Esquire Financial Holdings, Inc.

Previous wording

Management’s discussion and analysis of financial condition at September 30, 2024 and December 31, 2023 and results of operations for the three and nine months ended September 30, 2024 and 2023 is intended to assist in understanding the financial condition and results of operations of Esquire Financial Holdings, Inc. The information contained in this section should be read in conjunction with the unaudited Consolidated Financial Statements and the notes thereto appearing in Part I, Item 1, of this quarterly report on Form 10-Q and the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

Management’s discussion and analysis of financial condition at March 31, 2025 and December 31, 2024 and results of operations for the three months ended March 31, 2025 and 2024 is intended to assist in understanding the financial condition and results of operations of Esquire Financial Holdings, Inc. The information contained in this section should be read in conjunction with the unaudited Consolidated Financial Statements and the notes thereto appearing in Part I, Item 1, of this quarterly report on Form 10-Q and the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Previous wording

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” in our annual report for discussion of our allowance for credit losses policy.

Current wording

Allowance for Credit Losses on Loans Held for Investment. Management considers the accounting policy relating to the allowance for credit losses on loans held for investment 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” in our Annual Report for discussion of our allowance for credit losses on loans held for investment policy.

Previous wording

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

Current wording

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

Previous wording

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.

Current wording

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.

Previous wording

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 September 30, 2024 and December 31, 2023, there was one multifamily loan totaling $10.9 million that was individually analyzed, collateral dependent and had no specific reserve on the Consolidated Statements of Financial Condition.

Current wording

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

Previous wording

We are a financial holding company headquartered in Jericho, New York and registered under the Bank Holding Company Act of 1956, as amended. Through our wholly owned bank subsidiary, Esquire Bank, National Association (“Esquire Bank” or the “Bank”), we are a full service commercial bank dedicated to serving the financial needs of the 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.

Current wording

We are a financial holding company headquartered in Jericho, New York and registered under the Bank Holding Company Act of 1956, as amended. Through our wholly owned bank subsidiary, Esquire Bank, National Association (“Esquire Bank” or the “Bank”), we are a full service commercial bank dedicated to serving the financial needs of the 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 (a subset of the New York metropolitan market).

Previous wording

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, administrative service payment 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.

Current wording

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, administrative service payment (“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.

Previous wording

Litigation Market Commercial Banking. The litigation market has been and will continue to be a significant growth opportunity for our Company as we offer focused and tailored products and services to law firms nationally. According to the U.S. Chamber of Commerce Institute for Legal Reform (“Tort Costs in America – An Empirical Analysis of Costs and Compensation of U.S. Tort System”), published in November 2022, U.S. tort actions alone are estimated to consume approximately 2.1% of U.S. GDP annually, with a total addressable market (“TAM”) of $443 billion for 2020. We do not compete directly with non-bank finance companies, the primary funders in this market, and believe there are various and significant barriers to entry including, but not limited to, our clear industry track record for decades, extensive in-house experience, deep relationships with respected firms nationally, and unique products tailored to commercial law firms’ needs and wants.

Current wording

Litigation Market Commercial Banking. The litigation market has been and will continue to be a significant growth opportunity for our Company as we offer focused and tailored products and services to law firms nationally. U.S. tort actions alone are estimated to consume approximately 2.1% of U.S. GDP annually according to the U.S. Chamber of Commerce Institute for Legal Reform (“Tort Costs in America – An Empirical Analysis of Costs and Compensation of the U.S. Tort System”) published in November 2024 with a total addressable market (“TAM”) of $529 billion for 2022. We do not compete directly with non-bank finance companies, the primary funders in this market, and believe there are various and significant barriers to entry including, but not limited to, our clear industry track record for decades, extensive in-house experience, deep relationships with respected firms nationally, and unique products tailored to commercial law firms’ needs and wants.

