# Esquire Financial Holdings, Inc. (ESQ) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Esquire Financial Holdings, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1531031/000155837022003391/esq-20211231x10k.htm
Accession: 0001558370-22-003391
Filing date: 2022-03-11
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/ESQ/
All MD&A years: /company/ESQ/mda/
Next year: /company/ESQ/mda/fy2022/ (FY 2022)

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 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.

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 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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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.

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Selected Financial Data

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

[[GREPCENT_TABLE]]
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investment","\u200b","","784,517","\u200b","","672,421","\u200b","","565,369","\u200b","","468,101","\u200b","","348,978","\u200b"],["Total deposits","\u200b","","1,028,409","\u200b","","804,054","\u200b","","680,620","\u200b","","568,421","\u200b","","448,494","\u200b"],["Total stockholders\u2019 equity","\u200b","","143,735","\u200b","","126,076","\u200b","","111,062","\u200b","","92,774","\u200b","","83,383","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Income Statement Data:","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["Interest income","\u200b","$","44,531","\u200b","$","38,630","\u200b","$","36,659","\u200b","$","28,951","\u200b","$","20,394","\u200b"],["Interest expense","\u200b","","828","\u200b","","1,190","\u200b","","2,548","\u200b","","1,212","\u200b","","538","\u200b"],["Net interest income","\u200b","","43,703","\u200b","","37,440","\u200b","","34,111","\u200b","","27,739","\u200b","","19,856","\u200b"],["Provision for loan losses","\u200b","","6,955","\u200b","","6,250","\u200b","","1,850","\u200b","","1,375","\u200b","","905","\u200b"],["Net interest income after provision for loan losses","\u200b","","36,748","\u200b","","31,190","\u200b","","32,261","\u200b","","26,364","\u200b","","18,951","\u200b"],["Payment processing income","\u200b","\u200b","20,856","\u200b","\u200b","14,099","\u200b","\u200b","10,976","\u200b","\u200b","4,961","\u200b","\u200b","3,322","\u200b"],["Other noninterest income","\u200b","\u200b","168","\u200b","\u200b","548","\u200b","\u200b","835","\u200b","\u200b","2,894","\u200b","\u200b","2,194","\u200b"],["Total noninterest income","\u200b","","21,024","\u200b","","14,647","\u200b","","11,811","\u200b","","7,855","\u200b","","5,516","\u200b"],["Employee compensation and benefits","\u200b","\u200b","21,741","\u200b","\u200b","16,873","\u200b","\u200b","14,677","\u200b","\u200b","13,039","\u200b","\u200b","10,072","\u200b"],["Other expenses","\u200b","\u200b","13,323","\u200b","\u200b","11,797","\u200b","\u200b","10,257","\u200b","\u200b","9,256","\u200b","\u200b","7,361","\u200b"],["Total noninterest expense","\u200b","","35,064","\u200b","","28,670","\u200b","","24,934","\u200b","","22,295","\u200b","","17,433","\u200b"],["Net income before income taxes","\u200b","","22,708","\u200b","","17,167","\u200b","","19,138","\u200b","","11,924","\u200b","","7,034","\u200b"],["Income tax expense","\u200b","","4,783","\u200b","","4,549","\u200b","","4,995","\u200b","","3,190","\u200b","","3,390","\u200b"],["Net income","\u200b","","17,925","\u200b","","12,618","\u200b","","14,143","\u200b","","8,734","\u200b","","3,644","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Per Share Data:","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["Earnings per share:","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["Basic","\u200b","$","2.40","\u200b","$","1.70","\u200b","$","1.91","\u200b","$","1.18","\u200b","$","0.59","\u200b"],["Diluted","\u200b","$","2.26","\u200b","$","1.65","\u200b","$","1.82","\u200b","$","1.13","\u200b","$","0.58","\u200b"],["Book value per share(1)","\u200b","$","17.77","\u200b","$","16.18","\u200b","$","14.51","\u200b","$","12.32","\u200b","$","11.38","\u200b"],["Tangible book value per share(2)","\u200b","$","17.77","\u200b","$","16.18","\u200b","$","14.51","\u200b","$","12.32","\u200b","$","11.38","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Selected Performance Ratios:","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["Return on average assets","\u200b","","1.77","%","","1.45","%","","1.93","%","","1.45","%","","0.80","%"],["Return on average equity","\u200b","","13.42","%","","10.69","%","","13.95","%","","10.12","%","","5.38","%"],["Interest rate spread","\u200b","","4.40","%","","4.34","%","","4.56","%","","4.56","%","","4.33","%"],["Net interest margin","\u200b","","4.49","%","","4.47","%","","4.86","%","","4.73","%","","4.43","%"],["Efficiency ratio(3)","\u200b","","54.17","%","","55.04","%","","54.30","%","","59.34","%","","68.71","%"],["Loan to deposit ratio","\u200b","\u200b","76.28","%","\u200b","83.63","%","\u200b","83.07","%","\u200b","82.35","%","\u200b","77.81","%"],["Average interest earning assets to average interest bearing liabilities","\u200b","","215.72","%","","191.12","%","","181.71","%","","182.23","%","","181.75","%"],["Average equity to average assets","\u200b","","13.22","%","","13.61","%","","13.83","%","","14.37","%","","14.93","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","For purposes of computing book value per share, book value equals total common stockholders\u2019 equity divided by total number of shares of common stock outstanding. Total common stockholders\u2019 equity equals total stockholders\u2019 equity, less preferred equity. Preferred equity was $0 as of the dates indicated."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","The Company had no intangible assets as of the dates indicated. Thus, tangible book value per share is the same as book value per share for each of the periods indicated."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","See \u201cNon-GAAP Financial Measure Reconciliation\u201d below for the computation of the efficiency ratio."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(4)","Nonperforming loans include nonaccrual loans, loans past due 90 days and still accruing interest and loans modified under troubled debt restructurings."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(5)","Nonperforming assets include nonperforming loans, other real estate owned and other foreclosed assets."]]
[[/GREPCENT_TABLE]]

