GBank Financial Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2024

There are 4 speakers on the call.

Operator

I believe we're now all in. And I want to introduce myself, Ahmed Nigro, the Executive Chairman of GBank Financial Holdings and also GBank. And in the room with me today is Ryan Sullivan, our President and CEO of both and Jeff Wicker, our Chief Financial Officer, Executive Vice President, I might add. You're going to hear a lot of statistics today about our Q1, which I believe you will particularly enjoy. I'd like to look at things sometimes on a more macro basis.

Operator

And one of the parts I mentioned in our news release was that our bank, our financial institution is becoming a complex entity of many driving forces. And yes, we have our SBA as an important engine in our commercial lending division, which is vital. We also are engaged in the gaming industry with our payments business. We have introduced our new credit card, which is going to be, we believe, a very important element of our future. And also our relationship with bank card services.

Operator

And in all, we really see multiple parts of our operation working very well and others that are yet to kick in. And the beauty of it is yet to kick in. But here's some important stats from year to year. As I sat here with you last year at the same time, in 2023, we had looked at results. And at the end of the Q1, we stood at $444,800,000 in gross loans.

Operator

We're now at $776,000,000 in gross loans. That's a 73% increase in 1 year, which is quite remarkable. We also have seen our assets grow from 685,200,000 dollars to $963,450,000 or 42 percent growth. Now this is because all our engines are operating, but this also comes at a time where some of our income has been adjusted by a rate structure. Some of our resales and SBA have achieved GAAP gain that's very small.

Operator

And Ryan and Jeff will get more into that detail. But the important thing is we've established this engine. It's going to continue to grow. And I'll be talking about that a little bit more. But right now, I'd like to turn the call over to Ryan Sullivan.

Speaker 1

Yes. Thank you, Ed, and good afternoon, everyone. Very pleased to report positive results for our Q1 of 2024, marked by strong balance sheet growth, continuation of that after Q4 and as well as new loan production and solid earnings performance. Overall, the income statement for Q1 for G Bank, we generated $3,700,000 in after tax earnings, which equates to $0.28 per diluted share. Earnings for this quarter were up 12% 5% on a year over year and linked quarter basis, respectively.

Speaker 1

As we look at the components of revenues, net interest income was reported for the quarter at $10,800,000 which was up 15% 4% on a year over year and linked quarter basis respectively. And then our other major driver of revenue non interest income was 2,400,000 dollars which was up significantly from Q4 driven by an increase in gain on sale, which was $2,100,000 for the quarter. As we think about our revenue generators and overall revenue growth, Happy to report an all time record in net revenue prior to net interest expenses of $13,200,000 And the composition of those, which we track strategically, and we've talked about this for some time now, is really growing and diversifying our revenue streams. And as much as we have challenges in one major revenue stream, it's supported and offset by strength in the other and vice versa. With the rate increases, we have seen significant increases in net interest income over the past year.

Speaker 1

As a composition of our revenues, net interest income was 82% in Q1 and non interest income was 18%. You may have noted there was a slight full time employee reduction during the quarter down to 150 employees as of March 31. And that's really highlighting our efforts to focus our staffing models to directly support our key growth and revenue initiatives. Including that reduction was a small reorganization that we actually did in February that led to the elimination of 9 physicians in total. On top of that, we also had a small amount of attrition.

Speaker 1

As we look ahead to compensation expenses and our employee count, we will be growing back and obviously we are expecting some significant growth for the remainder of the year, but again, focused on our balance sheet growth and revenue generation. I would say by year end, we're probably going to get back near to the 165 employees again year end of 2024. Another big part of the story, obviously in the quarter is our continued balance sheet growth and production levels overall in terms of our new loan originations. Year over year, our asset and net loan growth places at the very top of our national peer group, which is about 1300 banks. And in fact, a lot of that growth has been centered in the last two quarters, specifically from September 30th last year, our net loans have increased by a total of $256,000,000 and that's net of sales.

