GAAP noninterest income. |
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| (2) | The adjusted efficiency ratio is a non-GAAP measure calculated by dividing GAAP noninterest expense by the sum of GAAP net interest income and adjusted noninterest income. |
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12
The following table presents the adjusted tangible common equity to tangible assets calculation (non-GAAP):
| | | | |
|---|---|---|---|
| | December 31, | | |
| | 2024 | | |
| Total assets - GAAP | $ | 1,892,503 | |
| Less: intangible assets | | — | |
| Tangible assets ("TA") - non-GAAP | | 1,892,503 | |
| | | | |
| Total stockholders' equity - GAAP | $ | 237,094 | |
| Less: intangible assets | | — | |
| Less: preferred stock | | — | |
| Tangible common equity ("TCE") - non-GAAP | | 237,094 | |
| Add: unrecognized losses on securities held-to-maturity, net of tax | | (5,604) | |
| Adjusted TCE - non-GAAP | $ | 231,490 | |
| | | | |
| Stockholders' equity to assets - GAAP | | 12.53 | % |
| TCE to TA - non-GAAP | | 12.53 | % |
| Adjusted TCE to TA - non-GAAP | | 12.23 | % |
The following table presents the common equity tier 1 capital ratio and the adjusted common equity tier 1 capital ratio:
| | | | |
|---|---|---|---|
| | December 31, | | |
| | 2024 | | |
| Common equity tier 1 ("CET1") capital - Bank | $ | 218,419 | |
| Add: unrealized losses on securities available-for-sale , net of tax | | (14,287) | |
| Add: unrecognized losses on securities held-to-maturity, net of tax | | (5,604) | |
| Adjusted CET1 capital - Bank | $ | 198,528 | |
| | | | |
| Total risk-weighted assets - Bank | $ | 1,488,855 | |
| | | | |
| CET1 capital ratio^(1)^ | | 14.67 | % |
| Adjusted CET1 capital ratio^(1)^ | | 13.33 | % |
| (1) | Regulatory capital ratios presented on bank-only basis. The Bank has no recorded intangible assets on the Statement of Financial Condition, and accordingly, tangible common equity is equal to common equity. |
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13
| Ensuring our Clients<br>and Our Institution<br>Succeed Boldly<br>Listed as ESQ<br>Esquire Financial Holdings, Inc.<br>(Financial Holding Company for Esquire Bank, N.A.)<br>4Q & Full Year 2024 Investor Presentation<br>Exhibit 99.2 |
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| Forward Looking Disclosure<br>This presentation contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not historical fact and<br>express management’s current expectations, forecasts of future events or long-term goals and, by their nature, are subject to assumptions, risks and uncertainties,<br>many of which are beyond the control of the Company. These statements are may be identified through the use of words or phrases such as “may,” “might,”<br>“should,” “could,” “predict,” “potential,” “believe,” “expect,” “attribute,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “goal,” “target,”<br>“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.<br>Forward-looking statements speak only as of the date they are made and are inherently subject to uncertainties and changes in circumstances, including those<br>described under the heading “Risk Factors” in the Company’s 10-K and 10-Q, filed with the Securities and Exchange Commission (“SEC”). Forward-looking<br>statements are not guarantees of future performance and should not be relied upon as representing management’s views as of any subsequent date. Actual results<br>could differ materially from those indicated. The Company undertakes no obligation to update forward-looking statements, whether as a result of new information,<br>future events or otherwise, except as may be required by law.<br>The forward-looking statements speak as of the date of this presentation. The delivery of this presentation shall not, under any circumstances, create any implication<br>there has been no change in the affairs of the Company after the date hereof.