Esquire Financial Holdings, Inc. Reports Third Quarter 2019 Results

JERICHO, N.Y.Oct. 25, 2019 /PRNewswire/ — Esquire Financial Holdings, Inc. (ESQ) (the “Company”), the holding company for Esquire Bank, National Association (“Esquire Bank”), today announced its operating results for the three and nine months ended September 30, 2019.

Significant achievements during the quarter include:

  • Net income increased to $3.8 million, or $0.49 per diluted share, for the current quarter compared to net income of $3.5 million, or $0.45 per diluted share for the quarter ended June 30, 2019.
  • Returns on average assets and common equity were 2.01% and 14.58%, respectively, as compared to 1.89% and 14.04% for the trailing quarter ended June 30, 2019.
  • Supported by a strong net interest margin of 4.82%, net interest income for the third quarter increased $1.5 million, or 20%, to $8.7 million compared to the same period in 2018.
  • Total assets increased 19% annualized, or $95.8 million, to $759.7 million when compared to December 31, 2018.
  • Loans increased 19% annualized, or $65.8 million, from December 31, 2018, to $533.9 million, primarily driven by our higher yielding commercial loan portfolio.
  • Continued solid asset quality metrics with 0.20% in nonperforming loans to total loans and an allowance for loan losses to total loans of 1.26% at September 30, 2019.
  • Merchant services fees increased 153% to $3.3 million compared to the quarter ended September 30, 2018. Total fee income represented 28.4% of total revenue for the quarter.
  • Efficiency ratio improved to 54.0% for the third quarter of 2019 compared to 55.7% for the second quarter of 2019.
  • Deposits totaled $644.5 million, a $76.1 million, or 18% annualized increase from December 31, 2018 with a cost of funds of 0.44% (including demand deposits). This growth was driven by our litigation and merchant platforms.
  • Average demand deposits represent approximately 40% of our average total deposits for the three and nine months ended September 30, 2019.
  • Esquire Bank remains well above the bank regulatory “Well Capitalized” standards.

“Our lending and merchant platforms continue to grow, driving strong performance metrics despite the current interest rate environment and economic outlook,” stated Tony Coelho, Chairman of the Board. “We will continue to invest resources in both verticals.”

“We continue to experience strong growth in our litigation platform despite excess liquidity in the alternative litigation finance market,” stated Andrew C. Sagliocca, President and Chief Executive Officer.

Third Quarter Earnings

Net income for the quarter ended September 30, 2019 was $3.8 million, or $0.49 per diluted share, compared to $1.7 million, or $0.22 per diluted share for the same period in 2018. Returns on average assets and common equity for the current quarter were 2.01% and 14.58% compared to 1.07% and 7.66% for the same period of 2018. The prior year quarterly results included a one-time $859 thousand after tax compensation charge. Excluding this charge net income was $2.5 million, or $0.33 per diluted share in 2018. Returns on average assets and common equity were 1.62% and 11.57% excluding the compensation charge.

Net interest income for the third quarter of 2019 increased $1.5 million, or 20.2%, to $8.7 million, primarily due to growth in average interest earning assets totaling $113.0 million, or 18.6%, to $720.4 million when compared to the same period in 2018. Our net interest margin increased to 4.82% for the third quarter of 2019 compared to 4.75% in 2018. Average loans in the quarter increased $112.3 million, or 27.0%, to $528.3 million when compared to the third quarter of 2018. Loan growth was primarily driven by commercial loans representing organic growth funded with core deposits (total deposits excluding certificates of deposit). Core deposits represent 96.9% of total deposits at September 30, 2019 while our loan-to-deposit ratio was 82.8%.

The provision for loan losses was $425 thousand for the third quarter of 2019, a $25 thousand decrease from the comparable period in 2018. As of September 30, 2019, Esquire had nonperforming loans to total loans of 0.20%.

Noninterest income increased $1.7 million, or 93.1%, to $3.5 million for the third quarter of 2019 as compared to third quarter 2018. Our merchant services platform experienced strong growth, offset by decreased administrative service payment (“ASP”) fees on off-balance sheet funds. Merchant processing income increased $2.0 million or 152.6% compared to the third quarter of 2018. This increase was due to the expansion of our sales channels through independent sales organizations (“ISOs”), merchants and additional fee allocation arrangements as we continue to focus on prudently growing this source of stable fee income. Other noninterest income, consisting primarily of ASP fee income, declined by $309 thousand compared to the quarter ended September 30, 2018. Our ASP fee income is impacted by the volume and duration of off-balance sheet funds as well as short-term interest rates.

