ESQ US Equity☆

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the financial statements, which appear elsewhere in this Annual Report. You should read the information in this section in conjunction with the other business and financial information provided in this annual report.

Overview

We are a financial holding company headquartered in Jericho, New York and registered under the BHC Act. Through our wholly owned bank subsidiary, Esquire Bank, National Association, we are a full service commercial bank dedicated to serving the financial needs of the legal and small business communities on a national basis, as well as commercial and retail customers in the New York metropolitan market. We offer tailored products and solutions to the legal community and their clients as well as dynamic and flexible payment processing solutions to small business owners, both on a national basis. We also offer traditional banking products for businesses and consumers in our local market area.

Our results of operations depend primarily on our net interest income which is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income currently consists primarily of payment processing income, ASP fee income and customer related fees and charges. Noninterest expense currently consists primarily of employee compensation and benefits, data processing costs, occupancy and equipment costs and professional and consulting services. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies, the litigation market and actions of regulatory authorities.

Critical Accounting Policies

A summary of our accounting policies is described in Note 1 to the Consolidated Financial Statements included in this annual report. Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes that the most critical accounting policies, which involve the most complex or subjective decisions or assessments, are as follows:

Allowance for Loan Losses. Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the inherent subjectivity and uncertainty in estimating the levels of the allowance required to cover credit losses in the portfolio and the material effect that such judgments can have on the results of operations. The determination of the appropriate level of allowance is subject to judgment and requires us to make significant estimates of current credit risks and trends, all of which are subject to material changes. In particular, because of a low charge off history, a significant portion of the general component of the allowance for loan losses is determined using qualitative factors on loans with similar risk characteristics, which involve significant judgment and subjective measurement on part of management. For loans that do not share risk characteristics, the Company evaluates the loan on an individual basis based on various factors. Factors that may be considered are borrower delinquency trends and nonaccrual status, probability of foreclosure or note sale, changes in the borrower’s circumstances or cash collections, borrower’s industry, or other facts and circumstances of the loan or collateral.

If such judgments and/or assumptions prove to be incorrect, the allowance for loan losses may not cover probable incurred losses in the loan portfolio at the date of the financial statements. In addition, various regulatory agencies, as an integral part of the examination process, periodically review the allowance for credit losses. Such agencies may require the Bank to recognize adjustments to the allowance based on their judgments of the information available to them at the time of their examination. Significant additions to the allowance would materially decrease net income. Additional information can be found in Note 1 of the Notes to the Consolidated Financial Statements.

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Selected Financial Data

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ At or For the Years Ended December 31, ​

​ ​ (Dollars in thousands, except share and per share data) ​

Balance Sheet Data: ​ ​ ​ ​ ​

Securities held-to-maturity, at cost ​ 78,377 ​ — ​ — ​ — ​ — ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income Statement Data: ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Per Share Data: ​ ​ ​ ​ ​ ​

Earnings per share: ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Selected Performance Ratios: ​ ​ ​ ​ ​ ​

​

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ At or For the Years Ended December 31,

Asset Quality Ratios (Loans Held for Investment): ​ ​

Allowance for loan losses to nonperforming loans(4) NM ​ NM ​ 495 % 474 % NM

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Capital Ratios (Esquire Bank):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other:

Number of offices 3 3 3 3 3

Non-GAAP Financial Measure Reconciliation

The efficiency ratio is a non-GAAP measure of expense control relative to recurring revenue. We calculate the efficiency ratio by dividing total noninterest expenses excluding non-recurring items by the sum of total net interest income and total noninterest income as determined under GAAP, but excluding net gains on securities from this calculation and other non-recurring income sources, if applicable, which we refer to below as recurring revenue. We believe that this provides one reasonable measure of recurring expenses relative to recurring revenue.

We believe that this non-GAAP financial measure provides information that is important to investors and that is useful in understanding our financial position, results and ratios. However, this non-GAAP financial measure is supplemental and is not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for this measure, this presentation may not be comparable to other similarly titled measures by other companies.

​

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ At December 31, ​

​ (Dollars in thousands) ​

Efficiency Ratio ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Less: nonrecurring compensation charge ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,173 ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Discussion and Analysis of Financial Condition for the Years Ended December 31, 2022 and 2021

Assets. Our total assets were $1.4 billion at December 31, 2022, an increase of $216.9 million from $1.2 billion at December 31, 2021. The increase was primarily due to growth in our loan portfolio, securities held-to-maturity and cash offset by decreases in securities available-for-sale.

Loan Portfolio Analysis. At December 31, 2022, loans were $947.3 million, or 67.9% of total assets, compared to $784.5 million, or 66.6% of total assets, at December 31, 2021. Commercial loans increased $120.0 million, or 27.8%, to $552.1 million at December 31, 2022 from $432.1 million at December 31, 2021. Commercial real estate loans increased $43.2 million, or 89.0%, to $91.8 million at December 31, 2022 from $48.6 million at December 31, 2021. Multifamily loans increased $7.6 million, or 3.0%, to $262.5 million at December 31, 2022 from $254.9 million at December 31, 2021. Consumer loans increased $7.9 million or 91.0%, to $16.6 million at December 31, 2022 from $8.7 million at December 31, 2021. 1 – 4 family loans decreased $15.2 million, or 37.3%, to $25.6 million at December 31, 2022 from $40.8 million at December 31, 2021. We had no construction loans as of December 31, 2022 and 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. As of December 31, 2022, the carrying amount of our investment in the fund, classified in Other assets, is $12.6 million as loan payoffs were received and distributed by the Fund to its investors.