<br>This presentation includes industry and market data that we obtained from periodic industry publications, third-party studies and surveys. Industry publications and<br>surveys generally state that the information contained therein has been obtained from sources believed to be reliable. Although we believe the industry and market<br>data to be reliable as of the date of this presentation, this information could prove to be inaccurate. Industry and market data could be wrong because of the method<br>by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of<br>raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. In addition, we do not know all of the assumptions regarding<br>general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited herein.<br>This presentation contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States<br>of America (“GAAP”). We believe that these non-GAAP financial measures provide information that is important to investors and that is useful in understanding our<br>financial position, results and ratios. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP<br>measures. As other companies may use different calculations for this measure, this presentation may not be comparable to other similarly titled measures by other<br>companies.<br>These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.<br>A reconciliation of the non-GAAP measures used in this presentation to the most directly comparable GAAP measures is provided in the Appendix to this<br>presentation.<br>2 |
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| Decades of expertise in the national litigation market<br> Asset sensitive model anchored by law firm loans<br>yielding approx. 9.36%<br> Branchless and tech enabled core deposit platform<br>funded at 0.91% (0.95% in 4Q ‘24)<br> Driving loan and deposit growth with a 5 Year CAGR of<br>approximately 20% since 2020<br> Decades of expertise in sales, risk, and compliance<br>management<br> Independent Sales Organization (“ISO”) model with<br>88,000 merchants nationally<br> Total fee income represents 20% (19% in 4Q ‘24) of<br>total revenue<br> Strong growth and stable fee income with a 5 Year<br>CAGR of 14% since 2020<br> ROA and ROTCE of 2.57% and 20.14%, respectively<br>(2.49% and 19.99% in 4Q ‘24)<br> Industry leading NIM of 6.06% (5.87% in 4Q ‘24)<br> Diversified revenue stream with strong NIM and stable<br>fee income<br> Strong efficiency ratio of 48.7% (47.5% in 4Q ‘24) while<br>investing in resources (employees, technology, and<br>digital marketing) for future growth<br> A digital-first disruptor bank with best-in-class<br>technology fueling future growth and industry<br>leading client retention rates<br> Account-based digital marketing (“ABM”) from our<br>CRM to power prospective client engagements<br>nationally<br> Leveraged artificial intelligence (“AI”), advanced<br>data analytics, and personalization features to<br>deliver real-time thought leadership content<br>Nationwide Branchless Tech Enabled Litigation<br>& Payment Processing Verticals<br>Generating Industry Leading Growth, Returns, & Performance Metrics<br>Litigation Vertical<br>Commercial Banking Nationally<br>Industry Leading Returns<br>Fueled by Branchless and Tech Enabled<br>National Verticals<br>Payment Processing Vertical<br>(Merchant Services)<br>Small Business Banking Nationally<br>Technology – the Future<br>A Catalyst for Strong Growth<br>3<br>How Our Clients Succeed Boldly |
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| Strong Growth Driven by<br>Unique National Verticals<br>How Esquire Succeeds Boldly<br>Key Highlights<br> Strong growth in higher yielding variable rate<br>commercial loans nationally<br> Stable low-cost branchless and tech enabled deposit<br>model<br> Equity to Assets of 12.53% (Adjusted(1) 12.23%)<br> Common Equity Tier 1 of 14.67% (Adjusted(1) 13.33%)<br>4<br>at December 31, 2024<br>(1) See non-GAAP reconciliation provided in the appendix. |
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| Stable low-cost branchless funding model with a strong commercial deposit franchise nationally<br> DDA and escrow-based NOW/IOLTA accounts represent 30% and 60% of total deposits at December 31, 2024, respectively<br> Higher yielding variable rate commercial loans anchored by our national litigation portfolio<br> Asset sensitive balance sheet with approximately 90% of our variable rate commercial loans having one-year interest rate floors at<br>their origination or renewal dates<br>How Esquire Succeeds Boldly<br>5<br>Industry Leading Net Interest Margin |
