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OFFON

ESQUIRE FINANCIAL HOLDINGS, INC.

(ESQ)
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ESQUIRE FINANCIAL : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/06/2021 | 03:21pm EDT

General


Management's discussion and analysis of financial condition at June 30, 2021 and
December 31, 2020 and results of operations for the three and six months ended
June 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

strategies;

? 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

   opportunities;


                                       25

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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

profitability;

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

condition;

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

business;

? 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.

Overview


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
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 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 June 30,
2021, we have cumulatively funded PPP loans totaling $45.5 million, and have
been remitted forgiveness principal payments from the SBA of $21.9 million,
resulting in a net PPP loan balance of $23.6 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 June 30, 2021, there were no participants in our
payment deferral program.

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


Assets.  Our total assets were $1.1 billion at June 30, 2021, an increase of
$121.4 million, or 13.0%, from $936.7 million at December 31, 2020, primarily
due to increases in cash and cash equivalents of $80.6 million, or 123.6%, loans
of $35.0 million, or 5.2%, and securities available-for-sale of $8.6 million, or
7.3%.

Loans. The following table provides information regarding the composition of our loan portfolio at the dates indicated:




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

                                                      (In thousands)
Real estate:
1 - 4 family                       $   44,423        6.3 %     $   48,433        7.2 %
Multifamily                           201,171       28.4          169,817       25.3
Commercial real estate                 53,771        7.6           54,717        8.1
Construction                                -          -                -          -
Total real estate                     299,365       42.3          272,967       40.6
Commercial                            373,887       52.8          358,410       53.3
Consumer                               35,213        4.9           41,362        6.1
Total Loans                        $  708,465      100.0 %     $  672,739      100.0 %
Deferred loan fees and unearned
premiums, net                         (1,088)                       (318)
Allowance for loan losses            (14,017)                    (11,402)
Loans, net                         $  693,360$  661,019




At June 30, 2021, loans were $707.4 million, or 77.3% 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 $31.4 million, or 18.5%, to
$201.2 million at June 30, 2021 from $169.8 million at December 31, 2020.
Commercial loans increased $15.5 million, or 4.3%, to $373.9 million at June 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 portfolio by type of loan at the dates indicated:


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

                                                     (Dollars in thousands)
Litigation-Related Loans
Commercial Litigation-Related:
Working capital lines of credit        $ 183,183       51.8 %     $ 202,021
      61.4 %
Case cost lines of credit                100,594       28.4          87,104       26.4
Term loans                                41,167       11.7          10,527        3.2

Total Commercial Litigation-Related 324,944 91.9 299,652

91.0

Consumer Litigation-Related:
Post-settlement consumer loans            28,558        8.1          29,342

8.9

Structured settlement loans                  166        0.0             236

0.1

Total Consumer Litigation-Related 28,724 8.1 29,578

9.0

Total Litigation-Related Loans $ 353,668 100.0 % $ 329,230

     100.0 %




At June 30, 2021, our Litigation-Related loans, which include commercial loans
to law firms and consumer lending to plaintiffs/claimants and attorneys, totaled
$353.7 million, or 49.9% of our total loan portfolio, compared to $329.2 million
at December 31, 2020. In addition, we had $18.6 million in PPP loans as of June
30, 2021 to attorney customers which are excluded from the table above. We
remain focused on prudently growing our Litigation-Related loan portfolio.

Securities. Securities available-for-sale increased $8.6 million, or 7.3%, to
$126.3 million at June 30, 2021 from $117.7 million at December 31, 2020, driven
by purchases of $43.8 million, offset by paydowns of $33.2 million, unrealized
losses of $1.5 million through other comprehensive income, and net amortization
of $458 thousand.

Funding. Total deposits increased $110.6 million, or 13.8%, to $914.7 million at
June 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 $903.4
million at June 30, 2021, or 98.8% 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 $546.9 million at June 30, 2021
which is a $166.6 million, or 43.8%, increase from the December 31, 2020 balance
of $380.3 million.

