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"We believe these key balance sheet management decisions in 2024 enhanced our Company's liquidity position, asset composition, and flexibility while producing best-in-class performance and returns as the FOMC continued to moderate its views on short-term rates for the foreseeable future," stated Tony Coelho, Chairman of the Board.

"Our prudent balance sheet management strategy including, but not limited to, active asset-liability management of our higher yielding variable rate commercial loan portfolio, including interest rate floors, coupled with measured and flexible deposit liability management and continued loan growth will produce earnings results and returns consistent with the current consensus guidance regardless of the anticipated decreases in short-term rates by the FOMC," stated Andrew C. Sagliocca, Vice Chairman, CEO, and President.

Third Quarter Earnings

Net income for the quarter ended September 30, 2024 was $11.4 million, or $1.34 per diluted share, compared to $9.8 million, or $1.17 per diluted share for the same period in 2023. Returns on average assets and equity for the current quarter were 2.62% and 20.29%, respectively, compared to 2.71% and 21.44% for the same period of 2023.

Net interest income for the third quarter of 2024 increased $4.1 million, or 19.0%, to $25.9 million, due to growth in average interest earning assets (funded with low-cost core deposits) totaling $278.1 million, or 20.0%, to $1.67 billion. Our net interest margin remained strong at 6.16%, decreasing only 3 basis points when compared to the same period in 2023. Our net interest margin was positively impacted by growth in higher yielding variable rate commercial loans and low-cost escrow or IOLTA deposits. Average loan yields increased 8 basis points to 7.87% while average loans increased $180.4 million, or 16.5%, to $1.27 billion, primarily due to growth in our national commercial lending platform and, to a lesser extent, growth in our regional multifamily loan portfolio primarily during the latter part of 2023. Loan interest income increased $3.7 million, or 17.3%, to $25.1 million with the increase in average loan balances (primarily commercial) comprising $3.5 million of the increase and $191 thousand representing increases in average rate. Our loan-to-deposit ratio was 84.4% as our low-cost deposit base increased $253.8 million, or 19.8%, primarily due to growth in our longer duration escrow or IOLTA deposit banking relationships. Our deposit cost-of-funds, excluding demand deposits, increased 21 basis points in the current quarter when compared to 2023 due to increases in short-term interest rates as well as management proactively increasing rates on IOLTA accounts in the various states where we operate. Deposit expense increased $1.1 million to $3.3 million for the quarter with increases in average rate (primarily IOLTA) comprising $709 thousand and $389 thousand (primarily IOLTA) attributable to average balances. Average securities in the quarter increased $71.9 million to $279.8 million and yields increased 104 basis points to 3.40% due to our previously noted balance sheet and ALCO strategy. The combined increase in average loans and securities in the quarter totaled $252.3 million, or approximately 19.4%, to $1.55 billion.

The provision for credit losses was $1.0 million for the third quarter of 2024, a $200 thousand decrease from the third quarter 2023 provision. As of September 30, 2024, our allowance to loans ratio was 1.50% as compared to 1.38% as of September 30, 2023. The increase in the allowance as a percentage of loans was general reserve driven considering loan growth and qualitative factors associated with the current short-term interest rate environment as well as the current uncertain economic environment including, but not limited to, its potential impact on the New York metro multifamily and commercial real estate market.