Previous wording

We currently have lending clients in 30 states and our larger markets include the New York metro area, California, Texas, Florida, Pennsylvania, South Carolina and New Jersey. Our success is tied to our unique ability to couple traditional commercial underwriting with non-traditional asset-based underwriting. Our team understands law firms’ contingent case inventory valuation process (as well as traditional hourly billing firms). Typically, these inventories of claims for injured consumers or claimants have a duration of 2-3 years, significantly longer than traditional accounts receivables or inventories of goods that can have a duration of 30-60 days or 120 days, respectively. These factors (the unique industry, contingent collateral, longer durations of the law firms’ inventories, atypical revenue streams of the law firms and more) coupled with the TAM create a unique and valuable opportunity for the Company with minimal incumbent competition. This unique risk profile translates approximately into a blended 10% variable rate asset yield on these commercial loans for the quarter ended September 30, 2024. More importantly, since our commercial banking platform is focused on full

Current wording

We currently have lending clients in 31 states and our larger markets include California, New York, Texas, Florida, Pennsylvania, Michigan, South Carolina and New Jersey. Our success is tied to our unique ability to couple traditional commercial underwriting with non-traditional asset-based underwriting. Our team understands law firms’ contingent case inventory valuation process (as well as traditional hourly billing firms). Typically, these inventories of claims for injured consumers or claimants have a duration of 2 to 3 years, significantly longer than traditional accounts receivables or inventories of goods that can have a duration of 30 to 60 days or 120 days, respectively. These factors (the unique industry, contingent collateral, longer durations of the law firms’ inventories, atypical revenue streams of the law

Previous wording

service relationship banking, for every $1.00 we advance on these loans we receive on average $1.52 of low-cost (our cost-of-funds for the quarter ended September 30, 2024 is 88 basis points) core operating and escrow deposits from these law firms through our branchless platform, fueling and funding additional growth in our other asset classes. Our extremely low historic delinquency rates and low charge-off rates clearly demonstrate our strong underwriting process and expertise in this vertical. Our longer duration escrow or claimant trust settlement deposits represent accounts where the law firm is trustee for the claimant settlement funds and represent $828.9 million, or 54%, of total deposits. These 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. Coupling these types of commercial relationships with our off-balance sheet commercial litigation funds of $488.0 million at September 30, 2024, makes this litigation vertical a highly desirable core low-cost funding platform fueling growth in other lending areas.

Current wording

firms and more) coupled with the TAM create a unique and valuable opportunity for the Company with minimal incumbent competition. This unique risk profile translates approximately into a blended 9.5% variable rate asset yield on these commercial loans for the quarter ended March 31, 2025. More importantly, since our commercial banking platform is focused on full service relationship banking, for every $1.00 we advance on these loans we receive on average $1.50 of low-cost (our cost of funds for the quarter ended March 31, 2025 is 94 basis points) core operating and escrow deposits from these law firms through our branchless platform, fueling and funding additional growth in our other asset classes. Our extremely low historic delinquency rates and low charge-off rates clearly demonstrate our strong underwriting process and expertise in this vertical. Our longer duration escrow or claimant trust settlement deposits represent accounts where the law firm is trustee for the claimant settlement funds and represent $961.4 million, or 57%, of total deposits at March 31, 2025. These 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. Coupling these types of commercial relationships with our off-balance sheet commercial litigation funds of $468.8 million at March 31, 2025, makes this litigation vertical a highly desirable core low-cost funding platform fueling bank-wide growth.

Previous wording

Payment Processing. The payment processing (merchant acquiring) market has also been and will continue to be a significant growth opportunity for our company, as we offer focused and tailored products and services to small businesses nationally. The payment industry grew approximately 10% on a compound annual growth rate from 2019 to 2023 with payment volumes or TAM of $10.9 trillion according to company records on U.S. payment industry trends. Couple this with the fact that there are less than approximately 100 acquiring financial institutions in the U.S. and this vertical clearly represents a significant growth opportunity for our Company. We believe there are various and significant barriers to entry to this market including, but not limited to, our clear industry track record for decades, extensive in-house experience, deep relationships with non-bank acquirers, and our unique approach to servicing these small business merchants and their respective verticals. We use proprietary and industry leading technology to ensure card brand and regulatory compliance, support multiple processing platforms, manage daily risk across approximately 84,000 small business merchants in all 50 states, and perform commercial treasury clearing services for approximately $9 billion in credit and debit card processing volume across 152 million transactions in the quarter ended September 30, 2024.

