# Esquire Financial Holdings, Inc.: Form 10-Q for the period ended Jun 30, 2024

- Company: [Esquire Financial Holdings, Inc.](/companies/esq.md) (CIK 1531031)
- Form: 10-Q
- Filed: 2024-08-14
- Accepted by EDGAR: Aug 14, 2024, 15:02 ET
- Period: 2024-06-30
- Accession: 0001558370-24-012203
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1531031/000155837024012203/esq-20240630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1531031/000155837024012203/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | $3.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-01-01 to 2024-06-30 | $7.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | $10.5m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | $20.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | $1.25 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | $2.45 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | $1.34 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | $2.64 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 8,402,750 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 8,402,119 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | $20.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $577.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2024-01-01 to 2024-06-30 | $2.4m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2024-06-30 | $152.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2024-06-30 | $1.72bn | us-gaap:Assets |
| Total liabilities | at 2024-06-30 | $1.50bn | us-gaap:Liabilities |
| Shareholders' equity | at 2024-06-30 | $217.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 77,208 characters.

### General

Management’s discussion and analysis of financial condition at June 30, 2024 and December 31, 2023 and results of operations for the three and six months ended June 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.

### Cautionary Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “attribute,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “goal,” “target,” “aim,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements include, but are not limited to:

- statements of our goals, intentions and expectations;
- statements regarding our business plans, prospects, growth and operating strategies;
- statements regarding the quality of our loan and investment portfolios; and
- estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this quarterly report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

- our ability to manage our operations under the current economic conditions nationally and in our market area;
- adverse changes in the financial industry, securities, credit and national local real estate markets (including real estate values);
- risks related to a high concentration of loans secured by real estate located in our market area;
- risks related to a high concentration of loans and deposits dependent upon the legal and “litigation” market;
- the impact of any potential strategic transactions;
- unexpected outflows of uninsured deposits could require us to sell investment securities at a loss;
- our ability to enter new markets successfully and capitalize on growth opportunities;
- significant increases in our credit losses, including as a result of our inability to resolve classified and nonperforming assets or reduce risks associated with our loans, and management’s assumptions in determining the adequacy of the allowance for credit losses;
- interest rate fluctuations, which could have an adverse effect on our profitability;
- external economic and/or market factors, such as changes in monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System (“FRB”), inflation or deflation, changes in the demand for loans, and fluctuations in consumer spending, borrowing and savings habits, which may have an adverse impact on our financial condition;
- continued or increasing competition from other financial institutions, credit unions, and non-bank financial services companies, many of which are subject to different regulations than we are;
- credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for credit losses and provision for credit losses;
- our success in increasing our legal and “litigation” market lending;
- our ability to attract and maintain deposits and our success in introducing new financial products;
- losses suffered by merchants or Independent Sales Organizations (“ISOs”) with whom we do business;
- our ability to effectively manage risks related to our payment processing business;
- changes in interest rates generally, including changes in the relative differences between short-term and long-term interest rates and in deposit interest rates, that may affect our net interest margin and funding sources;
- fluctuations in the demand for loans;
- technological changes that may be more difficult or expensive than expected;
- changes in consumer spending, borrowing and savings habits;
- declines in our payment processing income as a result of reduced demand, competition and changes in laws or government regulations or policies affecting financial institutions, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, regulatory fees and compliance costs;
- changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board (“FASB”), the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
- loan delinquencies and changes in the underlying cash flows of our borrowers;
- the impairment of our investment securities;
- our ability to control costs and expenses;
- the failure or security breaches of computer systems on which we depend;
- acts of war, terrorism, natural disasters, global market disruptions, including global pandemics or political instability;
- the effects of any federal government shutdown;
- competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers, including retail businesses and technology companies;
- changes in our organization and management and our ability to retain or expand our management team and our board of directors, as necessary;
- the costs and effects of legal, compliance and regulatory actions, changes and developments, including the initiation and resolution of legal proceedings, regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations and reviews;
- the ability of key third-party service providers to perform their obligations to us; and
- other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this Quarterly Report on Form 10-Q.

The foregoing factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in our Annual Report on Form 10-K for the year ended December 31, 2023, as supplemented by subsequent Quarterly Reports on Form 10-Q. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New risks and uncertainties arise from time to time, and it is not possible for us to predict those events or how they may affect us. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

### Critical Accounting Estimates

A summary of our significant accounting policies is described in Note 1 to the Consolidated Financial Statements included in our annual report. Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes that the most critical accounting policies, which involve the most complex or subjective decisions or assessments, are as follows:

***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.

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 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.

The Company employs a static pool methodology for all loan segments. In a static pool approach, statistical information about a pool of loans originated during a specified period is tracked over its life (including losses, delinquencies, and prepayments). In general, this methodology operates by calculating a rate representing the current balance expected to not be collected for each pool. This loss rate is then applied against the current portfolio loans with similar characteristics of those established in the pool.

In accordance with the CECL Standard, the Company must estimate expected credit losses over the contractual term of a loan, adjusted for expected prepayments. In estimating the life of a loan, the Company cannot extend the contractual term of a loan for expected extensions, renewals, and modifications, unless there is a borrower-held extension or renewal option that is not unconditionally cancelable. In developing the estimate of expected credit losses, the Company must reflect information about past events, current conditions, and reasonable and supportable forecasts. This information should include what is reasonably available without undue cost and effort and may include information sourced internally, externally, or a combination of both.

The estimation of expected credit losses requires the use of forward-looking information that is both reasonable and supportable, including information that relates to economic forecasts and how those forecasts are expected to impact expected future losses. The Company incorporates reasonable and supportable forecasts as qualitative adjustments applied to the historical loss rates over the reasonable and supportable forecast period. The CECL Standard does not require a specific method for developing economic forecasts, nor does it require a specific timeframe over which a reasonable and supportable forecast should be employed in the Company’s CECL model. While the Company is not precluded from utilizing economic forecasts over the entire contractual term of a loan, the Company utilizes forecasts it believes are reasonable and supportable. The Company considers its methodologies to determine reasonable and supportable forecasts and reversion techniques to be accounting estimates rather than accounting policies or principles. For periods beyond which the Company is unable to determine a reasonable and supportable forecast, it will revert to unadjusted historical loss information in accordance with the CECL Standard. Management assesses the sensitivity of key assumptions by stressing the quantitative inputs utilized in its economic forecasts. This sensitivity analysis provides management with a hypothetical result to assess the sensitivity of our allowance for credit losses to a change in a key quantitative input.

Qualitative factors are used to supplement the static pool methodology to determine total estimated expected credit losses during a given period. Because the static pool methodology estimates losses based on historical loss information, management utilizes qualitative factors to measure expected credit losses which are not sufficiently captured within the static pool model during a given period.