Noninterest income totaled $6.1 million for the third quarter of 2024 as compared to $6.5 million in the same period for 2023. Payment processing income was $5.2 million for the third quarter of 2024, a $452 thousand decrease from the same period in 2023, primarily due to anticipated ISO and merchant attrition and changes in the volumes of our overall merchant risk profile. Payment processing volumes for the credit and debit card processing platform increased $839 million, or 10.0%, to $9.2 billion and transactions decreased 5.4 million, or 3.4%, to 152.0 million, for the current quarter, as compared to the same period in 2023. We continue to focus on the expansion of sales channels through ISOs, prudently managing risk while focusing on new merchant originations, increasing overall volumes as well as risk profiles, and expanding our technology and other resources in the payments vertical. The Company utilizes proprietary and industry leading/customized technology to ensure card brand and regulatory compliance, supports multiple processing platforms, manages daily risk across 84,000 small business merchants in all 50 states, and performs commercial treasury clearing services. ASP fee income increased $39 thousand to $658 thousand for the third quarter of 2024. ASP fee income is directly impacted by the average balances of off-balance sheet sweep funds as well as current short-term market interest rates. Other noninterest income decreased $67 thousand to $235 thousand when compared to the prior year quarter primarily due to decreases in loan and other banking fees.

Noninterest expense increased $1.6 million, or 11.6%, to $15.4 million for the third quarter of 2024, as compared to the same period in 2023. This increase was primarily due to increases in employee compensation and benefits, advertising and marketing, data processing, and occupancy and equipment, partially offset by decreases in professional services costs. Employee compensation and benefits costs increased $1.1 million, or 12.9%, due to increases in employees to support growth and excellence in client service as well as the impact of year end salary, bonus and stock-based compensation increases. Advertising and marketing costs increased $482 thousand as we continued to grow our digital marketing platform, expand our thought leadership in our national verticals, and support our regional BDOs hired in 2023. Data processing costs increased $315 thousand 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 $141 thousand due to amortization of our investments in internally developed software to support our digital platform and additional office space to support our growth. Professional services costs decreased $370 thousand due to investments in compliance and risk management in the payment processing division in 2023. Our investments in current resources, including employees, technology, and digital marketing, continue to support our long-term growth goals.

The Company's efficiency ratio was 48.1% for the three months ended September 30, 2024, as compared to 48.7% in 2023. Our strong efficiency ratio is a result of our continued revenue and deposit growth driven by our core national platforms that have (and will continue to) benefit from our investments in technology, digital marketing, employees, and other branchless infrastructure that support our industry leading returns.

The effective tax rate was 27.0% for the third quarter of 2024, as compared to 26.0% for the third quarter of 2023, resulting from certain discrete tax benefits related to stock-based compensation.

Year to Date Earnings

Net income for the nine months ended September 30, 2024 was $31.9 million, or $3.78 per diluted share, compared to $31.1 million, or $3.74 per diluted share for the same period in 2023. Returns on average assets and equity for the nine months ended September 30, 2024 were 2.60% and 20.20%, respectively, compared to 3.00% and 24.09% for the same period of 2023. Excluding the pretax gain of $4.0 million ($3.0 million after-tax or $0.36 per diluted share) on the partial sale of our Litify fintech investment in the first quarter of 2023, adjusted⁽¹⁾ net income, diluted earnings per share, return on average assets, and return on average common equity for the nine months ended September 30, 2023 was $28.2 million, $3.39, 2.71% and 21.82%, respectively.

Net interest income for the nine months ended September 30, 2024 increased $11.9 million, or 19.5%, to $73.0 million, due to growth in average interest earning assets totaling $246.4 million, or 18.3%, to $1.59 billion as well as a 6 basis point increase in our net interest margin to 6.14% when compared to the same period in 2023. Our net interest margin was positively impacted by growth in higher yielding variable rate commercial loans and low-cost escrow or IOLTA deposits. The average yield on loans increased 15 basis points to 7.83%, primarily driven by growth in higher yielding variable rate commercial loans. Average loans for the nine months ended September 30, 2024 increased $227.6 million, or 22.5%, to $1.24 billion, primarily due to growth in our national commercial lending platform and, to a lesser extent, growth in our regional multifamily loan portfolio primarily during the latter part of 2023. Loan interest income increased $14.6 million, or 25.0%, to $72.7 million with the increases in average loan balances (primarily commercial) comprising $13.7 million of the increase and $887 thousand (primarily multifamily) representing increases in average rate. Our deposit cost-of-funds, excluding demand deposits, increased 40 basis points for the current year when compared to the same period in 2023 due to increases in short-term interest rates as well as management proactively increasing rates on IOLTA accounts in the various states where we operate. Deposit expense increased $4.3 million to $9.5 million for the nine months ended September 30, 2024 with increases in average rate comprising $2.9 million and $1.4 million attributable to average balances. Average securities for the nine months ended September 30, 2024 increased $44.9 million to $253.2 million and yields increased 87 basis points to 3.17% due to our previously noted balance sheet and ALCO strategy. In 2024, the combined increase in average loans and securities totaled $272.5 million, or approximately 22.3%, to $1.49 billion as compared to 2023.

