424B4 1 t1701977-424b4.htm FINAL PROSPECTUS t1701977-424b4 - none - 11.204361s
 Filed Pursuant to Rule 424(b)(4)​
 Registration No. 333-218372​
PROSPECTUS
2,363,873 Shares
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COMMON STOCK
This is the initial public offering of Esquire Financial Holdings, Inc., the holding company for Esquire Bank, National Association, a national banking association headquartered in Jericho, New York.
We are offering 1,800,000 shares of common stock and the selling stockholders are offering 563,873 shares of our common stock. We will not receive any proceeds from the sales of shares by the selling stockholders.
Prior to this offering, there has been no established public market for our common stock. We have received approval to list our common stock on the NASDAQ Capital Market under the symbol “ESQ.”
The public offering price of our common stock is $14.00 per share.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company disclosure standards.
Investing in our common stock involves risk. See “Risk Factors” beginning on page 13 of this prospectus to read about factors you should consider before investing in our common stock.
Per Share
Total
Public offering price
$ 14.00 $ 33,094,222
Underwriting discounts(1)
0.98 2,316,596
Proceeds to us, before expenses
13.02 23,436,000
Proceeds to the selling stockholders, before expenses
13.02 7,341,626
(1)
The offering of our common stock will be conducted on a firm commitment basis. See “Underwriting” for a description of all underwriting compensation payable and expense reimbursement in connection with this offering.
The underwriter has an option to purchase up to an additional 354,580 shares from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The shares of our common stock in this offering are not savings accounts, deposits or other obligations of any bank and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency.
The underwriter expects to deliver the shares of our common stock against payment on or about June 30, 2017.
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The date of this prospectus is June 26, 2017.

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F-1
About This Prospectus
You should rely only on the information contained in this prospectus or in any free writing prospectus that we authorize to be delivered to you. We, the selling stockholders and the underwriter have not authorized anyone to provide you with different or additional information. We, the selling stockholders and the underwriter are not making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
Unless we state otherwise or the context otherwise requires, references in this prospectus to “we,” “our,” “us” or “the Company” refer to Esquire Financial Holdings, Inc., a Maryland corporation, and its subsidiary Esquire Bank, National Association, which we sometimes refer to as “Esquire Bank,” “the Bank” or “our Bank.”
Market and Industry Data
Within this prospectus, we reference certain market, industry and demographic data and other statistical information. We have obtained this data and information from various independent, third party industry sources and publications. Nothing in the data or information used or derived from third party sources should be construed as advice. Some data and other information are also based on our good faith estimates, which are derived from our review of internal surveys and independent sources. We believe that these external sources and estimates are reliable, but have not independently verified them. Statements as to our market position are based on market data currently available to us. Although we are not aware of any misstatements regarding the economic, employment, industry and other market data presented herein, these estimates involve inherent risks and uncertainties and are based on assumptions that are subject to change.
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Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:

we may present as few as two years of audited financial statements and two years of related management discussion and analysis of financial condition and results of operations;

we are exempt from the requirement to obtain an attestation and report from our auditors on management’s assessment of our internal control over financial reporting under the Sarbanes-Oxley Act of 2002;

we are permitted to provide reduced disclosure regarding our executive compensation arrangements pursuant to the rules applicable to smaller reporting companies, which means we do not have to include a compensation discussion and analysis and certain other disclosures regarding our executive compensation; and

we are not required to hold non-binding advisory votes on executive compensation or golden parachute arrangements.
In addition to the relief described above, the JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies. We have irrevocably determined to not take advantage of this extended transition period, which means that the financial statements included in this prospectus, as well as any financial statements that we file in the future, will be subject to all new or revised accounting standards generally applicable to public companies.
In this prospectus we have elected to take advantage of the reduced disclosure requirements relating to executive compensation, and in the future we may take advantage of any or all of these exemptions for so long as we remain an emerging growth company. We will remain an emerging growth company until the earliest of  (i) the end of the fiscal year during which we have total annual gross revenues of  $1.07 billion or more, (ii) the end of the fiscal year following the fifth anniversary of the completion of this offering, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iv) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended.
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SUMMARY
This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our securities. You should carefully read this entire prospectus, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes related thereto before making an investment decision. Some of the statements in this prospectus constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”
Our Company
We are a bank holding company headquartered in Jericho, New York and registered under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). Through our wholly owned bank subsidiary, Esquire Bank, National Association, 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 (a subset of the New York metropolitan market). We believe these activities, primarily anchored by our legal community focus, generate a stable source of low cost core deposits and a diverse asset base to support our overall operations. Our commercial and consumer loans tailored to the litigation market (“Attorney-Related Loans”) enhance our overall yield on our loan portfolio, enabling us to earn attractive risk-adjusted net interest margins. Additionally, our merchant processing activities have generated a relatively stable source of fee income. We believe our unique and dynamic business model distinguishes us from other banks and non-bank financial services companies in the markets in which we operate as demonstrated by comparing our performance metrics for the three months ended March 31, 2017 and 2016 as well as our year ended 2016 and 2015.
For the three months ended March 31, 2017 and 2016:

Our net income increased 26.8% to $815,000 or $0.16 per diluted share.

We had a net interest margin of 4.23%, stabilized by a low cost of funds of 0.15% on our deposits.

Our loans increased 23.0%, or $54.3 million, to $290.6 million, with no non-performing loans and solid asset quality metrics.

Our noninterest income increased 22.0% to $1.2 million, which represented 21.9% of our total revenue for the three months ended March 31, 2017, primarily driven by our merchant services platform.

As of March 31, 2017, our total assets, loans, deposits and stockholders’ equity totaled $438.1 million, $290.6 million, $383.4 million and $53.2 million, respectively.
For the years ended December 31, 2016 and 2015:

Our net income increased 140.8% to $2.8 million, or $0.55 per diluted share.

We had a net interest margin of 4.25%, an increase from 3.74%, stabilized by a low cost of funds of 0.15% on our deposits.

Our loans increased 24.1%, or $54.1 million, to $278.6 million, with no non-performing loans and solid asset quality metrics.

Our noninterest income increased 40.2% to $4.1 million, which represented 20.9% of our total revenue for the year ended December 31, 2016, primarily driven by our growing merchant services platform.

As of December 31, 2016, our total assets, loans, deposits and stockholders’ equity totaled $424.8 million, $278.6 million, $370.8 million and $52.2 million, respectively.
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Both 2015 and 2016 were transformational years for the Company, due in part to the successful execution of our unique and dynamic business model. We believe our ongoing commitment to the litigation and small business communities have been, and should continue to be, the foundation for our success. In August 2015, we closed our private placement offering of common stock and preferred stock that began in 2014, raising net proceeds totaling $17.2 million and successfully converted Esquire Financial Holdings, Inc. and Esquire Bank from a savings and loan holding company and savings bank to a bank holding company and national bank, respectively. We believe that the additional capital, coupled with the conversion to a national bank, has enhanced and should continue to enhance our commercial loan growth in the legal industry and business communities we serve.
We remain true to our commitment to serve the litigation community and our commercial customers through our tailored and innovative products and solutions. We believe Esquire Bank’s approach to the legal community is simple yet effective — we listen to the customer’s needs and tailor products and services around those needs. Our management team includes attorneys and bankers who have serviced the legal community throughout their careers, which is a differentiating factor and key to our robust attorney network. This model continues to set us apart from other institutions that offer a “one product fits all” model. Our relationships within the litigation community are a key contributor to our loan growth, strong loan yields, and low cost core deposits. The litigation community represented more than 70% of our deposit base at March 31, 2017. In addition to our lending and deposit gathering activities, we have also remained steadfast in growing our merchant services platform. We provide dynamic and flexible merchant services solutions to small business owners. Our merchant services platform has grown to approximately 13,000 small businesses at March 31, 2017, which generated most of our noninterest income and represented 21.9% of our revenue for the three months ended March 31, 2017 and 20.9% of our revenue for the year ended December 31, 2016. We believe our merchant services platform represents a significant opportunity for future growth in fee income, core deposits and enhanced lending opportunities.
Our low cost core deposits (deposits, excluding time deposits), representing our primary funding source for loan growth, totaled $360.7 million at March 31, 2017 resulting in a total cost of deposits of 0.15%. These stable low cost funds are driven by our attorney operating and escrow deposits, representing more than 70% of our total deposit base at March 31, 2017. We intend to continue to prudently manage growth in deposits, utilizing customer sweep programs for our mass tort and class action business banking programs. We do not have a traditional “brick and mortar” branch network to support our deposit growth. Instead, we rely on our robust attorney network to gather deposits and our customers utilize on-line cash management technology to manage their operating and escrow accounts as well as their business banking needs across the country. We believe the lack of branch infrastructure coupled with our strong net interest margin and growth will continue to drive our efficiency ratio below the 73% reported for the three months ended March 31, 2017.
With a growing and generally unseasoned loan portfolio, our credit risk may continue to increase and our future performance could be adversely affected; however, we have invested in and developed underwriting and credit management processes tailored to each of the products we offer in order to minimize these risks. We are committed to continuing to invest in and develop our underwriting and credit management processes to ensure our asset quality remains high and we minimize our credit risk. At March 31, 2017, the average age of our loan portfolio was 2.10 years and we currently do not have any non-performing loans. See “Risk Factors — Risks Related to Our Business — Our loan portfolio is unseasoned,” on page 18.
Esquire Bank, National Association is subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency (“OCC”) and Esquire Financial Holdings, Inc. is supervised by the Board of Governors of the Federal Reserve System (“FRB”).
Our Business Strategy
Esquire Bank has positioned itself as a unique provider of financial services and products to the legal community, developing a strong brand and reputation with attorneys and their firms. The legal community that we serve consists of law firms that litigate mass torts, class actions, commercial, employment, product liability, personal injury and other litigation cases, as well as individual attorneys and their clients (plaintiffs
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involved in the litigation who are the recipients of the settlements or judgments). According to the Towers Watson 2011 Update on U.S. Tort Cost Trends, the U.S. tort system paid out $264.6 billion in commercial and personal tort costs in 2010. The same report states that “since 1950, growth in tort costs [commercial and personal] has exceeded growth in GDP by an average of approximately two percentage points.” However, tort cost growth has generally lagged GDP growth in the last five years covered by the Towers Watson report and the Company has not conducted any independent research to determine if the value of tort actions in 2010 remains indicative of the value of tort actions in 2017.
Law firms are typically compensated on a contingent basis based on a percentage of the gross settlement amounts, ranging from 20% – 40% of the gross settlement. This market has traditionally been fragmented with deposit services offered by banks and lending services offered by finance companies (non-FDIC insured entities).
Since commencing operations, we have leveraged the strong business relationships that our founders, directors, stockholders, customers and officers have in the legal community, and believe we have created a unique distribution network. We have had certain informal affiliations with numerous national and state trial associations, including but not limited to the American Association of Justice (AAJ), the New York State Trial Lawyers Association (NYSTLA), the Consumer Attorneys of California (CAOC), the Florida Association of Justice (FAJ) and the Pennsylvania Association for Justice (PAJ). These organizations represent licensed trial attorneys across their states and nationwide. These informal affiliations, coupled with our strong business relationships, should help to raise awareness of Esquire Bank’s products and services throughout the legal community. Our goal is to position Esquire Bank as the premier “one stop” financial services firm for this legal community. We believe we are one of the few banks in the United States that specifically supports and has the expertise to understand the specialized financial services needs of the legal community, and have developed commercial and consumer loan products and services to meet these needs. We provide specialized lending and depository services to participants in the litigation industry on a national basis, including:

Plaintiff law firms — single event, mass tort, class action and worker’s compensation firms.

Non-bank trustees — claims administrators, third party administrators and lien resolution firms administering mass tort or class action settlements on behalf of the courts, court orders, plaintiff and/or defendant counsel.

Consumers — claimants in single event, mass tort and class action lawsuits as well as employees and partners of the law firms.
In addition to our lending capabilities, in 2012 we entered into the merchant services business as an acquiring bank and hired a senior manager with over 35 years of experience to lead that business. As a Visa and MasterCard member, we provide merchant services for small businesses located throughout the United States through relationships with third parties known as Independent Sales Organizations (“ISOs”). ISOs provide a source of protection against merchant losses through contractual liability for the acts and omissions of the merchants. These liabilities can be satisfied from ISO and/or merchant reserves and monthly residual payments due to the ISO that are maintained at Esquire Bank. To date, Esquire Bank has not incurred any losses from its merchant services activities. We entered into the merchant processing business to diversify and strengthen our revenue stream by increasing noninterest income and to provide cross selling opportunities for other business banking products and services. For the three months ended March 31, 2017, merchant processing revenues were approximately $838,000 representing most of our noninterest income, which was 21.9% of our total revenue. For the year ended December 31, 2016, merchant processing revenues were approximately $2.9 million representing most of our noninterest income, which was 20.9% of our total revenue. At March 31, 2017, we serviced approximately 13,000 small businesses, and for the three months ended March 31, 2017, we processed $787.7 million in card volume. We intend to continue to expand our merchant processing business.
Finally, we offer traditional commercial and consumer lending and depository products in the New York metropolitan area with a focus on commercial, commercial real estate, multifamily and 1 – 4 family residential loans. We control credit risk through both disciplined underwriting, as well as active credit management processes and procedures. For more discussion on our lending activities, see “Business — Lending Activities.”
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Our Competitive Strengths
We attribute our success to the following competitive strengths:
Unique Distribution Network in Scalable Industries.   We have developed a unique niche in the legal industry, which represented $264.6 billion in commercial and personal tort costs in 2010. We believe that our unique distribution network within the legal industry is derived from decades of experience anchored by our founders, Board of Directors, stockholders, officers, customers and our informal affiliations with both state and national trial associations. The legal community is our primary engine for current and future growth in low cost core deposits, commercial loans and consumer loans. We believe the litigation industry has significant growth potential for us across the lending and depository spectrum, as we represent a small portion of the total tort settlement market for each year that we have been in operation. While we do face significant competition for Attorney-Related Loans, derived primarily from eight to ten nationally-oriented financial companies that specialize in the litigation industry, we believe our relationships within the litigation community, our competitive rates on loans and our ability to offer national, uniform deposit products, set us apart. Also, through our merchant services solutions to small business owners, we processed approximately $3.6 billion in merchant transaction volume for the year ended December 31, 2016 and $787.7 million for the three months ended March 31, 2017. We believe we have the platform and the capacity to continue to grow our merchant services business.
Scalable Product Platforms Positioned for Growth.   We have invested in people, processes and procedures in order to facilitate the recent growth in our key product lines and position such product lines for additional growth in the future. We hired experienced management to establish unique product lines, which have only recently become profitable on a run rate basis. We believe these unique product lines have significant remaining growth potential. We also believe that the scalable platforms created by these investments position us for substantial growth in our key product lines and have laid the groundwork for our ability to operate as a larger financial institution.
Diversified and Stable Business Model.   The combination of our higher margin legal community focus for commercial banking (commercial loans, claimant/consumer loans and core low cost deposits), fee-based small business focus in merchant services and our community banking focus in the New York metropolitan area (commercial real estate and residential income producing lending) allows us to grow in varied economic conditions and business cycles. Our merchant services platform is intended to provide a stable fee based income and a platform for small business loan and deposit growth. Our New York metropolitan commercial real estate portfolio has historically provided a stable lending base in our local market. Our commercial product lines enhance the overall yield of our loan portfolio and are offered on a nationwide basis, helping us to mitigate our exposure to stagnant loan demand or yield compression in our community banking market. This model also provides asset diversity and favorable cost of funds, especially when competing against the wholesale banks and non-bank finance companies that offer similar commercial finance products. However, substantially all of our real estate loans and a majority of our Attorney-Related Loans are concentrated in the New York metropolitan area and if negative economic conditions develop in the United States as a whole or in the New York market, we could experience higher delinquencies and loan charge-offs, which would reduce our net income and adversely affect our financial condition.
Focused Risk Mitigation Practices.   We have developed underwriting and credit management processes tailored to each of the products we offer, allowing us to construct a diversified asset portfolio including specialized markets not typically served by community banks. We believe that our industry experience and product knowledge have allowed us to develop processes, procedures and structural features in connection with offering specialized products that enable us to appropriately identify and mitigate the risks associated with these products and services. We intend to increase our originations of commercial Attorney-Related Loans, which include working capital lines of credit, case cost lines of credit, term loans to law firms, and post-settlement commercial and other commercial attorney-related loans (“Commercial Attorney-Related Loans”) and these loans generally have more risk than 1 – 4 family residential mortgage loans and commercial loans secured by real estate. However, we are focused on continuing to invest in our risk mitigation practices and leveraging our product knowledge to ensure we minimize these credit risks while we continue to grow our loan portfolio.
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Experienced Management Team.   Our leadership team consists of senior managers with an average of over 20 years of experience in the banking and non-banking financial services industries. The majority of our senior managers come from multi-billion dollar financial institutions. We believe the experience, relationships, and entrepreneurial culture of our management team as well as our Board of Directors have been and will continue to be key drivers of our growth. Our key leadership team includes:

Dennis Shields, Executive Chairman of the Board.   Mr. Shields is the Executive Chairman of the Board of Directors and was a founding organizer of Esquire Bank. Since its inception in 2000, Mr. Shields has also served as Chief Executive Officer of Plaintiff Funding Corp. (dba LawCash), a New York-based specialty finance company that provides financial services products to law firms and claimants. Since 2014, Mr. Shields has served as the Chairman at YieldStreet, an online platform for alternative investments and he is also the Chairman of Keeps America, a company that works with law firms, disability advocates, and third-party administrators to distribute settlement awards and government benefits to clients through its prepaid card. Mr. Shields served as a lay member of the Grievance Committee to the Second and Eleventh Judicial Departments appointed by presiding judge from 1996 to 2004 and previously served on the New York State Health Information and Quality Improvement Committee. Mr. Shields has authored two books and is a frequent speaker in both the legal and finance community.

Andrew C. Sagliocca, President, Chief Executive Officer and Director.   Mr. Sagliocca served as the Company’s Chief Financial Officer when he joined Esquire Bank in February 2007. He became the Chief Executive Officer in January 2009. Prior to joining Esquire Bank, Mr. Sagliocca was Senior Vice President and Corporate Controller of North Fork Bank from 1999 to 2007. Mr. Sagliocca has more than 27 years of experience in the financial services industry.

Eric S. Bader, Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary.   Prior to his appointment as Executive Vice President in February 2011, Mr. Bader served as our Senior Vice President, Chief Financial Officer and Treasurer since January 2009. Prior to this, Mr. Bader served as Esquire Bank’s Senior Vice President and Treasurer, since joining Esquire Bank in January 2008. Prior to joining Esquire Bank, Mr. Bader was Vice President at Goldman Sachs and served as a Vice President and Investment Officer at North Fork Bank. Mr. Bader has 17 years of experience in the financial services industry.

Ari P. Kornhaber, Executive Vice President, Director of Sales.   Mr. Kornhaber has served as Director of Sales of Esquire Bank since 2013. From 2004 to 2013, Mr. Kornhaber served as National Marketing Director at Plaintiff Funding Holding. Inc. (dba LawCash). Mr. Kornhaber has spoken on the subject of financing for lawyers, law firms and their clients, and the ethics surrounding the same, at numerous seminars and conferences across the United States for over 10 years. After receiving his law degree from Touro Law School in New York, Mr. Kornhaber was a practicing plaintiff’s lawyer in New York City with the law firm of Pariser and Vogelman, PC and was a trial attorney for the law firm of Napoli, Kaiser and Bern, LLC, where he specialized in personal injury, medical malpractice and mass tort litigation.

Fred Horn, Senior Vice President, Director of Merchant Services.   Mr. Horn joined Esquire Bank in 2012 to start up a merchant services program in order to generate processing fee income and increase demand deposits. Prior to joining Esquire Bank, Mr. Horn was Senior Vice President at Merrick Bank for 11 years where he started and directed a merchant service program which became the sixteenth largest such program in the country. Mr. Horn served for 25 years at Summit Bank, Princeton, New Jersey (acquired by Bank of America), where he held a number of senior officer positions including directing merchant services, an American Express, MasterCard and Visa credit card portfolio and a top 10 US Visa debit card program.
Our Growth Strategy
We believe that our model of community banking with a focus on niche commercial products and merchant services provides us with differentiated advantages when compared to our competitors, including a strong deposit franchise, a more complete set of product offerings and the ability to earn attractive risk-adjusted net interest margins. The pool of potential law firm customers is substantial, yet the
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specialized lending markets that serve them remain highly fragmented. Many of our commercial loans are de novo products that we believe are poised to capture additional market share as they mature. We will leverage our commercial law firm relationships to continue to enhance and grow our claimant/consumer lending base, meeting the needs of the law firms’ customers. We expect to continue capturing market share in the legal community because we provide both commercial and consumer clients with unique banking products and services. Additionally, we plan to continue growing our merchant services platform for small businesses nationally, which we expect will increase our fee income while offering lending and depository services to these businesses. Finally, we believe the lack of a physical branch infrastructure and our strong balance sheet allows us to make investments in technology, personnel, marketing and systems not available to non-bank commercial lenders.
We market our loans along with other products and services through a variety of channels. Fundamentally, we focus on a high-touch direct sales model, building long-term relationships with our customers. Our sales officers actively solicit new and existing customers in the communities we serve. For our Attorney-Related Loans, our sales personnel travel across the country to meet with our customers throughout the year. Importantly, while we seek to ensure that the pricing on our loan products is competitive, we also attempt to distinguish ourselves on criteria other than price, including service, industry knowledge and what we believe is a more complete value proposition than our competitors. We believe that our suite of complementary commercial and consumer legal industry product options coupled with our on-line cash management platform allow us to offer full-service banking relationships to customers and industries that have historically been served by smaller non-bank commercial finance companies. It is our strategy to deepen our customer relationships and increase retention by cross-marketing all of these products to our customers in an effort to be a “one-stop” financial services provider, particularly in our legal industry niche.
Our Market Area
We define the market area for our legal community products as law firms practicing within the United States, United States territories and United States commonwealths, and we serve the litigation industry on a nationwide basis. For traditional community banking products and services, our primary market area is the New York metropolitan area, specifically Nassau and New York (Manhattan) Counties in New York and secondarily throughout the state of New York.
We have established our niche in the litigation market, which, according to the Towers Watson 2011 Update on U.S. Tort Cost Trends, was an approximately $264.6 billion market in the United States in 2010, through the strategic development of a business model that understands our market’s unique needs and provides access to our target customers. We have designed unique, value added products and services for our current and potential customers and created a distribution network with direct access to the market through the experience and networks of our Board, Advisory Board, attorney stockholders and certain members of management. A number of our directors, Advisory Board members and investors are well-known, influential market figures and active members of some of the leading litigation law firms in the nation and national and state bar associations as well as other industry leading companies such as plaintiff financing and structured settlement services. In addition, we have established informal affiliations or relationships with key industry organizations such as New York State Trial Lawyers Association, Consumer Attorneys of California, Florida Justice Association, and a number of other state trial attorney associations. Through our current law firm clients and other relationships, we believe we have access to thousands of trial attorneys.
Our traditional community banking market area has a diversified economy typical of most urban population centers, with the majority of employment provided by services, wholesale/retail trade, finance/​insurance/real estate (“FIRE”) and construction. Services account for the largest employment sector across the two primary market area counties, while wholesale/retail trade accounts for the second largest employment sector in Nassau and New York Counties. New York City is one of the premier financial centers in the world, and thus FIRE is the third largest employment sector in New York County. As of June 30, 2016 (the latest date for which information is available), New York County’s $1.0 trillion deposit market was much larger than the $69.8 billion deposit market in Nassau County.
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Risks Relating to Our Company and an Investment in Our Common Stock
An investment in our common stock involves substantial risks and uncertainties. Investors should carefully consider all of the information in this prospectus, including the detailed discussion of these and other risks under “Risk Factors” beginning on page 13, prior to investing in our common stock. Some of the more significant risks include the following:

We have a limited operating history and have recently experienced significant growth, which makes it difficult to forecast our revenue and evaluate our business and future prospects;

Because we intend to continue to increase our commercial loans, our credit risk may increase;

A substantial portion of our business is dependent on the prospects of the legal industry and changes in the legal industry may adversely affect our growth and profitability;

A substantial portion of our loan portfolio consists of multifamily real estate loans and commercial real estate loans, which have a higher degree of risk than other types of loans;

We expect to increase our originations of consumer loans, including post-settlement consumer and structured settlement loans, and such loans generally carry greater risk than loans secured by owner-occupied, 1 – 4 family real estate, and these risks will increase as we continue to increase originations of these types of loans;

As a business operating in the financial services industry, our business and operations may be adversely affected in numerous and complex ways by weak economic conditions;

A substantial majority of our loans and operations are in New York, and therefore our business is particularly vulnerable to a downturn in the New York City economy;

We rely heavily on our management team, our board of directors and our advisory board members and our business could be adversely affected by the unexpected loss of one or more of our officers or directors;

We operate in a highly competitive industry and face significant competition from other financial institutions and financial services providers, which may decrease our growth or profits;

We face risks related to our operational, technological and organizational infrastructure;

The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition and results of operations;

Our business, financial condition, results of operations and future prospects could be adversely affected by the highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in any of them; and

An active, liquid trading market for our common stock may not develop, and you may not be able to sell your common stock at or above the public offering price, or at all.
Corporate Information
Our principal executive offices are located at 100 Jericho Quadrangle, Suite 100, Jericho, New York 11753, and our telephone number at that address is (800) 996-0213. Our website address is www.esquirebank.com. The information contained on our website is not a part of, or incorporated by reference into, this prospectus.
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The Offering
Common stock offered by us
1,800,000 shares
Common stock offered by the selling stockholders
563,873 shares
Underwriter’s purchase option
354,580 shares from us
Common stock outstanding after completion of this offering
6,857,030 shares (or 7,211,610 shares if the underwriter exercises its purchase option in full). There are 66,985 shares of our Series B Non-Voting Preferred Stock (the “Series B Preferred Stock”) that will remain outstanding following completion of the offering. The Series B Preferred Stock is not convertible by the holder but is automatically convertible on a one for one basis into shares of our common stock under certain circumstances. For more information on the Series B Preferred Stock, please see “Description of Capital Stock.”
Use of proceeds
We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and estimated offering expenses, will be approximately $21.9 million (or approximately $26.5 million if the underwriter exercises its option to purchase additional shares in full), based on the initial public offering price of  $14.00 per share. We intend to use the net proceeds that we receive from this offering to support the growth in Esquire Bank’s loan portfolio, including the possibility of making larger loans due to the increased lending limits, to finance potential strategic acquisitions to the extent such opportunities arise and for other general corporate purposes, which could include other growth initiatives. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders. See “Use of Proceeds.”
Dividend policy
We have not historically declared or paid any cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, for use in our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination to pay cash dividends on our common stock will be made by our board of directors and will depend upon our results of operations, financial condition, capital requirements, regulatory and contractual restrictions, our business strategy and other factors that our board of directors deems relevant. See “Dividend Policy.”
Listing and trading symbol
We have received approval to list our common stock on the NASDAQ Capital Market under the symbol “ESQ.”
Risk factors
See “Risk Factors” for a discussion of factors you should carefully consider before deciding to invest in our common stock.
References in this section to the number of shares of our common stock outstanding after this offering are based on 5,057,030 shares of our common stock issued and outstanding as of June 14, 2017. Unless otherwise indicated, these references:

assume no exercise of the underwriter’s option to purchase up to 354,580 additional shares of common stock from us;
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exclude 959,045 shares of common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of  $12.26 per share (280,815 shares of which are currently exercisable) as of June 14, 2017;

exclude 4,062 shares of our common stock reserved for issuance in connection with restricted stock awards, restricted stock unit awards, and stock options available for issuance under our 2011 Stock Compensation Plan as of June 14, 2017; and