Speaker 1

Now certainly SBA note modifications and repurchases have played a part and I'll discuss that activity more in just a moment. However, we are particularly pleased with our recent increases in both SBA and commercial new loan origination activity. Specifically, pleased to report an all time record of Q1 in new loan originations, both in SBA and commercial of $137,000,000 That's an all time record. And it's immediately following what was our all time record in Q4 of $135,000,000 These levels are up significantly, particularly in comparison to Q3 of last year when new loan originations were approximately 81,000,000 dollars So turning to the liability side and funding, there certainly has been a cost related to a rapid growth over the last two quarters specifically. And most notably, you'll see our certificates of deposits are now at $327,000,000 That's a 2 quarter increase of $168,000,000 And the average cost on those CDs is $5,260,000 So we're certainly paying on that side

Speaker 2

in terms of the growth.

Speaker 1

The good news is altogether, we've done a very good job of managing these effects and we posted a consolidated bank NIM of 4.98 and a consolidated all in NIM at 4.85. As we've grown the CD book and you've heard me say this before, we're keeping it very short and specifically of that $327,000,000 nearly $287,000,000 of that or 88% of our CD book either matures or is callable by the bank within the next year. So moving on a little bit to SBA, we're very pleased with our continued progression there. Happy to announce at the end of the quarter, we were the 10th largest SBA 7 lender by loan volume in the entire country. And as we think about when we launched that program in mid-twenty 15, happy to report that our SBA lending division has originated and funded a total of $1,650,000,000 in new loans.

Speaker 1

The largest subset of that is SBA 7, which obviously as stated we're very active in that program. Approximately $1,400,000,000 of that total over these approximately 9 years we've been in the business has been through the 7 program. So that's $1,400,000,000 in approved and funded loans for small businesses all across the country. Now we've been able to do that and build that growth with and experience very good performance in our loan portfolios. And specifically, if you look back at our 5 year defaulted loss rates, both of those metrics are well below 1%, which is far below our SBA lender peer group.

Speaker 1

And it bears the question why is that? Why have we been able to perform so much better than other SBA lenders? And I really think it goes back to our focus in terms of how we approach that business. And the fact that we really work tirelessly to both support our borrowers and in the case of government guaranteed lending protect the SBA. And this goes back and there's certainly occasions of this that we're reminded of even back in COVID and when we announced the Bank of Georgia at the time, small business relief program where we provided to all of our small business borrowers the option to go on payment deferral ranging between 3 12 months.

Speaker 1

More recently, there was a lot of conversation and I can give you an update on the SBA repurchase and note modification program. As you saw in the release, we have repurchased a total of just under $153,000,000 of previously sold loans. And to date, we have done modifications on SBA 7 loans for 73 of our 470 SBA 7 borrowers with the net effect of lowering their interest rate by 153 basis points and you saw that in the release. What that actually means is prior to the modification, the weighted rate for this pool of loans was 10.21% and we're able to lower that average rate all the way 8.68%. And in many cases, depending on the vintage of the loan, the loan was originated when prime was 3.25% and our average loan rate was 5.25%.

Speaker 1

Well, that same loan today is 10.5%. So what the effect of those rate reductions have been is overall we've reduced the payment amount for our borrowers by an average of 11%, which we're very proud of and we think is a strong support of our small business borrowers. To put that into dollars, those payment savings on this $166,000,000 translate to $2,100,000 annualized in reduced payments, which supports their business operations, supports their working capital and provides a great deal of relief on the deal. Really quick, an update on credit card and I'll turn it over to Jeff. The credit card rollout that began about a year ago, we're seeing some encouraging development there.

Speaker 1

Still a small program overall. We have less than 500 accounts, less than 500,000 on the balance sheet and balances. But what we're seeing that we're very excited about is we're seeing a very high utilization in the G Bank Signature Visa Signature card. And what I mean by utilization is what we're seeing in terms of activity is the credit card account holders are using the card to a great extent. They're paying it, which is always good, and then they're using it again.

Speaker 1

And that utilization rate is a very important metric that we track. We're also seeing a very high average transaction amount on these and we have some experiences you know in the prepaid space where we saw transactions per transactions of $100 or less depending on the program. Our average transaction size and credit card has been ranging around the $1,000 range. So both of these issues are important because there's 2 main revenue drivers from credit card that will be significant probably going into the second half of this year. First of all, is interest revenue, obviously on the credit card, but also interchange.

Speaker 1

So interchange, particularly in gaming, that to us ranges typically from 1.5% to 2%. As we see the portfolio grow, we're seeing a higher level of spend, a little bit of a subsequent event here, happy to announce that April will actually mark the 1st month that total credit card spend in the G Bank portfolio has exceeded $1,000,000 and actually that's the 3rd month in a row that that number has doubled month over month. So as we go into the rest of the year, we're going to be focusing on developing those credit cards and our marketing specifically and by marketing, increasing visibility, focusing on key partnerships with other companies that can help get the word out about our amazing product and then also developing our products. And we're actually working on right now our follow on product, which is a cash secured card and we're very excited about that. So with that, I will turn it over to Jeff to go into the finer details.

Speaker 1

All right. Thank you very much Ryan and good afternoon everyone. Yesterday, GBank Financial Holdings reported earnings of $3,700,000 or $0.28 per diluted share. Now this is compared to $3,500,000 in the prior quarter or $0.27 per diluted share and puts the bank in 89 percentile compared to our peers. Quarter over quarter net interest income increased 4% to $10,800,000 compared to $10,400,000 in Q4 2023.

Speaker 1

And when compared with the same quarter prior year, net interest income increased 15% from $9,400,000 Net interest income is full quarter over quarter and year over year as interest income on loans has grown 15% from the prior year and 74% year over year. The bank loans yielded 8.43%, which is in the 97th percentile of our peer group. Investment securities are yielding 4.2%, which is in the 92nd percentile of our peer group. And our net interest margin of 4.98% is in the 95th percentile when compared to our peers. G Bank has seen net interest margin compression in Q1 2024 due mainly to higher cost of the wholesale deposits that we were used to fund the unusually high asset growth rates the bank has been experiencing.

Speaker 1

The bank's key 2024 initiatives include significant growth in core deposits, which will reduce the dependence that we have on wholesale funding and we expect this and the credit card growth to combine and raise our margins back up above 5% during the course of the year. Non interest income totaled $2,400,000 and increased $1,100,000 or 86% over the prior quarter. Gain on sale loans increased $907,000 quarter due to a $31,000,000 increase in loans sold, offset by a 14 basis point decrease in the GAAP gain on sale price. We are seeing better pricing in April and do expect that to start increasing going forward. Also contributing to the favorable increase in non interest income was an increase in loan servicing income of $147,000 This was mainly due to less servicing asset write offs related to the repurchase of the previously sold loans.

Speaker 1

We anticipate loan servicing income to continue to increase in the 2nd quarter as the bank reversed $400,000 in servicing income on loans purchased in the 1st quarter. Non interest expense is expected increased $1,500,000 during the quarter as the Q4 of 2023 reflected $1,000,000 in non reoccurring adjustments to salaries due to the dollar amount and volume of deferred loan origination costs on repurchases and originations and a $400,000 release of certain early year accruals from our IT initiatives. Typical seasonal factors related to the reset of the payroll taxes and incentive plans also contributed to the increase in salaries and employee benefits in Q1. In addition, the bank recorded approximately $200,000 of severance costs related to a small reorganization in force that was executed to improve the overall efficiency of the organization as was discussed by Ryan earlier. Non interest expense related to credit card is expected to be approximately $400,000 per quarter through the remainder of 2024.

Speaker 1

Year over year, the efficiency ratio decreased to 63.4% from 68.2%, primarily due to the increase in revenues and relatively unchanged non interest expenses year over year. The efficiency ratio for the 4th quarter increased 428 basis points when compared to the previous quarter, primarily due to the non recurring adjustments in 2023 that I just discussed. Consolidated ROA was 1.59%. The bank's ROA was 1.84%. Compared to our peer average of 1% and puts the bank in the 89th percentile for income.

Speaker 1

The return on average equity was 14.67%. So moving on to the balance sheet, the consolidated company ended March 2024 with $963,500,000 in total assets. Assets increased by $45,100,000 or 5% during the quarter, due mainly to an increase of $93,900,000 in gross loans. This puts the bank at the 98 percentile in growth when compared to its peers. The bank paid down $30,000,000 in short term borrowing from the Federal Reserve Bank early in the quarter and executed a new short term borrowing of about $10,000,000 towards the end of the quarter that was subsequently paid off in early April.

Speaker 1

The bank continues to see broad momentum in the SBA and conventional lending as balances increased 14% for the quarter and 75% over the prior year. New originations were approximately $136,000,000 during the quarter with $129,000,000 coming from SBA and $7,000,000 from conventional lending. The bank repurchased $44,000,000 in SBA government guaranteed loans and repriced them to a 5 year fixed term with interest rates between 8.75% 9%. In addition, the bank sold SBA guaranteed loan balances of approximately $69,000,000 during the quarter. 100% government guaranteed loan balances grew on our balance sheet to $259,000,000 and represents 33% of the bank's total loan portfolio.

Speaker 1

That's up 27% from the prior quarter and 4 85% from the prior year. Asset growth was funded mainly by increasing total deposits by $61,200,000 during the quarter. Deposit growth was mainly in CDs and money market accounts, which increased $77,000,000 while the non interest bearing other demand deposits decreased about $6,000,000 during the quarter. Looking at the asset quality, relating to loans, no provision for credit losses was recorded and the allowance for credit losses remained unchanged at $7,100,000 The overall growth of the loan portfolio was offset by slightly higher prepayment speeds and improved macroeconomic factors. Asset quality continues to hold at historically low levels, while non performing loans remained relatively stable and the net charge offs were within our expectations.

Speaker 1

Growth within government guaranteed balances reduced the overall allowance for credit losses to 0.91 percent of gross loans and 1.37 percent of at risk loans, which is net of the government guaranteed balances, which is right in line with our peer group. Non performing assets decreased from $6,300,000 on December 31, 2023 to $6,100,000 at March 31, 2024. The balance is comprised of 2 unrelated non accrual loans totaling 6 $100,000 of which $4,600,000 is guaranteed. No charge offs were recorded during the Q1. Deposit acquisition retention remains very competitive, but the bank has been able to find new avenues for deposit generation that has provided the necessary funding to meet the needs of the company.

Speaker 1

More expensive wholesale funding has increased cost of funds 37 basis points for the quarter to 3.25 percent from 288% in the previous quarter. Uninsured deposits are estimated to be 38.24 percent of total deposits. Non interest bearing deposits have held very steady in balance, but continue to follow as a percent of the total portfolio and represent now 26.8 percent of total deposits. The loan to deposit ratio has increased to 96.3% from 91.6% in the prior quarter and we do not anticipate this ratio growing significantly from this at this point. The securities portfolio has not significantly changed since the prior quarter and continues to be made up of mainly short duration treasuries and variable rate Ginnie Mae mortgage backed securities.

Speaker 1

$10,000,000 of treasuries matured during Q1 of 2024 and we anticipate $35,000,000 of low yielding treasuries to mature between April June that will be reinvested at higher yields or pay off high cost deposits. As discussed previously, the overall yield on the portfolio was 4.2% year to date. OCI is still negligible and was relatively unchanged during the quarter at $258,000 compared to $252,000 on December 31. The total unrealized loss on the combined held to maturity and AFS portfolio is $869,000 which is actually down 47% from the prior quarter due to maturities and valuation adjustments related to anticipated rate changes. Consolidated equity to assets ended at 10.6%, down from 10.7% in the prior quarter and the bank's Tier 1 leverage ratio was 13.03% compared to 14.06% in the prior quarter, due mainly to asset growth, which was offset by organically produced retained earnings.

Speaker 1

Tangible book value per share has continued to increase from retained earnings and has crossed $8 per share in the current quarter. Sensitivity of the bank continues to decrease. The large increase in fixed rate loans in recent quarters combined with the short term funding have continued to reduce the asset sensitivity of the bank. The most recent model reflects results reflect a 13% fluctuation in net interest income and a 200 basis point rate change scenario. Current balance sheet growth is working to secure the increased margins and continue to move the bank into a more neutral position related to sensitivity.

Speaker 1

Liquidity remains an overall strength of our organization. During the quarter, the bank continued to enhance liquidity options to provide additional security to fund bank operations. Bank has on balance sheet liquidity of $100,000,000 and total liquidity, which also includes borrowing capacity of $622,000,000 of which $429,000,000 is secured by loans and investments. This puts the bank in a position to replace 76% of the deposit base if needed with short notice. The Q1 of 2024 has been incredible and the bank is anticipating earnings and growth to remain strong throughout the remainder of this year.

Speaker 1

So with that, I will turn it back over to you, Ed. Thank you, Jack.

Operator

We are going to open it up to questions in a few minutes. A few closing comments that I know are of interest. We are still working with the FDIC on our application to acquire VCS. I thought it was interesting timing that this morning there was testimony by the FDIC in front of the House of Representatives with respect to the statutory requirements that the FDIC has for any merger under the Bank Merger Act. And our acquisition has now is under the Bank Merger Act.

Operator

So there is a bit of additional information, a bit is understated that we are required to give. So we do not anticipate the closing to be in the Q2 and we will also be having an update on this probably about 2 weeks from now as we will have more information available to us. So we will pick that up, let's say 2 to 3 weeks down the road with additional information to all our investors and shareholders as to where we believe we are with that application. The next that point, there was an interesting little statistic I did for our Board recently and they thought it might be really interesting to you because we were reporting on our credit losses and we had a very important outgo committee meeting and it's that we're going over with the Board. And we were looking at our SBA division and particularly because we had given relief interest rate relief that Ryan referred to, to 73, I believe it was, Ryan, about 470 borrowers in the SBA.

Operator

And but yet it wasn't because we were facing an imminent additional loss of credit on a particular project, but because we always look after our borrowers. Let me give you the statistics that some of our borrowers were facing. I did a little study for the Board and this is one of the reasons why we're in the hotel business. I was in the hotel business for 17 years. You can see other members on our holding company and bank board that are in the hotel business today.

Operator

We didn't get into the 7 business in the SBA by accident. We like hotels and they're resilient. We now have 28,200 rooms in our SBA hotel portfolio. And that amounts to $1,100,000,000 in loans to that industry, dollars 3.79 loans in 40 states, so we're diversified. But what we like about the hotel business is what I always looked at when I ran hotels is the hotel department in a multi department operation that does more than rooms, that does food and beverage, conventions, weddings and catering.

Operator

The most profitable department in your hotel is always your hotel. In our hotels, we could get a 70% departmental profit in our hotel rooms because the cost of operating the hotel rooms was far less than the cost of operating restaurants or operating our catering division or operating conventions, all of these were extremely labor and food cost expensive, but hotel rooms are not. So we take these 28,200 rooms and I did a little study for the Board that I thought was interesting because if we take a 5.5% loan on these 28,000 rooms and we up it to a 9.5% loan, that increases the $1,100,000,000 remember in amounts of our loans out there. That increases the interest payments substantially, double from them. If we take an average loan of $2,900,000 which we have, and we take it at 5.5%, it amounts to about a $5.98 per day interest rate cost to that operator.

Operator

If you take a $2,900,000 loan and go to 9.5%, that cost of interest per day, just calculating interest rate and not amortization schedules, goes to $10.34 per day. Now the difference is a $4.36 increase per day. Now the average rooms of this $2,900,000 loan are $74 So if we take the 74 rooms and we take a 60% occupancy, the operator has had to come up with about $7 a day more in revenue on a per room basis. And that's over a 3 year period. So many, many have been able to do it very well.

Operator

And there are some that haven't been able to do it as well. Their margins were a little tighter, but they're still performing under all the aspects of the loan. So I point this out because they have this amazing tool called average daily rate to work with. And inflation has kept pace with a lot of this for our operators. And right now, our entire loan portfolio is averaging about 2.21%, 2.25% debt coverage ratio.

Operator

And that is very good. Times. Yes. 2.2 times, excuse me, the debt coverage ratios, which is the amount. We always look at these and we manage this portfolio very carefully, but we understand their business.

Operator

And if we see a problem, we can get in front of it early, because we'll see the ADRs, we'll see what's happening in different operations and we are able to help those borrowers right away solve these problems. But anyway, I thought they pointed out because people had some investors asked me, well, why is your SBA division holding up strong? We see other banks pulling back. But we see other banks registering some significant losses. And that's kind of why, because we have amazing tools available to us and we've always used them.

Operator

And finally, I think that I always want to say, and I thought I'd point out a little bit of history. One of the things that our Board does and our officers, We always remind them all to treasure our shareholders. When we started Bancorpheure in 2007, we had a premise. And the premise I wanted to make sure we followed was that no one or 2 people could control this bank. So we set up our initial investment that no one could own more than 10% of the bank and in particularly we wanted shareholders.

Operator

So we had 180 shareholders who raised our $22,000,000 180. And these were all businesses and families that were long time Nevadans and they paid $10 a share. And we went through this recession in 2008, 2013 and there's not one night that went by that we didn't think about our shareholders because our Board at that time had a lot of shares, we still do, about the losses when we went all the way down to $1.50 a share. In 2013, we came out at $1.50 a share raise. Some people are very happy they bought in there.

Operator

A lot of our 180 shareholders didn't have the resources to buy in there. So our goal and our objective every day and every night was to get our stock back to $10 a share for our shareholders. And now we pledge we're going to go far beyond that. And we are building this engine to do that. So by the way, I only mentioned that because I want to make sure you vote.

Operator

We have an annual meeting coming up. Oh, and I'm on the ballot.

Speaker 1

You are. Yes. So this is a campaign speech.

Operator

But thank you very much for tuning in today. And now I'd like to open it up to any questions.

Speaker 2

Hey, Ed. It's Tim Coffey from Janney. How are you doing?

Operator

Hey, Tim. Hi, Tim.

Speaker 2

Hi, Tim. Hi, good, Ryan. First question is, what kind of trends do you see for your net interest income in the next couple of quarters given there was such a big delta between period end loans and average loans, that period end loans are much bigger?

Speaker 1

Yes. I'll take a first stab at that, Tim. So yes, with the increased growth, the average loans over the entire quarter were actually up $113,000,000 Q1 compared to the prior quarter. We still are getting good rates certainly on our SBA activity, although the spreads have come down with the increase in prime. But as we think about NIM going forward, we're going to have some positives in Q2 and future quarters with some of the maturities of securities that Jeff mentioned specifically.

Speaker 1

I think we've got quite a bit in Q2 and Q3 treasury maturities. So that will certainly help. I think that we'll see NIM that probably is a little bit above Q1 and Q2. And then as Jeff mentioned, we think with kind of continued production and then a little bit of credit card by year end, that NIM should be in the low 5s by year end.

Speaker 2

Okay. Yeah. And that NIM, is that bank only or is that company wide?

Speaker 1

We report both. So I know you look at consolidated, but I'm talking consolidated in terms of what we're talking about here.

Speaker 2

Okay, great. Thanks. Let's see what's got. The loan sale volume, about $69,000,000 in the quarter, is that kind of a good run rate?

Speaker 1

It's probably a little bit high. We think it's going to come in a little bit, Tim. We're targeting for each quarter this year. We're on the production side, and we're targeting $100,000,000 per quarter. That's what we're going for.

Speaker 1

So as a normal sale percentage, I would expect that to be a little bit lower than the most recent quarter, but certainly in the $50,000,000 to possibly up to $60,000,000 range. As was kind of alluded to, obviously, the gain on sale was bolstered by that increase in volume. The secondary market continues to be pricing is still pretty low. Although anecdotally and has been part of our premise, we do expect some improvements over the rest of the year. We saw it's early on in the quarter, but we saw some pretty marked improvements in April.

Speaker 2

Okay. And then in non interest expenses, were there any M and

Speaker 1

A merger expenses this quarter? There were, yes. So I think the BCS related merger expenses were approximately 230,000

Speaker 2

Okay, okay. Almost got this in the last quarter. Great. All right. Those are my questions.

Speaker 2

Thanks a lot.

Operator

Thank you, Tim.

Speaker 3

Hello, guys. This is Brad. How are you doing? Hey, Brad. Well, Brad, hi.

Speaker 3

Doing good. Hey, first question here. So what should we expect going forward from some of these SBA repurchases? Is there room left to do more?

Speaker 1

No. To put not too fine a point on it. So that was really centered in Q4 and Q1. We've gotten through that activity. As mentioned, for the 2 quarters, it was about 153,000,000 dollars in total repurchases.

Speaker 1

We still have a couple of modifications to do as the borrowers are waiting to get back to us, but that activity is going to be greatly diminished, if not totally gone, starting in Q2. So it's really going to be as you think about going forward, it's really going to be focused on new loans and originations.

Speaker 3

Okay, great. And what should we expect from here regarding loan growth, maybe total year end balance, dollars 900,000,000 to $1,000,000,000

Speaker 1

On the loan side? Yes. Yes, I think that that's going to be pretty close. We're looking at some pretty significant growth overall in terms of total assets for the remainder of the year. Right now, we're forecasting a little bit above 1,100,000,000 dollars And I think that our ratios in terms of loan to deposits and everything will remain generally the same, although loan to deposit ratio might tick down slightly.

Speaker 3

Okay, great. And on the credit card program, you commented on the expenses running $400,000 per quarter. What type of revenue is that bringing in now? And what do you expect by, say, the 4th quarter?

Speaker 1

It's from a revenue side, we're still looking for breakeven there is a nice way to put it. I would say the revenues between the interest and the interchange are less than 25% right now. One of the things that we're encouraged by though is when we first got into that business based off of kind of typical credit card metrics, we believe that the breakeven level in relation to accounts was probably about 15,000 because of the utilization, the spend amounts and components, we think it's going to be below that. So right now, we're targeting to be at 5,000 accounts by year end and it should be neutral for earnings in the first half of

Operator

the next year and then start to contribute thereafter. One thing, Brad, that we said and you will remember the call a couple of I mean a year ago or so, wouldn't we one of our investors said that Ed, we don't want to get up one day and see a large amount of unsecured debt on your balance sheet from this credit card with subprime borrowers. And so what we did with this program is that this Visa is a Visa Signature card, which is not just a Visa card, but you have to have an elevated FICO in order to qualify for a Signature card because you get an if you're qualified, you have an $11,000 monthly credit as a starting point. And so our FICO scores are high. We're not in the subprime market.

Operator

And unfortunately, with our applications, we're having a lot of declines because of credit qualification, not because of interest in the card. So we're working on a few programs not to go subprime, but to

Speaker 1

Well, not to go subprime certainly on an unsecured basis, but that is definitely part of secured card product because that's we're finding that that's a pretty significant market.

Operator

So if we add in a secured card product where some of these applicants could use by depositing the funds, we think that it will grow. The part that Ryan mentioned that we're really pleased about is the utilization for putting money onto the various gaming apps and that's gaming apps for both skills games and risk, I mean, in gambling is the usage is very high and that's what it was designed for. And the context of the spend is very good because it's a premium customer. So we're seeing a spend approach you are going over $1,000 a month. So that's a very good customer when your average customer in a lot of these apps is $100 into $200 That's transactions.