The provision for credit losses was $3.0 million for the nine months ended September 30, 2024, a $25 thousand decrease from the same period in 2023. As of September 30, 2024, our allowance to loans ratio was 1.50% as compared to 1.38% as of September 30, 2023. The increase in the allowance as a percentage of loans was general reserve driven considering loan growth and qualitative factors associated with the current short-term interest rate environment as well as the current uncertain economic environment including, but not limited to, its potential impact on the New York metro multifamily and commercial real estate market.

Noninterest income totaled $18.7 million for the nine months ended September 30, 2024 as compared to $23.5 million in the same period for 2023. Excluding the $4.0 million gain on our Litify investment in the first quarter 2023, adjusted⁽¹⁾ noninterest income was $19.5 million. In 2024, payment processing income was $15.8 million, a $1.1 million decrease when compared to 2023, primarily due to anticipated ISO attrition and changes in our overall merchant risk profile. Payment processing volumes and transactions for the credit and debit card processing platform increased $2.6 billion, or 10.6%, to $27.1 billion and 1.0 million, or 0.2%, to 458.1 million transactions, respectively, for the nine months ended September 30, 2024, as compared to the same period in 2023. These increases were due to the expansion of sales channels through ISOs, an increased number of merchants, volume increases, and were facilitated by our focus on technology and other resources in the payments vertical. In 2024, ASP fee income increased $137 thousand to $2.0 million when compared to 2023. Other noninterest income increased $228 thousand to $915 thousand when comparing 2023 to 2024, primarily due to loan and other banking related fees.

Noninterest expense increased $5.9 million, or 15.2%, to $45.2 million for the nine months ended September 30, 2024, as compared to the same period in 2023. This increase was primarily due to increases in employee compensation and benefits, advertising and marketing, data processing, and occupancy and equipment, partially offset by decreases in professional services costs. Employee compensation and benefits costs increased $4.5 million, or 18.9%, due to increases in employees to support growth and client service as well as the impact of year end salary, bonus and stock-based compensation increases. In 2024, we experienced the full year impact of our 2023 key hires including, but not limited to, our regional senior BDOs, sales support, lending underwriting/lending support, and risk management staffing initiatives. Advertising and marketing costs increased $1.5 million as we continued to grow our digital marketing platform, expand our thought leadership in our national verticals, and support our regional BDOs. Data processing costs increased $1.2 million 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 $560 thousand due to amortization of our investments in internally developed software to support our digital platform and additional office space to support growth. Professional services costs decreased $1.7 million due to our 2023 hiring initiatives noted above and related costs associated with our executive search firm. Our investment in current resources, including employees, technology, and digital marketing, continue to support our long-term growth goals.

The Company's efficiency ratio was 49.2% for the nine months ended September 30, 2024, as compared to 46.4% for the same period in 2023. The adjusted⁽¹⁾ efficiency ratio was 48.7% for the nine months ended September 30, 2023, excluding the aforementioned $4.0 million pre-tax gain. Our strong efficiency ratio is a result of our continued revenue growth driven by our core national platforms. These platforms have benefited from our investments in technology, digital marketing, employees, and other branchless infrastructure that support our industry leading returns.