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| Strong Revenue Growth<br>($ in thousands) at December 31, 2024<br>How Esquire Succeeds Boldly<br>6<br>Key Highlights<br> Strong net interest<br>margin<br> Stable payment<br>processing fee income<br> Growing ASP fee<br>income derived from<br>off-balance sheet funds<br>management |
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| Financial Highlights<br>How Esquire Succeeds Boldly<br>Key Highlights<br> Industry leading returns<br> Named to Fortune’s Annual 100 Fastest-Growing Companies List in<br>2024<br> Named to the KBW 2024 Bank Honor Roll<br> Named to the Piper Sandler 2023 Bank & Thrift Small Market-All Stars<br> Raymond James’ Top Performing Community Bank (2018-2023)<br> Book value per share and equity to assets are $28.38 and 12.53% at<br>December 31, 2024, respectively<br>7<br>at December 31, 2024<br>(1) The adjusted results exclude a nonrecurring pretax $4.0 million net gain on equity investments. See<br>non-GAAP reconciliation provided in the appendix. |
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| Loan Portfolio Diversification<br>with Focused Growth<br> Focused growth in higher yielding variable rate commercial loans with strong credit metrics on a national basis<br> Selective multifamily loan growth with strong historical performance, DSCRs, and LTVs in the NY metro market<br>How Esquire Succeeds Boldly<br>8<br>at December 31, 2024 |
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| Substantially all of our $921 million in commercial<br>loans are variable rate and tied to prime<br>comprising approximately 66% of our loan<br>portfolio<br> Approximately 90% of our variable rate<br>commercial loan portfolio was originated (or<br>renewed annually) with interest rate floors in place<br> Asset sensitive<br>– estimated sensitivity of projected<br>annualized net interest income (“NII”) down 100<br>and 200 basis point rate scenarios decreases<br>projected NII by 4.5% and 9.7%, respectively at<br>September 30, 2024<br>Loan Portfolio<br>Diversification with<br>Focused Growth<br>How Esquire Succeeds Boldly<br>9 |
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| Commercial Litigation<br>(Law Firm) Loans<br> Full annual underwriting including, but not limited to:<br> 3 years financials and tax returns (business and personal)<br> Full contingent case inventory valuation process & collateral<br>assignment or UCC-1<br> Personal guarantees for the majority of loans, including personal<br>background checks<br> Diversity across law firm inventories and collateral<br> Average loan-to-collateral fee value or LTV of less than 13%<br> Strong average DSCR (on average > 3.0x)<br> Average draws against committed and uncommitted line-of-credit<br>(“LOC”) and case disbursement loans of approximately 50%<br> Weighted average interest rate of approximately 9.36%<br> Funded with low-cost contingent law firm litigation deposits<br> Litigation deposits to litigation loan facilities drawn is<br>approximately 144%<br>How Esquire Succeeds Boldly<br>10 |
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| Esquire’s Bold Opportunities<br>New York Metro Area<br>Real Estate<br>A Reliable Asset Class & Liquidity Source<br> Selective in our property and borrower selection process Strong generational owners/operators with high quality net worth Minimal historical losses No office nor construction loan exposure Average current DSCR exceeding 1.6x Average original LTV of approximately 55% Rent regulated, free market, and mixed (both rent regulated and<br>free market) represent approximately one<br>-third each of the $355<br>million multifamily loan portfolio<br> CRE exposure is 186% of Esquire Bank’s regulatory Tier 1<br>capital plus the allowance for credit losses (“ACL”). CRE<br>exposure is 163% of consolidated EFHI regulatory Tier 1 capital<br>plus the ACL<br> Pledged Multifamily and Residential loan portfolio provides<br>liquidity totaling $199.4 million through the Federal Home<br>Loan Bank of NY (“FHLB”) program as of December 31, 2024<br>11 |