At June 30, 2021, we had the ability to borrow a total of $116.9 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 $28.9 million. At
June 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 June 30, 2021.

Equity. Total stockholders' equity increased $8.6 million, or 6.8%, to $134.7 million at June 30, 2021, from $126.1 million at December 31, 2020.


Asset Quality. Nonperforming assets, totaling $2.3 million, consisted of several
nonaccrual consumer loans as of June 30, 2021. At June 30, 2021, nonperforming
assets as a percentage of total loans and total assets were 0.32% and 0.21%
respectively, and our coverage ratio was 617%. As of June 30, 2021, the
allowance for loan losses was $14.0 million, or 1.98% of total loans, as
compared to $11.4 million, or 1.70% of total loans at December 31, 2020. The
increase in the allowance as a percentage of loans was driven by a prudent
increase in the general reserve attributable to growth in our loan portfolio and
the inherent credit risk associated with the NFL consumer post settlement
portfolio. At June 30, 2021, special mention and substandard loans totaled $28.8
million and $9.4 million, respectively.

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As previously disclosed, we believe the revisions to various claims
administration protocols surrounding potential claims of fraud and the ongoing
effects of the pandemic has extended the duration of our NFL post settlement
loan portfolio. Specifically, the current uncertainty related to our borrowers'
("claimants") access to qualified testing, doctors, their attorneys and other
administrative support, as well as claims process recalibration to address race
norming allegations has introduced incremental duration risk which may further
extend the settlement of claims and payoff of our NFL loans beyond the
contractual maturity. The Company ceased NFL loan originations in December 2017.
At June 30, 2021, NFL consumer loan exposure totaled $24.6 million with a
weighted average life of less than one year. The Company increased its general
allowance allocation to consumer loans to $6.1 million, or 17.4%, as of June 30,
2021, as compared to $2.0 million, or 4.7%, of the consumer portfolio as of June
30, 2020.

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 June 30,
                                                   2021                                      2020

                                                              (Dollars in thousands)
                                    Average                    Average        Average                   Average
                                    Balance     Interest     Yield/Cost       Balance     Interest     Yield/Cost
INTEREST EARNING ASSETS
Loans                              $ 700,349$  10,120           5.80 %   $ 593,964$   8,678          5.88 %
Securities, includes restricted
stock                                134,828          538           1.60 %     131,873          752          2.29 %
Securities purchased under
agreements to resell                  51,142          160           1.25 %           -            -             - %
Interest earning cash and other       65,947           42           0.26 % 
    99,942           36          0.14 %
Total interest earning assets        952,266       10,860           4.57 %     825,779        9,466          4.61 %

NONINTEREST EARNING ASSETS            31,519                                    26,452

TOTAL AVERAGE ASSETS               $ 983,785$ 852,231

INTEREST BEARING LIABILITIES

Savings, NOW, Money Market
deposits                           $ 416,389$     173           0.17 %   $ 415,659$     197          0.19 %
Time deposits                         10,980           19           0.69 %      19,570           96          1.97 %
Total interest bearing deposits      427,369          192           0.18 % 
   435,229          293          0.27 %
Borrowings                               104            1           3.86 %         141            1          2.84 %
Total interest bearing
liabilities                          427,473          193           0.18 %     435,370          294          0.27 %

NONINTEREST BEARING LIABILITIES
Demand deposits                      414,216                                   291,020
Other liabilities                     10,826                                     9,683
Total noninterest bearing
liabilities                          425,042                                   300,703
Stockholders' equity                 131,270                                   116,158

TOTAL AVG. LIABILITIES AND
EQUITY                             $ 983,785$ 852,231
Net interest income                             $  10,667$   9,172
Net interest spread                                                 4.39 %                                   4.34 %
Net interest margin                                                 4.49 %                                   4.47 %




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                                                         For the Six Months Ended June 30,
                                                   2021                                      2020