On a quarterly basis, management determines the extent to which qualitative factors are used to bring the allowance for credit losses to a level deemed appropriate. These adjustments to the allowance for credit losses may be positive or negative to the quantitatively modeled results from the static pool methodology. Final qualitative adjustments to the allowance for credit losses are subject to management judgment.

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 June 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.

When applying this critical accounting estimate, management’s inputs and estimates of the timing and amounts of future losses are subject to significant judgment as these projected cash flows rely upon factors that depend on current or expected future conditions. Management expects there to be differences between actual and estimated results.

Future changes to the allowance for credit losses may be necessary based on changes in economic, market, or other conditions. Changes to estimates could result in a material change in the allowance for credit losses and charges to provision for credit losses would materially decrease the Company’s net income. The Company’s loan portfolio may experience significant credit losses, which could have a material adverse effect on our operating results.

### Overview

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.

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.

The Company’s foundation for success has been our nationwide branchless litigation and payment processing verticals supported by our forward-thinking senior managers, outstanding client service teams, and inclusive corporate culture. The future of our success will be the ability to continue developing and embracing cutting-edge technology to significantly leverage these verticals, differentiating us from other technology enabled financial firms and creating the catalyst for industry leading growth and returns.

***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 1.85%-2.13% 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 U.S. Tort System”), published in November 2022, 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 17 years, extensive in-house experience, deep relationships with respected firms nationally, and unique products tailored to commercial law firms’ needs and wants.

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 June 30, 2024. 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 $1.68 of low-cost (our cost of funds for the quarter ended June 30, 2024 is 87 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 $813.6 million, or 55%, 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 $408.0 million at June 30, 2024, makes this litigation vertical a highly desirable core low-cost funding platform fueling growth in other lending areas.

***Other Commercial Banking.*** In addition to our Litigation Commercial Banking business, commercial loans are also originated to local small to mid-size businesses to provide short-term financing for inventory, receivables, the purchase of supplies, or other operating needs arising during the normal course of business and loans made to our qualified ISO payment processing customers. The balance of these loans totaled $117.9 million at June 30, 2024 and represented approximately 9.3% of our total loans.

***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 12% on a compound annual growth rate from 2019 to 2022 with payment volumes or TAM of $10.3 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 10 years, 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 83,000 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 156 million transactions in the quarter ended June 30, 2024.

***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.

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 June 30, 2024, we have produced industry leading returns including, but not limited to, a return on average assets and average equity of 2.58% and 20.16%, respectively; an industry leading net interest margin of 6.19%; a strong efficiency ratio of 49.8%; and a diversified revenue stream as demonstrated by a strong net interest margin and stable fee income representing 21% 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 62% of our loans being variable rate tied to prime, interest rate floors in place on 90% of our variable rate loan portfolio, solid credit metrics with no nonperforming assets, a stable low cost deposit base, and strong available liquidity of $823.0 million, or 55% of deposits, with no outstanding borrowings ensures that our Company is poised for future growth and success.

### Comparison of Financial Condition at June 30, 2024 and December 31, 2023

***Assets.*** Our total assets were $1.72 billion at June 30, 2024, an increase of $98.8 million, or 6.1%, from $1.62 billion at December 31, 2023, due to growth in loans held for investment of $53.6 million, or 4.4%, and securities available- for-sale of $54.7 million, or 44.8%, partially offset by a decrease in cash and cash equivalents of $12.5 million, or 7.6%, as we deployed our strong liquidity into high yielding commercial loans and agency securities.

***Loan Portfolio Analysis.*** At June 30, 2024, loans, net of deferred fees and unearned premiums, were $1.26 billion, or 84.8% 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 $48.7 million, or 6.6%, to $786.6 million at June 30, 2024 from $737.9 million at December 31, 2023, driven by our litigation related loans. Consumer loans increased $4.5 million, or 31.2%, to $19.0 million at June 30, 2024 from $14.5 million at December 31, 2023.

***Loan Portfolio Composition.*** The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated:

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Real estate: | ​ ​ ​ ​ | ​ ​ June 30, 2024 Amount ​ | ​ | ​ ​ ​ ​ Percent | ​ ​ ​ ​ ​ | ​ ​ December 31, 2023 Amount ​ | ​ | ​ ​ ​ ​ Percent |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Multifamily | ​ | $352,097 |  | 27.9% | ​ | $348,241 |  | 28.8% |
| Commercial real estate | ​ | 88,376 |  | 7.0 ​ | ​ | 89,498 |  | 7.4 ​ |
| 1 – 4 family | ​ | ​ 15,336 |  | 1.2 ​ | ​ | ​ 17,937 |  | 1.5 ​ |
| Total real estate | ​ | 455,809 |  | 36.1 ​ | ​ | 455,676 |  | 37.7 ​ |
| Commercial | ​ | 786,593 |  | 62.4 ​ | ​ | 737,914 |  | 61.1 ​ |
| Consumer | ​ | 19,010 |  | 1.5 ​ | ​ | 14,491 |  | 1.2 ​ |
| Total loans held for investment | ​ | $1,261,412 |  | 100.0% | ​ | $1,208,081 |  | 100.0% |
| Deferred loan fees and unearned premiums, net | ​ | (350) |  | ​ | ​ | (668) |  | ​ |
| Allowance for credit losses | ​ | (18,521) |  | ​ | ​ | (16,631) |  | ​ |
| Loans held for investment, net | ​ | $1,242,541 |  | ​ | ​ | $1,190,782 |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |

The following table sets forth the composition of our held for investment Litigation-Related Loan portfolio by type of loan at the dates indicated:

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Litigation-Related Loans: Commercial Litigation-Related: | ​ ​ ​ ​ ​ ​ | ​ ​ June 30, 2024 Amount ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Percent ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ December 31, 2023 Amount ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Percent ​ ​ ​ ​ |
| --- | --- | --- | --- | ---: | --- | --- | --- | ---: |
| Working capital lines of credit | ​ | $406,681 | ​ | 60.6% | ​ | $373,338 | ​ | 60.7% |
| Case cost lines of credit | ​ | ​ 168,837 | ​ | 25.1 ​ | ​ | ​ 152,165 | ​ | 24.8 ​ |
| Term loans | ​ | ​ 93,158 | ​ | 13.9 ​ | ​ | ​ 86,954 | ​ | 14.1 ​ |
| Total Commercial Litigation-Related | ​ | ​ 668,676 | ​ | 99.6 ​ | ​ | ​ 612,457 | ​ | 99.6 ​ |
| Consumer Litigation-Related: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Post-settlement consumer loans | ​ | ​ 2,647 | ​ | 0.4 ​ | ​ | ​ 2,406 | ​ | 0.4 ​ |
| Structured settlement loans | ​ | ​ 5 | ​ | — ​ | ​ | ​ 16 | ​ | — ​ |
| Total Consumer Litigation-Related | ​ | ​ 2,652 | ​ | 0.4 ​ | ​ | ​ 2,422 | ​ | 0.4 ​ |
| Total Litigation-Related Loans | ​ | $671,328 | ​ | 100.0% | ​ | $614,879 | ​ | 100.0% |

At June 30, 2024, our Litigation-Related loans, which include commercial loans to law firms and consumer lending to plaintiffs/claimants and attorneys, totaled $671.3 million, or 53.2% of our total loan portfolio, compared to $614.9 million, or 50.9% of our total loan portfolio at December 31, 2023. We remain focused on prudently growing our Litigation-Related loan portfolio. We also had Commercial Litigation-Related committed and uncommitted undrawn lines of credit totaling $85.6 million and $477.8 million, respectively, at June 30, 2024.