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| Multifamily & CRE Maturities<br>at December 31, 2024<br> Multifamily loans totaling $107.9 million mature over the next two years with $21.8 million, or 20%, having an LTV in excess of 70%<br> Other CRE loans totaling $5.5 million mature over the next two years with no loans in excess of 70% LTV<br>How Esquire Succeeds Boldly<br>12 |
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| Solid Credit Metrics, Asset Quality<br>and ACL Coverage<br>How Esquire Succeeds Boldly<br>at December 31, 2024<br>Note – All asset quality metrics are based on our loans held for investment portfolio (1) NFL consumer loan portfolio - $9.0 million charge-off.<br>13 |
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| Deposit Composition and Growth<br> Our tech enabled deposit platform utilizes our corporate cash management suite of services, creating a highly efficient<br>branchless platform<br> Our overall liquidity position (cash, borrowing capacity, and available reciprocal client sweep balances) totaled $1.1 billion, or<br>64% of total deposits, creating a highly liquid and unlevered balance sheet<br>How Esquire Succeeds Boldly<br>14<br>($ in millions) at December 31, 2024 |
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| *Note: Excludes sweeps totaling $554 million<br>Deposit Composition<br>Details<br> DDA and NOW (escrow funds) deposits total 90% of<br>total deposits, representing stable funding sources in<br>various interest rate scenarios<br> Litigation and payment processing deposits represent<br>74% and 10% of total deposits at December 31, 2024,<br>respectively<br> Uninsured deposits (excluding $12.4 million of affiliate<br>deposits) totaled $464 million, or 28%, of total deposits<br>with approximately 80% representing clients with full<br>relationship banking including, but not limited to, law<br>firm operating accounts, certain balances of escrow<br>accounts, merchant reserves, ISO reserves, ACH<br>processing, and custodial accounts<br> Off-balance sheet sweep funds totaled $554 million at<br>December 31, 2024, with $424 million, or 77%,<br>available for additional on-balance sheet liquidity<br>How Esquire Succeeds Boldly<br>15 |
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| Currently servicing 88,000 merchants across 50 states in our payment processing (merchant acquiring) vertical<br> Fee income, primarily payment processing fees, represents 20% of total revenue for the year ended December 31, 2024<br>How Esquire Succeeds Boldly<br>Strong Growth in Stable Noninterest Income<br>at December 31, 2024<br>16 |
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| How Esquire Succeeds Boldly<br>Key Highlights<br> Strong and stable DDA<br>reserves<br> Protecting capital from<br>merchant chargebacks<br>and returns<br>17<br>Protecting Our Company with Strong Payment<br>Processing Reserves<br>at December 31, 2024 |
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| Significant national markets primed<br>for disruption: $443 billion &<br>100,000+ firms in the litigation<br>vertical and $10.9 trillion and<br>10+ million merchants in the<br>payment processing vertical<br>Key Takeaways<br>Why Esquire is Set to Succeed Boldly<br>Tremendous untapped potential:<br>Esquire’s current market share is a<br>fraction of both national verticals that<br>are primed for disruption by our client-centric & tech-focused institution<br>We are thought leaders<br>in the litigation vertical and<br>provide C-suite access<br>for ISO flexibility in the<br>payment processing vertical<br>Differentiated and positioned for growth:<br>With industry leading tailored<br>products and state-of-the-art<br>technology geared towards effective<br>client acquisition<br>18 |
