Esquire Financial (ESQ) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited interim consolidated financial statements, including core financial statements and their detailed explanatory notes Consolidated Statements of Financial Condition This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and equity Consolidated Statements of Financial Condition (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Total assets | $2,059,977 | $1,892,503 | $167,474 | 8.8% | | Loans, net of allowance | $1,475,192 | $1,376,042 | $99,150 | 7.2% | | Total deposits | $1,782,328 | $1,642,236 | $140,092 | 8.5% | | Total stockholders' equity | $263,556 | $237,094 | $26,462 | 11.1% | Consolidated Statements of Income This section reports the company's financial performance over specific periods, detailing revenues, expenses, and net income Consolidated Statements of Income (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net interest income | $29,254 | $24,322 | $56,863 | $47,185 | | Provision for credit losses | $3,525 | $1,000 | $5,025 | $2,000 | | Total noninterest income | $6,577 | $6,275 | $12,728 | $12,664 | | Total noninterest expense | $17,062 | $15,232 | $33,810 | $29,800 | | Net income | $11,890 | $10,487 | $23,297 | $20,545 | | Basic earnings per share | $1.48 | $1.34 | $2.91 | $2.64 | | Diluted earnings per share | $1.38 | $1.25 | $2.70 | $2.45 | Consolidated Statements of Comprehensive Income This section presents net income and other comprehensive income items, reflecting the total change in equity from non-owner sources Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net income | $11,890 | $10,487 | $23,297 | $20,545 | | Total other comprehensive income (loss) | $764 | $128 | $3,368 | $(1,006) | | Total comprehensive income | $12,654 | $10,615 | $26,665 | $19,539 | Consolidated Statements of Changes in Stockholders' Equity This section details the changes in each component of stockholders' equity over specific periods, including net income, other comprehensive income, and dividends Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Metric | Balance at April 1, 2025 (in thousands) | Balance at June 30, 2025 (in thousands) | Balance at January 1, 2025 (in thousands) | | :------------------------------------ | :------------------------------------ | :---------------------------------- | :------------------------------------ | | Total stockholders' equity | $250,724 | $263,556 | $237,094 | | Net income (Q2 2025) | $11,890 | | | | Other comprehensive income (Q2 2025) | $764 | | | | Cash dividends declared (Q2 2025) | $(1,484) | | | | Net income (YTD Q2 2025) | | | $23,297 | | Other comprehensive income (YTD Q2 2025) | | | $3,368 | | Cash dividends declared (YTD Q2 2025) | | | $(2,963) | Consolidated Statements of Cash Flows This section reports the cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash provided by operating activities | $26,297 | $19,995 | | Net cash used in investing activities | $(127,420) | $(109,585) | | Net cash provided by financing activities | $137,767 | $77,114 | | Increase (decrease) in cash and cash equivalents | $36,644 | $(12,476) | | Cash and cash equivalents at end of period | $162,973 | $152,733 | Notes to Interim Consolidated Financial Statements This section provides detailed explanations and additional information supporting the interim consolidated financial statements NOTE 1 — Basis of Presentation and Summary of Significant Accounting Policies This note outlines the basis of presentation for the interim consolidated financial statements, significant accounting policies, and the impact of recent accounting pronouncements - The Company's investment in a VIE for its legacy NFL consumer post-settlement loan portfolio had a carrying amount of $9.0 million as of June 30, 2025, down from $9.4 million at December 31, 2024. No equity method gain or loss was recognized for the three and six months ended June 30, 2025, compared to a $500 thousand loss in the prior year period[23] - The investment in United Payment Systems, LLC (Payzli) had a carrying amount of $4.8 million as of June 30, 2025, up from $4.1 million at December 31, 2024. The Company funded $700 thousand for the six months ended June 30, 2025, compared to $3.5 million in the prior year period[24] - ASU 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' will enhance transparency of income tax disclosures, effective for the Company's annual reporting period ended December 31, 2025[27] NOTE 2 — Debt Securities This note details the Company's debt securities portfolio, including available-for-sale and held-to-maturity categories, fair values, unrealized gains/losses, and pledged securities Securities Portfolio Summary (in thousands) | Category | June 30, 2025 Fair Value | December 31, 2024 Fair Value | June 30, 2025 Gross Unrealized Losses | December 31, 2024 Gross Unrealized