# Esquire Financial Holdings, Inc. (ESQ) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Esquire Financial Holdings, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1531031/000155837024004363/esq-20231231x10k.htm
Accession: 0001558370-24-004363
Filing date: 2024-03-29
Report date: 2023-12-31
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/
Previous year: /company/ESQ/mda/fy2022/ (FY 2022)
Next year: /company/ESQ/mda/fy2024/ (FY 2024)

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 credit losses, noninterest income and noninterest expense. Noninterest income currently consists primarily of payment processing income, ASP fee income and customer related fees and charges. Noninterest expense currently consists primarily of employee compensation and benefits, data processing costs, occupancy and equipment costs and professional and consulting services. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies, the litigation market and actions of regulatory authorities.

Critical Accounting Estimates

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 Credit Losses.  Management considers the accounting policy relating to the allowance for credit 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. See Note 1 “Business and Summary of Significant Accounting Policies” for discussion of our allowance for credit losses policy.

On January 1, 2023, we adopted the CECL Standard. The Company is required under the CECL Standard to estimate and record lifetime credit losses expected to be incurred on such financial instruments over the entire contractual term at the time they are recorded in the financial statements, such as with the funding or purchasing of a loan, or a commitment to lend unless the commitment is unconditionally cancellable. Because this allowance methodology follows a forward-looking lifetime expected loss approach, it is not necessary for a loss event to have been incurred before a credit loss is recognized.  The estimation process in determining an appropriate level for the allowance for credit losses requires consideration of past events, current conditions, and reasonable and supportable forecasts, and involves a significant degree of management judgment. The Company determines the allowance for credit losses using methods it believes are appropriate given the characteristics of each loan portfolio and applies these methods consistently over time.  

The Company employs a static pool methodology for all loan segments. In a static pool approach, statistical information about a pool of loans originated during a specified period is tracked over its life (including losses, delinquencies, and prepayments). In general, this methodology operates by calculating a rate representing the current

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balance expected to not be collected for each pool. This loss rate is then applied against the current portfolio loans with similar characteristics of those established in the pool.

In accordance with the CECL Standard, the Company must estimate expected credit losses over the contractual term of a loan, adjusted for expected prepayments.  In estimating the life of a loan, the Company cannot extend the contractual term of a loan for expected extensions, renewals, and modifications, unless there is a borrower-held extension or renewal option that is not unconditionally cancelable. In developing the estimate of expected credit losses, the Company must reflect information about past events, current conditions, and reasonable and supportable forecasts. This information should include what is reasonably available without undue cost and effort and may include information sourced internally, externally, or a combination of both.

The estimation of expected credit losses requires the use of forward-looking information that is both reasonable and supportable, including information that relates to economic forecasts and how those forecasts are expected to impact expected future losses. The Company incorporates reasonable and supportable forecasts as qualitative adjustments applied to the historical loss rates over the reasonable and supportable forecast period. The CECL Standard does not require a specific method for developing economic forecasts, nor does it require a specific timeframe over which a reasonable and supportable forecast should be employed in the Company’s CECL model. While the Company is not precluded from utilizing economic forecasts over the entire contractual term of a loan, the Company utilizes forecasts it believes are reasonable and supportable. The Company considers its methodologies to determine reasonable and supportable forecasts and reversion techniques to be accounting estimates rather than accounting policies or principles. For periods beyond which the Company is unable to determine a reasonable and supportable forecast, it will revert to unadjusted historical loss information in accordance with the CECL Standard. Management assesses the sensitivity of key assumptions by stressing the quantitative inputs utilized in its economic forecasts. This sensitivity analysis provides management with a hypothetical result to assess the sensitivity of our allowance for credit losses to a change in a key quantitative input.

Qualitative factors are used to supplement the static pool methodology to determine total estimated expected credit losses during a given period. Because the static pool methodology estimates losses based on historical loss information, management utilizes qualitative factors to measure expected credit losses which are not sufficiently captured within the static pool model during a given period.

On a quarterly basis, management determines the extent to which qualitative factors are used to bring the allowance for credit losses to a level deemed appropriate. These adjustments to the allowance for credit losses may be positive or negative to the quantitatively modeled results from the static pool methodology. Final qualitative adjustments to the allowance for credit losses are subject to management judgment.

The Company measures the allowance for credit losses on a collective basis by pooling loans according to similar risk characteristics. When a loan is deemed to no longer share risk characteristics similar to others in the portfolio, the Company evaluates such loans on an individual basis. Management may consider changes to a borrower’s circumstances impacting cash collections, delinquency and non-accrual status, probability of default, industry, or other facts and circumstances when determining whether a loan shares risk characteristics with other loans in a pool. For a loan that does not share risk characteristics with other loans in a pool and is not collateral dependent, expected credit loss is measured based on the discounted value of the expected future cash flows and the amortized cost of the loan. If an entity determines that foreclosure of the collateral is probable, the CECL Standard requires the entity to measure expected credit losses of collateral dependent loans based on the difference between the current fair value of the collateral and the amortized cost basis of the financial asset. As of December 31, 2023, there was one multifamily loan totaling $10.9 million that was individually analyzed and collateral dependent on the Consolidated Statements of Financial Condition.

When applying this critical accounting estimate, management’s inputs and estimates of the timing and amounts of future losses are subject to significant judgment as these projected cash flows rely upon factors that depend on current or expected future conditions. Management expects there to be differences between actual and estimated results.

Future changes to the allowance for credit losses may be necessary based on changes in economic, market, or other conditions. Changes to estimates could result in a material change in the allowance for credit losses and charges to

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provision for credit losses would materially decrease the Company’s net income. The Company’s loan portfolio may experience significant credit losses, which could have a material adverse effect on our operating results.

