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ESQUIRE FINANCIAL HOLDINGS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/10/2021 | 11:07am EST


Management's discussion and analysis of financial condition at September 30,
2021 and December 31, 2020 and results of operations for the three and nine
months ended September 30, 2021 and 2020 is intended to assist in understanding
the financial condition and results of operations of Esquire Financial
Holdings, Inc. The information contained in this section should be read in
conjunction with the unaudited Consolidated Financial Statements and the audited
Consolidated Financial Statements as of December 31, 2020 and the notes thereto
appearing in Part I, Item 1, of this quarterly report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements, which can be
identified by the use of words such as "may," "might," "should," "could,"
"predict," "potential," "believe," "expect," "attribute," "continue," "will,"
"anticipate," "seek," "estimate," "intend," "plan," "projection," "goal,"
"target," "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. These forward-looking statements include, but are not
limited to:

? statements of our goals, intentions and expectations;

? statements regarding our business plans, prospects, growth and operating


? statements regarding the quality of our loan and investment portfolios; and

? estimates of our risks and future costs and benefits.

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

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

? our ability to manage our operations under the current economic conditions

nationally and in our market area;

? adverse changes in the financial industry, securities, credit and national

local real estate markets (including real estate values);

? risks related to a high concentration of loans secured by real estate located

in our market area;

? risks related to a high concentration of loans and deposits dependent upon the

legal and "litigation" market;

? the impact of any potential strategic transactions;

? our ability to enter new markets successfully and capitalize on growth



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significant increases in our loan losses, including as a result of our

? inability to resolve classified and nonperforming assets or reduce risks

associated with our loans, and management's assumptions in determining the

adequacy of the allowance for loan losses;

? interest rate fluctuations, which could have an adverse effect on our


external economic and/or market factors, such as changes in monetary and fiscal

policies and laws, including the interest rate policies of the Board of

? Governors of the Federal Reserve System ("FRB"), inflation or deflation,

changes in the demand for loans, and fluctuations in consumer spending,

borrowing and savings habits, which may have an adverse impact on our financial


continued or increasing competition from other financial institutions, credit

? unions, and non-bank financial services companies, many of which are subject to

different regulations than we are;

credit risks of lending activities, including changes in the level and trend of

? loan delinquencies and write-offs and in our allowance for loan losses and

provision for loan losses;

? our success in increasing our legal and "litigation" market lending;

? our ability to attract and maintain deposits and our success in introducing new

financial products;

? losses suffered by merchants or Independent Sales Organizations (ISOs) with

whom we do business;

? our ability to effectively manage risks related to our merchant services


? our ability to leverage the professional and personal relationships of our

board members and advisory board members;

changes in interest rates generally, including changes in the relative

? differences between short-term and long-term interest rates and in deposit

interest rates, that may affect our net interest margin and funding sources;

? fluctuations in the demand for loans;

? technological changes that may be more difficult or expensive than expected;

? changes in consumer spending, borrowing and savings habits;

? declines in the yield on our assets resulting from the current low interest

   rate environment;

   declines in our payment processing income as a result of reduced demand,

competition and changes in laws or government regulations or policies affecting

? financial institutions, which could result in, among other things, increased

deposit insurance premiums and assessments, capital requirements, regulatory

fees and compliance costs, particularly the new capital regulations, and the

resources we have available to address such changes;

changes in accounting policies and practices, as may be adopted by the bank

? regulatory agencies, the Financial Accounting Standards Board, the Securities

and Exchange Commission or the Public Company Accounting Oversight Board;

? loan delinquencies and changes in the underlying cash flows of our borrowers;


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? the impairment of our investment securities;

? our ability to control costs and expenses, particularly those associated with

operating as a publicly traded company;

? the failure or security breaches of computer systems on which we depend;

? political instability;

? acts of war, terrorism, natural disasters or global market disruptions,

including global pandemics;

competition and innovation with respect to financial products and services by

? banks, financial institutions and non-traditional providers, including retail

businesses and technology companies;