Losses | | :-------------------------- | :----------------------- | :------------------------- | :------------------------------------ | :------------------------------------ | | Securities available-for-sale | $257,375 | $241,746 | $(15,888) | $(19,976) | | Securities held-to-maturity | $58,503 | $60,931 | $(5,983) | $(7,729) | - At June 30, 2025, securities with a fair value of $264.3 million were pledged to the FHLB, and $51.5 million to the FRB, for borrowing capacity. No FHLB or FRB advances were outstanding[30][31] - Management does not consider available-for-sale securities to be impaired as the decline in fair value is attributable to changes in interest rates, not credit quality, and the Company does not intend to sell them before anticipated recovery[32][33] NOTE 3 — Loans This note provides a detailed breakdown of the loan portfolio by class, activity in the allowance for credit losses, aging of past due loans, and credit risk profile Loan Composition (in thousands) | Loan Class | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Multifamily | $366,439 | $355,165 | | Commercial real estate | $91,166 | $87,038 | | 1 – 4 family | $10,093 | $14,665 | | Commercial | $1,007,827 | $920,567 | | Consumer | $18,584 | $19,339 | | Total loans held for investment | $1,494,109 | $1,396,774 | | Allowance for credit losses | $(19,407) | $(20,979) | Allowance for Credit Losses Activity (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Beginning balance | $20,979 | $16,631 | | Provision for credit losses | $5,025 | $2,000 | | Recoveries | $25 | $24 | | Loans charged-off | $(6,622) | $(134) | | Total ending allowance balance | $19,407 | $18,521 | - As of June 30, 2025, total past due and nonaccrual loans were $8.86 million, including one collateral-dependent multifamily loan of $8.0 million and one commercial loan of $736 thousand, with no specific reserves[37][99] - During the six months ended June 30, 2025, one $10.9 million multifamily loan was restructured into two notes ($8.0 million and $2.9 million), with the $2.9 million note charged off and the $8.0 million note at market terms[47] NOTE 4 — Noninterest Income This note details the components of noninterest income, primarily payment processing and administrative service fees, along with revenue recognition policies and equity investment gains Noninterest Income (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Payment processing fees | $5,107 | $5,322 | $10,019 | $10,618 | | Administrative service income | $643 | $620 | $1,523 | $1,366 | | Gain on equity investment | $432 | $0 | $432 | $0 | | Other | $395 | $333 | $754 | $680 | | Total noninterest income | $6,577 | $6,275 | $12,728 | $12,664 | - Payment processing income is derived from clearing and settling credit and debit transactions for merchants, with fees based on transaction volume. ACH income is also volume-based[53] - Administrative service income primarily comes from managing Qualified Settlement Funds (QSFs), where fees are earned monthly for investing funds into safe vehicles[53][54] NOTE 5 — Share-Based Payment Plans This note describes the Company's equity incentive plans, including stock options, restricted stock, and PSUs, detailing grant terms, vesting, and compensation expense Share-Based Compensation Expense (in thousands) | Award Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Options | $184 | $188 | $369 | $368 | | Restricted Stock | $869 | $774 | $1,700 | $1,600 | | PSUs | $138 | $0 | $218 | $0 | | Total | $1,191 | $962 | $2,287 | $1,968 | - As of June 30, 2025, unrecognized compensation cost for nonvested options was $1.1 million (expected over 1.92 years), for restricted stock was $12.3 million (expected over 3.72 years), and for PSUs was $1.4 million (expected over 2.61 years)[60][61][62] NOTE 6 — Earnings per Share This note presents the calculation of basic and diluted earnings per share (EPS) for the three and six months ended June 30, 2025 and 2024, detailing the net income and weighted average shares outstanding used in the computations Earnings Per Share (EPS) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Basic EPS | $1.48 | $1.34 | $2.91 | $2.64 | | Diluted EPS | $1.38 | $1.25 | $2.70 | $2.45 | | Net income (in thousands) | $11,890 | $10,487 | $23,297 | $20,545 | | Weighted average shares outstanding (basic) | 8,029,541 | 7,798,441 | 8,009,382 | 7,792,664 | | Weighted average shares outstanding (diluted) | 8,639,038 | 8,402,750 | 8,620,501 | 8,402,119 | NOTE 7 — Leases This note outlines the Company's accounting for operating leases, including right-of-use assets, lease liabilities, lease terms, discount rates, and total lease costs Lease Information (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | ROU lease assets | $2,800 | $3,200 | | Related lease liabilities | $3,100 | $3,500 | | Weighted-average remaining lease term | 6.62 years | 2.42 years | | Weighted-average discount rate | 4.29% | 3.29% | Total Lease Cost (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Total lease cost | $252 | $183 | $491 | $374 | NOTE 8 — Fair Value Measurements This note explains the fair value hierarchy for assets and liabilities, summarizing fair value measurements for recurring items and financial instruments not carried at fair value - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (significant observable inputs), and Level 3 (significant unobservable inputs)[71][72] Fair Value of Securities Available-for-Sale (in thousands) | Category | June 30, 2025 (Level 2) | December 31, 2024 (Level 2) | | :-------------------------- | :---------------------- | :------------------------ | | Mortgage-backed securities – agency | $86,720 | $85,952 | | CMOs – agency | $170,655 | $155,794 | | Total available-for-sale | $257,375 | $241,746 | Fair Value of Financial Instruments Not Carried at Fair Value (in thousands) | Instrument | June 30, 2025 Carrying Value | June 30, 2025 Fair Value (Level 2/3) | December 31, 2024 Carrying Value | December 31, 2024 Fair Value (Level 2/3) | | :----------------------------- | :----------------------------- | :----------------------------------- | :------------------------------- | :----------------------------------- | | Securities, held-to-maturity | $64,470 | $58,503 | $68,660 | $60,931 | | Loans held for investment, net | $1,475,192 | $1,442,939 | $1,376,042 | $1,351,736 | NOTE 9 — Accumulated Other Comprehensive Loss This note details the changes in accumulated other comprehensive loss (AOCI), net of tax, primarily driven by unrealized gains and losses on securities available-for-sale for the three and six months ended June 30, 2025 and 2024 Accumulated Other Comprehensive Loss (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Beginning balance | $(11,683) | $(14,369) | $(14,287) | $(13,235) | | Other comprehensive income (loss), net of tax | $764 | $128 | $3,368 | $(1,006) | | Ending balance | $(10,919) | $(14,241) | $(10,919) | $(14,241) | NOTE 10 — Subsequent Event This note discloses a significant subsequent event: the Company executed a lease agreement for a new 50,000 square-foot headquarters in Jericho, New York, with a 12.5-year term and annual contractual lease payments of approximately $1.7 million, anticipated to commence in Q4 2026 - The Company signed a new 12.5-year lease for a 50,000 sq ft headquarters in Jericho, NY, with annual payments of $1.7 million, starting Q4 2026[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operating results, including an overview of the business, critical accounting estimates, balance sheet and income statement analysis, market risk, liquidity, capital resources, and inflation effects General This subsection introduces the MD&A, emphasizing its context with financial statements and providing cautionary notes on forward-looking statements and associated uncertainties - The report contains forward-looking statements identified by words like 'may,' 'might,' 'should,' 'could,' 'believe,' 'expect,' 'anticipate,' 'estimate,' 'intend,' 'plan,' 'projection,' 'goal,' 'target,' 'aim,' 'would,' 'annualized,' and 'outlook'[81] - Key factors that could cause actual results to differ include economic conditions, financial industry changes, real estate market risks, concentration in legal and 'litigation' markets, interest rate fluctuations, credit losses, competition, technological changes, and regulatory actions[83][84][86][90] Critical Accounting Estimates This section focuses on the Allowance for Credit Losses (ACL) as a critical accounting policy, explaining the CECL Standard's application for estimating lifetime expected credit losses - The Allowance for Credit Losses on loans held for investment is a critical accounting policy due to the subjectivity and uncertainty in estimating credit losses and its material effect on operations[89] - The Company applies the CECL Standard, estimating lifetime expected credit losses using a static pool methodology, incorporating past events, current conditions, and reasonable and supportable forecasts, with qualitative adjustments[91][92][93][94][95] - Management assesses the sensitivity of key assumptions by stressing quantitative inputs in economic forecasts, and future changes to ACL may be necessary based on evolving economic, market, or other conditions[94][101] Overview of Business and Strategy The Company serves legal and small business communities nationally, leveraging technology and AI to drive growth in litigation and payment processing, with strong Q2 2025 performance metrics - Esquire Financial Holdings, Inc. is a financial holding company serving the legal and small business communities nationally through its wholly-owned subsidiary, Esquire Bank, N.A[102] - The Company's strategy