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| Technology Driving Bold Success<br>Client Centric Technology<br>A Key Driver for Future Growth<br>Website<br>Artificial Intelligence*<br>Marketing<br>Sales<br>Underwriting<br>Onboarding<br>Marketing<br>Cloud<br>AI to facilitate precision marketing and<br>exponential customer acquisition across<br>all verticals<br>Website analytics, data enrichment and<br>thought leadership content marketing<br>Precision marketing – right offer right<br>time<br>Sales enablement, pipeline management<br>and forecasting<br>Underwriting efficiency & risk<br>management / cash management and<br>mobile banking / online applications<br>Customer onboarding / core banking<br> Partnering with best-in-class software vendors and solutions, with custom development to service all verticals at the bank<br> Proprietary CRM built on Salesforce platform housing all client data touch points from prospect to boarding with a single<br>client view, enabling high volume client acquisition strategies and excellence in client service<br>* Deployment of AI technologies applicable only to sales and marketing processes and not used as a decisioning tool for loan underwriting processes.<br>19<br>Online Banking |
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| Succeeding<br>Boldly<br>Listed as ESQ<br>Contact Information:<br>Eric S. Bader<br>Executive Vice President & Chief<br>Operating Officer<br>516-535-2002<br>eric.bader@esqbank.com |
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| Appendix & Supplemental Disclosure<br>National Markets – Litigation &<br>Payment Processing Verticals<br>&<br>Non-GAAP Reconciliation |
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| The Esquire Competitive Advantage<br>Esquire’s Bold Opportunities<br>U.S. Litigation Market<br>A Significant Growth Opportunity<br> U.S. Tort actions are estimated to consume 2.1% of U.S. GDP* annually or $443 billion*<br> Esquire does not compete with non-bank finance companies<br> Significant barriers to entry – management expertise, brand awareness,<br>regulatory/compliance, and decades of experience<br>Decades of Industry<br>Track Record<br>Extensive Litigation<br>Experience In-House<br>Deep Relationships with<br>Respected Firms<br>Nationally<br>Daily Resources<br>and Research<br>Cash Flow Lending Coupled<br>with Borrowing Base or<br>Asset Based Approach<br>Tailoring unique products other banks do not offer<br>Typically advancing more than traditional banks, on traditional banking terms<br>22<br>Key Highlights<br> $443 billion* Total<br>Addressable Market<br>(“TAM”) in litigation vertical<br> Esquire is a tailored,<br>differentiated brand and<br>thought leader in the<br>litigation market<br>*US Chamber of Commerce Institute for Legal Reform – “Tort Costs in America – An Empirical Analysis of Costs and Compensation of U.S. Tort System”. Published in November 2022. |
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| 23<br>Digitally Transforming The Business of Law<br>Aligning Law Firm Case Inventory Lifecycle<br>to Customer Retention<br>Client<br>Incident<br>Receive<br>Intake<br>Case<br>Management<br>Settlement/<br>Verdict<br>Disbursement<br>$<br>1-3 Years (+)<br>Products<br> Case Cost Loans<br> Working Capital Loans<br> Firm and Partner Acquisition Loans<br> Term Loans to Finance Case Acquisition &<br>Growth<br> Escrow Banking and QSF Settlement Services<br> Plaintiff Banking including Exclusive Prepaid<br>Card Offering<br>Technology<br> Esquire Insight – Case Management<br>Technology<br> Commercial Cash Management<br> Case Cost Management<br> Online Applications<br> Thought Leadership - Digital Platform<br>and Content<br>23 |
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| Payment Processing – Current ISO Model<br>How Esquire Succeeds Boldly<br>What is an ISO?<br>ISO Responsibilities<br>They Do<br> Merchant Vertical and Technology<br>Focus<br> Sales Agent Model<br> Performs Initial Underwriting<br> Boards Merchant to Payment<br>Processing Platform<br> Installation of Merchant Equipment<br> Manage Call Center for Merchant<br>Clients<br> Merchant Risk and PCI Compliance<br>Bank Responsibilities<br>We Do<br> Robust Policies<br> Tech Enabled Card Brand and<br>Regulatory Compliance<br> Support Multiple Processing Systems<br> Assess ISO Verticals<br> Re-underwrite Merchant Applications<br> Utilize Industry Leading Risk<br>Management Technology<br> Daily and Month End Risk and<br>Compliance Management<br> Commercial Treasury Function for<br>Merchant Clearing and ISO Cash<br>Management<br> Maintaining and Monitor ISO and<br>Merchant Reserves (DDA) 24 |