? changes in our organization and management and our ability to retain or expand

our management team and our board of directors, as necessary;

the costs and effects of legal, compliance and regulatory actions, changes and

? developments, including the initiation and resolution of legal proceedings,

regulatory or other governmental inquiries or investigations, and/or the

results of regulatory examinations and reviews;

? the ability of key third-party service providers to perform their obligations

to us; and

other economic, competitive, governmental, regulatory and operational factors

? affecting our operations, pricing, products and services described elsewhere in

this Quarterly Report on Form 10-Q.

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, making it difficult to grow assets and
income; if the economy is unable to remain substantially reopened, and higher
levels of unemployment continue for an extended period of time, 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, impairing their ability to
honor commitments to us; and our cyber security risks are increased as the
result of an increase in the number of employees working remotely.

The foregoing factors should not be construed as exhaustive and should be read
in conjunction with other cautionary statements that are included in our Annual
Report on Form 10-K for the year ended December 31, 2020, as supplemented by
subsequent Quarterly Reports on Form 10-Q. If one or more events related to
these or other risks or uncertainties materialize, or if our underlying
assumptions prove to be incorrect, actual results may differ materially from
what we anticipate. Accordingly, you should not place undue reliance on any such
forward-looking statements. Any forward-looking statement speaks only as of the
date on which it is made, and we do not undertake any obligation to publicly
update or review any forward-looking statement, whether as a result of new
information, future developments or otherwise. New risks and uncertainties arise
from time to time, and it is not possible for us to predict those events or how
they may affect us. In addition, we cannot assess the impact of each factor on
our business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements.


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Summary of Significant Accounting Policies

A summary of our accounting policies is described in Note 1 to the Consolidated
Financial Statements included in our 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 loan losses in the portfolio and the material effect that such
judgements can have on the results of operations.

Emerging Growth Company.  Pursuant to the JOBS Act, an emerging growth company
is provided the option to adopt new or revised accounting standards that may be
issued by the Financial Accounting Standards Board ("FASB") or the SEC either
(i) within the same periods as those otherwise applicable to non-emerging growth
companies or (ii) within the same time periods as private companies. We have
irrevocably elected to adopt new accounting standards within the public company
adoption period.

We have taken advantage of some of the reduced regulatory and reporting
requirements that are available to it so long as we qualify as an emerging
growth company, including, but not limited to, not being required to comply with
the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation, and
exemptions from the requirements of holding non-binding advisory votes on
executive compensation and golden parachute payments.


We are a financial holding company headquartered in Jericho, New York and
registered under the Bank Holding Company Act of 1956, as amended. Through our
wholly owned bank subsidiary, Esquire Bank, National Association ("Esquire Bank"
or the "Bank"), we are 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 market. We
offer 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, both on a national basis. We also offer
traditional banking products for businesses and consumers in our local market

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 provision for loan losses, noninterest
income and noninterest expense. Noninterest income currently consists primarily
of payment processing fees and customer related fees and charges. Noninterest
expense currently consists primarily of employee compensation and benefits 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.

COVID-19 Pandemic Programs

We are participating in the Paycheck Protection Program administered by the SBA.
The PPP provides borrower guarantees for lenders, as well as loan forgiveness
incentives for borrowers that utilize the loan proceeds to cover employee
compensation-related costs and other qualifying business costs. As of September
30, 2021, we have cumulatively funded PPP loans totaling $45.5 million, and have
been remitted forgiveness principal payments from the SBA of $33.8 million,
resulting in a net PPP loan balance of $11.7 million. All of our calendar year
2020 PPP loan originations have been fully repaid by the SBA.


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In 2020, management implemented a customer payment deferral program (principal
and interest) under the CARES Act to assist business borrowers and certain
consumers that may have been experiencing financial hardship due to COVID-19
related challenges. As of September 30, 2021, there were no participants in our
payment deferral program.

