GBank Financial Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 31, 2024

There are 5 speakers on the call.

Operator

Well, thank you. I believe it's 2 o'clock right on the button according to my Apple Watch. My name is Ed Nigro. I'm the Executive Chairman of GBank Financial Holdings and GBank. And with me today are Ryan Sullivan, our President and CEO of both and also Jeff Wicker, our CFO and Treasurer of the Holycomer.

Operator

Today, I have a great pleasure in starting off our Q2 earnings call for GBFH. And some calls are more enjoyable than others. And I think this one, at least for us in this room is going to be most enjoyable and I hope it is for you too. As a matter of fact in the spirit of the Olympics, maybe you can tell us if team GBFH gets a gold or silver or a bronze. We've already rated ourselves.

Operator

So I don't think we need to say that. I get to look at the big macro picture. And today I'm going to talk a bit just a bit in the beginning about a couple of very important things I mentioned. $1,000,000,000 in total assets. Just a year ago, we were this amounts to about $324,000,000 more than we were 1 year ago or 47% increase in the size of our balance sheet in 1 year.

Operator

Earnings, dollars 4,700,000 for the quarter, you know these numbers. But last year at the same time, it was $2,400,000 we had a 103% increase. Excuse me, the increase was $2,400,000 or 103% better results. I love seeing those big numbers when they happen. And the 3rd and most important part of the quarter for that we spend a great deal of time on was the BCS acquisition of the 32.99 percent non controlling interest in BCS.

Operator

For all stock, we gave BCS 231,508 shares and this was really we think it's a very good investment for the holding company and a very good deal for BCS. I mean, by receiving the bank shares and with the holding company performing the way we are, their value has increased. And I'm going to go towards the end of the meeting and talk about our gaming FinTech division because it's tied closely to our VCS relationship. And to give some of the detail of those remarkable numbers that I just gave, I'm going to turn the meeting over to Brian Sullivan.

Speaker 1

Yes. Well, thank you, Ed. Good afternoon, everybody. As Ed mentioned, yes, it makes it fun and maybe a little easier to report numbers like these. Certainly, a very strong quarter of performance.

Speaker 1

Through the call, we'll provide some additional details on the financial and operating highlights that allowed us to generate these kind of results. We believe the quarter is really a demonstration of the strides and performance made by the company and the high level performance that we're really seeing across all business lines currently. Certainly, the big headline earnings all time record for the quarter at $4,700,000 that's up nearly $1,000,000 from just the prior quarter or a single quarter increase of 26%. Also interesting 24 year to date earnings now stand at $8,400,000 which is a 49% increase over the 1st 2 quarters of 2023. Now how we are able to achieve these results in no small part was because of revenue growth, also set a company record for quarterly net revenues on the top line at 15,500,000 dollars and this really is a function of continued and demonstrated success in our revenue development strategies that we began working on many years ago.

Speaker 1

As we look at the major revenue components, net interest income of $11,300,000 for the quarter was up 5% compared to Q1 of 'twenty four and up 30% compared to Q2 of 'twenty three. NIM was generally flat consolidated at $482,000,000 for the quarter. Directionally, we're really encouraged by what we're seeing there as we see the full effect of some of the higher cost deposits that we brought in, in Q4 and Q1 really running through. And on an inter quarter basis, we are seeing directionally some improvements there. So as we look at the second half of the year for net interest margin, we expect to be able to focus on both mix and reducing our interest cost on interest bearing liabilities and we'll see that margin improve in the second half of the year.

Speaker 1

Non interest income in total was $4,200,000 for the quarter. It was up in every single category. Certainly, gain on sale of loans is a driver of that as the company and bank migrate back to a majority sell position in its newly originated guaranteed loans. Gain on sale of loan income was up by 1,100,000 dollars in the quarter compared to Q1. And that was on the sale of approximately $78,000,000 in guaranteed loan sales for the quarter.

Speaker 1

Also encouraged by what appears to be stabilization in the GAAP gain, the prices that we received on the sale of those guaranteed that appear to be stabilizing and we're seeing that continuing into Q3 above what we saw in both Q1 and the final quarter of 2023. I am particularly excited about the demonstrated operating leverage that we were able to show during the quarter and that although non interest expenses went up and Jeff will get into some of those details, revenues went up by more. So altogether, that resulted in an efficiency ratio of 59%, which puts us on the mark for our long term 60% or better target. On the balance sheet, net of all those loan sales for the quarter, gross loans were still up by $36,000,000 for the quarter or 5% sequentially. And also as we cross the $1,000,000,000 threshold, we're very excited about that.