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Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ At December 31, ​

​ Amount Percent Amount Percent

​ ​ (Dollars in thousands)

Real estate: ​ ​

Construction ​ — — ​ — — ​

Deferred loan fees and unearned premiums, net ​ (1,258) ​ (466) ​

Allowance for loan losses ​ (12,223) ​ (9,076) ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Loans held for sale, net (included in Other assets) ​ $ — ​ $ 14,100 ​ ​ ​

​

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Amount Percent Amount Percent

​ ​ (Dollars in thousands)

Litigation-Related Loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Commercial Litigation-Related: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Consumer Litigation-Related: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Post-settlement consumer loans ​ ​ 2,653 ​ 0.6 ​ ​ ​ 2,451 ​ 0.7 ​

Structured settlement loans ​ ​ 49 ​ — ​ ​ ​ 116 ​ — ​

Total Consumer Litigation-Related ​ ​ 2,702 ​ 0.6 ​ ​ ​ 2,567 ​ 0.7 ​

​

At December 31, 2022, our Litigation-Related Loans, which include commercial and consumer lending to attorneys, law firms and plaintiffs/claimants, totaled $467.4 million, or 49.3% of our total loan portfolio, compared to $386.0 million at December 31, 2021. We also had Commercial Litigation-Related committed and uncommitted undrawn lines of credit totaling $22.8 million and $311.3 million, respectively, at December 31, 2022.

Litigation-Related post-settlement consumer loans held for investment increased $202 thousand to $2.7 million as of December 31, 2022, from $2.5 million as of December 31, 2021.

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Loan Maturity. The following table sets forth certain information at December 31, 2022 regarding the contractual maturity of our held for investment loan portfolio. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. The table does not include any estimate of prepayments that could significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ Commercial ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ (In thousands)

Amounts due in: ​ ​ ​ ​ ​ ​ ​

​

The following table sets forth fixed and adjustable-rate held for investment loans at December 31, 2022 that are contractually due after December 31, 2023.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Due After December 31, 2023

​ Fixed Adjustable Total

​ ​ (In thousands)

Real estate ​ ​ ​

Construction ​ — ​ — ​ —

​

At December 31, 2022, substantially all of our $552.1 million commercial loans are variable rate and tied to prime, comprising approximately 58% of our loan portfolio.

Nonperforming Assets

Nonperforming assets include loans that are 90 or more days past due or on nonaccrual status, including troubled debt restructurings on nonaccrual status, and real estate and other loan collateral acquired through foreclosure and repossession. Loans 90 days or greater past due may remain on an accrual basis if adequately collateralized and in the process of collection. At December 31, 2022 and 2021, we did not have any accruing loans past due 90 days or greater.

Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed real estate until it is sold. When property is acquired, it is initially recorded at the fair value less costs to sell at the date of foreclosure, establishing a new cost basis. Holding costs and declines in fair value after acquisition of the property result in charges against income. At December 31, 2022 and 2021, we have not had any foreclosed assets.

Troubled debt restructurings include loans for economic or legal reasons related to the borrower’s financial difficulties, for which we grant a concession to the borrower that we would not consider otherwise. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, we determine the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

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The following table sets forth information regarding our nonperforming assets at the dates indicated.

​ ​ ​ ​ ​ ​ ​ ​

​ ​ At December 31, ​

​ ​ (Dollars in thousands)

Nonaccrual loans: ​ ​

Multifamily ​ $ — ​ $ — ​

Commercial real estate ​ — ​ — ​

1 – 4 family ​ ​ — ​ ​ — ​

Construction ​ — ​ — ​

Commercial ​ — ​ — ​

Consumer ​ 4 ​ 6 ​

Total nonaccrual loans ​ ​ 4 ​ ​ 6 ​

Other real estate owned ​ — ​ — ​

Loans past due 90 days and still accruing ​ — ​ — ​

Troubled debt restructurings ​ — ​ — ​

Total nonperforming assets ​ $ 4 ​ $ 6 ​

​ ​ ​ ​ ​ ​ ​ ​

Allowance for loan losses ​ $ 12,223 ​ $ 9,076 ​

Total nonaccrual loans to total loans ​ 0.00 % 0.00 %

Total nonperforming assets to total assets ​ 0.00 % 0.00 %

Allowance for loan losses to nonaccrual loans ​ NM ​ NM ​

Allowance for loan losses to nonperforming loans ​ NM ​ NM ​

Allowance for loan losses to total loans at end of the period(1) ​ 1.29 % 1.16 %

Allowance for Loan Losses

Please see “— Critical Accounting Policies — Allowance for Loan Losses” for additional discussion of our allowance policy.

The allowance for loan losses is maintained at levels considered adequate by management to provide for probable loan losses inherent in the loan portfolio as of the Consolidated Statements of Financial Condition reporting dates. The allowance for loan losses is based on management’s assessment of various factors affecting the loan portfolio, including portfolio composition, delinquent and nonaccrual loans, national and local business conditions and loss experience and an overall evaluation of the quality of the underlying collateral.

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The following table sets forth activity in our allowance for loan losses for the periods indicated.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years Ended December 31,

​ ​ (In thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Charge-offs: ​ ​ ​

Multifamily ​ 178 ​ — ​ —

Commercial real estate ​ — ​ — ​ —

1 – 4 family ​ — ​ — ​ —

Construction ​ — ​ — ​ —

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Recoveries: ​ ​ ​

Multifamily ​ 17 ​ — ​ —

Commercial real estate ​ — ​ — ​ —

1 – 4 family ​ — ​ — ​ —

Construction ​ — ​ — ​ —

Commercial ​ 32 ​ — ​ —

Consumer ​ — ​ — ​ —

Total recoveries ​ 49 ​ — ​ —

​

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years Ended December 31,

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Charge-offs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Charge-offs ​

​ ​ (Dollars in thousands) ​

Commercial real estate ​ 71,055 ​ ​ — ​ ​ ​ — ​ ​ ​ ​ 52,155 ​ ​ — ​ ​ ​ — ​

1 – 4 family ​ ​ 32,532 ​ ​ ​ — ​ ​ ​ — ​ ​ ​ ​ ​ 44,733 ​ ​ ​ — ​ ​ ​ — ​

Construction ​ — ​ ​ — ​ ​ ​ — ​ ​ ​ ​ — ​ ​ — ​ ​ ​ — ​

​

(1) Excludes net deferred loan fees and unearned premiums.

Net charge-offs to average outstanding loans decreased to 0.04% for the year ended December 31, 2022 as compared to 1.29% in 2021, primarily due to the reclassification of the NFL consumer post settlement loan portfolio in 2021 from held for investment to held for sale, which resulted in a $9.0 million charge-off. 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

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in the Fund valued at $13.5 million. As of December 31, 2022, the carrying amount of our investment in the fund is $12.6 million as loans payoffs were received and distributed by the Fund to its investors.

Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ At December 31, ​

​ ​ ​ Percent of Percent of ​ ​ Percent of Percent of

​ ​ ​ ​ ​ Allowance ​ Loans in ​ ​ ​ ​ Allowance ​ Loans in ​

​ ​ ​ ​ ​ for Loan ​ Each ​ ​ ​ ​ for Loan ​ Each ​

​ ​ Allowance ​ Losses to ​ Category ​ Allowance ​ Losses to ​ Category ​

​ ​ for Loan ​ Total ​ to Total ​ for Loan ​ Total ​ to Total ​

​ ​ Losses ​ Allowance ​ Loans ​ Losses ​ Allowance ​ Loans ​

​ ​ (Dollars in thousands)

Construction ​ — — — ​ — — — ​

​

​

Loans rated special mention decreased $11.1 million to $13.7 million as of December 31, 2022 from $24.8 million as of December 31, 2021, the balance was driven by our commercial, CRE, multifamily and consumer loan portfolios. Loans rated substandard decreased $3.6 million to $721 thousand as of December 31, 2022, from $4.3 million at December 31, 2021. Our special mention and substandard loans as a percentage of loans was 1.4% and 0.1% as of December 31, 2022, respectively and 3.2% and 0.5% as of December 31, 2021, respectively. The allowance for loan losses as a percentage of loans was 1.29% and 1.16% as of December 31, 2022 and 2021, respectively. The increase in the allowance as a percentage of loans was general reserve driven considering loan growth and the qualitative factors associated with the current uncertain economic environment.

Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles in the United States of America, there can be no assurance that regulators, in reviewing our loan portfolio, will not require us to increase our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

Payment Processing Credit Risk

From a payment processing perspective, we continuously evaluate credit exposure, primarily defined as merchant returns and chargebacks, by merchant industry type and category. We have also assessed the level and adequacy of our ISO and merchant reserves held on deposit at Esquire Bank. Currently, based on our assessments, we have not identified any elevated credit risk and our returns and chargeback ratios are within normal levels and commensurate to the merchant portfolio risk profile.

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Debt Securities Portfolio

At December 31, 2022 and 2021, all debt securities available-for-sale were carried at fair value and we had no investments in a single company or entity, other than government and government agency securities, which had an aggregate book value in excess of 10% of our equity. Securities available-for-sale totaled $109.3 million at December 31, 2022, as compared to $148.4 million at December 31, 2021. Commencing in the first quarter of 2022, we invested a portion of our excess liquidity in held-to-maturity securities, totaling $78.4 million at December 31, 2022.

We review the investment portfolio on a quarterly basis to determine the cause, magnitude and duration of declines in the fair value of each security. In estimating other-than-temporary impairment (OTTI), we consider many factors including: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether we have the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The assessment of whether any other than temporary decline exists may involve a high degree of subjectivity and judgment and is based on the information available to management at a point in time. We evaluate securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

At December 31, 2022 and December 31, 2021, securities in unrealized loss positions were issuances from government sponsored entities. The decline in fair value is attributable to changes in interest rates, not credit quality and because we do not have the intent to sell the securities and it is likely that we will not be required to sell the securities before their anticipated recovery, we do not consider the securities to be other-than-temporarily impaired at December 31, 2022 and 2021.

No impairment charges were recorded for the years ended December 31, 2022, 2021 and 2020.

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Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio at December 31, 2022, are summarized in the following table. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or early redemptions that may occur. No tax-equivalent yield adjustments have been made as we have no tax free interest earning assets.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ More Than One Year ​ More Than Five Years ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Weighted ​ ​ Weighted ​ ​ Weighted ​ ​ Weighted ​ ​ Weighted

​ ​ Cost ​ Yield ​ Cost ​ Yield ​ Cost ​ Yield ​ Cost ​ Yield ​ Cost ​ Yield

​ ​ (Dollars in thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Securities held-to-maturity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Deposits

Total deposits increased $199.8 million, or 19.4%, to $1.2 billion at December 31, 2022 from $1.0 billion at December 31, 2021. We continue to focus on the acquisition and expansion of core deposit relationships, which we define as all deposits except for certificates of deposit. Core deposits totaled $1.2 billion at December 31, 2022, or 98.4% of total deposits at that date.

The following tables set forth the distribution of average deposits by account type at the dates indicated.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years Ended December 31, ​

​ ​ Average ​ ​ ​ Average ​ Average ​ Average

​ Balance Percent Cost ​ Balance ​ Percent ​ Cost ​

​ ​ (Dollars in thousands) ​

​

As of December 31, 2022, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000) was $310.4 million, or 25.3%, of our total Bank deposits of $1.2 billion, excluding $10.5 million of the Company’s deposits held by the Bank. As of December 31, 2021, the aggregate amount of uninsured deposits was $254.9 million, or 24.8%, of our total Bank deposits of $1.0 billion, excluding $662 thousand of the Company’s deposits held by the Bank. As of December 31, 2022, the Company had approximately $564.0 million of law firm escrow (or trust) deposits with the majority of these law firms also having commercial lending relationship with the Bank. Law firm escrow accounts as well as other fiduciary deposit accounts are for the benefit of the law firm’s customers (or claimants) and are titled in a manner to ensure that the maximum amount of FDIC insurance coverage passes through the account to the beneficial

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owner of the funds held in the account. Therefore, these law firm escrow accounts carry FDIC insurance at the claimant settlement level, not at the deposit account level. The FDIC insured and uninsured deposited balances reflect management’s determination of settlement claims deposited as of period end. In addition, as of December 31, 2022, the aggregate amount of our uninsured certificates of deposit was $554 thousand. We have no deposits that are uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance. The following table sets forth the maturity of the uninsured certificates of deposit as of December 31, 2022.