Noninterest expense increased $274 thousand, or 4.3%, to $6.6 million for the third quarter of 2019 as compared to the third quarter of 2018. Excluding the aforementioned one-time pretax compensation charge totaling $1.2 million, noninterest expense increased $1.4 million for the third quarter of 2019. This increase was driven by increases in employee compensation and benefits, professional and consulting services and data processing costs. Employee compensation and benefits costs increased due to an increase in the number of employees as well as the impact of year end salary increases. Professional and consulting costs increased due to our IT enterprise-wide architecture assessments and other pre-development IT costs. Data processing costs were higher due to increased processing volume primarily driven by our core banking platform as well as additional costs related to certain system implementations. The Company’s efficiency ratio continued to improve to 54.0% for the three months ended September 30, 2019 as compared to 56.8% for the same period ended 2018.

The effective tax rate for the third quarter of 2019 was approximately 27%.

Year to Date Earnings

Net income for the nine months ended September 30, 2019 was $10.3 million, or $1.32 per diluted share, compared to $5.9 million, or $0.76 per diluted share for the same period in 2018. Returns on average assets and common equity for the nine months ended September 30, 2019 were 1.90% and 13.86% compared to 1.35% and 9.19% for the same period of 2018. The prior year to date results included a one-time $859 thousand after tax compensation charge. Excluding this charge, net income was $6.7 million, or $0.87 per diluted share. Returns on average assets and common equity were 1.54% and 10.54% excluding the compensation charge.

For the nine months ended September 30, 2019, net interest income increased $5.2 million, or 26.2%, to $25.3 million, primarily due to growth in average interest earning assets totaling $121.1 million, or 21.2%, to $691.9 million when compared to the same period in 2018. Our net interest margin increased to 4.88% for the nine months ended 2019 compared to 4.69% for the same period in 2018. Average loans for the nine months ended 2019 increased $118.1 million, or 31.0%, to $499.0 million. Loan growth was primarily driven by commercial loans which represents organic growth funded with core deposits.

The provision for loan losses was $1.3 million for the nine months ended September 30, 2019$275 thousand higher than the comparable period in 2018. The higher provision is reflective of growth as well as the composition of the loan portfolio.

Noninterest income increased $2.8 million, or 47.7%, to $8.6 million for the nine months ended 2019. Our merchant services platform experienced strong growth, offset by decreased ASP fees. Merchant processing income increased $4.5 million or 126.3% compared to the nine months ended 2018. This increase was due to the expansion of our sales channels through independent sales organizations (“ISOs”), merchants and additional fee allocation arrangements. Other noninterest income, consisting primarily of ASP fee income, declined by $1.7 million or 71.9% compared to the nine months ended September 30, 2018.

Noninterest expense increased $1.7 million, or 10.1%, to $18.6 million for the nine months ended 2019 as compared to the nine months ended 2018. Excluding the aforementioned one-time pretax compensation charge totaling $1.2 million, noninterest expense increased $2.9 million for the third quarter of 2019 driven by an increase in compensation and benefits, data processing and professional and consulting services costs. Employee compensation and benefits costs increased due to an increase in the number of employees as well as the impact of year end salary increases. Data processing costs were higher due to increased processing volume primarily driven by our core banking platform as well as additional costs related to certain system implementations. Professional and consulting costs increased due to our IT enterprise-wide architecture assessments and other pre-development IT costs. The Company’s efficiency ratio continued to improve to 54.8% for the nine months ended September 30, 2019 as compared to 60.8% for the period ended 2018.

The effective tax rate for the nine months ended 2019 was approximately 27%.

Asset Quality

Nonperforming assets, consisting of several nonaccrual consumer loans, totaled $1.1 million as of September 30, 2019. Nonperforming assets as a percentage of total assets was 0.14%. There were no nonperforming assets as of September 30, 2018. The allowance for loan losses was $6.7 million, or 1.26% of total loans, as compared to $5.2 million, or 1.19% of total loans at September 30, 2018. The increase in the allowance as a percentage of loans was primarily related to loan growth in the commercial, commercial real estate and consumer loan categories.

