10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q 

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File No. 001-38131

Esquire Financial Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter) 

Maryland	27-5107901
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
100 Jericho Quadrangle, Suite 100, Jericho, New York	11753
(Address of Principal Executive Offices)	(Zip Code)

(516) 535-2002

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	¨
(Do not check if a smaller reporting company)		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES  ¨    NO  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of August 1, 2018, there were 7,445,723 outstanding shares of the issuer’s common stock.

Esquire Financial Holdings, Inc.

Form 10-Q

Table of Contents

		Page
PART I.  FINANCIAL INFORMATION		3
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Statements of Financial Condition	3
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statement of Changes in Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Interim Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
PART II.  OTHER INFORMATION		36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
	SIGNATURES	38

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ESQUIRE FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except per share data)

(Unaudited)

	June 30,			December 31,
	2018			2017
ASSETS
Cash and due from banks	$	589		$	471
Interest earning deposits		26,915			42,606
Total cash and cash equivalents		27,504			43,077
Securities available-for-sale, at fair value		147,768			128,758
Securities, restricted, at cost		2,343			2,183
Loans		391,673			348,978
Less: allowance for loan losses		(4,789	)		(4,264	)
Loans, net		386,884			344,714
Premises and equipment, net		2,493			2,546
Accrued interest receivable		4,025			2,836
Deferred tax asset, net		3,107			2,241
Other assets		13,063			7,202
Total assets	$	587,187		$	533,557
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand	$	170,712		$	190,847
Savings, NOW and money market		309,954			230,715
Time		16,449			26,932
Total deposits		497,115			448,494
Secured borrowings		274			278
Accrued expenses and other liabilities		3,302			1,402
Total liabilities		500,691			450,174
Commitments and Contingencies		-			-
Stockholders’ equity:
Preferred stock, par value $0.01; authorized 2,000,000 shares; no shares issued and outstanding at June 30, 2018 and December 31, 2017		-			-
Common stock, par value $0.01; authorized 15,000,000 shares; issued and outstanding 7,445,723 shares at June 30, 2018, and 7,326,536 shares at December 31, 2017		74			73
Additional paid-in capital		87,460			86,660
Retained earnings (deficit)		2,219			(1,960	)
Accumulated other comprehensive loss		(3,257	)		(1,390	)
Total stockholders’ equity		86,496			83,383
Total liabilities and stockholders’ equity	$	587,187		$	533,557

See accompanying condensed notes to interim condensed consolidated financial statements.

3

ESQUIRE FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2018		2017		2018		2017
Interest income:
Loans	$	5,657	$	4,062	$	10,946	$	7,889
Securities		1,006		628		1,870		1,178
Interest earning deposits and other		201		66		317		121
Total interest income		6,864		4,756		13,133		9,188
Interest expense:
Savings, NOW and money market deposits		167		106		289		215
Time deposits		51		25		98		47
Borrowings		5		5		10		11
Total interest expense		223		136		397		273
Net interest income		6,641		4,620		12,736		8,915
Provision for loan losses		300		300		525		450
Net interest income after provision for loan losses		6,341		4,320		12,211		8,465
Non-interest income:
Merchant processing income		1,211		831		2,232		1,670
Customer related fees and service charges		769		528		1,823		894
Total non-interest income		1,980		1,359		4,055		2,564
Non-interest expense:
Employee compensation and benefits		3,008		2,369		6,069		4,714
Occupancy and equipment, net		432		374		858		761
Professional and consulting services		684		516		1,312		905
FDIC and regulatory assessments		83		76		155		147
Advertising and marketing		171		96		296		206
Travel and business relations		111		122		268		228
Data processing		446		409		930		780
Other operating expenses		354		207		673		452
Total non-interest expense		5,289		4,169		10,561		8,193
Net income before income taxes		3,032		1,510		5,705		2,836
Income tax expense		811		483		1,526		994
Net income	$	2,221	$	1,027	$	4,179	$	1,842
Earnings per common share
Basic	$	0.30	$	0.20	$	0.57	$	0.36
Diluted	$	0.29	$	0.20	$	0.54	$	0.36

See accompanying condensed notes to interim condensed consolidated financial statements

4

ESQUIRE FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2018			2017			2018			2017
Net income	$	2,221		$	1,027		$	4,179		$	1,842
Other comprehensive (loss) income:
Unrealized holding (losses) gains arising during the period on securities available for sale		(844	)		440			(2,572	)		623
Reclassification adjustment for net gains included in net income		-			-			-			-
Tax effect		232			(169	)		705			(247	)
Total other comprehensive (loss) income		(612	)		271			(1,867	)		376
Total comprehensive income	$	1,609		$	1,298		$	2,312		$	2,218

See accompanying condensed notes to interim condensed consolidated financial statements.

5

ESQUIRE FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)

	Preferred shares		Common shares		Preferred stock		Common stock		Additional paid in capital		Retained earnings (deficit)			Accumulated other comprehensive loss			Total stockholders' equity
Balance at January 1, 2018		-		7,326,536	$	-	$	73	$	86,660	$	(1,960	)	$	(1,390	)	$	83,383
Net income		-		-		-		-		-		4,179			-			4,179
Other comprehensive loss		-		-		-		-		-		-			(1,867	)		(1,867	)
Exercise of stock options, net of repurchases		-		42,687		-		1		377		-			-			378
Restricted stock grants		-		76,500		-		-		-		-			-			-
Stock compensation expense		-		-		-		-		423		-			-			423
Balance at June 30, 2018		-		7,445,723	$	-	$	74	$	87,460	$	2,219		$	(3,257	)	$	86,496

See accompanying condensed notes to interim condensed consolidated financial statements.

6

ESQUIRE FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	For the Six Months Ended June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	4,179		$	1,842
Adjustments to reconcile net income to
Net cash used in operating activities:
Provision for loan losses		525			450
Depreciation		205			204
Stock compensation expense		423			288
Net amortization:
Securities		216			196
Loans		198			281
Changes in other assets and liabilities:
Accrued interest receivable		(1,189	)		(155	)
Deferred tax asset		(161	)		413
Other assets		(3,451	)		(1,366	)
Accrued expenses and other liabilities		1,900			694
Net cash provided by operating activities		2,845			2,847
Cash flows from investing activities:
Net change in loans		(42,893	)		(29,161	)
Purchases of securities available for sale		(33,822	)		(15,398	)
Principal repayments on securities available for sale		12,024			11,168
Purchases of securities, restricted		(160	)		(200	)
Investment in equity security without readily determinable fair value		(2,410	)		-
Purchases of premises and equipment		(152	)		(157	)
Net cash used in investing activities		(67,413	)		(33,748	)
Cash flows from financing activities:
Net increase in deposits		48,621			5,575
Decrease in secured borrowings		(4	)		(89	)
Exercise of stock options		378			540
Proceeds from issuance of common stock, net of issuance costs		-			21,742
Net cash provided by financing activities		48,995			27,768
Decrease in cash and cash equivalents		(15,573	)		(3,133	)
Cash and cash equivalents at beginning of the period		43,077			42,993
Cash and cash equivalents at end of the period	$	27,504		$	39,860

(Continued)

7

ESQUIRE FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	For the Six Months Ended
	June 30,
	2018		2017
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	396	$	273
Income taxes		1,005		868

See accompanying condensed notes to interim condensed consolidated financial statements.

8

ESQUIRE FINANCIAL HOLDINGS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

NOTE 1 — Basis of Presentation

The interim consolidated financial statements include the accounts of Esquire Financial Holdings, Inc. and its wholly owned subsidiary, Esquire Bank, N.A. These entities are collectively referred to as “the Company.” All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial information. In the opinion of management, the interim statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis and all such adjustments are recurring in nature. These financial statements and the accompanying notes should be read in conjunction with the Company’s audited financial statements for the years ended December 31, 2017 and 2016. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or any other period.

Subsequent Events

The Company has evaluated subsequent events for recognition and disclosure through the date of issuance.

Equity Security Without Readily Determinable Fair Value

In April of 2018, the Company completed its $2,410 investment for a 4.95% interest in Litify LLC, a technology solution to automate and manage a law firm’s business and cases. As Litify LLC is a private company, the investment does not have a readily determinable fair value. At June 30, 2018, the investment’s carrying amount remains at its original cost basis of $2,410 and is grouped with other assets on the balance sheet. Based on a qualitative assessment, we have noted no significant adverse changes which would indicate the asset is impaired as of June 30, 2018.

Secured Borrowing

The Company had a secured borrowing of $274 and $278 as of June 30, 2018 and December 31, 2017, respectively, relating to certain loan participations sold by the Company that did not qualify for sales treatment.

Preferred Stock

In December of 2014, an investor executed the purchase of 157,985 shares of 0.00% Series B Non-Voting Preferred Shares at a price of $12.50 per share for proceeds, net of offering costs, of approximately $1,800. The preferred stock does not have a maturity date and is not convertible by the holder, but is convertible on a one for one basis into shares of common stock by us under certain circumstances. In addition, the preferred stock does not have a liquidation preference. Preferred shares have equal rights to receive dividends when dividends are declared on common stock, and thus are considered participating securities.

In June of 2016, the Company and the preferred shareholder agreed to perform an exchange of 91,000 shares of 0.00% of Series B non-voting preferred shares for 91,000 voting common shares, par value $0.01.

In July of 2017, the Company and the preferred shareholder agreed to perform an exchange of 66,985 shares of 0.00% of Series B non-voting preferred shares for 66,985 voting common shares, par value $0.01. As of June 30, 2018 and December 31, 2017, there are no preferred shares outstanding.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are now such matters that will have a material effect on the consolidated financial statements.

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current period presentation. Reclassifications had no effect on prior year net income or stockholders’ equity.

9

New Accounting Pronouncements

Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606)” implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Topic 606 was effective for the Company on January 1, 2018. The Company has applied ASU 2014-09 using the modified retrospective approach to all existing contracts with customers covered under the scope of the standard. The adoption of this ASU was not significant to the Company and had no material effect on how the Company recognizes revenue nor did it result in a cumulative effect adjustment or any presentation changes to the consolidated financial statements. See below for additional information related to revenue generated from contracts with customers.

The majority of the Company's revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit, and investment securities. Descriptions of revenue-generating activities that are within the scope of ASC 606, and are presented in the accompanying Consolidated Statements of Income as components of noninterest income, are as follows:

	Three months ended,				Six months ended,
	June 30,				June 30,
	2018		2017		2018		2017
Non-interest income
Customer related fees  and service charges
Administrative service income	$	688	$	327	$	1,652	$	585
Merchant processing income
Merchant services income		1,129		763		2,070		1,528
ACH income		82		68		162		142
Other		81		201		171		309
Total non-interest income	$	1,980	$	1,359	$	4,055	$	2,564

The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affect the determination of the amount and timing of revenue from the above-described contracts with customers.

· Administrative service income – Administrative service income is derived from our relationships with qualified settlement funds (QSFs), which are plaintiffs’ funds from settled class action lawsuits. Our performance obligations with the QSFs are outlined in the master settlement agreements (MSAs), essentially court orders, and are limited to ensuring funds are invested into safe investment vehicles such as U.S. treasuries, FDIC insured CDs and money market funds. Our fees for placing these funds in appropriate vehicles are earned over the course of a month, representing the period over which the Company satisfies the performance obligation.

· Merchant services income – We provide merchant services as an acquiring bank through the third-party or ISO business model in which we process credit and debit card transactions on behalf of merchants. We enter into a tri-party merchant agreement, between the company, ISO and each merchant. The Company’s performance obligation is essentially acquiring, clearing and settling credit and debit transactions on behalf of the ISO’s merchants. The Company only recognizes revenue once a month, once it summarizes and computes all revenue and expenses applicable to each ISO. By this juncture, it has satisfied its performance obligation.

· ACH income – We provide ACH services for various commercial customers. Contracts are entered into with third parties that need ACH transactions processed on behalf of their customers. Fees are variable and based on the number volume of transactions within a given month. Our performance obligations are processing and settling ACH’s on behalf of the customers as an originating depository financial institution. Our obligation is satisfied within each business day when the transactions (ACH files) are sent to the Federal Reserve Bank for clearing. Revenue is recognized when we send a bill to commercial customer based on the total volume of transactions processed that month.

10

· Other – The other category includes revenue from service charges on deposit accounts, debit card interchange fees, which are within scope of ASC 606, revenue is recognized as performance obligations are satisfied.

On January 5, 2016, the FASB issued ASU 2016-01, “Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (the ASU). Under this ASU, the current GAAP model is changed in the areas of accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The ASU will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Adoption of this standard did not have a material effect on the Company’s operating results or financial condition. However, the Company did enhance its computation of fair value of loans (as disclosed in Note 6) to comply with the exit price notion as required by the ASU.

On February 25, 2016, the FASB completed its Leases project by issuing ASU No. 2017-02, “Leases (Topic 842).” The new guidance affects any organization that enters into a lease, or sublease, with some specified exemptions. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new ASU will require both types of leases to be recognized on the balance sheet. The ASU will also require expanded disclosures. The ASU on leases will take effect for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The Company is currently reviewing its existing lease contracts and service contracts that may include embedded leases.

On June 16, 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (the ASU). This ASU replaces the incurred loss model with an expected loss model, referred to as “current expected credit loss” (CECL) model. It will significantly change estimates for credit losses related to financial assets measured at amortized cost, including loans receivable, held-to-maturity (HTM) debt securities and certain other contracts. This ASU will be effective for the Company in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently gathering data and building a roadmap for the implementation of this standard.

NOTE 2 — Securities

Available-for-Sale Securities

The amortized cost, gross unrealized gains and losses and estimated fair value of securities available for sale were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2018
Mortgage-backed securities - agency	$	20,071	$	-	$	(774	)	$	19,297
Collateralized mortgage obligations (CMO's) - agency		132,183		11		(3,723	)		128,471
Total available-for-sale	$	152,254	$	11	$	(4,497	)	$	147,768
December 31, 2017
Mortgage-backed securities - agency	$	20,082	$	12	$	(291	)	$	19,803
Collateralized mortgage obligations (CMO's) - agency		110,590		13		(1,648	)		108,955
Total available-for-sale	$	130,672	$	25	$	(1,939	)	$	128,758

The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. We have no securities due at a single maturity. Securities not due at a single maturity date are shown below.

11

	June 30, 2018
	Amortized Cost		Fair Value
Mortgage-backed securities - agency	$	20,071	$	19,297
CMO's - agency		132,183		128,471
Total	$	152,254	$	147,768

Mortgage-backed securities include residential pass-through certificates guaranteed by FHLMC, FNMA, or GNMA and the CMO’s are backed by government agency pass-through certificates. The 2018 and 2017 pass-through certificates are fixed rate instruments. CMO’s, by virtue of the underlying residential collateral or structure, are fixed rate current pay sequentials or planned amortization classes (PAC’s).

When purchasing investment securities, the Company’s overall interest-rate risk profile is considered as well as the adequacy of expected returns relative to risks assumed, including prepayments. In managing the investment securities portfolio, management occasionally sells investment securities in response to, or in anticipation of, changes in interest rates and spreads, actual or anticipated prepayments, liquidity needs and credit risk associated with a particular security.

There were no sales or calls of securities for the three and six months ended June 30, 2018 and 2017.

At June 30, 2018, securities having a fair value of $128,471 were pledged to the Federal Home Loan Bank of New York (FHLB) for borrowing capacity totaling $123,171. At December 31, 2017, securities having a fair value of approximately $108,955 were pledged to the FHLB for borrowing capacity totaling $103,351. At June 30, 2018 and December 31, 2017, the Company had no outstanding FHLB advances.

At June 30, 2018, securities having a fair value of $19,297 were pledged to the Federal Reserve Bank of New York (FRB) for borrowing capacity totaling $17,608. At December 31, 2017, securities having a fair value of approximately $19,803 were pledged to the FRB for borrowing capacity totaling $19,370. At June 30, 2018 and December 31, 2017, the Company had no outstanding FRB borrowings.

The following table provides the gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of:

	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
June 30, 2018
Mortgage-backed securities - agency	$	7,936	$	(286	)	$	11,361	$	(488	)	$	19,297	$	(774	)
CMO's – agency		97,801		(2,227	)		25,889		(1,496	)		123,690		(3,723	)
Total temporarily impaired securities	$	105,737	$	(2,513	)	$	37,250	$	(1,984	)	$	142,987	$	(4,497	)
December 31, 2017
Mortgage-backed securities - agency	$	5,766	$	(26	)	$	12,312	$	(265	)	$	18,078	$	(291	)
CMO's - agency		75,056		(685	)		28,848		(963	)		103,904		(1,648	)
Total temporarily impaired securities	$	80,822	$	(711	)	$	41,160	$	(1,228	)	$	121,982	$	(1,939	)

12

Management reviews the investment portfolio on a quarterly basis to determine the cause, magnitude and duration of declines in the fair value of each security. In estimating other-than-temporary impairment (OTTI), management considers many factors including: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The assessment of whether any other than temporary decline exists may involve a high degree of subjectivity and judgment and is based on the information available to management at a point in time. Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

At June 30, 2018, securities in unrealized loss positions were issuances from government sponsored entities. Due to the decline in fair value being attributable to changes in interest rates, not credit quality and because the Company does not have the intent to sell the securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider the securities to be other-than-temporarily impaired at June 30, 2018.