                                                              (Dollars in thousands)
                                    Average                    Average        Average                   Average
                                    Balance     Interest     Yield/Cost       Balance     Interest     Yield/Cost
INTEREST EARNING ASSETS
Loans                              $ 689,003$  19,699           5.77 %   $ 576,651$  17,119          5.97 %
Securities, includes restricted
stock                                127,370        1,005           1.59 %     137,985        1,638          2.39 %
Securities purchased under
agreements to resell                  51,293          320           1.26 %           -            -             - %
Interest earning cash and other       61,640           83           0.27 % 
    90,192          283          0.63 %
Total interest earning assets        929,306       21,107           4.58 %     804,828       19,040          4.76 %

NONINTEREST EARNING ASSETS            31,182                                    30,590

TOTAL AVERAGE ASSETS               $ 960,488$ 835,418

INTEREST BEARING LIABILITIES

Savings, NOW, Money Market
deposits                           $ 409,620$     347           0.17 %   $ 424,242$     494          0.23 %
Time deposits                         11,084           39           0.71 %      19,633          192          1.97 %
Total interest bearing deposits      420,704          386           0.19 % 
   443,875          686          0.31 %
Borrowings                                77            2           5.24 %         116            3          5.20 %
Total interest bearing
liabilities                          420,781          388           0.19 %     443,991          689          0.31 %

NONINTEREST BEARING LIABILITIES
Demand deposits                      400,597                                   267,705
Other liabilities                      9,807                                     8,995
Total noninterest bearing
liabilities                          410,404                                   276,700
Stockholders' equity                 129,303                                   114,727

TOTAL AVG. LIABILITIES AND
EQUITY                             $ 960,488$ 835,418
Net interest income                             $  20,719$  18,351
Net interest spread                                                 4.39 %                                   4.45 %
Net interest margin                                                 4.50 %                                   4.59 %






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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 Three Months Ended                      For the Six Months Ended
                                                           June 30,                                       June 30,
                                                         2021 vs. 2020                                  2021 vs. 2020
                                                   Increase                  Total                 Increase               Total
                                              (Decrease) due to             Increase           (Decrease) due to        Increase
                                            Volume               Rate         (Decrease)       Volume       Rate        (Decrease)

                                                                          (Dollars in thousands)
Interest earned on:
Loans                                    $   1,561$    (119)     $

1,442 $ 3,189$ (609)$ 2,580 Securities, includes restricted stock

           17              (231)            (214)           (119)        (514)          (633)
Securities purchased under agreements
to resell                                      160                  -              160             320            -            320
Interest earning cash and other               (15)                 21      
         6            (71)        (129)          (200)
Total interest income                        1,723              (329)            1,394           3,319      (1,252)          2,067

Interest paid on:
Savings, NOW, Money Markets                      -               (24)             (24)            (17)        (130)          (147)
Time deposits                                 (31)               (46)             (77)            (62)         (91)          (153)
Total deposits                                (31)               (70)            (101)            (79)        (221)          (300)
Borrowings                                       -                  -                -             (1)            -            (1)
Total interest expense                        (31)               (70)            (101)            (80)        (221)          (301)
Change in net interest income            $   1,754$    (259)     $
     1,495     $     3,399$ (1,031)$     2,368

Comparison of Operating Results for the Three Months Ended June 30, 2021 and 2020

General. Net income increased $2.0 million, or 77.7%, to $4.5 million for the three months ended June 30, 2021 from $2.5 million for the three months ended June 30, 2020. The increase resulted from a $2.5 million increase in noninterest income and a $1.5 million increase in net interest income, partially offset by an increase in noninterest expense of $2.3 million.

Net Interest Income.  Net interest income increased $1.5 million, or 16.3%, to
$10.7 million for the three months ended June 30, 2021 from $9.2 million for
the three months ended June 30, 2020, due to a $1.4 million increase in interest
income and a $101 thousand decrease in interest expense.

Our net interest margin increased 2 basis points to 4.49% for the three months ended June 30, 2021 from 4.47% for the three months ended June 30, 2020.