Balance Sheet

At September 30, 2019, total assets were $759.7 million, reflecting a $114.1 million, or 17.7% increase from September 30, 2018. This increase is attributable to increases in loans totaling $96.1 million, or 21.9%, to $533.9 million, primarily driven by commercial attorney related, commercial real estate and consumer loans, funded with core low-cost deposits.

Total deposits were $644.5 million as of September 30, 2019, a $92.3 million, or 16.7% increase from September 30, 2018. This was primarily due to a $66.8 million, or 20.1% increase in Savings, NOW and Money Market deposits to $398.8 million and a $35.8 million, or 18.8% increase in noninterest bearing demand deposits to $225.7 million, offset by a decrease in time deposits of $10.3 million, or 33.9%, to $20.0 million. These increases were driven by commercial and escrow low-cost deposits from our litigation and merchant customers.

Stockholders’ equity increased $18.4 million to $106.9 million at September 30, 2019 compared to September 30, 2018. Esquire Bank remains well above bank regulatory “Well Capitalized” standards.

The Company anticipates continued earnings growth in 2019 driven by its lending pipelines as well as its merchant services fee income opportunities.

About Esquire Financial Holdings, Inc.

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

Cautionary Note Regarding Forward-Looking Statements

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

ESQUIRE FINANCIAL HOLDINGS, INC.

Condensed Consolidated Statement of Condition (unaudited)

(dollars in thousands except per share data)

September 30, 

December 31, 

September 30, 

2019

2018

2018

ASSETS

Cash and cash equivalents

$

61,676

$

30,562

$

39,840

Securities available for sale, at fair value

139,165

145,698

147,522

Securities, restricted at cost

2,665

2,583

2,403

Loans

533,949

468,101

437,883

Less: allowance for loan losses

(6,741)

(5,629)

(5,229)

Loans, net of allowance

527,208

462,472

432,654

Premises and equipment, net

2,872

2,694

2,616

Other assets

26,152

19,890

20,568

Total Assets

$

759,738

$

663,899

$

645,603

LIABILITIES AND STOCKHOLDERS’ EQUITY

Demand deposits

$

225,740

$

212,721

$

189,960

Savings, NOW and money market deposits

398,812

335,283

332,016

Certificates of deposit

19,959

20,417

30,215

Total deposits

644,511

568,421

552,191

Other liabilities

8,324

2,704

4,917

Total liabilities

652,835

571,125

557,108

Total stockholders’ equity

106,903

92,774

88,495

Total Liabilities and Stockholders’ Equity

$

759,738

$

663,899

$

645,603

Selected Financial Data 

Common shares outstanding

7,541,670

7,532,723

7,445,723

Book value per share

$

14.17

$

12.32

$

11.89

Equity to assets

14.07

%

13.97

%

13.71

%

Capital Ratios (1)

Tier 1 leverage ratio

13.11

%

13.26

%

13.40

%

Common equity tier 1 capital ratio

16.90

%

17.54

%

17.78

%

Tier 1 capital ratio

16.90

%

17.54

%

17.78

%

Total capital ratio

18.08

%

18.70

%

18.92

%

Asset Quality

Nonperforming loans  

$

1,076

$

$

Allowance for loan losses to total loans

1.26

%

1.20

%

1.19

%

Nonperforming loans to total loans

0.20

%

%

%

Nonperforming assets to total assets

0.14

%

%

%

Allowance/nonperforming loans

626.49

%

%

%

_______________

(1) Regulatory capital ratios presented on bank-only basis.

ESQUIRE FINANCIAL HOLDINGS, INC.