No impairment charges were recorded for the three and six months ended June 30, 2018 and 2017.

13

NOTE 3 — Loans

The composition of loans by class is summarized as follows:

	June 30, 2018			% of Total			December 31, 2017			% of Total
1-4 family residential	$	57,522			15	%	$	51,556			15	%
Commercial		147,419			38	%		136,412			39	%
Multifamily		115,597			29	%		98,432			28	%
Commercial real estate		31,539			8	%		24,761			7	%
Construction		6,618			2	%		5,047			2	%
Consumer		32,139			8	%		31,881			9	%
Total Loans		390,834			100	%		348,089			100	%
Deferred costs and unearned premiums, net		839						889
Allowance for loan losses		(4,789	)					(4,264	)
Net loans	$	386,884					$	344,714

The following tables present the activity in the allowance for loan losses by class for the three months ending June 30, 2018 and 2017:

	1-4 Family							Commercial
	Residential		Commercial		Multifamily			Real Estate			Construction		Consumer			Total
June 30, 2018
Allowance for loan losses:
Beginning balance	$	378	$	2,485	$	696		$	262		$	151	$	517		$	4,489
Provision (credit) for loan losses		47		33		130			83			17		(10	)		300
Recoveries		-		-		-			-			-		-			-
Loans charged-off		-		-		-			-			-		-			-
Total ending allowance balance	$	425	$	2,518	$	826		$	345		$	168	$	507		$	4,789
June 30, 2017
Allowance for loan losses:
Beginning balance	$	350	$	2,039	$	669		$	227		$	102	$	136		$	3,523
Provision (credit) for loan losses		8		115		(5	)		(1	)		7		176			300
Recoveries		-		-		-			-			-		-			-
Loans charged-off		-		-		-			-			-		-			-
Total ending allowance balance	$	358	$	2,154	$	664		$	226		$	109	$	312		$	3,823

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The following tables present the activity in the allowance for loan losses by class for the six months ending June 30, 2018 and 2017:

	1-4 Family							Commercial
	Residential			Commercial		Multifamily		Real Estate			Construction			Consumer			Total
June 30, 2018
Allowance for loan losses:
Beginning balance	$	382		$	2,272	$	713	$	266		$	127		$	504		$	4,264
Provision for loan losses		43			246		113		79			41			3			525
Recoveries		-			-		-		-			-			-			-
Loans charged-off		-			-		-		-			-			-			-
Total ending allowance balance	$	425		$	2,518	$	826	$	345		$	168		$	507		$	4,789
June 30, 2017
Allowance for loan losses:
Beginning balance	$	360		$	1,934	$	621	$	238		$	141		$	119		$	3,413
Provision (credit) for loan losses		(2	)		220		43		(12	)		(32	)		233			450
Recoveries		-			-		-		-			-			-			-
Loans charged-off		-			-		-		-			-			(40	)		(40	)
Total ending allowance balance	$	358		$	2,154	$	664	$	226		$	109		$	312		$	3,823

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by class and based on impairment method as of June 30, 2018 and December 31, 2017:

	1-4 Family						Commercial
	Residential		Commercial		Multifamily		Real Estate		Construction		Consumer		Total
June 30, 2018
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		425		2,518		826		345		168		507		4,789
Total ending allowance balance	$	425	$	2,518	$	826	$	345	$	168	$	507	$	4,789

	1-4 Family						Commercial
	Residential		Commercial		Multifamily		Real Estate		Construction		Consumer		Total
Loans:
Loans individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans collectively evaluated for impairment		57,522		147,419		115,597		31,539		6,618		32,139		390,834
Total ending loans balance	$	57,522	$	147,419	$	115,597	$	31,539	$	6,618	$	32,139	$	390,834

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Recorded investment is not adjusted for accrued interest, deferred costs, and unearned premiums due to immateriality.

	1-4 Family						Commercial
	Residential		Commercial		Multifamily		Real Estate		Construction		Consumer		Total
December 31, 2017
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		382		2,272		713		266		127		504		4,264
Total ending allowance balance	$	382	$	2,272	$	713	$	266	$	127	$	504	$	4,264
Loans:
Loans individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans collectively evaluated for impairment		51,556		136,412		98,432		24,761		5,047		31,881		348,089
Total ending loans balance	$	51,556	$	136,412	$	98,432	$	24,761	$	5,047	$	31,881	$	348,089

Non-Performing Loans

Non-performing loans include loans 90 days past due and still accruing and non-accrual loans. At June 30, 2018 and December 31, 2017, the Company did not have any non-performing loans.

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The following tables present the aging of the recorded investment in past due loans by class of loans as of June 30, 2018 and December 31, 2017:

	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
June 30, 2018
1-4 family residential	$	-	$	-	$	-	$	-	$	57,522	$	57,522
Commercial		-		-		-		-		147,419		147,419
Multifamily		-		-		-		-		115,597		115,597
Commercial real estate		-		-		-		-		31,539		31,539
Construction		-		-		-		-		6,618		6,618
Consumer		-		-		-		-		32,139		32,139
Total	$	-	$	-	$	-	$	-	$	390,834	$	390,834

	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
December 31, 2017
1-4 family residential	$	-	$	-	$	-	$	-	$	51,556	$	51,556
Commercial		-		-		-		-		136,412		136,412
Multifamily		-		-		-		-		98,432		98,432
Commercial real estate		-		-		-		-		24,761		24,761
Construction		-		-		-		-		5,047		5,047
Consumer		-		-		-		-		31,881		31,881
Total	$	-	$	-	$	-	$	-	$	348,089	$	348,089

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed whenever a credit is extended, renewed or modified, or when an observable event occurs indicating a potential decline in credit quality, and no less than annually for large balance loans.

The Company uses the following definitions for risk ratings:

Special Mention - Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with

the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered

to be pass rated loans.

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Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	Pass		Special Mention		Substandard		Doubtful
June 30, 2018
1-4 family residential	$	57,522	$	-	$	-	$	-
Commercial		137,710		9,499		210		-
Multifamily		115,597		-		-		-
Commercial real estate		31,539		-		-		-
Construction		6,618		-		-		-
Consumer		32,139		-		-		-
Total	$	381,125	$	9,499	$	210	$	-

	Pass		Special Mention		Substandard		Doubtful
December 31, 2017
1-4 family residential	$	51,556	$	-	$	-	$	-
Commercial		126,577		9,835		-		-
Multifamily		98,432		-		-		-
Commercial real estate		24,761		-		-		-
Construction		5,047		-		-		-
Consumer		31,881		-		-		-
Total	$	338,254	$	9,835	$	-	$	-

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

The Company has no loans identified as troubled debt restructurings at June 30, 2018 and December 31, 2017. Furthermore, there were no loans modified during the three and six months ended June 30, 2018 and 2017 as troubled debt restructurings. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

NOTE 4 — Share-Based Payment Plans

The Company issues incentive and non-statutory stock options and restricted stock awards to certain employees and directors pursuant to its equity incentive plans, which have been approved by the stockholders. Share-based awards are recommended by the Compensation Committee of the Board of Directors, which are then approved by the full Board.

At June 30, 2018, there are options outstanding and/or restricted stock awards from three plans, the 2007 Stock Option Plan (“the 2007 Plan”) the 2011 Stock Compensation Plan (“the 2011 Plan”) and the 2017 Equity Incentive Plan (“the 2017 Plan”). The 2007 Plan allowed for a maximum of 270,000 shares of common stock to be issued. The 2007 Plan expired in May of 2017. The 2011 Plan allows for 754,607 shares to be issued, of which 750,545 have been issued as of June 30, 2018. The 2017 Plan allows for a maximum of 300,000 shares of common stock to be issued. During the first quarter of 2018 the Company granted 45,000 stock options and 76,500 restricted shares from the 2017 Plan.

Under the plans, options are granted with an exercise price equal to the fair value of the Company’s stock at the date of the grant. Options granted vest over three or five years and have ten year contractual terms. All options provide for accelerated vesting upon a change in control (as defined in the plans). Restricted shares are granted at the fair value on the date of grant and typically vest over 6 years with a third vesting after years four, five, and six. Restricted shares have the same voting rights as common stock. Nonvested restricted shares do not have rights to dividends.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on the Company’s stock price activity. The expected term of options granted represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

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There were no stock options granted during the three months ended June 30, 2018 or during the three and six months ended June 30, 2017. The fair value of options granted during the six months ended June 30, 2018 was determined using the following weighted average assumptions as of the grant date:

	2018
Risk-Free Interest Rate		2.54	%
Expected Term		84 months
Expected Stock Price Volatility		21.0	%
Dividend Yield		0.00	%
Weighted Average Fair Value	$	5.63

The following table presents a summary of the activity related to options as of June 30, 2018:

						Weighted
				Weighted		Average
				Average		Remaining
				Exercise		Contractual
	Options			Price		Life (Years)
June 30, 2018
Outstanding at beginning of year		880,925		$	12.36
Granted		45,000			19.25
Exercised		(47,750	)		10.00
Forfeited		(1,500	)		19.25
Outstanding at period end		876,675		$	12.83		7.18
Vested or expected to vest		876,675		$	12.83		7.18
Exercisable at period end		310,218		$	12.50		6.05

The Company recognized compensation expense related to options of $163 and $151 for the three months ended June 30, 2018 and 2017, respectively. The Company recognized compensation expense related to options of $317 and $288 for the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018, unrecognized compensation cost related to non-vested options was approximately $1,559 and is expected to be recognized over a weighted average period of 2.64 years. The intrinsic value for outstanding options and for options vested or expected to vest was $11,883 and $4,309 for exercisable options at June 30, 2018.

The following table presents a summary of the activity related to restricted stock as of June 30, 2018:

			Weighted Average
			Grant Date
	Shares		Fair Value
Non-vested Shares
Outstanding at beginning of year		-	$	-
Granted		76,500		19.25
Vested or expected to vest		-		-
Outstanding at period end		76,500	$	19.25

The Company recognized compensation expense related to restricted stock of $61 and zero for the three months ended June 30, 2018 and 2017, respectively. The Company recognized compensation expense related to restricted stock of $106 and zero for the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018, there was $1,366 of total unrecognized compensation cost related to non-vested shares granted under the plan. The cost is expected to be recognized over a weighted-average period of 5.57 years.

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NOTE 5 — Earnings per Share

The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to participation rights in undistributed earnings. Our preferred shares are considered participating securities. The factors used in the earnings per share computation follow:

	Three months ended				Six months ended
	At June 30,				At June 30,
	2018		2017		2018		2017
Basic
Net income available to common shareholders	$	2,221	$	1,027	$	4,179	$	1,842
Less: Earnings allocated to preferred stock		-		13		-		24
Net income allocated to common shareholders	$	2,221	$	1,014	$	4,179	$	1,818
Weighted average common shares outstanding		7,369,223		5,075,019		7,366,950		5,039,197
Basic earnings per common share	$	0.30	$	0.20	$	0.57	$	0.36
Diluted
Net income allocated to common shareholders for basic earnings per share	$	2,221	$	1,014	$	4,179	$	1,818
Weighted average shares outstanding for basic earnings per common share		7,369,223		5,075,019		7,366,950		5,039,197
Add: Dilutive effects of assumed exercises of stock options		346,792		25,589		323,853		30,202
Average shares and dilutive potential common shares		7,716,015		5,100,608		7,690,803		5,069,399
Diluted earnings per common share	$	0.29	$	0.20	$	0.54	$	0.36
Stock options not considered in computing diluted earnings per share because they were anti-dilutive		-		775,425		43,500		779,425

NOTE 6 — Fair Value Measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values.

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

For available-for-sale securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).

Assets and liabilities measured at fair value on a recurring basis are summarized below:

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	Fair Value Measurements Using
	Quoted Prices In Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)
June 30, 2018
Assets
Available-for-sale securities
Mortgage-backed securities - agency	$	-	$	19,297	$	-
CMO's - agency		-		128,471		-
Total	$	-	$	147,768	$	-
December 31, 2017
Assets
Available-for-sale securities
Mortgage-backed securities - agency	$	-	$	19,803	$	-
CMO's - agency		-		108,955		-
Total	$	-	$	128,758	$	-

There were no transfers between Level 1 and Level 2 during the three and six months ended June 30, 2018 and 2017. There were no assets measured on a non-recurring basis as of June 30, 2018 and December 31, 2017.

The following tables present the carrying amounts and fair values (represents exit price) of financial instruments at June 30, 2018 and December 31, 2017:

			Fair Value Measurement at June 30, 2018, Using:
	Carrying
	Value		(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	27,504	$	589	$	26,915	$	-	$	27,504
Securities available for sale		147,768		-		147,768		-		147,768
Securities, restricted		2,343		N/A		N/A		N/A		N/A
Loans, net of allowance		386,884		-		-		384,305		384,305
Accrued interest receivable		4,025		-		368		3,657		4,025
Financial Liabilities:
Time deposits		16,449		-		16,353		-		16,353
Demand and other deposits		480,666		480,666		-		-		480,666
Secured borrowings		274		-		274		-		274
Accrued interest payable		7		-		7		-		7

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			Fair Value Measurement at December 31, 2017, Using:
	Carrying
	Value		(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	43,077	$	471	$	42,606	$	-	$	43,077
Securities available for sale		128,758		-		128,758		-		128,758
Securities, restricted		2,183		N/A		N/A		N/A		N/A
Loans, net of allowance		344,714		-		-		345,540		345,540
Accrued interest receivable		2,836		-		300		2,536		2,836
Financial Liabilities:
Time deposits		26,932		-		26,847		-		26,847
Demand and other deposits		421,562		421,562		-		-		421,562
Secured borrowings		278		-		278		-		278
Accrued interest payable		6		-		6		-		6

NOTE 7 — Accumulated Other Comprehensive (Loss) Income

The following is changes in accumulated other comprehensive (loss) income by component, net of tax for the three and six months ending June 30, 2018 and 2017:

	Three months ended						Six months ended
	At June 30,						At June 30,
	2018			2017			2018			2017
Unrealized Gains on Available for Sale Securities
Beginning balance	$	(2,645	)	$	(779	)	$	(1,390	)	$	(884	)
Other comprehensive (loss) income before reclassifications		(612	)		271			(1,867	)		376
Amounts reclassified from accumulated other comprehensive income		-			-			-			-
Net current period other comprehensive (loss) income		(612	)		271			(1,837	)		376
Ending balance	$	(3,257	)	$	(508	)	$	(3,257	)	$	(508	)

The following represents the reclassifications out of accumulated other comprehensive loss for the three and six months ended June 30, 2018, and 2017:

	Three months ended				Six months ended
	At June 30,				At June 30,
	2018		2017		2018		2017
Realized gain on securities sales	$	-	$	-	$	-	$	-
Income tax expense		-		-		-		-
Total reclassifications, net of tax	$	-	$	-	$	-	$	-

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis of financial condition at June 30, 2018 and December 31, 2017 and results of operations for the three and six months ended June 30, 2018 and 2017 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 audited consolidated financial statements as of December 31, 2017 and the notes thereto appearing in Part I, Item 1, of this quarterly report on Form 10-Q.

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,” “outlook,” “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;

· our ability to enter new markets successfully and capitalize on growth opportunities;

· significant increases in our loan losses, including as a result of our inability to resolve classified and non-performing assets or reduce risks associated with our loans, and management’s assumptions in determining the adequacy of the allowance for loan 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 he Board of Governors of the Federal Reserve System, 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 loan losses and provision for loan 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;

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· losses suffered by merchants or Independent Sales Organizations with whom we do business;

· our ability to effectively manage risks related to our merchant services business;

· our ability to leverage the professional and personal relationships of our board members and advisory board members;

· 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 the yield on our assets resulting from the current low interest rate environment;

· declines in our merchant processing income as a result of reduced demand, competition and changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Jumpstart Our Business Startups Act (the “JOBS Act”), which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, regulatory fees and compliance costs, particularly the new capital regulations, and the resources we have available to address such changes;

· changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, 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, particularly those associated with operating as a publicly traded company;

· the failure or security breaches of computer systems on which we depend;

· political instability;

· acts of war or terrorism;

· 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 this Quarterly Report 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.

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Summary of Significant Accounting Policies

A summary of our accounting policies is described in Note 1 to the audited 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 Loan Losses.   The allowance for loan losses is a valuation allowance for probable incurred credit losses. The allowance for loan losses is increased by provisions for loan losses charged to income. Losses are charged to the allowance when all or a portion of a loan is deemed to be uncollectible. Subsequent recoveries of loans previously charged off are credited to the allowance for loan losses when realized. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reason for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

All loans, except for consumer loans, are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated as a specific allowance. The measurement of an impaired loan is based on (i) the present value of expected future cash flows discounted at the loan’s effective interest rate, (ii) the loan’s observable market price or (iii) the fair value of the collateral if the loan is collateral dependent.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a trouble debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, we determine the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the company. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

We have identified the following loan segments: Commercial Real Estate, Multifamily, Construction, Commercial, 1 – 4 Family Residential and Consumer. The risks associated with a concentration in real estate loans include potential losses from fluctuating values of land and improved properties. Commercial Real Estate and Multifamily loans are expected to be repaid from the cash flow of the underlying property so the collective amount of rents must be sufficient to cover all operating expenses, property management and maintenance, taxes and debt service. Increases in vacancy rates, interest rates or other changes in general economic conditions can all have an impact on the borrower and their ability to repay the loan. Construction loans are considered riskier than commercial financing on improved and established commercial real estate. The risk of potential loss increases if the original cost estimates or time to complete are significantly off. The remainder of the loan portfolio is comprised of commercial and consumer loans, which also include commercial Attorney-Related loans and consumer Attorney-Related loans. The primary risks associated with the commercial loans are the cash flow of the business, the experience and quality of the borrowers’ management, the business climate, and the impact of economic factors. The primary risks associated with residential real estate and consumer loans relate to the borrower, such as the risk of a borrower’s unemployment as a result of deteriorating economic conditions or the amount and nature of a borrower’s other existing indebtedness, and the value of the collateral securing the loan if the bank must take possession of the collateral.