***Debt Securities Portfolio.*** Securities available-for-sale increased $54.7 million, or 44.8%, to $176.8 million at June 30, 2024 from $122.1 million at December 31, 2023, due to management proactively increasing the investment portfolio to approximately 15% of total assets as part of our balance sheet management strategy, 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 $65.2 million, partially offset by paydowns of $9.0 million and unrealized losses of $1.4 million. Securities held-to-maturity decreased $3.9 million, or 5.1%, to $73.1 million at June 30, 2024 from $77.0 million at December 31, 2023, driven by paydowns of $3.9 million and net premium amortization of $48 thousand.

***Funding.*** Total deposits increased $79.6 million, or 5.7%, to $1.49 billion at June 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 $1.47 billion at June 30, 2024, or 99.2% 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 85.7%, of total deposits at June 30, 2024. Savings, NOW and money market deposits increased $65.7 million, or 7.1%, to $992.0 million at June 30, 2024.

Core commercial relationship banking clients in our two national verticals represent approximately 84% of our $1.49 billion deposit base at June 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 $813.6 million, or 54.7%, of total deposits. As of June 30, 2024, uninsured deposits were $455.7 million, or 31%, of our total deposits of $1.49 billion, excluding $11.1 million of affiliate deposits held by the Bank. Approximately 80% of our uninsured deposits represent clients with full relationship banking (loans, payment processing, and other service-oriented relationships) including, but not limited to, law firm operating accounts, law firm IOLTA/escrow accounts, merchant reserves, ISO reserves, ACH processing, and custodial accounts.

Due to the nature of our larger mass tort and class action settlements related to the litigation vertical, we participate in FDIC insured sweep programs as well as treasury secured money market funds. As of June 30, 2024, off-balance sheet sweep funds totaled approximately $408.0 million, of which approximately $273.6 million, or 67.1%, 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.

At June 30, 2024, we had the ability to borrow a total of $324.8 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 $54.4 million. No borrowing amounts were outstanding as of June 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.

***Stockholders’ Equity.*** Total stockholders’ equity increased $18.9 million to $217.4 million at June 30, 2024, from $198.6 million at December 31, 2023, primarily due to net income of $20.5 million and amortization of share-based compensation of $1.9 million, partially offset by dividends declared to common stockholders of $2.5 million and other comprehensive loss of $1.0 million due to the decrease in fair value of our available-for-sale securities portfolio.

***Asset Quality.*** Nonperforming assets consisted of one multifamily loan totaling $10.9 million as of June 30, 2024 and December 31, 2023. We had no exposure to commercial office space, no construction loans, and only $15.0 million in performing loans to the hospitality industry. The allowance for credit losses was $18.5 million, or 1.47% of total loans, as of June 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 June 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 0.87% and 0.64%, respectively, as of June 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 169% as of June 30, 2024, as compared to 152% as of December 31, 2023.

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

- The multifamily portfolio, excluding one nonperforming loan, totaling $341.2 million, has a current weighted average DSCR and an original LTV (defined as unpaid principal balance as of June 30, 2024 divided by appraised value at origination) of approximately 1.66 and 54%, respectively, and the CRE portfolio, totaling $88.4 million, has a current weighted average DSCR and an original LTV of approximately 1.53 and 59%, respectively.
- Multifamily loans maturing in less than one year totaled $47.0 million and had a current weighted average DSCR and an original LTV of approximately 1.42 and 55%, respectively. CRE loans maturing in less than one year totaled $2.2 million and had a current weighted average DSCR and an original LTV of approximately 3.54 and 47%, respectively.
- Multifamily loans maturing in one to two years totaled $50.3 million and had a current weighted average DSCR and an original LTV of approximately 1.38 and 66%, respectively. CRE loans maturing in one to two years totaled $2.2 million and had a current weighted average DSCR and an original LTV of approximately 1.49 and 61%, respectively.

### Average Balance Sheets and Rate/Volume Analysis

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.

| ​ ​ ​ ​ ​ INTEREST EARNING ASSETS | ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2024 Average Balance ​ | ​ ​ | ​ ​ ​ Interest ​ | ​ ​ | ​ ​ ​ Average ​ Yield/Cost | ​ ​ 2023 Average Balance ​ | ​ ​ | ​ ​ ​ Interest ​ | ​ ​ | ​ ​ Average Yield/Cost ​ |
| --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: | --- | --- |
| Loans, held for investment | ​ | $1,240,599 | ​ | $24,216 |  | 7.85% | $993,353 | ​ | $19,137 |  | 7.73% |
| Securities, includes restricted stock | ​ | 253,328 | ​ | 2,023 |  | 3.21% | 208,211 | ​ | 1,189 |  | 2.29% |
| Securities purchased under agreements to resell | ​ | — | ​ | — |  | — ​ | 49,963 | ​ | 715 |  | 5.74% |
| Interest earning cash and other | ​ | 87,025 | ​ | 1,146 |  | 5.30% | 85,991 | ​ | 1,014 |  | 4.73% |
| Total interest earning assets | ​ | 1,580,952 | ​ | 27,385 |  | 6.97% | 1,337,518 | ​ | 22,055 |  | 6.61% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| NONINTEREST EARNING ASSETS | ​ | 50,688 | ​ |  |  | ​ | 44,004 | ​ |  |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| TOTAL AVERAGE ASSETS | ​ | $1,631,640 | ​ | ​ | ​ | ​ ​ | $1,381,522 | ​ | ​ | ​ | ​ ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| INTEREST BEARING LIABILITIES | ​ |  | ​ |  |  | ​ |  | ​ |  |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Savings, NOW, Money Market deposits | ​ | $899,419 | ​ | $2,932 |  | 1.31% | $673,154 | ​ | $1,809 |  | 1.08% |
| Time deposits | ​ | 11,702 | ​ | 130 |  | 4.47% | 16,234 | ​ | 156 |  | 3.85% |
| Total interest bearing deposits | ​ | 911,121 | ​ | 3,062 |  | 1.35% | 689,388 | ​ | 1,965 |  | 1.14% |
| Borrowings | ​ | 44 | ​ | 1 |  | 9.14% | 46 | ​ | 1 |  | 8.72% |
| Total interest bearing liabilities | ​ | 911,165 | ​ | 3,063 |  | 1.35% | ​ 689,434 | ​ | 1,966 |  | 1.14% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| NONINTEREST BEARING LIABILITIES | ​ |  | ​ |  |  | ​ |  | ​ |  |  | ​ |
| Demand deposits | ​ | 499,348 | ​ |  |  | ​ | 500,058 | ​ |  |  | ​ |
| Other liabilities | ​ | 11,894 | ​ |  |  | ​ | 18,231 | ​ |  |  | ​ |
| Total noninterest bearing liabilities | ​ | 511,242 | ​ |  |  | ​ | 518,289 | ​ |  |  | ​ |
| Stockholders' equity | ​ | 209,233 | ​ |  |  | ​ | 173,799 | ​ |  |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| TOTAL AVG. LIABILITIES AND EQUITY | ​ | $1,631,640 | ​ |  |  | ​ | $1,381,522 | ​ |  |  | ​ |
| Net interest income | ​ |  | ​ | $24,322 |  | ​ ​ |  | ​ | $20,089 |  | ​ ​ |
| Net interest spread | ​ | ​ ​ | ​ | ​ ​ | ​ | 5.62% | ​ ​ | ​ | ​ ​ | ​ | 5.47% |
| Net interest margin | ​ |  | ​ |  |  | 6.19% |  | ​ |  |  | 6.02% |
| Deposits (including noninterest bearing demand deposits) | ​ | $1,410,469 | ​ | $3,062 |  | 0.87% | $1,189,446 | ​ | $1,965 |  | 0.66% |