exclude 66,985 shares of our Series B Preferred Stock that were issued in December 2014 that are not convertible by the holder, but are convertible on a one for one basis into shares of our common stock under certain circumstances.
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Summary Historical Consolidated Financial Data
The following table sets forth summary historical consolidated financial data as of the dates and for the periods shown. The summary balance sheet data as of December 31, 2016 and 2015 and the summary income statement data for the years then ended have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary balance sheet data as of December 31, 2014 and the summary income statement data for the year then ended have been derived from our audited consolidated financial statements that are not included in this prospectus. The summary consolidated financial data as of March 31, 2017 and for the three months ended March 31, 2017 and 2016 is derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus and includes all normal and recurring adjustments that we consider necessary for a fair presentation. The summary consolidated balance sheet data as of March 31, 2016 is derived from our unaudited interim condensed consolidated financial statements that are not included in this prospectus and have not been subject to review procedures from our independent accountants. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The information should be read in conjunction with “Selected Historical Consolidated Financial Data,” “Risk Factors,” “Management Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.
At or For the Three Months
Ended March 31,
At or For the Years Ended December 31,
2017
2016
2016
2015
2014
(Dollars in thousands, except share and per share data)
Balance Sheet Data:
Total assets
$ 438,059 $ 351,500 $ 424,833 $ 352,650 $ 330,690
Cash and cash equivalents
32,586 25,069 42,993 33,154 71,891
Securities available-for-sale
103,652 79,200 92,645 84,239 70,925
Loans receivable, net
287,033 233,294 275,165 221,720 170,512
Restricted stock
1,746 1,487 1,649 1,430 237
Deposits
383,372 298,693 370,788 301,687 290,774
Secured borrowings
284 378 371 381 391
Total stockholders’ equity
53,244 51,170 52,186 49,425 38,542
Income Statement Data:
Interest income
$ 4,432 $ 3,733 $ 16,168 $ 12,451 $ 10,714
Interest expense
137 101 511 457 466
Net interest income
4,295 3,632 15,657 11,994 10,248
Provision for loan losses
150 145 595 930 300
Net interest income after provision for loan losses
4,145 3,487 15,062 11,064 9,948
Noninterest income
1,204 987 4,125 2,943 1,765
Noninterest expense
4,024 3,420 14,599 12,171 11,262
Income before income tax expense
1,325 1,054 4,588 1,836 451
Income tax expense
510 411 1,766 664 410
Net income
815 643 2,822 1,172 41
Less: Preferred stock dividends
Net income available to common
stockholders
$ 815 $ 643 $ 2,822 $ 1,172 $ 41
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At or For the Three Months
Ended March 31,
At or For the Years Ended December 31,
2017
2016
2016
2015
2014
(Dollars in thousands, except share and per share data)
Per Share Data:
Earnings per common share:
Basic
$ 0.16 $ 0.13 $ 0.56 $ 0.25 $ 0.01
Diluted
$ 0.16 $ 0.13 $ 0.55 $ 0.25 $ 0.01
Book value per common share(1)
$ 10.50 $ 10.07 $ 10.29 $ 9.72 $ 8.98
Tangible book value per common share(2)
$ 10.50 $ 10.07 $ 10.29 $ 9.72 $ 8.98
Selected Performance Ratios:
Return on average assets
0.79% 0.74% 0.74% 0.36% 0.01%
Net interest margin
4.23% 4.27% 4.25% 3.74% 3.86%
Efficiency ratio
73.18% 74.05% 73.80% 81.48% 93.75%
Efficiency ratio, adjusted(3)
73.18% 74.14% 73.82% 81.48% 94.94%
Allowance for loan losses to total loans
1.21% 1.26% 1.23% 1.25% 1.25%
Nonperforming loans to total loans(4)
0.00% 0.00% 0.00% 0.00% 0.00%
(1)
For purposes of computing book value per common share, book value equals total common stockholders’ equity divided by total number of shares of common stock outstanding. Total common stockholders’ equity equals total stockholders’ equity, less preferred equity. Preferred equity was $720 and $1,697 at March 31, 2017 and 2016, respectively, and $720, $1,697 and $1,842 at December 31, 2016, 2015 and 2014, respectively.
(2)
The Company had no intangible assets as of the dates indicated. Thus, tangible book value per common share is the same as book value per common share for each of the periods indicated.
(3)
Efficiency ratio represents noninterest expenses, divided by the sum of net interest income plus noninterest income. With respect to efficiency ratio, adjusted, noninterest income excludes gains or losses on sale of investment securities. This is a non-GAAP financial measure. See “Non-GAAP Financial Measure Reconciliation” below for a reconciliation of this measure to its most comparable GAAP measure.
(4)
Nonperforming loans include nonaccrual loans, loans past due 90 days and still accruing interest and loans modified under troubled debt restructurings.
Non-GAAP Financial Measure Reconciliation
The efficiency ratio, adjusted, is a non-GAAP measure of expense control relative to adjusted revenue. We calculate the efficiency ratio, adjusted, by dividing total noninterest expenses, as determined under GAAP, by the sum of total net interest income and total noninterest income, each as determined under GAAP, but excluding net gains on securities and other non-recurring income sources, if applicable, from this calculation, which we refer to below as adjusted revenue. We believe that this provides one reasonable measure of core expenses relative to core revenue.
We believe that this non-GAAP financial measure provides information that is important to investors and that is useful in understanding our financial position, results and ratios. However, this non-GAAP financial measure is supplemental and is not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for this measure, this presentation may not be comparable to other similarly titled measures by other companies.
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At March 31,
At December 31,
2017
2016
2016
2015
2014
(Dollars in thousands)
Efficiency Ratio:
Net interest income
$ 4,295 $ 3,632 $ 15,657 $ 11,994 $ 10,247
Noninterest income
1,204 987 4,125 2,943 1,766
Less: Net gains on sales of securities
6 6 151
Adjusted revenue
$ 5,499 $ 4,625 $ 19,776 $ 14,937 $ 11,862
Total noninterest expense
4,024 3,420 14,599 12,171 11,262
Efficiency ratio, adjusted
73.18% 74.14% 73.82% 81.48% 94.94%
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RISK FACTORS
Investing in our common stock involves a high degree of risk. Before you decide to invest in our common stock, you should carefully consider the risks described below, together with all other information included in this prospectus, including our consolidated financial statements and the related notes included elsewhere in this prospectus. We believe the events described below are the risks that are material to us as of the date of this prospectus. If any of the following risks actually occurs, our business, prospects, financial condition, results of operations and cash flow could be materially and adversely affected. In such an event, the value of our common stock could decline and you could lose all or part of your investment. This prospectus also contains forward-looking statements, estimates and projections that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements, estimates and projections as a result of specific factors, including the risk factors described below.
Risks Related to Our Business
We have a limited operating history and have recently experienced significant growth, which makes it difficult to forecast our revenue and evaluate our business and future prospects.
We have only been in existence since 2006, and in 2015, 2016 and during the three months ended March 31, 2017, we experienced significant growth following a capital raise and the conversion from a savings and loan holding company with a savings bank subsidiary to a bank holding company with a national bank subsidiary. As a result of our limited operating history and recent accelerated growth, in particular in our merchant services business, our ability to forecast our future results of operations and plan for and model future growth is limited and subject to a number of uncertainties. We have encountered and will continue to encounter risks and uncertainties frequently experienced by growing companies in the financial services industry, such as the risks and uncertainties described herein. Accordingly, we may be unable to prepare accurate internal financial forecasts and our results of operations in future reporting periods may be below the expectations of investors. If we do not address these risks successfully, our results of operations could differ materially from our estimates and forecasts or the expectations of our stockholders, causing our business to suffer and our stock price to decline.
Because we intend to continue to increase our commercial loans, our credit risk may increase.
At March 31, 2017, our commercial loans totaled $112.8 million, or 39.0% of our total loans, including $101.2 million of Commercial Attorney-Related Loans, which represented 89.7% of our commercial loans. We intend to increase our originations of commercial loans, including our Commercial Attorney-Related Loans, which consist of working capital lines of credit, case cost lines of credit, term loans to law firms, and post-settlement commercial and other commercial attorney-related loans. These loans generally have more risk than 1 – 4 family residential mortgage loans and commercial loans secured by real estate. Since repayment of commercial loans, including our Commercial Attorney-Related Loans, depends on the successful receipt of settlement proceeds or the successful management and operation of the borrower’s businesses, repayment of such loans can be affected by adverse court decisions and adverse conditions in the local and national economy. Commercial Attorney-Related Loans present unique credit risks in that attorney or law firm revenues can be volatile depending on the number of cases, the timing of court decisions and the timing of the overall judicial process. In our experience, an average case can take two to four years to litigate. Determining the value of an attorney’s or law firm’s case inventory (borrowing base) is also inherently an imprecise exercise. Though repayment of case lines is not dependent on a favorable case settlement, unfavorable outcomes can ultimately impact the cash flows of the borrower. An adverse development with respect to one loan or one Commercial Attorney-Related Loan credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a 1 – 4 family residential mortgage loan or a commercial real estate loan.
Because we plan to continue to increase our originations of these loans, commercial loans generally have a larger average size as compared with other loans such as residential loans, and the collateral for commercial loans is generally less readily-marketable, losses incurred on a small number of commercial loans could have a disproportionate and material adverse impact on our financial condition and results of operations.
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A substantial portion of our business is dependent on the prospects of the legal industry and changes in the legal industry may adversely affect our growth and profitability.
We depend on our relationships within the legal community and our products and services tailored to the legal industry account for a significant source of our revenue. As we intend to focus our growth on our Attorney-Related Loan products, changes in the legal industry, including a significant decrease in the number of litigation cases in the United States, reform of the tort industry that reduces the ability of plaintiffs to bring cases or reduces the damages plaintiffs can receive, or a significant increase in the unemployment rate for attorneys, could, individually or in the aggregate, have a material adverse effect on our profitability, financial condition and growth of our business.
A substantial portion of our loan portfolio consists of multifamily real estate loans and commercial real estate loans, which have a higher degree of risk than other types of loans.
At March 31, 2017, we had $92.8 million of multifamily loans and $21.3 million of commercial real estate loans. Multifamily and commercial real estate loans represented 39.4% of our total loan portfolio at March 31, 2017. Multifamily and commercial real estate loans are often larger and involve greater risks than other types of lending. Because payments on such loans are often dependent on the successful operation or development of the property or business involved, repayment of such loans is often more sensitive than other types of loans to adverse conditions in the real estate market or the general business climate and economy. Accordingly, a downturn in the real estate market and a challenging business and economic environment may increase our risk related to multifamily and commercial real estate loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from their employment and other income and which are secured by real property whose value tends to be more easily ascertainable, multifamily and commercial real estate loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the commercial venture. If the cash flow from business operations is reduced, the borrower’s ability to repay the loan may be impaired. Due to the larger average size of each multifamily and commercial real estate loan as compared with other loans such as residential loans, as well as collateral that is generally less readily-marketable, losses incurred on a small number of multifamily and commercial real estate loans could have a material adverse impact on our financial condition and results of operations.
We expect to increase our originations of consumer loans, including post-settlement consumer and structured settlement loans, and such loans generally carry greater risk than loans secured by owner-occupied, 1 – 4 family real estate, and these risks will increase as we continue to increase originations of these types of loans.
At March 31, 2017, our consumer loans totaled $11.0 million, or 3.8% of our total loan portfolio, of which $3.7 million, or 33.6%, were post-settlement consumer loans and $1.6 million, or 14.1%, were structured settlement loans. Consumer loans typically have shorter terms, lower balances, higher yields and higher risks of default than 1 – 4 family residential loans. Consumer loan collections are dependent on the borrower’s continuing financial stability and are therefore more likely to be affected by adverse personal circumstances, such as a loss of employment or unexpected medical costs. While our consumer Attorney-Related Loans, which consist of post-settlement consumer and structured settlement loans (“Consumer Attorney-Related Loans”), are typically well secured by the settlement amount, we can still be exposed to the financial stability of the borrower as a result of unforeseen rulings or administrative legal anomalies with a particular borrower’s settlement that eliminate or greatly reduce their settlement amount. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit our ability to recover on such loans. As we increase our originations of consumer loans, it may become necessary to increase our provision for loan losses in the event our losses on these loans increase, which would reduce our profits.
As a business operating in the financial services industry, our business and operations may be adversely affected in numerous and complex ways by weak economic conditions.
Our business and operations, which primarily consist of lending money to customers in the form of loans, borrowing money from customers in the form of deposits and investing in securities, are sensitive to general business and economic conditions in the United States. If the U.S. economy weakens, our growth and profitability from our lending, deposit and investment operations could be constrained. Uncertainty
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about the federal fiscal policymaking process, the medium and long-term fiscal outlook of the federal government, and future tax rates is a concern for businesses, consumers and investors in the United States. In addition, economic conditions in foreign countries, including uncertainty over the stability of the euro currency, could affect the stability of global financial markets, which could hinder U.S. economic growth. Weak economic conditions are characterized by deflation, fluctuations in debt and equity capital markets, a lack of liquidity and/or depressed prices in the secondary market for mortgage loans, increased delinquencies on mortgage, consumer and commercial loans, residential and commercial real estate price declines and lower home sales and commercial activity. The current economic environment is also characterized by interest rates at historically low levels, which impacts our ability to attract deposits and to generate attractive earnings through our investment portfolio. All of these factors are detrimental to our business, and the interplay between these factors can be complex and unpredictable. Our business is also significantly affected by monetary and related policies of the U.S. federal government and its agencies. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control. Adverse economic conditions and government policy responses to such conditions could have a material adverse effect on our business, financial condition, results of operations and prospects.
A substantial majority of our loans and operations are in New York, and therefore our business is particularly vulnerable to a downturn in the New York City economy.
Unlike larger financial institutions that are more geographically diversified, a large portion of our business is concentrated primarily in the state of New York, and in New York City in particular. As of December 31, 2016, 80.9% of our loan portfolio was in New York and our loan portfolio had concentrations of 64.0% in New York City. If the local economy, and particularly the real estate market, declines, the rates of delinquencies, defaults, foreclosures, bankruptcies and losses in our loan portfolio would likely increase. As a result of this lack of diversification in our loan portfolio, a downturn in the local economy generally and real estate market specifically could significantly reduce our profitability and growth and adversely affect our financial condition.
Interest rate shifts may reduce net interest income and otherwise negatively impact our financial condition and results of operations.
