Q3 2024 Update on Esquire Bank
This post is an update on Esquire Bank’s Q3 2024.
Esquire Bank is a community bank headquartered in Jericho, New York with $1.4 billion in deposits that focuses on lending to the legal industry.
Part one of my original writeup can be found here: https://possiblevalue.substack.com/p/esquire-bank-nasdaq-esq-part-1
Part two of my original writeup can be found here: https://possiblevalue.substack.com/p/esquire-bank-nasdaq-esq-part-2
Esquire issued an earnings release for Q3 2024 along with a corresponding investor presentation. Links to both filings can be found here:
Business Update
All the financial information below was taken from the earnings release and investor presentation linked above.
Net income – Net income for the quarter ended September 30, 2024 was $11.4 million, or $1.34 per diluted share, compared to $9.8 million, or $1.17 per diluted share for the same period in 2023.
Net income for the nine months ended September 30, 2024 was $31.9 million, or $3.78 per diluted share, compared to $31.1 million, or $3.74 per diluted share for the same period in 2023.
ROE and ROAA – Returns on average assets and equity for the current quarter were 2.62% and 20.29%, respectively, compared to 2.71% and 21.44% for the same period of 2023.
Returns on average assets and equity for the nine months ended September 30, 2024 were 2.60% and 20.20%, respectively, compared to 3.00% and 24.09% for the same period of 2023.
Net interest income – Net interest income for the third quarter of 2024 increased $4.1 million, or 19.0%, to $25.9 million, due to growth in average interest earning assets (funded with low-cost core deposits) totaling $278.1 million, or 20.0%, to $1.67 billion. Our net interest margin remained strong at 6.16%, decreasing only 3 basis points when compared to the same period in 2023.
Net interest income for the nine months ended September 30, 2024 increased $11.9 million, or 19.5%, to $73.0 million, due to growth in average interest earning assets totaling $246.4 million, or 18.3%, to $1.59 billion as well as a 6 basis point increase in our net interest margin to 6.14% when compared to the same period in 2023.
Provision for loan losses – The provision for credit losses was $1.0 million for the third quarter of 2024, a $200 thousand decrease from the third quarter 2023 provision. As of September 30, 2024, our allowance to loans ratio was 1.50% as compared to 1.38% as of September 30, 2023. The short-term interest rate environment and the uncertain economic environment that could potentially impact New York City metro multifamily and commercial real estate were the reasons given for the increase in the allowance as percentage of loans.
The provision for credit losses was $3.0 million for the nine months ended September 30, 2024, a $25 thousand decrease from the same period in 2023. As of September 30, 2024, our allowance to loans ratio was 1.50% as compared to 1.38% as of September 30, 2023. The increase in the provision as percentage of loans was due to the same two factors above.
Non-interest income – Noninterest income totaled $6.1 million for the third quarter of 2024 as compared to $6.5 million in the same period for 2023. Payment processing income was $5.2 million for the third quarter of 2024, a $452 thousand decrease from the same period in 2023, primarily due to anticipated ISO and merchant attrition and changes in the volumes of our overall merchant risk profile. Payment processing volumes for the credit and debit card processing platform increased $839 million, or 10.0%, to $9.2 billion and transactions decreased 5.4 million, or 3.4%, to 152.0 million, for the current quarter, as compared to the same period in 2023.
Noninterest income totaled $18.7 million for the nine months ended September 30, 2024 as compared to $23.5 million in the same period for 2023. Excluding the $4.0 million gain on our Litify investment in the first quarter 2023, adjusted noninterest income was $19.5 million. In 2024, payment processing income was $15.8 million, a $1.1 million decrease when compared to 2023, primarily due to anticipated ISO attrition and changes in our overall merchant risk profile. Payment processing volumes and transactions for the credit and debit card processing platform increased $2.6 billion, or 10.6%, to $27.1 billion and 1.0 million, or 0.2%, to 458.1 million transactions, respectively, for the nine months ended September 30, 2024, as compared to the same period in 2023.