| ​ ​ ​ ​ ​ INTEREST EARNING ASSETS | ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2024 Average Balance ​ | ​ ​ | ​ ​ ​ Interest ​ | ​ ​ | ​ ​ ​ Average ​ Yield/Cost | ​ ​ 2023 Average Balance ​ | ​ ​ | ​ ​ ​ Interest ​ | ​ ​ | ​ ​ ​ Average Yield/Cost ​ |
| --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: | --- | --- |
| Loans, held for investment | ​ | $1,224,513 | ​ | $47,605 |  | 7.82% | $972,753 | ​ | $36,752 |  | 7.62% |
| Securities, includes restricted stock | ​ | 239,752 | ​ | 3,628 |  | 3.04% | 208,513 | ​ | 2,343 |  | 2.27% |
| Securities purchased under agreements to resell | ​ | — | ​ | — |  | — ​ | 49,686 | ​ | 1,368 |  | 5.55% |
| Interest earning cash and other | ​ | 84,382 | ​ | 2,225 |  | 5.30% | 87,094 | ​ | 1,957 |  | 4.53% |
| Total interest earning assets | ​ | 1,548,647 | ​ | 53,458 |  | 6.94% | 1,318,046 | ​ | 42,420 |  | 6.49% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| NONINTEREST EARNING ASSETS | ​ | 49,646 | ​ |  |  | ​ | 44,094 | ​ |  |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| TOTAL AVERAGE ASSETS | ​ | $1,598,293 | ​ | ​ | ​ | ​ ​ | $1,362,140 | ​ | ​ | ​ | ​ ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| INTEREST BEARING LIABILITIES | ​ |  | ​ |  |  | ​ |  | ​ |  |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Savings, NOW, Money Market deposits | ​ | $879,789 | ​ | $6,030 |  | 1.38% | $660,737 | ​ | $2,821 |  | 0.86% |
| Time deposits | ​ | 11,372 | ​ | 241 |  | 4.26% | 12,848 | ​ | 219 |  | 3.44% |
| Total interest bearing deposits | ​ | 891,161 | ​ | 6,271 |  | 1.42% | 673,585 | ​ | 3,040 |  | 0.91% |
| Borrowings | ​ | 45 | ​ | 2 |  | 8.94% | 46 | ​ | 2 |  | 8.77% |
| Total interest bearing liabilities | ​ | 891,206 | ​ | 6,273 |  | 1.42% | ​ 673,631 | ​ | 3,042 |  | 0.91% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| NONINTEREST BEARING LIABILITIES | ​ |  | ​ |  |  | ​ |  | ​ |  |  | ​ |
| Demand deposits | ​ | 488,184 | ​ |  |  | ​ | 502,399 | ​ |  |  | ​ |
| Other liabilities | ​ | 13,840 | ​ |  |  | ​ | 18,065 | ​ |  |  | ​ |
| Total noninterest bearing liabilities | ​ | 502,024 | ​ |  |  | ​ | 520,464 | ​ |  |  | ​ |
| Stockholders' equity | ​ | 205,063 | ​ |  |  | ​ | 168,045 | ​ |  |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| TOTAL AVG. LIABILITIES AND EQUITY | ​ | $1,598,293 | ​ |  |  | ​ | $1,362,140 | ​ |  |  | ​ |
| Net interest income | ​ |  | ​ | $47,185 |  | ​ ​ |  | ​ | $39,378 |  | ​ ​ |
| Net interest spread | ​ | ​ ​ | ​ | ​ ​ | ​ | 5.52% | ​ ​ | ​ | ​ ​ | ​ | 5.58% |
| Net interest margin | ​ |  | ​ |  |  | 6.13% |  | ​ |  |  | 6.02% |
| Deposits (including noninterest bearing demand deposits) | ​ | $1,379,345 | ​ | $6,271 |  | 0.91% | $1,175,984 | ​ | $3,040 |  | 0.52% |

33

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest earning assets and interest bearing liabilities for the periods indicated. The table distinguishes between: (1) changes attributable to volume (changes in volume multiplied by the prior period’s rate); (2) changes attributable to rate (change in rate multiplied by the prior year’s volume); and (3) total increase (decrease) (the sum of the previous columns). Changes attributable to both volume and rate are allocated ratably between the volume and rate categories.