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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[[GREPCENT_TABLE]]
[["\u200b\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","At December 31,","\u200b"],["\u200b","2021","\u200b","2020","\u200b","2019","\u200b","2018","\u200b","2017","\u200b"],["\u200b","(Dollars in thousands)","\u200b"],["Efficiency Ratio","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net interest income","$","43,703","\u200b","$","37,440","\u200b","$","34,111","\u200b","$","27,739","\u200b","$","19,856","\u200b"],["Noninterest income","\u200b","21,024","\u200b","\u200b","14,647","\u200b","\u200b","11,811","\u200b","\u200b","7,855","\u200b","\u200b","5,516","\u200b"],["Recurring revenue","$","64,727","\u200b","$","52,087","\u200b","$","45,922","\u200b","$","35,594","\u200b","$","25,372","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total noninterest expense","$","35,064","\u200b","$","28,670","\u200b","$","24,934","\u200b","$","22,295","\u200b","$","17,433","\u200b"],["Less: nonrecurring compensation charge","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","1,173","\u200b","\u200b","\u2014","\u200b"],["Recurring noninterest expense","$","35,064","\u200b","$","28,670","\u200b","$","24,934","\u200b","$","21,122","\u200b","$","17,433","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Efficiency ratio","\u200b","54.17","%","\u200b","55.04","%","\u200b","54.30","%","\u200b","59.34","%","\u200b","68.71","%"]]
[[/GREPCENT_TABLE]]

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Discussion and Analysis of Financial Condition for the Years Ended December 31, 2021 and 2020

Assets.  Our total assets were $1.2 billion at December 31, 2021, an increase of $242.1 million from $936.7 million at December 31, 2020. The increase was primarily due to growth in our loan portfolio, cash and securities available-for-sale.

Loan Portfolio Analysis.  At December 31, 2021, loans were $785.0 million, or 66.6% of total assets, compared to $672.7 million, or 71.8% of total assets, at December 31, 2020. Commercial loans increased $73.7 million, or 20.6%, to $432.1 million at December 31, 2021 from $358.4 million at December 31, 2020. Multifamily loans increased $85.0 million, or 50.1%, to $254.9 million at December 31, 2021 from $169.8 million at December 31, 2020. Commercial real estate loans decreased $6.1 million, or 11.2%, to $48.6 million at December 31, 2021 from $54.7 million at December 31, 2020. 1 – 4 family loans decreased $7.7 million, or 15.9%, to $40.8 million at December 31, 2021 from $48.4 million at December 31, 2020. Consumer loans decreased $32.7 million or 79.0%, to $8.7 million at December 31, 2021 from $41.4 million at December 31, 2020, primarily due to the company reclassifying its legacy consumer NFL loan portfolio totaling $25.4 million to loans held for sale. We had no construction loans as of December 31, 2021 and 2020.

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

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[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

At December 31, 2021, our Litigation-Related Loans, which include commercial and consumer lending to attorneys, law firms and plaintiffs/claimants, totaled $386.0 million, or 49.2% of our total loan portfolio, compared to $329.2 million at December 31, 2020. We also had Commercial Litigation-Related uncommitted undrawn lines of credit totaling $234.0 million at December 31, 2021. In addition, we had $2.1 million in PPP loans as of December 31, 2021 to litigation related customers which are excluded from the table above.

Litigation-Related post-settlement consumer loans held for investment decreased $26.9 million to $2.5 million as of December 31, 2021, from $29.3 million as of December 31, 2021. In the third quarter of 2021, we reclassified our legacy consumer NFL loan portfolio with a balance of $25.4 million to loans held for sale where we incurred a $9.0 million charge-off. Subsequent payoffs and valuation adjustments totaling $0.5 million resulted in a carrying amount of $14.1 million as of December 31, 2021. This accounting reclassification to held for sale is reflective of management’s intent to sell these assets to a third party in the near term. As this loan portfolio’s duration has extended over the years as a result of revisions to various claims administration protocols, the ongoing effects of the pandemic, revisions to qualifying physician requirements and now the recent controversial use of race-based norms on former NFL players’ concussion claims, we have elected to sell our NFL assets while retaining a noncontrolling economic interest in an attempt to match the extended duration of our NFL borrowers’ concussion claims with that of their loans. See “Item 1A—Risk Factors—Potential fraud by our post-settlement consumer loan customers who are claimants or others related to the NFL Concussion Settlement Program, revisions to qualifying physician requirements, ongoing effects of the pandemic and other administrative changes could increase our actual loan losses which would decrease earnings” for additional discussion.

In the fourth quarter, we entered into a term sheet, subject to agreement on final legal documents, to sell the loans to a third party sponsored entity or Fund, while retaining approximately 90% of a noncontrolling economic interest in the Fund. We intend to pay the independent sponsor of the Fund or its designated manager a fee for the management of the Fund. It is anticipated that the Fund’s existence will terminate within 7 years.

45

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Loan Maturity.  The following table sets forth certain information at December 31, 2021 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.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Commercial","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["December 31, 2021","","1 \u2013 4 Family","","Multifamily","","Real Estate","","Construction","","Commercial","","Consumer","","Total"],["\u200b","\u200b","(In thousands)"],["Amounts due in:","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["One year or less","\u200b","$","18,988","\u200b","$","14,763","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","290,202","\u200b","$","1,265","\u200b","$","325,218"],["More than one to five years","\u200b","","19,202","\u200b","","159,348","\u200b","","27,981","\u200b","","\u2014","\u200b","","135,906","\u200b","","7,180","\u200b","","349,617"],["More than five to fifteen years","\u200b","","1,304","\u200b","","75,826","\u200b","","20,188","\u200b","","\u2014","\u200b","","6,000","\u200b","","236","\u200b","","103,554"],["More than fifteen years","\u200b","","1,259","\u200b","","4,915","\u200b","","420","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","6,594"],["Total","\u200b","$","40,753","\u200b","$","254,852","\u200b","$","48,589","\u200b","$","\u2014","\u200b","$","432,108","\u200b","$","8,681","\u200b","$","784,983"]]
[[/GREPCENT_TABLE]]

​

The following table sets forth fixed and adjustable-rate held for investment loans at December 31, 2021 that are contractually due after December 31, 2022.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Due After December 31, 2022"],["\u200b","","Fixed","","Adjustable","","Total"],["\u200b","\u200b","(In thousands)"],["Real estate","","\u200b","","","\u200b","","","\u200b"],["1 \u2013 4 family","\u200b","$","20,413","\u200b","$","1,352","\u200b","$","21,765"],["Multifamily","\u200b","","223,823","\u200b","","16,266","\u200b","","240,089"],["Commercial real estate","\u200b","","39,883","\u200b","","8,706","\u200b","","48,589"],["Construction","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Commercial","\u200b","","37,145","\u200b","","104,761","\u200b","","141,906"],["Consumer","\u200b","","5,911","\u200b","","1,505","\u200b","","7,416"],["Total","\u200b","$","327,175","\u200b","$","132,590","\u200b","$","459,765"]]
[[/GREPCENT_TABLE]]

​

At December 31, 2021, $388.4 million, or 89.8% of our adjustable interest rate loans were at their interest rate floor.

