Hello and welcome to the GBank Financial Holdings Inc. Q4 2025 earnings call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. We appreciate you joining our earnings conference call. With me here today are Ed Nigro, Chairman and CEO, and Jeff Wicker, Chief Financial Officer of the company. The related Q4 earnings press release was filed with the U.S. Securities and Exchange Commission today and is available on the news and media section of our website, GBankFinancialHoldings.com. Before we begin, I'd like to remind everyone that any forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe harbor statements in our earnings press release. All comments expressed or implied made during today's call are subject to those safe harbor statements. Any forward-looking statements made during this call are made only as of today's date, and we do not undertake any duty to update such forward-looking statements except as required by law. Additionally, during today's call, we may discuss certain non-GAAP financial measures, which we believe are useful in evaluating our performance. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings release. I'd now like to pass it over to Ed Nigro, Chairman and CEO.
Ed Nigro, Chairman and CEO Well, welcome everybody. I'm Ed Nigro, and it's a pleasure to have the fourth quarter and some year-end numbers for you for today's G-Bank Financial Holdings Report. I almost feel like I have to do some disclosures like I'm live, this is not pre-recorded, I'm not a bot, and I'm capable of making all kinds of mistakes. However, I hope today to avoid all of that and give you some insights into what has been going on in our world at Gbank. Jeff is going to follow me with some of the more specifics and details, but I'm going to take us through some initial discussions, particularly in our gaming fintech arena and some of our core banking processes, particularly SBA. But I want to focus today very much on what's been going on in gaming fintech. And my first comments are going to be focused around the credit cards because it seems to be drawing the most attention, and it has had the most fluctuation in the last several quarters. I wanted to give you some insight in things we've already listed or discussed in some length, but maybe not to the depth I want to go in today so we can have a good understanding of what we're doing and where we believe that we are headed. First I had reported that we had stopped our application process. We had two major events going on. We had an application automated product that wasn't working well, and actually our users were getting lost in the process, and applications were being dropped. And then we had another direct mail piece, massive application process going on from a contract that I've always said in the past should have not been entered into, but it was, and this was a direct mail piece that went out to seven hundred thousand recipients well between the two the app not working and all of a sudden these massive applications coming in uh they were not designed or geared towards our primary gaming user uh we were underwater very quickly with our entire app process we shut it down actually and had to do what I call a redesign, development, engineering, and execution. And that took us until almost the end of October in the fourth quarter. And then we were able to gradually open up our application for real applicants. Naturally, this stopped all of our marketing. So we had accelerated up to around 130 million in transactions for the second quarter. and uh then the third quarter in the fourth excuse me the third quarter but we stopped it because we were we were accelerating quickly but not with the controls we wanted to replace uh the fourth quarter you've just seen settled in around 99 million in transactions but that was uh to be expected it was to be expected by us anyway and i know we may not I had given guidance that it was going to decline some. But when we had these enormous fraud applications, we really shut down all applications for our credit card. We then relaunched it, and we relaunched it with some amazing KYC and fraud prevention metrics in place. When we engaged Plaid, we now do fraud prevention with NeuroID ID, and precise ID, and multiple verifications of who you are to avoid fraud. We also learned, interestingly, that in the application process, bots are now becoming very active in loading these apps, but there's a way to determine a difference between a bot and a human. I suppose one day that's going to become more important than many other things, but in credit card it's become a big issue uh as an example uh over memorial over excuse me the uh martin luther king holidays we got it done bombarded with about 10 000 applications just over the weekend six were approved and all the others were fraud not one fraud has gotten through not one fraud has penetrated our app process in the last 60 days so that is an accomplishment but we also found the use by our customers to be problematic in the sense that we had high volume users we had an ach payment process which was how most of our credit card players were paying off their card they were paying it off with ach and for those of you who may be exposed to ach there's a delay sometimes up to three business days and ach clearing there are also consumer rights on ACH to extend off and out to as much as 60 days in terms of was that an authorized transaction? Well, our ACH, when it was launched for our credit card, was launched for the vendor through our processor, I2C. We determined very quickly that this ACH process must be brought inside Gbank. We do ACH processing for our commercial clients, but to do it through a processor like I2C, with our ledger process and the batch processing and also to be the ODFI for this process became a significant undertaking. However, we brought on the technology and payments experts in order to implement it, and we are very close to launching our own ACH transactions for our credit card players. Why this is important is that when you're doing $100 million a month or more in transactions, there are a lot of times that the credit card is paid off multiple times through the month, and they're paid off by ACH. Question, do we give that client instant credit for the payment of the ACH? Do we have that client wait three days? Do we put a seven-day waiting on that client? We have experienced some very valued clients that are deserving of instant credit for ACH and others who are not. Well, when we saw some fraud penetrating ACH and we knew we had to get control of our ACH payments, we also, in the