Interest Income.  Interest income increased $1.4 million, or 14.7%, to
$10.9 million for the three months ended June 30, 2021 from $9.5 million for
the three months ended June 30, 2020 and was attributable to an increase in
loan, reverse repurchase interest income, and interest earning cash and other,
offset by a decrease in interest income on securities.

Loan interest income increased $1.4 million, or 16.6%, to $10.1 million for the
three months ended June 30, 2021 from $8.7 million for the three months ended
June 30, 2020. This increase was attributable to a $106.4 million, or 17.9%,
increase in the average loan balance primarily from our litigation-related and
multifamily portfolios offset by an 8 basis point decrease in loan yields. The
decrease in loan yields is due to the historically low interest rate environment
caused by the pandemic and its effects on the overall economy. The impact of the
decline in loan yields on interest

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income was partially 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 $214 thousand, or 28.5%, to $538 thousand
for the three months ended June 30, 2021 from $752 thousand for the three months
ended June 30, 2020. This decrease was attributable to a 69 basis point decrease
in yields, driven by accelerated prepayments due to the current interest rate
environment.

Securities purchased under agreements to resell income was $160 thousand for the
three months ended June 30, 2021. We invested excess deposit funds in reverse
repurchase agreements in the fourth quarter of 2020.

Interest earning cash and other interest income increased $6 thousand, or 16.7%,
to $42 thousand for the three months ended June 30, 2021 from $36 thousand for
the three months ended June 30, 2020.

Interest Expense.  Interest expense decreased $101 thousand, or 34.4%, to $193
thousand for the three months ended June 30, 2021 from $294 thousand for
the three months ended June 30, 2020, primarily attributable to rate reductions
on deposits. The blended interest rate we paid on interest bearing deposits
decreased 9 basis points to 0.18% for the three months ended June 30, 2021 from
0.27% for the three months ended June 30, 2020. Our average balance of interest
bearing deposits decreased $7.9 million, or 1.8%, to $427.4 million for
the three months ended June 30, 2021 from $435.2 million for the three months
ended June 30, 2020 attributable primarily to certificate of deposit maturities.

Provision for Loan Losses.  Our provision for loan losses was $850 thousand for
the three months ended June 30, 2021 compared to $1.9 million for the three
months ended June 30, 2020. The second quarter 2021 provision for loan losses
was driven by a prudent increase in the general reserve attributable to growth
in our loan portfolio and the inherent credit risk associated with the NFL
consumer post settlement portfolio. As previously disclosed, we also believe the
$24.6 million legacy NFL portfolio's duration has extended as a result of
revisions to various claims administration protocols surrounding potential
claims of fraud, the ongoing effects of the pandemic coupled with revised
qualifying physician requirements, and claims process recalibration to address
race norming allegations.

Noninterest Income.  Noninterest income information is as follows:


                                                For the Three Months Ended
                                                        June 30,                       Change
                                                 2021               2020         Amount     Percent

                                                             (Dollars in thousands)
Payment processing fees
Payment processing income                    $       5,151$       2,689$ 2,462       91.6 %
ACH income                                             200                161         39       24.2
Customer related fees and service charges
Administrative service income                           10                 13        (3)     (23.1)
Other                                                  106                 92         14       15.2
Total noninterest income                     $       5,467$       2,955$ 2,512       85.0 %




Payment processing income increased due to the continued expansion of our sales
channels through ISOs, the increased number of merchants, payment processing
volume increases and fee allocation arrangements, as well as the reopening of
the economy as the pandemic restrictions continued to ease nationally. Quarterly
volumes increased $3.1 billion, or 98.8%, to $6.2 billion, as compared to the
second quarter of 2020.