Current wording

Payment Processing. The payment processing (merchant acquiring) market will continue to be a growth opportunity for our company, as we offer focused and tailored products and services to small businesses nationally. The payment industry grew approximately 11% on a compound annual growth rate from 2020 to 2024 with payment volumes or TAM of $11.6 trillion according to company records on U.S. payment industry trends. Couple this with the fact that there are less than 100 acquiring financial institutions in the U.S., this vertical represents a growth opportunity for our Company. We believe there are various and significant barriers to entry to this market including, but not limited to, our industry track record, extensive in-house experience, strong relationships with non-bank acquirers, and our unique approach to servicing these small business merchants and their respective verticals. We use proprietary and industry leading technology to ensure card brand and regulatory compliance, support multiple processing platforms, manage daily risk across approximately 90,000 small business merchants in all 50 states, and perform commercial treasury clearing services for approximately $9 billion in credit and debit card processing volume across 140 million transactions in the quarter ended March 31, 2025.

Previous wording

Proprietary Technology. We are currently a branchless digital first company with best-in-class technology to fuel future growth with industry leading client retention rates. We have built a customized and fully integrated customer relationship management (“CRM”) platform, integrated into our digital marketing cloud and our nCino loan platform (all built on Salesforce for excellence in client service and operational efficiency) and invest in artificial intelligence (“AI”) to facilitate precision marketing and client acquisition across both national verticals with an initial focus on the litigation vertical.

Current wording

Proprietary Technology. We are a digital first company utilizing best-in-class technology to fuel future growth with industry leading client retention rates. We have built a customized and fully integrated customer relationship management (“CRM”) platform, integrated into our digital marketing cloud and our nCino loan platform (all built on Salesforce for excellence in client service and operational efficiency) and invest in artificial intelligence (“AI”) to facilitate precision marketing and client acquisition across both national verticals with an initial focus on the litigation vertical.

Previous wording

The success of our national litigation and payment processing verticals coupled with our branchless technology has led to industry leading performance. For the quarter ended September 30, 2024, we have produced industry leading returns including, but not limited to, a return on average assets and average equity of 2.62% and 20.29%, respectively; an industry leading net interest margin of 6.16%; a strong efficiency ratio of 48.1%; and a diversified revenue stream as demonstrated by a strong net interest margin and stable fee income representing 19% of total revenue (our payment processing vertical has a compound annual growth rate of 19% since 2019). Coupling these performance metrics with strong balance sheet management including, but not limited to, loan portfolio diversification, an asset sensitive balance sheet with 64% of our loans being variable rate tied to prime, interest rate floors in place on 83% of our variable rate loan portfolio, solid credit metrics with limited nonperforming assets, a stable low cost deposit base, and strong available liquidity of $972.4 million, or 63% of deposits, with no outstanding borrowings ensures that our Company is poised for future growth and success.

Current wording

The success of our national litigation and payment processing verticals coupled with our focus on branchless technology has led to industry leading performance. For the quarter ended March 31, 2025, we have produced industry leading returns including, but not limited to, an average return on assets and equity of 2.39% and 19.13%, respectively; industry leading net interest margin of 5.96%; strong efficiency ratio of 49.6%; and a diversified revenue stream as demonstrated by a strong net interest margin and stable fee income representing 18% of total revenue (our payment processing vertical has a compound annual growth rate of 14% since 2020). Coupling these performance metrics with strong balance sheet management including, but not limited to, loan portfolio diversification, an asset sensitive balance sheet with approximately 66% of our loans being variable rate and tied to prime, with interest rate floors in place on 90% of our variable rate loan portfolio, solid credit metrics, a stable low cost deposit base, and strong available liquidity of $1.11 billion, or 66% of deposits, with no outstanding borrowings, positions our Company for future growth and success.

Previous wording

Assets. Our total assets were $1.78 billion at September 30, 2024, an increase of $165.6 million, or 10.2%, from $1.62 billion at December 31, 2023, due to growth in loans held for investment of $90.0 million, or 7.5%, and securities available-for-sale of $89.4 million, or 73.2%, partially offset by a decrease in cash and cash equivalents of $17.5 million, or 10.6%, as we deployed our strong liquidity into higher yielding commercial loans and agency securities.