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Although management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the change that is reasonably possible cannot be estimated. The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. Accordingly, we may ultimately incur losses that vary from management’s current estimates. Adjustments to the allowance for loan losses will be reported in the period such adjustments become known or can be reasonably estimated. All loan losses are charged to the allowance for loan losses when the loss actually occurs or when the collectability of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery.

Income Taxes.   Income taxes are provided for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period the change occurs. Deferred tax assets are reduced, through a valuation allowance, if necessary, by the amount of such benefits that are not expected to be realized based on current available evidence.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Emerging Growth Company.   Pursuant to the JOBS Act, an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by the Financial Accounting Standards Board (“FASB”) or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We have irrevocably elected to adopt new accounting standards within the public company adoption period.

We may take advantage of some of the reduced regulatory and reporting requirements that are available to us so long as we qualify as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.

Overview

We are a bank 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 merchant services 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 loan losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of merchant processing income and customer related fees and charges. Non-interest expense currently consists primarily of employee compensation and benefits 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.

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Comparison of Financial Condition at June 30, 2018 and December 31, 2017

Assets.   Our total assets were $587.2 million at June 30, 2018, an increase of $53.6 million, or 10.1%, from $533.6 million at December 31, 2017. The increase was primarily due to an increase in loans of $42.7 million, or 12.2%, and an increase in securities of $19.0 million, or 14.8%, partially offset by a decrease in cash and cash equivalents of $15.6 million, or 36.2%.

Loans.   At June 30, 2018, loans were $391.7 million, or 78.8% of total deposits, compared to $349.0 million, or 77.8% of total deposits, at December 31, 2017. Commercial loans increased $11.0 million, or 8.1%, to $147.4 million at June 30, 2018 from $136.4 million at December 31, 2017. Multifamily loans increased $17.2 million, or 17.4%, to $115.6 million at June 30, 2018 from $98.4 million at December 31, 2017. Consumer loans increased $258,000, or 0.8%, to $32.1 million at June 30, 2018 from $31.9 million at December 31, 2017. 1 – 4 family residential loans increased $6.0 million, or 11.6%, to $57.5 million at June 30, 2018 from $51.6 million at December 31, 2017. Construction loans also increased by $1.6 million, or 31.1%, to $6.6 million at June 30, 2018 from $5.0 million at December 31, 2017. Commercial real estate loans increased by $6.8 million, or 27.4%, to $31.5 million at June 30, 2018 from $24.8 million at December 31, 2017.

The following table sets forth the composition of our Attorney-Related loan portfolio by type of loan at the dates indicated:

	June 30, 2018					December 31, 2017
	Amount		Percent			Amount		Percent
Attorney-Related Loans
Commercial Attorney-Related:
Working capital lines of credit	$	93,602		57.0	%	$	96,070		62.1	%
Case cost lines of credit		29,063		17.7			24,446		15.8
Term loans		12,930		7.9			7,082		4.6
Post-settlement commercial and other commercial attorney-related loans		12		0.0			68		0.0
Total Commercial Attorney-Related		135,607		82.6	%		127,666		82.5	%
Consumer Attorney-Related:
Post-settlement consumer loans		27,199		16.6	%		25,731		16.6	%
Structured settlement loans		1,315		0.8			1,421		0.9
Total Consumer Attorney-Related		28,514		17.4	%		27,152		17.5	%
Total Attorney-Related Loans	$	164,121		100.0	%	$	154,818		100.0	%

At June 30, 2018, our Attorney-Related Loans, which include commercial loans to law firms and consumer lending to plaintiffs/claimants and attorneys, totaled $164.1 million, or 42.0% of our total loan portfolio, compared to $154.8 million at December 31, 2017. At June 30, 2018, our Commercial Attorney-Related Loans totaled $135.6 million, or 82.6% of our total attorney-related loan portfolio and 34.7% of our total loan portfolio, compared to $127.7 million Commercial Attorney-Related Loans at December 31, 2017. As of June 30, 2018, our Consumer Attorney-Related Loans totaled $28.5 million, or 17.4% of our total Attorney-Related Loan portfolio and 7.3% of our total loan portfolio, compared to $27.2 million Consumer Attorney-Related Loans at December 31, 2017.

Securities. Securities available for sale increased $19.0 million, or 14.8%, to $147.8 million at June 30, 2018 from $128.8 million at December 31, 2017. The increase in securities was due to prudent deployment of excess funds into interest earning assets in accordance with our liquidity policy and asset/liability management program.

Funding. Total deposits increased $48.6 million, or 10.8%, to $497.1 million at June 30, 2018 from $448.5 million at December 31, 2017. We continue to focus on the acquisition and expansion of core deposit relationships, which we define as all deposits except for certificates of deposit. Core deposits totaled $480.7 million at June 30, 2018, or 96.7% of total deposits at that date, compared to $421.6 million or 94.0% of total deposits at December 31, 2017. The Company continued to prudently manage its balance sheet through mass tort deposit sweep programs, maintaining off-balance sheet funds totaling $251.2 million at June 30, 2018.

At June 30, 2018, we had the ability to borrow a total of $123.2 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 $17.6 million. At June 30, 2018, we also had $7.5 million in aggregate unsecured lines of credit with unaffiliated correspondent banks. No amounts were outstanding on any of the aforementioned lines of credit at June 30, 2018.

Equity. Total stockholders’ equity increased $3.1 million, or 3.7%, to $86.5 million at June 30, 2018, from $83.4 million at December 31, 2017. The increase was primarily due to net income.

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Average Balance Sheets

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 discount accretion and net deferred loan origination costs accounted for as yield adjustments. No tax-equivalent yield adjustments were made, as the effect thereof was not material. 

	For the Three Months Ended June 30,
	2018							2017
	(Dollars in thousands)
	Average Balance		Interest		Average Yield/Rate			Average Balance		Interest		Average Yield/Rate
INTEREST EARNING ASSETS
Loans	$	370,981	$	5,657		6.12	%	$	290,576	$	4,062		5.61	%
Securities, includes restricted stock		154,224		1,006		2.62	%		103,702		628		2.43	%
Interest earning cash		49,686		201		1.62	%		33,156		66		0.80	%
Total interest earning assets		574,891		6,864		4.79	%		427,434		4,756		4.46	%
NON-INTEREST EARNING ASSETS
Cash and due from banks		642							572
Other assets		12,892							7,942
TOTAL AVERAGE ASSETS	$	588,425						$	435,948
INTEREST-BEARING LIABILITIES
Savings, NOW, money markets	$	272,929		167		0.25	%	$	218,466		106		0.19	%
Time deposits		33,780		51		0.61	%		25,565		25		0.39	%
Total deposits		306,709		218		0.29	%		244,031		131		0.22	%
Secured borrowings		276		5		7.27	%		285		5		7.04	%
Total interest-bearing liabilities		306,985		223		0.29	%		244,316		136		0.22	%
NON-INTEREST BEARING LIABILITIES
Demand deposits		193,555							135,401
Other liabilities		2,848							1,571
Total non-interest bearing liabilities		196,403							136,972
Stockholders’ equity		85,037							54,660
TOTAL AVERAGE LIABILITIES AND EQUITY	$	588,425						$	435,948
Net interest spread			$	6,641		4.50	%			$	4,620		4.24	%
Net interest margin						4.63	%						4.34	%

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	For the Six Months Ended June 30,
	2018							2017
	(Dollars in thousands)
	Average Balance		Interest		Average Yield/Rate			Average Balance		Interest		Average Yield/Rate
INTEREST EARNING ASSETS
Loans	$	363,085	$	10,946		6.08	%	$	284,417	$	7,889		5.59	%
Securities, includes restricted stock		145,450		1,870		2.59	%		101,567		1,178		2.34	%
Interest earning cash		43,539		317		1.47	%		33,520		121		0.73	%
Total interest earning assets		552,074		13,133		4.80	%		419,504		9,188		4.42	%
NON-INTEREST EARNING ASSETS
Cash and due from banks		622							548
Other assets		9,284							7,609
TOTAL AVERAGE ASSETS	$	561,980						$	427,661
INTEREST-BEARING LIABILITIES
Savings, NOW, money markets	$	258,499		289		0.23	%	$	220,351		215		0.20	%
Time deposits		31,991		98		0.62	%		21,184		47		0.45	%
Total deposits		290,490		387		0.27	%		241,535		262		0.22	%
Secured borrowings		278		10		7.25	%		314		11		7.06	%
Total interest-bearing liabilities		290,768		397		0.28	%		241,849		273		0.23	%
NON-INTEREST BEARING LIABILITIES
Demand deposits		184,645							130,693
Other liabilities		2,308							1,495
Total non-interest bearing liabilities		186,953							132,188
Stockholders’ equity		84,259							53,624
TOTAL AVERAGE LIABILITIES AND EQUITY	$	561,980						$	427,661
Net interest spread			$	12,736		4.52	%			$	8,915		4.19	%
Net interest margin						4.65	%						4.29	%

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Rate/Volume Analysis

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.

	For the Three Months Ended June 30, 2018 vs. 2017						For the Six Months Ended June 30, 2018 vs. 2017
	Increase (Decrease) due to						Increase (Decrease) due to
	Volume		Rate		Total Increase (Decrease)		Volume			Rate		Total Increase (Decrease)
	(Dollars in thousands)
Interest earned on:
Loans	$	1,201	$	394	$	1,595	$	2,326		$	731	$	3,057
Securities, includes restricted stock		326		52		378		553			139		692
Interest earning cash		44		91		135		45			151		196
Total interest income		1,571		537		2,108		2,924			1,021		3,945
Interest paid on:
Savings, NOW, money markets		30		31		61		40			34		74
Time deposits		10		16		26		29			22		51
Total deposits		40		47		87		69			56		125
Secured borrowings		-		-		-		(1	)		-		(1	)
Total interest expense		40		47		87		68			56		124
Change in net interest income	$	1,531	$	490	$	2,021	$	2,856		$	965	$	3,821

Comparison of Operating Results for the Three Months Ended June 30, 2018 and 2017

General.   Net income increased $1.2 million, or 116.3%, to $2.2 million for the three months ended June 30, 2018 from $1.0 million for the three months ended June 30, 2017. The increase resulted from a $2.0 million increase in net interest income and a $621,000 increase in non-interest income, which was partially offset by a $1.1 million increase in non-interest expense.

Interest Income.   Interest income increased $2.1 million, or 44.3%, to $6.9 million for the three months ended June 30, 2018 from $4.8 million for the three months ended June 30, 2017. This was primarily attributable to an increase in loan interest income, which increased $1.6 million, or 39.3%, to $5.7 million for the three months ended June 30, 2018 from $4.1 million for the three months ended June 30, 2017.

The increase in interest income on loans was due to an increase in average loans during the quarter ended June 30, 2018 of $80.4 million or 27.7% as well as a 51 basis point increase in the average rate of loans. Securities interest income also increased due to an increase in the average balance of securities during the quarter ended June 30, 2018 of $50.5 million, or 48.7% and a 19 basis point increase in the average rate of securities when compared to the second quarter of 2017.

Interest Expense.   Interest expense increased $87,000, or 64.0%, to $223,000 for the three months ended June 30, 2018 from $136,000 for the three months ended June 30, 2017, primarily due to increases in average balance of deposits. The average rate we paid on interest bearing deposits increased to 0.29% for the three months ended June 30, 2018 compared to 0.22% for the three months ended June 30, 2017.

Net Interest Income.   Net interest income increased $2.0 million, or 43.7%, to $6.6 million for the three months ended June 30, 2018 from $4.6 million for the three months ended June 30, 2017, primarily due to an increase in average interest earning assets and rising rates. Our net interest rate spread increased 26 basis points to 4.50% for the three months ended June 30, 2018 from 4.24% for the three months ended June 30, 2017, while our net interest margin increased 29 basis points to 4.63% for the three months ended June 30, 2018 from 4.34% for the three months ended June 30, 2017. The increase in net interest margin was due to a 33 basis point increase in the average yield earned on interest earning assets, primarily driven by an increase in loan yields.

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Provision for Loan Losses.   Our provision for loan losses was $300,000 for the three months ended June 30, 2018 compared to $300,000 for the three months ended June 30, 2017. The provisions recorded resulted in an allowance for loan losses of $4.8 million, or 1.22% of total loans at June 30, 2018, compared to $4.3 million, or 1.22% of total loans at December 31, 2017, and $3.8 million, or 1.24% of total loans at June 30, 2017. As of June 30, 2018 the Company had no delinquent loans or non-performing assets. There were no charge-offs for the quarters ended June 30, 2018 and 2017.

Noninterest Income.   Noninterest income information is as follows:

	For the Three Months Ended June 30,				Change
	2018		2017		Amount		Percent
	(Dollars in thousands)
Noninterest income
Merchant processing income	$	1,211	$	831	$	380		45.7	%
Customer related fees and service charges		769		528		241		45.6
Total noninterest income	$	1,980	$	1,359	$	621		45.7	%

Merchant processing income increased primarily due to increases in the number of ISOs, average monthly volumes and the number of merchants we service. Customer related fees and service charges have increased primarily due to increases in administrative service income on off-balance sheet funds as a result of rising interest rates and higher volumes.

Noninterest Expense.   Noninterest expense information is as follows:

	For the Three Months Ended June 30,				Change
	2018		2017		Amount			Percent
	(Dollars in thousands)
Noninterest expense
Employee compensation and benefits	$	3,008	$	2,369	$	639			27.0	%
Occupancy and equipment		432		374		58			15.5
Professional and consulting services		684		516		168			32.6
FDIC and regulatory assessments		83		76		7			9.2
Advertising and marketing		171		96		75			78.1
Travel and business relations		111		122		(11	)		(9.0	)
Data processing		446		409		37			9.0
Other operating expenses		354		207		147			71.0
Total noninterest expense	$	5,289	$	4,169	$	1,120			26.9	%

Employee compensation and benefits increased due to the Company’s hiring efforts, including several senior managers, to support our future growth and technology efforts as well as salary and incentive increases. The increase in professional and consulting services as well as other expenses was due primarily to additional costs related to being a public company and costs related to certain strategic projects.

Income Tax Expense.   We recorded an income tax expense of $811,000 for the three months ended June 30, 2018, reflecting an effective tax rate of 26.8%, compared to $483,000, or 32.0%, for the three months ended June 30, 2017. The lower effective tax rate was a result of federal tax reform that was enacted in December 2017.

Comparison of Operating Results for the Six Months Ended June 30, 2018 and 2017

General.   Net income increased $2.3 million, or 126.9%, to $4.2 million for the six months ended June 30, 2018 from $1.8 million for the six months ended June 30, 2017. The increase resulted from a $3.8 million increase in net interest income and a $1.5 million increase in non-interest income, which were partially offset by a $2.4 million increase in non-interest expense.

Interest Income.   Interest income increased $3.9 million, or 42.9%, to $13.1 million for the six months ended June 30, 2018 from $9.2 million for the six months ended June 30, 2017. This was primarily attributable to an increase in loan interest income, which increased $3.1 million, or 38.8%, to $10.9 million for the six months ended June 30, 2018 from $7.9 million for the six months ended June 30, 2017.

The increase in interest income on loans was due to an increase in average loans during the six months ended June 30, 2018 of $78.7 million or 27.7% as well as a 49 basis point increase in the average rate of loans. Securities interest income also increased due to an increase in the average balance of securities during the six months ended June 30, 2018 of $43.9 million or 43.2% and a 25 basis point increase in the average rate of securities when compared to the first six months of 2017.

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Interest Expense.   Interest expense increased $124,000, or 45.4%, to $397,000 for the six months ended June 30, 2018 from $273,000 for the six months ended June 30, 2017, primarily due to increases in the average balance of deposits and increases in rates. The average rate we paid on interest bearing deposits increased to 0.27% for the six months ended June 30, 2018 compared to 0.22% for the six months ended June 30, 2017.

Net Interest Income.   Net interest income increased $3.8 million, or 42.9%, to $12.7 million for the six months ended June 30, 2018 from $8.9 million for the six months ended June 30, 2017, primarily due to an increase in average interest earning assets. Our net interest rate spread increased 33 basis points to 4.52% for the six months ended June 30, 2018 from 4.19% for the six months ended June 30, 2017. Our net interest margin also increased 36 basis points to 4.65% for the six months ended June 30, 2018 from 4.29% for the six months ended June 30, 2017. The increase in net interest margin was due to a 38 basis point increase in the average yield earned on interest earning assets, primarily driven by an increase in loan yields.