Condensed Consolidated Income Statement (unaudited)

(dollars in thousands except per share data)

Three months ended 

Nine months ended 

September 30, 

September 30, 

2019

2018

2019

2018

Interest income

$

9,498

$

7,620

$

27,303

$

20,754

Interest expense

751

344

2,044

741

Net interest income

8,747

7,276

25,259

20,013

Provision for loan losses

425

450

1,250

975

Net interest income after provision for loan losses

8,322

6,826

24,009

19,038

Noninterest income:

Merchant processing income

3,284

1,300

7,994

3,532

Other noninterest income

191

500

653

2,322

Total noninterest income

3,475

1,800

8,647

5,854

Noninterest expense:

Employee compensation and benefits

3,817

4,161

10,841

10,230

Other expenses

2,787

2,169

7,752

6,661

Total noninterest expense

6,604

6,330

18,593

16,891

Income before income taxes

5,193

2,296

14,063

8,001

Income taxes

1,376

614

3,793

2,140

Net income

$

3,817

$

1,682

$

10,270

$

5,861

Earnings Per Share

Basic

$

0.52

$

0.23

$

1.39

$

0.80

Diluted

$

0.49

$

0.22

$

1.32

$

0.76

Basic – adjusted (1)

$

0.52

$

0.34

$

1.39

$

0.91

Diluted – adjusted (1)

$

0.49

$

0.33

$

1.32

$

0.87

Selected Financial Data

Return on average assets

2.01

%

1.07

%

1.90

%

1.35

%

Return on average common equity

14.58

%

7.66

%

13.86

%

9.19

%

Adjusted return on average assets (1)

2.01

%

1.62

%

1.90

%

1.54

%

Adjusted return on average common equity (1)

14.58

%

11.57

%

13.86

%

10.54

%

Net interest margin

4.82

%

4.75

%

4.88

%

4.69

%

Efficiency ratio(2)

54.0

%

56.8

%

54.8

%

60.8

%

__________________

(1) Figures have been adjusted to exclude a $1.2 million one-time charge (pretax) related to the passing of the Company’s Executive Chairman in 2018. See non-GAAP reconciliation provided elsewhere herein.

(2) Efficiency ratio represents noninterest expenses divided by the sum of net interest income plus noninterest income. See non-GAAP reconciliation provided elsewhere herein addressing non-recurring charges.

ESQUIRE FINANCIAL HOLDINGS, INC.

Condensed Consolidated Average Balance Sheets and Average Yield/Cost (unaudited)

(dollars in thousands)

For the Three Months Ended September 30, 

2019

2018

Average

Average

Average

Average

Balance

Interest

Yield/Cost

Balance

Interest

Yield/Cost

INTEREST EARNING ASSETS

Loans

$

528,328

$

8,312

6.24

%

$

416,004

$

6,432

6.13

%

Securities, includes restricted stock

146,408

950

2.57

%

157,635

1,035

2.60

%

Interest earning cash

45,688

236

2.05

%

33,777

153

1.80

%

Total interest earning assets

720,424

9,498

5.23

%

607,416

7,620

4.98

%

NONINTEREST EARNING ASSETS

34,267

14,803

TOTAL AVERAGE ASSETS

$

754,691

$

622,219

INTEREST BEARING LIABILITIES

Savings, NOW, Money Markets

$

381,533

$

625

0.65

%

$

327,548

$

291

0.35

%

Time deposits

19,902

125

2.49

%

17,555

41

0.93

%

Total interest bearing deposits

401,435

750

0.74

%

345,103

332

0.38

%

Short-term borrowings

1

%

1,131

7

2.46

%

Secured borrowings

88

1

6.22

%

273

5

7.27

%

Total interest bearing liabilities

401,524

751

0.74

%

346,507

344

0.39

%

NONINTEREST BEARING LIABILITIES

Demand deposits

240,502

183,864

Other liabilities

8,785

4,708

Total noninterest bearing liabilities

249,287

188,572

Stockholders’ equity

103,880

87,140

TOTAL AVG. LIABILITIES AND EQUITY

$

754,691

$

622,219

Net interest income

$

8,747

$

7,276

Net interest spread

4.49

%

4.58

%

Net interest margin

4.82

%

4.75

%

ESQUIRE FINANCIAL HOLDINGS, INC.