fourth quarter, for a period of time, stopped and reduced transactions significantly. and waited and watched ACH clearance patterns without giving more instant credit to some of our better users. Well, this caused a decline in our transactions, and we knew it would, but it was more important to verify our client base and verify that no fraud users had penetrated our user base, and we did. But it took time to do that. But we have since relaunched, and of course, as I said, we're going to soon have the ODFI for all of our consumers that own our credit card. And we are ready to relaunch right now, again, our marketing, which we stopped as well. It was very important that we do this right. We have high-high end users, but that has the potential. you've seen the growth patterns that we can have and those growth patterns can we believe be reinstituted but they are going to be reinstituted with our new KYC and new fraud prevention in our new payment systems and we feel that we really have very good and very direct involvement with our customers we've We've even started new host-style loyalty programs, meaning we look at our higher users and treat them with special premium offers. We contact them. We make sure their accounts can be managed properly. We make sure that they're getting the results they want when they want their card paid off. We have direct contact with them, and this is very important as well. And we have also, you know, instituted our own AI system for answering calls. And we've moved all calls away from a processor to ourselves. And this has been a transition process indeed for us. But it's working, and we're getting closer to our customers, and our customers know us. And we think that, and not we think, but we believe that we have a strong foundation now that we can scale. And we can begin to rescale. And I think you'll be seeing that in the not-too-distant future. There have been another couple of headwinds in the credit card business. Some of you may have noticed that DraftKings about 60 days ago or so stopped all credit cards. and FanDuel just announced they're going to stop all credit cards, direct loads with credit cards because both of them have realized or have situations where some states do, there are about seven states right now that do not allow credit cards to direct credit cards to load these sports betting apps and we know drafting is going a fairly substantial fine for Massachusetts And we know, we've read that FanDuel also got a line, I believe, from the state of Iowa. So rather than face these, they're deciding to not do credit cards. Well, that's their decision. But we know that there are at least 20, we have about 28 apps, sports betting, legal sports betting apps across the country. Our customers use 20 of them right now. And when FanDuel announced they're going to stop credit cards in the month of March, most of our players have already moved off of FanDuel that want to use their credit card. So credit card people will find a place to use their credit card for loading these apps because it is a legal process in almost all the states and it is a very successful way of moving funds. I think that there's an interesting note here, and we knew this some time ago, but I had to refresh my memory. Credit cards right now today are about 30% of all our payments in this country, in the United States, which is about $6 trillion a year. is by far the single most in payments systems in the country alone. Now, that's excluding ACH, because ACH is towards everybody. But I'm talking about a payments method, and it's growing. So it's not to be ignored if you want an interesting market share. And we know that there will always be competition for market share, and those that will be able to follow the law and make sure they don't compromise in developed loans in certain states our customers are very smart and they know how to move their apps and join different apps and take advantage of apps that will accept our credit card and of course that's direct credit card now there's indirect credit card acceptance too which of course debit card someone says if you use a debit card but you can load a debit card with a credit card. You can load many payment systems with a credit card. So, it's a system that is widely used. Some of the direct applications, of course, change from time to time. And our players and our customers know where to go and know where they're welcome. And we have not seen, well, we saw the draft teams did it abruptly, caught many of our players off guard and it took them a week or two to realign with other apps and set up their accounts but they did and we saw the the resultant volume kick right back up from those customers so i wanted to give you that insight on where we had been with the credit card because you saw a rapid growth and you saw it slow and then you saw a decline and now we feel very comfortable with where we're We're going to relaunch our marketing, and as a matter of fact, you haven't seen Mike Tyson yet. We did an announcement on that, but you will be soon. I'd like to move on and talk next a bit about our BowBets and our PPA. It's a very important part of our gaming fintech operations. BowBets got licensed on November 21st, 2025. They have received two approvals. The first one was for VoltBets, and the second one from gaming was for distilled taverns, authorizing them to use VoltBets. The interesting thing is the VoltBets license from gaming, their license as what's called an associated equipment provider. It's interesting because it's described as a software solution that allows players to create and fund a waiting account via a mobile app. And that's what was licensed, that's how they were licensed as an associated equipment provider. The second part, the license was required by the gaming operator to use both bets. So the distilled calories had applied, and this will become a more routine application for other gaming operators. Any system they want to use that touches any of their gaming platforms, They have to tell Amy about it and get their acknowledgement and approval that it's an okay process. And, of course, this will be an okay process whenever it applies because Bolpets has its associated equipment provider license. The Distilled Taverns license was interesting because the license went on to say how they are approved to use Bolpets. And it went on further to say directly that G-Bank will be holding all the funds and not to steal. And as such, a reserve account is not necessary. Now this is quite, I think, remarkable in that gaming understands that all the funds that are used to