involves developing and embracing cutting-edge technology, including AI, to leverage its national litigation and payment processing verticals for industry-leading growth and returns[104][109] Key Performance Metrics (Q2 2025) | Metric | Value | | :---------------------- | :------ | | Average Return on Assets | 2.37% | | Average Return on Equity | 18.74% | | Net Interest Margin | 6.03% | | Efficiency Ratio | 47.6% | | Fee income as % of total revenue | 17% | - The litigation market represents a significant growth opportunity with a total addressable market (TAM) of $529 billion for 2022, where the Company offers unique products and services to law firms, resulting in a blended 9.5% variable rate asset yield on commercial loans[105][107] - The payment processing market is also a growth opportunity with a TAM of $11.6 trillion, where the Company processes approximately $10 billion in credit and debit card volume across 153 million transactions in Q2 2025[108] Recent Developments This section highlights the recent enactment of H.R. 1, the 'One Big Beautiful Bill Act,' on July 4, 2025. This legislation introduces favorable changes to federal tax law for businesses, including the restoration of immediate expensing for R&D and 100% bonus depreciation, effective for tax years beginning in 2025. The Company is currently evaluating the impact of these changes on future periods - H.R. 1, the 'One Big Beautiful Bill Act,' signed into law on July 4, 2025, includes favorable changes to federal tax law for businesses, such as immediate expensing of R&D and 100% bonus depreciation, effective for tax years beginning in 2025[111][112][113] - These tax law changes were not reflected in the income tax provision for the three and six months ended June 30, 2025, as enactment occurred after the balance sheet date[113] Comparison of Financial Condition at June 30, 2025 and December 31, 2024 Total assets increased by 8.8% to $2.06 billion, driven by loan and deposit growth, while stockholders' equity rose, and asset quality remained strong with nonperforming assets at $8.7 million Key Financial Condition Changes (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------------------- | :------------ | :---------------- | :------- | :------- | | Total assets | $2,059,977 | $1,892,503 | $167,474 | 8.8% | | Loans held for investment, net | $1,475,192 | $1,376,042 | $99,150 | 7.2% | | Total deposits | $1,782,328 | $1,642,236 | $140,092 | 8.5% | | Total stockholders' equity | $263,556 | $237,094 | $26,462 | 11.1% | Loan Portfolio Growth (in thousands) | Loan Type | June 30, 2025 | December 31, 2024 | Change | % Change | | :---------------------- | :------------ | :---------------- | :------- | :------- | | Commercial loans | $1,007,827 | $920,567 | $87,260 | 9.5% | | Multifamily loans | $366,439 | $355,165 | $11,274 | 3.2% | | Litigation-Related Loans | $921,383 | $838,555 | $82,828 | 9.9% | - Total deposits increased by $140.1 million, or 8.5%, to $1.78 billion, primarily due to client acquisition and growth in the national litigation platform. Core deposits represented 99.7% of total deposits[121] - Nonperforming assets totaled $8.7 million (0.58% of total loans) at June 30, 2025, down from $10.9 million (0.78% of total loans) at December 31, 2024. The allowance for credit losses was $19.4 million, or 1.30% of total loans[127][128] Average Balance Sheets and Rate/Volume Analysis This section analyzes average balance sheet components, interest income, and expense, quantifying changes attributable to both volume and rate fluctuations Average Balance Sheet and Yield/Cost (Three Months Ended June 30, in thousands) | Metric | 2025 Average Balance | 2025 Average Yield/Cost | 2024 Average Balance | 2024 Average Yield/Cost | | :-------------------------------- | :------------------- | :---------------------- | :------------------- | :---------------------- | | Loans, held for investment | $1,462,401 | 7.89% | $1,240,599 | 7.85% | | Total interest earning assets | $1,947,281 | 6.91% | $1,580,952 | 6.97% | | Savings, NOW, Money Market deposits | $1,178,058 | 1.44% | $899,419 | 1.31% | | Total interest bearing liabilities | $1,184,137 | 1.45% | $911,165 | 1.35% | | Net interest spread | | 5.46% | | 5.62% | | Net interest margin | | 6.03% | | 6.19% | Change in Net Interest Income (Three Months Ended June 30, 2025 vs. 2024, in thousands) | Component | Change due to Volume | Change due to Rate | Total Change | | :-------------------------- | :------------------- | :----------------- | :----------- | | Interest earned on loans | $4,424 | $122 | $4,546 | | Total interest income | $5,880 | $271 | $6,151 | | Interest paid on total deposits | $935 | $284 | $1,219 | | Total interest expense | $935 | $284 | $1,219 | | Change in net interest income | $4,945 | $(13) | $4,932 | Comparison of Operating Results for the Three Months Ended June 30, 2025 and 2024 Net income increased by 13.4% to $11.9 million, driven by net interest income growth, partially offset by higher credit loss provision and noninterest expense, with net interest margin decreasing to 6.03% Operating Results (Three Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change | % Change | | :-------------------------- | :----- | :----- | :----- | :------- | | Net income | $11,890 | $10,487 | $1,403 | 13.4% | | Net interest income | $29,254 | $24,322 | $4,932 | 20.3% | | Provision for credit losses | $3,525 | $1,000 | $2,525 | 252.5% | | Total noninterest income | $6,577 | $6,275 | $302 | 4.8% | | Total noninterest expense | $17,062 | $15,232 | $1,830 | 12.0% | - Net interest margin decreased 16 basis points to 6.03%, primarily due to increased average interest earning cash balances and decreases in short-term market interest rates on these balances[139] - Loan interest income increased $4.5 million (18.8%) due to a $221.8 million (17.9%) increase in average loan balance, driven by higher-yielding national litigation-related loans[142] - Payment processing fees decreased by $215 thousand (4.0%) to $5.1 million, while a $432 thousand deferred gain on a fintech investment was recognized[148][149] - Employee compensation and benefits increased by $691 thousand (7.3%), and professional and consulting services increased by $434 thousand (50.6%)[150][151] Comparison of Operating Results for the Six Months Ended June 30, 2025 and 2024 Net income increased by 13.4% to $23.3 million, driven by net interest income growth, partially offset by higher noninterest expense and credit loss provision, with net interest margin decreasing to 5.99% Operating Results (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change | % Change | | :-------------------------- | :----- | :----- | :----- | :------- | | Net income | $23,297 | $20,545 | $2,752 | 13.4% | | Net interest income | $56,863 | $47,185 | $9,678 | 20.5% | | Provision for credit losses | $5,025 | $2,000 | $3,025 | 151.3% | | Total noninterest income | $12,728 | $12,664 | $64 | 0.5% | | Total noninterest expense | $33,810 | $29,800 | $4,010 | 13.5% | - Net interest margin decreased 14 basis points to 5.99%, primarily due to a $69.4 million increase in average interest earning cash balances and decreases in short-term market interest rates[155] - Loan interest income increased $8.0 million (16.7%) due to a $204.2 million (16.7%) increase in average loan balance, driven by higher-yielding national litigation-related loans[157] - Payment processing fees decreased by $599 thousand (5.6%) to $10.0 million, while administrative service income increased by $157 thousand (11.5%). A $432 thousand deferred gain on a fintech investment was recognized[163][164] - Employee compensation and benefits increased by $1.6 million (8.5%), professional and consulting services increased by $747 thousand (41.3%), and data processing costs increased by $747 thousand (23.1%)[165] Management of Market Risk The Company's primary market risk is interest rate volatility, which is managed by structuring the balance sheet and using interest rate risk simulation models (Net Interest Income and Economic Value of Equity). These models assess the impact of instantaneous parallel rate shifts on net interest income and economic value, with results indicating sensitivity to rate changes - The primary component of market risk is interest rate volatility, which impacts income, expense, and fair value of assets and liabilities[170] - The Company uses Net Interest Income (NII) and Economic Value of Equity (EVE) simulation models to test interest rate sensitivity, modeling instantaneous parallel rate shifts[172][175] Estimated Changes in 12-Months Net Interest Income (June 30, 2025, in thousands) | Changes in Interest Rates (Basis Points) | Estimated 12-Months Net Interest Income | Change | | :--------------------------------------- | :-------------------------------------- | :----- | | 300 | $162,718 | $27,143 | | 0 | $135,575 | — | | -300 | $112,695 | $(22,880) | Estimated Changes in Economic Value of Equity (June 30, 2025, in thousands) | Changes in Interest Rates (Basis Points) | Economic Value of Equity | Change | | :--------------------------------------- | :----------------------- | :------- | | 300 | $475,792 | $67,058 | | 0 | $408,734 | — | | -300 | $288,864 | $(119,870) | Liquidity and Capital Resources The Company maintains strong liquidity through deposit inflows and borrowing capacity, with total liquidity at $1.04 billion, and Esquire Bank remains well-capitalized, exceeding all regulatory capital requirements - At June 30, 2025, cash and cash equivalents totaled $163.0 million[182] - The Company had $456.1 million in borrowing capacity from the FHLB, $49.8 million from the FRB, and $17.5 million in unsecured lines of credit, with no outstanding borrowings[183][124] - Off-balance sheet sweep funds totaled $373.1 million, with $349.7 million available to be swept onto the balance sheet. Total liquidity was $1.04 billion, or 58% of total deposits[184] Esquire Bank Capital Ratios (June 30, 2025) | Capital Ratio | Minimum Capital with Conservation Buffer | Actual | | :-------------------------- | :--------------------------------------- | :------- | | Total Risk-based Capital Ratio | 10.50% | 16.11% | | Tier 1 Risk-based Capital Ratio | 8.50% | 14.89% | | Common Equity Tier 1 Capital Ratio | 7.00% | 14.89% | | Tier 1 Leverage Ratio | 4.00% | 12.06% | Effects of Inflation This section explains that inflation's impact on banks differs from non-financial institutions, as bank assets are primarily monetary and tend to move with inflation. The Company manages its rate sensitivity gap to mitigate inflation's effects, structuring assets and liabilities to protect against substantial interest rate changes - Banks' assets are primarily monetary and tend to move with inflation, allowing them to reduce inflation's impact through proper management of their rate sensitivity gap[191] - The Company structures its assets and liabilities and manages its gap to protect against substantial changes in interest rate scenarios, minimizing potential inflation effects[191] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item refers to the 'Management of Market Risk' section within Item 2 for all required quantitative and qualitative disclosures about market risk - Information regarding quantitative and qualitative disclosures about market risk is included in Item 2 under 'Management of Market Risk'[192] Item 4. Controls and Procedures Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025. No material changes to internal controls over financial reporting occurred during the quarter - The Company's disclosure controls and procedures were effective as of June 30, 2025[192] - No material changes to the Company's internal controls over financial reporting occurred during the quarter ended June 30, 2025[193] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is periodically involved in claims and lawsuits arising in the ordinary course of business. As of June 30, 2025, management does not believe there are any pending legal proceedings that would have a material adverse effect on the Company's financial condition, results of operations, or cash flows - As of June 30, 2025, there are no pending legal proceedings believed to have a material adverse effect on the Company's financial condition, results of operations, or cash flows[196] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to the Company's risk factors have occurred since the Annual Report on Form 10-K for December 31, 2024[197] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides information on the Company's common stock repurchase program, which authorized the purchase of up to 300,000 shares. No shares were purchased under this program during the three months ended June 30, 2025. Shares may also be withheld or net settled for tax purposes related to stock-based incentive plans - The Company has an authorized share repurchase program for up to 300,000 shares, with 257,694 shares remaining available as of June 30, 2025[199] - No shares were purchased under the publicly announced repurchase program during the three months ended June 30, 2025[199] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities for the period - There were no defaults upon senior securities[200] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[201] Item 5. Other Information During the second quarter of 2025, none of the Company's directors or officers adopted or terminated any Rule 10b5-1(c) trading arrangements or 'non-Rule 10b5-1 trading arrangements' - No directors or officers adopted or terminated any Rule 10b5-1(c) trading arrangements or 'non-Rule 10b5-1 trading arrangements' during Q2 2025[202] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including Articles of Incorporation, Bylaws, certifications from the CEO and CFO (Sarbanes-Oxley Act Sections 302 and 906), and the iXBRL formatted financial statements - Exhibits include Articles of Incorporation, Amended and Restated Bylaws, CEO and CFO certifications (Sections 302 and 906 of Sarbanes-Oxley Act), and iXBRL formatted financial statements[203] SIGNATURES This section contains the required signatures of the Registrant's authorized officers, specifically the Vice Chairman, Chief Executive Officer and President, Andrew C. Sagliocca, and the Senior Vice President and Chief Financial Officer, Michael Lacapria, dated August 8, 2025 - The report is signed by Andrew C. Sagliocca, Vice Chairman, Chief Executive Officer and President, and Michael Lacapria, Senior Vice President and Chief Financial Officer, on August 8, 2025[209]