Provision for Loan Losses.   Our provision for loan losses was $525,000 for the six months ended June 30, 2018 compared to $450,000 for the six months ended June 30, 2017. The higher provision is reflective of loan growth experienced in the Company’s higher yielding commercial and consumer loan categories. As of June 30, 2018 the Company had no delinquent loans or non-performing assets. There were no charge-offs for the six months ended June 30, 2018 compared to net charge-offs of $40,000 for the six months ended June 30, 2017.

Noninterest Income.   Noninterest income information is as follows:

	For the Six Months Ended June 30,				Change
	2018		2017		Amount		Percent
	(Dollars in thousands)
Noninterest income
Merchant processing income	$	2,232	$	1,670	$	562		33.7	%
Customer related fees and service charges		1,823		894		929		103.9
Total noninterest income	$	4,055	$	2,564	$	1,491		58.2	%

Merchant processing income increased primarily due to increases in the number of ISOs, average monthly volumes and the number of merchants we service. Customer related fees and service charges have increased primarily due to increases in administrative service income on off-balance sheet funds as a result of rising interest rates and higher volumes.

Noninterest Expense.   Noninterest expense information is as follows:

	For the Six Months Ended June 30,				Change
	2018		2017		Amount		Percent
	(Dollars in thousands)
Noninterest expense
Employee compensation and benefits	$	6,069	$	4,714	$	1,355		28.7	%
Occupancy and equipment		858		761		97		12.7
Professional and consulting services		1,312		905		407		45.0
FDIC and regulatory assessments		155		147		8		5.4
Advertising and marketing		296		206		90		43.7
Travel and business relations		268		228		40		17.5
Data processing		930		780		150		19.2
Other operating expenses		673		452		221		48.9
Total noninterest expense	$	10,561	$	8,193	$	2,368		28.9	%

Employee compensation and benefits increased due to the Company’s hiring efforts, including several senior managers, to support our future growth and technology efforts as well as salary and incentive increases. The increase in professional and consulting services as well as other expenses was due primarily to additional costs related to being a public company and costs related to certain strategic projects.

Income Tax Expense.   We recorded an income tax expense of $1.5 million for the six months ended June 30, 2018, reflecting an effective tax rate of 26.8%, compared to $994,000, or 35.0%, for the six months ended June 30, 2017. The lower effective tax rate was a result of federal tax reform that was enacted in December 2017.

32

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. The tables below demonstrate that we are asset-sensitive in a rising interest rate environment.

	At June 30, 2018
Changes in Interest Rates (Basis Points)	Estimated 12- Months Net Interest Income		Change
	(Dollars in thousands)
400	$	36,441		7,444
300		34,305		5,308
200		32,290		3,293
100		30,504		1,507
0		28,997		-
-100		26,858		(2,139	)
-200		24,060		(4,937	)

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. We currently calculate EVE under the assumptions that interest rates increase 100, 200, 300 and 400 basis points from current market rates, and under the assumption that interest rates decrease 100 and 200 basis points from current market rates.

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, 2018.

33

	At June 30, 2018
Changes in Interest Rates (Basis Points)	Economic Value of Equity		Change
	(Dollars in thousands)
400	$	116,754		1,173
300		116,650		1,069
200		116,519		938
100		116,385		804
0		115,581		-
-100		109,580		(6,001	)
-200		96,919		(18,662	)

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, 2018, cash and cash equivalents totaled $27.5 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $147.8 million at June 30, 2018.

At June 30, 2018, we had the ability to borrow a total of $123.2 million from the Federal Home Loan Bank of New York and had an available line of credit with the Federal Reserve Bank of New York discount window of $17.6 million. At June 30, 2018, we also had $7.5 million in aggregate unsecured lines of credit with unaffiliated correspondent banks. No amounts were outstanding on any of the aforementioned lines of credit at June 30, 2018.

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 Federal Home Loan Bank of New York or obtain additional funds through brokered certificates of deposit.

Esquire Bank, National Association is subject to various regulatory capital requirements administered by Office of the Comptroller of the Currency (the “OCC”), and the Federal Deposit Insurance Corporation. At June 30, 2018, 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. We review capital levels on a monthly basis. At June 30, 2018, Esquire Bank was classified as “well capitalized.”

On November 2, 2012, the OCC notified Esquire Bank that it had established minimum capital ratios for Esquire Bank, requiring Esquire Bank to maintain, commencing December 1, 2012, a Tier 1 Leverage Capital at least equal to 9%, Tier 1 Risk-Based Capital at least equal to 11%, and Total Risk-Based Capital at least equal to 13%.

34

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

	“Well Capitalized”			For Capital Adequacy Purposes Minimum Capital with Conservation Buffer			Actual At June 30, 2018
Tier 1 Leverage Ratio
Bank		5.00	%		4.00	%		12.87	%
Tier 1 Risk-based Capital Ratio
Bank		8.00	%		7.88	%		17.53	%
Total Risk-based Capital Ratio
Bank		10.00	%		9.88	%		17.53	%
Common Equity Tier 1 Capital Ratio
Bank		6.50	%		6.38	%		18.67	%

Basel III revised the capital adequacy requirements and the Prompt Corrective Action Framework effective January 1, 2015 for Esquire Bank. When fully phased in on January 1, 2019, the Basel Rules will require Esquire Bank to maintain a 2.5% “capital conservation buffer” on top of the minimum risk-weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a (i) CET1 to risk-weighted assets, (ii) Tier 1 capital to risk-weighted assets or (iii) total capital to risk-weighted assets above the respective minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and discretionary bonus payments to executive officers based on the amount of the shortfall. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will increase by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations.   In the ordinary course of our operations, we enter into certain contractual obligations. The following table presents our contractual obligations as of June 30, 2018.

Contractual Maturities as of June 30, 2018
	Due in One Year or Less		Due After One Year Through Three Years		Due After Three Years Through Five Years		Due After Five Years		Total
	(In thousands)
Operating lease obligations	$	592	$	1,033	$	1,045	$	1,970	$	4,640
Time deposits		14,898		1,551		-		-		16,449
Total	$	15,490	$	2,584	$	1,045	$	1,970	$	21,089

Off-Balance Sheet Arrangements.   We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss is represented by the contractual amount of the instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is included in Item 2 of this quarterly report under “Management of Market Risk.”

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief 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, 2018. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

During the quarter ended June 30, 2018, 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.

35

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Periodically, we are involved in claims and lawsuits, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. At June 30, 2018, we are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors

There have been no material changes to our risk factors as disclosed in the Company’s Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

a) Not applicable.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

36

Item 6. Exhibits

Exhibit
Number	Description
3.1	Articles of Incorporation of Esquire Financial Holdings, Inc. (1)
3.2	Articles Supplementary of Series B Non-Voting Preferred Stock of Esquire Financial Holdings, Inc. (2)
3.3	Amended and Restated Bylaws of Esquire Financial Holdings, Inc. (3)
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Written Statement of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.0	The following materials for the quarter ended June 30, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheets, (ii) Statements of Income, (iii) Statements of Comprehensive Income, (iv) Statements of Cash Flows, and (v) Notes to Financial Statements.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document

(1) Incorporated by reference to Exhibit 3.1 in the Registration Statement on Form S-1 (File No. 333-218372) originally filed by the Company under the Securities Act of 1933 with the Commission on May 31, 2017, and all amendments or reports filed thereto.

(2) Incorporated by reference to Exhibit 3.2 in the Registration Statement on Form S-1 (File No. 333-218372) originally filed by the Company under the Securities Act of 1933 with the Commission on May 31, 2017, and all amendments or reports filed thereto.

(3) Incorporated by reference to Exhibit 3.3 in the Registration Statement on Form S-1/A (File No. 333-218372) originally filed by the Company under the Securities Act of 1933 with the Commission on June 22, 2017, and all amendments or reports filed thereto.

37

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ESQUIRE FINANCIAL HOLDINGS, INC.
Date: August 14, 2018	/s/ Andrew C. Sagliocca
	Andrew C. Sagliocca
	President and Chief Executive Officer
Date: August 14, 2018	/s/ Eric S. Bader
	Eric S. Bader
	Executive Vice President, Chief Financial Officer and Treasurer

38

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Andrew C. Sagliocca, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Esquire Financial Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 14, 2018	/s/ Andrew C. Sagliocca
	Andrew C. Sagliocca
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Eric S. Bader, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Esquire Financial Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 14, 2018	/s/ Eric S. Bader
	Eric S. Bader
	Executive Vice President, Chief Financial Officer and Treasurer

EX-32

Exhibit 32

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Andrew C. Sagliocca, President and Chief Executive Officer of Esquire Financial Holdings, Inc. (the “Company”), and Eric S. Bader, Executive Vice President, Chief Financial Officer and Treasurer of the Company, each certify in his capacity as an executive officer of the Company that he or she has reviewed the quarterly report on Form 10-Q for the quarter ended June 30, 2018 (the “Report”) and that to the best of his knowledge:

1. the Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:   August 14, 2018	/s/ Andrew C. Sagliocca
	Andrew C. Sagliocca
	President and Chief Executive Officer
Date:   August 14, 2018	/s/ Eric S. Bader
	Eric S. Bader
	Executive Vice President, Chief Financial Officer and Treasurer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 01, 2018
Document And Entity Information [Abstract]
Entity Registrant Name	Esquire Financial Holdings, Inc.
Entity Central Index Key	0001531031
Trading Symbol	esq
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		7,445,723
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Amendment Flag	false
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2

XML

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
ASSETS
Cash and due from banks	$ 589	$ 471
Interest earning deposits	26,915	42,606
Total cash and cash equivalents	27,504	43,077
Securities available-for-sale, at fair value	147,768	128,758
Securities, restricted, at cost	2,343	2,183
Loans	391,673	348,978
Less: allowance for loan losses	(4,789)	(4,264)
Loans, net	386,884	344,714
Premises and equipment, net	2,493	2,546
Accrued interest receivable	4,025	2,836
Deferred tax asset, net	3,107	2,241
Other assets	13,063	7,202
Total assets	587,187	533,557
Deposits:
Demand	170,712	190,847
Savings, NOW and money market	309,954	230,715
Time	16,449	26,932
Total deposits	497,115	448,494
Secured borrowings	274	278
Accrued expenses and other liabilities	3,302	1,402
Total liabilities	500,691	450,174
Commitments and Contingencies
Stockholders' equity:
Preferred stock, par value $0.01; authorized 2,000,000 shares; no shares issued and outstanding at June 30, 2018 and December 31, 2017
Common stock, par value $0.01; authorized 15,000,000 shares; issued and outstanding 7,445,723 shares at June 30, 2018, and 7,326,536 shares at December 31, 2017	74	73
Additional paid-in capital	87,460	86,660
Retained earnings (deficit)	2,219	(1,960)
Accumulated other comprehensive loss	(3,257)	(1,390)
Total stockholders' equity	86,496	83,383
Total liabilities and stockholders' equity	$ 587,187	$ 533,557

XML

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Parentheticals) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	15,000,000	15,000,000
Common stock, shares issued	7,445,723	7,326,536
Common stock, shares outstanding	7,445,723	7,326,536

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Interest income:
Loans	$ 5,657	$ 4,062	$ 10,946	$ 7,889
Securities	1,006	628	1,870	1,178
Interest earning deposits and other	201	66	317	121
Total interest income	6,864	4,756	13,133	9,188
Interest expense:
Savings, NOW and money market deposits	167	106	289	215
Time deposits	51	25	98	47
Borrowings	5	5	10	11
Total interest expense	223	136	397	273
Net interest income	6,641	4,620	12,736	8,915
Provision for loan losses	300	300	525	450
Net interest income after provision for loan losses	6,341	4,320	12,211	8,465
Non-interest income:
Total non-interest income	1,980	1,359	4,055	2,564
Non-interest expense:
Employee compensation and benefits	3,008	2,369	6,069	4,714
Occupancy and equipment, net	432	374	858	761
Professional and consulting services	684	516	1,312	905
FDIC and regulatory assessments	83	76	155	147
Advertising and marketing	171	96	296	206
Travel and business relations	111	122	268	228
Data processing	446	409	930	780
Other operating expenses	354	207	673	452
Total non-interest expense	5,289	4,169	10,561	8,193
Net income before income taxes	3,032	1,510	5,705	2,836
Income tax expense	811	483	1,526	994
Net income	$ 2,221	$ 1,027	$ 4,179	$ 1,842
Earnings per common share
Basic (in dollars per share)	$ 0.30	$ 0.20	$ 0.57	$ 0.36
Diluted (in dollars per share)	$ 0.29	$ 0.20	$ 0.54	$ 0.36
Merchant processing income
Non-interest income:
Non-interest income	$ 1,211	$ 831	$ 2,232	$ 1,670
Customer related fees and service charges
Non-interest income:
Non-interest income	$ 769	$ 528	$ 1,823	$ 894

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Statement of Comprehensive Income [Abstract]
Net income	$ 2,221	$ 1,027	$ 4,179	$ 1,842
Other comprehensive (loss) income:
Unrealized holding (losses) gains arising during the period on securities available for sale	(844)	440	(2,572)	623
Reclassification adjustment for net gains included in net income	0	0	0	0
Tax effect	232	(169)	705	(247)
Total other comprehensive (loss) income	(612)	271	(1,867)	376
Total comprehensive income	$ 1,609	$ 1,298	$ 2,312	$ 2,218

XML

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - 6 months ended Jun. 30, 2018 - USD ($) $ in Thousands	Preferred stock	Common stock	Additional paid in capital	Retained earnings (deficit)	Accumulated other comprehensive loss	Total
Balance at Dec. 31, 2017	$ 0	$ 73	$ 86,660	$ (1,960)	$ (1,390)	$ 83,383
Balance (in shares) at Dec. 31, 2017	0	7,326,536
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income				4,179		4,179
Other comprehensive loss					(1,867)	(1,867)
Exercise of stock options, net of repurchases		$ 1	377			378
Exercise of stock options, net of repurchases (in shares)		42,687
Restricted stock grants (in shares)		76,500
Stock compensation expense			423			423
Balance at Jun. 30, 2018	$ 0	$ 74	$ 87,460	$ 2,219	$ (3,257)	$ 86,496
Balance (in shares) at Jun. 30, 2018	0	7,445,723

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash flows from operating activities:
Net income	$ 4,179	$ 1,842
Adjustments to reconcile net income to Net cash used in operating activities:
Provision for loan losses	525	450
Depreciation	205	204
Stock compensation expense	423	288
Net amortization:
Securities	216	196
Loans	198	281
Changes in other assets and liabilities:
Accrued interest receivable	(1,189)	(155)
Deferred tax asset	(161)	413
Other assets	(3,451)	(1,366)
Accrued expenses and other liabilities	1,900	694
Net cash provided by operating activities	2,845	2,847
Cash flows from investing activities:
Net change in loans	(42,893)	(29,161)
Purchases of securities available for sale	(33,822)	(15,398)
Principal repayments on securities available for sale	12,024	11,168
Purchases of securities, restricted	(160)	(200)
Investment in equity security without readily determinable fair value	(2,410)
Purchases of premises and equipment	(152)	(157)
Net cash used in investing activities	(67,413)	(33,748)
Cash flows from financing activities:
Net increase in deposits	48,621	5,575
Decrease in secured borrowings	(4)	(89)
Exercise of stock options	378	540
Proceeds from issuance of common stock, net of issuance costs		21,742
Net cash provided by financing activities	48,995	27,768
Decrease in cash and cash equivalents	(15,573)	(3,133)
Cash and cash equivalents at beginning of the period	43,077	42,993
Cash and cash equivalents at end of the period	27,504	39,860
Cash paid during the period for:
Interest	396	273
Income taxes	$ 1,005	$ 868

XML

Basis of Presentation

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Basis of Presentation

NOTE 1 — Basis of Presentation

The interim consolidated financial statements include the accounts of Esquire Financial Holdings, Inc. and its wholly owned subsidiary, Esquire Bank, N.A. These entities are collectively referred to as “the Company.” All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial information. In the opinion of management, the interim statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis and all such adjustments are recurring in nature. These financial statements and the accompanying notes should be read in conjunction with the Company’s audited financial statements for the years ended December 31, 2017 and 2016. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or any other period.

Subsequent Events

The Company has evaluated subsequent events for recognition and disclosure through the date of issuance.

Equity Security Without Readily Determinable Fair Value

In April of 2018, the Company completed its $2,410 investment for a 4.95% interest in Litify LLC, a technology solution to automate and manage a law firm’s business and cases. As Litify LLC is a private company, the investment does not have a readily determinable fair value. At June 30, 2018, the investment’s carrying amount remains at its original cost basis of $2,410 and is grouped with other assets on the balance sheet. Based on a qualitative assessment, we have noted no significant adverse changes which would indicate the asset is impaired as of June 30, 2018.

Secured Borrowing

The Company had a secured borrowing of $274 and $278 as of June 30, 2018 and December 31, 2017, respectively, relating to certain loan participations sold by the Company that did not qualify for sales treatment.