play slot, to go to the wagering account to be used to connect to Konami's casino management system are being held by Jibay. And that is held by our pool player account which is a patent system that PCS developed that is under agreement utilized by Jibay. Also, as you know, Jibay Financial Holdings owns 32.99% of PCS. but having said that what those funds do G-Bank, G-Bank now those funds go to to a sub-ledger account at G-Bank and G-Bank reconciles them settles them and distributes them so all the transactions that would have taken place at the gaming operator now take place at the bank so no longer must a gaming operator with slot machines face the issue of managing cash because the bank will just pay them weekly all their wins. So it's a very, very, it's actually a very good system for the gaming operators because the gaming operators, the bricks and mortar operators, are unlike the sports betting apps. Gaming operators have always paid a lot of money to have their cash managed because cash is something that is a necessary evil. But here, whether for the first time they're not going to have to manage cash in slot machines. You know, there's a history here I thought that was pretty interesting and why we as a bank have many people on one of them that understand gaming. But I was involved in gaming when the system in slot machines was coin in, coin out. It was a very simple system. Machines are mechanical. You put your coins in. You did a jackpot. and the coins came clanging into the tray. You know, as a matter of fact, a little side story. I remember when Steve Wynn opened the Golden Nugget downtown, he put the coin noises over the loudspeakers, so when he walked in the casino, everybody would think everyone was winning because the coins were dropping into the trays. Pretty good marketing. But then it changed when suddenly a digital machine and they were first the the poker machines were put out by ipt in actual gaming technology which was founded by cyber and so i started this but also on his machines these receptacles that took cash now he put a five dollar bill on a twenty dollar bill on and it would accept and give you credits on the machine and when you were done planning it gave you a slip and you took that left to the CNP page and you cashed in it. You couldn't hit it. And that was a process that existed for some time until the early 90s. And then another thing that came to change the world, it's called Tito. Ticket in, ticket out. And Tito was actually created by MGM. And MGM sold it to IGT. A lot of money. Because IGT saw it and said, this is going to change the world. So instead of getting just a receipt to go to the cage and to get cash, and then you went and took that cash to go to a different machine, this gave you a ticket. But that ticket, you could go to the machine next to it and put it in and get instant credit whenever it was on that ticket. So it was called ticket in, ticket out. And you could play it all the time, as long as you had credits on that ticket. And then when you were done, you went and cashed it out at one of the kiosks or at the cage. to 1990 side they said we're going to change the world everyone's going to have Tito and everyone laughed at him with cash people love cash people never going to get away from cash well Tito still involves cash but only cash in and not cash out and lo and behold Tito took over the whole world Tito is everywhere ticket in ticket out well now comes bold bits in our PPA No longer does the casino even touch the cash, it goes to the bank. And now everyone is licensed. The behalf is licensed, the gaming operator is licensed, and the bank needs no license. We're a bank. We're a federally insured, state-charted bank. And we have a system to manage billions of transactions, which we will be quite capable of doing. and holding imagine holding all of the funds that are currently in slot machines which will distribute them weekly because the gaming operator will want their funds the player will be able to move funds instantly and there is a management, a settlement distribution that will be at the bank and that's why we're excited we think that this is one of those moments it was coin in, coin out it was cash in the slip out there was tito and now there's gbank pretty interesting in both bets in the ppa system so i wanted to give you that little bit of background on where do we think and what is happening with them because right now we know that our second operator and in the still the operations have just launched and they've never launched it at all the stills which has not been done yet but it's on its way each to still have to be trained staffs have to be trained by the way, the app is approved by gaming where it even has a process where you can tick the bartender right from the app pretty amazing and that's important for a lot of taverns where the strawberries are built into the bar and we know that terrible we've had meetings and to start their process and believes that they'll be launching in the second quarter. And they're making their application to the gaming control board, as she still did, to be able to use the Bulbets app. So that is all in process. Now this is a process, and it's going to take integration with the players, and there's a pipeline of users that we'll be announcing in the future. But remember, the state of Nevada has 150,000 machines. So that's a big industry for us to tackle a little bit at a time with this process. But across the country, there's another 800,000 licensed slot machines amongst when we start looking at all of the tribal gaming casinos and all of the other casinos in all of the other states. Now, we are talking about bricks and mortar casinos, not digital casinos or apps. This is real slot machines across the country and we think it's going to be a great market and we are anxious to see this process grow. So I've covered a bit about both events and hopefully brought you up to speed and I'll be able to answer questions on both of them and I want to close with some of my comments on our core banking and our gain on sale and our non-interest income, because you're going to see our non-interest income, that's where our interchange fees drop, and you'll see where they went up about $7 million this last year alone, just from the interchange activity of the credit card. But you're also going to notice our SBA gain on sales this year in particular because we We've changed an entire process there, where before when we sold guaranteed portions, the guaranteed portions were sold to the market and the market would pay based on the spread. Well, our spread wasn't something that was being focused on on the basis of the incentive plans for our BDOs, our business development officers, and we changed that. We said, hey, we have to focus on the fact that the bank, sometimes, this last year, our gap gain on sale, which means the gross price we were offered versus the price we realized after expensing the loan costs, was dropping below 3%. And that's quickly becoming a place where the value in selling the loan is questionable. 