Current wording

Assets. Our total assets were $1.95 billion at March 31, 2025, an increase of $61.9 million, or 3.3%, from $1.89 billion at December 31, 2024, due to increases in cash and cash equivalents of $46.7 million, or 37.0%, growth in loans held for investment of $18.8 million, or 1.3%, partially offset by a decrease in securities available-for-sale of $4.8 million, or 2.0%.

Previous wording

Loan Portfolio Analysis. At September 30, 2024, loans, net of deferred fees and unearned premiums, were $1.30 billion, or 84.4% of total deposits, compared to $1.21 billion, or 85.8% of total deposits, at December 31, 2023. The growth in loans was primarily driven by net production in commercial loans, and to a lesser extent, consumer loans. Commercial loans increased $87.5 million, or 11.9%, to $825.4 million at September 30, 2024 from $737.9 million at December 31, 2023, driven by our litigation related loans. Consumer loans increased $4.4 million, or 30.2%, to $18.9 million at September 30, 2024 from $14.5 million at December 31, 2023.

Current wording

Loan Portfolio Analysis. At March 31, 2025, loans, net of deferred fees and unearned premiums, were $1.42 billion, or 83.9% of total deposits, compared to $1.40 billion, or 85.1% of total deposits, at December 31, 2024. The growth in loans was primarily driven by net production in commercial loans and multifamily loans. Commercial loans increased $13.6 million, or 1.5%, to $934.1 million at March 31, 2025 from $920.6 million at December 31, 2024. Multifamily loans increased $9.7 million, or 2.7%, to $364.9 million at March 31, 2025 from $355.2 million at December 31, 2024.

Previous wording

At September 30, 2024, our Litigation-Related loans, which include commercial loans to law firms and consumer lending to plaintiffs/claimants and attorneys, totaled $730.4 million, or 56.3% of our total loan portfolio, compared to

Current wording

At March 31, 2025, our Litigation-Related loans, which include commercial and consumer lending to attorneys, law firms and plaintiffs/claimants, totaled $838.0 million, or 59.2% of our total loan portfolio, compared to $838.6 million, or 60.0% of our total loan portfolio at December 31, 2024. We also had Commercial Litigation-Related committed and uncommitted undrawn lines of credit totaling $90.7 million and $680.6 million, respectively, at March 31, 2025.

Previous wording

Debt Securities Portfolio. Securities available-for-sale increased $89.4 million, or 73.2%, to $211.5 million at September 30, 2024 from $122.1 million at December 31, 2023, due to our current balance sheet management strategy of deploying funds in short duration agency mortgage-backed securities at peak market interest rates, while simultaneously moderating multifamily and commercial real estate (“CRE”) growth due to the current economic and interest rate environment. The increase was driven by purchases of $102.7 million, and unrealized gains of $4.0 million, partially offset by paydowns of $17.2 million. Securities held-to-maturity decreased $6.2 million, or 8.1%, to $70.8 million at September 30, 2024 from $77.0 million at December 31, 2023, driven by paydowns of $6.1 million and net premium amortization of $77 thousand.

Current wording

of $3.8 million. Securities held-to-maturity decreased $1.9 million, or 2.8%, to $66.7 million at March 31, 2025 from $68.7 million at December 31, 2024, driven by paydowns of $1.9 million and net premium amortization of $25 thousand.

Previous wording

Funding**.** Total deposits increased $129.1 million, or 9.2%, to $1.54 billion at September 30, 2024 from $1.41 billion at December 31, 2023. We continue to focus on the acquisition and expansion of core deposit relationships. Core deposits, which we define as total deposits excluding time deposits, totaled $1.52 billion at September 30, 2024, or 99.1% of total deposits, compared to $1.40 billion or 99.4% of total deposits at December 31, 2023. Litigation and payment processing deposits represent $1.27 billion, or 82.9%, of total deposits at September 30, 2024. Savings, NOW and money market deposits increased $56.6 million, or 6.1%, to $982.8 million at September 30, 2024.

Current wording

Funding**.** Total deposits increased $45.9 million, or 2.8%, to $1.69 billion at March 31, 2025 from $1.64 billion at December 31, 2024. We continue to focus on the acquisition and expansion of core deposit relationships. Core deposits, which we define as total deposits excluding time deposits, totaled $1.68 billion at March 31, 2025, or 99.6% of total deposits, compared to $1.63 billion or 99.1% of total deposits at December 31, 2024. Litigation and payment processing deposits represent $1.42 billion, or 84.1%, of total deposits at March 31, 2025. Savings, NOW and money market deposits increased $28.6 million, or 2.5%, to $1.16 billion at March 31, 2025.

Previous wording

Core commercial relationship banking clients in our two national verticals represent approximately 80% of our $1.54 billion deposit base at September 30, 2024. These relationship banking clients are derived from coupling lending facilities, payment processing, and other unique custodial banking needs with commercial cash management depository services. 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 interest on lawyer trust accounts (“IOLTA”), escrow and claimant trust settlement deposits represent $828.9 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.

Current wording

Core commercial relationship banking clients in our two national verticals represent approximately 80% of our $1.69 billion deposit base at March 31, 2025. These relationship banking clients are derived from coupling lending facilities, payment processing, and other unique custodial banking needs with commercial cash management depository services. Our deposit strategy primarily focuses on developing full service commercial banking relationships with our clients through commercial 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 interest on lawyer trust accounts (“IOLTA”), escrow and settlement deposits represent $961.4 million, or 57.0%, of total deposits. As of March 31, 2025, uninsured deposits were $525.6 million, or 31%, of our total deposits of $1.69 billion, excluding $11.3 million of affiliate deposits held at the Bank. Approximately 80% of our uninsured deposits represent clients with full commercial relationship banking with us (commercial loans, payment processing, and other commercial 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.

Previous wording

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 onto our 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.

Current wording

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 March 31, 2025, off-balance sheet sweep funds totaled approximately $468.8 million, of which approximately $442.8 million, or 94.5%, was available to be swept onto our balance sheet as reciprocal client relationship deposits. Our core low-cost deposit growth and off-balance sheet client funds continue to clearly demonstrate our highly efficient, full service commercial relationship and tech-enabled cash management platform.

Previous wording

At September 30, 2024, we had the ability to borrow a total of $395.8 million from the Federal Home Loan Bank of New York. We also had an available line of credit with the Federal Reserve Bank of New York discount window of $54.9 million. No borrowing amounts were outstanding as of September 30, 2024. Historically, we have never leveraged our balance sheet to generate earnings and have always utilized core client deposits to fund our asset growth and related earnings.

Current wording

At March 31, 2025, we had the ability to borrow, on a secured basis, up to $429.6 million from the Federal Home Loan Bank of New York and $50.8 million from the Federal Reserve Bank of New York discount window. At March 31, 2025, we also had $17.5 million in aggregate unsecured lines of credit with unaffiliated correspondent banks. No borrowing amounts were outstanding during the first quarter of 2025. 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.

Previous wording

Stockholders’ Equity. Total stockholders’ equity increased $34.0 million to $232.6 million at September 30, 2024, from $198.6 million at December 31, 2023, primarily due to net income of $31.9 million and decreases in other comprehensive losses of $2.9 million, as unrealized losses on our securities available-for-sale declined due to current short-term market interest rates, and amortization of share-based compensation of $2.9 million, partially offset by dividends declared to common stockholders of $3.7 million.

Current wording

Stockholders’ Equity. Total stockholders’ equity increased $13.6 million to $250.7 million at March 31, 2025, from $237.1 million at December 31, 2024, primarily due to net income of $11.4 million and other comprehensive income of $2.6 million, as unrealized losses on our securities available-for-sale declined due to current short-term market interest rates, and amortization of share-based compensation of $1.1 million, partially offset by dividends declared to common stockholders of $1.5 million.

Previous wording

million in performing loans to the hospitality industry. The allowance for credit losses was $19.5 million, or 1.50% of total loans, as of September 30, 2024, as compared to $16.6 million, or 1.38% of total loans at December 31, 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. At September 30, 2024, special mention and substandard loans totaled $4.0 million and $10.9 million, respectively, substantially unchanged from December 31, 2023. The ratio of nonperforming loans to total loans and total assets was 0.84% and 0.61%, respectively, as of September 30, 2024, as compared to 0.91% and 0.68%, respectively, as of December 31, 2023. The allowance for credit losses to the nonperforming loans was 178% as of September 30, 2024, as compared to 152% as of December 31, 2023.

Current wording

Asset Quality. Nonperforming assets consisted of one multifamily loan totaling $8.0 million as of March 31, 2025 and $10.9 million as of December 31, 2024. We had no exposure to commercial office space, no construction loans, and $14.5 million in performing loans to the hospitality industry. The allowance for credit losses was $19.5 million, or 1.37% of total loans, as of March 31, 2025, as compared to $21.0 million, or 1.50% of total loans at December 31, 2024. Effective March 31, 2025, a $2.9 million charge-off on the one nonperforming multifamily loan was recognized based on our proposed restructuring of this credit with the borrower in April 2025. We anticipate that this restructuring will be completed in the second quarter of 2025 with the goal of returning this nonperforming credit facility to performing status, based on future sustained performance metrics, in the latter part of 2025. The decrease in the allowance as a percentage of loans was a result of management’s revaluation of credit risk in our multifamily portfolio subsequent to a $2.9 million charge-off recognized, which was partially offset by an increase in the general reserve considering loan growth, loan composition, and the current uncertain economic and short-term interest rate environment including, but not limited to, its potential impact on the New York metro multifamily and commercial real estate market. At March 31, 2025, special mention and

Previous wording

Due to the interest rate environment since 2022, management enhanced its ongoing credit risk management monitoring and testing of its commercial real estate loan portfolio. The following is a brief summary of our risk management results for our multifamily and CRE portfolios as of September 30, 2024:

Current wording

The following is a brief summary of our risk management results for our multifamily and CRE portfolios as of March 31, 2025:

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

Current wording

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

Previous wording

General. Net income increased $1.5 million, or 15.5%, to $11.4 million for the three months ended September 30, 2024 from $9.8 million for the three months ended September 30, 2023. The increase resulted from a $4.1 million increase in net interest income, partially offset by an increase of $1.6 million in noninterest expense and a decrease of $466 thousand in noninterest income.

Current wording

General. Net income increased $1.3 million, or 13.4%, to $11.4 million for the three months ended March 31, 2025 from $10.1 million for the three months ended March 31, 2024. The increase resulted from a $4.7 million increase in net interest income, partially offset by an increase of $2.2 million in noninterest expense and a decrease of $238 thousand in noninterest income.

Previous wording

Interest Income. Interest income increased $5.2 million, or 21.9%, to $29.1 million for the three months ended September 30, 2024 from $23.9 million for the three months ended September 30, 2023 and was attributable to increases in loan, securities and interest earning cash and other interest income, and partially offset by a decrease in reverse repurchase interest income.

Current wording

Interest Income. Interest income increased $5.4 million, or 20.9%, to $31.5 million for the three months ended March 31, 2025 from $26.1 million for the three months ended March 31, 2024 and was attributable to increases in loan, securities and interest earning cash and other interest income. Throughout 2024, management tempered multifamily and

Previous wording

Provision for Credit Losses. Our provision for credit losses was $1.0 million for the three months ended September 30, 2024, a decrease of $200 thousand from the $1.2 million provision for the three months ended September 30, 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.

Current wording

Provision for Credit Losses. Our provision for credit losses was $1.5 million for the three months ended March 31, 2025, an increase of $500 thousand from the $1.0 million provision for the three months ended March 31, 2024. As of March 31, 2025, our allowance to loans ratio was 1.37% as compared to 1.43% as of March 31, 2024. The decrease in the allowance as a percentage of loans was a result of management’s revaluation of credit risk in our multifamily portfolio subsequent to a $2.9 million charge-off recognized, which was partially offset by an increase in the general reserve considering loan growth, loan composition, and the current uncertain economic and short-term interest rate environment including, but not limited to, its potential impact on the New York metro multifamily and commercial real estate market.