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| The payments industry CAGR was 10% from 2019 to 2023 to an estimated total payment volume of $10.9 trillion<br>Esquire’s Bold Opportunities<br>Payment Volume Trends –<br>A Significant Growth Opportunity<br>Sources: Company Financial Records, Note: PayPal figures represent PayPal’s estimated U.S.percent share of “Total Payment Volume” (TPV).PayPal volume includes volume from a bank account, a PayPal<br>account balance, a PayPalCredit account, a credit or debit card or other stored value products such as coupons and gift cards. Assuch, some of this volume may be included in other networks aswell.<br>PayPal’s classification in the payments industry ecosystem is varied/debated as it performs functions attributed to a payment network, an issuer, acquirer, etc., and its financial reporting does not directly<br>align with other payment network reporting structures and methods. Discover volume includes Discover Network and PulseNetwork transactions.<br>25<br>at December 31, 2023 ($ in billions) |
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| Appendix<br>(all dollars in thousands except per share data)<br>26<br>Non-GAAP Financial Measure Reconciliation<br>We believe that these non-GAAP financial measures provide information that is important to investors and that is useful in<br>understanding our financial position, results and ratios. However, these non-GAAP financial measures are supplemental and are not a<br>substitute for an analysis based on GAAP measures. As other companies may use different calculations for this measure, this<br>presentation may not be comparable to other similarly titled measures by other companies.<br>Adjusted net income, which is used to compute adjusted return on average assets, adjusted return on average equity and adjusted<br>earnings per share, excludes the impact of the net recognized gain, net of tax, on the Company’s equity investments.<br>Year Ended<br>December 31,<br>2023<br>Net income – GAAP $ 41,011<br> Less: net gain on equity investments (4,013)<br> Add: income tax impact 1,083<br>Adjusted net income $ 38,081<br>Return on average assets – GAAP 2.89 %<br>Adjusted return on average assets 2.68 %<br>Return on average equity – GAAP 23.20 %<br>Adjusted return on average equity 21.54 %<br>Basic earnings per share – GAAP $ 5.31<br>Adjusted basic earnings per share $ 4.94<br>Diluted earnings per share – GAAP $ 4.91<br>Adjusted diluted earnings per share $ 4.56 |
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| Appendix<br>(all dollars in thousands)<br>27<br>Non-GAAP Financial Measure Reconciliation<br>(Cont’d)<br>The following table presents the adjusted tangible common equity to tangible assets calculation (non-GAAP):<br>December 31,<br>2024<br>Total assets - GAAP $ 1,892,503<br>Less: intangible assets —<br>Tangible assets ("TA") - non-GAAP 1,892,503<br>Total stockholders' equity - GAAP $ 237,094<br> Less: intangible assets —<br> Less: preferred stock —<br>Tangible common equity ("TCE") - non-GAAP 237,094<br>Add: unrecognized losses on securities held-to-maturity, net of tax (5,604)<br>Adjusted TCE - non-GAAP $ 231,490<br>Stockholders' equity to assets - GAAP 12.53 %<br>TCE to TA - non-GAAP 12.53 %<br>Adjusted TCE to TA - non-GAAP 12.23 % |
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| Appendix<br>(all dollars in thousands)<br>28<br>Non-GAAP Financial Measure Reconciliation<br>(Cont’d)<br>The following table presents the common equity tier 1 capital ratio and the adjusted common equity tier 1 capital ratio:<br>(1) Regulatory capital ratios presented on bank-only basis. The Bank has no recorded intangible assets on the Statement of Financial<br>Condition, and accordingly, tangible common equity is equal to common equity.<br>December 31,<br>2024<br>Common equity tier 1 ("CET1") capital - Bank $ 218,419<br>Add: unrealized losses on securities available-for-sale , net of tax (14,287)<br>Add: unrecognized losses on securities held-to-maturity, net of tax (5,604)<br>Adjusted CET1 capital - Bank $ 198,528<br>Total risk-weighted assets - Bank $ 1,488,855<br>CET1 capital ratio(1) 14.67 %<br>Adjusted CET1 capital ratio(1) 13.33 % |
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