4% is where we like to live. So now we changed our entire incentivization program where the spread is critical and we sell loans at above 1%, at least the 1.25% spread to prime, the gap gain is much larger. So we also took and put an incentive program in that started in January where we were going to reward, the rewards would depend on the spread. The permissions would depend on the spread. But we wanted the spread to be at least one quarter or higher because we didn't want these 75 basis points or 100 basis points spread. Now, I want to share something with you, a little forward-looking. It's not forward-looking. It's actuals in January, which I can tell you today because we're on the call. We've sold 12 loans in January for about $32 million. Of the 12 loans, eight were at one and a quarter spreader Our gap gain has jumped significantly and it will be a minimum or more than 4%. Every month now. And not dropping below 3%. So that's a significant I think of courage. But one other thing came up that i want to share with you when i'm talking about sba we put in our report uh after after after the quarter closed we closed on sub-debt of 11 million and we did that because we wanted to pay off the six million dollar sub-debt that was due in january and the rates were going to go very high so we raised 11 million to pay off that six and have a little left over But one of the important things that came up when some of the other banks were asking us about our subnet, our ability to repay, we said, you have the concentration in the hotel industry. And I would respond on several calls, yes, we love it. Oh, you do? And I said, yes. I said, let me give you a little risk analysis so we can get it for you because we were getting this question. So, we went back to, let's see, we went back to June 2015 when we did our first SBA 7A loan. Well, since June of 2015, through the third quarter, I have the ideas, I just didn't update my numbers for the fourth quarter, but for the third quarter of 2025, we originated to 2.473 billion in dollars in hotel loans, 7A hotel loans. We love them because of the collateral. The total number of loans we did since commencement was 1,002 loans. The total hotel loans in default since the beginning, now default, remember I said on one other investor call that when we have a loan that looks as if we're going to have to foreclose on it, we buy back the guaranteed portion. That's why our NPAs tend to jump up, because we buy back the loan immediately goes to four times the value that's spent on our books. So we buy back that so we can sell the asset and handle the closure. We have a great provision within our SBA division that handles things. Well, of all those 1,002, we had a total default of 12 loans since our history began that we resold. We bought back and we sold. Also, of those 12 loans, the total charge-off after an asset sale and payment of all the guaranteed portions since inception has been $2.8 million. That's right, $2.8 million. So when we were asked about our concentration and why we don't mind it, it's because of the collateral and the way we have in our broker assistance in liquidating collateral that sometimes we have to. we possess. Currently, as of the third quarter last year, we had 592 active hotel loans. We had 1.622 billion principal balance on and off balance sheet. We had 860 million hotel loans off balance sheet. We have over a billion dollars in loans off balance sheet that we manage right now. So I guess we're really at 2.4 billion dollars today. But right, so So to date, we have $761.6 million of current principal balance on balance sheet, of which $243 million is guaranteed. And also, we have $10.5 million reserved for the loan loss reserved for those hotels. For loans, we've had $2.8 million in losses since inception. I just thought I'd give a little color on that because some people ask us about our hotel business, and I love it. it's the 7a business with collateral and we're going to see you know our participation in that grow we're staying within our risk profiles very well with our capital and i just want to give you that update because the things we're doing in are getting vintage the things we're looking to replace with deposits i want to replace as soon as we can 400 million in deposits that we pay for and 400 million at no cost is a big change but then when we convert that to more SBA originations and more ERNG loan sales and a portfolio that operates this strong we think we have and we also look at our CRE and our own bank individual loans and we just the other day this is a little forward we just approved it that we increased our individual borrower to 70 percent of our legal limit for the bank which now goes to 32 million to anyone borrowing so we're moving and we're moving in anticipation of the kind of growth we believe we can have and the way we can manifest it in our forebay with that i want jeff wicker our chief credit officer oh and there's just one last one oh jeff excuse me since this isn't reported and I told you I would mess up. We have been investing a great deal in people and reorganization. We've reorganized in the last four months our entire credit card operations. The leadership and of course I spend a great deal of time on it. We also engaged our new general counsel and corporate secretary and she has joined us and we had a press release about Hillary. We also have engaged a new chief technology officer. We have a press release regarding Jason. We also have engaged a new payments technology director to help us get through this payments. Remember the ACH I was talking about? She's leading that effort. She's very talented and rated in ACAM and PCI ratings as well or accreditations is very important to us I think you're going to see that the manner in which we're moving and the way we want to grow our technology capabilities and the way we want to accomplish our internal payments processes and the way we want to grow our deposits and grow our gaming fintech our plate is full but we love it We're working diligently towards those objectives, and Jeff, fill us in on more of the specifics.
Thank you, Ed, and good afternoon, everyone. The company reported record quarterly earnings of $7.4 million, or $0.52 per diluted share. This is an increase of $3.1 million compared to the prior quarter earnings of $4.3 million. This includes record levels of net revenue and $247,000 in net one-time expenses. The one-time items include the tail end of the marketing campaign for the credit card that began in the third quarter, which have now all been satisfied, and the program has been closed out. Then of the unusual and one-time items, the bank would have produced a diluted earnings per share of $1.66 for the year, up from $1.37 in the prior year. The bank continues to grow with a compound average growth rate of 28.3% over the last eight years while maintaining top-tier earnings. In addition, as described by Ed, the company continues to develop the digital bank and payments products that will allow us to drive higher future revenue. We anticipate that one of the largest drivers of this will be related to the BoldVets PPA product that has now launched and is beginning to gather seed. We anticipate that this will significantly grow our non-interest-bearing deposits, resulting in an approved net interest margin, which was 4.33% for 2025, compared to an industry average of approximately 3.7%. Now, SBA had a record year for production, which wasn't easy given the recent government shutdown, and we continue to see strong year-over-year growth in low production and have a healthy pipeline going into the new year. In addition, the company has implemented several changes that they've addressed that will lead to improved gain on sale income in the future. We're currently seeing the impacts of these changes as the gap gain on sale increased from 3.24% to 3.98% in the fourth quarter and as Ed alluded to, we anticipate that to trend up above 4% in 2026. The credit card program is continuing to develop as most of the systems system changes are now implemented transaction volume of the last two quarters has been relatively flat while we have worked to correct identifying weaknesses of the system and we are seeing much better results related to onboarding customers as these new systems have been able to withstand all of the recent fraud attacks that continue to plague the industry the most interesting thing about the credit our program is how despite the issues we have had related to credit and fraud in the last couple of quarters, the program is positively contributing to the bottom line of the bank on a consistent basis. This is very unusual for a program that's this young. You can see that the permitted expense came down during the current quarter. As discussed in our previous calls, we have seen a cresting in the non-performing assets over the quarter and have been able to make significant progress in working through the existing accounts, including the resolution of one of the non-performing assets in the first weeks of 2026, reducing the total balance by $3.6 million. In addition to the work that Special Assets is doing to resolve credit issues, recent rate reductions by the Federal Reserve Bank have allowed our customers with variable rate loans to see some relief from the unusual upward swing in rates that occurred from June 2022 to July 2023, and this results in improved credit quality overall. The bank sold off about $52 million in investment securities during the quarter, which included both available for sale and held to maturity investments. Recent interest rate changes have tightened the spreads and impacted the long-term impacts of these securities on the bank's asset sensitivity and management determined that it is in the best interest of the organization to move into securities and will better protect the organization in the rates down environment. As a note, all of the health and maturity investments were included in the sale through the building with no on balance sheet adjustments to AOCI related to they remain securities. The ALCI was $17,000 as of December 31st. Subsequent to year end, the bank did announce a redemption of 6.5 million subordinated notes, as Ed talked about, that would have repriced from fixed variable rate in January. This would have led to a rate increase of 350 basis points on the debt, resulting in a cost of over 8%. In addition, the bank issued $11 million of additional support payment debts with a 10-year life and a fixed rate for the first five years of 7.25%. This provided additional potential capital for the bank while reducing costs. As the bank continues to work to develop new lines of business, the core bank continues to be one of the top-performing organizations in its peer group. The balance sheet remains strong with above average liquidity and capital, and this provides the need of support to fund our growth initiatives as we move further into the digital bank and payments industry. While we have experienced a few hurdles along the way, the bank continues to be a top performer while we develop the new products and services to enhance shareholder value in the future.
With that, I will turn it back over to you, Ed. Well, thank you, and I believe we've covered everything that we wish to run the call, and we'll take questions at this time.
At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. We will wait one moment to allow the cue to form. Our first question will come from Brett Rabiton with Huvdi. You may now unmute your line and ask your question.
Can you hear me?
Yeah, Brett. Hi, it's Ed.
Hey, Ed. Thanks for all the detail between yourself and Jeff with what's going on with the company. Can we maybe just start, you know, and it might not be fair just given, I'll call it the fits and starts of the programs that have meaningful potential, but I know we've talked about some fairly big numbers around credit card and what that platform could look like in four to six quarters. Can you maybe give us an idea, and I guess this would presume that all of the fraud detection and all the stuff around fraud might be in the rearview mirror, which was my understanding from your conversation, but, you know, can we talk about credit card and what the potential for interchange might be this year and volumes as you see it, and if you don't want to give specific guidance, that's fine, but just, you know, directionally and volume-wise as you see the year developing?
Well, I think that when we look at the year-over-year growth that we just had, even with all of the breaks we've had in place, by breaks, I mean the stoppages we've had, we went up to 400 million this year from about uh what were my numbers last year i had 73 million so you can see that that's a what 500 growth but i'm not placing 500 growth on 400 million but you know we feel that and while i'm not going to be giving too much forward guidance today in any specific numbers but if i were trying to put some projections on it i think that we would probably i think we could at least if we don't double it i mean i think we would not be doing it justice but that's that's uh but when you talk about going from 400 million to 800 million and originations a year, to where that means by the end of the year, we've got to be doing $60 million, $40 or $50, $60 million a month. We see some good growth. We know we now have the capability to handle that kind of growth, and we don't see that as an unreasonable number of cards to expand to get there. As long as we have and don't have the process of user fraud, or user abuse and we've managed to eliminate that so we think there's there's quite a pathway here now the other side is you know some of the big big platforms like fanduel and draft kings not accepting any credit cards it will be remain to see because some of the others we know have seen significant increase in credit card use so is that volume they want and the volume that is worth getting we look at their public announcements and it's pretty significant so we think there is opportunity for some substantial growth and of course the interchange fees will be very important to us I hope I've answered your question without sounding too evasive
no you've added some good color too you know kind of what the year might look like so appreciate all that um and then you know the other thing is we think about sba um maybe an easier business to forecast you know given that that's a much more mature piece of your platform you know and some of this will depend on the market but would you anticipate trying to grow volumes from here and then i know last quarter, you did what we'll call it a revitalization or reorganization of that platform. Should we expect continued improvement in gain on sale margins, et cetera, from that platform from
here? Well, I think you'll love this because we've incentivized our team more with stock options than we have than with some cash bonuses because we want the materialization of a higher gap gain on sale for the bank and the materialization that will selling a higher spread be more difficult. Well, it's always more difficult to sell a higher spread, but there are other factors involved. We have the most amazing broker network on earth, I believe, because Our key brokers are all significant shareholders of ours and reside in Chicago, New York, North Carolina, and Florida. I mean, they're amazing. So, yeah, we expect our growth pattern to continue with what has been in the past. So, you know, you sort of project that out. But we really believe that we can sustain that kind of continued growth with the lower interest rates. We think you can see more hotel meals out there.
Okay. And if I could just ask one last quick one, just around provisioning for the fourth quarter, you know, you had a little higher non-guaranteed MPAs, but charge-offs were lower. The negative reserve, you know, was there any change in the Q factor for the ACL or anything else that drove that negative provision? And then, you know, is there anything that you see kind of changing with, you know, the criticized asset list?
Yeah, this is Jeff. There actually was a little bit of change in that analysis that we did on the SBA loans. So, for the beginning of the SBA program, we've always kept a little higher reserve on SBA because of the concentration. And we call it concentration risk. But with the analysis that we did on the SBA program from the beginning of time, it doesn't really support us holding additional reserves on that portfolio anymore. so we actually did have some adjustments to the Q factors that didn't impact that number in the
quarter yeah I think you saw the reserve I mentioned was so high based on our historical analysis remember the old days when we did our reserves only on the historical analysis Cecil kind of but I think this is one of the demonstrations of how different it would have been
okay all right well uh thanks for all the color I'll let the other guys ask about bowl vets but I'm sure they'll be addressed too. Thanks guys. Thank you. Our next question will come from
Matthew Erdner with Jones Trading. You may now unmute your line and ask your question.
Hey, good afternoon guys. Can you hear me all right? Yeah, man. It'd be great. Awesome. Thanks for the comments earlier. I appreciate it. So I'd like to kind of touch on the slot opportunity and kind of rehash some things from the prior quarter just to see if they stack up in today's environment. So previously per 100 slot machines, there are about $2.5 million in deposits. Does that still jive with what you guys are seeing as you start to onboard some of the
The danger in that, and let me express that that's a mature, that's about 50% penetration of a mature market. So what that means is in order to generate those numbers, the customer base has to be there for the particular gaming operator. Let me give you an example. Let's suppose you're a gaming operator with 100 slot machines, okay? When your customer base that utilizes those 100 slot machines, you have a customer base of about 10,000 or 15,000 people, players, that come more than, you know, once a month to play your slot machines. So, if you do have that customer base, this analyzes your total drop and then it analyzes your customer base, it analyzes the 50% penetration in your customer base and then comes up with the number. So that means that of their customer base, half of them have to be users of the app. How long is it going to treat us, what we didn't give you was, okay, how long is it going to take from the time we sign up in gaming operator till that deposit is realized and that's how long does it take the gaming operator to onboard his customers that's an unknown and it's not going to be instant like right now with and it's particularly right now with as an example to still this is brand new and they have trained their clients they have trained their employees, they have to train their bartenders, they have to train, you know, and then they have to sign up and use it. The interesting thing that I didn't say is that, you know, we hope that one of the preferred loads, and because we're marketing it right with it, is going to be our credit card. So, that's moving side by side with some of this. So, what I can't tell you is how fast it ramps up to that. So we'll be having more and more information as quarters go by and we have some history under our belt. But it's going to take some time. Remember I told you about Tito? It took time. It wasn't something that was done overnight. I talked with some of the other day when I was saying to someone, you know, when Thomas Edison invented the light bulb, I wonder who the analyst was who asked him, well, how many invite both USL next quarter. So I think it's analogous of a sense that this has never been done before, it is new. The apps that are out there just don't work, and many customers have just said, I'm not Those apps don't work. So you've got to re-educate some, and you've got to spread it, but what we do know is this works amazingly. And then once they get on it, we've seen amazing feedback already. They love it. So, I guess as we get a few quarters under our belt, we'll be able to tell you more about how the growth is going. But for right now, the number of machines are relatively small. The transition has got to take place, but the market is, you know, dramatic. I said, you know, in our state, we have 154,000 slot machines, And across the country, there's another 800,000, Matt, that are legal machines. And the primary providers of that machines, Konami, is one who has 300,000 machines alone. Excuse me, 140,000 machines alone. Several of the others that we, you know, that are going to be seeing this app have a lot more. So we know there's a good market out there. It's up to the gaming operator as well as the slot manufacturer, you know, and everyone to participate to get their players to use the app. But we think that the app is going to be very convenient for the player, a very convenient wallet.
Yeah, that's great. I appreciate the color there. And I guess as a follow-up to that, you know, around the current deposit mix and net interest margin, you know, Would we expect there to kind of be an inflection point, you know, on that net interest margin, you know, as these slots are starting to, you know, more frequently get onboarded and really drive, you know, that increase in the non-interest bearing?
Well, I think the slots is a great opportunity and a great path, and we're starting to see the pipeline of some very interesting players. But remember, our bank has 16 other PPA clients onboarded right now, and many of them are startups, and many of them have programs, and some of them deal with sports apps that others deal with. We're dealing with one. It's dealing with two big state lotteries. So there are other avenues for our PPA as well. And, of course, sports betting is, we still believe that one day a sports betting app will say we don't want to hold the cash anymore, that we do want to see, we do, it would appreciate a system where we get the cash for this liability off our balance sheet. Right now, as they start to make more money, the cash management is going to become more of a headache. When everybody was a startup, everybody wanted to hold all the cash because they liked the float. They like to, you know, in their operational accounts. But will that change? And if that changes, we have the solution for them. We have the solution. If the first sport app that goes under and costs the consumer some money, they're going to be looking at us because we protect the consumer. When no matter what happens to the app, no matter what happens in bankruptcy or anything else, our consumer's money is protected because it's guaranteed by the FDIC, and we hold it, not the app. It can't be mixed with their funds. It can't be mixed with, oh, we don't know where that money is. Believe me. Because one of the things the banks are pretty good at is knowing where the money is.
Right, right, right. Yeah, that's helpful there. And then one last quick one, and then I'll step out. As it relates to the SBA business, what impact did the government shutdown have have on your fourth quarter origination numbers and then as we're kind of staring down another government shutdown, what impact do you think that's going to have for the first quarter of this year until that's resolved?
Let me tell you that's a great question because it was a little insidious for our SBA division because we saw the closing coming so we went and got as many PLPs as we could get pre-approved as possible so we spent all our effort you know getting our loans in front of them for our plps for applications and then once they reopened we did our entire number of sales in the fourth quarter in december that we did so i have sales for the fourth quarter for what nine our originations for the fourth quarter dropped way down and why the originations dropped way down and i talked to our brokers directly and because of the unknowns out there and the customers were not sure whether they even applied for the loan because they knew the government was shut down they knew they couldn't get it approved so they said well we'll just wait and see so deals didn't get done and when deals don't get done originations go down and our originations went from 200 million plus the third quarter to less than 100 million in the fourth quarter 118 million and our sales for the first time in our history in the fourth quarter our gain on sales were less than the third quarter it had never been that way before so we figured there was probably you know a couple of million dollars left on the table in gain on sales But I believe that we're already hoarding, if you will, PLPs on the prospect of another shutdown. And the news we received from our association, which is NAGLE, which is the National Association of Guaranteed Government Lenders, they believe the shutdown is going to happen.
So if you think about the year as a whole, the government shutdown, I mean, should come out the wash because if somebody isn't I mean somebody's working on a loan today they're not going to knock you the loan at some point so even if volume were to go down a little bit the first
quarter they would go this year yeah it was the fourth quarter last year we had no catch-up we
could do yeah both sides of the catch-up got it yeah that that's helpful there um yeah I just wanted to get that across and get your guys thoughts but I appreciate all the comments guys Thank you.
Our last question will come from Tim Coffey with Jenny Munger-Marie Scott. You may now unmute your line and ask your question.
Afternoon, gentlemen. Hey, Tio. Nice to hear your voice. Yeah, good to hear yours too, Ed. So I guess my first question has to do with the SBA. Let's follow up on the last one. So you sold more SBA originations in Fort Q than you had pretty much all year. Was that a function of the government shutdown or the change in incentives for originators?
Wait a minute. We had our most originations last year in Q3, which was 200 and what?
So in the fourth quarter, you sold about three out of every four loans you originated in SBA. The previous three quarters is about, say, one in two. So I'm trying to figure out was it an increase in the selling of your originations? uh related to government shutdown and the market being closed or was it the change in incentives
for the originators i don't understand the question but what are the numbers for you
well they yeah so what you're talking about is that we had we sold one and two loans in the fourth quarter and we are a little more than that in the fourth quarter we weren't that high in the
previous quarters i'm talking about the percentage yeah your loans sold as percentage of originations were about 73 percent in the fourth quarter yeah that's the government shutdown because
we could continue to originate loans in the third quarter during government shutdown I mean during the government shutdown but we couldn't sell any loans well we couldn't avoid
the loans so we couldn't execute the loans because even though the loans when we say originating let's let's let's understand that as a defined term when we talk about originating we've talked about executed drones on earth that we have in place here and approved by the sba approved they have to be approved by the sba to be boarded then they have to be approved by the sba to be sold so when we say originations i don't mean a pipeline out in the field i mean ones that are that have been underwritten and processed and signed and executed with a deposit and ready for the SBA approval and then funding. That's why after our originations, the time between our originations and sales is very short. We don't have and hold loans a long time that are ready to sell. But there is also something to consider in our SBA originations because our SBA originations include Para-Pasoo loans. Okay. Now, a Para-Pasoo loan is an SBA loan of $5 million plus the remaining part of the loan. Let's say it's a $10 million loan. It's a good example for Para-Pasoo. We count the Para-Pasoo we count the entire loan as an SBA origination. That whole $10 million. Now, of that whole $10 million we can only sell 3 million of it or whatever that 75% of the 5 million is the rest becomes the non-herentie portion and the balance over the 5 million is just a straight CRE commercial loan with us that's on our books so when we look at loan originations if you figure that 75% of them are guaranteed it's a wrong calculation it's not that way if you want to run some average statistics we sell about 64% of our total originations have been selling, okay, because some of them are Para Pursu. And we're doing, we do, what, $65 million in Para Pursu last year? Yes. And we're going to do more this year. We like the Para Pursu loans. They're a higher-end hotel, and they're usually a total of around $8 million to $10 million loan. Well, SBA loans only go up to $5 million. And then only 75% of that can be sold. So, for everything, we've got to reduce out all of half the Sioux loans from our origination. And then, also in our originations, we have some other loans that have 90% guarantees or 80% guarantees, some of the smaller ones. So it's a slippery slope, Tim, but I think that when you're looking at the relationship of the loans sold to the loans of originated. And it depends upon the day of the month that the loans were originated. If we had a high volume of the last week of the month, or a quarter, it could distort the quarter.
Yeah, to that point, September, we had a whole lot of things go in our favor and it actually was a very big origination month for us.
That's huge. And all those
originations would have gotten sold in the fourth quarter. So, So that relationship got a little skewed because of that one relationship. So we've had great growth throughout the year, but September has a usual growth that was just all our cylinders hit that month.
Yeah, that's true. That timing was really weird. I remember that last week in September we were bombarded, and then October 1, the government was shut down. So, it really skewed in a lot of things, Tim.
And it might have been just people prepping for the government to get shut down and push everything through.
No, that's exactly what it was. We had all those originations because they wanted the loan approved before the government shut down. So, while we got the loan approved, we couldn't get the sale approved.
All right. Switching over to the credit card, Cubank did about $330 million in transaction volume in the third quarter how long do you think it takes you to get back to those levels oh we think
we can happen rather quickly uh once we get our marketing started again because remember what i told you we also reduced the ability of our players to pay off their credit card on a fast basis because they don't want any debt on the credit card you know what it's interesting jim is that we get 400 some million in transactions and the entire credit card balance is averaging around what 9 million 10 million so you can see that everyone wants to pay it off no one wants a balance and the other 10 million there were some cards that are non-gaming cards so when you uh when we talk about increasing our volume it's strictly adding the players and uh most of our players have come through certain influencers and we just we just have to turn the switch on and we we will start to gain players again okay um and then on non-emergent expenses
jeff what's kind of a starting point for one q i mean there's a lot of noise last couple quarters so what's kind of the you think the starting point might be for that oh
that's a good question I'm not sure you get an absolute number but I would say that you know we probably looking pretty similar to this quarter I don't see a lot of increase in the first quarter right now I think some of the one-time items will offset a little bit of a child raise increase in our policy so I would say
very similar to what we saw on the score okay and just kind of listening to the the things you you've been talking about Ed I would think that your kind of expense growth rate for this year might not be that different than 25 is that reasonable I didn't hear the question
Yeah, I think that, you know, when we look at our non-interest expenses, we see some significant increase there because we're investing in our growth, but a lot of them are relative
to our growth and uh i believe you know there's so there's a significant amount of expenses that are variable based on transactions or the transaction volume yeah goes up with our credit cards and also the number of accounts that we hold we're going to see a lot of those variable rate and variable expenses go up. So I would say there would be an increase through the year on expenses.
We can't stay flat when our credit card, if our credit card broke, we talked about doubling as an example went from 440 to 850 or something like that. Every transaction and every has a cost to it it has an influencer cost of so many basis points it has you know transaction costs interchange fees that we pay to the visa it's just a while our direct cost in the office for staff may not increase as dramatically those direct costs of transactions are something we else we have.
Right. I remember talking about that last quarter, so thanks for reminding me. And then what Jeff, what's kind of the margin outlook if we get two rate cuts this year?
What kind of volume are we going to be able to do in non-performed, I mean, non-interest variant deposits? And depending on where you forget of that, I would say that the margin should, that that offset should decrease I mean should offset the increase in offset the Fed decreases yeah so I would I would say that we can at least see a very similar energy interest margin this year that we saw last year and we're anticipating a couple of
right in decreasing right now or yes yeah okay all right those are my questions thank you very much
gentlemen thanks Tim this completes the allotted time for questions I will now turn the call back over to Ed Nigro chairman and CEO for any closing remarks okay well thank you I just wanted to thank
everyone for their questions we're looking forward to an exciting year of growth and And we'll talk to you one another, if not before, if I don't see you in a conference, I think I'm going to the JME conference in Arizona, beginning of February. So I may see quite a few of you there, and Tim will have a chance to see if he goes through some stuff as well. But thank you for the calls, and if I don't talk to you sooner, we'll talk to you in April. Good day.
Thank you for joining the GBank Financial Holdings Inc. Q4 2025 earnings call. you may now disconnect.