​ ​ ​ ​

​ ​

​ ​ (In thousands)

Maturing period: ​ ​

Three months or less ​ $ 290

Over three months through six months ​ —

Over six months through twelve months ​ 264

Over twelve months ​ —

​

Borrowings

At December 31, 2022, we had the ability to borrow a total of $149.4 million from the FHLB of New York. We also had a borrowing capacity with the FRB of New York discount window of $36.1 million. At December 31, 2022, we also had $67.5 million in aggregate unsecured lines of credit with unaffiliated correspondent banks. No amounts were outstanding on any of the aforementioned lines as of December 31, 2022.

Stockholders’ Equity

Total stockholders’ equity increased $14.4 million, or 10.0%, to $158.2 million at December 31, 2022, from $143.7 million at December 31, 2021. The increase for the year ended December 31, 2022 was primarily due to net income of $28.5 million and amortization of share-based compensation of $2.4 million, partially offset by other comprehensive losses of $14.3 million and dividends declared to common stockholders of $2.3 million.

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Average Balance Sheets and Related Yields and Rates

The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the years ended December 31, 2022, 2021 and 2020. The average balances are daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments. No tax-equivalent adjustments have been made as we have no tax exempt investments.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years Ended December 31, ​

​ Average ​ ​ Average Average ​ ​ Average Average ​ ​ Average

​ ​ (Dollars in thousands) ​

INTEREST EARNING ASSETS ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

INTEREST BEARING LIABILITIES ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

NONINTEREST BEARING LIABILITIES ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net interest spread ​ ​ ​ ​ ​ ​ ​ 4.85 % ​ ​ ​ ​ ​ ​ 4.40 % ​ ​ ​ ​ ​ ​ ​ 4.34 %

Net interest margin ​ ​ 4.99 % ​ 4.49 % ​ ​ ​ 4.47 %

​

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The following table presents the dollar amount of changes in interest income and interest expense for major components of interest earning assets and interest bearing liabilities for the periods indicated. The table distinguishes between: (1) changes attributable to volume (changes in volume multiplied by the prior period’s rate); (2) changes attributable to rate (change in rate multiplied by the prior year’s volume) and (3) total increase (decrease) (the sum of the previous columns). Changes attributable to both volume and rate are allocated ratably between the volume and rate categories.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years Ended

​ ​ December 31,

​ Increase Total

​ ​ (Decrease) due to ​ Increase

​ ​ Volume Rate ​ (Decrease)

​ ​ (In thousands)

Interest earned on: ​ ​ ​ ​ ​ ​ ​ ​ ​

Securities, includes restricted stock ​ 1,341 ​ 646 ​ 1,987

Securities purchased under agreements to resell ​ (22) ​ 654 ​ 632

Interest earning cash and other ​ 74 ​ 1,307 ​ 1,381

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Interest paid on: ​ ​ ​

Savings, NOW, money market deposits ​ 269 ​ 473 ​ 742

Borrowings ​ — ​ 1 ​ 1

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years Ended

​ ​ December 31,

​ ​ Increase ​ ​ Total

​ ​ (Decrease) due to ​ ​ Increase

​ Volume Rate ​ (Decrease)

​ ​ (In thousands)

Interest earned on: ​ ​ ​ ​ ​ ​ ​ ​ ​

Securities, includes restricted stock ​ 150 ​ ​ (532) ​ (382)

Securities purchased under agreements to resell ​ 529 ​ ​ (4) ​ 525

Interest earning cash and other ​ (97) ​ ​ (102) ​ (199)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Interest paid on: ​ ​ ​ ​ ​ ​ ​ ​ ​

Savings, NOW, money market deposits ​ 37 ​ ​ (179) ​ (142)

Borrowings ​ (1) ​ ​ (1) ​ (2)

Total interest expense ​ (42) ​ (320) (362)

Change in net interest income ​ $ 7,139 ​ $ (876) $ 6,263

​

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Comparison of Operating Results for the Years Ended December 31, 2022 and 2021

General. Net income increased $10.6 million or 59.1%, to $28.5 million for the year ended December 31, 2022 from $17.9 million for the year ended December 31, 2021. The increase resulted from a $15.6 million increase in net interest income and a $3.9 million increase in noninterest income, partially offset by an increase in noninterest expense of $6.9 million.

Net Interest Income. Net interest income increased $15.6 million, or 35.8%, to $59.3 million for the year ended December 31, 2022 from $43.7 million for the year ended December 31, 2021, due to a $16.5 million increase in interest income, partially offset by a $819 thousand increase in interest expense.

Our net interest margin increased 50 basis points to 4.99% for the year ended December 31, 2022 from 4.49% for the year ended December 31, 2021. The increase in net interest margin was due to a 55 basis point increase in interest earning asset yields, offset by an increase in the cost of interest bearing liabilities of 10 basis points, primarily due to growth in higher yielding variable rate commercial loans and increases in short-term interest rates. Growth was partially funded by a $69.6 million, or 16.7%, increase in average noninterest bearing demand deposits to $485.3 million for the year ended December 31, 2022 from $415.7 million for the year ended December 31, 2021.

Interest Income. Interest income increased $16.5 million, or 37.0%, to $61.0 million for the year ended December 31, 2022 from $44.5 million for the year ended December 31, 2021 and was attributable to an increase in loan, securities, interest earning cash and other and reverse repurchase interest income.

Loan interest income increased $12.5 million, or 30.0%, to $54.0 million for the year ended December 31, 2022 from $41.5 million for the year ended December 31, 2021. This increase was attributable to a $137.8 million, or 23.2%, increase in the average loan balance of our commercial and multifamily loan portfolios as well as a 61 basis point increase in loan yields, driven primarily by our higher yielding variable rate commercial loans (tied to prime) and increases in short-term interest rates.

Securities interest income increased $2.0 million, or 91.4%, to $4.2 million for the year ended December 31, 2022 from $2.2 million for the year ended December 31, 2021. This increase was attributable to a 41 basis point increase in yields, driven by opportunistic investment of excess liquidity into the securities portfolio, as well as a $70.5 million, or 52.7%, increase in average securities balances at a higher rate.

Interest earning cash and other interest income increased $1.4 million, to $1.6 million for the year ended December 31, 2022 from $193 thousand for the year ended December 31, 2021. This increase was attributable to a 145 basis point increase in yields driven by the movement in short-term interest rates.