Noninterest expense – Noninterest expense increased $1.6 million, or 11.6%, to $15.4 million for the third quarter of 2024, as compared to the same period in 2023. This increase was primarily due to increases in employee compensation and benefits, advertising and marketing, data processing, and occupancy and equipment, partially offset by decreases in professional services costs.
Noninterest expense increased $5.9 million, or 15.2%, to $45.2 million for the nine months ended September 30, 2024, as compared to the same period in 2023. The increases were due to the same reasons listed above.
Efficiency ratio – The Company's efficiency ratio was 48.1% for the three months ended September 30, 2024, as compared to 48.7% in 2023.
The Company's efficiency ratio was 49.2% for the nine months ended September 30, 2024, as compared to 46.4% for the same period in 2023.
Asset Quality – At September 30, 2024, we had one nonperforming loan, which is a multifamily loan totaling $10.9 million, and no exposure to commercial office space or construction loans, and $14.8 million in performing loans to the hospitality industry. These amounts are almost the same as those reported in Q2 2024.
The allowance for credit losses was $19.5 million, or 1.50% of total loans, as compared to $15.3 million, or 1.38% of total loans at September 30, 2023.
The ratio of nonperforming loans to total loans and total assets was 0.84% and 0.61%, respectively.
The allowance for credit losses to nonperforming loans was 178%. The increase in the allowance was due to the current short-term interest rate environment as well as the uncertain economic environment and its affect on New York City multifamily and commercial real estate.
Assets – At September 30, 2024, total assets were $1.78 billion, reflecting a $300.1 million, or 20.2% increase from September 30, 2023. This increase was primarily attributable to growth in loans totaling $184.0 million, or 16.5%, to $1.30 billion. Our higher yielding variable rate commercial loans increased $163.2 million, or 24.6%, during this same period.
Deposits - Total deposits were $1.54 billion as of September 30, 2024, a $253.8 million, or 19.8%, increase from September 30, 2023. This was primarily due to a $180.5 million, or 22.5%, increase in Savings, NOW and Money Market deposits, driven by our IOLTA and other escrow deposits as well as a $67.4 million, or 14.3%, increase in noninterest bearing demand deposits
Loan portfolio – Esquire’s loan portfolio is shown in the screencap below and was taken from the earnings release linked above.
Esquire’s fortunes continue to be tied to its litigation and multifamily loans.
Per the Q3 2024 Investor Presentation linked above, rent regulated, free market, and mixed (both rent regulated and free market) each represent about a third of its current $351 million multifamily loan portfolio. Again, I don’t want to speculate on what the total exposure is given that there was no information provided about the split between the “mixed” multifamily loans.
Other Highlights
Found an interesting tidbit regarding its multifamily loans. Per the press release, “In early 2024, management elected to temper multifamily and commercial real estate loan growth in response to the economic environment and purchased short duration agency mortgage-backed securities with commensurate risk adjusted yields, enhancing our liquidity while improving the securities to total assets ratio to 16%.” Rarely does one come across a bank that reduces or keeps its loan exposure flat unless it foresees some turbulence ahead. Time will tell how prudent a decision this was.
The bank has no exposure to commercial office space or construction loans.
One final thing to note comes from Slide 4 of the investor presentation which I have screencapped below.
While still healthy, loan and deposit growth have slowed since 2022 year-end. I don’t think it’s a point of concern as of now as revenues have continued to CAGR more than 20% per year, but they’re something to keep an eye on.
Closing Comments
Esquire’s performance remains robust. I wasn’t thrilled that net income was up <$1 million versus the same nine-month period in 2023, but what can you do? The business faced increased interest expense and employee compensation and didn’t have the bonus to income on its gain of the partial sale of its Litify investment. These are valid reasons for increased costs and don’t seem to be too concerning. I need to keep my eye on its loan and deposit growth though.
Overall, I remain bullish about this business and think the thesis is still valid.
Disclosure: I do not own shares of Esquire Bank.