The effective tax rate was 26.8% for the nine months ended September 30, 2024, compared to 26.5% for the same period in 2023.

Asset Quality

At September 30, 2024, we had one nonperforming loan, which is a multifamily loan totaling $10.9 million, and no exposure to commercial office space or construction loans, and $14.8 million in performing loans to the hospitality industry. The allowance for credit losses was $19.5 million, or 1.50% of total loans, as compared to $15.3 million, or 1.38% of total loans at September 30, 2023. The ratio of nonperforming loans to total loans and total assets was 0.84% and 0.61%, respectively. The allowance for credit losses to nonperforming loans was 178%. The increase in the allowance as a percentage of loans was general reserve driven considering loan growth and qualitative factors associated with the current short-term interest rate environment as well as the current uncertain economic environment including, but not limited to, its potential impact on the New York metro multifamily and commercial real estate market.

Due to increases in short-term interest rates associated with the inflationary environment since 2022, management enhanced its ongoing credit risk management including risk management of its commercial real estate loan portfolio. The following is a brief summary of our ongoing risk management for our multifamily and CRE portfolios as of September 30, 2024:

• The multifamily portfolio, excluding one nonperforming loan, totaling $339.9 million, has a current weighted average DSCR and an original LTV (defined as unpaid principal balance as of September 30, 2024 divided by appraised value at origination) of approximately 1.67 and 54%, respectively, and the CRE portfolio, totaling $87.5 million, has a current weighted average DSCR and an original LTV of approximately 1.51 and 59%, respectively.

• Multifamily loans maturing in less than one year totaled $59.8 million and had a current weighted average DSCR and an original LTV of approximately 1.37 and 57%, respectively. CRE loans maturing in less than one year totaled $1.8 million and had a current weighted average DSCR and an original LTV of approximately 3.54 and 48%, respectively.

• Multifamily loans maturing in one to two years totaled $39.0 million and had a current weighted average DSCR and an original LTV of approximately 1.36 and 66%, respectively. CRE loans maturing in one to two years totaled $5.6 million and had a current weighted average DSCR and an original LTV of approximately 1.46 and 59%, respectively.

Balance Sheet

At September 30, 2024, total assets were $1.78 billion, reflecting a $300.1 million, or 20.2% increase from September 30, 2023. This increase was primarily attributable to growth in loans totaling $184.0 million, or 16.5%, to $1.30 billion. Our higher yielding variable rate commercial loans increased $163.2 million, or 24.6%, during this same period. Our commercial relationship banking sales pipeline remained robust, anchored by our national platforms and supported by our competitive advantages in data, analytics and digital marketing. This, coupled with our regional BDOs and related support staff, continues to drive growth across our national commercial platform. Our available-for-sale securities portfolio increased $97.1 million to $211.5 million as compared to September 30, 2023, as management deployed excess liquidity into securities as part of our previously mentioned balance sheet management and ALCO strategy. Our held-to-maturity securities portfolio totaled $70.8 million, a decrease of $8.0 million, or 10.1%, due to portfolio amortization. In the third quarter of 2023, management elected to close out its reverse repurchase agreements and reinvest these funds into higher yielding commercial loans.

The following table provides information regarding the composition of our loan portfolio for the periods presented:

Total deposits were $1.54 billion as of September 30, 2024, a $253.8 million, or 19.8%, increase from September 30, 2023. This was primarily due to a $180.5 million, or 22.5%, increase in Savings, NOW and Money Market deposits, driven by our IOLTA and other escrow deposits as well as a $67.4 million, or 14.3%, increase in noninterest bearing demand deposits. Our deposit strategy primarily focuses on developing full service commercial banking relationships with our clients through lending facilities, payment processing, and other unique commercial cash management services in our two national verticals, rather than competing with other institutions on rate. Our longer duration IOLTA, escrow and settlement deposits represent $829.0 million, or 54.0%, of total deposits. As of September 30, 2024, uninsured deposits were $458.9 million, or 30%, of our total deposits of $1.54 billion, excluding $10.6 million of affiliate deposits held by the Bank. Approximately 80% of our uninsured deposits represent clients with full relationship banking (loans, payment processing, and other service-oriented relationships) including, but not limited to, law firm operating accounts, law firm IOLTA/escrow accounts, merchant reserves, ISO reserves, ACH processing, and custodial accounts.