Securities purchased under agreements to resell interest income increased $632 thousand to $1.3 million for the year ended December 31, 2022 from $619 thousand for the year ended December 31, 2021. The movement in short-term interest rates resulted in a 133 basis point increase in yields.

Interest Expense. Interest expense increased $819 thousand, or 98.9%, to $1.6 million for the year ended December 31, 2022 from $828 thousand for the year ended December 31, 2021, as expense was impacted by both increases in the volume and rate on interest bearing deposits. Interest bearing deposit rates increased a modest 10 basis points to 0.28% for the year ended December 31, 2022 from 0.18% for the year ended December 31, 2021. Our average balance of interest bearing deposits increased $139.4 million, or 30.9%, to $590.3 million for the year ended December 31, 2022 from $450.9 million for the year ended December 31, 2021 attributable primarily to litigation related escrow deposit growth.

Provision for Loan Losses. Our provision for loan losses was $3.5 million for the year ended December 31, 2022 compared to $7.0 million for the year ended December 31, 2021. This decrease was due to the charge recognized in 2021 on our legacy NFL consumer post settlement loan portfolio. The 2022 provision was general reserve driven considering loan growth and qualitative factors associated with the current uncertain economic environment.

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Noninterest Income. Noninterest income information is as follows:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years Ended ​ ​ ​ ​

​ ​ December 31, ​ Change ​

​ ​ (Dollars in thousands) ​

Payment processing fees: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Customer related fees, service charges and other: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gain (loss) on loans held for sale ​ ​ 88 ​ ​ (295) ​ ​ 383 ​ (129.8) ​

​

Payment processing income increased due to the expansion of our sales channels through ISOs, merchants and additional fee allocation arrangements, with annual volumes increasing 18.1% to $28.0 billion for 2022 compared to $23.7 billion for 2021. Customer related fees and service charges increased due to increases in administrative service income which was positively impacted by movements in short-term interest rates. These administrative service fees are impacted by the volume of off-balance sheet funds, the duration of these funds and short-term interest rates.

Noninterest Expense. Noninterest expense information is as follows:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years Ended ​ ​ ​ ​

​ ​ December 31, ​ Change ​

​ ​ (Dollars in thousands) ​

Noninterest expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Professional and consulting services ​ ​ 3,376 ​ ​ 2,922 ​ ​ 454 ​ 15.5 ​

FDIC and regulatory assessments ​ ​ 558 ​ ​ 447 ​ ​ 111 ​ 24.8 ​

Travel and business relations ​ ​ 566 ​ ​ 327 ​ ​ 239 ​ 73.1 ​

​

Employee compensation and benefits costs increased due to increases in staff and officer level employees to support growth, continued investment in digital platforms and related sales/marketing divisions, and the impact of salary, bonus and stock-based compensation increases. Consulting service costs decreased, partially offsetting the increase in employee compensation and benefits as previously contracted consultants were hired, primarily in our technology development and digital marketing departments. Professional services costs increased due to continued business development and administration primarily related to our CECL implementation and the NFL consumer loan transaction. Data processing costs increased 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 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. Advertising and marketing costs increased as we continued to grow our digital marketing platform and expand our thought leadership in our national verticals. Hiring related costs increased as we continue to invest in our future. Travel and business relations costs increased as we continued to re-engage in our traditional high touch marketing and sales efforts on a national basis to complement our digital marketing efforts.

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Income Tax Expense. We recorded income tax expense of $10.3 million for the year ended December 31, 2022, reflecting an effective tax rate of 26.5%, compared to $4.8 million, or an effective tax rate of 21.1%, for the year ended December 31, 2021. The increase represents a return to a historically normalized tax rate as certain discrete tax benefits related to share-based compensation were recognized in the fourth quarter of 2021, driving a decrease in the 2021 tax rate.

Comparison of Operating Results for the Years Ended December 31, 2021 and 2020

General. Net income increased $5.3 million or 42.1%, to $17.9 million for the year ended December 31, 2021 from $12.6 million for the year ended December 31, 2020. The increase resulted from a $6.4 million increase in noninterest income and a $6.3 million increase in net interest income, partially offset by an increase in noninterest expense of $6.4 million.

Net Interest Income. Net interest income increased $6.3 million, or 16.7%, to $43.7 million for the year ended December 31, 2021 from $37.4 million for the year ended December 31, 2020, due to a $5.9 million net increase in interest income and a $362 thousand decrease in interest expense.

Our net interest margin increased 2 basis points to 4.49% for the year ended December 31, 2021 from 4.47% for the year ended December 31, 2020. The increase in net interest margin was due to a 9 basis point decrease in the cost of interest bearing deposits, offset by the decrease in interest earning asset yields of 3 basis points, primarily due to the historically low interest rate environment. Our asset and liability management model allows us to maintain our net interest margin at this level as the growth in our interest earning assets was primarily funded by a $114.3 million, or 37.9%, increase in average noninterest bearing demand deposits to $415.7 million for the year ended December 31, 2021 from $301.4 million for the year ended December 31, 2020.

Interest Income. Interest income increased $5.9 million or 15.3%, to $44.5 million for the year ended December 31, 2021 from $38.6 million for the year ended December 31, 2020 and was attributable to an increase in loan and reverse repurchase interest income offset by a decrease in interest income on securities and interest earning cash and other.

Loan interest income increased $6.0 million, or 16.7%, to $41.5 million for the year ended December 31, 2021 from $35.6 million for the year ended December 31, 2020. This increase was attributable to a $112.4 million, or 18.6%, increase in the average loan balance from our litigation-related and multifamily loan portfolios offset by a 9 basis point decrease in loan yields. The decrease in loan yields is primarily due to the impact of the historically low interest rate environment and its effect on our real estate loan portfolio pricing. The impact of the decline in loan yields on interest income was primarily offset by a 9 basis point decrease in rates on interest bearing deposits as part of the Company’s overall asset/liability management strategy.

Securities interest income decreased $382 thousand, or 14.9%, to $2.2 million for the year ended December 31, 2021 from $2.6 million for the year ended December 31, 2020. This decrease was attributable to a 41 basis point decrease in yields, driven by accelerated prepayments due to the current interest rate environment, offset by a $7.8 million, or 6.2%, increase in average securities balances at a lower rate.