*(In thousands)*

| ​ ​ ​ ​ ​ ​ ​ ​ Interest earned on: | ​ ​ ​ ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2024 vs. 2023 Increase (Decrease) due to Volume ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ Rate ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Total ​ Increase ​ ​ ​ | ​ ​ | ​ ​ Six Months Ended June 30, 2024 vs. 2023 Increase (Decrease) due to Volume ​ ​ | ​ Rate ​ | ​ ​ ​ ​ ​ ​ | ​ ​ Total Increase ​ | ​ ​ ​ ​ |
| --- | --- | ---: | --- | --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Loans held for investment | ​ | $4,904 | ​ | ​ | ​ | $175 | ​ | $5,079 | ​ | $10,121 | ​ | $732 | ​ | $10,853 |
| Securities, includes restricted stock | ​ | 286 | ​ | ​ | ​ | 548 | ​ | 834 | ​ | 391 | ​ | 894 | ​ | 1,285 |
| Securities purchased under agreements to resell | ​ | (715) | ​ | ​ | ​ | — | ​ | (715) | ​ | (1,368) | ​ | — | ​ | (1,368) |
| Interest earning cash and other | ​ | 10 | ​ | ​ | ​ | 122 | ​ | 132 | ​ | (62) | ​ | 330 | ​ | 268 |
| Total interest income | ​ | 4,485 | ​ | ​ | ​ | 845 | ​ | 5,330 | ​ | 9,082 | ​ | 1,956 | ​ | 11,038 |
| ​ | ​ | ​ ​ | ​ | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Interest paid on:** | ​ |  | ​ | ​ | ​ | ​ | ​ | ​ ​ | ​ |  | ​ |  | ​ |  |
| Savings, NOW, money market deposits | ​ | 375 | ​ | ​ | ​ | 748 | ​ | 1,123 | ​ | 1,082 | ​ | 2,127 | ​ | 3,209 |
| Time deposits | ​ | (39) | ​ | ​ | ​ | 13 | ​ | (26) | ​ | (27) | ​ | 49 | ​ | 22 |
| Total deposits | ​ | 336 | ​ | ​ | ​ | 761 | ​ | 1,097 | ​ | 1,055 | ​ | 2,176 | ​ | 3,231 |
| Borrowings | ​ | — | ​ | ​ | ​ | — | ​ | — | ​ | — | ​ | — | ​ | — |
| Total interest expense | ​ | 336 | ​ | ​ | ​ | 761 | ​ | 1,097 | ​ | 1,055 | ​ | 2,176 | ​ | 3,231 |
| Change in net interest income | ​ | $4,149 | ​ | ​ | ​ | $84 | ​ | $4,233 | ​ | $8,027 | ​ | $(220) | ​ | $7,807 |

### Comparison of Operating Results for the Three Months Ended June 30, 2024 and 2023

***General.*** Net income increased $1.4 million, or 15.1%, to $10.5 million for the three months ended June 30, 2024 from $9.1 million for the three months ended June 30, 2023. The increase resulted from a $4.2 million increase in net interest income, partially offset by an increase of $2.3 million in noninterest expense and a decrease of $420 thousand in noninterest income.

***Net Interest Income.*** Net interest income increased $4.2 million, or 21.1%, to $24.3 million for the three months ended June 30, 2024 from $20.1 million for the three months ended June 30, 2023, due to a $5.3 million increase in interest income, partially offset by a $1.1 million increase in interest expense.

Our net interest margin increased 17 basis points, which was positively impacted by growth in higher yielding variable rate commercial loans and low-cost litigation-based deposits, to 6.19% for the three months ended June 30, 2024 from 6.02% for the three months ended June 30, 2023.

***Interest Income.*** Interest income increased $5.3 million, or 24.2%, to $27.4 million for the three months ended June 30, 2024 from $22.1 million for the three months ended June 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.

Loan interest income increased $5.1 million, or 26.5%, to $24.2 million for the three months ended June 30, 2024 from $19.1 million for the three months ended June 30, 2023. This increase was attributable to a $247.2 million, or 24.9%, increase in the average loan balance primarily due to growth in our national commercial lending platform and, to a lesser extent, our regional multifamily loan portfolio during 2023, and a 12 basis point increase in loan yields to 7.85%. Our commercial loan platform drove a $4.3 million increase in interest income, of which, $4.4 million was due to increased volume, offset slightly by a $199 thousand decrease due to yields decreasing 3 basis points. Commercial loans had an approximate portfolio yield of 10.00%. Additionally, our multifamily platform contributed $1.0 million to the increase in interest income, of which, $678 thousand was due to increased volume and $354 thousand was due to a 47 basis point increase in yields, driving an approximate portfolio yield of 4.26%.

Securities interest income increased $834 thousand, or 70.1%, to $2.0 million for the three months ended June 30, 2024 from $1.2 million for the three months ended June 30, 2023. This increase was primarily attributable to management proactively increasing the investment portfolio as part of our balance sheet management strategy, at current peak interest rates, to approximately 15% of total assets, while simultaneously moderating multifamily and CRE growth due to the current economic and interest rate environment. Average securities increased $45.1 million, or 21.7%, and yields increased 92 basis points to 3.21%.

Interest earning cash interest income increased $132 thousand to $1.1 million for the three months ended June 30, 2024 from $1.0 million for the three months ended June 30, 2023, attributable to a 57 basis point increase in yields which was positively impacted by increases in short-term interest rates, and a $1.0 million, or 1.2%, increase in the average balance of interest earning cash.

Securities purchased under agreements to resell interest income decreased $715 thousand as management elected to close out its reverse repurchase agreements and reinvest funds into higher yielding commercial loans.

***Interest Expense.*** Interest expense increased $1.1 million, or 55.8%, to $3.1 million for the three months ended June 30, 2024 from $2.0 million for the three months ended June 30, 2023, primarily attributable to increases in average rate (primarily IOLTA) comprising $756 thousand and an increase of $340 thousand (primarily IOLTA) attributable to average deposit balances. Average interest bearing deposit balances (primarily IOLTA) increased $221.7 million, or 32.2%, when compared to June 30, 2023. Our deposit cost-of-funds, excluding demand deposits, increased 21 basis points for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, due to increases in short-term interest rates as well as management pro-actively increasing rates on IOLTA accounts in the various states we operate.

***Provision for Credit Losses.*** Our provision for credit losses was $1.0 million for the three months ended June 30, 2024, a decrease of $325 thousand from the $1.3 million provision for the three months ended June 30, 2023. As of June 30, 2024, our allowance to loans ratio was 1.47% as compared to 1.34% as of June 30, 2023. The increase in the allowance as a percentage of loans was general reserve driven considering loan growth and qualitative factors associated with the current short-term interest rate environment as well as the current uncertain economic environment including, but not limited to, its potential impact on the New York Metro multifamily and commercial real estate market.