Preferred Stock

In December of 2014, an investor executed the purchase of 157,985 shares of 0.00% Series B Non-Voting Preferred Shares at a price of $12.50 per share for proceeds, net of offering costs, of approximately $1,800. The preferred stock does not have a maturity date and is not convertible by the holder, but is convertible on a one for one basis into shares of common stock by us under certain circumstances. In addition, the preferred stock does not have a liquidation preference. Preferred shares have equal rights to receive dividends when dividends are declared on common stock, and thus are considered participating securities.

In June of 2016, the Company and the preferred shareholder agreed to perform an exchange of 91,000 shares of 0.00% of Series B non-voting preferred shares for 91,000 voting common shares, par value $0.01.

In July of 2017, the Company and the preferred shareholder agreed to perform an exchange of 66,985 shares of 0.00% of Series B non-voting preferred shares for 66,985 voting common shares, par value $0.01. As of June 30, 2018 and December 31, 2017, there are no preferred shares outstanding.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are now such matters that will have a material effect on the consolidated financial statements.

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current period presentation. Reclassifications had no effect on prior year net income or stockholders’ equity.

New Accounting Pronouncements

Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606)” implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Topic 606 was effective for the Company on January 1, 2018. The Company has applied ASU 2014-09 using the modified retrospective approach to all existing contracts with customers covered under the scope of the standard. The adoption of this ASU was not significant to the Company and had no material effect on how the Company recognizes revenue nor did it result in a cumulative effect adjustment or any presentation changes to the consolidated financial statements. See below for additional information related to revenue generated from contracts with customers.

The majority of the Company's revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit, and investment securities. Descriptions of revenue-generating activities that are within the scope of ASC 606, and are presented in the accompanying Consolidated Statements of Income as components of noninterest income, are as follows:

	Three months ended,				Six months ended,
	June 30,				June 30,
	2018		2017		2018		2017
Non-interest income
Customer related fees  and service charges
Administrative service income	$	688	$	327	$	1,652	$	585
Merchant processing income
Merchant services income		1,129		763		2,070		1,528
ACH income		82		68		162		142
Other		81		201		171		309
Total non-interest income	$	1,980	$	1,359	$	4,055	$	2,564

The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affect the determination of the amount and timing of revenue from the above-described contracts with customers.

· Administrative service income – Administrative service income is derived from our relationships with qualified settlement funds (QSFs), which are plaintiffs’ funds from settled class action lawsuits. Our performance obligations with the QSFs are outlined in the master settlement agreements (MSAs), essentially court orders, and are limited to ensuring funds are invested into safe investment vehicles such as U.S. treasuries, FDIC insured CDs and money market funds. Our fees for placing these funds in appropriate vehicles are earned over the course of a month, representing the period over which the Company satisfies the performance obligation.

· Merchant services income – We provide merchant services as an acquiring bank through the third-party or ISO business model in which we process credit and debit card transactions on behalf of merchants. We enter into a tri-party merchant agreement, between the company, ISO and each merchant. The Company’s performance obligation is essentially acquiring, clearing and settling credit and debit transactions on behalf of the ISO’s merchants. The Company only recognizes revenue once a month, once it summarizes and computes all revenue and expenses applicable to each ISO. By this juncture, it has satisfied its performance obligation.

· ACH income – We provide ACH services for various commercial customers. Contracts are entered into with third parties that need ACH transactions processed on behalf of their customers. Fees are variable and based on the number volume of transactions within a given month. Our performance obligations are processing and settling ACH's on behalf of the customers as an originating depository financial institution. Our obligation is satisfied within each business day when the transactions (ACH files) are sent to the Federal Reserve Bank for clearing. Revenue is recognized when we send a bill to commercial customer based on the total volume of transactions processed that month.

· Other – The other category includes revenue from service charges on deposit accounts, debit card interchange fees, which are within scope of ASC 606, revenue is recognized as performance obligations are satisfied.

On January 5, 2016, the FASB issued ASU 2016-01, “Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (the ASU). Under this ASU, the current GAAP model is changed in the areas of accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The ASU will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Adoption of this standard did not have a material effect on the Company’s operating results or financial condition. However, the Company did enhance its computation of fair value of loans (as disclosed in Note 6) to comply with the exit price notion as required by the ASU.

On February 25, 2016, the FASB completed its Leases project by issuing ASU No. 2017-02, “Leases (Topic 842).” The new guidance affects any organization that enters into a lease, or sublease, with some specified exemptions. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new ASU will require both types of leases to be recognized on the balance sheet. The ASU will also require expanded disclosures. The ASU on leases will take effect for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The Company is currently reviewing its existing lease contracts and service contracts that may include embedded leases.

On June 16, 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (the ASU). This ASU replaces the incurred loss model with an expected loss model, referred to as “current expected credit loss” (CECL) model. It will significantly change estimates for credit losses related to financial assets measured at amortized cost, including loans receivable, held-to-maturity (HTM) debt securities and certain other contracts. This ASU will be effective for the Company in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently gathering data and building a roadmap for the implementation of this standard.

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Securities

6 Months Ended

Jun. 30, 2018

Investments, Debt and Equity Securities [Abstract]

Securities

NOTE 2 — Securities

Available-for-Sale Securities

The amortized cost, gross unrealized gains and losses and estimated fair value of securities available for sale were as follows:

	Amortized  Cost		Gross  Unrealized  Gains		Gross  Unrealized  Losses			Fair Value
June 30, 2018
Mortgage-backed securities - agency	$	20,071	$	-	$	(774	)	$	19,297
Collateralized mortgage obligations (CMO's) - agency		132,183		11		(3,723	)		128,471
Total available-for-sale	$	152,254	$	11	$	(4,497	)	$	147,768
December 31, 2017
Mortgage-backed securities - agency	$	20,082	$	12	$	(291	)	$	19,803
Collateralized mortgage obligations (CMO's) - agency		110,590		13		(1,648	)		108,955
Total available-for-sale	$	130,672	$	25	$	(1,939	)	$	128,758

The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. We have no securities due at a single maturity. Securities not due at a single maturity date are shown below. 

	June 30, 2018
	Amortized Cost		Fair Value
Mortgage-backed securities - agency	$	20,071	$	19,297
CMO's - agency		132,183		128,471
Total	$	152,254	$	147,768

Mortgage-backed securities include residential pass-through certificates guaranteed by FHLMC, FNMA, or GNMA and the CMO’s are backed by government agency pass-through certificates. The 2018 and 2017 pass-through certificates are fixed rate instruments. CMO’s, by virtue of the underlying residential collateral or structure, are fixed rate current pay sequentials or planned amortization classes (PAC’s).

When purchasing investment securities, the Company’s overall interest-rate risk profile is considered as well as the adequacy of expected returns relative to risks assumed, including prepayments. In managing the investment securities portfolio, management occasionally sells investment securities in response to, or in anticipation of, changes in interest rates and spreads, actual or anticipated prepayments, liquidity needs and credit risk associated with a particular security.

There were no sales or calls of securities for the three and six months ended June 30, 2018 and 2017.

At June 30, 2018, securities having a fair value of $128,471 were pledged to the Federal Home Loan Bank of New York (FHLB) for borrowing capacity totaling $123,171. At December 31, 2017, securities having a fair value of approximately $108,955 were pledged to the FHLB for borrowing capacity totaling $103,351. At June 30, 2018 and December 31, 2017, the Company had no outstanding FHLB advances.

At June 30, 2018, securities having a fair value of $19,297 were pledged to the Federal Reserve Bank of New York (FRB) for borrowing capacity totaling $17,608. At December 31, 2017, securities having a fair value of approximately $19,803 were pledged to the FRB for borrowing capacity totaling $19,370. At June 30, 2018 and December 31, 2017, the Company had no outstanding FRB borrowings.

The following table provides the gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of:

	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Gross  Unrealized  Losses			Fair Value		Gross  Unrealized  Losses			Fair Value		Gross  Unrealized  Losses
June 30, 2018
Mortgage-backed securities - agency	$	7,936	$	(286	)	$	11,361	$	(488	)	$	19,297	$	(774	)
CMO's – agency		97,801		(2,227	)		25,889		(1,496	)		123,690		(3,723	)
Total temporarily impaired securities	$	105,737	$	(2,513	)	$	37,250	$	(1,984	)	$	142,987	$	(4,497	)
December 31, 2017
Mortgage-backed securities - agency	$	5,766	$	(26	)	$	12,312	$	(265	)	$	18,078	$	(291	)
CMO's - agency		75,056		(685	)		28,848		(963	)		103,904		(1,648	)
Total temporarily impaired securities	$	80,822	$	(711	)	$	41,160	$	(1,228	)	$	121,982	$	(1,939	)

Management reviews the investment portfolio on a quarterly basis to determine the cause, magnitude and duration of declines in the fair value of each security. In estimating other-than-temporary impairment (OTTI), management considers many factors including: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The assessment of whether any other than temporary decline exists may involve a high degree of subjectivity and judgment and is based on the information available to management at a point in time. Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

At June 30, 2018, securities in unrealized loss positions were issuances from government sponsored entities. Due to the decline in fair value being attributable to changes in interest rates, not credit quality and because the Company does not have the intent to sell the securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider the securities to be other-than-temporarily impaired at June 30, 2018.

No impairment charges were recorded for the three and six months ended June 30, 2018 and 2017.

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Loans

6 Months Ended

Jun. 30, 2018

Receivables [Abstract]

Loans

NOTE 3 — Loans

The composition of loans by class is summarized as follows:

	June 30, 2018			% of Total			December 31, 2017			% of Total
1-4 family residential	$	57,522			15	%	$	51,556			15	%
Commercial		147,419			38	%		136,412			39	%
Multifamily		115,597			29	%		98,432			28	%
Commercial real estate		31,539			8	%		24,761			7	%
Construction		6,618			2	%		5,047			2	%
Consumer		32,139			8	%		31,881			9	%
Total Loans		390,834			100	%		348,089			100	%
Deferred costs and unearned premiums, net		839						889
Allowance for loan losses		(4,789	)					(4,264	)
Net loans	$	386,884					$	344,714

The following tables present the activity in the allowance for loan losses by class for the three months ending June 30, 2018 and 2017:

	1-4 Family							Commercial
	Residential		Commercial		Multifamily			Real Estate			Construction		Consumer			Total
June 30, 2018
Allowance for loan losses:
Beginning balance	$	378	$	2,485	$	696		$	262		$	151	$	517		$	4,489
Provision (credit) for loan losses		47		33		130			83			17		(10	)		300
Recoveries		-		-		-			-			-		-			-
Loans charged-off		-		-		-			-			-		-			-
Total ending allowance balance	$	425	$	2,518	$	826		$	345		$	168	$	507		$	4,789
June 30, 2017
Allowance for loan losses:
Beginning balance	$	350	$	2,039	$	669		$	227		$	102	$	136		$	3,523
Provision (credit) for loan losses		8		115		(5	)		(1	)		7		176			300
Recoveries		-		-		-			-			-		-			-
Loans charged-off		-		-		-			-			-		-			-
Total ending allowance balance	$	358	$	2,154	$	664		$	226		$	109	$	312		$	3,823

The following tables present the activity in the allowance for loan losses by class for the six months ending June 30, 2018 and 2017:

	1-4 Family							Commercial
	Residential			Commercial		Multifamily		Real Estate			Construction			Consumer			Total
June 30, 2018
Allowance for loan losses:
Beginning balance	$	382		$	2,272	$	713	$	266		$	127		$	504		$	4,264
Provision for loan losses		43			246		113		79			41			3			525
Recoveries		-			-		-		-			-			-			-
Loans charged-off		-			-		-		-			-			-			-
Total ending allowance balance	$	425		$	2,518	$	826	$	345		$	168		$	507		$	4,789
June 30, 2017
Allowance for loan losses:
Beginning balance	$	360		$	1,934	$	621	$	238		$	141		$	119		$	3,413
Provision (credit) for loan losses		(2	)		220		43		(12	)		(32	)		233			450
Recoveries		-			-		-		-			-			-			-
Loans charged-off		-			-		-		-			-			(40	)		(40	)
Total ending allowance balance	$	358		$	2,154	$	664	$	226		$	109		$	312		$	3,823

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by class and based on impairment method as of June 30, 2018 and December 31, 2017:

	1-4 Family						Commercial
	Residential		Commercial		Multifamily		Real Estate		Construction		Consumer		Total
June 30, 2018
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		425		2,518		826		345		168		507		4,789
Total ending allowance balance	$	425	$	2,518	$	826	$	345	$	168	$	507	$	4,789

	1-4 Family						Commercial
	Residential		Commercial		Multifamily		Real Estate		Construction		Consumer		Total
Loans:
Loans individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans collectively evaluated for impairment		57,522		147,419		115,597		31,539		6,618		32,139		390,834
Total ending loans balance	$	57,522	$	147,419	$	115,597	$	31,539	$	6,618	$	32,139	$	390,834

Recorded investment is not adjusted for accrued interest, deferred costs, and unearned premiums due to immateriality.

	1-4 Family						Commercial
	Residential		Commercial		Multifamily		Real Estate		Construction		Consumer		Total
December 31, 2017
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		382		2,272		713		266		127		504		4,264
Total ending allowance balance	$	382	$	2,272	$	713	$	266	$	127	$	504	$	4,264
Loans:
Loans individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans collectively evaluated for impairment		51,556		136,412		98,432		24,761		5,047		31,881		348,089
Total ending loans balance	$	51,556	$	136,412	$	98,432	$	24,761	$	5,047	$	31,881	$	348,089

Non-Performing Loans

Non-performing loans include loans 90 days past due and still accruing and non-accrual loans. At June 30, 2018 and December 31, 2017, the Company did not have any non-performing loans.

The following tables present the aging of the recorded investment in past due loans by class of loans as of June 30, 2018 and December 31, 2017:

	30-59  Days  Past Due		60-89  Days  Past Due		Greater  than 90  Days Past Due		Total  Past Due		Loans Not Past Due		Total
June 30, 2018
1-4 family residential	$	-	$	-	$	-	$	-	$	57,522	$	57,522
Commercial		-		-		-		-		147,419		147,419
Multifamily		-		-		-		-		115,597		115,597
Commercial real estate		-		-		-		-		31,539		31,539
Construction		-		-		-		-		6,618		6,618
Consumer		-		-		-		-		32,139		32,139
Total	$	-	$	-	$	-	$	-	$	390,834	$	390,834

	30-59  Days  Past Due		60-89  Days  Past Due		Greater  than 90  Days Past Due		Total  Past Due		Loans Not Past Due		Total
December 31, 2017
1-4 family residential	$	-	$	-	$	-	$	-	$	51,556	$	51,556
Commercial		-		-		-		-		136,412		136,412
Multifamily		-		-		-		-		98,432		98,432
Commercial real estate		-		-		-		-		24,761		24,761
Construction		-		-		-		-		5,047		5,047
Consumer		-		-		-		-		31,881		31,881
Total	$	-	$	-	$	-	$	-	$	348,089	$	348,089

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed whenever a credit is extended, renewed or modified, or when an observable event occurs indicating a potential decline in credit quality, and no less than annually for large balance loans.

The Company uses the following definitions for risk ratings:

Special Mention - Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with

the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered

to be pass rated loans.

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	Pass		Special Mention		Substandard		Doubtful
June 30, 2018
1-4 family residential	$	57,522	$	-	$	-	$	-
Commercial		137,710		9,499		210		-
Multifamily		115,597		-		-		-
Commercial real estate		31,539		-		-		-
Construction		6,618		-		-		-
Consumer		32,139		-		-		-
Total	$	381,125	$	9,499	$	210	$	-

	Pass		Special Mention		Substandard		Doubtful
December 31, 2017
1-4 family residential	$	51,556	$	-	$	-	$	-
Commercial		126,577		9,835		-		-
Multifamily		98,432		-		-		-
Commercial real estate		24,761		-		-		-
Construction		5,047		-		-		-
Consumer		31,881		-		-		-
Total	$	338,254	$	9,835	$	-	$	-

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

The Company has no loans identified as troubled debt restructurings at June 30, 2018 and December 31, 2017. Furthermore, there were no loans modified during the three and six months ended June 30, 2018 and 2017 as troubled debt restructurings. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

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Share-Based Payment Plans

6 Months Ended

Jun. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Payment Plans

NOTE 4 — Share-Based Payment Plans

The Company issues incentive and non-statutory stock options and restricted stock awards to certain employees and directors pursuant to its equity incentive plans, which have been approved by the stockholders. Share-based awards are recommended by the Compensation Committee of the Board of Directors, which are then approved by the full Board.

At June 30, 2018, there are options outstanding and/or restricted stock awards from three plans, the 2007 Stock Option Plan (“the 2007 Plan”) the 2011 Stock Compensation Plan (“the 2011 Plan”) and the 2017 Equity Incentive Plan (“the 2017 Plan”). The 2007 Plan allowed for a maximum of 270,000 shares of common stock to be issued. The 2007 Plan expired in May of 2017. The 2011 Plan allows for 754,607 shares to be issued, of which 750,545 have been issued as of June 30, 2018. The 2017 Plan allows for a maximum of 300,000 shares of common stock to be issued. During the first quarter of 2018 the Company granted 45,000 stock options and 76,500 restricted shares from the 2017 Plan.