Securities purchased under agreements to resell interest income increased $525 thousand to $619 thousand for the year ended December 31, 2021 from $94 thousand for the year ended December 31, 2020 as this program commenced in the fourth quarter of 2020.

Interest earning cash and other interest income decreased $199 thousand, or 50.8%, to $193 thousand for the year ended December 31, 2021 from $392 thousand for the year ended December 31, 2020. This decrease was attributable to a 12 basis point decrease in yields driven by the current interest rate environment as well as a $28.9 million, or 29.2%, decrease in average cash balance primarily due to the investment of cash into higher yielding loans.

Interest Expense. Interest expense decreased $362 thousand, or 30.4%, to $828 thousand for the year ended December 31, 2021 from $1.2 million for the year ended December 31, 2020, primarily attributable to rate reductions on deposits. Interest rates we paid on interest bearing deposits decreased 9 basis points to 0.18% for the year ended December 31, 2021 from 0.27% for the year ended December 31, 2020. Our average balance of interest bearing deposits increased

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$12.6 million, or 2.9%, to $450.9 million for the year ended December 31, 2021 from $438.3 million for the year ended December 31, 2020 attributable primarily to litigation related deposit growth.

Provision for Loan Losses. Our provision for loan losses was $7.0 million for the year ended December 31, 2021 compared to $6.3 million for the year ended December 31, 2020. The 2021 provision included approximately $5.1 million for the NFL portfolio, which was reclassified to held for sale in the third quarter. The remaining provision of approximately $1.9 million was primarily related to growth experienced in the loan portfolio.

Noninterest Income. Noninterest income information is as follows:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years Ended ​ ​ ​ ​

​ ​ December 31, ​ Change

​ ​ (Dollars in thousands)

Payment processing fees: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Customer related fees and service charges: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Administrative service income ​ ​ 29 ​ ​ 183 ​ ​ (154) (84.2) ​

Loss on loans held for sale ​ ​ (295) ​ ​ — ​ ​ (295) NA ​

​

Payment processing income increased due to the expansion of our sales channels through ISOs, merchants and additional fee allocation arrangements, with annual volumes increasing 59.4% to $23.7 billion for 2021 compared to $14.8 billion for 2020. Customer related fees and service charges have decreased due to decreases in administrative service income due to reductions in short-term rates offset by an increase in off balance sheet funds. Our off balance sheet funds increased $157.3 million, or 41.4%, to $537.5 million as of December 31, 2021 as compared to $380.2 million as of December 31, 2020. These administrative service fees are impacted by the volume of off-balance sheet funds, the duration of these funds and short-term interest rates.

Noninterest Expense. Noninterest expense information is as follows:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years Ended ​ ​ ​ ​ ​

​ ​ December 31, ​ Change

​ ​ (Dollars in thousands)

Noninterest expense: ​ ​ ​ ​

Professional and consulting services ​ 2,922 ​ ​ 3,229 ​ (307) ​ (9.5) ​

FDIC and regulatory assessments ​ 447 ​ ​ 375 ​ 72 ​ 19.2 ​

​

Employee compensation and benefits costs increased due to increases in staff and officer level employees to primarily support our growth, investment in digital platforms and related sales/marketing divisions, and the impact of salary, bonus and stock-based compensation increases. Professional and consulting services costs decreased and partially offset the increase in employee compensation and benefits as previously contracted consultants were hired, primarily in our technology development and digital marketing departments. Advertising and marketing costs increased as we purposefully enhanced our brand and sales channels through our new digital marketing efforts and thought leadership in our national

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verticals. We also re-engaged in our traditional high touch marketing and sales efforts to complement our digital marketing efforts. Data processing costs increased 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 primarily due to amortization of our investments in internally developed software to support our new digital platforms, precautionary office cleaning costs related to COVID-19 and additional office space to support our continued growth.

Income Tax Expense. We recorded income tax expense of $4.8 million for the year ended December 31, 2021, reflecting an effective tax rate of 21.1%, compared to $4.5 million, or an effective tax rate of 26.5%, for the year ended December 31, 2020. The decrease in the effective tax rate is a result of certain discrete tax benefits totaling approximately $1.4 million related to share-based compensation recognized in 2021.

Management of Market Risk

General. The principal objective of our asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The board of directors of our bank has oversight of our asset and liability management function, which is managed by our Asset/Liability Management Committee. Our Asset/Liability Management Committee meets regularly to review, among other things, the sensitivity of our assets and liabilities to market interest rate changes, local and national market conditions and market interest rates. That group also reviews our liquidity, capital, deposit mix, loan mix and investment positions.

As a financial institution, our primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the fair value of all interest earning assets and interest bearing liabilities, other than those which have a short-term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

We manage our exposure to interest rates primarily by structuring our balance sheet in the ordinary course of business. We do not typically enter into derivative contracts for the purpose of managing interest rate risk, but we may do so in the future. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.

Net Interest Income Simulation. We use an interest rate risk simulation model to test the interest rate sensitivity of net interest income and the balance sheet. Instantaneous parallel rate shift scenarios are modeled and utilized to evaluate risk and establish exposure limits for acceptable changes in net interest margin. These scenarios, known as rate shocks, simulate an instantaneous change in interest rates and use various assumptions, including, but not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows.

​

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The following table presents the estimated changes in net interest income of Esquire Bank, National Association, calculated on a bank-only basis, which would result from changes in market interest rates over twelve-month periods beginning December 31, 2022. The tables below demonstrate that we are asset-sensitive in a rising interest rate environment.

​ ​ ​ ​ ​ ​ ​

​ ​ At December 31,

​ ​ Estimated ​ ​ ​

Changes in ​ 12-Months ​ ​ ​

Interest Rates ​ Net Interest ​ ​ ​

(Basis Points) Income ​ Change

​ ​ (Dollars in thousands)

​

Economic Value of Equity Simulation. We also analyze our sensitivity to changes in interest rates through an economic value of equity (“EVE”) model. EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet contracts. EVE attempts to quantify our economic value using a discounted cash flow methodology. We estimate what our EVE would be as of a specific date. We then calculate what EVE would be as of the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve.