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  Table of Contents

Noninterest Expense. Noninterest expense information is as follows:


                                           For the Three Months Ended
                                                   June 30,                       Change
                                            2021               2020         Amount     Percent

                                                        (Dollars in thousands)
Noninterest expense
Employee compensation and benefits      $       5,669$       4,099$ 1,570       38.3 %
Occupancy and equipment                           709                574        135       23.5
Professional and consulting services              804                690        114       16.5
FDIC and regulatory assessments                   111                 94   
     17       18.1
Advertising and marketing                         315                 42        273      650.0
Travel and business relations                      69                 12         57      475.0
Data processing                                   907                771        136       17.6
Other operating expenses                          533                499         34        6.8
Total noninterest expense               $       9,117$       6,781$ 2,336       34.4 %




Employee compensation and benefits costs increased due to increases in staffing
of 26% to support our investment in digital platforms and related
sales/marketing divisions, and the impact of salary and stock-based compensation
increases. Advertising, marketing, travel and business relations costs increased
as we continued our digital marketing efforts and thought leadership in our
national verticals. We have also re-engaged in our traditional high touch
marketing and sales efforts at conferences and other in-person industry forums.
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. Professional and consulting expenses increased due to the
continued investment made to expand our business and support infrastructure.

Income Tax Expense.  We recorded an income tax expense of $1.7 million for the
three months ended June 30, 2021, reflecting an effective tax rate of 27.0%,
compared to $913 thousand, or 26.5%, for the three months ended June 30, 2020.

Comparison of Operating Results for the Six Months Ended June 30, 2021 and 2020

General.  Net income increased $3.5 million, or 69.1%, to $8.7 million for
the six months ended June 30, 2021 from $5.1 million for the six months ended
June 30, 2020. The increase resulted from a $4.9 million increase in noninterest
income and a $2.4 million increase in net interest income, partially offset by
an increase in noninterest expense of $3.7 million.

Net Interest Income.  Net interest income increased $2.4 million, or 12.9%, to
$20.7 million for the six months ended June 30, 2021 from $18.4 million for
the six months ended June 30, 2020, due to a $2.1 million increase in interest
income and a $301 thousand decrease in interest expense.

Our net interest margin decreased 9 basis points to 4.50% for the six months
ended June 30, 2021 from 4.59% for the six months ended June 30, 2020. The
decrease in net interest margin was due to a 18 basis point decrease in the
yields on interest earning assets, primarily due to the historically low
interest rate environment and its negative effects on loans, securities,
interest earning cash and other short-term investment yields. This decrease was
offset by a 12 basis point decrease in our cost of funds on average interest
bearing liabilities.

Interest Income.  Interest income increased $2.1 million, or 10.9%, to
$21.1 million for the six months ended June 30, 2021 from $19.0 million for
the six months ended June 30, 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.

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Table of Contents

Loan interest income increased $2.6 million, or 15.1%, to $19.7 million for the
six months ended June 30, 2021 from $17.1 million for the six months ended June
30, 2020. This increase was attributable to a $112.4 million, or 19.5%, increase
in the average loan balance primarily from our litigation-related and
multifamily portfolios offset by a 20 basis point decrease in loan yields. The
decrease in loan yields is due to the historically low interest rate environment
caused by the pandemic and its effects on the overall economy. The impact of the
decline in loan yields on interest income was partially offset by a 12 basis
point decrease in rates on interest bearing deposits as part of the Company's
overall asset/liability management strategy.

Securities interest income decreased $633 thousand, or 38.6%, to $1.0 million
for the six months ended June 30, 2021 from $1.6 million for the six months
ended June 30, 2020. This decrease was attributable to a $10.6 million, or 7.7%,
decrease in average securities balances and an 80 basis point decrease in
yields, both driven by accelerated prepayments due to the current interest rate
environment.

Securities purchased under agreements to resell income was $320 thousand for the six months ended June 30, 2021. We invested excess deposit funds in reverse repurchase agreements in the fourth quarter of 2020.

Interest earning cash and other interest income decreased $200 thousand, or
70.7%, to $83 thousand for the six months ended June 30, 2021 from $283 thousand
for the six months ended June 30, 2020. This decrease was attributable to a 36
basis point decrease in yields driven by the current interest rate environment
and a $28.6 million, or 31.7%, decrease in average cash balance primarily due to
deployment of excess funds into higher yielding reverse repurchase agreements.