***Noninterest Income.*** Noninterest income information is as follows:

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Payment processing fees: | ​ ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Change Amount ​ ​ | ​ ​ | ​ ​ ​ ​ Percent ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Payment processing income | ​ | $5,140 | ​ | $5,550 | ​ | $(410) | ​ | (7.4)% |
| ACH income | ​ | ​ 182 | ​ | ​ 214 | ​ | ​ (32) | ​ | (15.0) ​ |
| Total payment processing fees | ​ | ​ 5,322 | ​ | ​ 5,764 | ​ | ​ (442) | ​ | (7.7) ​ |
| Customer related fees, service charges and other: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Administrative service income | ​ | ​ 620 | ​ | ​ 739 | ​ | ​ (119) | ​ | (16.1) ​ |
| Other | ​ | ​ 333 | ​ | ​ 192 | ​ | ​ 141 | ​ | 73.4 ​ |
| Total customer related fees, service charges and other | ​ | ​ 953 | ​ | ​ 931 | ​ | ​ 22 | ​ | 2.4 ​ |
| Total noninterest income | ​ | $6,275 | ​ | $6,695 | ​ | $(420) | ​ | (6.3)% |

Payment processing volumes for the credit and debit card processing platform increased $810 million, or 9.6%, to $9.3 billion and transactions decreased 1.2 million, or 0.8%, to 155.6 million, for the quarter ended June 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 increasing the number of merchants, growing volumes, and expanding our technology and other resources in the payments vertical. Administrative service income decreased $119 thousand, or 16.1%, to $620 thousand for the second quarter of 2024. Off-balance sheet sweep funds totaled $408.0 million at June 30, 2024, demonstrating the continued strength of our branchless core business model. Other income increased $141 thousand, or 73.4%, to $333 thousand due to increases in client loan related fees. During the second quarter of 2024, the Company received cash consideration resulting in a realized gain on its Litify investment of approximately $500 thousand, offset by an equity method loss of approximately $500 thousand recognized on its investment in a third party sponsored NFL consumer post settlement loan fund.

***Noninterest Expense.*** Noninterest expense information is as follows:

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Noninterest expense: | ​ ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Change Amount ​ ​ | ​ ​ | ​ ​ ​ ​ Percent ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Employee compensation and benefits | ​ | $9,525 | ​ | $7,803 | ​ | $1,722 | ​ | 22.1% |
| Occupancy and equipment | ​ | ​ 1,156 | ​ | ​ 835 | ​ | ​ 321 | ​ | 38.4 ​ |
| Professional and consulting services | ​ | ​ 857 | ​ | ​ 1,615 | ​ | ​ (758) | ​ | (46.9) ​ |
| FDIC and regulatory assessments | ​ | ​ 233 | ​ | ​ 182 | ​ | ​ 51 | ​ | 28.0 ​ |
| Advertising and marketing | ​ | ​ 881 | ​ | ​ 320 | ​ | ​ 561 | ​ | 175.3 ​ |
| Travel and business relations | ​ | ​ 180 | ​ | ​ 246 | ​ | ​ (66) | ​ | (26.8) ​ |
| Data processing | ​ | ​ 1,722 | ​ | ​ 1,249 | ​ | ​ 473 | ​ | 37.9 ​ |
| Other operating expenses | ​ | ​ 678 | ​ | ​ 726 | ​ | ​ (48) | ​ | (6.6) ​ |
| Total noninterest expense | ​ | $15,232 | ​ | $12,976 | ​ | $2,256 | ​ | 17.4% |

Employee compensation and benefits costs increased due to increases in employees to support growth and excellence in client service as well as the impact of year end salary, bonus and stock-based compensation increases. Our overall staffing levels increased by eight employees, or 6%, year-over-year to 141 full-time equivalents as we expanded our sales, lending, and risk management areas. Advertising and marketing costs increased as we continued to grow our digital marketing platform, expand our thought leadership in our national verticals, and support our regional Business

Development Officers (“BDOs”) recently hired in 2023. Data processing costs increased due to increased processing volume, primarily driven by our core banking platform, and additional costs related to our technology implementations. Occupancy and equipment costs increased due to amortization of our investments in internally developed software to support our digital platform and additional office space to support our growth. Professional services costs decreased due to the costs in 2023 associated with our executive search firm. Our investments in current resources (people, technology, and digital marketing) will continue to support our long-term growth goals.

***Income Tax Expense.*** We recorded an income tax expense of $3.9 million for the three months ended June 30, 2024, reflecting an effective tax rate of 27.0%, compared to $3.4 million, or 27.0%, for the three months ended June 30, 2023.

### Comparison of Operating Results for the Six Months Ended June 30, 2024 and 2023

***General.*** Net income decreased $747 thousand, or 3.5%, to $20.5 million for the six months ended June 30, 2024 from $21.3 million for the six months ended June 30, 2023. The decrease resulted from a $4.3 million decrease in noninterest income, which was primarily attributable to a $4.0 million nonrecurring gain on our equity investment in a litigation fintech company in the first quarter of 2023, and an increase of $4.3 million in noninterest expense, partially offset by an increase in net interest income of $7.8 million.

***Net Interest Income.*** Net interest income increased $7.8 million, or 19.8%, to $47.2 million for the six months ended June 30, 2024 from $39.4 million for the six months ended June 30, 2023, due to an $11.0 million increase in interest income, partially offset by a $3.2 million increase in interest expense.

Our net interest margin increased 11 basis points, which was positively impacted by growth in higher yielding variable rate commercial loans and low-cost litigation-based deposits, to 6.13% for the six months ended June 30, 2024 from 6.02% for the six months ended June 30, 2023.

***Interest Income.*** Interest income increased $11.0 million, or 26.0%, to $53.5 million for the six months ended June 30, 2024 from $42.4 million for the six months ended June 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.

Loan interest income increased $10.9 million, or 29.5%, to $47.6 million for the six months ended June 30, 2024 from $36.8 million for the six months ended June 30, 2023. This increase was attributable to a $251.8 million, or 25.9%, increase in the average loan balance primarily due to growth in our national commercial lending platform and, to a lesser extent, our regional multifamily loan portfolio during 2023, and a 20 basis point increase in loan yields to 7.82%. Our commercial loan platform drove a $9.2 million increase in interest income, of which, $9.1 million was due to increased volume and $149 thousand was due to increases in yields, driving an approximate portfolio yield of 10.00%. Additionally, our multifamily platform contributed $2.2 million to the increase in interest income, of which, $1.5 million was due to increased volume and $746 thousand was due to increases in yields, driving an approximate portfolio yield of 4.24%. Approximately 62% of our loan portfolio is comprised of variable rate commercial loans tied to prime that were positively impacted by increases in short-term interest rates.

Securities interest income increased $1.3 million, or 54.8%, to $3.6 million for the six months ended June 30, 2024 from $2.3 million for the six months ended June 30, 2023. This increase was primarily attributable to management proactively increasing the investment portfolio as part of our balance sheet management strategy, at current peak interest rates, to approximately 15% of total assets, while simultaneously moderating multifamily and CRE growth due to the current economic and interest rate environment. Average securities increased $31.2 million, or 15.0%, and yields increased 77 basis points to 3.04%.

Interest earning cash interest income increased $268 thousand to $2.2 million for the six months ended June 30, 2024 from $2.0 million for the six months ended June 30, 2023, attributable to a 77 basis point increase in yields which was positively impacted by increases in short-term interest rates, partially offset by a $2.7 million, or 3.1%, decrease in the average balance of interest earning cash.

Securities purchased under agreements to resell interest income decreased $1.4 million as management elected to close out its reverse repurchase agreements and reinvest funds into higher yielding commercial loans.