Under the plans, options are granted with an exercise price equal to the fair value of the Company’s stock at the date of the grant. Options granted vest over three or five years and have ten year contractual terms. All options provide for accelerated vesting upon a change in control (as defined in the plans). Restricted shares are granted at the fair value on the date of grant and typically vest over 6 years with a third vesting after years four, five, and six. Restricted shares have the same voting rights as common stock. Nonvested restricted shares do not have rights to dividends.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on the Company’s stock price activity. The expected term of options granted represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

There were no stock options granted during the three months ended June 30, 2018 or during the three and six months ended June 30, 2017. The fair value of options granted during the six months ended June 30, 2018 was determined using the following weighted average assumptions as of the grant date:

	2018
Risk-Free Interest Rate		2.54	%
Expected Term		84 months
Expected Stock Price Volatility		21.0	%
Dividend Yield		0.00	%
Weighted Average Fair Value	$	5.63

The following table presents a summary of the activity related to options as of June 30, 2018:

						Weighted
				Weighted		Average
				Average		Remaining
				Exercise		Contractual
	Options			Price		Life (Years)
June 30, 2018
Outstanding at beginning of year		880,925		$	12.36
Granted		45,000			19.25
Exercised		(47,750	)		10.00
Forfeited		(1,500	)		19.25
Outstanding at period end		876,675		$	12.83		7.18
Vested or expected to vest		876,675		$	12.83		7.18
Exercisable at period end		310,218		$	12.50		6.05

The Company recognized compensation expense related to options of $163 and $151 for the three months ended June 30, 2018 and 2017, respectively. The Company recognized compensation expense related to options of $317 and $288 for the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018, unrecognized compensation cost related to non-vested options was approximately $1,559 and is expected to be recognized over a weighted average period of 2.64 years. The intrinsic value for outstanding options and for options vested or expected to vest was $11,883 and $4,309 for exercisable options at June 30, 2018.

The following table presents a summary of the activity related to restricted stock as of June 30, 2018:

			Weighted Average
			Grant Date
	Shares		Fair Value
Non-vested Shares
Outstanding at beginning of year		-	$	-
Granted		76,500		19.25
Vested or expected to vest		-		-
Outstanding at period end		76,500	$	19.25

The Company recognized compensation expense related to restricted stock of $61 and zero for the three months ended June 30, 2018 and 2017, respectively. The Company recognized compensation expense related to restricted stock of $106 and zero for the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018, there was $1,366 of total unrecognized compensation cost related to non-vested shares granted under the plan. The cost is expected to be recognized over a weighted-average period of 5.57 years.

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Earnings per Share

6 Months Ended

Jun. 30, 2018

Earnings per Share

Earnings per Share

NOTE 5 — Earnings per Share

The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to participation rights in undistributed earnings. Our preferred shares are considered participating securities. The factors used in the earnings per share computation follow:

	Three months ended				Six months ended
	At June 30,				At June 30,
	2018		2017		2018		2017
Basic
Net income available to common shareholders	$	2,221	$	1,027	$	4,179	$	1,842
Less: Earnings allocated to preferred stock		-		13		-		24
Net income allocated to common shareholders	$	2,221	$	1,014	$	4,179	$	1,818
Weighted average common shares outstanding		7,369,223		5,075,019		7,366,950		5,039,197
Basic earnings per common share	$	0.30	$	0.20	$	0.57	$	0.36
Diluted
Net income allocated to common shareholders for basic earnings per share	$	2,221	$	1,014	$	4,179	$	1,818
Weighted average shares outstanding for basic earnings per common share		7,369,223		5,075,019		7,366,950		5,039,197
Add: Dilutive effects of assumed exercises of stock options		346,792		25,589		323,853		30,202
Average shares and dilutive potential common shares		7,716,015		5,100,608		7,690,803		5,069,399
Diluted earnings per common share	$	0.29	$	0.20	$	0.54	$	0.36
Stock options not considered in computing diluted earnings per share because they were anti-dilutive		-		775,425		43,500		779,425

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Fair Value Measurements

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

NOTE 6 — Fair Value Measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values.

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

For available-for-sale securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).

Assets and liabilities measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements Using
	Quoted Prices In  Active Markets For  Identical Assets		Significant  Other  Observable  Inputs		Significant  Unobservable  Inputs
	(Level 1)		(Level 2)		(Level 3)
June 30, 2018
Assets
Available-for-sale securities
Mortgage-backed securities - agency	$	-	$	19,297	$	-
CMO's - agency		-		128,471		-
Total	$	-	$	147,768	$	-
December 31, 2017
Assets
Available-for-sale securities
Mortgage-backed securities - agency	$	-	$	19,803	$	-
CMO's - agency		-		108,955		-
Total	$	-	$	128,758	$	-

There were no transfers between Level 1 and Level 2 during the three and six months ended June 30, 2018 and 2017. There were no assets measured on a non-recurring basis as of June 30, 2018 and December 31, 2017.

The following tables present the carrying amounts and fair values (represents exit price) of financial instruments at June 30, 2018 and December 31, 2017:

			Fair Value Measurement at June 30, 2018, Using:
	Carrying
	Value			(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	27,504		$	589	$	26,915	$	-	$	27,504
Securities available for sale		147,768			-		147,768		-		147,768
Securities, restricted		2,343			N/A		N/A		N/A		N/A
Loans, net of allowance		386,884			-		-		384,305		384,305
Accrued interest receivable		4,025			-		368		3,657		4,025
Financial Liabilities:
Time deposits		16,449			-		16,353		-		16,353
Demand and other deposits		480,666			480,666		-		-		480,666
Secured borrowings		274			-		274		-		274
Accrued interest payable		7			-		7		-		7

			Fair Value Measurement at December 31, 2017, Using:
	Carrying
	Value		(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	43,077	$	471	$	42,606	$	-	$	43,077
Securities available for sale		128,758		-		128,758		-		128,758
Securities, restricted		2,183		N/A		N/A		N/A		N/A
Loans, net of allowance		344,714		-		-		345,540		345,540
Accrued interest receivable		2,836		-		300		2,536		2,836
Financial Liabilities:
Time deposits		26,932		-		26,847		-		26,847
Demand and other deposits		421,562		421,562		-		-		421,562
Secured borrowings		278		-		278		-		278
Accrued interest payable		6		-		6		-		6

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Accumulated Other Comprehensive (Loss) Income

6 Months Ended

Jun. 30, 2018

Statement of Comprehensive Income [Abstract]

Accumulated Other Comprehensive (Loss) Income

NOTE 7 — Accumulated Other Comprehensive (Loss) Income

The following is changes in accumulated other comprehensive (loss) income by component, net of tax for the three and six months ending June 30, 2018 and 2017:

	Three months ended						Six months ended
	At June 30,						At June 30,
	2018			2017			2018			2017
Unrealized Gains on Available for Sale Securities
Beginning balance	$	(2,645	)	$	(779	)	$	(1,390	)	$	(884	)
Other comprehensive (loss) income before reclassifications		(612	)		271			(1,867	)		376
Amounts reclassified from accumulated other comprehensive income		-			-			-			-
Net current period other comprehensive (loss) income		(612	)		271			(1,837	)		376
Ending balance	$	(3,257	)	$	(508	)	$	(3,257	)	$	(508	)

The following represents the reclassifications out of accumulated other comprehensive loss for the three and six months ended June 30, 2018, and 2017:

	Three months ended				Six months ended
	At June 30,				At June 30,
	2018		2017		2018		2017
Realized gain on securities sales	$	-	$	-	$	-	$	-
Income tax expense		-		-		-		-
Total reclassifications, net of tax	$	-	$	-	$	-	$	-

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Accounting Policy (Policies)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The interim consolidated financial statements include the accounts of Esquire Financial Holdings, Inc. and its wholly owned subsidiary, Esquire Bank, N.A. These entities are collectively referred to as “the Company.” All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial information. In the opinion of management, the interim statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis and all such adjustments are recurring in nature. These financial statements and the accompanying notes should be read in conjunction with the Company’s audited financial statements for the years ended December 31, 2017 and 2016. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or any other period.

Subsequent Events

Subsequent Events

The Company has evaluated subsequent events for recognition and disclosure through the date of issuance.

Equity Security Without Readily Determinable Fair Value

Equity Security Without Readily Determinable Fair Value

In April of 2018, the Company completed its $2,410 investment for a 4.95% interest in Litify LLC, a technology solution to automate and manage a law firm’s business and cases. As Litify LLC is a private company, the investment does not have a readily determinable fair value. At June 30, 2018, the investment’s carrying amount remains at its original cost basis of $2,410 and is grouped with other assets on the balance sheet. Based on a qualitative assessment, we have noted no significant adverse changes which would indicate the asset is impaired as of June 30, 2018.

Secured Borrowing

Secured Borrowing

The Company had a secured borrowing of $274 and $278 as of June 30, 2018 and December 31, 2017, respectively, relating to certain loan participations sold by the Company that did not qualify for sales treatment.

Preferred Stock

Preferred Stock

In December of 2014, an investor executed the purchase of 157,985 shares of 0.00% Series B Non-Voting Preferred Shares at a price of $12.50 per share for proceeds, net of offering costs, of approximately $1,800. The preferred stock does not have a maturity date and is not convertible by the holder, but is convertible on a one for one basis into shares of common stock by us under certain circumstances. In addition, the preferred stock does not have a liquidation preference. Preferred shares have equal rights to receive dividends when dividends are declared on common stock, and thus are considered participating securities.

In June of 2016, the Company and the preferred shareholder agreed to perform an exchange of 91,000 shares of 0.00% of Series B non-voting preferred shares for 91,000 voting common shares, par value $0.01.

In July of 2017, the Company and the preferred shareholder agreed to perform an exchange of 66,985 shares of 0.00% of Series B non-voting preferred shares for 66,985 voting common shares, par value $0.01. As of June 30, 2018 and December 31, 2017, there are no preferred shares outstanding.

Loss Contingencies

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are now such matters that will have a material effect on the consolidated financial statements.

Reclassifications

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current period presentation. Reclassifications had no effect on prior year net income or stockholders’ equity.

New Accounting Pronouncements

New Accounting Pronouncements

Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606)” implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Topic 606 was effective for the Company on January 1, 2018. The Company has applied ASU 2014-09 using the modified retrospective approach to all existing contracts with customers covered under the scope of the standard. The adoption of this ASU was not significant to the Company and had no material effect on how the Company recognizes revenue nor did it result in a cumulative effect adjustment or any presentation changes to the consolidated financial statements. See below for additional information related to revenue generated from contracts with customers.

The majority of the Company's revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit, and investment securities. Descriptions of revenue-generating activities that are within the scope of ASC 606, and are presented in the accompanying Consolidated Statements of Income as components of noninterest income, are as follows:

	Three months ended,				Six months ended,
	June 30,				June 30,
	2018		2017		2018		2017
Non-interest income
Customer related fees  and service charges
Administrative service income	$	688	$	327	$	1,652	$	585
Merchant processing income
Merchant services income		1,129		763		2,070		1,528
ACH income		82		68		162		142
Other		81		201		171		309
Total non-interest income	$	1,980	$	1,359	$	4,055	$	2,564

The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affect the determination of the amount and timing of revenue from the above-described contracts with customers.

· Administrative service income – Administrative service income is derived from our relationships with qualified settlement funds (QSFs), which are plaintiffs’ funds from settled class action lawsuits. Our performance obligations with the QSFs are outlined in the master settlement agreements (MSAs), essentially court orders, and are limited to ensuring funds are invested into safe investment vehicles such as U.S. treasuries, FDIC insured CDs and money market funds. Our fees for placing these funds in appropriate vehicles are earned over the course of a month, representing the period over which the Company satisfies the performance obligation.

· Merchant services income - We provide merchant services as an acquiring bank through the third-party or ISO business model in which we process credit and debit card transactions on behalf of merchants. We enter into a tri-party merchant agreement, between the company, ISO and each merchant. The Company’s performance obligation is essentially acquiring, clearing and settling credit and debit transactions on behalf of the ISO’s merchants. The Company only recognizes revenue once a month, once it summarizes and computes all revenue and expenses applicable to each ISO. By this juncture, it has satisfied its performance obligation.

· ACH income - We provide ACH services for various commercial customers. Contracts are entered into with third parties that need ACH transactions processed on behalf of their customers. Fees are variable and based on the number volume of transactions within a given month. Our performance obligations are processing and settling ACH's on behalf of the customers as an originating depository financial institution. Our obligation is satisfied within each business day when the transactions (ACH files) are sent to the Federal Reserve Bank for clearing. Revenue is recognized when we send a bill to commercial customer based on the total volume of transactions processed that month.

· Other – The other category includes revenue from service charges on deposit accounts, debit card interchange fees, which are within scope of ASC 606, revenue is recognized as performance obligations are satisfied.

On January 5, 2016, the FASB issued ASU 2016-01, “Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (the ASU). Under this ASU, the current GAAP model is changed in the areas of accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The ASU will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Adoption of this standard did not have a material effect on the Company’s operating results or financial condition. However, the Company did enhance its computation of fair value of loans (as disclosed in Note 6) to comply with the exit price notion as required by the ASU.

On February 25, 2016, the FASB completed its Leases project by issuing ASU No. 2017-02, “Leases (Topic 842).” The new guidance affects any organization that enters into a lease, or sublease, with some specified exemptions. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new ASU will require both types of leases to be recognized on the balance sheet. The ASU will also require expanded disclosures. The ASU on leases will take effect for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The Company is currently reviewing its existing lease contracts and service contracts that may include embedded leases.

On June 16, 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (the ASU). This ASU replaces the incurred loss model with an expected loss model, referred to as “current expected credit loss” (CECL) model. It will significantly change estimates for credit losses related to financial assets measured at amortized cost, including loans receivable, held-to-maturity (HTM) debt securities and certain other contracts. This ASU will be effective for the Company in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently gathering data and building a roadmap for the implementation of this standard.

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Basis of Presentation (Tables)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Schedule of noninterest income

	Three months ended,				Six months ended,
	June 30,				June 30,
	2018		2017		2018		2017
Non-interest income
Customer related fees  and service charges
Administrative service income	$	688	$	327	$	1,652	$	585
Merchant processing income
Merchant services income		1,129		763		2,070		1,528
ACH income		82		68		162		142
Other		81		201		171		309
Total non-interest income	$	1,980	$	1,359	$	4,055	$	2,564

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Securities (Tables)

6 Months Ended

Jun. 30, 2018

Investments, Debt and Equity Securities [Abstract]

Schedule of amortized cost, gross unrealized gains and losses and estimated fair value of securities available-for-sale

	Amortized  Cost		Gross  Unrealized  Gains		Gross  Unrealized  Losses			Fair Value
June 30, 2018
Mortgage-backed securities - agency	$	20,071	$	-	$	(774	)	$	19,297
Collateralized mortgage obligations (CMO's) - agency		132,183		11		(3,723	)		128,471
Total available-for-sale	$	152,254	$	11	$	(4,497	)	$	147,768
December 31, 2017
Mortgage-backed securities - agency	$	20,082	$	12	$	(291	)	$	19,803
Collateralized mortgage obligations (CMO's) - agency		110,590		13		(1,648	)		108,955
Total available-for-sale	$	130,672	$	25	$	(1,939	)	$	128,758

Schedule of amortized cost and fair value of debt securities by contractual maturity

	June 30, 2018
	Amortized Cost		Fair Value
Mortgage-backed securities - agency	$	20,071	$	19,297
CMO's - agency		132,183		128,471
Total	$	152,254	$	147,768

Schedule of gross unrealized losses and fair value, securities in continuous unrealized loss position

	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Gross  Unrealized  Losses			Fair Value		Gross  Unrealized  Losses			Fair Value		Gross  Unrealized  Losses
June 30, 2018
Mortgage-backed securities - agency	$	7,936	$	(286	)	$	11,361	$	(488	)	$	19,297	$	(774	)
CMO's – agency		97,801		(2,227	)		25,889		(1,496	)		123,690		(3,723	)
Total temporarily impaired securities	$	105,737	$	(2,513	)	$	37,250	$	(1,984	)	$	142,987	$	(4,497	)
December 31, 2017
Mortgage-backed securities - agency	$	5,766	$	(26	)	$	12,312	$	(265	)	$	18,078	$	(291	)
CMO's - agency		75,056		(685	)		28,848		(963	)		103,904		(1,648	)
Total temporarily impaired securities	$	80,822	$	(711	)	$	41,160	$	(1,228	)	$	121,982	$	(1,939	)

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Loans (Tables)

6 Months Ended

Jun. 30, 2018

Receivables [Abstract]

Schedule of composition of loans

	June 30, 2018			% of Total			December 31, 2017			% of Total
1-4 family residential	$	57,522			15	%	$	51,556			15	%
Commercial		147,419			38	%		136,412			39	%
Multifamily		115,597			29	%		98,432			28	%
Commercial real estate		31,539			8	%		24,761			7	%
Construction		6,618			2	%		5,047			2	%
Consumer		32,139			8	%		31,881			9	%
Total Loans		390,834			100	%		348,089			100	%
Deferred costs and unearned premiums, net		839						889
Allowance for loan losses		(4,789	)					(4,264	)
Net loans	$	386,884					$	344,714