Interest Expense.  Interest expense decreased $301 thousand, or 43.7%, to $388
thousand for the six months ended June 30, 2021 from $689 thousand for the six
months ended June 30, 2020, primarily attributable to rate reductions on
deposits. The blended interest rate we paid on interest bearing deposits
decreased 12 basis points to 0.19% for the six months ended June 30, 2021 from
0.31% for the six months ended June 30, 2020. Our average balance of interest
bearing deposits decreased $23.2 million, or 5.2%, to $420.7 million for the six
months ended June 30, 2021 from $443.9 million for the six months ended June 30,
2020 attributable primarily to decreases in average savings, NOW, money market,
and time deposits.

Provision for Loan Losses.  Our provision for loan losses was $2.7 million for
the six months ended June 30, 2021 compared to $3.8 million for the six months
ended June 30, 2020. The provision for loan losses was driven by a prudent
increase in the general reserve attributable to growth in our loan portfolio and
the inherent credit risk associated with the NFL consumer post settlement
portfolio. As previously disclosed, we also believe the $24.6 million legacy NFL
portfolio's duration has extended as a result of revisions to various claims
administration protocols surrounding potential claims of fraud, the ongoing
effects of the pandemic coupled with revised qualifying physician requirements,
and claims process recalibration to address race norming allegations.

Noninterest Income.  Noninterest income information is as follows:


                                                For the Six Months Ended
                                                       June 30,                      Change
                                                 2021              2020        Amount     Percent

                                                            (Dollars in thousands)
Payment processing fees
Payment processing income                    $      10,318$     5,472$ 4,846       88.6 %
ACH income                                             403              334         69       20.7
Customer related fees and service charges
Administrative service income                           28               99       (71)     (71.7)
Other                                                  183              170         13        7.6
Total noninterest income                     $      10,932$     6,075$ 4,857       80.0 %




Payment processing income increased due to the continued expansion of our sales
channels through ISOs, the increased number of merchants, payment processing
volume increases and fee allocation arrangements as well as the

                                       36

Table of Contents


reopening of the economy. Quarterly volumes increased $5.0 billion, or 80.2%, to
$11.2 billion, as compared to the six months ended 2020. Customer related fees
and service charges have decreased due to decreases in administrative service
income on off-balance sheet funds, which is impacted by the volume of
off-balance sheet funds, the duration of these funds and short-term interest
rates. Off-balance sheet sweep funds totaled $546.9 million at June 30, 2021,
demonstrating the continued strength of our branchless core business model.

Noninterest Expense. Noninterest expense information is as follows:


                                          For the Six Months Ended
                                                  June 30,                     Change
                                            2021             2020        Amount     Percent

                                                      (Dollars in thousands)
Noninterest expense
Employee compensation and benefits      $     10,666$      8,076$ 2,590       32.1 %
Occupancy and equipment                        1,408            1,119        289       25.8
Professional and consulting services           1,579            1,537         42        2.7
FDIC and regulatory assessments                  208              185      
  23       12.4
Advertising and marketing                        647              118        529      448.3
Travel and business relations                    108              140       (32)     (22.9)
Data processing                                1,757            1,500        257       17.1
Other operating expenses                         932              971       (39)      (4.0)
Total noninterest expense               $     17,305$     13,646$ 3,659       26.8 %



Employee compensation and benefits costs increased due to a 26% increase in
staffing to support our investment in digital platforms and related
sales/marketing divisions, and the impact of salary and stock-based compensation
increases. Advertising and marketing costs increased as we continued our new
digital marketing efforts and thought leadership in our national verticals. We
also re-engaged in our traditional high touch marketing and sales efforts at
conferences and other in-person industry forums. Occupancy and equipment costs
increased primarily due to amortization of our investments in internally
developed software to support our new digital platform, precautionary office
cleaning costs related to COVID-19 and additional office space to support our
continued growth. Data processing costs increased due to increased processing
volume, primarily driven by our core banking platform, and additional costs
related to our technology implementations.

Income Tax Expense.  We recorded an income tax expense of $3.0 million for the
six months ended June 30, 2021, reflecting an effective tax rate of 25.8%,
compared to $1.9 million, or 26.5%, for the six months ended June 30, 2020. The
decrease in tax rate was due to certain discrete tax benefits related to shared
based compensation.

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.

                                       37

Table of Contents


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.

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 a twelve-month period.


                         At June 30,
                             2021
                     Estimated
  Changes in         12-Months
Interest Rates      Net Interest
(Basis Points)        Income         Change

                    (Dollars in thousands)
400               $        65,437     18,939
300                        60,373     13,875
200                        55,345      8,847
100                        50,841      4,343
  0                        46,498          -
-100                       44,265    (2,233)
-200                       42,967    (3,531)




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. We currently
calculate EVE under the assumptions that interest rates increase 100, 200, 300
and 400 basis points from current market rates, and under the assumption that
interest rates decrease 100 and 200 basis points from current market rates.

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Table of Contents

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 at June 30, 2021.


                        At June 30,
                            2021
  Changes in        Economic
Interest Rates      Value of
(Basis Points)       Equity         Change

                   (Dollars in thousands)
400               $    207,898       61,489
300                    194,227       47,818
200                    179,447       33,038
100                    163,914       17,505
  0                    146,409            -
-100                   119,718     (26,691)
-200                   106,641     (39,768)




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.

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 June 30, 2021, cash and cash equivalents totaled
$145.7 million.

At June 30, 2021, through pledging of our securities and certain loans, we had
the ability to borrow a total of $116.9 million from the Federal Home Loan Bank
of New York and had an available line of credit with the Federal Reserve Bank of
New York discount window of $28.9 million. At June 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 June 30, 2021.

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 with the Federal Home Loan Bank of New York
or obtain additional funds through brokered certificates of deposit.

Esquire Bank is subject to various regulatory capital requirements administered
by the Office of the Comptroller of the Currency (the "OCC"), and the Federal
Deposit Insurance Corporation. At June 30, 2021, Esquire Bank exceeded all
applicable regulatory capital requirements, and was considered "well
capitalized" under regulatory guidelines.

                                       39

Table of Contents

We manage our capital to comply with our internal planning targets and regulatory capital standards administered by the OCC. We review capital levels on a monthly basis.


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 June 30, 2021
Total Risk-based Capital Ratio
Bank                                               10.00 %                 10.50 %             17.86 %

Tier 1 Risk-based Capital Ratio
Bank                                                8.00 %                  8.50 %             16.60 %

Common Equity Tier 1 Capital Ratio
Bank                                                6.50 %                  7.00 %             16.60 %

Tier 1 Leverage Ratio
Bank                                                5.00 %                  4.00 %             12.29 %




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 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.

Off-Balance Sheet Arrangements

We are a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of our customers. These
financial instruments include commitments to extend credit, which involve
elements of credit and interest rate risk in excess of the amount recognized in
the Consolidated Statements of Financial Condition. Our exposure to credit loss
is represented by the contractual amount of the instruments. We use the same
credit policies in making commitments as we do for on-balance sheet instruments.

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Financials (USD)
Sales 2021 43,3 M - -
Net income 2021 18,7 M - -
Net Debt 2021 - - -
P/E ratio 2021 13,2x
Yield 2021 -
Capitalization 235 M 235 M -
Capi. / Sales 2021 5,42x
Capi. / Sales 2022 4,68x
Nbr of Employees 99
Free-Float 85,1%
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Number of Analysts 1
Last Close Price 31,53 $
Average target price 30,00 $
Spread / Average Target -4,85%
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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 Chief Operating Officer, Secretary & Executive VP
Todd A. Deutsch Independent Director