***Interest Expense.*** Interest expense increased $3.2 million, or 106.2%, to $6.3 million for the six months ended June 30, 2024 from $3.0 million for the six months ended June 30, 2023, primarily attributable to increases in average rate (primarily IOLTA and to a lesser extent money market deposits) comprising $2.2 million of the increase and the remaining increase of $1.1 million (primarily IOLTA and to a lesser extent money market deposits) attributable to average deposit balances. Average interest bearing deposit balances (primarily IOLTA) increased $217.6 million, or 32.3%, when compared to June 30, 2023. Our deposit cost-of-funds, excluding demand deposits, increased 51 basis points for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, due to increases in short-term interest rates as well as management pro-actively increasing rates on IOLTA accounts in the various states we operate.

***Provision for Credit Losses.*** Our provision for credit losses was $2.0 million for the six months ended June 30, 2024, an increase of $175 thousand from the $1.8 million provision for the six months ended June 30, 2023. As of June 30, 2024, our allowance to loans ratio was 1.47% as compared to 1.34% as of June 30, 2023. The increase in the allowance as a percentage of loans was general reserve driven considering loan growth and qualitative factors associated with the current short-term interest rate environment as well as the current uncertain economic environment including, but not limited to, its potential impact on the New York Metro multifamily and commercial real estate market.

***Noninterest Income.*** Noninterest income information is as follows:

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Payment processing fees: | ​ ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Change Amount ​ ​ | ​ ​ | ​ ​ ​ ​ Percent ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Payment processing income | ​ | $10,240 | ​ | $10,850 | ​ | $(610) | ​ | (5.6)% |
| ACH income | ​ | ​ 378 | ​ | ​ 427 | ​ | ​ (49) | ​ | (11.5) ​ |
| Total payment processing fees | ​ | ​ 10,618 | ​ | ​ 11,277 | ​ | ​ (659) | ​ | (5.8) ​ |
| Customer related fees, service charges and other: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Administrative service income | ​ | ​ 1,366 | ​ | ​ 1,268 | ​ | ​ 98 | ​ | 7.7 ​ |
| Net gain on equity investments | ​ | ​ — | ​ | ​ 4,027 | ​ | ​ (4,027) | ​ | (100.0) ​ |
| Other | ​ | ​ 680 | ​ | ​ 385 | ​ | ​ 295 | ​ | 76.6 ​ |
| Total customer related fees, service charges and other | ​ | ​ 2,046 | ​ | ​ 5,680 | ​ | ​ (3,634) | ​ | (64.0) ​ |
| Total noninterest income | ​ | $12,664 | ​ | $16,957 | ​ | $(4,293) | ​ | (25.3)% |

Payment processing volumes and transactions for the credit and debit card processing platform increased $1.7 billion, or 10.8%, to $17.9 billion and 6.4 million, or 2.1%, to 306.1 million transactions, respectively, for the six months ended June 30, 2024, as compared to the same period in 2023. These increases were due to the expansion of sales channels through ISOs, an increased number of merchants, volume increases, and were facilitated by our focus on technology and other resources in the payments vertical. Administrative service income increased $98 thousand, or 7.7%, to $1.4 million for the six months ended June 30, 2024. Off-balance sheet sweep funds totaled $408.0 million at June 30, 2024, demonstrating the continued strength of our branchless core business model. Other income increased $295 thousand, or 76.6%, to $680 thousand primarily due to increases in client loan related fees. Net gain on equity investments decreased $4.0 million due to a nonrecurring gain on our Litify fintech investment in the first quarter of 2023. In February 2023, Litify, Inc. (“Litify”) was reorganized into a partnership and an unrelated third party acquired a majority ownership in the reorganized entity. As an equity holder and party to the reorganization and sale transaction, a majority of the Company’s partnership interests were exchanged for cash and undiscounted noncash consideration of approximately $5.4 million. As a result, the Company recognized a gain on its investment of $4.0 million in the first quarter of 2023. During the second quarter of 2024, the Company received cash consideration resulting in a realized gain on its Litify investment of approximately $500 thousand, offset by an equity method loss of approximately $500 thousand recognized on its investment in a third party sponsored NFL consumer post settlement loan fund.

***Noninterest Expense.*** Noninterest expense information is as follows:

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Noninterest expense: | ​ ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Change Amount ​ ​ | ​ ​ | ​ ​ ​ ​ Percent ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Employee compensation and benefits | ​ | $18,686 | ​ | $15,287 | ​ | $3,399 | ​ | 22.2% |
| Occupancy and equipment | ​ | ​ 2,083 | ​ | ​ 1,664 | ​ | ​ 419 | ​ | 25.2 ​ |
| Professional and consulting services | ​ | ​ 1,808 | ​ | ​ 3,158 | ​ | ​ (1,350) | ​ | (42.7) ​ |
| FDIC and regulatory assessments | ​ | ​ 455 | ​ | ​ 326 | ​ | ​ 129 | ​ | 39.6 ​ |
| Advertising and marketing | ​ | ​ 1,753 | ​ | ​ 749 | ​ | ​ 1,004 | ​ | 134.0 ​ |
| Travel and business relations | ​ | ​ 458 | ​ | ​ 394 | ​ | ​ 64 | ​ | 16.2 ​ |
| Data processing | ​ | ​ 3,233 | ​ | ​ 2,382 | ​ | ​ 851 | ​ | 35.7 ​ |
| Other operating expenses | ​ | ​ 1,324 | ​ | ​ 1,497 | ​ | ​ (173) | ​ | (11.6) ​ |
| Total noninterest expense | ​ | $29,800 | ​ | $25,457 | ​ | $4,343 | ​ | 17.1% |

Employee compensation and benefits costs increased due to increases in employees to support growth and excellence in client service as well as the impact of year end salary, bonus and stock-based compensation increases. In 2024, we experienced the full year impact of our 2023 key hires including, but not limited to, our regional senior BDOs, sales support, lending/lending support, and risk management staffing initiatives. Advertising and marketing costs increased as we continued to grow our digital marketing platform, expand our thought leadership in our national verticals, and support our regional BDOs. Data processing costs increased due to increased processing volume, primarily driven by our core banking platform, and additional costs related to our technology implementations. Occupancy and equipment costs increased due to amortization of our investments in internally developed software to support our digital platform and additional office space to support our growth. Professional services costs decreased due to the hiring costs associated with our executive search firm in 2023. Our investment in current resources (people, technology, and digital marketing) will continue to support our long-term growth goals.

***Income Tax Expense.*** We recorded an income tax expense of $7.5 million for the six months ended June 30, 2024, reflecting an effective tax rate of 26.75%, compared to $7.8 million, or 26.71%, for the six months ended June 30, 2023.