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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cost","\u200b","","77,001","\u200b","","78,377","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["Loans, held for investment","\u200b","","1,207,413","\u200b","","947,295","\u200b","","784,517","\u200b","","672,421","\u200b","","565,369","\u200b"],["Total deposits","\u200b","","1,407,299","\u200b","","1,228,236","\u200b","","1,028,409","\u200b","","804,054","\u200b","","680,620","\u200b"],["Total stockholders\u2019 equity","\u200b","","198,555","\u200b","","158,158","\u200b","","143,735","\u200b","","126,076","\u200b","","111,062","\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","$","91,888","\u200b","$","60,993","\u200b","$","44,531","\u200b","$","38,630","\u200b","$","36,659","\u200b"],["Interest 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income","\u200b","","29,751","\u200b","","24,925","\u200b","","21,024","\u200b","","14,647","\u200b","","11,811","\u200b"],["Employee compensation and benefits","\u200b","\u200b","32,481","\u200b","\u200b","25,774","\u200b","\u200b","21,741","\u200b","\u200b","16,873","\u200b","\u200b","14,677","\u200b"],["Other expenses","\u200b","\u200b","20,636","\u200b","\u200b","16,206","\u200b","\u200b","13,323","\u200b","\u200b","11,797","\u200b","\u200b","10,257","\u200b"],["Total noninterest expense","\u200b","","53,117","\u200b","","41,980","\u200b","","35,064","\u200b","","28,670","\u200b","","24,934","\u200b"],["Net income before income taxes","\u200b","","55,882","\u200b","","38,801","\u200b","","22,708","\u200b","","17,167","\u200b","","19,138","\u200b"],["Income tax expense","\u200b","","14,871","\u200b","","10,283","\u200b","","4,783","\u200b","","4,549","\u200b","","4,995","\u200b"],["Net income","\u200b","$","41,011","\u200b","$","28,518","\u200b","$","17,925","\u200b","$","12,618","\u200b","$","14,143","\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","$","5.31","\u200b","$","3.73","\u200b","$","2.40","\u200b","$","1.70","\u200b","$","1.91","\u200b"],["Diluted","\u200b","\u200b","4.91","\u200b","\u200b","3.47","\u200b","\u200b","2.26","\u200b","\u200b","1.65","\u200b","\u200b","1.82","\u200b"],["Book value per share(1)","\u200b","\u200b","23.96","\u200b","\u200b","19.30","\u200b","\u200b","17.77","\u200b","\u200b","16.18","\u200b","\u200b","14.51","\u200b"],["Tangible book value per share(2)","\u200b","\u200b","23.96","\u200b","\u200b","19.30","\u200b","\u200b","17.77","\u200b","\u200b","16.18","\u200b","\u200b","14.51","\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","","2.89","%","","2.31","%","","1.77","%","","1.45","%","","1.93","%"],["Return on average equity","\u200b","","23.20","\u200b","","19.44","\u200b","","13.42","\u200b","","10.69","\u200b","","13.95","\u200b"],["Interest rate spread","\u200b","","5.57","\u200b","","4.85","\u200b","","4.40","\u200b","","4.34","\u200b","","4.56","\u200b"],["Net interest margin","\u200b","","6.09","\u200b","","4.99","\u200b","","4.49","\u200b","","4.47","\u200b","","4.86","\u200b"],["Efficiency ratio(3)","\u200b","","46.79","\u200b","","49.82","\u200b","","54.17","\u200b","","55.04","\u200b","","54.30","\u200b"],["Loan to deposit ratio","\u200b","\u200b","85.80","\u200b","\u200b","77.13","\u200b","\u200b","76.28","\u200b","\u200b","83.63","\u200b","\u200b","83.07","\u200b"],["Average interest earning assets to average interest bearing liabilities","\u200b","","188.86","\u200b","","201.47","\u200b","","215.72","\u200b","","191.12","\u200b","","181.71","\u200b"],["Average equity to average assets","\u200b","","12.44","\u200b","","11.89","\u200b","","13.22","\u200b","","13.61","\u200b","","13.83","\u200b"]]
[[/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 for borrowers experiencing financial difficulty."]]
[[/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]]
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[[/GREPCENT_TABLE]]

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Discussion and Analysis of Financial Condition for the Years Ended December 31, 2023 and 2022

Assets.  Our total assets were $1.6 billion at December 31, 2023, an increase of $221.2 million from $1.4 billion at December 31, 2022. The increase was primarily due to growth in our loan portfolio and securities available-for-sale, offset by decreases in reverse repurchase agreements.

Loan Portfolio Analysis.  At December 31, 2023, loans were $1.2 billion, or 74.7% of total assets, compared to $947.3 million, or 67.9% of total assets, at December 31, 2022. Commercial loans increased $185.8 million, or 33.7%, to $737.9 million at December 31, 2023 from $552.1 million at December 31, 2022. Commercial real estate loans decreased $2.3 million, or 2.5%, to $89.5 million at December 31, 2023 from $91.8 million at December 31, 2022. Multifamily loans increased $85.8 million, or 32.7%, to $348.2 million at December 31, 2023 from $262.5 million at December 31, 2022. Consumer loans decreased $2.1 million or 12.6%, to $14.5 million at December 31, 2023 from $16.6 million at December 31, 2022. 1 – 4 family loans decreased $7.6 million, or 29.8%, to $17.9 million at December 31, 2023 from $25.6 million at December 31, 2022.

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

[[GREPCENT_TABLE]]
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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]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b"],["\u200b","\u200b","2023","\u200b","\u200b","2022","\u200b"],["\u200b","","Amount","","Percent","","","Amount","","Percent"],["\u200b","\u200b","(Dollars in thousands)"],["Litigation-Related Loans:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Commercial Litigation-Related:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Working capital lines of credit","\u200b","$","373,338","\u200b","60.7","%","\u200b","$","254,960","\u200b","54.5","%"],["Case cost lines of credit","\u200b","\u200b","152,165","\u200b","24.8","\u200b","\u200b","\u200b","130,290","\u200b","27.9","\u200b"],["Term loans","\u200b","\u200b","86,954","\u200b","14.1","\u200b","\u200b","\u200b","79,425","\u200b","17.0","\u200b"],["Total Commercial Litigation-Related","\u200b","\u200b","612,457","\u200b","99.6","\u200b","\u200b","\u200b","464,675","\u200b","99.4","\u200b"],["Consumer Litigation-Related:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Post-settlement consumer loans","\u200b","\u200b","2,406","\u200b","0.4","\u200b","\u200b","\u200b","2,653","\u200b","0.6","\u200b"],["Structured settlement loans","\u200b","\u200b","16","\u200b","\u2014","\u200b","\u200b","\u200b","49","\u200b","\u2014","\u200b"],["Total Consumer Litigation-Related","\u200b","\u200b","2,422","\u200b","0.4","\u200b","\u200b","\u200b","2,702","\u200b","0.6","\u200b"],["Total Litigation-Related Loans","\u200b","$","614,879","\u200b","100.0","%","\u200b","$","467,377","\u200b","100.0","%"]]
[[/GREPCENT_TABLE]]

​

At December 31, 2023, our Litigation-Related Loans, which include commercial and consumer lending to attorneys, law firms and plaintiffs/claimants, totaled $614.9 million, or 50.9% of our total loan portfolio, compared to $467.4 million at December 31, 2022. We also had Commercial Litigation-Related committed and uncommitted undrawn lines of credit totaling $69.3 million and $416.8 million, respectively, at December 31, 2023.

Litigation-Related post-settlement consumer loans held for investment decreased $280 thousand to $2.4 million as of December 31, 2023, from $2.7 million as of December 31, 2022.

