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

Good morning, and welcome to the Esquire Financial Holdings, Inc. Annual Meeting for Shareholders. I will now turn the call over to the bank's CEO, Andrew. Please go ahead.

Thank you, Brian. Good morning, everybody. My name is Andrew Sagliocca. I'm the Vice Chairman, CEO and President of Esquire Financials Holdings and Esquire Bank. I want to welcome everybody to our annual meeting. We appreciate you joining. I'd also like to introduce Eric Bader, our Chief Operating Officer, EVP and Corporate Secretary. Eric will be the secretary of the annual meeting. There are Board members and management on the phone. I'd like to welcome them, and thank them for joining and thank them for all their support over the year. For those of you who have questions, there'll be a Q&A period later on when I give you the financial update. The Board has appointed Joe Simon of Cullen and Dykman as the Inspector of Elections to the annual meeting. The Inspector's report is attached to the minutes of the annual meeting, and we have delivered the Inspector a list of stockholders of the company entitled to vote as of the close, March 31, 2023. So for now, I'm going to hand the meeting over to Eric Bader, who will walk you through the formalities of the meeting and the items to vote on and the like.

Thank you, Andrew, and welcome, everybody. The records of the company show that there were 8,190,758 shares of common stock issued outstanding and entitled to vote at this year's annual meeting, of which 4,095,380 shares represent a majority. We have received confirmation at the notice of annual meeting. The proxy statement and proxy card were mailed to each stockholder of record as of the close of business on the record date. I have previously delivered to the Inspector of the list of stockholders and proxies that have been received. A majority of the total outstanding shares entitled to be voted are present in person or by proxy. The Inspector is making an adept count and will submit a formal report on the number of shares represented. A quorum is declared present subject to the confirmation by the Inspector in his report. The business to be acted upon at the annual meeting is to consider and act upon, one, the election of 3 directors to serve for a term of 3 years; two, the ratification of the appointment of Crowe LLP as our independent registered public accounting firm for the year ending December 31, '23; three, an advisory vote on executive compensation; and four, an advisory vote on the frequency of future say-on-pay votes. No stockholder proposals were filed with the company's Secretary in advance of this annual meeting. We will consider the proposals in the order presented in the notice of annual meeting. The polls are now open. At the 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 Joseph Melohn, Robert Mitzman and Kevin Waterhouse 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 3 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? The second item of business to be voted upon is the proposal to ratify the appointment of Crowe LLP as our independent registered public accounting firm for the year ending 2023. Are there any questions regarding the ratification of the appointment of Crowe? The third item of business to be voted upon is the proposal to approve an advisory vote on executive compensation. Are there any questions regarding the proposal to approve an advisory vote on executive compensation? The final item of business to be voted upon is the proposal to approve an advisory vote on the frequency of future say-on-pay votes. Are there any questions regarding the proposal to approve an advisory vote on the frequency of future say-on-pay votes? This concludes the discussion on all matters. If there are no further ballots or proxies, I declare the polls closed. All ballots and proxies are now in the custody of the Inspector of Election. I would like to now turn the meeting over to Andrew Sagliocca, who will give a brief update on the company's operations.