### Management of Market Risk

***General.*** The principal objective of our asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The board of directors of our bank has oversight of our asset and liability management function, which is managed by our Asset/Liability Management Committee. Our Asset/Liability Management Committee meets regularly to review, among other things, the sensitivity of our assets and liabilities to market interest rate changes, local and national market conditions and market interest rates. That group also reviews our liquidity, capital, deposit mix, loan mix and investment positions.

As a financial institution, our primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the fair value of all interest earning assets and interest bearing liabilities, other than those which have a short-term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

We manage our exposure to interest rates primarily by structuring our balance sheet in the ordinary course of business. We do not typically enter into derivative contracts for the purpose of managing interest rate risk, but we may do so in the future. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.

***Net Interest Income Simulation.*** We use an interest rate risk simulation model to test the interest rate sensitivity of net interest income and the balance sheet. Instantaneous parallel rate shift scenarios are modeled and utilized to evaluate risk and establish exposure limits for acceptable changes in net interest margin. These scenarios, known as rate shocks, simulate an instantaneous change in interest rates and use various assumptions, including, but not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows.

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.

*(Dollars in thousands)*

| ​ ​ ​ ​ Changes in Interest Rates (Basis Points) ​ | ​ ​ ​ ​ ​ ​ ​ | ​ ​ June 30, 2024 Estimated 12-Months Net Interest Income | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ Change |
| ---: | --- | --- | --- | --- |
| 300 | ​ | $127,923 | ​ | $17,503 |
| 200 | ​ | ​ 122,172 | ​ | ​ 11,752 |
| 100 | ​ | ​ 116,380 | ​ | ​ 5,960 |
| 0 | ​ | ​ 110,420 | ​ | ​ — |
| -100 | ​ | ​ 105,190 | ​ | ​ (5,230) |
| -200 | ​ | ​ 99,543 | ​ | ​ (10,877) |
| -300 | ​ | ​ 93,546 | ​ | ​ (16,874) |

***Economic Value of Equity Simulation.*** We also analyze our sensitivity to changes in interest rates through an economic value of equity (“EVE”) model. EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet contracts. EVE attempts to quantify our economic value using a discounted cash flow methodology. We estimate what our EVE would be as of a specific date. We then calculate what EVE would be as of the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve.

The following table presents the estimated changes in EVE of Esquire Bank, National Association, calculated on a bank-only basis that would result from changes in market interest rates at June 30, 2024.

*(Dollars in thousands)*

| ​ ​ ​ Changes in Interest Rates (Basis Points) ​ | ​ ​ ​ ​ ​ ​ | ​ ​ June 30, 2024 Economic Value of Equity | ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ Change |
| ---: | --- | --- | --- | --- |
| 300 | ​ | $398,435 | ​ | $42,031 |
| 200 | ​ | ​ 387,066 | ​ | ​ 30,662 |
| 100 | ​ | ​ 373,491 | ​ | ​ 17,087 |
| 0 | ​ | ​ 356,404 | ​ | ​ — |
| -100 | ​ | ​ 335,342 | ​ | ​ (21,062) |
| -200 | ​ | ​ 309,554 | ​ | ​ (46,850) |
| -300 | ​ | ​ 278,525 | ​ | ​ (77,879) |

Many assumptions are used to calculate the impact of interest rate fluctuations. Actual results may be significantly different than our projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. The computations of interest rate risk shown above do not include actions that our management may undertake to manage the risks in response to anticipated changes in interest rates, and actual results may also differ due to any actions taken in response to the changing rates.

### Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

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.

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 June 30, 2024, cash and cash equivalents totaled $152.7 million.

At June 30, 2024, through pledging of our securities and certain loans, we had the ability to borrow up to $324.8 million from the FHLB of New York and $54.4 million from the FRB of New York discount window. At June 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 June 30, 2024. Subsequent to June 30, 2024, through the pledging of additional loans, we increased our FHLB borrowing capacity $59.2 million to $384.0 million.

At June 30, 2024, our off-balance sheet sweeps funds totaled $408.0 million, of which $273.6 million, or 67.1%, was able to be swept onto our balance sheet as reciprocal client relationship deposits.

Our overall liquidity position (cash, borrowing capacity, and available reciprocal client sweep balances) totaled $823.0 million at June 30, 2024, or 55% of total deposits, creating a highly liquid and unlevered balance sheet.

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.

Esquire Bank is subject to various regulatory capital requirements administered by the Office of the Comptroller of the Currency (the “OCC”), and the Federal Deposit Insurance Corporation. At June 30, 2024, Esquire Bank exceeded all applicable regulatory capital requirements, and was considered “well capitalized” under regulatory guidelines.

We manage our capital to comply with our internal planning targets and regulatory capital standards administered by the OCC and review capital levels on a monthly basis.

The following table presents our capital ratios as of the indicated dates for Esquire Bank.

| ​ ​ ​ ​ ​ Total Risk-based Capital Ratio | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ “Well Capitalized” ​ | ​ ​ For Capital Adequacy Purposes ​ Minimum Capital with ​ Conservation Buffer ​ | ​ ​ ​ ​ Actual At June 30, 2024 ​ |
| --- | --- | ---: | ---: | --- |
| Bank |  | 10.00% | 10.50% | 16.14% |
| ​ | ​ | ​ ​ | ​ ​ | ​ ​ |
| **Tier 1 Risk-based Capital Ratio** |  |  |  | ​ |
| Bank |  | 8.00% | 8.50% | 14.89% |
| ​ | ​ | ​ ​ | ​ ​ | ​ ​ |
| **Common Equity Tier 1 Capital Ratio** |  |  |  | ​ |
| Bank |  | 6.50% | 7.00% | 14.89% |
| ​ | ​ | ​ ​ | ​ ​ | ​ ​ |
| **Tier 1 Leverage Ratio** |  |  |  | ​ |
| Bank |  | 5.00% | 4.00% | 12.53% |

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.

***Effects of Inflation.*** The impact of inflation, as it affects banks, differs substantially from the impact on non-financial institutions. Banks have assets which are primarily monetary in nature and which tend to move with inflation. This is especially true for banks with a high percentage of rate sensitive interest-earning assets and interest-bearing liabilities. A bank can further reduce the impact of inflation with proper management of its rate sensitivity gap. This gap represents the difference between interest rate sensitive assets and interest rate sensitive liabilities. The Company attempts to structure its assets and liabilities and manages its gap to protect against substantial changes in interest rate scenarios, in order to minimize the potential effects of inflation.

## Controls and procedures

As filed, 884 characters.

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Principal Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2024. Based on that evaluation, the Company’s management, including the Principal Executive Officer and the Principal Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

During the quarter ended June 30, 2024, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 150 characters.

There have been no material changes to our risk factors as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Filed Aug 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-012203. Last ingested by Listed: Nov 2, 2026, 16:52 ET. No prices; not investment advice.