Loan Maturity.  The following table sets forth certain information at December 31, 2023 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","Commercial","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["December 31, 2023","","Multifamily","","Real Estate","","1 \u2013 4 Family","","Commercial","","Consumer","","Total"],["\u200b","\u200b","(In thousands)"],["Amounts due in:","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b","","","\u200b"],["One year or less","\u200b","$","40,025","\u200b","$","5,641","\u200b","$","8,131","\u200b","$","534,180","\u200b","$","2,264","\u200b","$","590,241"],["More than one to five years","\u200b","","240,796","\u200b","","52,478","\u200b","","8,573","\u200b","","177,842","\u200b","","9,033","\u200b","","488,722"],["More than five to fifteen years","\u200b","","67,420","\u200b","","31,379","\u200b","","835","\u200b","","25,892","\u200b","","3,194","\u200b","","128,720"],["More than fifteen years","\u200b","","\u2014","\u200b","","\u2014","\u200b","","398","\u200b","","\u2014","\u200b","","\u2014","\u200b","","398"],["Total","\u200b","$","348,241","\u200b","$","89,498","\u200b","$","17,937","\u200b","$","737,914","\u200b","$","14,491","\u200b","$","1,208,081"]]
[[/GREPCENT_TABLE]]

​

49

Table of Contents

The following table sets forth fixed and adjustable-rate held for investment loans at December 31, 2023 that are contractually due after December 31, 2024.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Due After December 31, 2024"],["\u200b","","Fixed","","Adjustable","","Total"],["\u200b","\u200b","(In thousands)"],["Real estate:","","\u200b","","","\u200b","","","\u200b"],["Multifamily","\u200b","$","285,389","\u200b","$","22,827","\u200b","$","308,216"],["Commercial real estate","\u200b","","70,916","\u200b","","12,941","\u200b","","83,857"],["1 \u2013 4 family","\u200b","\u200b","9,770","\u200b","\u200b","36","\u200b","\u200b","9,806"],["Commercial","\u200b","","14,342","\u200b","","189,392","\u200b","","203,734"],["Consumer","\u200b","","6,933","\u200b","","5,294","\u200b","","12,227"],["Total","\u200b","$","387,350","\u200b","$","230,490","\u200b","$","617,840"]]
[[/GREPCENT_TABLE]]

​

At December 31, 2023, substantially all of our $737.9 million commercial loans are variable rate and tied to prime, comprising approximately 61% of our loan portfolio. Additionally, 80.2% of our commercial loans have interest rate floor protection as of December 31, 2023.

Nonperforming Assets

Nonperforming assets include loans that are 90 or more days past due or on nonaccrual status, including 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.

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, 2023 and 2022, we did not have any foreclosed assets.

At December 31, 2023, we had one multifamily loan classified as substandard and placed on nonaccrual totaling $10.9 million, primarily due to the property owners decisions resulting in excessive vacancy in an area where the average vacancy is minimal. Management recently had these properties appraised and noted that no specific reserve was necessary. There were no loans on nonaccrual at December 31, 2022.

50

Table of Contents

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","December 31,","\u200b"],["\u200b","","2023","\u200b","2022","\u200b"],["\u200b","\u200b","(Dollars in thousands)"],["Nonaccrual loans:","","\u200b","","","\u200b"],["Multifamily","\u200b","$","10,940","\u200b","$","\u2014","\u200b"],["Commercial real estate","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["1 \u2013 4 family","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b"],["Commercial","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["Consumer","\u200b","","\u2014","\u200b","","4","\u200b"],["Total nonaccrual loans","\u200b","\u200b","10,940","\u200b","\u200b","4","\u200b"],["Other real estate owned","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["Loans past due 90 days and still accruing","\u200b","","69","\u200b","","\u2014","\u200b"],["Total nonperforming assets","\u200b","$","11,009","\u200b","$","4","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total loans held for investment(1)","\u200b","$","1,207,413","\u200b","$","947,295","\u200b"],["Total assets","\u200b","$","1,616,876","\u200b","$","1,395,639","\u200b"],["Allowance for credit losses","\u200b","$","16,631","\u200b","$","12,223","\u200b"],["Total nonaccrual loans to total loans","\u200b","","0.91","%","","0.00","%"],["Total nonperforming assets to total assets","\u200b","","0.68","%","","0.00","%"],["Allowance for credit losses to nonaccrual loans","\u200b","","152","%","","NM","\u200b"],["Allowance for credit losses to nonperforming loans","\u200b","","152","%","","NM","\u200b"],["Allowance for credit losses to total loans at end of the period(1)","\u200b","","1.38","%","","1.29","%"]]
[[/GREPCENT_TABLE]]

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

Allowance for Credit Losses

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

The allowance for credit losses is maintained at levels considered adequate by management to provide for probable credit losses inherent in the loan portfolio as of the Consolidated Statements of Financial Condition reporting dates. The allowance for credit 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.

51

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

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Years Ended December 31,"],["\u200b","","2023","\u200b","2022","\u200b","2021"],["\u200b","\u200b","(In thousands)"],["Allowance at beginning of year","\u200b","$","12,223","\u200b","$","9,076","\u200b","$","11,402"],["Impact of CECL adoption","\u200b","","283","\u200b","","\u2014","\u200b","","\u2014"],["Provision for credit losses","\u200b","","4,525","\u200b","","3,490","\u200b","","6,955"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Charge-offs:","\u200b","","","\u200b","","","\u200b"],["Multifamily","\u200b","","\u2014","\u200b","","178","\u200b","","\u2014"],["Commercial real estate","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["1 \u2013 4 family","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Commercial","\u200b","","5","\u200b","","64","\u200b","","111"],["Consumer","\u200b","","439","\u200b","","150","\u200b","","9,170"],["Total charge-offs","\u200b","","444","\u200b","","392","\u200b","","9,281"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Recoveries:","\u200b","","","\u200b","","","\u200b"],["Multifamily","\u200b","","\u2014","\u200b","","17","\u200b","","\u2014"],["Commercial real estate","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["1 \u2013 4 family","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Commercial","\u200b","","\u2014","\u200b","","32","\u200b","","\u2014"],["Consumer","\u200b","","44","\u200b","","\u2014","\u200b","","\u2014"],["Total recoveries","\u200b","","44","\u200b","","49","\u200b","","\u2014"],["Allowance at end of year","\u200b","$","16,631","\u200b","$","12,223","\u200b","$","9,076"]]
[[/GREPCENT_TABLE]]