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, 2021 and 2020, 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, 2021 and 2020, 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.

In 2020, the Company implemented a customer payment deferral program in response to the COVID-19 crisis and elected to evaluate the modified loan population under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) which allows for troubled debt restructuring categorization to be suspended. The Company had no loans

46

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identified as troubled debt restructurings at December 31, 2021 and 2020. Further, there were no loan modifications during 2021, 2020, and 2019 that were troubled debt restructurings.

The implemented customer payment deferral program (principal and interest) is designed to assist business borrowers and certain consumers that may be experiencing financial hardship due to COVID-19 related challenges. These loans will continue to accrue interest during the deferral period unless otherwise classified as nonperforming. Consistent with regulatory guidance and the provisions of the CARES Act, borrowers that were otherwise current on loan payments that were granted COVID-19 related financial hardship payment deferrals will continue to be reported as current loans during the deferral period and not evaluated as to whether they are troubled debt restructurings (“TDR”). There were no delinquent loans upon adoption of our payment deferral program. As of December 31, 2021, there were no participants in our payment deferral program.

​

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

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31,","\u200b"],["\u200b","","2021","\u200b","2020","\u200b"],["\u200b","\u200b","(Dollars in thousands)"],["Nonaccrual loans:","","\u200b","","","\u200b"],["1 \u2013 4 family","\u200b","$","\u2014","\u200b","$","\u2014","\u200b"],["Multifamily","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["Commercial real estate","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["Construction","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["Commercial","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["Consumer","\u200b","","6","\u200b","","2,303","\u200b"],["Total nonaccrual loans","\u200b","$","6","\u200b","$","2,303","\u200b"],["Other real estate owned","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["Loans past due 90 days and still accruing","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["Troubled debt restructurings","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["Total nonperforming assets","\u200b","$","6","\u200b","$","2,303","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total loans held for investment(1)","\u200b","$","784,517","\u200b","$","672,421","\u200b"],["Total assets","\u200b","$","1,178,770","\u200b","$","936,714","\u200b"],["Allowance for loan losses","\u200b","$","9,076","\u200b","$","11,402","\u200b"],["Total nonaccrual loans to total loans","\u200b","","0.00","%","","0.34","%"],["Total nonperforming assets to total assets","\u200b","","0.00","%","","0.25","%"],["Allowance for loan losses to nonaccrual loans","\u200b","","157,180","%","","495","%"],["Allowance for loan losses to nonperforming loans","\u200b","","157,180","%","","495","%"],["Allowance for loan losses to total loans at end of the period(1)","\u200b","","1.16","%","","1.70","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Loans are presented before the allowance for loan losses and include net deferred costs and unearned premiums."]]
[[/GREPCENT_TABLE]]

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.

47

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

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the years ended December 31,"],["\u200b","","2021","\u200b","2020","\u200b","2019"],["\u200b","\u200b","(In thousands)"],["Allowance at beginning of year","\u200b","$","11,402","\u200b","$","6,989","\u200b","$","5,629"],["Provision for loan losses","\u200b","","6,955","\u200b","","6,250","\u200b","","1,850"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Charge-offs:","\u200b","","","\u200b","","","\u200b"],["1 \u2013 4 family","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Multifamily","\u200b","","\u2014","\u200b","","\u2014","\u200b","","63"],["Commercial real estate","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Construction","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Commercial","\u200b","","111","\u200b","","2","\u200b","","19"],["Consumer","\u200b","","9,170","\u200b","","1,835","\u200b","","408"],["Total charge-offs","\u200b","","9,281","\u200b","","1,837","\u200b","","490"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Recoveries:","\u200b","","","\u200b","","","\u200b"],["1 \u2013 4 family","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Multifamily","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Commercial real estate","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Construction","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Commercial","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Consumer","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Total recoveries","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Allowance at end of year","\u200b","$","9,076","\u200b","$","11,402","\u200b","$","6,989"]]
[[/GREPCENT_TABLE]]

​

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

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the years ended December 31,"],["\u200b","","2021","\u200b","\u200b","\u200b","\u200b","2020","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Net","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Net","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Net","\u200b","\u200b","\u200b","Charge-offs","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Net","\u200b","\u200b","\u200b","Charge-offs","\u200b"],["\u200b","\u200b","\u200b","Average","\u200b","\u200b","\u200b","Charge-offs","\u200b","\u200b","\u200b","(Recoveries)","\u200b","\u200b","\u200b","\u200b","\u200b","Average","\u200b","\u200b","\u200b","Charge-offs","\u200b","\u200b","\u200b","(Recoveries)","\u200b"],["\u200b","\u200b","\u200b","Loans","\u200b","\u200b","\u200b","(Recoveries)","\u200b","\u200b","\u200b","to Average","\u200b","\u200b","\u200b","\u200b","\u200b","Loans","\u200b","\u200b","\u200b","(Recoveries)","\u200b","\u200b","\u200b","to Average","\u200b"],["\u200b","\u200b","(Dollars in thousands)","\u200b"],["1 \u2013 4 family","\u200b","$","44,733","\u200b","\u200b","$","\u2014","\u200b","\u200b","\u200b","\u2014","%","\u200b","\u200b","\u200b","$","49,732","\u200b","\u200b","$","\u2014","\u200b","\u200b","\u200b","\u2014","%"],["Multifamily","\u200b","","208,363","\u200b","\u200b","","\u2014","\u200b","\u200b","\u200b","\u2014","%","\u200b","\u200b","\u200b","","157,271","\u200b","\u200b","","\u2014","\u200b","\u200b","\u200b","\u2014","%"],["Commercial real estate","\u200b","","52,155","\u200b","\u200b","","\u2014","\u200b","\u200b","\u200b","\u2014","%","\u200b","\u200b","\u200b","","52,542","\u200b","\u200b","","\u2014","\u200b","\u200b","\u200b","\u2014","%"],["Construction","\u200b","","\u2014","\u200b","\u200b","","\u2014","\u200b","\u200b","\u200b","NA","\u200b","\u200b","\u200b","\u200b","","965","\u200b","\u200b","","\u2014","\u200b","\u200b","\u200b","\u2014","%"],["Commercial","\u200b","","384,501","\u200b","\u200b","","111","\u200b","\u200b","\u200b","0.03","%","\u200b","\u200b","\u200b","","301,683","\u200b","\u200b","","2","\u200b","\u200b","\u200b","0.00","%"],["Consumer","\u200b","","28,698","\u200b","\u200b","","9,170","\u200b","\u200b","\u200b","31.95","%","\u200b","\u200b","\u200b","","42,992","\u200b","\u200b","","1,835","\u200b","\u200b","\u200b","4.27","%"],["Total","\u200b","$","718,450","\u200b","\u200b","$","9,281","\u200b","\u200b","\u200b","1.29","%","\u200b","\u200b","\u200b","$","605,185","\u200b","\u200b","$","1,837","\u200b","\u200b","\u200b","0.30","%"]]
[[/GREPCENT_TABLE]]

​

Net charge-offs (recoveries) to average outstanding loans increased to 1.29% for the year ended December 31, 2021 as compared to 0.30% in 2020, primarily due to the reclassification of the NFL consumer post settlement loan portfolio from held for investment to held for sale, which resulted in a $9.0 million charge-off.

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

48

Table of Contents

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.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31,","\u200b"],["\u200b","\u200b","2021","\u200b","2020","\u200b"],["\u200b","","\u200b","\u200b","","Percent of","","Percent of","","\u200b","\u200b","","Percent of","","Percent of"],["\u200b","\u200b","\u200b","\u200b","\u200b","Allowance","\u200b","Loans in","\u200b","\u200b","\u200b","\u200b","Allowance","\u200b","Loans in","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","for Loan","\u200b","Each","\u200b","\u200b","\u200b","\u200b","for Loan","\u200b","Each","\u200b"],["\u200b","\u200b","Allowance","\u200b","Losses to","\u200b","Category","\u200b","Allowance","\u200b","Losses to","\u200b","Category","\u200b"],["\u200b","\u200b","for Loan","\u200b","Total","\u200b","to Total","\u200b","for Loan","\u200b","Total","\u200b","to Total","\u200b"],["\u200b","\u200b","Losses","\u200b","Allowance","\u200b","Loans","\u200b","Losses","\u200b","Allowance","\u200b","Loans","\u200b"],["\u200b","\u200b","(Dollars in thousands)"],["1 \u2013 4 family","\u200b","$","285","","3.14","%","5.19","%","$","342","","3.00","%","7.20","%"],["Commercial","\u200b","","6,319","","69.63","","55.05","\u200b","","5,003","","43.88","","53.28","\u200b"],["Multifamily","\u200b","","1,789","","19.71","","32.46","\u200b","","1,278","","11.21","","25.24","\u200b"],["Commercial real estate","\u200b","","552","","6.08","","6.19","\u200b","","597","","5.24","","8.13","\u200b"],["Construction","\u200b","","\u2014","","\u2014","","\u2014","\u200b","","\u2014","","\u2014","","\u2014","\u200b"],["Consumer","\u200b","","131","","1.44","","1.11","\u200b","","4,182","","36.67","","6.15","\u200b"],["Total allocated allowance","\u200b","$","9,076","","100.00","%","100.00","%","$","11,402","","100.00","%","100.00","%"]]
[[/GREPCENT_TABLE]]

​

​

Loans rated special mention increased $16.9 million to $24.8 million as of December 31, 2021 from $7.9 million as of December 31, 2020, driven by our commercial, CRE and 1-4 family loan portfolios. Loans rated substandard increased $1.9 million to $4.3 million as of December 31, 2021, from $2.4 million at December 31, 2020. Our special mention and substandard loans as a percentage of loans was 3.7% and 1.5% as of December 31, 2021 and 2020, respectively. The allowance for loan losses as a percentage of loans was 1.16% and 1.70% as of December 31, 2021 and 2020, respectively. The decrease in the allowance as a percent of loans was primarily due to the charge-off of $9.0 million upon reclassification of the legacy NFL consumer post settlement loan portfolio from held for investment to held for sale.

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 have taken action to identify and assess our COVID-19 related credit exposure, primarily defined as merchant returns and chargebacks, by merchant industry type and category. These industry types include, but are not limited to, restaurants, hospitality, travel, and entertainment. 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 in these affected industry types and other categories and our returns and chargeback ratios remain relatively consistent with pre-COVID-19 levels and commensurate to the merchant portfolio risk profile.

Debt Securities Portfolio

At December 31, 2021 and 2020, all debt securities 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.

49

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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, 2021 and December 31, 2020, securities in unrealized loss positions were issuances from government sponsored entities. The decline in fair value is attributable to changes in interest rates and illiquidity, 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, 2021 and 2020.

No impairment charges were recorded for the years ended December 31, 2021, 2020 and 2019.

Portfolio Maturities and Yields.  The composition and maturities of the investment securities portfolio at December 31, 2021, 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.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","At December 31, 2021"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","More Than One Year","\u200b","More Than Five Years","\u200b","\u200b","\u200b","\u200b","","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","One Year or Less","\u200b","through Five Years","\u200b","Through Ten Years","\u200b","More Than Ten Years","\u200b","Total"],["\u200b","","\u200b","\u200b","","Weighted","","\u200b","\u200b","","Weighted","","\u200b","\u200b","","Weighted","","\u200b","\u200b","","Weighted","","\u200b","\u200b","","Weighted"],["\u200b","\u200b","Amortized","\u200b","Average","\u200b","Amortized","\u200b","Average","\u200b","Amortized","\u200b","Average","\u200b","Amortized","\u200b","Average","\u200b","Amortized","\u200b","Average"],["\u200b","\u200b","Cost","\u200b","Yield","\u200b","Cost","\u200b","Yield","\u200b","Cost","\u200b","Yield","\u200b","Cost","\u200b","Yield","\u200b","Cost","\u200b","Yield"],["\u200b","\u200b","(Dollars in thousands)"],["Mortgage backed securities-agency","\u200b","$","\u2014","","\u2014","%","$","\u2014","","\u2014","%","$","6,388","","2.75","%","$","115,870","","1.44","%","$","122,258","","1.51","%"],["Collateralized mortgage obligations-agency","\u200b","","\u2014","","\u2014","\u200b","","\u2014","","\u2014","\u200b","","\u2014","","\u2014","\u200b","","27,316","","1.96","\u200b","","27,316","","1.96","\u200b"],["Total securities available-for-sale","\u200b","$","\u2014","","\u2014","%","$","\u2014","","\u2014","%","$","6,388","","2.75","%","$","143,186","","1.54","%","$","149,574","","1.59","%"]]
[[/GREPCENT_TABLE]]

​

Deposits

Total deposits increased $224.4 million, or 27.9%, to $1.0 billion at December 31, 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 $1.0 billion at December 31, 2021, or 98.1% of total deposits at that date.

50

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

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Year Ended December 31,","\u200b"],["\u200b","\u200b","2021","","2020","\u200b"],["\u200b","\u200b","Average","\u200b","\u200b","\u200b","Average","","Average","","\u200b","","Average"],["\u200b","","Balance","","Percent","","Cost","","Balance","\u200b","Percent","\u200b","Cost","\u200b"],["\u200b","\u200b","(Dollars in thousands)","\u200b"],["Demand (noninterest bearing)","\u200b","$","415,662","","47.97","%","0.00","%","$","301,359","","40.74","%","0.00","%"],["Savings, NOW and Money Market","\u200b","","439,718","","50.74","%","0.17","%","","421,530","","56.99","%","0.21","%"],["Time","\u200b","","11,152","","1.29","%","0.71","%","","16,785","","2.27","%","1.77","%"],["Total deposits","\u200b","$","866,532","","100.00","%","0.10","%","$","739,674","","100.00","%","0.16","%"]]
[[/GREPCENT_TABLE]]

​

As of December 31, 2021 and 2020, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000, which is the maximum amount for federal deposit insurance) was $703.6 million and $579.8 million, respectively. These uninsured balances disclosed do not consider that FDIC insurance can be further extended by claimant within certain law firm deposit accounts. In addition, as of December 31, 2021, the aggregate amount of all our uninsured certificates of deposit was $6.9 million. 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, 2021.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b"],["\u200b","","At"],["\u200b","\u200b","December 31, 2021"],["\u200b","\u200b","(In thousands)"],["Maturing period:","\u200b","","\u200b"],["Three months or less","\u200b","$","\u2014"],["Over three months through six months","\u200b","","\u2014"],["Over six months through twelve months","\u200b","","6,828"],["Over twelve months","\u200b","","38"],["Total","\u200b","$","6,866"]]
[[/GREPCENT_TABLE]]

​

Borrowings

At December 31, 2021, we had the ability to borrow a total of $141.4 million from the Federal Home Loan Bank of New York. We also had a borrowing capacity with the Federal Reserve Bank of New York discount window of $26.1 million. At December 31, 2021, we also had lines of credit with other financial institutions totaling $67.5 million. No amounts were outstanding on any of the aforementioned lines as of December 31, 2021.

Stockholders’ Equity

Total stockholders’ equity increased $17.7 million, or 14.0%, to $143.7 million at December 31, 2021, from $126.1 million at December 31, 2020. The increase for the year ended December 31, 2021 was primarily due to net income and amortization of share based compensation, partially offset by unrealized losses on our available-for-sale portfolio.

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, 2021, 2020 and 2019. 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.

​

51

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​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Years Ended December 31,","\u200b"],["\u200b","\u200b","2021","\u200b","2020","","\u200b","2019","\u200b"],["\u200b","","Average","","\u200b","\u200b","","Average","","Average","","\u200b","\u200b","","Average","","","Average","","\u200b","\u200b","","Average"],["\u200b","\u200b","Balance","\u200b","Interest","\u200b","Yield/Cost","\u200b","Balance","\u200b","Interest","\u200b","Yield/Cost","","\u200b","Balance","\u200b","Interest","\u200b","Yield/Cost","\u200b"],["\u200b","\u200b","(Dollars in thousands)","\u200b"],["INTEREST EARNING ASSETS","","\u200b","","","\u200b","","","","","\u200b","","","\u200b","","","","\u200b","","\u200b","","","\u200b"],["Loans held for investment","\u200b","$","717,680","\u200b","$","41,545","","5.79","%","$","605,273","\u200b","$","35,588","","5.88","%","\u200b","$","507,546","\u200b","$","31,790","","6.26","%"],["Securities, includes restricted stock","\u200b","","133,958","\u200b","","2,174","","1.62","%","","126,166","\u200b","","2,556","","2.03","%","\u200b","","147,737","\u200b","","3,909","","2.65","%"],["Securities purchased under agreements to resell","\u200b","","51,008","\u200b","","619","","1.21","%","","7,402","\u200b","","94","","1.27","%","\u200b","","\u2014","\u200b","","\u2014","","\u2014","%"],["Interest earning cash and other","\u200b","","70,132","\u200b","","193","","0.28","%","","99,069","\u200b","","392","","0.40","%","\u200b","","47,059","\u200b","","960","","2.04","%"],["Total interest earning assets","\u200b","","972,778","\u200b","","44,531","","4.58","%","","837,910","\u200b","","38,630","","4.61","%","\u200b","","702,342","\u200b","","36,659","","5.22","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["NONINTEREST EARNING ASSETS","\u200b","","37,941","\u200b","","","","","\u200b","","30,028","\u200b","","","","","\u200b","\u200b","","30,700","\u200b","","","","","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["TOTAL AVERAGE ASSETS","\u200b","$","1,010,719","\u200b","","\u200b","\u200b","\u200b","\u200b","$","867,938","\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","$","733,042","\u200b","","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["INTEREST BEARING LIABILITIES","\u200b","","","\u200b","","","","","\u200b","","","\u200b","","","","","\u200b","\u200b","","","\u200b","","","","","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Savings, NOW, money market deposits","\u200b","$","439,718","\u200b","$","746","","0.17","%","$","421,530","\u200b","$","888","","0.21","%","\u200b","$","366,430","\u200b","$","2,070","","0.56","%"],["Time deposits","\u200b","","11,152","\u200b","","79","","0.71","%","","16,785","\u200b","","297","","1.77","%","\u200b","","20,002","\u200b","","473","","2.36","%"],["Total deposits","\u200b","","450,870","\u200b","","825","","0.18","%","","438,315","\u200b","","1,185","","0.27","%","\u200b","","386,432","\u200b","","2,543","","0.66","%"],["Borrowings","\u200b","","78","\u200b","","3","","3.85","%","","113","\u200b","","5","","4.42","%","\u200b","","89","\u200b","","5","","5.62","%"],["Total interest bearing liabilities","\u200b","","450,948","\u200b","","828","","0.18","%","\u200b","438,428","\u200b","","1,190","","0.27","%","\u200b","","386,521","\u200b","","2,548","","0.66","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["NONINTEREST BEARING LIABILITIES","\u200b","","","\u200b","","","","","\u200b","","","\u200b","","","","","\u200b","\u200b","","","\u200b","","","","","\u200b"],["Demand deposits","\u200b","","415,662","\u200b","","","","","\u200b","","301,359","\u200b","","","","","\u200b","\u200b","","236,918","\u200b","","","","","\u200b"],["Other liabilities","\u200b","","10,491","\u200b","","","","","\u200b","","10,066","\u200b","","","","","\u200b","\u200b","","8,216","\u200b","","","","","\u200b"],["Total noninterest bearing liabilities","\u200b","","426,153","\u200b","","","","","\u200b","","311,425","\u200b","","","","","\u200b","\u200b","","245,134","\u200b","","","","","\u200b"],["Stockholders' equity","\u200b","","133,618","\u200b","","","","","\u200b","","118,085","\u200b","","","","","\u200b","\u200b","","101,387","\u200b","","","","","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["TOTAL AVG. LIABILITIES AND EQUITY","\u200b","$","1,010,719","\u200b","","","","","\u200b","$","867,938","\u200b","","","","","\u200b","\u200b","$","733,042","\u200b","","","","","\u200b"],["Net interest income","\u200b","","","\u200b","$","43,703","","\u200b","\u200b","","","\u200b","$","37,440","","\u200b","\u200b","\u200b","","","\u200b","$","34,111","","\u200b","\u200b"],["Net interest spread","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","4.40","%","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","4.34","%","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","4.56","%"],["Net interest margin","\u200b","","","\u200b","","","","4.49","%","","","\u200b","","","","4.47","%","\u200b","\u200b","","\u200b","","","","4.86","%"]]
[[/GREPCENT_TABLE]]

​

52

Table of Contents

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.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Years Ended"],["\u200b","\u200b","December 31,"],["\u200b","\u200b","2021 vs. 2020"],["\u200b","","Increase","","Total"],["\u200b","\u200b","(Decrease) due to","\u200b","Increase"],["\u200b","\u200b","Volume","","Rate","","(Decrease)"],["\u200b","\u200b","\u200b","(Dollars in thousands)"],["Interest earned on:","","\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loans held for investment","\u200b","$","6,515","\u200b","$","(558)","\u200b","$","5,957"],["Securities, includes restricted stock","\u200b","","150","\u200b","","(532)","\u200b","","(382)"],["Securities purchased under agreements to resell","\u200b","","529","\u200b","","(4)","\u200b","","525"],["Interest earning cash and other","\u200b","","(97)","\u200b","","(102)","\u200b","","(199)"],["Total interest income","\u200b","","7,097","\u200b","","(1,196)","\u200b","","5,901"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest paid on:","\u200b","","","\u200b","","","\u200b"],["Savings, NOW, Money Markets","\u200b","","37","\u200b","","(179)","\u200b","","(142)"],["Time deposits","\u200b","","(78)","\u200b","","(140)","\u200b","","(218)"],["Total deposits","\u200b","","(41)","\u200b","","(319)","\u200b","","(360)"],["Borrowings","\u200b","","(1)","\u200b","","(1)","\u200b","","(2)"],["Total interest expense","\u200b","","(42)","\u200b","","(320)","\u200b","","(362)"],["Change in net interest income","\u200b","$","7,139","\u200b","$","(876)","\u200b","$","6,263"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Years Ended"],["\u200b","\u200b","December 31,"],["\u200b","\u200b","2020 vs. 2019"],["\u200b","\u200b","Increase","\u200b","\u200b","Total"],["\u200b","\u200b","(Decrease) due to","\u200b","\u200b","Increase"],["\u200b","","Volume","","Rate","","\u200b","(Decrease)"],["\u200b","\u200b","(Dollars in thousands)"],["Interest earned on:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loans held for investment","\u200b","$","5,837","\u200b","$","(2,039)","","$","3,798"],["Securities, includes restricted stock","\u200b","","(519)","\u200b","\u200b","(834)","","\u200b","(1,353)"],["Securities purchased under agreements to resell","\u200b","","94","\u200b","\u200b","\u2014","","\u200b","94"],["Interest earning cash and other","\u200b","","566","\u200b","\u200b","(1,134)","","\u200b","(568)"],["Total interest income","\u200b","","5,978","\u200b","\u200b","(4,007)","","\u200b","1,971"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest paid on:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Savings, NOW, Money Markets","\u200b","","274","\u200b","\u200b","(1,456)","","\u200b","(1,182)"],["Time deposits","\u200b","","(69)","\u200b","\u200b","(107)","","\u200b","(176)"],["Total deposits","\u200b","","205","\u200b","\u200b","(1,563)","","\u200b","(1,358)"],["Borrowings","\u200b","","\u2014","\u200b","\u200b","\u2014","","\u200b","\u2014"],["Total interest expense","\u200b","","205","\u200b","","(1,563)","","","(1,358)"],["Change in net interest income","\u200b","$","5,773","\u200b","$","(2,444)","","$","3,329"]]
[[/GREPCENT_TABLE]]

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​

53

Table of Contents

Results of Operations 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 $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

54

Table of Contents

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:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Year Ended","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","Change","\u200b"],["\u200b","","2021","","2020","","Amount","","Percent"],["\u200b","\u200b","(Dollars in thousands)","\u200b"],["Payment processing fees","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Payment processing income","\u200b","$","20,040","\u200b","$","13,403","\u200b","$","6,637","\u200b","49.5","%"],["ACH income","\u200b","\u200b","816","\u200b","\u200b","696","\u200b","\u200b","120","\u200b","17.2","\u200b"],["Customer related fees, service charges and other","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Administrative service income","\u200b","\u200b","29","\u200b","\u200b","183","\u200b","\u200b","(154)","\u200b","(84.2)","\u200b"],["Loss on loans held for sale","\u200b","\u200b","(295)","\u200b","\u200b","\u2014","\u200b","\u200b","(295)","\u200b","NA","\u200b"],["Other","\u200b","\u200b","434","\u200b","\u200b","365","\u200b","\u200b","69","\u200b","18.9","\u200b"],["Total noninterest income","\u200b","$","21,024","\u200b","$","14,647","\u200b","$","6,377","\u200b","43.5","%"]]
[[/GREPCENT_TABLE]]

​

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:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Year Ended","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","Change","\u200b"],["\u200b","","2021","","2020","","Amount","","Percent"],["\u200b","\u200b","(Dollars in thousands)","\u200b"],["Noninterest expense","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Employee compensation and benefits","\u200b","$","21,741","\u200b","$","16,873","\u200b","$","4,868","\u200b","28.9","%"],["Occupancy and equipment","\u200b","\u200b","2,808","\u200b","\u200b","2,422","\u200b","\u200b","386","\u200b","15.9","\u200b"],["Professional and consulting services","\u200b","\u200b","2,922","\u200b","\u200b","3,229","\u200b","\u200b","(307)","\u200b","(9.5)","\u200b"],["FDIC and regulatory assessments","\u200b","\u200b","447","\u200b","\u200b","375","\u200b","\u200b","72","\u200b","19.2","\u200b"],["Advertising and marketing","\u200b","\u200b","1,174","\u200b","\u200b","584","\u200b","\u200b","590","\u200b","101.0","\u200b"],["Travel and business relations","\u200b","\u200b","327","\u200b","\u200b","210","\u200b","\u200b","117","\u200b","55.7","\u200b"],["Data processing","\u200b","\u200b","3,671","\u200b","\u200b","3,120","\u200b","\u200b","551","\u200b","17.7","\u200b"],["Other operating expenses","\u200b","\u200b","1,974","\u200b","\u200b","1,857","\u200b","\u200b","117","\u200b","6.3","\u200b"],["Total noninterest expense","\u200b","$","35,064","\u200b","$","28,670","\u200b","$","6,394","\u200b","22.3","%"]]
[[/GREPCENT_TABLE]]

​

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 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.

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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.

Results of Operations for the Years Ended December 31, 2020 and 2019

General.  Net income decreased $1.5 million or 10.8%, to $12.6 million for the year ended December 31, 2020 from $14.1 million for the year ended December 31, 2019. The decrease resulted from a $4.4 million increase in provision for loan losses as a result of the effects of the pandemic on the economic and non-economic risk factors associated with the allowance for loan losses, a $3.7 million increase in noninterest expense, partially offset by an increase in net interest income of $3.3 million and a $2.8 million increase in noninterest income.

Net Interest Income.  Net interest income increased $3.3 million, or 9.8%, to $37.4 million for the year ended December 31, 2020 from $34.1 million for the year ended December 31, 2019, due to a $2.0 million net increase in interest income and a $1.4 million decrease in interest expense.

Our net interest margin decreased 39 basis points to 4.47% for the year ended December 31, 2020 from 4.86% for the year ended December 31, 2019. The decrease in net interest margin was due to a 61 basis point decrease in the yields on interest earning assets, primarily due to the historically low interest rate environment caused by the pandemic and changing composition of our interest earning assets.  This decrease was offset by a 39 basis point decrease in our cost of funds on average interest bearing liabilities.  

Interest Income.  Interest income increased $2.0 million or 5.4%, to $38.6 million for the year ended December 31, 2020 from $36.7 million for the year ended December 31, 2019 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 $3.8 million, or 11.9%, to $35.6 million for the year ended December 31, 2020 from $31.8 million for the year ended December 31, 2019. This increase was attributable to a $97.7 million, or 19.3%, increase in the average loan balance from our litigation-related, multifamily, and commercial real estate portfolios offset by a 38 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 primarily offset by a 39 basis point decrease in rates on interest bearing deposits as part of the Company’s overall asset/liability management strategy.

Securities interest income decreased $1.4 million, or 34.6%, to $2.6 million for the year ended December 31, 2020 from $3.9 million for the year ended December 31, 2019.  This decrease was attributable to a $21.6 million, or 14.6%, decrease in average securities balances and a 62 basis point decrease in yields, both driven by accelerated prepayments due to the current interest rate environment.

Interest earning cash and other interest income decreased $568 thousand, or 59.2%, to $392 thousand for the year ended December 31, 2020 from $960 thousand for the year ended December 31, 2019.  This decrease was attributable to a 164 basis point decrease in yields driven by the current interest rate environment offset by a $52.0 million, or 110.5%, increase in average cash balance primarily due to growth in our payment processing volumes as well as increases in our core deposits.

Interest Expense.  Interest expense decreased $1.4 million, or 53.3%, to $1.2 million for the year ended December 31, 2020 from $2.5 million for the year ended December 31, 2019, primarily attributable to rate reductions on deposits. Interest rates we paid on interest bearing deposits decreased 39 basis points to 0.27% for the year ended December 31, 2020 from 0.66% for the year ended December 31, 2019. Our average balance of interest bearing deposits increased $51.9 million, or 13.4%, to $438.3 million for the year ended December 31, 2020 from $386.4 million for the year ended December 31, 2019 attributable primarily to litigation related deposit growth.

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Provision for Loan Losses.  Our provision for loan losses was $6.3 million for the year ended December 31, 2020 compared to $1.9 million for the year ended December 31, 2019. The increase from the prior year was primarily related to the effects of the pandemic on economic and non-economic risk factors associated with the allowance for loan losses, loan growth and consumer loan charge-offs related to our legacy NFL portfolio and increased duration risk in our legacy NFL portfolio.

Noninterest Income.  Noninterest income information is as follows:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Year Ended","","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","Change"],["\u200b","","2020","","2019","","Amount","","Percent"],["\u200b","\u200b","(Dollars in thousands)"],["Payment processing fees","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Payment processing income","\u200b","$","13,403","\u200b","$","10,403","\u200b","$","3,000","","28.8","%"],["ACH income","\u200b","\u200b","696","\u200b","\u200b","573","\u200b","\u200b","123","","21.5","\u200b"],["Customer related fees and service charges","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","\u200b","\u200b"],["Administrative service income","\u200b","\u200b","183","\u200b","\u200b","491","\u200b","\u200b","(308)","","(62.7)","\u200b"],["Other","\u200b","\u200b","365","\u200b","\u200b","344","\u200b","\u200b","21","","6.1","\u200b"],["Total noninterest income","\u200b","$","14,647","\u200b","$","11,811","\u200b","$","2,836","","24.0","%"]]
[[/GREPCENT_TABLE]]

