GBank Financial Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
January 29, 2025
Skip to Participants
Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Well, good morning for those of you on the West Coast, and good afternoon for those on the East Coast. This is Ed Nigrell. I'm Executive Chairman of GBank Financial Holdings and GBank. And I have in the room with me Ryan Sullivan, our Chief Executive Officer and President and also Jeff Wicker, our Chief Financial Officer. And both will be presenting today with me.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

And I'd like to kick it off by an introductory paragraph or rather statement that's important, and we'll set the tone for this call. On January 10, 2025, GBFH filed on a confidential basis a selling shareholder re offer of securities an SEC Form S-one. In other words, we filed a registration statement for the 1,081,081 shares that we sold in a private placement offering in October, which I believe we concluded in October of 2024. Now we filed for the registration of those shares as we had indicated we would in the offering document. This is also a filing to become a registered SEC company.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Now we must carefully control our communications, especially through this registration process. Even though we have no shares for sale, we're not doing an IPO, we are subject to many of the same application procedures and SEC rules and regulations. And most important among those are forward looking statements and offerings during this period of registration from which we need to refrain. So you will notice and we will not have as many forward looking statements in order to comply with SEC regulations. We are in the 30 day period for response from the SEC.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

And it is a confidential filing, so none of these the application or the responses are public information at this time. And that is also the reason for a lot of the requisites that are placed upon us for our statements. Having said that, we can comment as we do in a normal business call on what actually we are doing today and what we have accomplished in 2024. And I'm very pleased, as you can imagine, to announce our net income of $18,600,000 or $1.37 per diluted share for the year 2024, especially since it

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

was a

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

70.6% increase compared to our earnings of 2023. Particularly, I'm particularly pleased as we all are on the fact that we achieved over $500,000,000 in originations in our SBA program and Ryan will be digging more into that. That's $500,000,000 in 1 year and over $2,000,000,000 since our origination in the SBA business. I'll also be talking about our gaming Fintech division. But particularly, we noticed that the credit card transactions of $51,700,000 in the 4th quarter compared to $13,900,000 in the 3rd quarter.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

And you will also recall $1,000,000 in the Q1. So it is showing particularly strong growth and we also have achieved an interesting one day margin of, when I say margin, we had a one day transactions of $1,500,000 recently. So it is being very well accepted and we'll be getting into more of those details. And so I will turn it over now to Ryan Sullivan.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

Yes. Thank you, Ed, and welcome to everyone on the call. We're happy to celebrate a number of events during the quarter, and really, it's the culmination of what has constituted a standout and breakout year for the company and bank. As Matt mentioned, total earnings for the year at $18,600,000 That's a 71% year over year increase. As we all get ready for a big football game with a team that's looking to 3 peat, we're celebrating our own 3 peats here with the company and the bank specifically.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

Q4 was our 3rd consecutive quarter of both record breaking earnings and net revenue, earnings for the quarter of $5,200,000 And then also many of you may have seen for the 3rd consecutive year that the company was recognized with the OTCQX Best fifty for the company's stock performance. Really pleased with continued performance and operating metrics of the company. As indicated, record loan origination for the year. Our SBA operations surpassed $500,000,000 for 2024, as mentioned, and $2,000,000,000 cumulative since we launched in 2015. A big driver of our revenue and earnings for the quarter, obviously, was the gain on sale of loans, which was $4,000,000 for the quarter on increased volume of nearly $99,000,000 We continue to see small improvements on the pricing there as we sell the guaranteed loans.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

And you can see in the quarter in the low 4% GAAP gain percentage. As Ed mentioned, we're particularly excited about credit card development and seeing very strong utilization growth there, over $51,000,000 in credit card spend during the quarter. And also on a subsequent basis, we are celebrating $100,000,000 in total credit card transactions, and that was the threshold that was suppressed in January after year end. So that's very exciting as well. You'll note on the income statement that we broke out interchange specifically as we see very high transaction and utilization rates, as we mentioned, within our credit card customers.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

We've seen significant growth in that line item. That line item is, we think, pretty interesting today and will be interesting to track as time goes on. As we think about credit card and its overall contribution, specifically in 2024, our credit card activities generated approximately a $1,100,000 pretax loss. As mentioned, we did reach breakeven during the quarter. And as we expect future growth into 2025, we think that there will be a significant swing in generated earnings from that line specifically.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

You'll also note, we did have some net interest margin compaction or compression in the quarter. Now part of that was shoring up, getting ready for really stabilizing NIM into 2025. As noted, approximately $170,000 in accelerated interest costs. And what that allowed us to do was to call approximately $20,000,000 in callable CDs during the quarter and put us in good shape for calling an additional $20,000,000 in the current quarter Q1. We do expect to see some significant repricing down in the CD book specifically.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

We were going into Q4 with approximately $64,000,000 in maturing CDs. By March, we were able to replace those on average between 50 and in some cases as much as 100 basis points lower as they've matured and were replaced or renewed. And as we look into Q1, we have the $20,000,000 in brokered CDs that are called, although we expect to call during the quarter and another $100,000,000 almost in CDs that will mature that we'll be repricing down on that portion of our funding mix as well. So another item just to highlight and then I'll kick it over to Jeff. We're happy to celebrate 2024 really on the credit side was very benign.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

We've had very low nonperforming assets. And then also net charge offs for the quarter of the year were $157,000 $164,000 respectively. I think for the entire year, that's less than 2 basis points on average loans. We did unfortunately have some loans that migrated to non accrual status, several of which right at year end. So total NPAs at year end were $14,200,000 Now included in that is approximately $9,300,000 in SBA guarantees.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

So our at risk nonperforming assets and loans at year end are $4,800,000 As you'd expect and with that guarantee balance, most of those are SBA loans. There's 11 loans outside of the small, about $40,000 in credit cards. That balance was comprised by 11 loans, 10 of which were SBA, 8 of which were SBA Hospitality. Very confident in our ability to work through that group as we look kind of for possible trends and anything that would highlight kind of future growing problems. Not really seeing anything there as you might expect.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

We've been in very kind of elevated contact and communication with our borrowers through Q4, particularly in the East Coast with some of the storms and hurricanes and then more recently with the fires in the LA area. Happy to report that we haven't seen really collateral issues or notable issues of damage there. I will say, in some cases, maybe more of an impact on business conditions, particularly with some of the northern states that always have a little bit of slow time or slow period during the winter months. But on a relative basis, that $4,800,000 0.4 percent of total assets or 3.2% of total equity capital plus reserves. So we have a really good track record working through those NPAs.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

We don't expect that to change, particularly on the SBA side, specifically in 2020. For really two notable dispositions, as we mentioned before. Both of them were SBA Hospitality. 1 involved zero loss, and then the losses that you see in Q4 was relating to an approximate $3,600,000 loan and our total charge offs on that one came in at less than $200,000 So overall, a very good quarter. We think we're in really good shape as we head into 2025.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

Very excited about our business lines and anticipated growth there. And with that, I'll turn it over to Jeff for his detailed comments.

Jeffery Whicker
Jeffery Whicker
Executive Vice President & CFO at GBank Financial Holdings

Thank you, Ryan, and good morning, everyone. As Evan and Ryan have discussed, 2024 has been a better year for the bank, driven by strong growth and record earnings. Company reported earnings of $5,200,000 or $0.36 per diluted share for the Q4 of 2024, which is a $200,000 increase over the prior quarter earnings of $5,000,000 For the year, the company reported earnings of 18,600,000 which is a 71% increase over the prior year earnings of CAD 10,900,000,000 or $1.37 per diluted share.

Jeffery Whicker
Jeffery Whicker
Executive Vice President & CFO at GBank Financial Holdings

Net margins decreased quarter over quarter to 4.53% from 5% in the linked quarter. This decrease included a $341,000 reversal of interest and fees on nonaccrual loans and $170,000 of accelerated amortization on callable brokered CDs, as Ryan talked about. We would anticipate we anticipate continued pressure in margins in the Q1 as the additional 50 basis point Fed rate decrease will impact the variable rate loans as of January 1st and will be offset by $97,000,000 of higher rate CV maturities that will be replaced at 40 to 80 basis points lower than their current costs. The bank's asset sensitivity has held steady as testing continues to show a 10% impact to net interest income with a 200 basis point change in rates either direction. And the company has made great progress in bringing down this asset sensitivity during the prior year.

Jeffery Whicker
Jeffery Whicker
Executive Vice President & CFO at GBank Financial Holdings

As Ryan mentioned, we are encouraged by the results of the SBA credit card activity for the quarter. SBA commercial lending activity has remained strong with the bank producing $120,000,000 in loans during the quarter. SBA had a banner year producing a record $500,000,000 dollars in new loans through the year and crossing over $2,000,000,000 in total production since the inception of the program. SBA loan sales increased 38% to $98,500,000 during the quarter, increasing the gain on sale income by $1,200,000 Sale pricing continues to trend up, providing net earnings hedge as we see reduced net interest margins related to recent rate decreases. Credit card has been at a solid footing and continues to build on each quarter.

Jeffery Whicker
Jeffery Whicker
Executive Vice President & CFO at GBank Financial Holdings

Transaction volume increased 272% for the quarter to $51,700,000 as Ted talked about from $13,900,000 in the linked quarter. Additionally, the program is now showing a positive contribution margin and is expected to be a meaningful contributor to income in the upcoming year. SBA and credit card activity has led to a 49.1% increase in noninterest income quarter over quarter. Total net noninterest income of $5,800,000 was driven by the increased gain on sale income and a $700,000 increase on net interchange income on the credit card portfolio. Noninterest expense increased approximately $700,000 during the quarter, primarily due to the $367,000 stock compensation expense related to a one time employee stock grant.

Jeffery Whicker
Jeffery Whicker
Executive Vice President & CFO at GBank Financial Holdings

In addition, the company incurred approximately $300,000 in expenses related to the filing of the S-one and registration of the shares from the 2024 offering. The efficiency ratio favorably decreased to 55.4% for Q4 2024 from 55.9% in the linked quarter and improved to 58.1 percent from 68.1 percent year over year as the Bank has been able to continue to execute on the technology initiatives that were launched in 20222023. Taxes decreased quarter over quarter by $273,000 due mainly to the additional tax write off the company can record on vesting stock based compensation due to the recent increase in stock price. The bank continues to grow the balance sheet, increasing assets by 7.1% in the quarter and 22.4% for the year. Assets closed the year over $1,100,000,000 and shareholders saw and shareholders of equity saw 42.9 percent growth year over year related mainly to earnings and the $20,000,000 private placement that was in October of 2024.

Jeffery Whicker
Jeffery Whicker
Executive Vice President & CFO at GBank Financial Holdings

The bank continues to fund the loan growth with a mixture of deposits, effectively growing deposits in all categories year over year. Loan growth has mainly been focused in the CRE and C and I portfolios as SBA lending continues to grow the lending pipeline. In addition, the bank purchased $29,000,000 in fixed rate government guaranteed securities during the quarter with an average yield of 5.1%. This brings the overall book yield on the securities portfolio to 4.78 percent. 100 percent government guaranteed loan balances were $231,000,000 The decrease of $36,000,000 from the prior quarter is mainly due to a decrease in loans held for sale.

Jeffery Whicker
Jeffery Whicker
Executive Vice President & CFO at GBank Financial Holdings

The loans held for investment guaranteed balances only decreased $1,500,000 due to normal paydowns. The bank recorded $1,300,000 provision expense during the Q4, approximately $800,000 of which was due to an increase of reserves on at risk nonaccrual loans, while the remaining $500,000 was due to the portfolio growth. Total nonaccrual loans increased $8,700,000,000 quarter over quarter. While the increase in nonaccrual loans for the quarter was higher than we had seen in the prior quarters, the bank continues to show better than anticipated losses portfolio wide year to date. Given the workout history of the special assets department of the

Jeffery Whicker
Jeffery Whicker
Executive Vice President & CFO at GBank Financial Holdings

bank, we anticipate being able to quickly work through the troubled

Jeffery Whicker
Jeffery Whicker
Executive Vice President & CFO at GBank Financial Holdings

assets and have provision recorded for anticipative losses. The overall allowance for credit loss was 1.07% of gross loans and 1.47% of at risk loans, which is net of the government guaranteed balances. Capital levels remain strong with the bank's Tier one capital ratio at 12.9%. In addition, as discussed, the holding company has raised CAD 20,000,000 in new capital during the month of October and will look to inject some of the capital down to the bank to provide for future growth expectations. The bank continues to focus on liquidity on with on balance sheet liquidity increasing $44,900,000 quarter over quarter.

Jeffery Whicker
Jeffery Whicker
Executive Vice President & CFO at GBank Financial Holdings

Total liquidity of $738,000,000 as of the year end was 76.9 percent of total deposits, which included $475,000,000 in untapped borrowing capacity. This year has been a record breaking year for the bank, and we look forward to continuing to execute on the current initiatives to strengthen and grow the organization and continue to return strong earnings to the shareholders. With that, I'll turn it back over to you, Ed.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Thank you.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

I wanted to go back to my quote at the beginning of the press release where I identify GBank as a digital bank as involved in digital banking and payments company. And that's the first time we've really focused on identifying ourselves as a digital bank and a payments company. Because we have been in payments since 2015 when we launched our Play Plus card, our prepaid card with Discover, way back in 2015, MGM was our first client and only in the state of Nevada. So we were focusing on payments and gaming. And as we discuss who we are as a bank, our gaming FinTech division focuses on gaming and payments.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

And the gaming and payments world has changed a great deal, especially as an article in the Banker Magazine pointed out, even since 2019. In 2019, they've started a revolution in digital banking amongst banks, where everyone wanted to get into this digital banking world very quickly with a lot of fintechs offering different digital banking solutions to clients, customers and consumers. Some have been good and some have you seen over these recent 2 years have been not so good. Well, we've been developing our digital banking processes for 10 years now, And we've been particularly spending what people do not say these last 2 years or 3 years since we brought in our own IT officer. Our technology development with protecting the consumers and knowing our clients, our vendor management and how we manage our payment system is very unique.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

You have seen programs like our pool player accounts and pool consumer accounts that are going to be foundations and are foundations for customers we're developing today. We're we had hoped to go live in the Q4 with our first major client, Hope Bets, for cashless gaming for slot machines. And actually, they're in live testing right now with all of the processing necessary to create the digital accounts that the platform or the app needs and how they flow to the bank because all those funds on that app, on that gaming app are going to be held at the bank And all the transactions are done at the bank. And there's also recent articles on the payments industry in American Banker Magazine, the December issue, which talks about these revolutions that are occurring and says that it will occur even faster with the faster pay mechanisms, such as the clearinghouse's RTP. And we will be live with the clearinghouse RTP.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

The advantages, we also believe, of focusing on the gaming industry. The gaming industry and I've been in it a very long time used to have a stigma attached to it. Not anymore. It's part of everyday life. Turn on an NFL game and they'll tell you how to bet the odds.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

The announcers will tell you the odds of certain things occurring during that quarter. College football has paid athletes now. Look at the college football playoffs. Look what's coming up with March Madness. Look how sports and sports gaming are part of everyday life across America.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

And this has been our focus for 10 years. And we're starting to see, and we shall see, the participation of our clients in this arena. And as manifested by our credit card, which we're specializing for our gaming clients, for our consumer of our gaming clients, what we did that is so different than anyone else is that we wanted as a bank in Nevada, we wanted to bank our gaming industry from the beginning. But we can't do loans to these multibillion dollar companies to build a casino or finance their operations. We're not we can't give $2,000,000,000 loans.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

But what we can do is finance their customers, the consumer. And so way back in 2015, we went to service the consumer who likes to participate in both licensed gaming and skills gaming. And we developed this credit card so that we would have a clear another process besides our prepaid cards of unloading these apps so that the consumer can participate in this activity. And you know the way we do it, we protect the consumer because we have worked so diligently to create our internal processes. So I guess what I'm saying and why I'm bringing this up is because as you look at the credit card growth, we did what I said, dollars 1,000,000 in transactions the very Q1 of 2024, and we did $1,500,000 in transactions in one day this month.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

So we're seeing that the participation in the groundwork and the foundations that we've built in this are working. Now we teased ourselves when we had 700,000 prepaid cards in the gaming industry. So our transition to the credit card was based on a lot of experience in being a card issuer. This particular card, of course, now has credit. The credit side is relatively small, which we had anticipated.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

The transaction side is what we had focused upon and that is what is working. But I wanted to say that we believe that we are finishing this year in the technology aspects of what we're doing to be able to process very accurately, very rapidly in very large volumes, all the payments mechanisms that our digital wallet clients are going to require. And we are building that network right now. We have been building it for years. And we've been building it on a foundation of good governance, consumer protection and safety and soundness.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

So I just wanted to conclude with that because we are in very many markets with very interesting products. And we believe that our focus on the consumer side and on the protection of the consumer is and has been and will continue to be very important. So you can see we reported on our Gaming and Fintech division and the clients that we are boarding and the activity we believe will be occurring very soon, especially our first live clicks in morning casino payments program. So with that, I will conclude. And thank you all very much and open it up for questions.

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

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

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Hey, Tim.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

Hi, Tim.

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

Hey, guys. Hey, Rod. Hey, Jeff. I guess my first question is what is the time line for being a fully registered SCC company?

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Well, unfortunately,

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

the only time line I

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

can give you is the one that is published right now when we submitted our application on January 10. We are in what is the, call the comment period with the SEC. So we will wait we shall wait to hear back from them commenting on our application, and that generally happens within 30 days. Then the rest of the process is a process that's published, is that you conclude and you respond to their responses and move towards the registration. Now I can't give you a specific time line because we haven't seen their comments yet.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

And I think that's the best answer I can give you other than we've reported in the past that we can hope to accomplish all this by the end of the Q1. So we shall see.

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

Okay. As far as expenses and being a fully SEC registered company, are there additional expenses you're anticipating this next year?

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

Yes. I would say, Tim, this is Ryan. Yes, there are, although I think we started to see the incur of those expenses in Q4.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

So Jeff had highlighted that there was about 300 approximately 300,000 dollars in expenses related to SEC in the Form S-one. We think that that's a pretty good run rate going forward. It might ebb and flow a little bit, change a little bit on any particular quarter. But we think that, that will probably be relatively stable as part of

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

the overhead structure.

Jeffery Whicker
Jeffery Whicker
Executive Vice President & CFO at GBank Financial Holdings

That amount was included in our Q4 results. That's right.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

So that we didn't pull it down as a onetime expense because Ryan and Jeff and I were talking, it will probably continue for some time.

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

Yes. Okay. That's helpful. And then the credit card product, is there a way to just kind of determine how additive it could be to earnings in 2025, if it just now broke was breakeven, how much did the product lose in 2024? Yes, we actually I mentioned that, but if you think about credit card in 2024 on a pretax basis, the burn rate for the whole year would constitute approximately $1,100,000 pretax loss.

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

And then we turned the corner obviously in Q4. So how big that swing is in 2025 is going to be exciting to see. And I think it will really tie into what's the growth rate going forward. But we're encouraged by what we see so far.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

One of the things that I think that and we have to refrain from forward looking statements right now about the credit card, but we can actually report. You've seen the growth in the 1st year. And we have active footprints to continue issuing those cards. So I wish I could give a little more information than that. I cannot at this time other than I can I do know and we do know that we're very early in the year?

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Yes.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

We are and we've talked about this in the past, Tim. I mean, we are continuing to see some of the metrics that we talked about before. In terms of spend, greater than 90% of the credit card spend is still gaming. So these are heavy gaming transactors, which is great for us as we look at the income statement and that interchange. That's really kind of the key utilization.

Jeffery Whicker
Jeffery Whicker
Executive Vice President & CFO at GBank Financial Holdings

We think that if you look at our current revenues, dollars 26,100,000 for December, and I also said that in January, we hit a $1,500,000 a day. The interchange fee and the revenue, the gross revenue we're experiencing right now, as an example, for the month of December, reached almost $1,000,000 in gross

Jeffery Whicker
Jeffery Whicker
Executive Vice President & CFO at GBank Financial Holdings

interchange fee. Gross interchange fee.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

So you can sort of put those numbers together, and that has that kind of and the gross out of the gross revenue comes, of course, our rewards program and our marketing and participation programs.

Jeffery Whicker
Jeffery Whicker
Executive Vice President & CFO at GBank Financial Holdings

But we anticipate that 50% of that revenue is to the net of the bank. That's what we have.

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

Okay. How is it going getting non gaming transactions through that pipeline? Because I mean, obviously, 90% of the spend in gaming is pretty good,

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

but is there an opportunity to spend that?

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

We've geared all our marketing to gaming. So we have not geared our marketing to non gaming. We give a 1% reward for every dollar you load onto your gaming app. And so we give a 2% these are cash rewards for all non gaming transactions.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

So we feel that, that reward for gaming transactions is an important driver, and we want the card in the hands of people that enjoy SKUs games and, well, enjoy legalized gaming. And that's where 95% of our transactions are in legalized gaming. Our primary merchants are BetMGM, DraftKings, FanDuel, Caesars and 6 or 7 other companies in Pennsylvania.

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

Okay. And then my next question goes to, I mean, obviously, credit card is doing well, SBA is doing well. Is it your expectation that you'll be able to continue to do really well at both of those going through 2025?

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

You had a question?

Timothy Coffey
MD & Associate Director of Depository Research at Janney Montgomery Scott

Yes. And the question was just to restate for Ed. SBA is going very well, credit card is going well. Do we expect that to continue?

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

Generally, yes, I would say we did see on the production side for SBA, we saw something that we hadn't seen for the prior couple of years, an actual seasonal slowdown on production.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

So even though we did total new loan originations of $120,000,000 mostly SBA, We did see some of the pipeline shift to Q1 anticipated. But on SBA side, we're sitting with 1 of the strongest pipelines that we've ever had, expanded pipeline of nearly $250,000,000 And then credit card is really the is kind of the interesting one to watch. We're still just scratching the surface, we think, in terms of what that market could represent. And we

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

also are most anxious to go live with 2 slot programs, breakthrough winter programs, hopefully, in the Q1, which we believe one of the things that and it caused some slowdown for the launching of these is that November December for the credit card companies and a lot of the payments companies is very difficult to launch new programs. And launching these programs, we're in live testing right now with integrating the slot machine, the payments app and the banking apps to have this process move quickly, including RTP. As a matter of fact, we exercised yesterday. First ACH in RTP is being worked on today to where it will actually occur with these wallets. And this is these are major breakthroughs.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

All right, great. Thanks. I'll step back. I appreciate you taking the time to answer my questions.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Thank you, Joe.

Analyst

Hey, Ed and Ryan, Mike Yalencino, how are you guys doing?

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Doing great.

Analyst

Ryan, that 3P thing with the Kansas City Chiefs you brought up at the beginning of the call as well.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

It's not going to happen, right Mike?

Analyst

It's not going to happen. 40% is head owner. Most of us are putting all my voice from Janney from Philadelphia. So I would appreciate it. If you didn't throw that out there, it's bad mojo.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

I said

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

that.

Analyst

Actually, I have a

Analyst

2 part question. One

Analyst

of them,

Analyst

I guess to Ryan, in terms of how many number of SBA loans were originated in 2024? And then on the flip side of that, how many what's the total number of SBA loans that were sold in 2024? And the second part of my question might be to Ed. I know you can't comment because you're kind of going through a semi quiet period here, but the massive growth by the way, you guys had a phenomenal quarter. I mean, congratulations on that.

Analyst

But the massive growth in the interchange fees, do you see that hockey stick continuing? Or aren't you allowed to comment on that right now, Ed?

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

You go ahead first, Ryan.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

Yes. We probably can't comment specifically kind of tying that forward looking statements. I will say, obviously, from Q3 to Q4 on the interchange, that was great. Not that we expect that to continue. But on the SBA side, just kind of in some round numbers to kind of give you a sense.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

And that was part of the big increase in SBA year over year. I think 2023, that was in the low 100s in terms of new individual loans. And essentially, we got to double on the number of loans in 2024, nearly 200. And then the sold, I get back to you with an exact number, Mike, but it would be about 70% of the origination volume would be the sales for 2024. So probably about 140 in terms of kind of individual sales transactions during the

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

year.

Analyst

So for clarity, what would be the dollar amount of originations? Do you have a rough estimate of what that number would be?

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

Yes. So the dollar amount, like we said, is for the year, just the SBA operations was $500,000,000 or just slightly above $500,000,000 And we expect that level to, by and large, be repeatable, maybe with some small growth in 2025.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

The interchange fee is based on transactions. And the transaction is a low 2 year app from the credit card. So the transaction, the transactions have nothing to do with bets. And the credit card has nothing to do with bets or placing the wafer. What the credit card does is just simply like it every time you use the credit card to load an app, you have an interchange fee.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

The merchant pays an interchange fee. And of course, our merchants will gladly pay the interchange fee because they're getting an active customer who is staying active by the use of the card on multiple times during the month. So it is really transaction based revenue. If you remember the old, oh, God, the old days, the old American Express business plan when they first came out was we're going to bring you the best customers and we're going to charge you a higher interchange fee Because most of the BofA customers back in those days paid their account down every month, so they just wanted the transactions. And that's what we're doing.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Our customers are paying off their credit card multiple times a month. And this is a setup we created and arranged because we know that how a game one who's interested in gaming performs. And they like to load their app, then they'll do whatever they want with multiple bets or wagering. And then they'll pay their card off so that they can load it again another time. So the transaction amounts on these cards are very good.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

And we knew they would be transaction based. That's why we started it. So we're seeing the transactions occur. And so the interchange fee growth is going to is a function of how the card is utilized by the gamer. And the gamer really likes this card because we they are able to use some credit to initially launch their wagering accounts or to load their apps.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

I hope I answered the question.

Analyst

No, no, no. That's great. I'll step aside, but I got one last question for Ryan back to the SVB question. So you did $500,000,000 and you said about 70% was sold, so that's $350,000,000 You guys are just killing it in this space, right? Do you have any competition?

Analyst

Do you see any competition on the horizon for that business? And the second part would be my question would be, how does 2024 in terms of bonds or SBA loans you sold in 2023, was that an increase? Was there more opportunistic profits for you in 'twenty four than 'twenty three? Or was it basically flat year over year?

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

Yes, pretty big increase year over year compared to 2020 3, Mike. Just to clarify the number of loans, the sole portion is the guaranteed portion. So our total sale volume for 'twenty four wouldn't be $350,000,000 It'd be less than that because we're just selling the G portions. But certainly, nearly a double in volume year over year, an improvement. Obviously, you remember in 2023, there's some instability, I would say, in terms of the financial market.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

So we saw that in SBA pricing. We've seen some recovery there. We think that the recovery on the pricing could continue. Like I said, the most recent quarter, our GAAP sales percentage was still in the low 4s. Long term average is above that.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

So hopefully, we start to see that bump up in some of the future quarters. But in terms of competition, to that question, there are a number of SBA lenders out there. It tends to be a pretty concentrated business. Some are really good at it. One of the things that really causes us to stand apart is our core competency in hospitality.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

We don't really have an effective peer competitor on that. 2024 would be the 5th year in a row that we were the number one hospitality SBA 7 lender. We don't expect that to change. There are some banks that focus on hospitality and they do a very good job in their own right. But a lot of times, that's not government guaranteed lending, which is very specialized.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

So we feel really good about our competitive position.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

I think from the competitive position, there's an important move we did and we have been doing over the last 3 years, 3 to 4 years. And a lot of, many SBA banks use a massive broker network because to generate their loans. We do not. We use a relatively small broker network, and our brokers are major shareholders of our bank. Most of the 5 top brokers that we have are major shareholders of our bank and significant participants with us.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

They're valued assets to us, and our relationship remains, we believe, will remain very strong. And this is a vast majority of the production of our loans come from this relatively small network, but the relatively small network is part of us. And they're part of our they're as much part of us as I am.

Analyst

Idea. It's David Verlander.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Hey, Ed. Hi, David.

Analyst

Hi, Ed, Ryan and Jeff. Hello. Congrats on a great quarter. Can you give us an update on the state lottery initiatives? What's going on there?

Analyst

And can you help us understand why the states would elect to use a prepaid card versus what they're doing now, whether it's checks or what have you?

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Well, the tech company that has brought the state lottery program to us, that has executed an agreement with us, has been unable to launch the 1st state yet. And some of the obstacles are seem to be that the individuals running the state lottery don't want to change the way they are functioning for whatever reasons they have in the sense of the manual processes they're doing and the number of employees they have and the number of they're just the way they do it, although because the concept of issuing a prepaid card is much less expensive than writing these checks that they have to do for every lottery winner. And some lottery winners, remember, are relatively small. So the intent of this technology company was to issue prepaid cards for all lottery payments over $500 because some of the smaller payments are given by some of the locations themselves where you scratch and win. But the interesting part is the state approved it, but it the process, but they haven't been able to launch it yet.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

So it's still on hold with this one processor. And we have one technology company, and we haven't pushed him really hard because he's pushing as hard as he can. And I think that's the only update I have on the state lottery because he had he believes he has several other states lined up once he launched his first, which he has been unable to launch. What was the second part of your question?

Analyst

Well, I was just trying to understand the economics of the state lottery program. 1, why would they elect to use prepaid cards versus checks? And you went into that. It's lower cost. But are there any insights you can give us as to the economics for you?

Analyst

How do you get paid? Do you get paid when the card is loaded? Or do you get paid when the consumer uses the card? And can you give us an idea of what that interchange would be?

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Yes. The fee would be where the card's loaded. And then if they spend the card on, within a merchant services area, there's an interchange fee there. But it's very small. It's like what's been happening, as an example, in many of these critical areas that have suffered, especially like in North Carolina where so many people suffered, had some huge losses, the best way to get money to these people is with prepaid cards.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

And so there are many of the charitable organizations in the organizations set up to help those are giving them prepaid cards. And it's the easiest way to move money to disaster areas and to people. Well, the same thing is true of lotteries. When you have we only hear about the major lottery winner that wins 1,000,000,000 of dollars, but there are a lot of lottery winners that win a small amount of money. And so it becomes much cheaper just to issue the prepaid card.

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

And one of the key economic drivers on that program, like others, is when you think about the payments that are being processed above the de minimis either $500,000 or $600,000 That's a pretty substantial amount in aggregate. And I think one of the big economic drivers for us as we look forward is the continuation of growth of non interest bearing deposits. So that's certainly our key focus. We've heard

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

that we well, our tech company has reported to us that the cost is about $6 a check to write it to pay these lottery people because of all of the divisions it goes through and the state's treasury and all the other all the hands that touch

Ryan Sullivan
Ryan Sullivan
President & CEO at GBank Financial Holdings

it, it's expensive. It's a cost. It's a convenience. There's also a compliance factor of it. It's easier in a prepaid access and prepaid environment

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

to meet all the compliance on We think that we stay very active, David, in, as an example, the FDIC had come out with 2 rule makings recently. The one about core deposits and changing it, they withdrew. They withdrew that whole proposal. They have the most recent one on custodial accounts and how they want to administer and understand and provide greater consumer protection in custodial accounts, we've I've been involved in responses to the FDIC on that in the 4th quarter. And we believe there are some very interesting things occurring at the FDIC.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Of course, you've seen Travis Hill is now the acting Chairman of the FDIC. And if anyone wants to see what Travis Hill thinks, he gave a speech about 3 weeks ago before he was named active Chairman. And it's really an interesting speech. And in the speech, he said he wants to reactivate FDI Tech. And FDI Tech was a division that Yulena McWilliams had set up to create what they call government private partnerships to enhance new technology for banking.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

And I think Travis Hill is going to reinstitute that division. And that is a division that we are most interested in talking to with respect to our pool player accounts and our pool consumer accounts because we know, as you have dug deep into it, David, that it is a very, very effective solution in protecting the consumer. So there's a lot going on in that arena right now, but early monetization of it, I don't have any projections. I think that one of the things, and that's why I mentioned so much our payments and our gaming. We are so focused on that right now for our bank because there is there where we see the sort of more instant gratification in terms of earnings potential because of the programs we've been working on, so I love them for 3 4 years now.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

And when they finally get launched, it's going to be, oh, what took you so long? But the reality of it is, we get calls all the time from banks that are tech that are having problems with their tech divisions. Fresno Bank recently, you know some of the other stories of some of the other banks and some apps. And the way that some have chosen and I'm not throwing any allegations at any of them, So some have chosen their relationship with the Fintechs like is different than what we do. And that's why I mentioned that the technology we're developing, we manage them all inside our vendor management.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

We know who everybody is that we do business with. And we had a, we took, there were about 4 companies in our pipeline that were going to bring us considerable amount of deposits, but we did not board at the bank or PCS because of the once we got deeper into our vendor management and looked at their consumer customers and the merchants they were using for bringing aboard, we did not want to be exposed to them. So we canceled. So we are very discriminatory. And gaming, see, when I pointed out that gaming is our industry because it's so regulated, The programs in licensed gaming that we're doing, we're dealing with highly regulated entities.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

And you saw where we even have now, and he's a very fine distinguished gentleman, AG Burnett, who was our former Gaming Control Board Chairman in the state of Nevada. And that's the top cop. The Gaming Control Board are the ones that issue the licenses and issue the fines. And they're the ones that control our $15,000,000,000 a year industry in the state. So many states have controlling entities like that and the companies we're doing business with, when we go in vendor management then, as an example, I'll give you one example on our credit card because of the higher high volume that we're generating already, we've gone to BetMGM and MGM Resorts, and their compliance people are talking correctly with our compliance people.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

And we want to make sure that these transactions with their accounts, their digital accounts at BetMGM are really being used for what they say they are and they are. We dig that deep. So it's difficult for us to bet of many customers or or as fast as some other banks do because of the way we function. I hope I answered that question. But that does not mean we're not working on some licensing transactions, especially custodial account issues with the FDIC, we think we're in a very important place to do some very without forward looking at money.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

I'm trying to know what we're doing today.

Analyst

Got you. And that leads to my final question, which is, as you're going through your final testing on the slot program and as you interact with Konami or other slot companies, has anything happened that would cause you to temper your expectations or conversely make you more optimistic than you were for this opportunity?

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Well, I think both are forward looking, David. I can say that nothing's changed our status in terms of, we believe, as we have said before and will say today, this is a very, very important program that we're going to launch very soon.

Analyst

Got you. Okay. That was helpful. Thanks, Ed.

Edward Nigro
Edward Nigro
Executive Chairman at GBank Financial Holdings

Thank you, David.

Executives
    • Edward Nigro
      Edward Nigro
      Executive Chairman
    • Ryan Sullivan
      Ryan Sullivan
      President & CEO
    • Jeffery Whicker
      Jeffery Whicker
      Executive Vice President & CFO
Analysts
Powered by Quartr
Earnings Conference Call
GBank Financial Q4 2024
00:00 / 00:00

Transcript Sections