Schedule of activity in allowance for loan losses

	1-4 Family							Commercial
	Residential		Commercial		Multifamily			Real Estate			Construction		Consumer			Total
June 30, 2018
Allowance for loan losses:
Beginning balance	$	378	$	2,485	$	696		$	262		$	151	$	517		$	4,489
Provision (credit) for loan losses		47		33		130			83			17		(10	)		300
Recoveries		-		-		-			-			-		-			-
Loans charged-off		-		-		-			-			-		-			-
Total ending allowance balance	$	425	$	2,518	$	826		$	345		$	168	$	507		$	4,789
June 30, 2017
Allowance for loan losses:
Beginning balance	$	350	$	2,039	$	669		$	227		$	102	$	136		$	3,523
Provision (credit) for loan losses		8		115		(5	)		(1	)		7		176			300
Recoveries		-		-		-			-			-		-			-
Loans charged-off		-		-		-			-			-		-			-
Total ending allowance balance	$	358	$	2,154	$	664		$	226		$	109	$	312		$	3,823

	1-4 Family							Commercial
	Residential			Commercial		Multifamily		Real Estate			Construction			Consumer			Total
June 30, 2018
Allowance for loan losses:
Beginning balance	$	382		$	2,272	$	713	$	266		$	127		$	504		$	4,264
Provision for loan losses		43			246		113		79			41			3			525
Recoveries		-			-		-		-			-			-			-
Loans charged-off		-			-		-		-			-			-			-
Total ending allowance balance	$	425		$	2,518	$	826	$	345		$	168		$	507		$	4,789
June 30, 2017
Allowance for loan losses:
Beginning balance	$	360		$	1,934	$	621	$	238		$	141		$	119		$	3,413
Provision (credit) for loan losses		(2	)		220		43		(12	)		(32	)		233			450
Recoveries		-			-		-		-			-			-			-
Loans charged-off		-			-		-		-			-			(40	)		(40	)
Total ending allowance balance	$	358		$	2,154	$	664	$	226		$	109		$	312		$	3,823

	1-4 Family						Commercial
	Residential		Commercial		Multifamily		Real Estate		Construction		Consumer		Total
June 30, 2018
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		425		2,518		826		345		168		507		4,789
Total ending allowance balance	$	425	$	2,518	$	826	$	345	$	168	$	507	$	4,789

	1-4 Family						Commercial
	Residential		Commercial		Multifamily		Real Estate		Construction		Consumer		Total
Loans:
Loans individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans collectively evaluated for impairment		57,522		147,419		115,597		31,539		6,618		32,139		390,834
Total ending loans balance	$	57,522	$	147,419	$	115,597	$	31,539	$	6,618	$	32,139	$	390,834

	1-4 Family						Commercial
	Residential		Commercial		Multifamily		Real Estate		Construction		Consumer		Total
December 31, 2017
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		382		2,272		713		266		127		504		4,264
Total ending allowance balance	$	382	$	2,272	$	713	$	266	$	127	$	504	$	4,264
Loans:
Loans individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans collectively evaluated for impairment		51,556		136,412		98,432		24,761		5,047		31,881		348,089
Total ending loans balance	$	51,556	$	136,412	$	98,432	$	24,761	$	5,047	$	31,881	$	348,089

Schedule of aging of recorded investment in past due loans

	30-59  Days  Past Due		60-89  Days  Past Due		Greater  than 90  Days Past Due		Total  Past Due		Loans Not Past Due		Total
June 30, 2018
1-4 family residential	$	-	$	-	$	-	$	-	$	57,522	$	57,522
Commercial		-		-		-		-		147,419		147,419
Multifamily		-		-		-		-		115,597		115,597
Commercial real estate		-		-		-		-		31,539		31,539
Construction		-		-		-		-		6,618		6,618
Consumer		-		-		-		-		32,139		32,139
Total	$	-	$	-	$	-	$	-	$	390,834	$	390,834

	30-59  Days  Past Due		60-89  Days  Past Due		Greater  than 90  Days Past Due		Total  Past Due		Loans Not Past Due		Total
December 31, 2017
1-4 family residential	$	-	$	-	$	-	$	-	$	51,556	$	51,556
Commercial		-		-		-		-		136,412		136,412
Multifamily		-		-		-		-		98,432		98,432
Commercial real estate		-		-		-		-		24,761		24,761
Construction		-		-		-		-		5,047		5,047
Consumer		-		-		-		-		31,881		31,881
Total	$	-	$	-	$	-	$	-	$	348,089	$	348,089

Schedule of risk category of loans

	Pass		Special Mention		Substandard		Doubtful
June 30, 2018
1-4 family residential	$	57,522	$	-	$	-	$	-
Commercial		137,710		9,499		210		-
Multifamily		115,597		-		-		-
Commercial real estate		31,539		-		-		-
Construction		6,618		-		-		-
Consumer		32,139		-		-		-
Total	$	381,125	$	9,499	$	210	$	-

	Pass		Special Mention		Substandard		Doubtful
December 31, 2017
1-4 family residential	$	51,556	$	-	$	-	$	-
Commercial		126,577		9,835		-		-
Multifamily		98,432		-		-		-
Commercial real estate		24,761		-		-		-
Construction		5,047		-		-		-
Consumer		31,881		-		-		-
Total	$	338,254	$	9,835	$	-	$	-

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Share-Based Payment Plans (Tables)

6 Months Ended

Jun. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of fair value of weighted-average assumptions of options granted

	2018
Risk-Free Interest Rate		2.54	%
Expected Term		84 months
Expected Stock Price Volatility		21.0	%
Dividend Yield		0.00	%
Weighted Average Fair Value	$	5.63

Schedule of option activity

						Weighted
				Weighted		Average
				Average		Remaining
				Exercise		Contractual
	Options			Price		Life (Years)
June 30, 2018
Outstanding at beginning of year		880,925		$	12.36
Granted		45,000			19.25
Exercised		(47,750	)		10.00
Forfeited		(1,500	)		19.25
Outstanding at period end		876,675		$	12.83		7.18
Vested or expected to vest		876,675		$	12.83		7.18
Exercisable at period end		310,218		$	12.50		6.05

Schedule of activity related to restricted stock

			Weighted Average
			Grant Date
	Shares		Fair Value
Non-vested Shares
Outstanding at beginning of year		-	$	-
Granted		76,500		19.25
Vested or expected to vest		-		-
Outstanding at period end		76,500	$	19.25

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Earnings per Share (Tables)

6 Months Ended

Jun. 30, 2018

Earnings per Share

Schedule of earnings per share

	Three months ended				Six months ended
	At June 30,				At June 30,
	2018		2017		2018		2017
Basic
Net income available to common shareholders	$	2,221	$	1,027	$	4,179	$	1,842
Less: Earnings allocated to preferred stock		-		13		-		24
Net income allocated to common shareholders	$	2,221	$	1,014	$	4,179	$	1,818
Weighted average common shares outstanding		7,369,223		5,075,019		7,366,950		5,039,197
Basic earnings per common share	$	0.30	$	0.20	$	0.57	$	0.36
Diluted
Net income allocated to common shareholders for basic earnings per share	$	2,221	$	1,014	$	4,179	$	1,818
Weighted average shares outstanding for basic earnings per common share		7,369,223		5,075,019		7,366,950		5,039,197
Add: Dilutive effects of assumed exercises of stock options		346,792		25,589		323,853		30,202
Average shares and dilutive potential common shares		7,716,015		5,100,608		7,690,803		5,069,399
Diluted earnings per common share	$	0.29	$	0.20	$	0.54	$	0.36
Stock options not considered in computing diluted earnings per share because they were anti-dilutive		-		775,425		43,500		779,425

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

Schedule of assets measured at fair value on a recurring basis

	Fair Value Measurements Using
	Quoted Prices In  Active Markets For  Identical Assets		Significant  Other  Observable  Inputs		Significant  Unobservable  Inputs
	(Level 1)		(Level 2)		(Level 3)
June 30, 2018
Assets
Available-for-sale securities
Mortgage-backed securities - agency	$	-	$	19,297	$	-
CMO's - agency		-		128,471		-
Total	$	-	$	147,768	$	-
December 31, 2017
Assets
Available-for-sale securities
Mortgage-backed securities - agency	$	-	$	19,803	$	-
CMO's - agency		-		108,955		-
Total	$	-	$	128,758	$	-

Schedule of carrying amounts and fair values of financial instruments

			Fair Value Measurement at June 30, 2018, Using:
	Carrying
	Value			(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	27,504		$	589	$	26,915	$	-	$	27,504
Securities available for sale		147,768			-		147,768		-		147,768
Securities, restricted		2,343			N/A		N/A		N/A		N/A
Loans, net of allowance		386,884			-		-		384,305		384,305
Accrued interest receivable		4,025			-		368		3,657		4,025
Financial Liabilities:
Time deposits		16,449			-		16,353		-		16,353
Demand and other deposits		480,666			480,666		-		-		480,666
Secured borrowings		274			-		274		-		274
Accrued interest payable		7			-		7		-		7

			Fair Value Measurement at December 31, 2017, Using:
	Carrying
	Value		(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	43,077	$	471	$	42,606	$	-	$	43,077
Securities available for sale		128,758		-		128,758		-		128,758
Securities, restricted		2,183		N/A		N/A		N/A		N/A
Loans, net of allowance		344,714		-		-		345,540		345,540
Accrued interest receivable		2,836		-		300		2,536		2,836
Financial Liabilities:
Time deposits		26,932		-		26,847		-		26,847
Demand and other deposits		421,562		421,562		-		-		421,562
Secured borrowings		278		-		278		-		278
Accrued interest payable		6		-		6		-		6

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Accumulated Other Comprehensive (Loss) Income (Tables)

6 Months Ended

Jun. 30, 2018

Statement of Comprehensive Income [Abstract]

Schedule of changes in accumulated other comprehensive (loss) income by component, net of tax

	Three months ended						Six months ended
	At June 30,						At June 30,
	2018			2017			2018			2017
Unrealized Gains on Available for Sale Securities
Beginning balance	$	(2,645	)	$	(779	)	$	(1,390	)	$	(884	)
Other comprehensive (loss) income before reclassifications		(612	)		271			(1,867	)		376
Amounts reclassified from accumulated other comprehensive income		-			-			-			-
Net current period other comprehensive (loss) income		(612	)		271			(1,837	)		376
Ending balance	$	(3,257	)	$	(508	)	$	(3,257	)	$	(508	)

Schedule of reclassifications out of accumulated other comprehensive loss

	Three months ended				Six months ended
	At June 30,				At June 30,
	2018		2017		2018		2017
Realized gain on securities sales	$	-	$	-	$	-	$	-
Income tax expense		-		-		-		-
Total reclassifications, net of tax	$	-	$	-	$	-	$	-

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Basis of Presentation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Non-interest income
Total non-interest income	$ 1,980	$ 1,359	$ 4,055	$ 2,564
Administrative service income
Non-interest income
Total non-interest income	688	327	1,652	585
Merchant services income
Non-interest income
Total non-interest income	1,129	763	2,070	1,528
ACH income
Non-interest income
Total non-interest income	82	68	162	142
Other
Non-interest income
Total non-interest income	$ 81	$ 201	$ 171	$ 309

XML

Basis of Presentation (Detail Textuals) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended
	Jul. 31, 2017	Jun. 30, 2016	Dec. 31, 2014	Jun. 30, 2018	Apr. 30, 2018	Dec. 31, 2017
Basis Of Presentation [Line Items]
Secured borrowings				$ 274		$ 278
Common stock, par value (in dollars per share)				$ 0.01		$ 0.01
Preferred shares value per share				$ 0.01		$ 0.01
Series B Non-Voting Preferred Shares
Basis Of Presentation [Line Items]
Dividend rate of non-voting preferred stock	0.00%	0.00%	0.00%
Number of B Non-Voting preferred shares converted for voting common shares	66,985	91,000
Number of Shares issued			157,985
Preferred shares value per share			$ 12.50
Proceeds from preferred stock			$ 1,800
Preferred stock, conversion basis			one for one basis
Common stock
Basis Of Presentation [Line Items]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Number of B Non-Voting preferred shares converted for voting common shares	66,985	91,000
Litify LLC
Basis Of Presentation [Line Items]
Investment in equity security without readily determinable fair value					$ 2,410
Percentage of equity securities without readily determinable fair value					4.95%
Investment's carrying amount remains at its original cost basis				$ 2,410

XML

Securities - Summary of reconciliation of amortized cost to fair value (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 152,254	$ 130,672
Gross Unrealized Gains	11	25
Gross Unrealized Losses	(4,497)	(1,939)
Fair Value	147,768	128,758
Mortgage-backed securities - agency
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	20,071	20,082
Gross Unrealized Gains	0	12
Gross Unrealized Losses	(774)	(291)
Fair Value	19,297	19,803
Collateralized mortgage obligations (CMO's) - agency
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	132,183	110,590
Gross Unrealized Gains	11	13
Gross Unrealized Losses	(3,723)	(1,648)
Fair Value	$ 128,471	$ 108,955

XML

Securities - Summary of amortized cost and fair value of debt securities by contractual maturity (Details 1) $ in Thousands	Jun. 30, 2018 USD ($)
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 152,254
Fair Value	147,768
Mortgage-backed securities - agency
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	20,071
Fair Value	19,297
CMO's - agency
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	132,183
Fair Value	$ 128,471

XML

Securities - Summary of securities in unrealized loss position (Details 2) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Debt Securities, Available-for-sale [Line Items]
Fair Value, Less than 12 Months	$ 105,737	$ 80,822
Gross Unrealized Losses, Less than 12 Months	(2,513)	(711)
Fair Value, 12 Months or Longer	37,250	41,160
Gross Unrealized Losses, 12 Months or Longer	(1,984)	(1,228)
Fair Value, Total	142,987	121,982
Gross Unrealized Losses, Total	(4,497)	(1,939)
Mortgage-backed securities - agency
Debt Securities, Available-for-sale [Line Items]
Fair Value, Less than 12 Months	7,936	5,766
Gross Unrealized Losses, Less than 12 Months	(286)	(26)
Fair Value, 12 Months or Longer	11,361	12,312
Gross Unrealized Losses, 12 Months or Longer	(488)	(265)
Fair Value, Total	19,297	18,078
Gross Unrealized Losses, Total	(774)	(291)
CMO's - agency
Debt Securities, Available-for-sale [Line Items]
Fair Value, Less than 12 Months	97,801	75,056
Gross Unrealized Losses, Less than 12 Months	(2,227)	(685)
Fair Value, 12 Months or Longer	25,889	28,848
Gross Unrealized Losses, 12 Months or Longer	(1,496)	(963)
Fair Value, Total	123,690	103,904
Gross Unrealized Losses, Total	$ (3,723)	$ (1,648)

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Securities (Detail Textuals) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Federal Reserve Bank of New York (FRB)
Debt Securities, Available-for-sale [Line Items]
Fair value of pledged securities	$ 19,297	$ 19,803
Securities pledged borrowed amount	17,608	19,370
Federal Home Loan Bank of New York (FHLB)
Debt Securities, Available-for-sale [Line Items]
Fair value of pledged securities	128,471	108,955
Securities pledged borrowed amount	$ 123,171	$ 103,351

XML

Loans - Summary of loan composition (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016
Loans and Leases Receivable Disclosure [Line Items]
Total Loans	$ 390,834		$ 348,089
Deferred costs and unearned premiums, net	839		889
Allowance for loan losses	(4,789)	$ (4,489)	(4,264)	$ (3,823)	$ (3,523)	$ (3,413)
Net loans	$ 386,884		$ 344,714
% of Total	100.00%		100.00%
Real Estate | 1 - 4 Family Residential
Loans and Leases Receivable Disclosure [Line Items]
Total Loans	$ 57,522		$ 51,556
Allowance for loan losses	$ (425)	(378)	$ (382)	(358)	(350)	(360)
% of Total	15.00%		15.00%
Real Estate | Multifamily
Loans and Leases Receivable Disclosure [Line Items]
Total Loans	$ 115,597		$ 98,432
Allowance for loan losses	$ (826)	(696)	$ (713)	(664)	(669)	(621)
% of Total	29.00%		28.00%
Real Estate | Commercial Real Estate
Loans and Leases Receivable Disclosure [Line Items]
Total Loans	$ 31,539		$ 24,761
Allowance for loan losses	$ (345)	(262)	$ (266)	(226)	(227)	(238)
% of Total	8.00%		7.00%
Real Estate | Construction
Loans and Leases Receivable Disclosure [Line Items]
Total Loans	$ 6,618		$ 5,047
Allowance for loan losses	$ (168)	(151)	$ (127)	(109)	(102)	(141)
% of Total	2.00%		2.00%
Commercial
Loans and Leases Receivable Disclosure [Line Items]
Total Loans	$ 147,419		$ 136,412
Allowance for loan losses	$ (2,518)	(2,485)	$ (2,272)	(2,154)	(2,039)	(1,934)
% of Total	38.00%		39.00%
Consumer
Loans and Leases Receivable Disclosure [Line Items]
Total Loans	$ 32,139		$ 31,881
Allowance for loan losses	$ (507)	$ (517)	$ (504)	$ (312)	$ (136)	$ (119)
% of Total	8.00%		9.00%