​

Payment processing income increased due to the expansion of our sales channels through ISOs, merchants and additional fee allocation arrangements, with annual volumes increasing 25.2% to $14.8 billion for 2020 compared to $11.9 billion for 2019. For the month ended December 2020 volumes increased 37.4% to $1.5 billion compared to $1.1 billion for the month ended December 2019. Customer related fees and 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 $120.9 million, or 46.6%, to $380.3 million as of December 31, 2020 as compared to $259.3 million as of December 31, 2019.  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:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Year Ended","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","Change","\u200b"],["\u200b","","2020","","2019","","Amount","","Percent"],["\u200b","\u200b","(Dollars in thousands)","\u200b"],["Noninterest expense","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Employee compensation and benefits","\u200b","$","16,873","\u200b","$","14,677","\u200b","$","2,196","\u200b","15.0","%"],["Occupancy and equipment","\u200b","\u200b","2,422","\u200b","\u200b","1,913","\u200b","\u200b","509","\u200b","26.6","\u200b"],["Professional and consulting services","\u200b","\u200b","3,229","\u200b","\u200b","2,919","\u200b","\u200b","310","\u200b","10.6","\u200b"],["FDIC and regulatory assessments","\u200b","\u200b","375","\u200b","\u200b","242","\u200b","\u200b","133","\u200b","55.0","\u200b"],["Advertising and marketing","\u200b","\u200b","584","\u200b","\u200b","518","\u200b","\u200b","66","\u200b","12.7","\u200b"],["Travel and business relations","\u200b","\u200b","210","\u200b","\u200b","548","\u200b","\u200b","(338)","\u200b","(61.7)","\u200b"],["Data processing","\u200b","\u200b","3,120","\u200b","\u200b","2,470","\u200b","\u200b","650","\u200b","26.3","\u200b"],["Other operating expenses","\u200b","\u200b","1,857","\u200b","\u200b","1,647","\u200b","\u200b","210","\u200b","12.8","\u200b"],["Total noninterest expense","\u200b","$","28,670","\u200b","$","24,934","\u200b","$","3,736","\u200b","15.0","%"]]
[[/GREPCENT_TABLE]]

​

Employee compensation and benefits costs increased due to increases in staffing to support our continued growth, investment in our digital platform and the impact of salary and stock-based compensation increases. Data processing costs increased due to increased processing volume, primarily driven by our core banking platform, as well as additional costs related to our technology implementations. Occupancy and equipment costs increased primarily due to our investment in internally developed software to support our digital platform, precautionary office cleaning costs related to COVID-19 and additional office space to support growth. Professional and consulting fees increased due to the expansion of our technology initiatives tied to our digital platform. Other operating expenses increased due to donations to charitable organizations as we focused on our corporate responsibility to support those impacted by the current crisis. Travel and

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sales related costs decreased due to a freeze on travel and a transition to webcast-based business development and digital marketing.

Income Tax Expense.  We recorded income tax expense of $4.5 million for the year ended December 31, 2020, reflecting an effective tax rate of 26.5%, compared to $5.0 million, or an effective tax rate of 26.1%, for the year ended December 31, 2019.

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, 2021. The tables below demonstrate that we are asset-sensitive in a rising interest rate environment.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31,"],["\u200b","\u200b","2021"],["\u200b","\u200b","Estimated","\u200b","\u200b","\u200b"],["Changes in","\u200b","12-Months","\u200b","\u200b","\u200b"],["Interest Rates","\u200b","Net Interest","\u200b","\u200b","\u200b"],["(Basis Points)","","Income","","\u200b","Change"],["\u200b","\u200b","(Dollars in thousands)"],["400","\u200b","$","70,095","\u200b","$","19,946"],["300","\u200b","\u200b","64,635","\u200b","\u200b","14,486"],["200","\u200b","\u200b","59,271","\u200b","\u200b","9,122"],["100","\u200b","\u200b","54,480","\u200b","\u200b","4,331"],["0","\u200b","\u200b","50,149","\u200b","\u200b","\u2014"],["-100","\u200b","\u200b","48,200","\u200b","\u200b","(1,949)"],["-200","\u200b","\u200b","46,219","\u200b","\u200b","(3,930)"]]
[[/GREPCENT_TABLE]]

​

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.

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, 2021.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31,"],["\u200b","\u200b","2021"],["Changes in","\u200b","Economic","\u200b","\u200b","\u200b"],["Interest Rates","\u200b","Value of","\u200b","\u200b","\u200b"],["(Basis Points)","","Equity","","\u200b","Change"],["\u200b","\u200b","(Dollars in thousands)"],["400","\u200b","$","222,832","\u200b","$","58,455"],["300","\u200b","\u200b","209,604","\u200b","\u200b","45,227"],["200","\u200b","\u200b","195,553","\u200b","\u200b","31,176"],["100","\u200b","\u200b","180,517","\u200b","\u200b","16,140"],["0","\u200b","\u200b","164,377","\u200b","\u200b","\u2014"],["-100","\u200b","\u200b","137,124","\u200b","\u200b","(27,253)"],["-200","\u200b","\u200b","110,150","\u200b","\u200b","(54,227)"]]
[[/GREPCENT_TABLE]]

​

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

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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 December 31, 2021 and 2020, cash and cash equivalents totaled $149.2 million and $65.2 million, respectively. As of December 31, 2021, 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, 2021, through pledging of our securities and certain loans, we had the ability to borrow a total of  $141.4 million from the Federal Home Loan Bank of New York and had a borrowing capacity with the Federal Reserve Bank of New York discount window of  $26.1 million. At December 31, 2021, 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, 2021.

We have no material commitments or demands that are likely to affect our liquidity. 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, National Association is subject to various regulatory capital requirements administered by Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. At December 31, 2021 and 2020, Esquire Bank exceeded all applicable regulatory capital requirements, and was considered “well capitalized” under regulatory guidelines. See Note 14 of the Notes to the Consolidated Financial Statements for additional information.

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, 2021, Esquire Bank was classified as well-capitalized.

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

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","\u200b","","For Capital Adequacy","","\u200b"],["\u200b","\u200b","\u200b","\u200b","Purposes","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","Minimum Capital with","\u200b","Actual"],["\u200b","\u200b","\u201cWell Capitalized\u201d","\u200b","Conservation Buffer","\u200b","At December 31, 2021"],["Total Risk-based Capital Ratio","","","","","","","\u200b"],["Bank","","10.00","%","10.50","%","15.89","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Tier 1 Risk-based Capital Ratio","","","","","","","\u200b"],["Bank","","8.00","%","8.50","%","14.79","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Common Equity Tier 1 Capital Ratio","","","","","","","\u200b"],["Bank","","6.50","%","7.00","%","14.79","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Tier 1 Leverage Ratio","","","","","","","\u200b"],["Bank","","5.00","%","4.00","%","11.46","%"]]
[[/GREPCENT_TABLE]]

​

​

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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.

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.

​