The following table presents the estimated changes in EVE of Esquire Bank, National Association, calculated on a bank-only basis, that would result from changes in market interest rates as of December 31, 2022.

​ ​ ​ ​ ​ ​ ​

​ ​ At December 31,

Changes in ​ Economic ​ ​ ​

Interest Rates ​ Value of ​ ​ ​

(Basis Points) Equity ​ Change

​ ​ (Dollars in thousands)

​

Many assumptions are used to calculate the impact of interest rate fluctuations. Actual results may be significantly different than our projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. The computations of interest rate risk shown above do not include actions that our management may undertake to manage the risks in response to anticipated changes in interest rates, and actual results may also differ due to any actions taken in response to the changing rates.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

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We regularly review the need to adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest earning deposits and securities, and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest earning deposits and short-and intermediate-term securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2022 and 2021, cash and cash equivalents totaled $164.1 million and $149.2 million, respectively. As of December 31, 2022, management is not aware of any events that are reasonably likely to have a material adverse impact on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us.

At December 31, 2022, through pledging of our securities and certain loans, we had the ability to borrow a total of $149.4 million from the FHLB of New York and had a borrowing capacity with the FRB of New York discount window of $36.1 million. At December 31, 2022, we also had $67.5 million in aggregated unsecured lines of credit with unaffiliated correspondent banks. No amounts were outstanding on any of the aforementioned lines as of December 31, 2022.

We have no material commitments or demands that are likely to affect our liquidity other than set forth below. In the event loan demand were to increase faster than expected, or any unforeseen demand or commitment were to occur, we could access our borrowing capacity.

Esquire Bank is subject to various regulatory capital requirements administered by Office of the Comptroller of the Currency (the “OCC”), and the Federal Deposit Insurance Corporation. At December 31, 2022 and 2021, Esquire Bank exceeded all applicable regulatory capital requirements, and was considered “well capitalized” under regulatory guidelines.

We manage our capital to comply with our internal planning targets and regulatory capital standards administered by the OCC and review capital levels on a monthly basis. At December 31, 2022, Esquire Bank was classified as well-capitalized.

The following table presents our capital ratios as of the indicated dates for Esquire Bank.

​ ​ ​ ​ ​ ​ ​ ​

​ ​ For Capital Adequacy ​

​ ​ ​ ​ Purposes ​ ​

​ ​ ​ ​ Minimum Capital with ​ Actual

​ ​ “Well Capitalized” ​ Conservation Buffer ​ At December 31, 2022

Total Risk-based Capital Ratio ​

​ ​ ​ ​ ​ ​ ​ ​

Tier 1 Risk-based Capital Ratio ​

​ ​ ​ ​ ​ ​ ​ ​

Common Equity Tier 1 Capital Ratio ​

​ ​ ​ ​ ​ ​ ​ ​

Tier 1 Leverage Ratio ​

​

​

Effective January 1, 2020, the federal banking agencies adopted a rule to establish for institutions with assets of less than $10 billion that meet other specified criteria a “community bank leverage ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) of 9% that such institutions may elect to utilize in lieu of the generally applicable leverage and risk-based capital requirements noted above. A “qualifying community bank” with capital exceeding 9% will be considered compliant with all applicable regulatory capital and leverage requirements, including the requirement to be “well capitalized”. The CARES Act and implementing rules temporarily reduced the community bank

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leverage ratio to 8%, to be gradually increased back to 9% by 2022. The CARES Act also provides that, during the same time period, if a qualifying community banking organization falls no more than 1% below the community bank leverage ratio, it will have a two-quarter grace period to satisfy the community bank leverage ratio. For the current period, Esquire Bank has elected to continue to utilize the generally applicable leverage and risk based requirements and not apply the community bank leverage ratio.

Effects of Inflation. The impact of inflation, as it affects banks, differs substantially from the impact on non-financial institutions. Banks have assets which are primarily monetary in nature and which tend to move with inflation. This is especially true for banks with a high percentage of rate sensitive interest-earning assets and interest-bearing liabilities. A bank can further reduce the impact of inflation with proper management of its rate sensitivity gap. This gap represents the difference between interest rate sensitive assets and interest rate sensitive liabilities. The Company attempts to structure its assets and liabilities and manages its gap to protect against substantial changes in interest rate scenarios, in order to minimize the potential effects of inflation.

​

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

The quantitative and qualitative disclosures about market risk are included under the section of this Annual Report entitled “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Management of Market Risk.”

​

​

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ITEM 8. Financial Statements and Supplementary Data

Crowe LLPIndependent Member Crowe Global

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

​

​

​

Shareholders and the Board of Directors of

Esquire Financial Holdings, Inc.

Jericho, New York

​

​

Opinion on the Financial Statements

​

We have audited the accompanying consolidated statements of financial condition of Esquire Financial Holdings, Inc. (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

​

Basis for Opinion

​

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

​

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

​

Critical Audit Matter

​

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Allowance For Loan Losses – Qualitative Factors

​

The Company identified the allowance for loan losses to be a critical accounting estimate. Refer to Note 1 to the consolidated financial statements for the Company’s accounting policy related to the provision and allowance for loan losses.

​

The Company’s allowance for loan losses consists of allowance for loan losses for loans collectively evaluated for impairment (“general component”) and loans individually classified as impaired (“specific component”). The general component of the allowance for loan loss begins with a calculation of historical loss experience based on actual historical losses experienced by the Company. The historical loss experience is then supplemented for qualitative factors to arrive at the Company’s estimate of probable incurred losses on loans collectively evaluated for impairment.

​

The determination of qualitative factors related to the general component of the allowance for loan and lease losses involves significant professional judgment and the use of subjective measurement by management. Evaluating management’s judgments in their determination of the qualitative factors required a higher degree of auditor effort and judgment. Therefore, we considered the collective nature of the qualitative factors to be a critical audit matter due to the subjective nature of the qualitative factors, the resulting measurement uncertainty, and because a significant portion of the allowance for loan losses is determined through qualitative factors.

​

The primary procedures we performed to address this critical audit matter included:

​

​

​

​

​

/s/ Crowe LLP

​

We have served as the Company's auditor since 2006.