Condensed Consolidated Average Balance Sheets and Average Yield/Cost (unaudited)

(dollars in thousands)

For the Nine Months Ended September 30, 

2019

2018

Average

Average

Average

Average

Balance

Interest

Yield/Cost

Balance

Interest

Yield/Cost

INTEREST EARNING ASSETS

Loans

$

498,989

$

23,524

6.30

%

$

380,918

$

17,378

6.10

%

Securities, includes restricted stock

151,557

3,073

2.71

%

149,556

2,906

2.60

%

Interest earning cash

41,326

706

2.28

%

40,249

470

1.56

%

Total interest earning assets

691,872

27,303

5.28

%

570,723

20,754

4.86

%

NONINTEREST EARNING ASSETS

30,281

11,556

TOTAL AVERAGE ASSETS

$

722,153

$

582,279

INTEREST BEARING LIABILITIES

Savings, NOW, Money Markets

$

356,812

$

1,665

0.62

%

$

281,768

$

580

0.28

%

Time deposits

20,034

375

2.50

%

27,126

140

0.69

%

Total interest bearing deposits

376,846

2,040

0.72

%

308,894

720

0.31

%

Short-term borrowings

1

%

382

6

2.10

%

Secured borrowings

88

4

6.08

%

275

15

7.29

%

Total interest bearing liabilities

376,935

2,044

0.73

%

309,551

741

0.32

%

NONINTEREST BEARING LIABILITIES

Demand deposits

238,485

184,382

Other liabilities

7,676

3,117

Total noninterest bearing liabilities

246,161

187,499

Stockholders’ equity

99,057

85,229

TOTAL AVG. LIABILITIES AND EQUITY

$

722,153

$

582,279

Net interest income

$

25,259

$

20,013

Net interest spread

4.55

%

4.54

%

Net interest margin

4.88

%

4.69

%

ESQUIRE FINANCIAL HOLDINGS, INC.

Condensed Consolidated Non-GAAP Financial Measure Reconciliation (unaudited) 

 (dollars in thousands except per share data)

Adjusted net income, which is used to compute adjusted return on average assets, adjusted return on average common equity and adjusted earnings per common share, excludes the impact of a one-time charge relating to compensation expense as a result of the passing of our Executive Chairman in 2018. 

We believe that these non-GAAP financial measures provide information that is important to investors and that is useful in understanding our financial position, results and ratios. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for this measure, this presentation may not be comparable to other similarly titled measures by other companies.

The efficiency ratio is a non-GAAP measure of expense control relative to revenue. We calculate the efficiency ratio by dividing total noninterest expenses excluding non-recurring items by the sum of total net interest income and total noninterest income, each as determined under GAAP, but excluding net gains(losses) on securities and other non-recurring income sources, if applicable, from this calculation, which we refer to as recurring revenue. We believe that this provides one reasonable measure of recurring expenses relative to recurring revenue.

Three months ended 

Nine months ended 

September 30, 

September 30, 

2019

2018

2019

2018

Net income 

$

3,817

$

1,682

$

10,270

$

5,861

Add: compensation charge

1,173

1,173

Less: tax impact

314

314

Compensation charge, net

859

859

Adjusted net income

$

3,817

$

2,541

$

10,270

$

6,720

Return on average assets-GAAP

2.01

%

1.07

%

1.90

%

1.35

%

Add: compensation charge

0.00

%

0.55

%

0.00

%

0.19

%

Adjusted return on average assets

2.01

%

1.62

%

1.90

%

1.54

%

Return on average common equity-GAAP

14.58

%

7.66

%

13.86

%

9.19

%

Add: compensation charge

0.00

%

3.91

%

0.00

%

1.35

%

Adjusted return on average common equity

14.58

%

11.57

%

13.86

%

10.54

%

Diluted earnings per share-GAAP

$

0.49

$

0.22

$

1.32

$

0.76

Add: compensation charge

0.00

0.11

0.00

0.11

Adjusted diluted earnings per share

$

0.49

$

0.33

$

1.32

$

0.87

Efficiency Ratio 

Net interest income

$

8,747

$

7,276

$

25,259

$

20,013

Noninterest income

3,475

1,800

8,647

5,854

Recurring revenue

$

12,222

$

9,076

$

33,906

$

25,867

Total noninterest expense

$

6,604

$

6,330

$

18,593

$

16,891

Less: compensation charge

1,173

1,173

Recurring noninterest expense

$

6,604

$

5,157

$

18,593

$

15,718

Efficiency ratio

54.0

%

56.8

%

54.8

%

60.8

%

SOURCE Esquire Financial Holdings, Inc.

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