Thanks, Eric. So I'm going to focus on where we are today in the first quarter, not so much for the year-end. And I think a lot has happened in the markets between the failure of SVB and Signature and the acquisition of Credit Suisse and the like. I'll be happy to talk about the year-end if anyone wants me to, but I don't think it's as relevant as where we are today. So as we noted in our earnings release and in our first quarter Q, we, the Board and senior management, have wholeheartedly believed that our balance sheet management and relationship banking were key to the future success of the company. And by that, I mean a focus on the balance sheet first, and credit, and interest rate risk, and capital and the like before we focus on earnings and relationship banking. And what I mean by that is having clientele that on the lending and depository side are client of ours, by having clientele on the merchant processing side that deposit with us, by doing custodial banking that we specialize in and ensuring that the clients we serve are not only receiving a high level of service, but more importantly, we humbly believe they cannot get what they get at other banks here because of our experience over a decade and a half. With that, at the end of the day, the core commercial banking clients in these 2 national verticals, that being payment processing and litigation represent about 90% of our deposits. And I know today, in this world, everybody's core deposit focused, focused on relationship banking, focused on what we in the industry call hot money. This is all vetted out at the end of the day, once again, with Raymond James naming us a top-performing bank in the country. This is 5 years running now. This year, we were a #1 bank again, which I think we were 3 out of the 5 years, certainly in the top 3 over those 5 years. And really, at the end of the day, it's a credit to the Board and to management and to the balance sheet management that we put forth first and the relationship banking. So at the end of the day, the bank's got very solid credit metrics. We have no nonperforming assets. We have what we consider a pretty robust allowance for loan loss at about 135 basis points of loans. Really, there's no past losses. There's no current problems. But just the discussion of recession has made us look more conservatively at our credit metrics and our reserve coverage. As I've already said, our deposits primarily are in the litigation and payment processing verticals. Our uninsured deposits are right around 30%. I think it was 27% in the fourth quarter and 33% in the first quarter, so right around 30%. But out of that 30%, 90-plus percent of it represents the same customers that we do relationship banking with. So the majority, 90-plus percent of these uninsured deposits are law firm operating accounts, law firm escrow accounts, merchant reserve accounts, ISO reserve accounts, custodial accounts. They're all core customers or what we consider core customers. Our liquidity position is to be wildly robust. We're sitting on liquidity that represents almost 50% of the deposit base. And we are not leveraged today. By definition, we don't borrow money to put securities on the book and make earnings nor have we been leveraged over 16 years. We like to keep the powder dry on liquidity. And during this crisis, it's obviously paid off. The interest rate risk that Eric and Michael, our CFO, employ with the rest of the group is also very strong. About 60% of our loans are tied to prime. Those loans flowed up as rates flowed up. Our core deposits that are mostly escrow and noninterest-bearing demand deposits don't and aren't rate sensitive. And these loans also come with floors to protect us on the downside. Capital, to me, is robust and wildly strong whether you look at it traditionally, the way the regulators look at it or you look at it the way the world looks at it today, pulling out marks or fair values on available for sale and held to maturity securities. So either way, our CTE ratios, equity to Tier 1 capital and common equity to tangible assets are well in excess of 10% either way you look at it. All of this is driving industry-leading returns. Our return on assets in the last 2 quarters has been right on top of $280 million, and our return on equity in the last 2 quarters have been right on top of about 23%. We've done this while we continue to invest in the future. We continue to invest in technology. We continue to invest in digital marketing. And now as we've hinted and indicated in our first quarter earnings release, we're going to make a significant investment for our company in our future by hiring sales and business development offers and support staff here in Jericho and around the country. And we're still confident with those additional expenses that will continue to perform the way we have in the past and the way that the analysts have indicated, primarily KBW right now has indicated we'll perform over the next 2 years. So that's really my update in a nutshell. I don't know if anyone has any questions.

[Operator Instructions] And there are no questions over the phone at this time.

Okay. Then I hand it back to Eric.

Back to me. All right. Thank you. Andrew. Thanks for the update. The report confirms that a quorum is and has been in attendance at the annual meeting. The report also shows that, one, each director nominee received the affirmative vote of at least 81.58% of the shares voted; two, 99.83% 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, '23; three, 54.58% of the shares voted were cast for approval of the executive compensation; and four, the frequency of the say-on-pay votes received, 94.1% for the 1-year option, 0.52% for the 2-year, 3.78% for the 3-year option and 1.69% abstaining. Accordingly, each director nominee has been elected as a director of the company. The proposal to ratify the appointment of Crowe has been approved. The advisory vote on the executive compensation has been approved. And the 1-year option for the frequency of say-on-pay vote 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 business to come before the annual meeting, I make a motion to adjourn the meeting.