Previous wording

Payment processing income was $5.2 million for the quarter ended September 30, 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 quarter ended September 30, 2024, 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. Administrative service income increased $39 thousand, or 6.3%, to $658 thousand for the third quarter of 2024. Off-balance sheet sweep funds totaled $488.0 million at September 30, 2024, demonstrating the continued strength of our branchless core business model. Other income decreased $67 thousand, or 22.2%, to $235 thousand due to decreases in loan and other banking fees.

Current wording

Payment processing income was $4.9 million for the quarter ended March 31, 2025, a $384 thousand decrease from the same period in 2024, primarily due to changes in our overall merchant risk profile and composition. Payment processing volumes for the credit and debit card processing platform increased $673.3 million, or 7.8%, to $9.3 billion and transactions decreased 10.1 million, or 6.7%, to 140.4 million for the quarter ended March 31, 2025, as compared to the same period in 2024. We continue to focus on the expansion of sales channels through ISOs, prudently managing risk while focusing on new merchant originations, increasing overall volumes, and expanding our technology and other resources in the payment 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 90,000 small business merchants in all 50 states, and performs commercial treasury clearing services for $9.3 billion in volume across 140.4 million in transactions in the quarter ended March 31, 2025. ASP fee income increased $134 thousand to $880 thousand for the first quarter of 2025. 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. Off-balance sheet sweep funds totaled $468.8 million at March 31, 2025, demonstrating the continued strength of our branchless core business model. Other income increased $12 thousand, or 3.5%, to $359 thousand due to increases in loan and other banking fees.

Previous wording

Income Tax Expense. We recorded an income tax expense of $11.7 million for the nine months ended September 30, 2024, reflecting an effective tax rate of 26.8%, compared to $11.2 million, or 26.5%, for the nine months ended September 30, 2023.

Current wording

Income Tax Expense. We recorded income tax expense of $4.1 million for the three months ended March 31, 2025, reflecting an effective tax rate of 26.5%, compared to $3.6 million, or 26.5%, for the three months ended March 31, 2024.

Previous wording

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

Current wording

The following table presents the estimated changes in net interest income of Esquire Bank, National Association, calculated on a bank-only basis, which would result from changes in market interest rates over a twelve-month period beginning March 31, 2025.

Previous wording

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.

Current wording

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 duration securities.

Previous wording

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 September 30, 2024, cash and cash equivalents totaled $147.7 million.

Current wording

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 March 31, 2025, cash and cash equivalents totaled $173.0 million.

Previous wording

At September 30, 2024, through pledging of our securities and certain loans, we had the ability to borrow up to $395.8 million from the FHLB of New York and $54.9 million from the FRB of New York discount window. At September 30, 2024, 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 September 30, 2024.

Current wording

At March 31, 2025, through pledging of our securities and certain loans, we had the ability to borrow, on a secured basis, up to $429.6 million from the FHLB of New York and $50.8 million from the FRB of New York discount window. At March 31, 2025, 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 March 31, 2025.

Previous wording

At September 30, 2024, our off-balance sheet sweeps funds totaled $488.0 million, of which $356.5 million, or 73.1%, was able to be swept onto our balance sheet as reciprocal client relationship deposits.

Current wording

At March 31, 2025, our off-balance sheet sweeps funds totaled $468.8 million, of which $442.8 million, or 94.5%, was available to be swept on balance sheet as reciprocal client deposits.

Previous wording

Our overall liquidity position (cash, borrowing capacity, and available reciprocal client sweep balances) totaled $972.4 million at September 30, 2024, or 63% of total deposits, creating a highly liquid and unlevered balance sheet.

Current wording

Our overall liquidity position (cash, borrowing capacity, and available reciprocal client sweep balances) totaled $1.11 billion at March 31, 2025, or 66% of total deposits, creating a highly liquid and unlevered balance sheet.

Previous wording

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.

Current wording

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, correspondent bank lines or through reciprocal deposits.

Previous wording

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, the Bank has elected to continue to utilize the generally applicable leverage and risk based requirements and not apply the community bank leverage ratio.

Current wording

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