XML

Loans - Summary of activity in allowance for loan losses by class (Details 1) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Allowance for loan losses:
Beginning balance	$ 4,489	$ 3,523	$ 4,264	$ 3,413
Provision (credit) for loan losses	300	300	525	450
Recoveries	0	0	0	0
Loans charged-off	0	0	0	(40)
Total ending allowance balance	4,789	3,823	4,789	3,823
Real Estate | 1 - 4 Family Residential
Allowance for loan losses:
Beginning balance	378	350	382	360
Provision (credit) for loan losses	47	8	43	(2)
Recoveries	0	0	0	0
Loans charged-off	0	0	0	0
Total ending allowance balance	425	358	425	358
Real Estate | Multifamily
Allowance for loan losses:
Beginning balance	696	669	713	621
Provision (credit) for loan losses	130	(5)	113	43
Recoveries	0	0	0	0
Loans charged-off	0	0	0	0
Total ending allowance balance	826	664	826	664
Real Estate | Commercial Real Estate
Allowance for loan losses:
Beginning balance	262	227	266	238
Provision (credit) for loan losses	83	(1)	79	(12)
Recoveries	0	0	0	0
Loans charged-off	0	0	0	0
Total ending allowance balance	345	226	345	226
Real Estate | Construction
Allowance for loan losses:
Beginning balance	151	102	127	141
Provision (credit) for loan losses	17	7	41	(32)
Recoveries	0	0	0	0
Loans charged-off	0	0	0	0
Total ending allowance balance	168	109	168	109
Commercial
Allowance for loan losses:
Beginning balance	2,485	2,039	2,272	1,934
Provision (credit) for loan losses	33	115	246	220
Recoveries	0	0	0	0
Loans charged-off	0	0	0	0
Total ending allowance balance	2,518	2,154	2,518	2,154
Consumer
Allowance for loan losses:
Beginning balance	517	136	504	119
Provision (credit) for loan losses	(10)	176	3	233
Recoveries	0	0	0	0
Loans charged-off	0	0	0	(40)
Total ending allowance balance	$ 507	$ 312	$ 507	$ 312

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Loans - Summary of balance in allowance for loan losses and recorded investment in loans by class and based on impairment method (Details 2) - USD ($) $ in Thousands	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$ 0		$ 0
Collectively evaluated for impairment	4,789		4,264
Total ending allowance balance	4,789	$ 4,489	4,264	$ 3,823	$ 3,523	$ 3,413
Loans:
Loans individually evaluated for impairment	0		0
Loans collectively evaluated for impairment	390,834		348,089
Total ending loans balance	390,834		348,089
Real Estate | 1 - 4 Family Residential
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	425		382
Total ending allowance balance	425	378	382	358	350	360
Loans:
Loans individually evaluated for impairment	0		0
Loans collectively evaluated for impairment	57,522		51,556
Total ending loans balance	57,522		51,556
Real Estate | Multifamily
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	826		713
Total ending allowance balance	826	696	713	664	669	621
Loans:
Loans individually evaluated for impairment	0		0
Loans collectively evaluated for impairment	115,597		98,432
Total ending loans balance	115,597		98,432
Real Estate | Commercial Real Estate
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	345		266
Total ending allowance balance	345	262	266	226	227	238
Loans:
Loans individually evaluated for impairment	0		0
Loans collectively evaluated for impairment	31,539		24,761
Total ending loans balance	31,539		24,761
Real Estate | Construction
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	168		127
Total ending allowance balance	168	151	127	109	102	141
Loans:
Loans individually evaluated for impairment	0		0
Loans collectively evaluated for impairment	6,618		5,047
Total ending loans balance	6,618		5,047
Commercial
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	2,518		2,272
Total ending allowance balance	2,518	2,485	2,272	2,154	2,039	1,934
Loans:
Loans individually evaluated for impairment	0		0
Loans collectively evaluated for impairment	147,419		136,412
Total ending loans balance	147,419		136,412
Consumer
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	507		504
Total ending allowance balance	507	$ 517	504	$ 312	$ 136	$ 119
Loans:
Loans individually evaluated for impairment	0		0
Loans collectively evaluated for impairment	32,139		31,881
Total ending loans balance	$ 32,139		$ 31,881

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Loans - Summary of loans by past due status (Details 3) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 0	$ 0
Loans Not Past Due	390,834	348,089
Total Loans	390,834	348,089
30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Real Estate | 1 - 4 Family Residential
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Loans Not Past Due	57,522	51,556
Total Loans	57,522	51,556
Real Estate | 1 - 4 Family Residential | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Real Estate | 1 - 4 Family Residential | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Real Estate | 1 - 4 Family Residential | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Real Estate | Multifamily
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Loans Not Past Due	115,597	98,432
Total Loans	115,597	98,432
Real Estate | Multifamily | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Real Estate | Multifamily | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Real Estate | Multifamily | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Real Estate | Commercial Real Estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Loans Not Past Due	31,539	24,761
Total Loans	31,539	24,761
Real Estate | Commercial Real Estate | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Real Estate | Commercial Real Estate | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Real Estate | Commercial Real Estate | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Real Estate | Construction
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Loans Not Past Due	6,618	5,047
Total Loans	6,618	5,047
Real Estate | Construction | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Real Estate | Construction | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Real Estate | Construction | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Commercial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Loans Not Past Due	147,419	136,412
Total Loans	147,419	136,412
Commercial | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Commercial | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Commercial | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Loans Not Past Due	32,139	31,881
Total Loans	32,139	31,881
Consumer | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Consumer | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Consumer | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 0	$ 0

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Loans - Summary of loans by credit quality indicator based on internally assigned credit grade (Details 4) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 390,834	$ 348,089
Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	381,125	338,254
Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	9,499	9,835
Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	210	0
Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Real Estate | 1 - 4 Family Residential
Financing Receivable, Recorded Investment [Line Items]
Total Loans	57,522	51,556
Real Estate | 1 - 4 Family Residential | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	57,522	51,556
Real Estate | 1 - 4 Family Residential | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Real Estate | 1 - 4 Family Residential | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Real Estate | 1 - 4 Family Residential | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Real Estate | Multifamily
Financing Receivable, Recorded Investment [Line Items]
Total Loans	115,597	98,432
Real Estate | Multifamily | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	115,597	98,432
Real Estate | Multifamily | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Real Estate | Multifamily | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Real Estate | Multifamily | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Real Estate | Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total Loans	31,539	24,761
Real Estate | Commercial Real Estate | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	31,539	24,761
Real Estate | Commercial Real Estate | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Real Estate | Commercial Real Estate | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Real Estate | Commercial Real Estate | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Real Estate | Construction
Financing Receivable, Recorded Investment [Line Items]
Total Loans	6,618	5,047
Real Estate | Construction | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	6,618	5,047
Real Estate | Construction | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Real Estate | Construction | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Real Estate | Construction | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Commercial
Financing Receivable, Recorded Investment [Line Items]
Total Loans	147,419	136,412
Commercial | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	137,710	126,577
Commercial | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	9,499	9,835
Commercial | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	210	0
Commercial | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Consumer
Financing Receivable, Recorded Investment [Line Items]
Total Loans	32,139	31,881
Consumer | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	32,139	31,881
Consumer | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Consumer | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Consumer | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 0	$ 0

XML

Share-Based Payment Plans (Details)	6 Months Ended
	Jun. 30, 2018 $ / shares
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Risk-Free Interest Rate	2.54%
Expected Term	84 months
Expected Stock Price Volatility	21.00%
Dividend Yield	0.00%
Weighted Average Fair Value	$ 5.63

XML

Share-Based Payment Plans - Summary of options activity (Details 1) - Stock Options	6 Months Ended
	Jun. 30, 2018 $ / shares shares
Options
Outstanding at beginning of year | shares	880,925
Granted | shares	45,000
Exercised | shares	(47,750)
Forfeited | shares	(1,500)
Outstanding at period end | shares	876,675
Vested or expected to vest | shares	876,675
Exercisable at period end | shares	310,218
Weighted Average Exercise Price
Outstanding at beginning of year | $ / shares	$ 12.36
Granted | $ / shares	19.25
Exercised | $ / shares	10
Forfeited | $ / shares	19.25
Outstanding at period end | $ / shares	12.83
Vested or expected to vest | $ / shares	12.83
Exercisable at period end | $ / shares	$ 12.50
Weighted Average Remaining Contractual Life (Years), outstanding at period end	7 years 2 months 5 days
Weighted Average Remaining Contractual Life (Years), vested or expected to vest	7 years 2 months 5 days
Weighted Average Remaining Contractual Life (Years), exercisable at period end	6 years 18 days

XML

Share-Based Payment Plans - Summary of options activity (Details 2)	6 Months Ended
	Jun. 30, 2018 $ / shares shares
Weighted Average Grant Date Fair Value
Granted	$ 5.63
Restricted stock
Shares
Outstanding at beginning of year | shares	0
Granted | shares	76,500
Vested or expected to vest | shares	0
Outstanding at period end | shares	76,500
Weighted Average Grant Date Fair Value
Outstanding at beginning of year	$ 0
Granted	19.25
Vested or expected to vest	0
Outstanding at period end	$ 19.25

XML

Share-Based Payment Plans (Detail Textuals) - USD ($)
$ in Thousands

3 Months Ended

6 Months Ended

Jun. 30, 2018

Jun. 30, 2017

Jun. 30, 2018

Jun. 30, 2017

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Description of vesting period for options

three or five years

Contractual term of stock options

10 years

Stock options expense

$ 163

$ 151

$ 317

$ 288

Unrecognized compensation cost related to non-vested options

1,559

$ 1,559

Recognition period of nonvested stock options

2 years 7 months 21 days

Intrinsic value of outstanding options

11,883

$ 11,883

Intrinsic value of exercisable options

4,309

$ 4,309

Restricted stock

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Description of vesting period for options

Restricted shares are granted at the fair value on the date of grant and typically vest over 6 years with a third vesting after years four, five, and six. Restricted shares have the same voting rights as common stock.

Stock options expense

61

$ 0

$ 106

$ 0

Unrecognized compensation cost related to non-vested options

$ 1,366

$ 1,366

Recognition period of nonvested stock options

5 years 6 months 26 days

2011 Stock Compensation Plan ("the 2011 Plan")

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Number of maximum shares of common stock to be issued

754,607

754,607

Number of stock options issued

750,545

2007 Stock Option Plan ("the 2007 Plan")

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Number of maximum shares of common stock to be issued

270,000

270,000

2017 Equity Incentive Plan

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Number of maximum shares of common stock to be issued

300,000

300,000

Number of stock options issued

45,000

Number of restricted stock

76,500

XML

Earnings per Share - Summary of earnings per share computation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Basic
Net income available to common shareholders	$ 2,221	$ 1,027	$ 4,179	$ 1,842
Less: Earnings allocated to preferred stock	0	13	0	24
Net income allocated to common shareholders	$ 2,221	$ 1,014	$ 4,179	$ 1,818
Weighted average common shares outstanding (in shares)	7,369,223	5,075,019	7,366,950	5,039,197
Basic earnings per common share (in dollars per share)	$ 0.30	$ 0.20	$ 0.57	$ 0.36
Diluted
Net income allocated to common shareholders for basic earnings per share	$ 2,221	$ 1,014	$ 4,179	$ 1,818
Weighted average shares outstanding for basic earnings per common share	7,369,223	5,075,019	7,366,950	5,039,197
Add: Dilutive effects of assumed exercises of stock options	346,792	25,589	323,853	30,202
Average shares and dilutive potential common shares	7,716,015	5,100,608	7,690,803	5,069,399
Diluted earnings per common share (in dollars per share)	$ 0.29	$ 0.20	$ 0.54	$ 0.36
Stock options not considered in computing diluted earnings per share because they were anti-dilutive	0	775,425	43,500	779,425

XML

Fair Value Measurements - Summary of assets and liabilities measured at fair value on recurring basis (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Available-for-sale securities
Securities available-for-sale, at fair value	$ 147,768	$ 128,758
Mortgage-backed securities - agency
Available-for-sale securities
Securities available-for-sale, at fair value	19,297	19,803
CMO's - agency
Available-for-sale securities
Securities available-for-sale, at fair value	128,471	108,955
Quoted Prices In Active Markets For Identical Assets (Level 1)
Available-for-sale securities
Securities available-for-sale, at fair value	0	0
Significant Other Observable Inputs (Level 2)
Available-for-sale securities
Securities available-for-sale, at fair value	147,768	128,758
Significant Unobservable Inputs (Level 3)
Available-for-sale securities
Securities available-for-sale, at fair value	0	0
Recurring | Quoted Prices In Active Markets For Identical Assets (Level 1)
Available-for-sale securities
Securities available-for-sale, at fair value	0	0
Recurring | Quoted Prices In Active Markets For Identical Assets (Level 1) | Mortgage-backed securities - agency
Available-for-sale securities
Securities available-for-sale, at fair value	0	0
Recurring | Quoted Prices In Active Markets For Identical Assets (Level 1) | CMO's - agency
Available-for-sale securities
Securities available-for-sale, at fair value	0	0
Recurring | Significant Other Observable Inputs (Level 2)
Available-for-sale securities
Securities available-for-sale, at fair value	147,768	128,758
Recurring | Significant Other Observable Inputs (Level 2) | Mortgage-backed securities - agency
Available-for-sale securities
Securities available-for-sale, at fair value	19,297	19,803
Recurring | Significant Other Observable Inputs (Level 2) | CMO's - agency
Available-for-sale securities
Securities available-for-sale, at fair value	128,471	108,955
Recurring | Significant Unobservable Inputs (Level 3)
Available-for-sale securities
Securities available-for-sale, at fair value	0	0
Recurring | Significant Unobservable Inputs (Level 3) | Mortgage-backed securities - agency
Available-for-sale securities
Securities available-for-sale, at fair value	0	0
Recurring | Significant Unobservable Inputs (Level 3) | CMO's - agency
Available-for-sale securities
Securities available-for-sale, at fair value	$ 0	$ 0

XML

Fair Value Measurements - Summary of estimated fair values of financial instruments (Details 1) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017	Dec. 31, 2016
Financial Assets:
Cash and cash equivalents	$ 27,504	$ 43,077	$ 39,860	$ 42,993
Securities available for sale	147,768	128,758
Securities, restricted	2,343	2,183
Loans, net of allowance	386,884	344,714
Accrued interest receivable	4,025	2,836
Financial Liabilities:
Time deposits	16,449	26,932
Secured borrowings	274	278
(Level 1)
Financial Assets:
Cash and cash equivalents	589	471
Securities available for sale	0	0
Loans, net of allowance	0	0
Accrued interest receivable	0	0
Financial Liabilities:
Time deposits	0	0
Demand and other deposits	480,666	421,562
Secured borrowings	0	0
Accrued interest payable	0	0
(Level 2)
Financial Assets:
Cash and cash equivalents	26,915	42,606
Securities available for sale	147,768	128,758
Loans, net of allowance	0	0
Accrued interest receivable	368	300
Financial Liabilities:
Time deposits	16,353	26,847
Demand and other deposits	0	0
Secured borrowings	274	278
Accrued interest payable	7	6
(Level 3)
Financial Assets:
Cash and cash equivalents	0	0
Securities available for sale	0	0
Loans, net of allowance	384,305	345,540
Accrued interest receivable	3,657	2,536
Financial Liabilities:
Time deposits	0	0
Demand and other deposits	0	0
Secured borrowings	0	0
Accrued interest payable	0	0
Carrying Value
Financial Assets:
Cash and cash equivalents	27,504	43,077
Securities available for sale	147,768	128,758
Securities, restricted	2,343	2,183
Loans, net of allowance	386,884	344,714
Accrued interest receivable	4,025	2,836
Financial Liabilities:
Time deposits	16,449	26,932
Demand and other deposits	480,666	421,562
Secured borrowings	274	278
Accrued interest payable	7	6
Fair Value
Financial Assets:
Cash and cash equivalents	27,504	43,077
Securities available for sale	147,768	128,758
Loans, net of allowance	384,305	345,540
Accrued interest receivable	4,025	2,836
Financial Liabilities:
Time deposits	16,353	26,847
Demand and other deposits	480,666	421,562
Secured borrowings	274	278
Accrued interest payable	$ 7	$ 6

XML

Accumulated Other Comprehensive (Loss) Income - Summary of changes in accumulated other comprehensive (loss) income by component, net of tax (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Unrealized Gains on Available for Sale Securities
Beginning balance	$ (2,645)	$ (779)	$ (1,390)	$ (884)
Other comprehensive (loss) income before reclassifications	(612)	271	(1,867)	376
Amounts reclassified from accumulated other comprehensive income	0	0	0	0
Net current period other comprehensive (loss) income	(612)	271	(1,867)	376
Ending balance	$ (3,257)	$ (508)	$ (3,257)	$ (508)

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Accumulated Other Comprehensive (Loss) Income - Summary of reclassifications out of accumulated other comprehensive loss (Details 1) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Statement of Comprehensive Income [Abstract]
Realized gain on securities sales	$ 0	$ 0	$ 0	$ 0
Income tax expense	0	0	0	0
Total reclassifications, net of tax	$ 0	$ 0	$ 0	$ 0