The majority of our banking assets are monetary in nature and subject to risk from changes in interest rates. Like most financial institutions, our earnings and cash flows depend to a great extent upon the level of our net interest income, or the difference between the interest income we earn on loans, investments and other interest earning assets, and the interest we pay on interest bearing liabilities, such as deposits and borrowings. Changes in interest rates can increase or decrease our net interest income, because different types of assets and liabilities may react differently, and at different times, to market interest rate changes.
When interest bearing liabilities mature or reprice more quickly, or to a greater degree than interest earning assets in a period, an increase in interest rates could reduce net interest income. Similarly, when interest earning assets mature or reprice more quickly, or to a greater degree than interest bearing liabilities, falling interest rates could reduce net interest income. Additionally, an increase in interest rates may, among other things, reduce the demand for loans and our ability to originate loans and decrease loan repayment rates. A decrease in the general level of interest rates may affect us through, among other things, increased prepayments on our loan portfolio and increased competition for deposits. Accordingly, changes in the level of market interest rates affect our net yield on interest earning assets, loan origination volume and our overall results. Although our asset-liability management strategy is designed to control and mitigate exposure to the risks related to changes in market interest rates, those rates are affected by many factors outside of our control, including governmental monetary policies, inflation, deflation, recession, changes in unemployment, the money supply, international disorder and instability in domestic and foreign financial markets.
Our small size makes it more difficult for us to compete.
Our small size makes it more difficult to compete with other financial institutions which are generally larger and can more easily afford to invest in the marketing and technologies needed to attract and retain customers. Because our principal source of income is the net interest income we earn on our loans and
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investments after deducting interest paid on deposits and other sources of funds, our ability to generate the revenues needed to cover our expenses and finance such investments is limited by the size of our loan and investment portfolios. In addition, we compete with many larger financial institutions and other financial companies who operate in the merchant services business. Accordingly, we are not always able to offer new products and services as quickly as our competitors. Our lower earnings also make it more difficult to offer competitive salaries and benefits. As a smaller institution, we are also disproportionately affected by the continually increasing costs of compliance with new banking and other regulations.
We may not be able to grow, and if we do we may have difficulty managing that growth.
Our business strategy is to continue to grow our assets and expand our operations, including through potential strategic acquisitions. Our ability to grow depends, in part, upon our ability to expand our market share, successfully attract core deposits, and to identify loan and investment opportunities as well as opportunities to generate fee-based income. We can provide no assurance that we will be successful in increasing the volume of our loans and deposits at acceptable levels and upon terms acceptable to us. We also can provide no assurance that we will be successful in expanding our operations organically or through strategic acquisition while managing the costs and implementation risks associated with this growth strategy.
We expect to continue to experience growth in the number of our employees and customers and the scope of our operations. Our success will depend upon the ability of our officers and key employees to continue to implement and improve our operational and other systems, to manage multiple, concurrent customer relationships, and to hire, train and manage our employees. In the event that we are unable to perform all these tasks and meet these challenges effectively, including continuing to attract core deposits, our operations, and consequently our earnings, could be adversely impacted.
We rely heavily on our management team, our board of directors and our advisory board members and our business could be adversely affected by the unexpected loss of one or more of our officers or directors.
We are led by a management team with substantial experience in the markets that we serve and the financial products that we offer. Our operating strategy focuses on providing products and services through long-term relationship managers. Additionally, we rely heavily on our directors’ and our advisory board members’ extensive business and personal contacts and relationships to help establish and maintain our customer base. Accordingly, our success depends in large part on the performance of our key officers and directors, as well as on our ability to attract, motivate and retain highly qualified senior and middle management. Competition for employees is intense, and the process of identifying key personnel with the combination of skills and attributes required to execute our business plan may be lengthy. We may not be successful in retaining our key employees or directors and the unexpected loss of services of one or more of our officers or directors could have a material adverse effect on our business because of their skills, knowledge of our market and financial products, years of industry experience, long-term business and customer relationships and the difficulty of finding qualified replacement personnel. If the services of any of our key personnel should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable to us, which could have an adverse effect on our business, financial condition and results of operations.
Our merchants or ISOs may be unable to satisfy obligations for which we may ultimately be liable.
We are subject to the risk of our merchants or ISOs being unable to satisfy obligations for which we may ultimately be liable. If we are unable to collect amounts due from a merchant or ISO because of insolvency or other reasons, we may bear the loss for those full amounts. We manage our credit risk and attempt to mitigate our risk by obtaining reserves, both from merchants and ISOs, and through other contractual remedies. It is possible, however, that a default on such obligations by one or more of our ISOs or merchants, could, individually or in the aggregate, have a material adverse effect on our business, financial condition and results of operations.
Fraud by merchants or others could have a material adverse effect on our business and financial condition.
We may be subject to liability for fraudulent transactions initiated by merchants or others. Examples of such fraud include when a merchant or other party knowingly uses a stolen or counterfeit card to make a
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transaction, or if a merchant intentionally fails to deliver the merchandise or services sold in an otherwise valid transaction. Criminals are using increasingly sophisticated methods to engage in illegal activities such as counterfeiting and fraud. It is possible that incidents of fraud could increase in the future. Failure to effectively manage risk and prevent fraud would increase our chargeback liability or other liability. Increases in chargebacks or other liability could have a material adverse effect on our business, financial condition, and results of operations.
Changes in card network rules or standards could adversely affect our business.
In order to provide our merchant services, we are members of the Visa and MasterCard networks. As such, we are subject to card network rules that could subject us or our ISOs and merchants to a variety of fines or penalties that may be assessed on us, our ISOs, and our merchants. The termination of our membership, or the revocation of registration of any of our ISOs, or any changes in card network rules or standards could increase the cost of operating our merchant servicer business or limit our ability to provide merchant services to or through our customers, and could have a material adverse effect on our business, financial condition and results of operations.
Changes in card network fees could impact our operations.
From time to time, the card networks increase the fees (known as interchange fees) that they charge to acquirers and we charge to our merchants. It is possible that competitive pressures will result in us absorbing a portion of such increases in the future, which would increase our costs, reduce our profit margin and adversely affect our business and financial condition. In addition, the card networks require certain capital requirements. An increase in the required capital level would further limit our use of capital for other purposes.
We are subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system failures and errors.
Employee errors and employee and customer misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence.
We maintain a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud. If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations.
If the allowance for loan losses is not sufficient to cover actual loan losses, earnings could decrease.
Loan customers may not repay their loans according to the terms of their loans, and the collateral securing the payment of their loans may be insufficient to assure repayment. We may experience significant credit losses, which could have a material adverse effect on our operating results. Various assumptions and judgments about the collectability of the loan portfolio are made, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of many loans. In determining the amount of the allowance for loan losses, management reviews the loans and the loss and delinquency experience and evaluates economic conditions.
At March 31, 2017, our allowance for loan losses as a percentage of total loans, net of unearned income, was 1.21%. The determination of the appropriate level of allowance is subject to judgment and requires us to make significant estimates of current credit risks and future trends, all of which are subject to material changes. If assumptions prove to be incorrect, the allowance for loan losses may not cover probable incurred losses in the loan portfolio at the date of the financial statements. Significant additions to the allowance would materially decrease net income. Non-performing loans may increase and non-performing
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or delinquent loans may adversely affect future performance. We had no non-performing loans at March 31, 2017. In addition, federal and state regulators periodically review the allowance for loan losses and may require an increase in the allowance for loan losses or recognize further loan charge-offs. Any significant increase in our allowance for loan losses or loan charge-offs as required by these regulatory agencies could have a material adverse effect on our results of operations and financial condition.
Our loan portfolio is unseasoned.
With a growing and generally unseasoned loan portfolio, our credit risk may continue to increase and our future performance could be adversely affected. While we believe we have underwriting standards designed to manage normal lending risks, it is difficult to assess the future performance of our loan portfolio due to the recent origination of many of these loans. As a result, it is difficult to predict whether any of our loans will become non-performing or delinquent loans, or whether we will have any non-performing or delinquent loans that will adversely affect our future performance. At March 31, 2017, the average age of our loans was 4.26 years, 2.76 years, 2.98 years, 0.41 years, 3.07 years and 0.93 years for our 1 – 4 family residential loans, multifamily loans, commercial real estate loans, construction loans, commercial loans and consumer loans, respectively. At March 31, 2017, the average age of our loan portfolio was 2.10 years.
Changes in the valuation of our securities portfolio could hurt our profits and reduce our stockholders’ equity.
Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings. Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. Management evaluates securities for other-than-temporary impairment on a quarterly basis, with more frequent evaluation for selected issues. In analyzing a debt issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, industry analysts’ reports and, to a lesser extent given the relatively insignificant levels of depreciation in our debt portfolio, spread differentials between the effective rates on instruments in the portfolio compared to risk-free rates. In analyzing an equity issuer’s financial condition, management considers industry analysts’ reports, financial performance and projected target prices of investment analysts within a one-year time frame. If this evaluation shows impairment to the actual or projected cash flows associated with one or more securities, a potential loss to earnings may occur. Changes in interest rates can also have an adverse effect on our financial condition, as our available-for-sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates. We increase or decrease our stockholders’ equity by the amount of change in the estimated fair value of the available-for-sale securities, net of taxes. Declines in market value could result in other-than-temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Securities Portfolio.”
We may not be able to adequately measure and limit the credit risk associated with our loan portfolio, which could adversely affect our profitability.
As a part of the products and services that we offer, we make commercial and commercial real estate loans. The principal economic risk associated with each class of loans is the creditworthiness of the borrower, which is affected by the strength of the relevant business market segment, local market conditions, and general economic conditions. Additional factors related to the credit quality of commercial loans include the quality of the management of the business and the borrower’s ability both to properly evaluate changes in the supply and demand characteristics affecting their market for products and services, and to effectively respond to those changes. Additional factors related to the credit quality of commercial real estate loans include tenant vacancy rates and the quality of management of the property. A failure to effectively measure and limit the credit risk associated with our loan portfolio could have an adverse effect on our business, financial condition, and results of operations.
Changes in economic conditions could cause an increase in delinquencies and nonperforming assets, including loan charge-offs, which could depress our net income and growth.
Our loan portfolio includes many real estate secured loans, demand for which may decrease during economic downturns as a result of, among other things, an increase in unemployment, a decrease in real
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estate values and, a slowdown in housing. If we see negative economic conditions develop in the United States as a whole or our New York market, we could experience higher delinquencies and loan charge-offs, which would reduce our net income and adversely affect our financial condition. Furthermore, to the extent that real estate collateral is obtained through foreclosure, the costs of holding and marketing the real estate collateral, as well as the ultimate values obtained from disposition, could reduce our earnings and adversely affect our financial condition.
We operate in a highly competitive industry and face significant competition from other financial institutions and financial services providers, which may decrease our growth or profits.
Consumer and commercial banking as well as merchant services are highly competitive industries. Our market area contains not only a large number of community and regional banks, but also a significant presence of the country’s largest commercial banks. We compete with other state and national financial institutions, as well as savings and loan associations, savings banks, and credit unions, for deposits and loans. In addition, we compete with financial intermediaries, such as consumer finance companies, specialty finance companies, commercial finance companies, mortgage banking companies, insurance companies, securities firms, mutual funds, and several government agencies, as well as major retailers, all actively engaged in providing various types of loans and other financial services, including merchant services. Competition for Attorney-Related Loans is derived primarily from eight to ten nationally-oriented financial companies that specialize in this market. Some of these companies are focused exclusively on loans to law firms, while others offer loans to plaintiffs as well. We also face significant competition from many larger institutions, including large commercial banks and third party processors that operate in the merchant services business, and our ability to grow that portion of our business depends on us being able to continue to attract and retain ISOs and merchants. Some of these competitors may have a long history of successful operations nationally as well as in our market area and greater ties to businesses or the legal community and more expansive banking relationships, as well as more established depositor bases, fewer regulatory constraints, and lower cost structures than we do. Competitors with greater resources may possess an advantage through their ability to maintain numerous banking locations in more convenient sites, to conduct more extensive promotional and advertising campaigns, or to operate a more developed technology platform. Due to their size, many competitors may offer a broader range of products and services, as well as better pricing for certain products and services than we can offer. For example, in the current low interest rate environment, competitors with lower costs of capital may solicit our customers to refinance their loans with a lower interest rate. Further, increased competition among financial services companies due to the recent consolidation of certain competing financial institutions may adversely affect our ability to market our products and services. Technology has lowered barriers to entry and made it possible for banks and specifically finance companies to compete in our market area and for non-banks to offer products and services traditionally provided by banks.
The financial services industry could become even more competitive as a result of legislative, regulatory, and technological changes and continued consolidation. Banks, securities firms, and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting), and merchant banking.
Our ability to compete successfully depends on a number of factors, including:

our ability to develop, maintain, and build upon long-term customer relationships based on quality service and high ethical standards;

our ability to attract and retain qualified employees to operate our business effectively;

our ability to expand our market position;

the scope, relevance, and pricing of products and services that we offer to meet customer needs and demands;

the rate at which we introduce new products and services relative to our competitors;

customer satisfaction with our level of service; and

industry and general economic trends.
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Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could harm our business, financial condition, and results of operations.
A lack of liquidity could adversely affect our financial condition and results of operations.
Liquidity is essential to our business. We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans to ensure that we have adequate liquidity to fund our operations. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. Our most important source of funds is deposits. Deposit balances can decrease when customers perceive alternative investments as providing a better risk/return tradeoff. If customers move money out of bank deposits and into other investments such as money market funds, we would lose a relatively low-cost source of funds, increasing our funding costs and reducing our net interest income and net income.
Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities, and proceeds from the issuance and sale of our equity securities to investors. Additional liquidity is provided by the ability to borrow from the Federal Home Loan Bank of New York. We also may borrow funds from third-party lenders, such as other financial institutions. Our access to funding sources in amounts adequate to finance or capitalize our activities, or on terms that are acceptable to us, could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry. Our access to funding sources could also be affected by a decrease in the level of our business activity as a result of a downturn in our markets or by one or more adverse regulatory actions against us.
Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, or to fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.
Our ten largest deposit clients account for 34.0% of our total deposits.
As of March 31, 2017, our ten largest bank depositors accounted for, in the aggregate, 34.0% of our total deposits. As a result, a material decrease in the volume of those deposits by a relatively small number of our depositors could reduce our liquidity, in which event it could became necessary for us to replace those deposits with higher-cost deposits or FHLB borrowings, which would adversely affect our net interest income and, therefore, our results of operations.
As a bank holding company, the sources of funds available to us are limited.
Any future constraints on liquidity at the holding company level could impair our ability to declare and pay dividends on our common stock. In some instances, notice to, or approval from, the FRB may be required prior to our declaration or payment of dividends. Further, our operations are primarily conducted by our subsidiary, Esquire Bank, which is subject to significant regulation. Federal banking laws restrict the payment of dividends by banks to their holding companies, and Esquire Bank will be subject to these restrictions in paying dividends to us. Because our ability to receive dividends or loans from Esquire Bank is restricted, our ability to pay dividends to our stockholders is also restricted.
Additionally, the right of a bank holding company to participate in the assets of its subsidiary bank in the event of a bank-level liquidation or reorganization is subject to the claims of the bank’s creditors, including depositors, which take priority, except to the extent that the holding company may be a creditor with a recognized claim.
Our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our performance.
We are a community bank, and our reputation is one of the most valuable components of our business. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring, and retaining employees who share our core values of being an integral part of the
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communities we serve, delivering superior service to our customers, and caring about our customers and associates. If our reputation is negatively affected, by the actions of our employees or otherwise, our business and, therefore, our operating results may be materially adversely affected. Further, negative public opinion can expose us to litigation and regulatory action as we seek to implement our growth strategy, which would adversely affect our business, financial condition and results of operations.
We have lower lending limits and different lending risks than certain of our larger, more diversified competitors.
We are a community banking institution that provides banking services to the local communities in the market areas in which we operate. Our ability to diversify our economic risks is limited by our own local markets and economies. We lend primarily to individuals and to small to medium-sized businesses, which may expose us to greater lending risks than those of banks that lend to larger, better-capitalized businesses with longer operating histories. In addition, our legally mandated lending limits are lower than those of certain of our competitors that have more capital than we do. As a result of our size, at March 31, 2017, our legal lending limit was $7.8 million, and there was one loan within 10% of this limit. Our lower lending limits may discourage borrowers with lending needs that exceed our limits from doing business with us. We may try to serve such borrowers by selling loan participations to other financial institutions; however, this strategy may not succeed.
We face risks related to our operational, technological and organizational infrastructure.
Our ability to grow and compete is dependent on our ability to build or acquire the necessary operational and technological infrastructure and to manage the cost of that infrastructure as we expand. Similar to other large corporations, operational risk can manifest itself in many ways, such as errors related to failed or inadequate processes, faulty or disabled computer systems, fraud by employees or outside persons and exposure to external events. As discussed below, we are dependent on our operational infrastructure to help manage these risks. In addition, we are heavily dependent on the strength and capability of our technology systems which we use both to interface with our customers and to manage our internal financial and other systems. Our ability to develop and deliver new products that meet the needs of our existing customers and attract new ones depends on the functionality of our technology systems. Additionally, our ability to run our business in compliance with applicable laws and regulations is dependent on these infrastructures.
We continuously monitor our operational and technological capabilities and make modifications and improvements when we believe it will be cost effective to do so. In some instances, we may build and maintain these capabilities ourselves. We also outsource some of these functions to third parties. Specifically, we depend on third parties to provide our core systems processing, essential web hosting and other internet systems, deposit processing and other processing services. In connection with our merchant services business, we (and our ISOs) rely on various third parties to provide processing and clearing and settlement services to us in connection with card transactions. If these third-party service providers experience difficulties, fail to comply with banking regulations or terminate their services and we are unable to replace them with other service providers, our operations could be interrupted. If an interruption were to continue for a significant period of time, our business, financial condition and results of operations could be adversely affected, perhaps materially. Even if we are able to replace them, it may be at a higher cost to us, which could adversely affect our business, financial condition and results of operations. We also face risk from the integration of new infrastructure platforms and/or new third party providers of such platforms into its existing businesses.
A failure in our operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our businesses, result in the unauthorized disclosure of confidential information, damage our reputation and cause financial losses.
Our business, and in particular, our merchant services business, is partially dependent on our ability to process and monitor, on a daily basis, a large number of transactions, many of which are highly complex, across numerous and diverse markets. These transactions, as well as the information technology services we provide to clients, often must adhere to client-specific guidelines, as well as legal and regulatory standards.
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Due to the breadth of our client base and our geographical reach, developing and maintaining our operational systems and infrastructure is challenging, particularly as a result of rapidly evolving legal and regulatory requirements and technological shifts. Our financial, accounting, data processing or other operating systems and facilities, and, as discussed above, those the third-party service providers upon which we depend, may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, such as a spike in transaction volume, cyber-attack or other unforeseen catastrophic events, which may adversely affect our ability to process these transactions or provide services.
The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition and results of operations.
Our operations rely on the secure processing, storage and transmission of confidential and other sensitive business and consumer information on our computer systems and networks, as well as those of our ISOs and processors. Under the card network rules and various federal and state laws, we are responsible for safeguarding such information. Although we take protective measures to maintain the confidentiality, integrity and availability of information across all geographic and product lines, and endeavor to modify these protective measures as circumstances warrant, the nature of the threats continues to evolve. As a result, our computer systems, software and networks are vulnerable to unauthorized access, loss or destruction of data (including confidential client information), account takeovers, unavailability of service, computer viruses or other malicious code, cyber-attacks and other events that could have an adverse security impact. Despite the defensive measures we take to manage our internal technological and operational infrastructure, these threats have in the past and may in the future originate externally from third parties such as foreign governments, organized crime and other hackers, and outsource or infrastructure-support providers and application developers, or may originate internally from within our organization. Given the increasingly high volume of our transactions, certain errors may be repeated or compounded before they can be discovered and rectified. In addition, security breaches or failures could result in the bank incurring liability to ISOs, members of the card network and card issuers in relation to our merchant banking business.
In particular, information pertaining to us and our customers is maintained, and transactions are executed, on the networks and systems of us, our customers and certain of our third-party partners, such as our online banking or reporting systems, ISO’s customers and merchants who are part of our merchant banking business. The secure maintenance and transmission of confidential information, as well as execution of transactions over these systems, are essential to protect us and our customers against fraud and security breaches and to maintain our clients’ confidence. Breaches of information security also may occur, and in infrequent cases have occurred, through intentional or unintentional acts by those having access or gaining access to our systems or our customers’ or counterparties’ confidential information, including employees. In addition, increases in criminal activity levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third-party technologies (including browsers and operating systems) or other developments could result in a compromise or breach of the technology, processes and controls that we use to prevent fraudulent transactions and to protect data about us, our customers and underlying transactions, as well as the technology used by our customers to access our systems. We cannot be certain that the security measures we or our ISOs or processors have in place to protect this sensitive data will be successful or sufficient to protect against all current and emerging threats designed to breach our systems or those of our ISOs or processors. Although we have developed, and continue to invest in, systems and processes that are designed to detect and prevent security breaches and cyber-attacks and periodically test our security, a breach of our systems, or those of our ISOs or processors, could result in losses to us or our customers; loss of business and/or customers; damage to our reputation; the incurrence of additional expenses (including the cost of notification to consumers, credit monitoring and forensics, and fees and fines imposed by the card networks); disruption to our business; our inability to grow our online services or other businesses; additional regulatory scrutiny or penalties; or our exposure to civil litigation and possible financial liability — any of which could have a material adverse effect on our business, financial condition and results of operations.
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If our enterprise risk management framework is not effective at mitigating risk and loss to us, we could suffer unexpected losses and our results of operations could be materially adversely affected.
Our enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing stockholder value. We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject, including credit, liquidity, operational, regulatory compliance and reputational. However, as with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. If our risk management framework proves ineffective, we could suffer unexpected losses and our business and results of operations could be materially adversely affected.
Changes in accounting standards could materially impact our financial statements.
From time to time, the Financial Accounting Standards Board or the SEC may change the financial accounting and reporting standards that govern the preparation of our financial statements. Such changes may result in us being subject to new or changing accounting and reporting standards. In addition, the bodies that interpret the accounting standards (such as banking regulators, outside auditors or management) may change their interpretations or positions on how these standards should be applied. These changes may be beyond our control, can be hard to predict, and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retrospectively, or apply an existing standard differently, also retrospectively, in each case resulting in our needing to revise or restate prior period financial statements.
Risks Related to Our Industry and Regulation
Our business, financial condition, results of operations and future prospects could be adversely affected by the highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in any of them.
As a bank holding company, we are subject to extensive examination, supervision and comprehensive regulation by various federal and state agencies that govern almost all aspects of our operations. These laws and regulations are not intended to protect our stockholders. Rather, these laws and regulations are intended to protect customers, depositors, the Deposit Insurance Fund (the “DIF”) and the overall financial stability of the U.S. These laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, limit the dividend or distributions that Esquire Bank can pay to us, restrict the ability of institutions to guarantee our debt, and impose certain specific accounting requirements on us that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than generally accepted accounting principles would require. Compliance with these laws and regulations is difficult and costly, and changes to these laws and regulations often impose additional compliance costs. Our failure to comply with these laws and regulations, even if the failure follows good faith effort or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our securities. Further, any new laws, rules and regulations could make compliance more difficult or expensive.
Likewise, the Company operates in an environment that imposes income taxes on its operations at both the federal and state levels to varying degrees. Strategies and operating routines have been implemented to minimize the impact of these taxes. Consequently, any change in tax legislation could significantly alter the effectiveness of these strategies.
The net deferred tax asset reported on the Company’s balance sheet generally represents the tax benefit of future deductions from taxable income for items that have already been recognized for financial reporting purposes. The bulk of these deferred tax assets consists of deferred loan loss deductions, deferred compensation deductions and unrealized losses on available-for-sale securities. The net deferred tax asset is measured by applying currently-enacted income tax rates to the accounting period during which the tax benefit is expected to be realized. As of March 31, 2017, the Company’s net deferred tax asset was $2.6 million.
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The President of the United States and some members of Congress have announced plans to introduce legislation that would lower the federal corporate income tax rate from its current level of 35%. If this tax rate reduction is enacted, it will result in an immediate impairment of the recorded net deferred tax asset because the future tax benefit of these deferrals would need to be re-measured for the impact of the lower tax rate. Any such impairment would be recorded as a charge to the Company’s earnings and would be recognized in the quarter during which the lower rate is enacted.
Federal regulators periodically examine our business, and we may be required to remediate adverse examination findings.
The FRB, the OCC and the FDIC, periodically examine our business, including our compliance with laws and regulations. If, as a result of an examination, a federal banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship. If we become subject to any regulatory actions, it could have a material adverse effect on our business, results of operations, financial condition and growth prospects.
Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), among other things, imposed new capital requirements on bank holding companies; changed the base for FDIC insurance assessments to a bank’s average consolidated total assets minus average tangible equity, rather than upon its deposit base; permanently raised the current standard deposit insurance limit to $250,000; and expanded the FDIC’s authority to raise insurance premiums. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) established the Consumer Financial Protection Bureau as an independent entity within the FRB, which has broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards and contains provisions on mortgage-related matters, such as steering incentives, determinations as to a borrower’s ability to repay and prepayment penalties. Although the applicability of certain elements of the Dodd-Frank Act is limited to institutions with more than $10 billion in assets, there can be no guarantee that such applicability will not be extended in the future or that regulators or other third parties will not seek to impose such requirements on institutions with less than $10 billion in assets, such as Esquire Bank.
Compliance with the Dodd-Frank Act and its implementing regulations has and will continue to result in additional operating and compliance costs that could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
In addition, new proposals for legislation continue to be introduced in the U.S. Congress that could further substantially increase regulation of the bank and non-bank financial services industries and impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices. Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied. Certain aspects of current or proposed regulatory or legislative changes to laws applicable to the financial industry, if enacted or adopted, may impact the profitability of our business activities, require more oversight or change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads and could expose us to additional costs, including increased compliance costs. These changes also may require us to invest significant management attention and resources to make any necessary changes to operations to comply and could have an adverse effect on our business, financial condition and results of operations.
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As a result of the Dodd-Frank Act and recent rulemaking, we are subject to more stringent capital requirements.
In July 2013, the U.S. federal banking authorities approved new regulatory capital rules implementing the Basel III regulatory capital reforms effecting certain changes required by the Dodd-Frank Act. The new regulatory capital requirements are generally applicable to all U.S. banks as well as to bank and saving and loan holding companies, other than “small bank holding companies” (generally bank holding companies with consolidated assets of less than $1.0 billion, such as the Company). The new regulatory capital rules not only increase most of the required minimum regulatory capital ratios, but also introduce a new common equity Tier 1 capital ratio and the concept of a capital conservation buffer. The new regulatory capital rules also expand the current definition of capital by establishing additional criteria that capital instruments must meet to be considered additional Tier 1 and Tier 2 capital. In order to be a “well-capitalized” depository institution under the new regime, an institution must maintain a common equity Tier 1 capital ratio of 6.5% or more; a Tier 1 capital ratio of 8% or more; a total capital ratio of 10% or more; and a leverage ratio of 5% or more. Institutions must also maintain a capital conservation buffer consisting of common equity Tier 1 capital. The new regulatory capital rules became effective as applied to Esquire Bank on January 1, 2015 with a phase-in period that generally extends through January 1, 2019 for many of the changes.
Additionally, 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 ratio of 9.0%, a Tier1 risk-based capital ratio of 11.0% and a total risk-based capital to risk-weighted assets ratio of 13.0%.
The failure to meet applicable regulatory capital requirements, including the minimum capital requirements established by the OCC, could result in one or more of our regulators placing limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities, and could affect customer and investor confidence, our costs of funds and FDIC insurance costs, our ability to pay dividends on our common stock, our ability to make acquisitions, and our business, results of operations and financial conditions, generally.
We are subject to the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to material penalties.
The Community Reinvestment Act (“CRA”), the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The Consumer Financial Protection Bureau, the United States Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on expansion activity. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.
The FASB has recently issued an accounting standard update that will result in a significant change in how we recognize credit losses and may have a material impact on our financial condition or results of operations.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model. Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current generally accepted accounting principles (“GAAP”), which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL model will
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materially affect how we determine our allowance for loan losses and could require us to significantly increase our allowance. Moreover, the CECL model may create more volatility in the level of our allowance for loan losses. If we are required to materially increase our level of allowance for loan losses for any reason, such increase could adversely affect our business, financial condition and results of operations.
The new CECL standard will become effective for us for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. We are currently evaluating the impact the CECL model will have on our accounting, but we expect to recognize a one-time cumulative-effect adjustment to our allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. We cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on our financial condition or results of operations.
FDIC deposit insurance assessments may continue to materially increase in the future, which would have an adverse effect on earnings.
As a member institution of the FDIC, our subsidiary, Esquire Bank, is assessed a quarterly deposit insurance premium. Failed banks nationwide have significantly depleted the insurance fund and reduced the ratio of reserves to insured deposits. The FDIC has adopted a Deposit Insurance Fund Restoration Plan, which requires the FDIC’s Deposit Insurance Fund (the “DIF”) to attain a 1.35% reserve ratio by September 30, 2020. As a result of this requirement, Esquire Bank could be required to pay significantly higher premiums or additional special assessments that would adversely affect its earnings, thereby reducing the availability of funds to pay dividends to us.
Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.
In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the FRB. An important function of the FRB is to regulate the money supply and credit conditions. Among the instruments used by the FRB to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.
The monetary policies and regulations of the FRB have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted.
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
The Bank Secrecy Act, the USA Patriot Act and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and to file reports such as suspicious activity reports and currency transaction reports. We are required to comply with these and other anti-money laundering requirements. The federal banking agencies and Financial Crimes Enforcement Network are authorized to impose significant civil money penalties for violations of those requirements and have recently engaged in coordinated enforcement efforts against banks and other financial services providers with the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. We are also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control. If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
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The FRB may require us to commit capital resources to support Esquire Bank.
As a matter of policy, the FRB expects a bank holding company to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank. The Dodd-Frank Act codified the FRB’s policy on serving as a source of financial strength. Under the “source of strength” doctrine, the FRB may require a bank holding company to make capital injections into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank. A capital injection may be required at times when the holding company may not have the resources to provide it and therefore may be required to borrow the funds or raise capital. Any loans by a holding company to its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the institution’s general unsecured creditors, including the holders of its note obligations. Thus, any borrowing that must be done by the Company to make a required capital injection becomes more difficult and expensive and could have an adverse effect on our business, financial condition and results of operations.
We could be adversely affected by the soundness of other financial institutions and other third parties we rely on.
Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks and other institutional customers. Many of these transactions expose us to credit risk in the event of a default by a counterparty or client. In addition, our credit risk may be exacerbated when our collateral cannot be foreclosed upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due. Furthermore, successful operation of our merchant services business depends on the soundness of ISOs, third party processors, clearing agents and others that we rely on to conduct our merchant business. Any losses resulting from such third parties could adversely affect our business, financial condition and results of operations.
We depend on the accuracy and completeness of information about customers and counterparties.
In deciding whether to extend credit or enter into other transactions with our existing and potential customers and counterparties, we may rely on information furnished to us by or on behalf of our existing and potential customers and counterparties, including financial statements and other financial information. We also may rely on representations of our existing and potential customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. In deciding whether to extend credit, we may rely upon our existing and potential customers’ representations that their respective financial statements conform to U.S. generally accepted accounting principles, or GAAP, and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. We also may rely on customer and counterparty representations and certifications, or other auditors’ reports, with respect to the business and financial condition of our existing and potential customers and counterparties. Our financial condition, results of operations, financial reporting and reputation could be negatively affected if we rely on materially misleading, false, incomplete, inaccurate or fraudulent information provided by us by or on behalf of our existing or potential customers or counterparties.
Our accounting estimates and risk management processes and controls rely on analytical and forecasting techniques and models and assumptions, which may not accurately predict future events.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with GAAP and reflect management’s judgment of the most appropriate manner to report our financial condition and results. In some cases,
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management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet which may result in our reporting materially different results than would have been reported under a different alternative.
Certain accounting policies are critical to presenting our financial condition and results of operations. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. These critical accounting policies include the allowance for loan losses and income taxes. Because of the uncertainty of estimates involved in these matters, we may be required to do one or more of the following: significantly increase the allowance for loan losses or sustain loan losses that are significantly higher than the reserve provided; reduce the carrying value of an asset measured at fair value; or significantly increase our accrued tax liability. Any of these could have a material adverse effect on our business, financial condition or results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Our internal controls, disclosure controls, processes and procedures, and corporate governance policies and procedures are based in part on certain assumptions and can provide only reasonable (not absolute) assurances that the objectives of the system are met. Any failure or circumvention of our controls, processes and procedures or failure to comply with regulations related to controls, processes and procedures could necessitate changes in those controls, processes and procedures, which may increase our compliance costs, divert management attention from our business or subject us to regulatory actions and increased regulatory scrutiny. Any of these could have a material adverse effect on our business, financial condition or results of operations.
Risks Related to the Offering and an Investment in Our Common Stock
An active, liquid trading market for our common stock may not develop, and you may not be able to sell your common stock at or above the public offering price, or at all.
Prior to this offering, there has been no public market for our common stock. An active trading market for shares of our common stock may never develop or be sustained following this offering. If an active trading market does not develop, you may have difficulty selling your shares of common stock at an attractive price, or at all. The public offering price for our common stock will be determined by negotiations between us and the underwriter and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell your common stock at or above the public offering price or at any other price or at the time that you would like to sell. An inactive market may also impair our ability to raise capital by selling our common stock and may impair our ability to expand our business by using our common stock as consideration in an acquisition.
The price of our common stock could be volatile following this offering.
The market price of our common stock following this offering may be volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control. These factors include, among other things:

general economic conditions and overall market fluctuations;

actual or anticipated fluctuations in our quarterly or annual operating results;

changes in accounting standards, policies, guidance, interpretations or principles;

the public reaction to our press releases, our other public announcements and our filings with the SEC;

changes in financial estimates and recommendations by securities analysts following our stock, or the failure of securities analysts to cover our common stock after this offering;

changes in earnings estimates by securities analysts or our ability to meet those estimates;

the operating and stock price performance of other comparable companies;
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the trading volume of our common stock;

new technology used, or services offered, by competitors;

changes in business, legal or regulatory conditions, or other developments affecting the financial services industry, participants in our industry, and publicity regarding our business or any of our significant customers or competitors; and

future sales of our common stock by us, directors, executives and significant stockholders, including the sale of our common stock by our existing stockholders who are not subject to the lock-up agreements described in “Underwriting”.
The realization of any of the risks described in this “Risk Factors” section could have a material adverse effect on the market price of our common stock and cause the value of your investment to decline. In addition, the stock market experiences extreme volatility that has often been unrelated to the operating performance of particular companies. These types of broad market fluctuations may adversely affect investor confidence and could affect the trading price of our common stock over the short, medium or long term, regardless of our actual performance. If the market price of our common stock reaches an elevated level following this offering, it may materially and rapidly decline. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted securities class action litigation. If we were to be involved in a class action lawsuit, we could incur substantial costs and it could divert the attention of senior management and have a material adverse effect on our business, financial condition and results of operations.
Our management will have broad discretion as to the use of proceeds from this offering, and we may not use the proceeds effectively.
We are not required to apply any portion of the net proceeds of this offering for any particular purpose. Accordingly, our management will have broad discretion as to the application of the net proceeds of this offering and could use them for purposes other than those contemplated at the time of this offering. At March 31, 2017, our total stockholders’ equity was $53.2 million and our total return on average common equity was 6.33% for the three months ended March 31, 2017. We expect our total stockholders’ equity to be $75.1 million upon completion of the offering, based on the initial public offering price of $14.00 per share. A portion of the proceeds from this offering are expected to be used to provide additional capital as a cushion against minimum regulatory capital requirements, which may tend to reduce our return on equity as opposed to if such proceeds were used for further growth. Our stockholders may not agree with the manner in which our management chooses to allocate and invest the net proceeds. We may not be successful in using the net proceeds from this offering to increase our profitability or market value and we cannot predict whether the proceeds will be invested to yield a favorable return.
The reduced disclosures and relief from certain other significant disclosure requirements that are available to emerging growth companies may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that apply to other public companies that are not “emerging growth companies.” These exemptions include the following:

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;

less extensive disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and

exemptions from the requirements to hold nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved.
In addition, even if we comply with the greater obligations of public companies that are not emerging growth companies immediately after this offering, we may avail ourselves of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as we are an emerging growth company.
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We will remain an emerging growth company for up to five years, though we may cease to be an emerging growth company earlier under certain circumstances, including if, before the end of such five years, we are deemed to be a large accelerated filer under the rules of the SEC (which depends on, among other things, having a market value of common stock held by non-affiliates in excess of  $700 million). Investors and securities analysts may find it more difficult to evaluate our common stock because we will rely on one or more of these exemptions. If, as a result, some investors find our common stock less attractive, there may be a less active trading market for our common stock, which could result in a reductions and greater volatility in the prices of our common stock.
The obligations associated with being a public company will require significant resources and management attention, which may divert from our business operations.
As a result of this offering, we will become subject to the reporting requirements of the Securities Exchange Act of 1934, or Exchange Act, and the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition with the SEC. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. As a result, we will incur significant legal, accounting and other expenses that we did not previously incur. We anticipate that these costs will materially increase our general and administrative expenses. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our strategic plan, which could prevent us from successfully implementing our growth initiatives and improving our business, results of operations and financial condition.
As an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain temporary exemptions from various reporting requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and an exemption from the requirement to obtain an attestation from our auditors on management’s assessment of our internal control over financial reporting. When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.
You will incur immediate dilution as a result of this offering.
If you purchase our common stock in this offering, you will pay more for your shares than the net tangible book value per share immediately following consummation of this offering. As a result, you will incur immediate dilution of  $3.07 per share representing the difference between the offering price of  $14.00, and our adjusted net tangible book value per share as of March 31, 2017 of  $10.93 per share of common stock. This represents 21.9% dilution from the initial public offering price of  $14.00 per share. Accordingly, if we were to be liquidated at our book value immediately following this offering, you would not receive the full amount of your investment.
We have not historically declared or paid cash dividends on our common stock and we do not expect to pay dividends on our common stock in the foreseeable future. Consequently, your only opportunity to achieve a return on your investment in the foreseeable future is if the price of our common stock appreciates.
The holders of our common stock will receive dividends if and when declared by our board of directors out of legally available funds. Our board of directors has not declared a dividend on our common stock since our inception. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including our future earnings, capital requirements, financial condition, future prospects, regulatory restrictions, and other factors that our board of directors may deem relevant.
Our principal business operations are conducted through our subsidiary, Esquire Bank. Cash available to pay dividends to our stockholders is derived primarily, if not entirely, from dividends paid by Esquire Bank to us. The ability of Esquire Bank to pay dividends to us, as well as our ability to pay dividends to our stockholders, will continue to be subject to, and limited by, certain legal and regulatory restrictions. Further, any lenders making loans to us may impose financial covenants that may be more restrictive with respect to dividend payments than the regulatory requirements.
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If equity research analysts do not publish research or reports about our business, or if they do publish such reports but issue unfavorable commentary or downgrade our common stock, the price and trading volume of our common stock could decline.
The trading market for our common stock could be affected by whether equity research analysts publish research or reports about us and our business. We cannot predict at this time whether any research analysts will publish research and reports on us and our common stock. If one or more equity analysts do cover us and our common stock and publish research reports about us, the price of our stock could decline if one or more securities analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.
If any of the analysts who elect to cover us downgrades our stock, our stock price could decline rapidly. If any of these analysts ceases coverage of us, we could lose visibility in the market, which in turn could cause our common stock price or trading volume to decline and our common stock to be less liquid.
If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our common stock could decline.
If our existing stockholders sell substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decrease significantly. The perception in the public market that our existing stockholders might sell shares of common stock could also depress our market price. Upon completion of this offering, we will have 6,857,030 shares of our common stock outstanding, or 7,211,610 shares if the underwriter exercises in full its option to purchase additional shares. Our directors, executive officers, the selling stockholders and certain additional other holders of our common stock, collectively representing 27.9% of our common shares outstanding upon completion of this offering, or 26.5% if the underwriter exercises in full its option to purchase additional shares, will be subject to the lock-up agreements described in “Underwriting” and the Rule 144 holding period requirements described in “Shares Eligible for Future Sale.” After all of the lock-up periods have expired and the holding periods have elapsed, 4,493,157 additional shares of our outstanding common stock will be eligible for sale in the public market. In addition, the underwriter may, at any time and without notice, release all or a portion of the shares subject to lock-up agreements. The market price of shares of our common stock may drop significantly when the restrictions on resale by our existing stockholders lapse. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities and could result in a decline in the value of the shares of our common stock purchased in this offering.
In addition, one of our stockholders, CJA Private Equity Financial Restructuring Master Fund I, LP, has piggyback registration rights pursuant to a registration rights agreement with respect to the shares of our common stock and shares of our Series B Preferred Stock that it owns. As of the date of this prospectus, CJA Private Equity Financial Restructuring Master Fund I, LP owned 497,815 shares of our common stock, and 66,985 shares of our Series B Preferred Stock. Following our initial public offering, to the extent the holder of our Series B Preferred Shares remains a holder of our common stock or our Series B Preferred Shares, it may exercise its “piggyback” registration rights in connection with future offerings of our common stock, other than registration statements filed on Forms S-4 or S-8.
Our directors and executive officers beneficially own a significant portion of our common stock and have substantial influence over us.
Our directors and executive officers, as a group, beneficially owned approximately 28.3% of our outstanding common stock as of June 14, 2017. As a result of this level of ownership, our directors and executive officers have the ability, by taking coordinated action, to exercise significant influence over our affairs and policies. The interests of our directors and executive officers may not be consistent with your interests as a stockholder. This influence may also have the effect of delaying or preventing changes of control or changes in management, or limiting the ability of our other stockholders to approve transactions that they may deem to be in the best interests of our Company.
A future issuance of stock could dilute the value of our common stock.
We may sell additional shares of common stock, or securities convertible into or exchangeable for such shares, in subsequent public or private offerings. Upon completion of this offering, there will be 6,857,030
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shares of our common stock issued and outstanding, or 7,211,610 shares if the underwriter exercises in full its option to purchase additional shares. Those shares outstanding do not include the potential issuance, as of June 14, 2017, of 959,045 shares of our common stock subject to issuance upon exercise of outstanding stock options under our 2007 Stock Option Plan and our 2011 Stock Compensation Plan, 4,062 additional shares of our common stock that were reserved for issuance under our plans at March 31, 2017 or 66,985 shares of Series B Preferred Stock that are not convertible by the holder, but are convertible on a one for one basis into shares of our common stock under certain circumstances. Future issuance of any new shares could cause further dilution in the value of our outstanding shares of common stock. We cannot predict the size of future issuances of our common stock, or securities convertible into or exchangeable for such shares, or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices of our common stock.
Our common stock is subordinate to our existing and future indebtedness and preferred stock.
Shares of our common stock are equity interests and do not constitute indebtedness. As such, our common stock ranks junior to all our customer deposits and indebtedness, whether now existing or hereafter incurred, and other non-equity claims on us, with respect to assets available to satisfy claims. Additionally, holders of common stock are subject to the prior liquidation rights of the holders of our Series B Preferred Stock and may be subject to the prior dividend and liquidation rights of other series of preferred stock we may issue in the future.
Provisions in our charter documents, Maryland law and federal law may have an anti-takeover effect, and there are substantial regulatory limitations on changes of control of bank holding companies.
Provisions of our charter documents, the Maryland General Corporation Law, or the MGCL, and federal banking law could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial by our stockholders. These provisions include:

staggered terms for directors, who may be removed from office only for cause;

a provision establishing certain advance notice procedures for nomination of candidates for election as directors and for stockholder proposals;

a provision that any special meeting of our stockholders may be called only by a majority of the board of directors, the President or a holder or group of holders of at least 50% of our shares entitled to vote at the meeting; and

the ability for our board of directors, without stockholder approval, to increase or decrease the number of authorized shares without stockholder approval and the ability for our board of directors to issue our preferred stock and to determine the terms of such preferred stock.
Furthermore, with certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank holding company) of any class of our voting stock or obtaining the ability to control in any manner the election of a majority of our directors or otherwise direct the management or policies of our company without prior notice or application to and the approval of the Federal Reserve. Accordingly, prospective investors need to be aware of and comply with these requirements, if applicable, in connection with any purchase of shares of our common stock. Moreover, the combination of these provisions effectively inhibits certain mergers or other business combinations, which, in turn, could adversely affect the market price of our common stock.
An investment in our common stock is not an insured deposit and is not guaranteed by the FDIC, so you could lose some or all of your investment.
An investment in our common stock is not a bank deposit and, therefore, is not insured against loss or guaranteed by the FDIC, any other deposit insurance fund or by any other public or private entity. An investment in our common stock is inherently risky for the reasons described herein. As a result, if you acquire our common stock, you could lose some or all of your investment.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases 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 are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
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 FRB, inflation or deflation, changes in the demand for loans, and fluctuations in consumer spending, borrowing and savings habits, which may have an adverse impact on our financial condition;

continued or increasing competition from other financial institutions, credit unions, and non-bank financial services companies, many of which are subject to different regulations than we are;

credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for 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;

losses suffered by merchants or ISOs 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;
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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 Act and 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 prospectus.
The foregoing factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this prospectus. 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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USE OF PROCEEDS
Based on the public offering price of  $14.00 per share, we estimate that the net proceeds from the sale of the shares of common stock by us will be approximately $21.9 million (or approximately $26.5 million if the underwriter exercises in full its option to purchase additional shares of common stock from us), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
In order to maintain our capital and liquidity ratios at acceptable levels while we continue to grow our balance sheet with commercial real estate loans and commercial loans, we have decided to undertake a public offering at this time. Additionally, our lending limit is expected to increase by $4.0 million following the completion of this offering, which will allow us to originate larger loans and be more competitive in the market place.
We intend to use the net proceeds of the offering to support the growth in Esquire Bank’s loan portfolio, including the possibility of making larger loans due to our increased legal lending limit, to finance potential strategic acquisitions to the extent such opportunities arise and for other general corporate purposes, which could include other growth initiatives. We have no current plans, arrangements or understandings relating to any specific acquisition or similar transaction and management has not yet determined the types of businesses that they might target.
Our management will retain broad discretion to allocate the net proceeds of this offering, and the precise amounts and timing of our use of the net proceeds of this offering will depend upon market conditions, as well as other factors. Until we deploy the proceeds of this offering for the uses described above, we expect to hold such proceeds in short-term investments.
We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders.
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CAPITALIZATION
The following table shows our capitalization, including regulatory capital ratios, on a consolidated basis, as of March 31, 2017:

on an actual basis; and

on a pro forma basis to give effect to (i) the issuance and sale by us of 1,800,000 shares of common stock in this offering (assuming the underwriter does not exercise its option to purchase any additional shares to cover over-allotments, if any), and the receipt and application of the net proceeds from the sale of these shares at the initial public offering price of  $14.00 per share and (ii) the sale by the selling stockholders of 563,873 shares of common stock in this offering, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us.
You should read this table in conjunction with “Use of Proceeds,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.
At March 31, 2017
Actual
As
Adjusted
(dollars in thousands
except per share data)
(unaudited)
Stockholders’ equity:
Preferred Stock, par value $0.01 per share; authorized – 2,000,000 shares; issued and outstanding – 66,985 shares
$ 1 $ 1
Common stock, par value $0.01 per share; authorized – 15,000,000 shares; issued and
outstanding – 5,003,030 shares
50 68
Capital surplus
58,983 80,823
Retained deficit
(5,011) (5,011)
Accumulated other comprehensive income, net
(779) (779)
Total stockholders’ equity
$ 53,244 $ 75,102
Total capitalization
$ 53,244 $ 75,102
Capital ratios (Esquire Bank):
Tier 1 capital to average assets for leverage
11.60% 16.85%
Tier 1 capital to risk-weighted assets
15.46% 22.46%
Total capital to risk-weighted assets
16.59% 23.59%
Common equity tier 1 capital to risk-weighted assets
15.46% 22.46%
Tangible common equity to tangible assets(1)
11.99% 16.17%
Per share data
Book value per common share(2)
$ 10.50 $ 10.93
Tangible book value per common share(3)
$ 10.50 $ 10.93
(1)
Tangible common equity to tangible assets is a ratio of the Company. The Company had no intangible assets as of the dates indicated. Thus, tangible common equity to tangible assets is the same as total common stockholders’ equity to total assets.
(2)
Excludes 66,985 shares of our common stock issuable under certain circumstances upon conversion by us, not the holder, of the Series B Preferred Stock.
(3)
The Company had no intangible assets as of the dates indicated. Thus, tangible book value per common share is the same as book value per common share for each of the periods indicated.
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DILUTION
If you invest in our common stock, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock in this offering and the net tangible book value per share of common stock upon completion of this offering.
Net tangible book value per common share represents the amount of our total tangible assets less total liabilities and preferred stock, divided by the number of shares of common stock outstanding. Our net tangible book value as of March 31, 2017 was $52.5 million, or $10.50 per share of common stock, based upon 5,003,030 shares of common stock outstanding as of such date.
After giving effect to the sale of 1,800,000 shares of our common stock by us at the initial public offering price of  $14.00 per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value as of March 31, 2017 would have been approximately $74.4 million, or approximately $10.93 per share of common stock. This represents an immediate increase in net tangible book value of  $0.43 per share to existing common stockholders, and an immediate dilution of  $3.07 per share to investors participating in this offering. If the initial public offering price is higher or lower, the dilution to new stockholders will be greater or less, respectively.
The following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share
$ 14.00
Net tangible book value per share at March 31, 2017
$ 10.50
Increase in net tangible book value per share attributable to this offering
0.43
As adjusted tangible book value per share after this offering
10.93
Dilution in net tangible book value per share to new investors
$ 3.07
If the underwriter exercises in full its option to purchase additional shares of our common stock in this offering, the as adjusted net tangible book value after this offering would be $11.04 per share, the increase in net tangible book value to existing stockholders would be $0.54 per share and the dilution to new investors would be $2.96 per share, based on the initial public offering price of  $14.00 per share.
The following table summarizes, as of March 31, 2017, the differences between our existing stockholders and new investors with respect to the number of shares of our common stock purchased from us, the total consideration paid and the average price per share paid. The calculations with respect to shares purchased by new investors in this offering reflect the offering price of  $14.00 per share, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:
Shares Purchased
Total Consideration
Average Price
Per Share
Number
Percentage
Amount
Percentage
Existing stockholders as of March 31, 2017
5,003,030 73.5% $ 58,037,875 69.7% $ 11.60
New Investors
1,800,000 26.5% 25,200,000 30.3% 14.00
Total
6,803,030 100.0% $ 83,237,875 100.0% $ 12.24
In addition, if the underwriter’s option to purchase additional shares is exercised in full, the number of shares of common stock held by existing stockholders as of March 31, 2017 will be further reduced to 69.9% of the total number of shares of common stock to be outstanding upon the completion of this offering, and the number of shares of common stock held by investors participating in this offering will be further increased to 2,154,580 shares or 30.1% of the total number of shares of common stock to be outstanding upon the completion of this offering.
The table above excludes (i) 1,013,045 shares of common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of  $12.14 per share (333,315 shares of which are currently exercisable) as of March 31, 2017; (ii) 11,562 shares of our common stock reserved for issuance in connection with restricted stock awards, restricted stock unit awards, and stock options available for issuance under our 2007 Stock Option Plan and our 2011 Stock Compensation Plan as of March 31,
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2017; and (iii) 66,985 shares of our common stock issuable under certain circumstances upon conversion by us, not the holder, of the Series B Preferred Stock. In connection with the exercise of any of these stock options or if other equity awards are issued under our 2007 Stock Option Plan and 2011 Stock Compensation Plan, or if the 66,985 shares of common stock were issued upon conversion of the Series B Preferred Stock, investors purchasing in this offering will experience further dilution.
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DIVIDEND POLICY
We have not historically declared or paid cash dividends on our common stock and we do not expect to pay cash dividends on our common stock for the foreseeable future. Instead, we anticipate that all of our future earnings will be retained to support our operations and to finance the growth and development of our business. Any future determination to pay cash dividends on our common stock will be made by our board of directors and will depend on a number of factors, including

our historical and projected financial condition, liquidity and results of operations;

our capital levels and requirements;

statutory and regulatory prohibitions and other limitations;

any contractual restriction on our ability to pay cash dividends, including pursuant to the terms of any of our credit agreements or other borrowing arrangements;

our business strategy;

tax considerations;

any acquisitions or potential acquisitions that we may examine;

general economic conditions; and

other factors deemed relevant by our board of directors.
As a Maryland corporation, we are subject to certain restrictions on dividends under the Maryland General Corporation Code. Generally, Maryland law limits cash dividends if the corporation would not be able to pay its debts in the usual course of business after giving effect to the cash dividend or if the corporation’s total assets would be less than the corporation’s total liabilities plus the amount needed to satisfy the preferential rights upon dissolution of stockholders whose preferential rights on dissolution are superior to those receiving the distribution. We are also subject to certain restrictions on the payment of cash dividends as a result of banking laws, regulations and policies. See “Supervision and Regulation — Esquire Bank, National Association — Safety and Soundness Standards.”
Because we are a holding company, we are dependent upon the payment of dividends by Esquire Bank to us as our principal source of funds to pay dividends in the future, if any, and to make other payments. Esquire Bank is also subject to various legal, regulatory and other restrictions on its ability to pay dividends and make other distributions and payments to us. A national bank may generally declare a cash dividend, without approval from the OCC, in an amount equal to its year-to-date net income plus the prior two years’ net income that is still available for dividends. The OCC has the authority to prohibit a national bank from paying cash dividends if such payment is deemed to be an unsafe or unsound practice. In addition, as a depository institution the deposits of which are insured by the FDIC, Esquire Bank may not pay cash dividends or distribute any of its capital assets while it remains in default on any assessment due to the FDIC. Esquire Bank currently is not (and never has been) in default under any of its obligations to the FDIC. See “Supervision and Regulation — Esquire Bank, National Association — Dividends.”
The FRB has issued a policy statement regarding the payment of cash dividends by bank holding companies. In general, the FRB’s policy provides that cash dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The FRB has the authority to prohibit a bank holding company from paying cash dividends if such payment is deemed to be an unsafe or unsound practice.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial data as of the dates and for the periods shown. The selected balance sheet data as of December 31, 2016 and 2015 and the selected income statement data for the years then ended have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected balance sheet data as of December 31, 2014 and the selected income statement data for the year then ended have been derived from our audited consolidated financial statements that are not included in this prospectus. The selected historical consolidated financial data as of March 31, 2017 and for the three months ended March 31, 2017 and 2016 is derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus and includes all normal and recurring adjustments that we consider necessary for a fair presentation. The selected historical consolidated balance sheet data as of March 31, 2016 is derived from our unaudited interim condensed consolidated financial statements that are not included in this prospectus and have not been subject to review procedures from our independent accountants. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The information should be read in conjunction with “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in the prospectus.
At or For the Three Months
Ended March 31,
At or For the Years Ended December 31,
2017
2016
2016
2015
2014
(Dollars in thousands, except share and per share data)
Balance Sheet Data:
Total assets
$ 438,059 $ 351,500 $ 424,833 $ 352,650 $ 330,690
Cash and cash equivalents
32,586 25,069 42,993 33,154 71,891
Securities available-for-sale
103,652 79,200 92,645 84,239 70,925
Loans receivable, net
287,033 233,294 275,165 221,720 170,512
Restricted stock
1,746 1,487 1,649 1,430 237
Deposits
383,372 298,693 370,788 301,687 290,774
Secured borrowings
284 378 371 381 391
Total stockholders’ equity
53,244 51,170 52,186 49,425 38,542
Income Statement Data:
Interest income
$ 4,432 $ 3,733 $ 16,168 $ 12,451 $ 10,714
Interest expense
137 101 511 457 466
Net interest income
4,295 3,632 15,657 11,994 10,248
Provision for loan losses
150 145 595 930 300
Net interest income after provision for loan losses
4,145 3,487 15,062 11,064 9,948
Noninterest income
1,204 987 4,125 2,943 1,765
Noninterest expense
4,024 3,420 14,599 12,171 11,262
Income before income tax expense
1,325 1,054 4,588 1,836 451
Income tax expense
510 411 1,766 664 410
Net income
815 643 2,822 1,172 41
Less: Preferred stock dividends
Net income available to common stockholders  
$ 815 $ 643 $ 2,822 $ 1,172 $ 41
Per Share Data:
Earnings per common share:
Basic
$ 0.16 $ 0.13 $ 0.56 $ 0.25 $ 0.01
Diluted
$ 0.16 $ 0.13 $ 0.55 $ 0.25 $ 0.01
Book value per common share(1)
$ 10.50 $ 10.07 $ 10.29 $ 9.72 $ 8.98
Tangible book value per common share(2)
$ 10.50 $ 10.07 $ 10.29 $ 9.72 $ 8.98
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As of and for the Three
Months Ended March 31,
As of and for the Years Ended December 31,
2017
2016
2016
2015
2014
Selected Performance Ratios:
Return on average assets
0.79% 0.74% 0.74% 0.36% 0.01%
Return on average common equity
6.33% 5.32% 5.48% 2.77% 0.13%
Interest rate spread
4.14% 4.18% 4.15% 3.64% 3.76%
Net interest margin
4.23% 4.27% 4.25% 3.74% 3.86%
Efficiency ratio
73.18% 74.05% 73.80% 81.48% 93.75%
Efficiency ratio, adjusted(3)
73.18% 74.14% 73.82% 81.48% 94.94%
Average interest earning assets to average Interest bearing liabilities
171.91% 174.21% 167.13% 170.76% 154.28%
Average equity to average assets
12.58% 14.30% 13.83% 13.38% 11.31%
Asset Quality Ratios:
Allowance for loan losses to total loans
1.21% 1.26% 1.23% 1.25% 1.25%
Allowance for loan losses to nonperforming loans(4)
N/A N/A N/A N/A N/A
Net charge-offs (recoveries) to average outstanding loans
0.01% (0.01)% (0.01)% 0.16% 0.00%
Nonperforming loans to total loans(4)
0.00% 0.00% 0.00% 0.00% 0.00%
Nonperforming loans to total assets(4)
0.00% 0.00% 0.00% 0.00% 0.00%
Nonperforming assets to total assets(5)
0.00% 0.00% 0.00% 0.00% 0.00%
Capital Ratios (Esquire Bank):
Total capital to risk weighted assets
16.59% 16.84% 17.25% 17.06% 18.54%
Tier 1 capital to risk weighted assets
15.46% 15.68% 16.09% 15.91% 17.40%
Tier 1 common equity to risk weighted assets(6)
15.46% 15.68% 16.09% 15.91% N/A
Leverage capital ratio
11.60% 11.63% 11.63% 11.90% 10.06%
Other:
Number of offices
3 3 3 3 3
Number of full-time equivalent employees
50 43 52 43 42
(1)
For purposes of computing book value per common share, book value equals total common stockholders’ equity divided by total number of shares of common stock outstanding. Total common stockholders’ equity equals total stockholders’ equity, less preferred equity. Preferred equity was $720 and $1,697 at March 31, 2017 and 2016, respectively, and $720, $1,697 and $1,842 at December 31, 2016, 2015 and 2014, respectively.
(2)
The Company had no intangible assets as of the dates indicated. Thus, tangible book value per common share is the same as book value per common share for each of the periods indicated.
(3)
Efficiency ratio represents noninterest expenses, divided by the sum of net interest income plus noninterest income. With respect to the efficiency ratio, adjusted, noninterest income excludes gains or losses on sale of investment securities. This is a non-GAAP financial measure. See “Non-GAAP Financial Measure Reconciliation” below for a reconciliation of this measure to its most comparable GAAP measure.
(4)
Nonperforming loans include nonaccrual loans, loans past due 90 days and still accruing interest and loans modified under troubled debt restructurings.
41

(5)
Nonperforming assets include nonperforming loans, other real estate owned and other foreclosed assets.
(6)
Tier 1 common equity to risk-weighted assets ratio is required under the Basel III Final Rules which became effective for Esquire Bank on January 1, 2015. Accordingly, this ratio is shown as not applicable (“N/A”) for periods prior to January 1, 2015.
Non-GAAP Financial Measure Reconciliation
The efficiency ratio, adjusted, is a non-GAAP measure of expense control relative to adjusted revenue. We calculate the efficiency ratio, adjusted, by dividing total noninterest expenses, as determined under GAAP, by the sum of total net interest income and total noninterest income, each as determined under GAAP, but excluding net gains on securities and other non-recurring income sources, if applicable, from this calculation, which we refer to below as adjusted revenue. We believe that this provides one a reasonable measure of core expenses relative to core revenue.
We believe that this non-GAAP financial measure provides information that is important to investors and that is useful in understanding our financial position, results and ratios. However, this non-GAAP financial measure is supplemental and is not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for this measure, this presentation may not be comparable to other similarly titled measures by other companies.
At March 31,
At December 31,
2017
2016
2016
2015
2014
(Dollars in thousands)
Efficiency Ratio:
Net interest income
$ 4,295 $ 3,632 $ 15,657 $ 11,994 $ 10,247
Noninterest income
1,204 987 4,125 2,943 1,766
Less: Net gains on sales of securities
6 6 151
Adjusted revenue
$ 5,499 $ 4,613 $ 19,776 $ 14,937 $ 11,862
Total noninterest expense
4,024 3,420 14,599 12,171 11,262
Efficiency ratio, adjusted
73.18% 74.14% 73.82% 81.48% 94.94%
42