​

The following table presents average loans and credit 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","Years Ended December 31,"],["\u200b","","2023","\u200b","\u200b","\u200b","\u200b","2022","\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","\u200b","\u200b","\u200b","\u200b","Charge-offs","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Charge-offs","\u200b"],["\u200b","\u200b","\u200b","Average","\u200b","\u200b","\u200b","Net","\u200b","\u200b","\u200b","to Average","\u200b","\u200b","\u200b","\u200b","\u200b","Average","\u200b","\u200b","\u200b","Net","\u200b","\u200b","\u200b","to Average","\u200b"],["\u200b","\u200b","\u200b","Loans (1)","\u200b","\u200b","\u200b","Charge-offs","\u200b","\u200b","\u200b","Loans","\u200b","\u200b","\u200b","\u200b","\u200b","Loans (1)","\u200b","\u200b","\u200b","Charge-offs","\u200b","\u200b","\u200b","Loans","\u200b"],["\u200b","\u200b","(Dollars in thousands)","\u200b"],["Multifamily","\u200b","$","304,848","\u200b","\u200b","$","\u2014","\u200b","\u200b","\u200b","\u2014","%","\u200b","\u200b","\u200b","$","260,291","\u200b","\u200b","$","161","\u200b","\u200b","\u200b","0.06","%"],["Commercial real estate","\u200b","","90,735","\u200b","\u200b","","\u2014","\u200b","\u200b","\u200b","\u2014","\u200b","\u200b","\u200b","\u200b","","71,055","\u200b","\u200b","","\u2014","\u200b","\u200b","\u200b","\u2014","\u200b"],["1 \u2013 4 family","\u200b","\u200b","22,109","\u200b","\u200b","\u200b","\u2014","\u200b","\u200b","\u200b","\u2014","\u200b","\u200b","\u200b","\u200b","\u200b","32,532","\u200b","\u200b","\u200b","\u2014","\u200b","\u200b","\u200b","\u2014","\u200b"],["Commercial","\u200b","","621,730","\u200b","\u200b","","5","\u200b","\u200b","\u200b","0.00","\u200b","\u200b","\u200b","\u200b","","470,373","\u200b","\u200b","","32","\u200b","\u200b","\u200b","0.01","\u200b"],["Consumer","\u200b","","13,477","\u200b","\u200b","","395","\u200b","\u200b","\u200b","2.93","\u200b","\u200b","\u200b","\u200b","","10,851","\u200b","\u200b","","150","\u200b","\u200b","\u200b","1.38","\u200b"],["Total","\u200b","$","1,052,899","\u200b","\u200b","$","400","\u200b","\u200b","\u200b","0.04","%","\u200b","\u200b","\u200b","$","845,102","\u200b","\u200b","$","343","\u200b","\u200b","\u200b","0.04","%"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","(1)","Excludes net deferred loan fees and unearned premiums."]]
[[/GREPCENT_TABLE]]

Allocation of Allowance for Credit losses.  The following tables set forth the allowance for credit losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated. The

52

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allowance for credit 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","December 31,","\u200b"],["\u200b","\u200b","2023","\u200b","2022","\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 Credit","\u200b","Each","\u200b","\u200b","\u200b","\u200b","for Credit","\u200b","Each","\u200b"],["\u200b","\u200b","Allowance","\u200b","Losses to","\u200b","Category","\u200b","Allowance","\u200b","Losses to","\u200b","Category","\u200b"],["\u200b","\u200b","for Credit","\u200b","Total","\u200b","to Total","\u200b","for Credit","\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)"],["Multifamily","\u200b","$","3,236","","19.5","%","28.8","%","$","2,017","","16.5","%","27.7","%"],["Commercial real estate","\u200b","","823","","4.9","","7.4","\u200b","","1,022","","8.4","","9.7","\u200b"],["1 \u2013 4 family","\u200b","\u200b","58","","0.3","\u200b","1.5","\u200b","\u200b","192","","1.6","\u200b","2.7","\u200b"],["Commercial","\u200b","\u200b","12,056","","72.5","\u200b","61.1","\u200b","\u200b","8,645","","70.7","\u200b","58.2","\u200b"],["Consumer","\u200b","","458","","2.8","","1.2","\u200b","","347","","2.8","","1.7","\u200b"],["Total allocated allowance","\u200b","$","16,631","","100.0","%","100.0","%","$","12,223","","100.0","%","100.0","%"]]
[[/GREPCENT_TABLE]]

​

​

Loans rated special mention decreased $9.7 million to $4.0 million as of December 31, 2023 from $13.7 million as of December 31, 2022, due primarily to performance improvements and repayments of commercial loans. Loans rated substandard increased $10.2 million to $10.9 million as of December 31, 2023, from $721 thousand at December 31, 2022, driven by one nonaccrual multifamily loan. Our special mention and substandard loans as a percentage of loans was 0.3% and 0.9% as of December 31, 2023, respectively, and 1.4% and 0.1% as of December 31, 2022, respectively. The allowance for credit losses as a percentage of loans was 1.38% and 1.29% as of December 31, 2023 and 2022, respectively. The increase in the allowance as a percentage of loans was general reserve driven considering loan growth and the qualitative factors associated with the current uncertain economic environment including, but not limited to, its potential impact on the New York metro commercial real estate market.

Although we believe that we use the best information available to establish the allowance for credit losses, future adjustments to the allowance for credit 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 credit 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 credit 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 credit 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 credit losses may adversely affect our financial condition and results of operations.

Payment Processing Credit Risk

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

Debt Securities Portfolio

At December 31, 2023 and 2022, all debt securities available-for-sale were carried at fair value and we had no investments in a single company or entity, other than government and government agency securities, which had an aggregate book value in excess of 10% of our equity. Securities available-for-sale totaled $122.1 million at December 31, 2023, as compared to $109.3 million at December 31, 2022. Securities held-to-maturity totaled $77.0 million at December 31, 2023, as compared to $78.4 million at December 31, 2022.

53

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Management evaluates securities available-for-sale in unrealized loss positions to determine whether the impairment is due to credit-related factors. Due to the decline in fair value being attributable to changes in interest rates, not credit quality and because the Company does not have the intent to sell the securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider the securities to be impaired at December 31, 2023.

As of December 31, 2023 and December 31, 2022, none of the Company’s available-for-sale securities were in an unrealized loss position due to credit, and therefore no allowance for credit losses on available-for-sale securities was required. Additionally, there was no allowance for credit losses on securities held-to-maturity due to the high credit quality composition consisting of issuances from government sponsored agencies.

No impairment charges were recorded for the years ended December 31, 2023, 2022 and 2021.

Portfolio Maturities and Yields.  The composition and maturities of the investment securities portfolio at December 31, 2023, 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","","December 31, 2023"],["\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)"],["Securities available-for-sale:","\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"],["Mortgage backed securities-agency","\u200b","$","\u2014","","\u2014","%","$","4,591","","3.07","%","$","3,137","","2.04","%","$","99,668","","1.84","%","$","107,396","","1.90","%"],["Collateralized mortgage obligations-agency","\u200b","","\u2014","","\u2014","\u200b","","\u2014","","\u2014","\u200b","","1,964","","2.41","\u200b","","31,002","","4.14","\u200b","","32,966","","4.04","\u200b"],["Total securities available-for-sale","\u200b","$","\u2014","","\u2014","%","$","4,591","","3.07","%","$","5,101","","2.18","%","$","130,670","","2.39","%","$","140,362","","2.40","%"],["\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"],["Securities held-to-maturity:","\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"],["Collateralized mortgage obligations-agency","\u200b","$","\u2014","","\u2014","%","$","\u2014","","\u2014","%","$","\u2014","","\u2014","%","$","77,001","","3.07","%","$","77,001","","3.07","%"],["Total securities held-to-maturity","\u200b","$","\u2014","","\u2014","%","$","\u2014","","\u2014","%","$","\u2014","","\u2014","%","$","77,001","","3.07","%","$","77,001","","3.07","%"]]
[[/GREPCENT_TABLE]]

​

Deposits

Total deposits increased $179.1 million, or 14.6%, to $1.4 billion at December 31, 2023 from $1.2 billion at December 31, 2022. 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 $1.4 billion at December 31, 2023, or 99.4% of total deposits at that date. Certificates of deposit totaled $7.8 million at December 31, 2023, or 0.6% of total deposits at that date.