​

New York, New York

March 27, 2023

​

​

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ESQUIRE FINANCIAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except per share data)

​ ​ ​ ​ ​ ​ ​

​ ​ December 31, ​ December 31,

ASSETS: ​ ​ ​ ​ ​ ​

Securities purchased under agreements to resell, at cost ​ ​ 49,567 ​ ​ 50,271

Securities available-for-sale, at fair value ​ ​ 109,269 ​ ​ 148,384

Securities, restricted, at cost ​ ​ 2,810 ​ ​ 2,680

​ ​ ​ ​ ​ ​ ​

Less: allowance for loan losses ​ ​ (12,223) ​ ​ (9,076)

Premises and equipment, net ​ ​ 2,704 ​ ​ 3,334

Accrued interest receivable ​ ​ 5,768 ​ ​ 4,197

Deferred tax assets, net ​ ​ 9,572 ​ ​ 2,845

​ ​ ​ ​ ​ ​ ​

LIABILITIES AND STOCKHOLDERS’ EQUITY: ​ ​ ​ ​ ​ ​

Deposits: ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

Accrued expenses and other liabilities ​ ​ 9,245 ​ ​ 6,626

​ ​ ​ ​ ​ ​ ​

Commitments and contingencies ​ ​ — ​ ​ —

​ ​ ​ ​ ​ ​ ​

Stockholders’ equity: ​ ​ ​ ​ ​ ​

Accumulated other comprehensive loss ​ ​ (15,117) ​ ​ (850)

​

See accompanying notes to consolidated financial statements.

​

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ESQUIRE FINANCIAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​

​ ​ For the Years Ended December 31,

Interest income: ​ ​ ​ ​ ​ ​ ​ ​ ​

Securities, includes restricted stock ​ ​ 4,161 ​ ​ 2,174 ​ ​ 2,556

Securities purchased under agreements to resell ​ ​ 1,251 ​ ​ 619 ​ ​ 94

Interest earning cash and other ​ ​ 1,574 ​ ​ 193 ​ ​ 392

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Interest expense: ​ ​ ​ ​ ​ ​ ​ ​ ​

Savings, NOW and money market deposits ​ ​ 1,488 ​ ​ 746 ​ ​ 888

Borrowings ​ ​ 4 ​ ​ 3 ​ ​ 5

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Noninterest income: ​ ​ ​ ​ ​ ​ ​ ​ ​

Customer related fees, service charges and other ​ ​ 2,893 ​ ​ 463 ​ ​ 548

Gain (loss) on loans held for sale ​ ​ 88 ​ ​ (295) ​ ​ —

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Noninterest expense: ​ ​ ​ ​ ​ ​ ​ ​ ​

Professional and consulting services ​ ​ 3,376 ​ ​ 2,922 ​ ​ 3,229

FDIC and regulatory assessments ​ ​ 558 ​ ​ 447 ​ ​ 375

Travel and business relations ​ ​ 566 ​ ​ 327 ​ ​ 210

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Earnings per share ​ ​ ​ ​ ​ ​ ​ ​ ​

​

See accompanying notes to consolidated financial statements.

​

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ESQUIRE FINANCIAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years Ended December 31,

Other comprehensive (loss) income: ​ ​ ​ ​ ​ ​ ​ ​ ​

Total other comprehensive (loss) income ​ ​ (14,267) ​ ​ (2,258) ​ ​ 1,022

​

See accompanying notes to consolidated financial statements.

​

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ESQUIRE FINANCIAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ ​ other ​ ​ ​ ​ ​ Total

Net income — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 12,618 ​ ​ — ​ ​ — ​ ​ 12,618

Restricted stock grants — ​ 121,750 ​ ​ — ​ ​ 1 ​ ​ (1) ​ ​ — ​ ​ — ​ ​ — ​ ​ —

Net income — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 17,925 ​ ​ — ​ ​ — ​ ​ 17,925

Restricted stock grants — ​ 102,000 ​ ​ — ​ ​ 1 ​ ​ (1) ​ ​ — ​ ​ — ​ ​ — ​ ​ —

Net income — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 28,518 ​ ​ — ​ ​ — ​ ​ 28,518

​

See accompanying notes to consolidated financial statements.

​

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ESQUIRE FINANCIAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years Ended December 31,

Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​

Depreciation and amortization of premises and equipment ​ ​ 703 ​ ​ 687 ​ ​ 568

(Gain) loss on loans held for sale ​ ​ (88) ​ ​ 295 ​ ​ —

Deferred tax expense (benefit) ​ ​ (1,333) ​ ​ 653 ​ ​ (955)

Net amortization (accretion): ​ ​ ​ ​ ​ ​ ​ ​ ​

Changes in other assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​

Accrued interest receivable ​ ​ (1,571) ​ ​ 332 ​ ​ (1,287)

Operating lease liability ​ ​ (561) ​ ​ (544) ​ ​ (418)

Accrued expenses and other liabilities ​ ​ 2,682 ​ ​ 587 ​ ​ 89

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​

Purchases of securities available-for-sale ​ ​ (1,739) ​ ​ (86,828) ​ ​ (37,975)

Purchases of securities held-to-maturity ​ ​ (84,092) ​ ​ — ​ ​ —

Principal repayments on securities held-to-maturity ​ ​ 5,610 ​ ​ — ​ ​ —

(Purchase) redemption of securities, restricted ​ ​ (130) ​ ​ 14 ​ ​ (29)

Purchases of premises and equipment ​ ​ (73) ​ ​ (1,004) ​ ​ (750)

Development of capitalized software ​ ​ (1,163) ​ ​ (1,940) ​ ​ (2,386)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​

Decrease in borrowings ​ ​ (2) ​ ​ (1) ​ ​ (37)

Exercise of stock options, net of repurchases ​ ​ 333 ​ ​ 27 ​ ​ 401

Tax withholding payments for vested equity awards ​ ​ (339) ​ ​ — ​ ​ —

Cash dividends paid to common stockholders ​ ​ (2,149) ​ ​ — ​ ​ —

Purchase of common stock ​ ​ — ​ ​ — ​ ​ (567)

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