Due to the nature of our larger mass tort and class action settlements related to the litigation vertical, we participate in FDIC insured sweep programs as well as treasury secured money market funds. As of September 30, 2024, off-balance sheet sweep funds totaled approximately $488.0 million, of which approximately $356.5 million, or 73.1%, was available to be swept on balance sheet as reciprocal client relationship deposits. Our deposit growth and off-balance sheet funds continue to demonstrate our highly efficient branchless and technology enabled deposit platforms.

At September 30, 2024, we had the ability to borrow, on a secured basis, up to $395.8 million from the FHLB of New York and $54.9 million from the FRB of New York discount window. No borrowing amounts were outstanding during the third quarter of 2024. Historically, we have not leveraged our balance sheet to generate earnings and have always utilized core client deposits to fund our asset growth and related earnings.

Stockholders' equity increased $47.0 million to $232.6 million as of September 30, 2024, when compared to September 30, 2023, primarily driven by increases in retained earnings (net income) and decreases in other comprehensive losses as unrealized losses on our securities available-for-sale declined, primarily due to current short-term market interest rates.

Esquire Bank remains well above bank regulatory "Well Capitalized" standards.

About Esquire Financial Holdings, Inc.

Esquire Financial Holdings, Inc. is a financial holding company headquartered in Jericho, New York, with one branch office in Jericho, New York and an administrative office in Boca Raton, Florida. Its wholly-owned subsidiary, Esquire Bank, National Association, is a full-service commercial bank dedicated to serving the financial needs of the litigation industry and small businesses nationally, as well as commercial and retail clients in the New York metropolitan area. The Bank offers tailored financial and payment processing solutions to the litigation community and their clients as well as dynamic and flexible payment processing solutions to small business owners. For more information, visit www.esquirebank.com.

Cautionary Note Regarding Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 relating to future results of the Company. Forward-looking statements are subject to many risks and uncertainties, including, but not limited to: changes in business plans as circumstances warrant; changes in general economic, business and political conditions, including changes in the financial markets; and other risks detailed in the "Cautionary Note Regarding Forward-Looking Statements," "Risk Factors" and other sections of the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission. The forward-looking statements included in this press release are not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "might," "should," "could," "predict," "potential," "believe," "expect," "attribute," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "projection," "goal," "target," "aim," "would," "annualized" and "outlook," or similar terminology. Any forward-looking statements presented herein are made only as of the date of this press release, and the Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise, except as may be required by law.

 

 

 

 

 

ESQUIRE FINANCIAL HOLDINGS, INC.
Consolidated Non-GAAP Financial Measure Reconciliation (unaudited)
(all dollars in thousands except per share data)

We believe that these non-GAAP financial measures provide information that is important to investors and that is useful in understanding our financial position, results and ratios. However, these non-GAAP financial measures are supplemental and are 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.

Adjusted net income, which is used to compute adjusted return on average assets, adjusted return on average equity and adjusted earnings per share, excludes the impact of the recognized gain, net of tax, on the Company's equity investments.

The following table presents a reconciliation of efficiency ratio (non-GAAP) and adjusted efficiency ratio (non-GAAP).

 

The following table presents the adjusted tangible common equity to tangible assets calculation (non-GAAP):

 The following table presents the common equity tier 1 capital ratio and the adjusted common equity tier 1 capital ratio:

 

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SOURCE Esquire Financial Holdings, Inc.