Esquire Financial (US:ESQ)2021-08-05 16:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for the quarterly period ended June 30, 2021 Condensed Consolidated Statements of Financial Condition Total assets grew to $1.06 billion, driven by increases in loans, cash, and deposits | Financial Metric | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | | :--- | :--- | :--- | | Total Assets | $1,058,077 | $936,714 | | Cash and cash equivalents | $145,736 | $65,185 | | Loans, net | $693,360 | $661,019 | | Total Liabilities | $923,407 | $810,638 | | Total deposits | $914,661 | $804,054 | | Total Stockholders' Equity | $134,670 | $126,076 | Condensed Consolidated Statements of Income Net income increased significantly for the three and six-month periods, fueled by higher net interest and noninterest income | Metric (in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $10,667 | $9,172 | $20,719 | $18,351 | | Total Noninterest Income | $5,467 | $2,955 | $10,932 | $6,075 | | Net Income | $4,502 | $2,533 | $8,676 | $5,130 | | Diluted EPS | $0.57 | $0.33 | $1.10 | $0.67 | Condensed Consolidated Statements of Cash Flows Cash and cash equivalents increased by $80.6 million, driven by financing activities from strong deposit growth | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,324 | $13,829 | | Net cash used in investing activities | ($46,401) | ($5,235) | | Net cash provided by financing activities | $110,628 | $44,028 | | Increase in cash and cash equivalents | $80,551 | $52,622 | Notes to Interim Condensed Consolidated Financial Statements Details accounting policies, loan portfolio composition, and significant growth in payment processing income - As of June 30, 2021, there were no participants in the company's COVID-19 related customer payment deferral program33 | Loan Composition (in thousands) | At June 30, 2021 | At December 31, 2020 | | :--- | :--- | :--- | | Commercial | $373,887 | $358,410 | | Multifamily | $201,171 | $169,817 | | Consumer | $35,213 | $41,362 | | Total Loans | $708,465 | $672,739 | - The allowance for loan losses increased to $14.0 million at June 30, 2021, from $11.4 million at year-end 2020, with the provision driven by loan growth and increased risk in the consumer portfolio5355 - Payment processing income, a key component of noninterest income, grew to $5.2 million in Q2 2021 from $2.7 million in Q2 2020, reflecting strong growth in the merchant services business78 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses strong financial performance in Q2 2021, highlighting growth in assets, loans, deposits, and net income Comparison of Financial Condition Total assets grew 13.0% to $1.1 billion, supported by strong growth in core deposits and litigation-related loans - Total assets grew by $121.4 million, or 13.0%, to $1.1 billion at June 30, 2021125 - Litigation-Related loans increased to $353.7 million, representing 49.9% of the total loan portfolio130 - Core deposits grew to $903.4 million, representing 98.8% of total deposits, and the company managed an additional $546.9 million in off-balance sheet sweep funds132133 Comparison of Operating Results Q2 2021 net income surged 77.7% year-over-year, driven by higher net interest income and payment processing fees | Metric (Q2 2021 vs Q2 2020) | Change Amount (in thousands) | Change Percent | | :--- | :--- | :--- | | Net Income | $2,000 | 77.7% | | Net Interest Income | $1,500 | 16.3% | | Noninterest Income | $2,512 | 85.0% | | Noninterest Expense | $2,336 | 34.4% | - Payment processing income for Q2 2021 increased by $2.5 million (91.6%) year-over-year, driven by a 98.8% increase in quarterly processing volumes to $6.2 billion157159 - For the six months ended June 30, 2021, net income increased by $3.5 million (69.1%) to $8.7 million compared to the same period in 2020166 Asset Quality Asset quality remained strong with low nonperforming assets and an increased allowance for loan losses to 1.98% | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Nonperforming assets to total loans | 0.32% | N/A | | Allowance for loan losses to total loans | 1.98% | 1.70% | | Coverage Ratio (ALL / Nonperforming assets) | 617% | N/A | - The company increased its general allowance for consumer loans to $6.1 million (17.4% of the consumer portfolio) due to extended duration risk in the legacy NFL post-settlement loan portfolio139 Liquidity and Capital Resources The company maintains a strong liquidity position and exceeds all regulatory capital requirements as a "well capitalized" institution - Primary sources of funds include deposit inflows and loan repayments, with cash and cash equivalents totaling $145.7 million at June 30, 2021199201 - The company had access to $116.9 million from the FHLB, $28.9 million from the Federal Reserve discount window, and $67.5 million in unsecured lines of credit, with no amounts outstanding202 | Capital Ratio (Bank) | Actual at June 30, 2021 | "Well Capitalized" Minimum | | :--- | :--- | :--- | | Total Risk-based Capital | 17.86% | 10.00% | | Tier 1 Risk-based Capital | 16.60% | 8.00% | | Tier 1 Leverage Ratio | 12.29% | 5.00% | Item 3. Quantitative and Qualitative Disclosures About Market Risk Cross-references the market risk discussion detailed within Management's Discussion and Analysis - The information required for this item is included in Item 2 of this report under the heading "Management of Market Risk"210 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period210212 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls212 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports no pending legal proceedings expected to have a material adverse effect on its financials - As of June 30, 2021, the company is not involved in any pending legal proceedings expected to have a material adverse effect on its financials215 Item 1A. Risk Factors Highlights increased credit risks associated with the legacy NFL post-settlement consumer loan portfolio - A key risk factor is the potential for increased loan losses in the NFL Concussion Settlement Program portfolio due to extended duration and other issues216 - Factors increasing risk include fraud investigations, modified rules for physicians, pandemic-related delays, and the pledge to abandon "race-norming" in claims assessment217218219 - As of June 30, 2021, the NFL consumer loan exposure was approximately $24.6 million, with 26% of this portfolio classified as special mention or substandard220222 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares during the quarter, with 265,694 shares remaining available for purchase | Period (2021) | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | April | 0 | $0 | | May | 0 | $0 | | June | 0 | $0 | | Total | 0 | $0 | - The company's share repurchase program authorizes the purchase of up to 300,000 shares, and 265,694 shares may still be purchased under the plan225