Operator

That's not lost money, but I mean that's transactions. So we think that the program serves some of our bigger clients are starting to see some interesting results from it. And we think it will grow. We want it to grow. We want it in the hands of people that can afford it and not in the hands of people that cannot.

Operator

And so we're moving cautiously and carefully with this. And also, I think it will reflect in our prospectors moving forward.

Speaker 3

Absolutely. Thanks. It seems like the credit card program will get a major boost if you are successful getting some of these affiliate programs. Can you just describe the prospects how the affiliate programs look nowadays? Yes.

Speaker 1

So we talked about that last quarter. From a marketing standpoint, that has become really a primary initiative of ours. And actually, Brad, we actually have a landing page right now that we're developing and hoping to grow that has the links for our multiple partners that we've already signed. And we've got a pipeline of gaming and gaming service companies that we're in negotiations with now, including some very large gaming service and cash access providers, which we think is really going to be meaningful in terms of I think one of the challenges that we had at the beginning is we had this great product and nobody knew about it. And they didn't know who G Bank is.

Speaker 1

And but the affiliate partnerships that can take a lot of different forms. The kind of the most basic is just a symbol co marketing agreement where they market the G Bank card and we're having some success there. But we think that that's going to really help drive overall volumes and increasing applications, increasing approved accounts.

Speaker 3

Okay, great. Thanks. Jumping to the PPA clients. It looks like you're still working on onboarding for PPA clients, maybe in the Q2. Can you just describe your expectations, maybe for fee income or deposits?

Operator

Most of these PPA clients that BCS is working on with the bank are startups. They're developing their apps and so they pay the minimum amount and we've projected relatively small deposit growth from them, although there's a couple of programs that we're in NDAs with, so I can't get too deeply involved with them that have some very strong potential. BCS and the bank have been very busy. Those 4 are just there's about another 6 or 7 that they're working on right now. And we believe that we're going to start to see some interesting production as we get into 1 or 2 clients, especially one that's working on a slot machine product, then we would move into with them.

Operator

So in slot machines, an app that works with a slot machine for a PPA, we think is very important because then the individual controls their money at all times and it never goes into one of these other corporate accounts. We're seeing some interesting reception there and there'll be a lot more to say, of course, as we board companies and as we can do releases with them. But for right now, we're enthusiastic about where we're heading with the PPA and the PCA.

Speaker 1

And more on that pipeline, Brad, we did book and go live, I believe, with 2 new operators there. It's not the same 4 as last quarter. And we're excited with our conversations. We think that pipeline that we report is on its way up. On the bank side, we're most definitely focused on the deposit side.

Speaker 1

And as we've talked about before, we're really focusing on that side of it.

Operator

We're really pushing those deposit side, which we're averaging about $34,000,000 now and we hope to bring that average up, substantively by the end of the year.

Speaker 1

We're finding that more people that find out about what we do, particularly in the gaming industry, even if the PPA doesn't work for them, they open up corporate accounts. Industry, even if the PPA doesn't work for them, they open up corporate accounts with us. So we're actually seeing some activity there as well.

Speaker 3

Okay, great. Thanks, guys. I will step back and let someone else ask some questions.

Operator

Great. Thanks, Brad. Okay. Well, I don't hear anyone other else. So if there are none, we're going to end this conversation and we'll be talking to you next quarter for sure.

Operator

And if we have any announcements in between, you'll be sure to know.

Speaker 1

Yes. So the next, as Ed mentioned, is our Annual Shareholder Meeting on May 7. And please vote your proxy. And if you need any help doing so, please reach out to us. We'd be happy to help.

Speaker 1

Thank you, everybody. Thank you.

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Earnings Conference Call
GBank Financial Q1 2024
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