54

Table of Contents

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","\u200b","Years Ended December 31,","\u200b"],["\u200b","\u200b","2023","","\u200b","2022","\u200b"],["\u200b","\u200b","Average","\u200b","\u200b","\u200b","Average","","\u200b","Average","","\u200b","","Average"],["\u200b","","Balance","","Percent","","Cost","","\u200b","Balance","\u200b","Percent","\u200b","Cost","\u200b"],["\u200b","\u200b","(Dollars in thousands)","\u200b"],["Demand (noninterest bearing)","\u200b","$","497,795","","40.61","%","0.00","%","\u200b","$","485,277","","45.12","%","0.00","%"],["Savings, NOW and Money Market","\u200b","","715,004","","58.32","\u200b","1.07","\u200b","\u200b","","572,498","","53.23","\u200b","0.26","\u200b"],["Time","\u200b","","13,159","","1.07","\u200b","3.62","\u200b","\u200b","","17,775","","1.65","\u200b","0.87","\u200b"],["Total deposits","\u200b","$","1,225,958","","100.00","%","0.66","%","\u200b","$","1,075,550","","100.00","%","0.15","%"]]
[[/GREPCENT_TABLE]]

​

As of December 31, 2023, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000) was $381.6 million, or 27.1%, of our total Bank deposits of $1.4 billion, excluding $5.5 million of the Company’s deposits held by the Bank. As of December 31, 2022, the aggregate amount of uninsured deposits was $310.4 million, or 25.3%, of our total Bank deposits of $1.2 billion, excluding $10.5 million of the Company’s deposits held by the Bank. As of December 31, 2023, the Company had approximately $684.2 million of law firm escrow (or trust) deposits with the majority of these law firms also having a commercial lending relationship with the Bank. Law firm escrow accounts, as well as other fiduciary deposit accounts, are for the benefit of the law firm’s customers (or claimants) and are titled in a manner to ensure that the maximum amount of FDIC insurance coverage passes through the account to the beneficial owner of the funds held in the account. Therefore, these law firm escrow accounts carry FDIC insurance at the claimant settlement level, not at the deposit account level. The FDIC insured and uninsured deposited balances reflect management’s determination of settlement claims deposited as of period end. In addition, as of December 31, 2023, the aggregate amount of our uninsured certificates of deposit was $122 thousand. We have no deposits that are uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance. The following table sets forth the maturity of the uninsured certificates of deposit as of December 31, 2023.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b"],["\u200b","","\u200b"],["\u200b","\u200b","December 31, 2023"],["\u200b","\u200b","(In thousands)"],["Maturing period:","\u200b","","\u200b"],["Three months or less","\u200b","$","\u2014"],["Over three months through six months","\u200b","","\u2014"],["Over six months through twelve months","\u200b","","16"],["Over twelve months","\u200b","","106"],["Total","\u200b","$","122"]]
[[/GREPCENT_TABLE]]

​

Borrowings

At December 31, 2023, we had the ability to borrow a total of $284.2 million from the FHLB of New York. We also had a borrowing capacity with the FRB of New York discount window of $58.0 million. At December 31, 2023, we also had $17.5 million in aggregate unsecured lines of credit with unaffiliated correspondent banks. No amounts were outstanding on any of the aforementioned lines as of December 31, 2023.

Stockholders’ Equity

Total stockholders’ equity increased $40.4 million, or 25.5%, to $198.6 million at December 31, 2023, from $158.2 million at December 31, 2022. The increase for the year ended December 31, 2023 was primarily due to net income of $41.0 million, amortization of share-based compensation of $3.2 million, and other comprehensive income of $1.9 million, partially offset by dividends declared to common stockholders of $3.9 million.

​

55

Table of Contents

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, 2023, 2022 and 2021. The average balances are daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments. No tax-equivalent adjustments have been made as we have no tax exempt investments.

[[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","Years Ended December 31,","\u200b"],["\u200b","\u200b","2023","\u200b","2022","","\u200b","2021","\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","$","1,051,903","\u200b","$","81,188","","7.72","%","$","844,393","\u200b","$","54,007","","6.40","%","\u200b","$","717,680","\u200b","$","41,545","","5.79","%"],["Securities, includes restricted stock","\u200b","","210,776","\u200b","","5,020","","2.38","%","","204,501","\u200b","","4,161","","2.03","%","\u200b","","133,958","\u200b","","2,174","","1.62","%"],["Securities purchased under agreements to resell","\u200b","","27,142","\u200b","","1,526","","5.62","%","","49,273","\u200b","","1,251","","2.54","%","\u200b","","51,008","\u200b","","619","","1.21","%"],["Interest earning cash and other","\u200b","","85,454","\u200b","","4,154","","4.86","%","","91,206","\u200b","","1,574","","1.73","%","\u200b","","70,132","\u200b","","193","","0.28","%"],["Total interest earning assets","\u200b","","1,375,275","\u200b","","91,888","","6.68","%","","1,189,373","\u200b","","60,993","","5.13","%","\u200b","","972,778","\u200b","","44,531","","4.58","%"],["\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","","45,703","\u200b","","","","","\u200b","","45,004","\u200b","","","","","\u200b","\u200b","","37,941","\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","$","1,420,978","\u200b","","\u200b","\u200b","\u200b","\u200b","$","1,234,377","\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","$","1,010,719","\u200b","","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["INTEREST BEARING LIABILITIES","\u200b","","","\u200b","","","","","\u200b","","","\u200b","","","","","\u200b","\u200b","","","\u200b","","","","","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Savings, NOW, money market deposits","\u200b","$","715,004","\u200b","$","7,635","","1.07","%","$","572,498","\u200b","$","1,488","","0.26","%","\u200b","$","439,718","\u200b","$","746","","0.17","%"],["Time deposits","\u200b","","13,159","\u200b","","476","","3.62","%","","17,775","\u200b","","155","","0.87","%","\u200b","","11,152","\u200b","","79","","0.71","%"],["Total deposits","\u200b","","728,163","\u200b","","8,111","","1.11","%","","590,273","\u200b","","1,643","","0.28","%","\u200b","","450,870","\u200b","","825","","0.18","%"],["Borrowings","\u200b","","46","\u200b","","4","","8.70","%","","75","\u200b","","4","","5.33","%","\u200b","","78","\u200b","","3","","3.85","%"],["Total interest bearing liabilities","\u200b","","728,209","\u200b","","8,115","","1.11","%","\u200b","590,348","\u200b","","1,647","","0.28","%","\u200b","","450,948","\u200b","","828","","0.18","%"],["\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","","497,795","\u200b","","","","","\u200b","","485,277","\u200b","","","","","\u200b","\u200b","","415,662","\u200b","","","","","\u200b"],["Other liabilities","\u200b","","18,210","\u200b","","","","","\u200b","","12,043","\u200b","","","","","\u200b","\u200b","","10,491","\u200b","","","","","\u200b"],["Total noninterest bearing liabilities","\u200b","","516,005","\u200b","","","","","\u200b","","497,320","\u200b","","","","","\u200b","\u200b","","426,153","\u200b","","","","","\u200b"],["Stockholders' equity","\u200b","","176,764","\u200b","","","","","\u200b","","146,709","\u200b","","","","","\u200b","\u200b","","133,618","\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","$","1,420,978","\u200b","","","","","\u200b","$","1,234,377","\u200b","","","","","\u200b","\u200b","$","1,010,719","\u200b","","","","","\u200b"],["Net interest income","\u200b","","","\u200b","$","83,773","","\u200b","\u200b","","","\u200b","$","59,346","","\u200b","\u200b","\u200b","","","\u200b","$","43,703","","\u200b","\u200b"],["Net interest spread","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","5.57","%","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","4.85","%","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","4.40","%"],["Net interest margin","\u200b","","","\u200b","","","","6.09","%","","","\u200b","","","","4.99","%","\u200b","\u200b","","\u200b","","","","4.49","%"],["Deposits (including nonint. demand deposits)","\u200b","$","1,225,958","\u200b","$","8,111","\u200b","0.66","%","$","1,075,550","\u200b","$","1,643","\u200b","0.15","%","\u200b","$","866,532","\u200b","$","825","\u200b","0.10","%"]]
[[/GREPCENT_TABLE]]