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2017 and 2016 and for the years ended December 31, 2016, 2015 and 2014 should be read in conjunction with “Selected Historical Consolidated Financial Data” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and elsewhere in this prospectus, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements.
Overview
Our profitability is highly dependent on our net interest income, which is the difference between our interest income on interest earning assets, such as loans and securities, and our interest expense on interest bearing liabilities, such as deposits and borrowed funds. Additionally, we also obtain a significant portion of noninterest income through our merchant services business.
Our net income increased $172,000, or 26.8%, to $815,000 for the three months ended March 31, 2017 from $643,000 for the three months ended March 31, 2016. The increase was due to an increase in net interest income and customer related fees and service charges. The increase in net interest income was caused by an increase in interest and fees on loans, which increased $602,000, or 18.7%, to $3.8 million for the three months ended March 31, 2017 from $3.2 million for the three months ended March 31, 2016. This increase was due to continued growth in our loan portfolio.
Noninterest income increased $217,000, or 22.0%, to $1.2 million for the three months ended March 31, 2017 from $987,000 for the three months ended March 31, 2016. The increase in noninterest income was primarily from growth in customer related fees and service charges. Customer related fees and service charges increased $138,000 or 60.5% to $366,000 for the three months ended March 31, 2017 from $228,000 for the three months ended March 31, 2016. Merchant processing income increased by $85,000 or 11.3% to $838,000 for the three months ended March 31, 2017 from $753,000 for the three months ended March 31, 2016.
Our provision for loan losses was $150,000 for the three months ended March 31, 2017 compared to $145,000 for the three months ended March 31, 2016. The higher provision for loan loss was a result of the continued growth in our loan portfolio.
Our net income increased $1.7 million, or 140.8%, to $2.8 million for the year ended December 31, 2016 from $1.2 million for the year ended December 31, 2015. The increase was due to an increase in net interest income and merchant processing income. The increase in net interest income was caused by an increase in interest and fees on loans, which increased $3.5 million, or 32.8%, to $14.1 million for the year ended December 31, 2016 from $10.6 million for the year ended December 31, 2015. This increase was due to continued success in growing our loans.
Noninterest income increased $1.2 million, or 40.2%, to $4.1 million for the year ended December 31, 2016 from $2.9 million for the year ended December 31, 2015. The increase in noninterest income was primarily from growth in our merchant services business. Merchant processing income increased by $737,000 or 33.5% to $2.9 million for the year ended December 31, 2016 from $2.2 million for the year ended December 31, 2015. Customer related fees and service charges also increased $439,000 or 59.2% to $1.2 million for the year ended December 31, 2016 from $741,000 for the year ended December 31, 2015.
Our provision for loan losses was $595,000 for the year ended December 31, 2016 compared to $930,000 for the year ended December 31, 2015. The provision recorded resulted in an allowance for loan losses of  $3.4 million, or 1.23% of total loans at December 31, 2016, compared to $2.8 million, or 1.25% of total loans at December 31, 2015. The decrease in the allowance for loan losses as a percentage of loans resulted primarily from changes in our loan portfolio composition.
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Our net income increased $1.1 million to $1.2 million for the year ended December 31, 2015 from $41,000 for the year ended December 31, 2014. The increase was due to an increase in net interest income and merchant processing income, partially offset by a decrease in gain on sales of securities and an increase in the provision for loan losses. The increase in net interest income was caused by an increase in interest and fees on loans, which increased $1.7 million, or 19.2%, to $10.6 million for the year ended December 31, 2015 from $8.9 million for the year ended December 31, 2014. This increase was due to our continued success in growing 1 – 4 family residential, multifamily, commercial real estate loans, construction, commercial loans and consumer loans.
Noninterest income increased $1.2 million, or 66.7%, to $2.9 million for the year ended December 31, 2015 from $1.8 million for the year ended December 31, 2014. The increase in noninterest income was primarily from growth in our merchant services business. Merchant processing income increased by $1.1 million or 92.7% to $2.2 million for the year ended December 31, 2015 from $1.1 million for the year ended December 31, 2014. Gains on sales of securities decreased $151,000 for the year ended December 31, 2015 from the year ended December 31, 2014. We did not sell any securities during the year ended December 31, 2015.
Our provision for loan losses was $930,000 for the year ended December 31, 2015 compared to $300,000 for the year ended December 31, 2014. The higher provision for loan loss was a result of the growth in the loan portfolio and related impact to the allowance for loan losses.
Critical Accounting Policies
A summary of our accounting policies is described in Note 1 to both the consolidated financial statements and the interim condensed consolidated financial statements included in this prospectus. 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 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.
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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. 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.
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.
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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.
Although we are still evaluating the JOBS Act, we may take advantage of some of the reduced regulatory and reporting requirements that are available to it 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.
Discussion and Analysis of Financial Condition
Assets.   Our total assets were $438.1 million at March 31, 2017, an increase of  $13.2 million from $424.8 million at December 31, 2016. The increase was primarily due to an increase in net loans of  $11.9 million, or 4.3%, and an increase in securities available-for-sale of  $11.0 million, or 11.9%, partially offset by a decrease in cash and cash equivalents of  $10.4 million, or 24.2%.
Our total assets were $424.8 million at December 31, 2016, an increase of  $72.2 million from $352.7 million at December 31, 2015. The increase was primarily due to an increase in net loans of  $53.4 million, or 24.1%, and an increase in cash and cash equivalents of  $9.8 million.
Our total assets increased $22.0 million, or 6.6%, to $352.7 million at December 31, 2015 from $330.7 million at December 31, 2014. The increase resulted primarily from an increase in net loans and securities, partially offset by decreases in cash and cash equivalents.
Cash and Cash Equivalents.   Cash and cash equivalents decreased $10.4 million, or 24.2%, to $32.6 million at March 31, 2017 from $43.0 million at December 31, 2016. The decrease in cash and cash equivalents resulted from our using excess liquidity at December 31, 2016 to fund loan growth and investments in securities.
Cash and cash equivalents increased $9.8 million, or 29.7%, to $43.0 million at December 31, 2016 from $33.1 million at December 31, 2015.
Cash and cash equivalents decreased $38.8 million, or 53.9%, to $33.1 million at December 31, 2015 from $71.9 million at December 31, 2014. The decrease in cash and cash equivalents resulted from our using excess liquidity at December 31, 2014 to fund loan growth and investments in securities.
Loan Portfolio Analysis.   At March 31, 2017, net loans were $287.0 million, or 65.5% of total assets, compared to $275.2 million, or 64.8% of total assets, at December 31, 2016. Commercial loans increased $6.8 million, or 6.4%, to $112.8 million at March 31, 2017 from $106.1 million at December 31, 2016. Multifamily loans increased $9.3 million, or 11.2%, to $92.8 million at March 31, 2017 from $83.4 million at December 31, 2016. Consumer loans increased $466,000, or 4.4%, to $11.0 million at March 31, 2017 from $10.6 million at December 31, 2016. 1 – 4 family residential loans decreased $2.0 million, or 4.1%, to $47.6 million at March 31, 2017 from $49.6 million at December 31, 2016. Construction loans also decreased by $1.6 million, or 27.7%, to $4.1 million at March 31, 2017 from $5.6 million at December 31, 2016. Commercial real estate loans decreased by $921,000, or 4.1%, to $21.3 million at March 31, 2017 from $22.2 million at December 31, 2016. We have experienced continued success in growing our loan portfolio, as described in “Business — Our Business Strategy.”
At December 31, 2016, net loans were $275.2 million, or 64.8% of total assets, compared to $221.7 million, or 62.9% of total assets, at December 31, 2015. Commercial loans increased $22.5 million, or 26.9%, to $106.1 million at December 31, 2016 from $83.6 million at December 31, 2015. Multifamily loans increased $12.2 million, or 17.2%, to $83.4 million at December 31, 2016 from $71.2 million at December 31, 2015. Consumer loans decreased $3.0 million or 22.0%, to $10.6 million at December 31, 2016 from $13.6 million at December 31, 2015. 1 – 4 family residential loans increased $21.1 million, or 73.8%, to $49.6 million at December 31, 2016 from $28.5 million at December 31, 2015. Construction loans
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also increased by $313,000, or 5.9%, to $5.6 million at December 31, 2016 from $5.3 million at December 31, 2015. Commercial real estate loans increased by $926,000, or 4.4%, to $22.2 million at December 31, 2016 from $21.3 million at December 31, 2015.
At December 31, 2015, net loans were $221.7 million, or 62.9% of total assets, compared to $170.5 million, or 51.6% of total assets at December 31, 2014. Commercial loans increased $17.9 million, or 27.3%, to $83.6 million at December 31, 2015 from $65.6 million at December 31, 2014. Multifamily loans increased $12.6 million or 21.5% to $71.2 million at December 31, 2015 from $58.6 million at December 31, 2014. Commercial real estate loans increased $7.5 million, or 54.4%, to $21.3 million at December 31, 2015 from $13.8 million at December 31, 2014. 1 – 4 family residential loans increased $5.5 million or 23.7% to $28.5 million at December 31, 2015 from $23.1 million at December 31, 2014. Construction loans also increased by $4.2 million to $5.3 million at December 31, 2015 from $1.1 million at December 31, 2014. Consumer loans increased by $4.0 million or 41.9% to $13.6 million at December 31, 2015 from $9.6 million at December 31, 2014.
Loan Portfolio Composition.   The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated.
At March 31,
At December 31,
2017
2016
2015
Amount
Percent
Amount
Percent
Amount
Percent
(Dollars in thousands)
Real estate:
1 – 4 family residential
$ 47,556 16.43% $ 49,597 17.88% $ 28,531 12.77%
Multifamily
92,755 32.04 83,410 30.06 71,184 31.86
Commercial real estate
21,277 7.35 22,198 8.00 21,272 9.52
Construction
4,054 1.40 5,610 2.02 5,297 2.38
Total real estate
165,642 57.22 160,815 57.96 126,284 56.53
Commercial
112,818 38.97 106,064 38.23 83,563 37.40
Consumer
11,037 3.81 10,571 3.81 13,556 6.07
Total Loans
$ 289,497 100.00% $ 277,450 100.00% $ 223,403 100.00%
Allowance for loan losses
(3,523) (3,413) (2,799)
Deferred loan costs, net
1,059 1,128 1,116
Loans, net
$ 287,033 $ 275,165 $ 221,720
At December 31,
2014
2013
2012
Amount
Percent
Amount
Percent
Amount
Percent
(Dollars in thousands)
Real estate:
1 – 4 family residential
$ 23,072 13.44% $ 13,757 9.22% $ 10,879 8.45%
Multifamily
58,578 34.11 54,702 36.66 46,082 35.79
Commercial real estate
13,776 8.02 8,016 5.37 8,304 6.45
Construction
1,105 0.65 6,693 4.49 4,886 3.80
Total real estate
96,531 56.22 83,168 55.74 70,151 54.49
Commercial
65,643 38.22 60,833 40.77 53,928 41.88
Consumer
9,556 5.56 5,208 3.49 4,679 3.63
Total Loans
$ 171,730 100.00% $ 149,209 100.00% $ 128,758 100.00%
Allowance for loan losses
(2,165) (1,865) (1,855)
Deferred loan costs, net
947 (27) (501)
Loans, net
$ 170,512 $ 147,317 $ 126,402
47

Loan Maturity.   The following table sets forth certain information at December 31, 2016 regarding the contractual maturity of our loan portfolio. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. The table does not include any estimate of prepayments that could significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below.
December 31, 2016
1 – 4
Family
Residential
Multifamily
Commercial
Real Estate
Construction
Commercial
Consumer
Total
(In thousands)
Amounts due in:
One year or less
$ 8,725 $ 21,578 $ $ 1,580 $ 92,288 $ 8,921 $ 133,092
More than one to five years
30,478 38,782 13,920 4,030 13,776 1,302 102,288
More than five to ten years
7,456 13,701 5,338 348 26,843
More than ten years
2,938 9,349 2,940 15,227
Total
$ 49,597 $ 83,410 $ 22,198 $ 5,610 $ 106,064 $ 10,571 $ 277,450
The following table sets forth fixed and adjustable-rate loans at December 31, 2016 that are contractually due after December 31, 2017.
Due After December 31, 2017
Fixed
Adjustable
Total
(In thousands)
Real estate
1 – 4 family residential
$ 40,586 $ 286 $ 40,872
Multifamily
53,702 8,130 61,832
Commercial real estate
18,437 3,762 22,199
Construction
4,030 4,030
Commercial
988 12,788 13,776
Consumer
1,649 1,649
Total
$ 119,392 $ 24,966 $ 144,358
At March 31, 2017, $42.3 million, or 26.2% of our adjustable interest rate loans were at their interest rate floor.
Delinquent Loans.   The following tables set forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated.
At March 31, 2017
At December 31, 2016
At December 31, 2015
30 – 59 Days
Past Due
60 – 89 Days
Past Due
90 Days
or More
Past Due
30 – 59 Days
Past Due
60 – 89 Days
Past Due
90 Days
or More
Past Due
30 – 59 Days
Past Due
60 – 89 Days
Past Due
90 Days
or More
Past Due
(In thousands)
1 – 4 family residential
$ $ $ $ 203 $ $ $ $ $
Multifamily
Commercial real estate
Construction
Commercial
284
Consumer
Total
$ 284 $    — $    — $ 203 $ $    — $    — $    — $    —
48

At December 31, 2014
At December 31, 2013
At December 31, 2012
30 – 59 Days
Past Due
60 – 89 Days
Past Due
90 Days
or More
Past Due
30 – 59 Days
Past Due
60 – 89 Days
Past Due
90 Days
or More
Past Due
30 – 59 Days
Past Due
60 – 89 Days
Past Due
90 Days
or More
Past Due
(In thousands)
1 – 4 family residential
$ $ $ $ $ $ $ $ $
Multifamily
843 336 264
Commercial real estate
685
Construction
634
Commercial
2,100
Consumer
Total
$    — $ 2,100 $    — $    — $ 1,528 $ 634 $ 336 $    — $ 264
Non-performing Assets.
Non-performing assets include loans that are 90 or more days past due or on non-accrual status, including troubled debt restructurings on non-accrual status, and real estate and other loan collateral acquired through foreclosure and repossession. Troubled debt restructurings include loans for economic or legal reasons related to the borrower’s financial difficulties, for which we grant a concession to the borrower that we would not consider otherwise. Loans 90 days or greater past due may remain on an accrual basis if adequately collateralized and in the process of collection. At March 31, 2017 and December 31, 2016, we did not have any accruing loans past due 90 days or greater or troubled debt restructurings. For non-accrual loans, interest previously accrued but not collected is reversed and charged against income at the time a loan is placed on non-accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed real estate until it is sold. When property is acquired, it is initially recorded at the fair value less costs to sell at the date of foreclosure, establishing a new cost basis. Holding costs and declines in fair value after acquisition of the property result in charges against income. We have not had any foreclosed assets for the periods presented.
The following table sets forth information regarding our non-performing assets at the dates indicated.
At March 31,
2017
At December 31,
2016
2015
2014
2013
2012
(Dollars in thousands)
Non-accrual loans:
1 – 4 family residential
$ $ $ $ $ $
Multifamily
264
Commercial real estate
Construction
634
Commercial
Consumer
Total non-accrual loans
$ $ $ $ $ 634 $ 264
Other real estate owned
Loans past due 90 days and still accruing
Troubled debt restructurings
Total nonperforming assets
$ $ $ $ $ 634 $ 264
Total loans(1)
$ 290,556 $ 278,578 $ 224,519 $ 172,677 $ 149,182 $ 128,257
Total assets
$ 438,059 $ 424,833 $ 352,650 $ 330,690 $ 237,580 $ 222,181
Total non-accrual loans to total loans
% % % % 0.42% 0.21%
Total non-performing assets to total assets
% % % % 0.27% 0.12%
(1)
Loans are presented before the allowance for loan losses but include deferred fees/costs.
49

Allowance for Loan Losses.
Please see “— Critical Accounting Policies — Allowance for Loan Losses” for additional discussion of our allowance policy.
The allowance for loan losses is maintained at levels considered adequate by management to provide for probable loan losses inherent in the loan portfolio as of the consolidated balance sheet reporting dates. The allowance for loan losses is based on management’s assessment of various factors affecting the loan portfolio, including portfolio composition, delinquent and non-accrual loans, national and local business conditions and loss experience and an overall evaluation of the quality of the underlying collateral.
The following table sets forth activity in our allowance for loan losses for the periods indicated.
For the three months
ended March 31,
For the years ended December 31,
2017
2016
2016
2015
2014
2013
2012
(Dollars in thousands)
Allowance at beginning of year
$ 3,413 $ 2,799 $ 2,799 $ 2,165 $ 1,865 $ 1,855 $ 670
Provision for loan losses
150 145 595 930 300 60 1,255
Charge-offs: