Esquire Financial Holdings, Inc. (ESQ) Earnings Call Transcript & Summary

Good morning, everybody. This is Andrew Sagliocca. I hope everybody's well. We're going to kick off the Annual Meeting of Shareholders. Welcome, everybody, to the Annual Meeting of Stockholders of Esquire Financial Holdings. I call the meeting to order. My name is Andrew Sagliocca. I'm the CEO and President and Board member of the holding company and the bank. I'll serve as Chairman of the Annual Meeting. Thank you for taking the time from your busy schedule to join us. Just one note, due to the obvious public health concerns regarding the pandemic, the annual meeting has been slightly delayed and obviously, being held virtually. So I thank everybody for their cooperations and patients. I'd like to introduce Eric Bader. Eric wears multiple hats here at the bank. He's our COO, EVP, Treasurer and Corporate Secretary of the company. He'll act as Secretary of the annual meeting. There are other Directors. All of our Directors on the phone, I believe, and there are certain executive officers of the company also on the phone. There will be time later during the annual meeting when I present a financial update to take questions and address anyone's questions on the phone. The Board of Directors has appointed Joe Simon, [ Colin Deikmann ] as the Inspector of Election at the annual meeting. The inspector's report will be attached to the minutes of the annual meeting. We have delivered to the Inspector a list of stockholders in the company to vote at the annual meeting, arranged in alphabetical order as of the close of the business, March 26, 2021, the record date for voting. So at this point, I'm going to turn it over to Eric Bader, who will walk you through some of the technical items for the annual meeting. And when Eric's done, we will move over to giving an update on the company and the performance of the company, and then open it up to any questions. So Eric?

Great. Thanks, Andrew. Welcome, everybody. We appreciate everybody's time today. Directors of the company show that there were 7,829,815 shares of common stock issued outstanding and entitled to vote at this year's annual meeting, of which 3,914,908 shares represent a majority. We have previously received confirmation that the Notice of Annual Meeting and proxy card was mailed to each stockholder of record as of the course of business on the record date. I have previously delivered to the Inspector, the list of stockholders and all proxies that have been received. The majority of the total outstanding shares entitled to vote are present in-person or by proxy. The Inspector is making an except count and will submit a formal report on the number of shares present or represented during the course of the annual meeting. A quorum is declared present, subject to confirmation by the Inspector. The business to be acted upon at the annual meeting is to consider the election of 4 Directors, the approval of the Esquire Financial Holdings, Inc. 2021 Equity Incentive Plan and the ratification of the appointment of Crowe LLP as our independent registered public accounting firm for the year ending December 31, 2021. Because no stockholder proposals were filed with the company's Secretary, me, in advance of this annual meeting as provided in the bylaws, the business of this meeting is limited to the foregoing 3 matters. We will consider the proposals in the order presented in the Notice of Annual Meeting. The polls are now open. At the conclusion of discussions -- after conclusion of the discussion and voting on all matters, I will announce the closing of the poll. The first item of business to be voted upon is the election of Janet Hill, Anthony Coelho, Richard Powers and Andrew Sagliocca as Directors of the company, each to serve for a 3-year term, all as described in the proxy statement. All nominees are currently members of the Board of Directors. Certain biographical information regarding the 4 nominees is included in the proxy materials and all nominees are prepared to serve, if elected. Are there any questions regarding the election of Directors? Okay. The second item of business to be voted upon is the proposal to approve the Esquire Financial Holdings, Inc. 2021 Equity Incentive Plan. Are there any questions regarding the 2021 Equity Incentive Plan? The final item of business to be voted upon is the proposal to ratify the appointment of Crowe LLP as our independent register public accounting firm for the year ending December 31, 2021. Are there any questions regarding the ratification of the appointment of Crowe LLP? Okay. This concludes the discussion on all matters. If there are no further ballots or proxies, I declare the polling closed. All ballots and proxies are now in the custody of the Inspector of Elections. I'll now turn it over to Andrew to give a quick update on the company's performance.

Great. Thank you, Eric. So it was a very strong year for the bank. Once again, even in the face of a pandemic, performance metrics were strong for the company. I think if the Board members and the shareholders on the phone know, it's fairly unique model and unique vertical that we run in. One is litigation. The litigation industry mainly plink of law firms where we focus nationally across the country. And the other is our merchant processing platform, where again, we focused nationally. It was a really strong year. We made net income wise about $12.6 million, which translates into about $1.65 in diluted earnings per share. Our return on average assets was 1.45%. Our return on equity was 10.70%. Just about our margin was close to 4.50%, and our efficiency ratio was 55%. That's all while booking an additional provision for loan loss due to the pandemic, arguably as much as $4 million in additional provisions, which obviously impacted our performance. On a more normalized basis, I think the 3 months ended December 31, are more indicative of our performance in the first quarter, where our returns are between 1.70% in the fourth quarter and 1.80% in the first quarter. Our return on assets and our margins kind of stabilizing around [4.50% ].Strong performance. Once again, we were recognized by Raymond James for the second year in a row as the top-performing community bank based on their metrics. And we also got some accolades from Sandler O'Neill about one of the top investments. The model is very client centric and business focus. We've invested significantly in technology during the past 1.5 years. We believe this investment is going to pay dividends going forward with our branchless model, some of what we built is proprietary and customized, and some of it is the standard banking and commercial banking type platforms that have been enhanced. We believe that our approach to marketing on a digital basis coupled with our proprietary CRM right now focused in the litigation vertical, but it will be also used on the merchant side, too. It's agnostic to the vertical that it will run-off of or that will run through it. We believe that our growth is sustainable. Right now, we are growing generally and on average, right around 20% a year. That's all in balance sheet growth with loans and deposits, and it's also the growth in our merchant volume and our merchant income. We believe that's sustainable. Both of them are very large markets, and we are a very small player in both markets. The litigation market arguably is $0.5 trillion in settlements a year, and the merchant vertical is about $7.5 trillion a year in debit and credit card processing transactions in the United States. And like I said, we are less than 1% of those verticals currently. So we believe there is a lot of runway to continue to grow in those verticals. That's a general update on who we are, what we've done, and where we're going and our belief that, that growth is sustainable, and those performance metrics are sustainable. So I'll pause there and see if anyone has any questions for me.

Andrew, can you hear me?

Yes.

This is Michael Brian. Thank you for building an amazing company. I'm just curious, what would you think about as the biggest challenge or risk over the next 24 months for you guys?

Sure. I always start with credit. Credit surely is a risk. What keeps me up at night is, credit is our loan portfolio. All the assets are very well underwritten, very strong. Strong liquid collateral is our belief and low loan to values, but credit is always a concern of mine. That's number one. And really, we don't view the fintechs of the world, if that's the phrase you want to use, as competitors. We look at them as business partners. But staying out in front of the change in the industry, we're a little bit ahead of the curve, I believe, because we've been running a branchless model since our inception, and we've been, knock on wood, very successful at it. But staying out in front of the technological changes, the changes in the fintech industry, coupling fintechs with banks, and quite honestly, sorting through it and figuring out what's right for us and what's not right, maybe isn't a challenge. I view it as a challenge, but I think it's a challenge for the industry and for us to stay in front of that and not lag behind that, especially since over the last 1.5 years, arguably 2 years. We've invested a significant amount of time, money and resources into what you see as improvements on our website. And I would say, that only represents the best half of what we built behind the website. Thank you for the question. I don't know if anyone has any others. If not, I'm going to -- I'll pause again, but if not, I'm going to turn it back over to Eric to finish the formal side of the meeting. But I'll wait a second and see if anyone has any other questions. Okay. Great. Eric?

Yes. Thank you, Andrew. The Inspector has completed its count of the proxies or the ballot. The report confirms that a quorum is and has been in attendance at the annual meeting for all purposes. The report also shows that each Director nominee received the affirmative vote of at least 89.79% of the shares voted, 84.83% of the shares voted or cast for the approval of the Esquire Financial Holdings, Inc. 2021 Equity Incentive Plan, and 99.63% of the shares voted were cast for the ratification of the appointment of Crowe as the company's independent registered public accounting firm for the year ending December 31, 2021. Accordingly, each Director nominee has been elected as the Director of the company, the Esquire Financial Holdings, Inc. 2021 Equity Incentive Plan has been approved and the proposal to ratify the appointment of Crowe LLP has been approved. The certificate and report of Inspector of Election has been accepted, and approved and will be attached to the minutes of the annual meeting. There being no further visits to come before the annual meeting, I make a motion to adjourn the meeting.

I second the motion.

All in favor? [Voting]

Any opposed? [Voting]

Okay. Thank you. The meeting is closed. Thank you all so much for joining us this year, and we look forward to speaking to you throughout the year. Thank you, everybody. Thank you.

Thank you.