Comparison of Financial Condition at September 30, 2021 and December 31, 2020

Assets.  Our total assets were $1.1 billion at September 30, 2021, an increase
of $186.6 million, or 19.9%, from $936.7 million at December 31, 2020, primarily
due to increases in cash and cash equivalents of $73.1 million, or 112.1%, loans
held for investment of $71.7 million, or 10.7%, and securities
available-for-sale of $24.0 million, or 20.4%.

Loans. The following table provides information regarding the composition of our loans held for investment portfolio at the dates indicated:

                                     At September 30,            At December 31,
                                           2021                        2020
                                     Amount      Percent         Amount      Percent

                                                      (In thousands)
Real estate:
1 - 4 family                       $   44,022        5.9 %     $   48,433        7.2 %
Multifamily                           240,055       32.2          169,817       25.3
Commercial real estate                 53,437        7.2           54,717        8.1
Construction                                -          -                -          -
Total real estate                     337,514       45.3          272,967       40.6
Commercial                            398,511       53.5          358,410       53.3
Consumer                                8,651        1.2           41,362        6.1

Total loans held for investment $ 744,676 100.0 % $ 672,739

    100.0 %
Deferred loan fees and unearned
premiums, net                           (584)                       (318)
Allowance for loan losses             (8,665)                    (11,402)
Loans held for investment, net     $  735,427$  661,019

At September 30, 2021, loans were $744.1 million, or 76.2% of total deposits,
compared to $672.4 million, or 83.6% of total deposits, at December 31, 2020.
The growth in loans was primarily driven by increases in multifamily and
commercial loans. Multifamily loans increased $70.2 million, or 41.4%, to
$240.1 million at September 30, 2021 from $169.8 million at December 31, 2020.
Commercial loans increased $40.1 million, or 11.2%, to $398.5 million at
September 30, 2021 from $358.4 million at December 31, 2020.


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

                                        September 30, 2021          December 31, 2020
                                         Amount      Percent        Amount      Percent

                                                     (Dollars in thousands)
Litigation-Related Loans
Commercial Litigation-Related:
Working capital lines of credit        $  197,176       55.1 %     $ 202,021       61.4 %
Case cost lines of credit                 112,769       31.5          87,104       26.4
Term loans                                 45,425       12.7          10,527        3.2
Total Commercial Litigation-Related       355,370       99.3         299,652       91.0
Consumer Litigation-Related:
Post-settlement consumer loans              2,268        0.7          29,342        8.9
Structured settlement loans                   141        0.0             236        0.1
Total Consumer Litigation-Related           2,409        0.7          

29,578 9.0 Total Litigation-Related Loans $ 357,779 100.0 % $ 329,230 100.0 %

At September 30, 2021, our Litigation-Related loans, which include commercial
loans to law firms and consumer lending to plaintiffs/claimants and attorneys,
totaled $357.8 million, or 48.0% of our total loan portfolio, compared to $329.2
million at December 31, 2020. In addition, we had $11.7 million in PPP loans as
of September 30, 2021 to attorney customers which are excluded from the table
above. We remain focused on prudently growing our Litigation-Related loan

Securities. Securities available-for-sale increased $24.0 million, or 20.4%, to
$141.7 million at September 30, 2021 from $117.7 million at December 31, 2020,
driven by purchases of $70.5 million, offset by paydowns of $43.6 million,
unrealized losses of $2.2 million through other comprehensive income, and net
amortization of $613 thousand.

Funding. Total deposits increased $173.0 million, or 21.5%, to $977.0 million at
September 30, 2021 from $804.1 million at December 31, 2020. 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
$965.9 million at September 30, 2021, or 98.9% of total deposits at that date,
compared to $792.9 million or 98.6% of total deposits at December 31, 2020.

In addition to our core deposits as a source of funding, the Company continues
to prudently manage its balance sheet through deposit sweep programs,
maintaining off-balance sheet funds totaling $443.9 million at September 30,
2021 which is a $63.6 million, or 16.7%, increase from the December 31, 2020
balance of $380.3 million.

At September 30, 2021, we had the ability to borrow a total of $133.8 million
from the Federal Home Loan Bank of New York. We also had an available line of
credit with the Federal Reserve Bank of New York discount window of $27.5
million. At September 30, 2021, 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 of credit at September 30, 2021.

Equity. Total stockholders' equity increased $11.1 million, or 8.8%, to $137.2 million at September 30, 2021, from $126.1 million at December 31, 2020.

Asset Quality. Nonperforming assets, totaling $12 thousand, consisted of several
nonaccrual consumer loans as of September 30, 2021. As of September 30, 2021,
the allowance for loan losses was $8.7 million, or 1.16% of total loans, as
compared to $11.4 million, or 1.70% of total loans at December 31, 2020. The
decrease in the allowance as a percentage of loans is a result of 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 as our overall reserve
for loan losses to total loans returned to pre-pandemic levels. At September 30,
2021, special mention and substandard loans totaled $24.8 million and $4.8
million, respectively.


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Average Balance Sheets and Rate/Volume Analysis

The following tables present average balance sheet information, interest income,
interest expense and the corresponding average yields earned and rates paid for
periods indicated. The average balances are daily averages and, for loans,
include both performing and nonperforming balances. Interest income on loans
includes the effects of net premium amortization and net deferred loan
origination fees accounted for as yield adjustments. No tax-equivalent yield
adjustments were made, as we have no tax exempt investments.

                                                     For the Three Months Ended September 30,
                                                   2021                                       2020

                                                               (Dollars in thousands)
                                    Average                     Average        Average                   Average
                                    Balance      Interest     Yield/Cost       Balance     Interest     Yield/Cost
Loans, held for investment        $   738,281$  10,709           5.75 %   $ 608,313$   8,936          5.84 %
Securities, includes
restricted stock                      138,200          583           1.67 %     113,580          494          1.73 %
Securities purchased under
agreements to resell                   50,972          150           1.17 %           -            -             - %
Interest earning cash and
other                                  66,726           51           0.30 %     143,420           66          0.18 %
Total interest earning assets         994,179       11,493           4.59 %     865,313        9,496          4.37 %

NONINTEREST EARNING ASSETS             33,765                                    28,708

TOTAL AVERAGE ASSETS              $ 1,027,944$ 894,021


Savings, NOW, Money Market
deposits                          $   453,678$     189           0.17 %   $ 430,511$     203          0.19 %
Time deposits                          11,126           19           0.68 %      17,751           85          1.90 %
Total interest bearing
deposits                              464,804          208           0.18 %     448,262          288          0.26 %
Borrowings                                 54            1           7.35 %          87            1          4.56 %
Total interest bearing
liabilities                           464,858          209           0.18 %     448,349          289          0.26 %

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2021 43,5 M - -
Net income 2021 16,5 M - -
Net Debt 2021 - - -
P/E ratio 2021 16,5x
Yield 2021 -
Capitalization 256 M 256 M -
Capi. / Sales 2021 5,88x
Capi. / Sales 2022 5,08x
Nbr of Employees 99
Free-Float -
Duration : Period :
Esquire Financial Holdings, Inc. Technical Analysis Chart | ESQ | US29667J1016 | MarketScreener
Technical analysis trends ESQUIRE FINANCIAL HOLDINGS, INC.
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 1
Last Close Price 34,23 $
Average target price 36,00 $
Spread / Average Target 5,17%
EPS Revisions
Managers and Directors
Andrew C. Sagliocca President, Chief Executive Officer & Director
Michael Lacapria Chief Financial Officer & Senior Vice President
Anthony L. Coelho Chairman
Eric S. Bader Treasurer & Senior Vice President
Todd A. Deutsch Independent Director