​

​

56

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","","Years Ended"],["\u200b","","December 31,"],["\u200b","","2023 vs. 2022"],["\u200b","","Increase","","Total"],["\u200b","","(Decrease) due to","\u200b","Increase"],["\u200b","","Volume","","Rate","","(Decrease)"],["\u200b","","(In thousands)"],["Interest earned on:","\u200b","\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loans held for investment","\u200b","$","16,455","\u200b","$","10,726","\u200b","$","27,181"],["Securities, includes restricted stock","\u200b","","131","\u200b","","728","\u200b","","859"],["Securities purchased under agreements to resell","\u200b","","(746)","\u200b","","1,021","\u200b","","275"],["Interest earning cash and other","\u200b","","(105)","\u200b","","2,685","\u200b","","2,580"],["Total interest income","\u200b","","15,735","\u200b","","15,160","\u200b","","30,895"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest paid on:","\u200b","","","\u200b","","","\u200b"],["Savings, NOW, money market deposits","\u200b","","591","\u200b","","5,556","\u200b","","6,147"],["Time deposits","\u200b","","(50)","\u200b","","371","\u200b","","321"],["Total deposits","\u200b","","541","\u200b","","5,927","\u200b","","6,468"],["Borrowings","\u200b","","(2)","\u200b","","2","\u200b","","\u2014"],["Total interest expense","\u200b","","539","\u200b","","5,929","\u200b","","6,468"],["Change in net interest income","\u200b","$","15,196","\u200b","$","9,231","\u200b","$","24,427"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Years Ended"],["\u200b","\u200b","December 31,"],["\u200b","\u200b","2022 vs. 2021"],["\u200b","\u200b","Increase","\u200b","\u200b","Total"],["\u200b","\u200b","(Decrease) due to","\u200b","\u200b","Increase"],["\u200b","","Volume","","Rate","","\u200b","(Decrease)"],["\u200b","\u200b","(In thousands)"],["Interest earned on:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loans held for investment","\u200b","$","7,818","\u200b","$","4,644","","$","12,462"],["Securities, includes restricted stock","\u200b","","1,341","\u200b","\u200b","646","","\u200b","1,987"],["Securities purchased under agreements to resell","\u200b","","(22)","\u200b","\u200b","654","","\u200b","632"],["Interest earning cash and other","\u200b","","74","\u200b","\u200b","1,307","","\u200b","1,381"],["Total interest income","\u200b","","9,211","\u200b","\u200b","7,251","","\u200b","16,462"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest paid on:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Savings, NOW, money market deposits","\u200b","","269","\u200b","\u200b","473","","\u200b","742"],["Time deposits","\u200b","","55","\u200b","\u200b","21","","\u200b","76"],["Total deposits","\u200b","","324","\u200b","\u200b","494","","\u200b","818"],["Borrowings","\u200b","","\u2014","\u200b","\u200b","1","","\u200b","1"],["Total interest expense","\u200b","","324","\u200b","","495","","","819"],["Change in net interest income","\u200b","$","8,887","\u200b","$","6,756","","$","15,643"]]
[[/GREPCENT_TABLE]]

​

​

57

Table of Contents

Comparison of Operating Results for the Years Ended December 31, 2023 and 2022

General.  Net income increased $12.5 million, or 43.8%, to $41.0 million for the year ended December 31, 2023 from $28.5 million for the year ended December 31, 2022. The increase resulted from a $24.4 million increase in net interest income and a $4.8 million increase in noninterest income, partially offset by an increase in noninterest expense of $11.1 million.

Net Interest Income.  Net interest income increased $24.4 million, or 41.2%, to $83.8 million for the year ended December 31, 2023 from $59.3 million for the year ended December 31, 2022, due to a $30.9 million increase in interest income, partially offset by a $6.5 million increase in interest expense.

Our net interest margin increased 110 basis points to 6.09% for the year ended December 31, 2023 from 4.99% for the year ended December 31, 2022. The increase in net interest margin was due to a 155 basis point increase in interest earning asset yields, offset by an increase in the cost of interest bearing liabilities of 83 basis points, primarily due to growth in higher yielding variable rate commercial loans and increases in short-term interest rates. Growth was partially funded by a $128.5 million, or 27.6%, increase in average law firm escrow deposits to $593.6 million for the year ended December 31, 2023 from $465.0 million for the year ended December 31, 2022.

Interest Income.  Interest income increased $30.9 million, or 50.7%, to $91.9 million for the year ended December 31, 2023 from $61.0 million for the year ended December 31, 2022 and was attributable to an increase in loan, securities, interest earning cash and other and reverse repurchase interest income.

Loan interest income increased $27.2 million, or 50.3%, to $81.2 million for the year ended December 31, 2023 from $54.0 million for the year ended December 31, 2022. This increase was attributable to a $207.5 million, or 24.6%, increase in the average loan balance, primarily driven by our commercial and multifamily loan portfolios, as well as a 132 basis point increase in loan yields, driven primarily by our higher yielding variable rate commercial loans (tied to prime) and increases in short-term interest rates. Additionally, the increase in loan income was comprised of a $16.5 million increase as a result of the increases in average loan balances (primarily commercial) and a $10.7 million increase due to increases in average rate (primarily commercial).

Securities interest income increased $859 thousand, or 20.6%, to $5.0 million for the year ended December 31, 2023 from $4.2 million for the year ended December 31, 2022. This increase was attributable to a 35 basis point increase in yields, driven by reinvestment of portfolio cash flows into securities at current market interest rates, as well as a $6.3 million, or 3.1%, increase in average securities balances.

Interest earning cash and other interest income increased $2.6 million, to $4.2 million for the year ended December 31, 2023 from $1.6 million for the year ended December 31, 2022. This increase was attributable to a 313 basis point increase in yields driven by the movement in short-term interest rates.

Securities purchased under agreements to resell interest income increased $275 thousand, or 22.0%, to $1.5 million for the year ended December 31, 2023 from $1.3 million for the year ended December 31, 2022. The movement in short-term interest rates resulted in a 308 basis point increase in yields.

Interest Expense.  Interest expense increased $6.5 million, or 392.7%, to $8.1 million for the year ended December 31, 2023 from $1.6 million for the year ended December 31, 2022, as expense was impacted by both increases in the volume and rate on interest bearing deposits. Interest bearing deposit rates increased 83 basis points to 1.11% for the year ended December 31, 2023 from 0.28% for the year ended December 31, 2022. Our average balance of interest bearing deposits increased $137.9 million, or 23.4%, to $728.2 million for the year ended December 31, 2023 from $590.3 million for the year ended December 31, 2022, attributable primarily to core IOLTA and, to a lesser extent, money market relationship deposits.

Provision for Credit losses.  Our provision for credit losses was $4.5 million for the year ended December 31, 2023 compared to $3.5 million for the year ended December 31, 2022. This increase was general reserve driven considering

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loan growth and qualitative factors associated with the current uncertain economic environment including, but not limited to, its potential impact on the New York metro commercial real estate market.

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","Years Ended","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","Change","\u200b"],["\u200b","","2023","","2022","","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","$","21,450","\u200b","$","21,101","\u200b","$","349","\u200b","1.7","%"],["ACH income","\u200b","\u200b","866","\u200b","\u200b","843","\u200b","\u200b","23","\u200b","2.7","\u200b"],["Total payment processing fees","\u200b","\u200b","22,316","\u200b","\u200b","21,944","\u200b","\u200b","372","\u200b","1.7","\u200b"],["Customer related fees, service charges and other:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Administrative service income","\u200b","\u200b","2,467","\u200b","\u200b","2,534","\u200b","\u200b","(67)","\u200b","(2.6)","\u200b"],["Net gain on equity investments","\u200b","\u200b","4,013","\u200b","\u200b","\u2014","\u200b","\u200b","4,013","\u200b","NA","\u200b"],["Gain on loans held for sale","\u200b","\u200b","\u2014","\u200b","\u200b","88","\u200b","\u200b","(88)","\u200b","(100.0)","\u200b"],["Other","\u200b","\u200b","955","\u200b","\u200b","359","\u200b","\u200b","596","\u200b","166.0","\u200b"],["Total customer related fees, service charges and other","\u200b","\u200b","7,435","\u200b","\u200b","2,981","\u200b","\u200b","4,454","\u200b","149.4","\u200b"],["Total noninterest income","\u200b","$","29,751","\u200b","$","24,925","\u200b","$","4,826","\u200b","19.4","%"]]
[[/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 17.8% to $33.0 billion for 2023 compared to $28.0 billion for 2022. Customer related fees and service charges increased due to increases in administrative service income which was positively impacted by movements in short-term interest rates. These administrative service fees are impacted by the volume of off-balance sheet funds, the duration of these funds and short-term interest rates. In 2023, we managed approximately $1.5 billion in gross mass tort/class action depository funds, driving our administrative service income. In 2023, the Company’s equity investment in Litify, Inc. was reorganized into a partnership and an unrelated third party acquired a majority ownership in the reorganized entity. As party to the reorganization and sale transaction, the Company’s partnership interest was exchanged for cash and noncash consideration, resulting in a gain on its investment of $5.3 million in 2023. The Company also recognized an equity method loss of $1.3 million on its investment in a third party sponsored NFL consumer post settlement loan fund, extending the expected weighted average life of the underlying assets by approximately one year.

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","Years Ended","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","Change","\u200b"],["\u200b","","2023","","2022","","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","$","32,481","\u200b","$","25,774","\u200b","$","6,707","\u200b","26.0","%"],["Occupancy and equipment","\u200b","\u200b","3,363","\u200b","\u200b","3,236","\u200b","\u200b","127","\u200b","3.9","\u200b"],["Professional and consulting services","\u200b","\u200b","5,447","\u200b","\u200b","3,376","\u200b","\u200b","2,071","\u200b","61.3","\u200b"],["FDIC and regulatory assessments","\u200b","\u200b","793","\u200b","\u200b","558","\u200b","\u200b","235","\u200b","42.1","\u200b"],["Advertising and marketing","\u200b","\u200b","1,823","\u200b","\u200b","1,462","\u200b","\u200b","361","\u200b","24.7","\u200b"],["Travel and business relations","\u200b","\u200b","985","\u200b","\u200b","566","\u200b","\u200b","419","\u200b","74.0","\u200b"],["Data processing","\u200b","\u200b","5,165","\u200b","\u200b","4,222","\u200b","\u200b","943","\u200b","22.3","\u200b"],["Other operating expenses","\u200b","\u200b","3,060","\u200b","\u200b","2,786","\u200b","\u200b","274","\u200b","9.8","\u200b"],["Total noninterest expense","\u200b","$","53,117","\u200b","$","41,980","\u200b","$","11,137","\u200b","26.5","%"]]
[[/GREPCENT_TABLE]]

​

Employee compensation and benefits costs increased due to increases in employees to support growth as well as the impact of year end salary, bonus and stock-based compensation increases. We have made a significant investment in people in almost all areas of our Company to support future growth, client-centric relationship banking, and overall compliance and risk management across all verticals. Professional services costs increased with $1.0 million representing

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costs associated with the retention of a global executive search firm to expand our regional national sales capabilities (senior Business Development Officers (“BDOs”)), senior commercial underwriting, and senior payment processing risk management. The remaining increase in professional services costs was primarily due to incremental increases in insurance, legal, accounting, risk management, and compliance costs. Data processing costs increased due to increased processing volume, primarily driven by our core banking platform, and additional costs related to our technology implementations. Travel and business relations costs increased as a result of our high touch marketing and sales efforts which complement our digital marketing efforts and additional travel related to our newly hired regional BDOs. Advertising and marketing costs increased as we continued to grow our brand and expand our thought leadership through digital marketing efforts in our national verticals and support our new regional BDOs. Occupancy and equipment costs increased due to amortization of our investments in internally developed software to support our digital platform and additional office space to support our growth.

Income Tax Expense.  We recorded income tax expense of $14.9 million for the year ended December 31, 2023, reflecting an effective tax rate of 26.6%, compared to $10.3 million, or an effective tax rate of 26.5%, for the year ended December 31, 2022.

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

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

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

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

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

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

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

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

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

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

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

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","Years Ended","","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","Change"],["\u200b","","2022","","2021","","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","$","21,101","\u200b","$","20,040","\u200b","$","1,061","","5.3","%"],["ACH income","\u200b","\u200b","843","\u200b","\u200b","816","\u200b","\u200b","27","","3.3","\u200b"],["Total payment processing fees","\u200b","\u200b","21,944","\u200b","\u200b","20,856","\u200b","\u200b","1,088","\u200b","5.2","\u200b"],["Customer related fees, service charges and other:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","\u200b","\u200b"],["Administrative service income","\u200b","\u200b","2,534","\u200b","\u200b","29","\u200b","\u200b","2,505","","8,637.9","\u200b"],["Gain (loss) on loans held for sale","\u200b","\u200b","88","\u200b","\u200b","(295)","\u200b","\u200b","383","","(129.8)","\u200b"],["Other","\u200b","\u200b","359","\u200b","\u200b","434","\u200b","\u200b","(75)","","(17.3)","\u200b"],["Total customer related fees, service charges and other","\u200b","\u200b","2,981","\u200b","\u200b","168","\u200b","\u200b","2,813","","1,674.4","\u200b"],["Total noninterest income","\u200b","$","24,925","\u200b","$","21,024","\u200b","$","3,901","","18.6","%"]]
[[/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 18.1% to $28.0 billion for 2022 compared to $23.7 billion for 2021. Customer related fees and service charges increased due to increases in administrative service income which was positively impacted by movements in short-term interest rates. These administrative service fees are impacted by the volume of off-balance sheet funds, the duration of these funds and short-term interest rates.

​

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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","Years Ended","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","Change"],["\u200b","","2022","","2021","","Amount","","Percent"],["\u200b","\u200b","(Dollars in thousands)"],["Noninterest expense:","","\u200b","","","\u200b","","","\u200b","","","","\u200b"],["Employee compensation and benefits","\u200b","$","25,774","\u200b","$","21,741","\u200b","$","4,033","\u200b","18.6","%"],["Occupancy and equipment","\u200b","","3,236","\u200b","\u200b","2,808","\u200b","","428","\u200b","15.2","\u200b"],["Professional and consulting services","\u200b","","3,376","\u200b","\u200b","2,922","\u200b","","454","\u200b","15.5","\u200b"],["FDIC and regulatory assessments","\u200b","","558","\u200b","\u200b","447","\u200b","","111","\u200b","24.8","\u200b"],["Advertising and marketing","\u200b","","1,462","\u200b","\u200b","1,174","\u200b","","288","\u200b","24.5","\u200b"],["Travel and business relations","\u200b","","566","\u200b","\u200b","327","\u200b","","239","\u200b","73.1","\u200b"],["Data processing","\u200b","","4,222","\u200b","\u200b","3,671","\u200b","","551","\u200b","15.0","\u200b"],["Other operating expenses","\u200b","","2,786","\u200b","\u200b","1,974","\u200b","","812","\u200b","41.1","\u200b"],["Total noninterest expense","\u200b","$","41,980","\u200b","$","35,064","\u200b","$","6,916","\u200b","19.7","%"]]
[[/GREPCENT_TABLE]]

​

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

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

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.

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

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

The following table presents the estimated changes in net interest income of Esquire Bank, National Association, calculated on a bank-only basis, which would result from changes in market interest rates over twelve-month periods beginning December 31, 2023.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,"],["\u200b","\u200b","2023"],["\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)"],["300","\u200b","$","106,784","\u200b","$","13,221"],["200","\u200b","\u200b","102,464","\u200b","\u200b","8,901"],["100","\u200b","\u200b","98,144","\u200b","\u200b","4,581"],["0","\u200b","\u200b","93,563","\u200b","\u200b","\u2014"],["-100","\u200b","\u200b","89,218","\u200b","\u200b","(4,345)"],["-200","\u200b","\u200b","84,918","\u200b","\u200b","(8,645)"],["-300","\u200b","\u200b","80,776","\u200b","\u200b","(12,787)"]]
[[/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.

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, 2023.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,"],["\u200b","\u200b","2023"],["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)"],["300","\u200b","$","336,844","\u200b","$","39,064"],["200","\u200b","\u200b","325,955","\u200b","\u200b","28,175"],["100","\u200b","\u200b","313,415","\u200b","\u200b","15,635"],["0","\u200b","\u200b","297,780","\u200b","\u200b","\u2014"],["-100","\u200b","\u200b","279,279","\u200b","\u200b","(18,501)"],["-200","\u200b","\u200b","258,384","\u200b","\u200b","(39,396)"],["-300","\u200b","\u200b","233,221","\u200b","\u200b","(64,559)"]]
[[/GREPCENT_TABLE]]

​

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

Liquidity and Capital Resources

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

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

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2023 and 2022, cash and cash equivalents totaled $165.2 million and $164.1 million, respectively.

At December 31, 2023, through pledging of our securities and certain loans, we had the ability to borrow a total of  $284.2 million from the FHLB of New York and had a borrowing capacity with the FRB of New York discount window of $58.0 million. At December 31, 2023, we also had $17.5 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, 2023.

At December 31, 2023, our off-balance sheet sweeps funds totaled $278.0 million, of which, $132.9 million was able to be swept back onto our balance sheet.

Our overall liquidity position (cash, borrowing capacity, and available reciprocal client sweep balances) totaled $657.8 million at December 31, 2023, or 47% of total deposits, creating a highly liquid and unlevered balance sheet

We have no material commitments or demands that are likely to affect our liquidity other than set forth below. In the event loan demand were to increase faster than expected, or any unforeseen demand or commitment were to occur, we could access our borrowing capacity with the FHLB, FRB, other correspondent bank lines or obtain additional funds through reciprocal deposits.

Esquire Bank is subject to various regulatory capital requirements administered by Office of the Comptroller of the Currency (the “OCC”), and the Federal Deposit Insurance Corporation. At December 31, 2023 and 2022, Esquire Bank exceeded all applicable regulatory capital requirements, and was considered “well capitalized” under regulatory guidelines.

We manage our capital to comply with our internal planning targets and regulatory capital standards administered by the OCC and review capital levels on a monthly basis. At December 31, 2023, Esquire Bank was classified as well-capitalized.

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Table of Contents

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

[[GREPCENT_TABLE]]
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[[/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”. 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.

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