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): April 25, 2022
Esquire Financial Holdings, Inc.
(Exact name of the registrant as specified in its charter)
| - | | |
|---|---|---|
| Maryland | 001-38131 | 27- 5107901 |
| (State or other jurisdiction of<br><br>incorporation or organization) | (Commission File Number) | (IRS Employer<br><br>Identification No.) |
| | | |
|---|---|---|
| 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):
| | |
|---|---|
| ☐ | 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:
| <br><br> | ||
|---|---|---|
| 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 April 25, 2022, 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 ended March 31, 2022. 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.
| | ||
|---|---|---|
| Exhibit No. | | Description |
| 99.1 | | Press Release dated April 25, 2022. |
| 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.
| | |
|---|---|
| | ESQUIRE FINANCIAL HOLDINGS, INC. |
| | |
| | |
| | |
| Dated: April 25, 2022 | By:/s/ Andrew C. Sagliocca |
| | Andrew C. Sagliocca |
| | President and Chief Executive Officer |
Exhibit 99.1
ESQUIRE FINANCIAL HOLDINGS, INC.
REPORTS FIRST QUARTER 2022 RESULTS
Continued Strong Growth and Asset Sensitive Balance Sheet Well Positioned for Rising Rates
Jericho, NY – April 25, 2022 – Esquire Financial Holdings, Inc. (NASDAQ: ESQ) (the “Company”), the financial holding company for Esquire Bank, National Association (“Esquire Bank”), today announced its operating results for the first quarter of 2022. Significant achievements during the quarter include:
| ● | Net income of $5.3 million, or $0.66 per diluted share, as compared to $6.7 million, or $0.83 per diluted share on a linked quarter basis. Net income for the fourth quarter of 2021 included a tax benefit of approximately $1.2 million, or $0.14 per diluted share, related to the exercise of certain stock options. |
|---|
| ● | Returns on average assets and equity of 1.92% and 15.06%, respectively, as compared to 1.81% and 13.30% for the comparable prior year period. |
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| ● | Industry leading net interest margin of 4.43% anchored by variable rate commercial loans and low-cost core deposits. Approximately 54% of our loan portfolio is variable rate and tied to prime, positively impacting earnings as short-term interest rates increase. |
|---|
| ● | Our loan portfolio increased $33.5 million, or 17% annualized, to $818.0 million on a linked quarter basis, as we continued to focus our efforts and resources on higher yielding variable rate commercial loans anchored by our national litigation portfolio. Excluding the final repayments of our Paycheck Protection Program (“PPP”) loans in the quarter, annualized loan growth was approximately 20%. |
|---|
| ● | Continued solid credit metrics, asset quality and reserve coverage ratios with minimal nonperforming loans and a reserve for loan losses to total loans of 1.16%. |
|---|
| ● | On April 1, 2022, the Company finalized the sale of its legacy NFL consumer post settlement loan portfolio to a third party sponsored entity (or “Fund”) in exchange for a nonvoting economic interest in the Fund valued at $13.5 million. |
|---|
| ● | Deposits increased $61.5 million on a linked quarter basis, or 24% annualized, to $1.1 billion supported by our stable low-cost core deposits with a cost-of-funds of 0.10%. Demand deposits and escrow-based NOW accounts represented 45% and 34% of total deposits, respectively, and were a direct result of our highly efficient branchless and technology-enabled deposit platforms. Off-balance sheet sweep funds totaled $618.0 million at quarter end, representing additional sources of funding for future growth. |
|---|
| ● | Continued stable payment processing fee income totaling $5.3 million across 68,000 small business clients nationally. Our technology enabled payments platform facilitated the processing of $6.2 billion in payment volume across 117.8 million transactions for our clients. Fee income represents 32% of total revenue. |
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| ● | For the fourth consecutive year, the Company was named a top performing institution by Raymond James (Top Performing Community Banks in the US for 2021). |
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| ● | Esquire Bank remains well above the bank regulatory “Well Capitalized” standards. |
|---|
“Esquire’s industry leading performance metrics once again placed us among the top performing financial services companies in the country,” stated Tony Coelho, Chairman of the Board of Directors. “Our vision is to create a client-centric and technology-focused institution for our national verticals that is disruptive and valuable to these markets. We plan to continue to serve these markets, our shareholders, and team members with value creation beyond our financial sector peer group.”
“We believe our Company is ripe for growth in two expansive national markets primed for disruption,” stated Andrew C. Sagliocca, Chief Executive Officer and President. “There is tremendous potential in both the litigation and payment markets primarily due to the limited number of players and fragmented and inefficient approach to coupling financing, payment processing, and technology. We believe Esquire will be a leader in all three categories in both industries.”
First Quarter Earnings
Net income for the quarter ended March 31, 2022 was $5.3 million, or $0.66 per diluted share, compared to $4.2 million, or $0.53 per diluted share for the same period in 2021. Returns on average assets and equity for the current quarter were 1.92% and 15.06%, respectively, compared to 1.81% and 13.30% for the same period of 2021.
Net interest income for the first quarter of 2022 increased $1.7 million, or 17.2%, to $11.8 million, due to growth in average interest earning assets totaling $173.8 million, or 19.2%, to $1.1 billion when compared to the same period in 2021. Our net interest margin decreased slightly to 4.43% for the first quarter of 2022, supported by the origination of higher yielding commercial loans primarily funded with low-cost core deposits. Average loans in the quarter increased $99.0 million, or 14.6%, to $776.5 million when compared to the first quarter of 2021, fueled by growth in our commercial and multifamily loan portfolios. Excluding the effects of our PPP and NFL portfolios, average loan growth was approximately 24% when comparing the current quarter with the comparable prior period. Our loan-to-deposit ratio was 75.1% as our low cost deposit base increased $230.3 million, or 26.8%, fueled by demand and escrow deposits.
The provision for loan losses was $640 thousand for the first quarter of 2022, a $1.2 million decrease from the same period in 2021. The decrease in the provision relates to the reduced pandemic related uncertainty and the reclassification of the NFL loan portfolio to loans held for sale in the third quarter 2021. As of March 31, 2022, Esquire had nonperforming loans held for investment of $7 thousand and an allowance to loans ratio of 1.16%.
Noninterest income was $5.5 million for the first quarter of 2022, consistent with the first quarter of 2021, driven by our payment processing platform. Payment processing volumes and transactions for the credit and debit card processing platform increased $1.3 billion, or 25.5%, to $6.2 billion and 23.2 million, or 24.5%, to 117.8 million transactions, respectively, for the quarter ended March 31, 2022, as compared to the same period in 2021. These increases were driven by expansion of our sales channels through ISOs, increased number of merchants, volume increases, the reopening of the economy post pandemic and were facilitated by our focus on technology and other resources in the payments vertical. We use proprietary and industry leading technology to ensure card brand and regulatory compliance, support multiple processing platforms, manage daily risk across 68,000 small business merchants in all 50 states, and perform commercial treasury clearing services for approximately $6.2 billion in processing volume across 117.8 million transactions. During the current quarter, our payment processing fee income stabilized as higher margin e-commerce volumes decreased, primarily due to the reopening of the economy as pandemic restrictions continued to ease nationally.
Noninterest expense increased $1.2 million, or 14.6%, to $9.4 million for the first quarter of 2022, as compared to the same period in 2021. This increase was primarily driven by increases in employee compensation and benefits, data processing, occupancy and equipment, and travel and business relations, offset by a decrease in professional and consulting services. Employee compensation and benefits costs increased $1.1 million, or 22.8%, due to increases in staff and officer level employees to support our growth, investment in digital platforms and related sales/marketing divisions, and the impact of salary, bonus and stock-based compensation increases. Due to the effects of inflation on the overall economy and consumer prices, we pro-actively increased our employees’ base salary at year-end in excess of industry and national averages to support employee retention. Professional and consulting service costs decreased $164 thousand, or 21.2%, partially offsetting the increase in employee compensation and benefits as previously contracted consultants were hired, primarily in our technology development and digital marketing departments. Data processing costs increased $157 thousand, or 18.4%, due to increased processing volume, primarily driven by our core banking platform, and additional costs related to our technology implementations. Occupancy and equipment costs increased $52 thousand, or 7.4%, primarily due to amortization of our investments in internally developed software to support our new digital platform and additional office space to support our continued growth. Travel and business relations costs increased $51 thousand as we re-engaged in our traditional high touch marketing and sales efforts to complement our digital marketing efforts.
The Company’s efficiency ratio was 54.3% for the three months ended March 31, 2022, as compared to 52.8% in 2021. The increase in the efficiency ratio was attributable to the investments in our digital platforms and related sales/marketing division and other resources as we continue to invest in our future, reaching more prospective clients nationally within our litigation and payment processing verticals.
The effective tax rate was 26.5% for the first quarter of 2022, as compared to 24.5% for the same period in 2021. The tax rate in the first quarter 2021 was impacted by certain discrete tax benefits related to share-based compensation.
2
Asset Quality
Nonperforming loans held for investment, totaling $7 thousand, consisted of several nonaccrual consumer loans. As of March 31, 2022, the allowance for loan losses was $9.5 million, or 1.16% of total loans, as compared to $13.2 million, or 1.88% of total loans at March 31, 2021. The decrease in the allowance as a percent of loans was primarily due to the charge-off of $9.0 million upon reclassification of the legacy NFL consumer post settlement loan portfolio from held for investment to held for sale during the third quarter of 2021. On April 1, 2022, the Company finalized the sale of its legacy NFL consumer post settlement loan portfolio to a Fund in exchange for a nonvoting economic interest in the Fund valued at $13.5 million.
Balance Sheet
At March 31, 2022, total assets were $1.2 billion, reflecting a $244.5 million, or 24.5% increase from March 31, 2021. This increase was attributable to loans held for investment increasing $115.1 million, or 16.4%, to $818.0 million, driven by commercial and multifamily loans, funded with low-cost deposits. Excluding the effects of the NFL reclassification (third quarter of 2021) totaling $25.9 million and net payoffs of our PPP loans totaling $31.7 million, our loan growth was $172.2 million, or 26.6%, when comparing March 31, 2022 to 2021. Our higher yielding commercial loans grew 31% during this same period. Our sales pipeline remains robust, driven by our current and future digital marketing and technology development plans as well as our employees that will support our future growth. Commencing in the first quarter of 2022, we invested a portion of our excess liquidity in held-to-maturity securities, totaling $47.5 million at March 31, 2022. Our available-for-sale securities portfolio increased $2.6 million, or 1.9%, to $134.2 million as compared to March 31, 2021.
The following table provides information regarding the composition of our loan portfolio for the periods presented:
| | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | At March 31, | | | At December 31, | | | At March 31, | ||||||||||
| | | 2022 | | | 2021 | | | 2021 | ||||||||||
| | | (Dollars in thousands) | **** | |||||||||||||||
| Real estate: | | | | | | | ||||||||||||
| Multifamily | | $ | 262,465 | 32.06 | % | | $ | 254,852 | 32.46 | % | | $ | 192,325 | 27.32 | % | |||
| Commercial real estate | | 62,447 | 7.63 | | | 48,589 | 6.19 | | | 54,458 | 7.74 | | ||||||
| 1 – 4 family | | | 33,468 | 4.09 | | | | 40,753 | 5.19 | | | | 45,356 | 6.44 | | |||
| Total real estate | | 358,380 | 43.78 | | | 344,194 | 43.84 | | | 292,139 | 41.50 | | ||||||
| Commercial | | 451,930 | 55.21 | | | 427,859 | 54.51 | | | 344,957 | 49.00 | | ||||||
| PPP | | | — | | — | | | | 4,249 | | 0.54 | | | | 31,709 | | 4.50 | |
| Consumer | | 8,281 | 1.01 | | | 8,681 | 1.11 | | | 9,246 | 1.31 | | ||||||
| NFL Consumer | | | — | | — | | | | — | | — | | | | 25,945 | | 3.69 | |
| Total loans held for investment | | $ | 818,591 | 100.00 | % | | $ | 784,983 | 100.00 | % | | $ | 703,996 | 100.00 | % | |||
| | | | | | | | | | | | | | | | | | | |
| Loans held for sale, net (included in Other assets) | | $ | 15,040 | | | $ | 14,100 | | | $ | — | |
Total deposits were $1.1 billion as of March 31, 2022, a $230.3 million, or 26.8%, increase from March 31, 2021. This was primarily due to a $141.5 million, or 32.2%, increase in Savings, NOW and Money Market deposits to $581.7 million, an $80.5 million, or 19.7%, increase in noninterest bearing demand deposits to $489.0 million, and an $8.2 million increase in time deposits to $19.2 million. The increase in deposits was primarily driven by commercial and escrow low-cost and noninterest bearing deposits from our litigation and small business platforms. Off-balance sheet sweep funds totaled $618.0 million at quarter end, representing additional sources of funding for future growth. Our deposit growth and off-balance sheet funds continue to demonstrate our highly efficient branchless and technology-enabled deposit platforms.
Stockholders’ equity increased $14.1 million to $143.4 million as of March 31, 2022, compared to March 31, 2021, primarily due to net income and amortization of share-based compensation, partially offset by an increase in other comprehensive losses of $6.2 million to $7.0 million when comparing the current quarter-end to year-end. This increase reflects the current unrealized losses on our available-for-sale agency MBS portfolio that was negatively impacted by recent increases in short-term market interest rates. Esquire Bank remains well above bank regulatory “Well Capitalized” standards.
3
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 customers 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” 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,” “outlook,” “aim,” “would,” “annualized” and “outlook,” or similar terminology. Further, given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline; if the economy worsens, loan delinquencies, problem assets, and foreclosures may increase; collateral for loans, especially real estate, may decline in value; our allowance for loan losses may increase if borrowers experience financial difficulties; the net worth and liquidity of loan guarantors may decline; and our cyber security risks are increased as the result of an increase in the number of employees working remotely. 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
4
ESQUIRE FINANCIAL HOLDINGS, INC.
Condensed Consolidated Statement of Condition (unaudited)
(dollars in thousands except per share data)
| | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|
| | | March 31, | | December 31, | | March 31, | **** | |||
| | **** | 2022 | **** | 2021 | **** | 2021 | **** | |||
| ASSETS | **** | | **** | | | | ||||
| Cash and cash equivalents | | $ | 148,940 | | $ | 149,156 | | $ | 87,893 | |
| Securities purchased under agreements to resell, at cost | | 48,143 | | 50,271 | | 50,501 | | |||
| Securities available-for-sale, at fair value | | 134,161 | | 148,384 | | 131,595 | | |||
| Securities held-to-maturity, at cost | | 47,544 | | — | | — | | |||
| Securities, restricted at cost | | 2,680 | | 2,680 | | 2,694 | | |||
| Loans, held for investment | | 817,997 | | 784,517 | | 702,865 | | |||
| Less: allowance for loan losses | | (9,491) | | (9,076) | | (13,181) | | |||
| Loans, net of allowance | | 808,506 | | 775,441 | | 689,684 | | |||
| Premises and equipment, net | | 3,163 | | 3,334 | | 2,946 | | |||
| Other assets | | 49,692 | | 49,504 | | 32,969 | | |||
| Total Assets | | $ | 1,242,829 | | $ | 1,178,770 | | $ | 998,282 | |
| | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | **** | **** | | **** | | **** | **** | | |
| Demand deposits | | $ | 488,960 | | $ | 409,350 | | $ | 408,411 | |
| Savings, NOW and money market deposits | | 581,721 | | 599,747 | | 440,192 | | |||
| Certificates of deposit | | 19,239 | | 19,312 | | 11,058 | | |||
| Total deposits | | 1,089,920 | | 1,028,409 | | 859,661 | | |||
| Other liabilities | | 9,524 | | 6,626 | | 9,355 | | |||
| Total liabilities | | 1,099,444 | | 1,035,035 | | 869,016 | | |||
| Total stockholders' equity | | 143,385 | | 143,735 | | 129,266 | | |||
| Total Liabilities and Stockholders' Equity | | $ | 1,242,829 | | $ | 1,178,770 | | $ | 998,282 | |
| | | | | | | | | | | |
| Selected Financial Data | | **** | | | **** | **** | | |||
| Common shares outstanding | | 8,076,320 | | 8,088,846 | | 7,829,815 | | |||
| Book value per share | | $ | 17.75 | | $ | 17.77 | | $ | 16.51 | |
| Equity to assets | | 11.54 | % | 12.19 | % | 12.95 | % | |||
| | | | | | | | | | | |
| Capital Ratios ^(1)^ | | **** | | | **** | **** | | |||
| Tier 1 leverage ratio | | 11.55 | % | 11.46 | % | 12.46 | % | |||
| Common equity tier 1 capital ratio | | 14.55 | % | 14.79 | % | 15.48 | % | |||
| Tier 1 capital ratio | | 14.55 | % | 14.79 | % | 15.48 | % | |||
| Total capital ratio | | 15.63 | % | 15.89 | % | 16.74 | % | |||
| | | | | | | | | | | |
| Asset Quality - Loans Held for Investment | | **** | **** | | | **** | **** | | ||
| Nonperforming loans | | $ | 7 | | $ | 6 | | $ | 2,992 | |
| Allowance for loan losses to total loans | | 1.16 | % | 1.16 | % | 1.88 | % | |||
| Nonperforming loans to total loans | | 0.00 | % | 0.00 | % | 0.43 | % | |||
| Nonperforming assets to total assets | | 0.00 | % | 0.00 | % | 0.30 | % | |||
| Allowance to nonperforming loans | | | NM | | | NM | | 441 | % |
(1) Regulatory capital ratios presented on bank-only basis.
NM – Not meaningful
5
ESQUIRE FINANCIAL HOLDINGS, INC.
Condensed Consolidated Income Statement (unaudited)
(dollars in thousands except per share data)
| | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|
| | | Three months ended | | |||||||
| | | March 31, | | December 31, | | March 31, | | |||
| | **** | 2022 | **** | 2021 | **** | 2021 | **** | |||
| Interest income | | $ | 12,024 | | $ | 11,930 | | $ | 10,248 | |
| Interest expense | | 238 | | 231 | | 195 | | |||
| Net interest income | | 11,786 | | 11,699 | | 10,053 | | |||
| Provision for loan losses | | 640 | | 555 | | 1,800 | | |||
| Net interest income after provision for loan losses | | 11,146 | | 11,144 | | 8,253 | | |||
| | | | | | | | | | | |
| Noninterest income: | | | | | ||||||
| Payment processing fees | | 5,316 | | 4,908 | | 5,370 | | |||
| Other noninterest income | | 186 | | 259 | | 94 | | |||
| Total noninterest income | | 5,502 | | 5,167 | | 5,464 | | |||
| | | | | | | | | | | |
| Noninterest expense: | | | | | ||||||
| Employee compensation and benefits | | 6,134 | | 5,552 | | 4,996 | | |||
| Other expenses | | 3,246 | | 3,197 | | 3,192 | | |||
| Total noninterest expense | | 9,380 | | 8,749 | | 8,188 | | |||
| Income before income taxes | | 7,268 | | 7,562 | | 5,529 | | |||
| Income taxes | | 1,926 | | 832 | | 1,355 | | |||
| Net income | | $ | 5,342 | | $ | 6,730 | | $ | 4,174 | |
| | | | | | | | | | | |
| Earnings Per Share | | | | | ||||||
| Basic | | $ | 0.70 | | $ | 0.89 | | $ | 0.56 | |
| Diluted | | $ | 0.66 | | $ | 0.83 | | $ | 0.53 | |
| Basic - adjusted ^(1)^ | | $ | 0.70 | | $ | 0.74 | | $ | 0.56 | |
| Diluted - adjusted ^(1)^ | | $ | 0.66 | | $ | 0.69 | | $ | 0.53 | |
| | | | | | | | | | | |
| Selected Financial Data | | | | | ||||||
| Return on average assets | | 1.92 | % | 2.44 | % | 1.81 | % | |||
| Return on average equity | | 15.06 | % | 19.19 | % | 13.30 | % | |||
| Adjusted return on average assets ^(1)^ | | 1.92 | % | 2.02 | % | 1.81 | % | |||
| Adjusted return on average equity ^(1)^ | | 15.06 | % | 15.85 | % | 13.30 | % | |||
| Net interest margin | | 4.43 | % | 4.48 | % | 4.50 | % | |||
| Efficiency ratio ^(2)^ | | 54.3 | % | 51.9 | % | 52.8 | % |
| (1) | Adjusted to exclude a discrete income tax benefit of $1.2 million related to share-based compensation recognized in the fourth quarter 2021. See non-GAAP reconciliation provided elsewhere herein. |
|---|---|
| (2) | Efficiency ratio represents noninterest expenses divided by the sum of net interest income plus noninterest income. |
| --- | --- |
6
ESQUIRE FINANCIAL HOLDINGS, INC.
Condensed Consolidated Average Balance Sheets and Average Yield/Cost (unaudited)
(dollars in thousands)
| | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | For the Three Months Ended March 31, | **** | ||||||||||||||
| | | 2022 | | 2021 | **** | ||||||||||||
| | | Average | | **** | | | Average | | Average | | **** | | | Average | **** | ||
| | **** | Balance | **** | Interest | **** | Yield/Cost | **** | Balance | **** | Interest | **** | Yield/Cost | **** | ||||
| INTEREST EARNING ASSETS | | | | | | ||||||||||||
| Loans, held for investment | | $ | 776,521 | | $ | 11,020 | 5.76 | % | $ | 677,531 | | $ | 9,579 | 5.73 | % | ||
| Securities, includes restricted stock | | 181,328 | | 815 | 1.82 | % | 119,829 | | 468 | 1.58 | % | ||||||
| Securities purchased under agreements to resell | | 49,612 | | 132 | 1.08 | % | 51,446 | | 161 | 1.27 | % | ||||||
| Interest earning cash and other | | 72,456 | | 57 | 0.32 | % | 57,284 | | 40 | 0.28 | % | ||||||
| Total interest earning assets | | 1,079,917 | | 12,024 | 4.52 | % | 906,090 | | 10,248 | 4.59 | % | ||||||
| | | | | | | | | | | | | | | | | | |
| NONINTEREST EARNING ASSETS | | 50,832 | | | 30,843 | | | ||||||||||
| | | | | | | | | | | | | | | | | | |
| TOTAL AVERAGE ASSETS | | $ | 1,130,749 | | | | | | $ | 936,933 | | | | | | ||
| | | | | | | | | | | | | | | | | | |
| INTEREST BEARING LIABILITIES | | | | | | ||||||||||||
| | | | | | | | | | | | | | | | | | |
| Savings, NOW, Money Market deposits | | $ | 489,245 | | $ | 218 | 0.18 | % | $ | 402,776 | | $ | 174 | 0.18 | % | ||
| Time deposits | | 19,242 | | 19 | 0.40 | % | 11,189 | | 20 | 0.72 | % | ||||||
| Total interest bearing deposits | | 508,487 | | 237 | 0.19 | % | 413,965 | | 194 | 0.19 | % | ||||||
| Borrowings | | 50 | | 1 | 8.11 | % | 50 | | 1 | 8.11 | % | ||||||
| Total interest bearing liabilities | | 508,537 | | 238 | 0.19 | % | | 414,015 | | 195 | 0.19 | % | |||||
| | | | | | | | | | | | | | | | | | |
| NONINTEREST BEARING LIABILITIES | | | | | | ||||||||||||
| Demand deposits | | 469,938 | | | 386,826 | | | ||||||||||
| Other liabilities | | 8,414 | | | 8,779 | | | ||||||||||
| Total noninterest bearing liabilities | | 478,352 | | | 395,605 | | | ||||||||||
| Stockholders' equity | | 143,860 | | | 127,313 | | | ||||||||||
| | | | | | | | | | | | | | | | | | |
| TOTAL AVG. LIABILITIES AND EQUITY | | $ | 1,130,749 | | | $ | 936,933 | | | ||||||||
| Net interest income | | | $ | 11,786 | | | | $ | 10,053 | | | ||||||
| Net interest spread | | | | | | | | 4.33 | % | | | | | | | 4.40 | % |
| Net interest margin | | | 4.43 | % | | 4.50 | % |
7
ESQUIRE FINANCIAL HOLDINGS, INC.
Condensed Consolidated Non-GAAP Financial Measure Reconciliation (unaudited)
(all dollars in thousands except per share data)
Adjusted net income, which is used to compute adjusted return on average assets, adjusted return on average equity and adjusted earnings per share, excludes a discrete income tax benefit related to share-based compensation, specifically, voluntary stock option exercises.
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.
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | Three months ended | | |||||||
| | March 31, | | December 31, | | March 31, | | |||
| | 2022 | | 2021 | | 2021 | | |||
| Net income - GAAP | $ | 5,342 | | $ | 6,730 | | $ | 4,174 | |
| Less: tax benefit on share-based compensation | | — | | | 1,172 | | | — | |
| Adjusted net income | $ | 5,342 | | $ | 5,558 | | $ | 4,174 | |
| | | | | | | | | | |
| Return on average assets – GAAP | | 1.92 | % | | 2.44 | % | | 1.81 | % |
| Adjusted return on average assets | | 1.92 | % | | 2.02 | % | | 1.81 | % |
| | | | | | | | | | |
| Return on average equity – GAAP | | 15.06 | % | | 19.19 | % | | 13.30 | % |
| Adjusted return on average equity | | 15.06 | % | | 15.85 | % | | 13.30 | % |
| | | | | | | | | | |
| Basic earnings per share – GAAP | $ | 0.70 | | $ | 0.89 | | $ | 0.56 | |
| Adjusted basic earnings per share | $ | 0.70 | | $ | 0.74 | | $ | 0.56 | |
| | | | | | | | | | |
| Diluted earnings per share – GAAP | $ | 0.66 | | $ | 0.83 | | $ | 0.53 | |
| Adjusted diluted earnings per share | $ | 0.66 | | $ | 0.69 | | $ | 0.53 | |
8
Exhibit 99.2
| Ensuring our Clients and Our Institution Succeed BoldlyListed as ESQ<br>Esquire Financial Holdings, Inc. (Financial Holding Company for Esquire Bank, N.A.)1Q 2022 Investor Presentation<br>Exhibit 99.2 |
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| Forward Looking Disclosure This presentation contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not historical fact and express management’s current expectations, forecasts of future events or long-term goals and, by their nature, are subject to assumptions, risks and uncertainties, 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,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “attribute,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “goal,” “target,” “outlook,” “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. Forward-looking statements speak only as of the date they are made and are inherently subject to uncertainties and changes in circumstances, including those 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 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 could differ materially from those indicated. The Company undertakes no obligation to update forward-looking statements, whetheras a result of new information, future events or otherwise, except as may be required by law. The forward-looking statements speak as of the date of this presentation.The delivery of this presentation shall not, under anycircumstances, create any implication there has been no change in the affairs of the Company after the date hereof.This presentation includes industry and market data that we obtained from periodic industry publications, third-party studies and surveys. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable.Although we believe the industry and market data to be reliable as of the date of this presentation, this information could prove to be inaccurate.Industry and market datacould be wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limitson the availability and reliability of 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 general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited herein.2 |
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| Ensuring that our Company and clients succeed boldlywith innovative products and technology, driving client success through relationship banking<br>Our Mission |
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| Decades of expertise in the national litigation marketAsset sensitive model anchored by<br>law firm loans yielding approx. 7.0%Branchless and tech enabled core<br>deposit platform funded at 0.10%Driving loan and deposit growth with a<br>CAGR of 23% since 2015Expertise in sales, risk, and compliance management for 25+ yearsIndependent Sales Organization (“ISO”) model<br>with approximately 68,000 merchants nationallyFee income represents 32% of total revenueStrong growth and stable payment processing fee income with a CAGR of 58% since 2017Average ROA and ROTCE of 1.92% and 15.06%, respectively Industry leading NIM of 4.43%Diversified revenue stream with strong<br>NIM and stable fee incomeStrong efficiency ratio of 54.3% while<br>investing in vertical specific technology & future growth A digital-first bank with best-in-class technology fueling futuregrowth and industry leading client retention ratesCustomized and fully integrated Customer Relationship Management (“CRM”) for excellence in client service and operational efficiencyInvestments made in artificial intelligence (“AI”) to<br>facilitate precision marketing and client acquisition across our national verticalsNationwide Branchless Tech Enabled Litigation & Payment Processing Verticals Generating Industry Leading Returns<br>Litigation VerticalCommercial Banking NationallyIndustry Leading ReturnsFueled by Branchless and Tech Enabled National VerticalsPayment Processing Vertical(Merchant Services)Small Business Banking NationallyTechnology –the FutureA Catalyst for Strong Growth<br>4<br>How Our Clients Succeed Boldly |
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| Strong Growth Driven by Unique National Verticals<br>How Esquire Succeeds Boldly<br>Key HighlightsStrong growth in higher yielding variable rate loansStable low-cost branchless and tech enabled deposit modelEquity to Assets of 11.54%<br>5at March 31, 2022 |
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| Stable low-cost branchless deposit modelStrong commercial deposits franchise nationallyDDA and escrow-based NOW accounts represent 45% and 34% of total deposits at March 31, 2022, respectivelyHigher yielding variable rate commercial loans anchored by our national litigation portfolioAsset sensitive balance sheet benefiting from increases in short-term interest rates<br>How Esquire Succeeds Boldly<br>6Industry Leading Net Interest Margin*Included noninterest bearing demand deposits (“DDA”) |
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| Strong Revenue Growth<br>How Esquire Succeeds Boldly<br>7<br>Key HighlightsStrong asset sensitive net interest marginStable payment processing fee income as short-term interest rates increase |
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| Financial Highlights<br>How Esquire Succeeds Boldly<br>Key HighlightsIndustry leading returns from our unique and tech enabled national<br>business modelsStable payment processing fee<br>income –noninterest income totaled 32% of revenue for the quarter<br>ended March 31, 2022Branchless low-cost deposits with a cost of funds of 0.10% at March 31,<br>2022 *Book value per share and equity to<br>assets are $17.75 and 11.54% at<br>March 31, 2022, respectivelyRaymond James’ Top Performing<br>Community Bank (2018-2021)Piper Sandler & Co.’s “2021 FSG<br>Top Ideas”<br>8at March 31, 2022*Included noninterest bearing demand deposits (“DDA”) |
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| Financial Highlights, cont’d<br>How Esquire Succeeds Boldly<br>9at March 31, 2022*EPS –Diluted Earnings Per Share |
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| Loan Portfolio Diversification with Focused GrowthFocused growth in higher yielding variable rate commercial loans with strong credit metricsSelective multifamily loan growth with strong historical performance in the NY metro market<br>How Esquire Succeeds Boldly<br>10at March 31, 2022 |
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| Approximately 54% of our loan portfolio is variable rate of which 93% have interest rate floor protection at March 31, 2022Asset sensitive –estimated sensitivity of projected annualized net interest income (“NII”) up 100 and<br>200 basis point rate scenarios increases projected NII by 8.6% and 18.2%, respectively at December 31, 2021Loan Portfolio Diversification with Focused Growth<br>How Esquire Succeeds Boldly<br>11 |
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| Solid Credit Metrics, Asset Quality and ALLL Coverage<br>How Esquire Succeeds Boldly<br>12at March 31, 2022*ALLL –Allowance for loan and lease lossesNote –All asset quality metrics are based on our loans held for investment portfolio(1) Reclassified the legacy NFL consumer loan portfolio from held for investment to held for sale which is accounted for at the lower of cost or market driving a $9.0 million charge off. |
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| *Note: Excludes sweeps totaling $618 millionDeposit Composition and GrowthDDA and NOW (escrow funds) deposits total 79% of total deposits, representing stable funding sources in various interest rate scenariosLitigation and payment processing deposits represent 65% and 16% of total deposits at March 31, 2022, respectivelyOff-balance sheet commercial litigation funds (“sweeps”) total $618 million at March 31, 2022,<br>representing an additional source of fundingOur tech enabled deposit platform allows our commercial customers to utilize our corporate cash management suite, including remote deposit capture (“RDC”) while also leveraging our mobile banking application, creating a highly efficient branchless platform<br>How Esquire Succeeds Boldly<br>13 |
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| Significant national markets primed for disruption: $429 billion & 100,000+ firms in the litigation vertical and $7.6 trillion and 10+ million merchants in the payment processing verticalKey TakeawaysWhy Esquire is Set to Succeed Boldly<br>Tremendous untapped potential:<br>Esquire’s current market share is a fraction of both national verticals that are primed for disruption by our client-centric & tech-focused institutionWe are thought leaders in the litigation vertical and provide C-suite access for ISO flexibility in the payment processing verticalDifferentiated and positioned for growth:<br>With industry leading tailored<br>products and state-of-the-art technology geared towards effective<br>client acquisition<br>14 |
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| National MarketsLitigation & Payment Processing Verticals Supported<br>by Investment in Technology |
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| Commercial Litigation (Law Firm) LoansFull annual underwriting:3 years financials and tax returns (business and personal) Full contingent case inventory valuation process & collateral assignmentDiversity across law firm inventories and collateralPersonal guaranteesAverage LTV of less than 20%Average DSCR is typically greater than 1.70xAverage draws against committed and uncommitted line-of-credit (“LOC”) and case disbursement loans of approximately 50%Weighted average interest rate approximately 7.0%Funded with low-cost litigation depositsLitigation deposits to litigation loans drawn is approximately<br>181%<br>How Esquire Succeeds Boldly<br>16 |
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| Payment Processing –Current ISO Model<br>How Esquire Succeeds BoldlyWhat is an ISO?<br>ISO Responsibilities<br>They DoMerchant Vertical and Technology FocusSales Agent ModelPerforms Initial UnderwritingBoards Merchant to Payment<br>Processing PlatformInstallation of Merchant EquipmentManage Call Center for Merchant<br>ClientsMerchant Risk and PCI Compliance<br>Bank Responsibilities<br>We DoRobust PoliciesTech Enabled Card Brand and<br>Regulatory ComplianceSupport Multiple Processing SystemsAssess ISO VerticalsRe-underwrite Merchant ApplicationsUtilize Industry Leading Risk<br>Management TechnologyDaily and Month End Risk and<br>Compliance ManagementCommercial Treasury Function for<br>Merchant Clearing and ISO Cash ManagementMaintaining and Monitor ISO and Merchant Reserves (DDA)<br>17 |
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| Currently servicing approximately 68,000 merchants across 50 statesNoninterest income, primarily payment processing fees, represents 32% of total revenue, at March 31, 2022<br>How Esquire Succeeds Boldly<br>*Payment processing CAGR is 58%18<br>Strong Growth in Stable Noninterest Incomeat March 31, 2022 |
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| How Esquire Succeeds Boldly<br>Key HighlightsStrong and stable DDA reservesProtecting capital from<br>merchant chargebacks and returns<br>19Protecting Our Company with Strong Payment Processing Reservesat March 31, 2022 |
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| Technology Driving Bold SuccessClient Centric TechnologyA Key Driver for Future Growth<br>WebsiteArtificial Intelligence*MarketingSales UnderwritingOnboarding<br>MarketingCloud<br>AI to facilitate precision marketing and exponential customer acquisition across all verticalsWebsite analytics, data enrichment and thought leadership content marketingPrecision marketing –right offer right timeSales enablement, pipeline management<br>and forecastingUnderwriting efficiency & risk<br>management / cash management and<br>mobile banking / online applicationsCustomer onboarding / core banking<br>Partnering with best-in-class software vendors and solutions, with custom development to service all verticals at the bankProprietary CRM built on Salesforce platform housing all client data touch points from prospect to boarding with a single client view, enabling high volume client acquisition strategies and excellence in client service<br>SIGNATURE* Deployment of AI technologies applicable only to sales and marketing processes and not used as a decisioning tool for loan underwriting processes. 20 |
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| SucceedingBoldly<br>Listed as ESQ<br>Contact Information:Eric S. BaderExecutive Vice President & Chief Operating Officer516-535-2002eric.bader@esqbank.com |
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| Commercial Real Estate Loans, U.S. Litigation & Payment Markets<br>Appendix |
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| Esquire’s Bold OpportunitiesNew York City properties total $1.3 trillion in Market Value.* A Significant Growth OpportunityThoughtfulin our property and borrower selection processMinimal historical lossesAverage debt-service coverage(“DSCR”) ofapproximately 1.3xAverage loan-to-value(“LTV”) of approximately 57%Strong owner and operators with high quality net worthCRE exposure is less than 225% of total capital plus the allowance for loan losses (“ALLL”)<br>23*NYC Department of Finance publishes fiscal year 2022 tentative property tax assessment roll issued on January 15, 2021 |
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| The Esquire Competitive AdvantageEsquire’s Bold OpportunitiesU.S. Litigation Market A Significant Growth OpportunityU.S. Tort actions are estimated to consume 1.5-2.0% of U.S. GDP* annually or $429 billion** Esquire does not compete with non-bank finance companies Significant barriers to entry–management expertise, brand awareness, regulatory/compliance, and decades of experience<br>15-Year Industry Track RecordExtensive Litigation Experience In-HouseDeep Relationships with Respected Firms NationallyDaily Resources and Research Cash Flow Lending Coupled with Borrowing Base or Asset Based ApproachTailoring unique products other banks do not offer<br>Typically advancing more than traditional banks, on traditional banking terms<br>24<br>Key Highlights$429 billion** Total Addressable Market (“TAM”) in litigation verticalEsquire is a tailored,<br>differentiated brand and thought leader in the litigation market*US Tort actions are estimated to consume 1.5-2.0% of U.S. GDP annually. –Towers Watson US Tort Trends**$429 billion estimated annual US tort costs by US Chamber of Commerce –US Chamber of Commerce IRL Costs and Compensation of US Tort System |
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| 25Digitally Transforming The Business of LawAligning Law Firm Case Inventory Lifecycle to Customer Retention<br>Client IncidentReceive IntakeCase ManagementSettlement/VerdictDisbursement $<br>1-3 Years (+)<br>ProductsCase Cost LoansWorking Capital LoansFirm and Partner Acquisition LoansTerm Loans to Finance Case Acquisition & GrowthEscrow Banking and QSF Settlement ServicesPlaintiff Banking including Exclusive Prepaid<br>Card Offering<br>TechnologyEsquire Insight –Case Management TechnologyCommercial Cash ManagementCase Cost ManagementOnline ApplicationsThought Leadership -Digital Platform and Content<br>25 |
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| The payments industry grew nearly 3% from 2019 to 2020 to an estimated total payment volume of$7.6 trillion<br>Esquire’s Bold OpportunitiesPayment Volume Trends –A Significant Growth OpportunitySources:CompanyFinancialRecords,Note: PayPalfiguresrepresent PayPal’sestimated U.S.percent shareof“TotalPaymentVolume”(TPV).PayPalvolumeincludesvolumefromabankaccount,aPayPalaccountbalance,aPayPalCredit account,acreditordebit cardorotherstored valueproductssuchascouponsandgiftcards.Assuch,someofthisvolumemaybeincludedinothernetworks aswell.PayPal’sclassificationinthepaymentsindustryecosystemisvaried/debatedasitperforms functionsattributedtoapaymentnetwork,anissuer,acquirer,etc.,and its financialreportingdoesnotdirectlyalignwithotherpaymentnetworkreportingstructures andmethods.DiscovervolumeincludesDiscoverNetworkandPulseNetworktransactions.<br>2018-2019: +10.3% CAGR2019-2020: +2.9% CAGR<br>26at December 31, 2020 ($ in billions) |
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