Speaker 1

As we look at the composition of the balance sheet, a quarter of our entire balance sheet is comprised by government guaranteed loans. Government guaranteed loans stood at $252,000,000 as of June 30. Asset quality levels remained stable and manageable. Total nonperforming loans were $7,600,000 as of June 30 or $2,200,000 if we net out the guarantees. That $2,200,000 equates to 22 bps on total assets.

Speaker 1

And in addition to those guarantees, all of those nonperforming loans are also commercial real estate secured. Just really quick to take a moment, and Ed mentioned he'll talk about some of the developments that are very important and exciting progress in our business lines. Just want to take a moment to talk about our SBA lending division. Through today, we have secured $384,000,000 in 7 authorizations for the SBA fiscal year. SBA fiscal year started on October 1, 2023.

Speaker 1

So with Q3 left to go, this will be the first time that we exceed $400,000,000 in the SBA fiscal year in total SBA 7 authorizations. To put that into context for the entire prior fiscal year, which ended September 30, 2023, we secured $224,000,000 in 7 authorizations. This is an incredible achievement and it demonstrates the kind of activity and production that we've been able to generate. And I'd like to extend my special thanks to all GBank employees. But in this context, thank you very much to the SBA lending division.

Operator

I'd like to just add one thing to what Ryan's just said about our SBA division because we are strong in the hotel. We have almost 30,000 hotel rooms in our portfolio right now. And I consider it, it's considered CRE. But when we look at the small service hotels, I consider them consumer business. We are not renting to office space or businesses or providing corporate venues at these small service hotels.

Operator

This is the consumer. When you see the PCE index, the consumer expenditure index, Those are our customers. And when the interest rates went from 5% to 10%, our 29,000 rooms and how they adjusted it amounted to about a $7 per day average room rate. And RevPARs at these hotels because of inflation went up way beyond that. As a matter of fact, the entire portfolio is still averaging over the 2.2 debt coverage ratio.

Operator

So it's a remarkable business we're in with our SBA division. And I just wanted to point that out because it is so important in terms of risk analysis that we really understand the nature of the portfolio. But thanks, Ryan. I didn't mean to interrupt. No, I'm glad

Speaker 1

you brought up. Thank you, Ed. Ed. Certainly, as we look at the rest of the year, we have some exciting developments, gaming, fintech, credit card, which we'll talk about in a moment. As we focus on an important part of our business, just commercial and SBA, We're optimistic that this level of production and performance will continue into the second half of the year.

Speaker 1

And actually today, we stand just on commercial pipeline on a 90 day period well above 150,000,000 dollars in our current pipeline. So, we expect Q3 and Q4 to be more of the same. So, with that, overall, really great quarter. And I will turn it over to Jeff to get into some of the details. Jeff?

Speaker 1

Thank you, Ryan, and good afternoon, everyone. I'll see what I can do about providing a little color, the financial results. So as discussed, the company has had a very exciting quarter with several major accomplishments. First, GBank Financial Holdings reported record quarterly earnings in the Q2 of the $4,700,000 which is $0.35 per diluted share and as compared to $3,700,000 in the prior quarter or $0.28 per diluted share. This was due mainly to year over year asset growth, increases in non interest income and low levels of non performing balances.

Speaker 1

In addition to record income, the company has crossed over a major threshold to become a $1,000,000,000 bank ending the quarter with just over $1,000,000,000 in total assets. And also the holding company purchased a 32.99 percent non voting equity interest in Bank Card Services LLC by exchanging non voting common stock. This transaction was valued at $3,300,000 and is recorded in the other assets section of the balance sheet. The investment will be recorded at cost and adjusted to fair value on an ongoing basis. The company incurred $268,000 in one time expenses related to this transaction during the quarter.

Speaker 1

Quarter over quarter net interest income increased 5% to $11,300,000 compared to $10,800,000 in Q1 2024 increase 30% from $8,700,000 when compared to the Q2 of 2023. Net interest income is up both quarter over quarter and year over year as the increase in interest income on loans has exceeded the increase of deposit costs by $400,000 on a linked quarter basis. The loan portfolio produced an impressive 8.33% yield as it continues to benefit from the current rate environment. The investment securities yield of 4.74 percent increased 58 basis points during the quarter as we had $30,000,000 in lower yielding treasuries treasury securities that matured. Bank net interest margin of 4.94 percent has stabilized over the last few quarters and is almost 155 basis points higher than the peer average.

Speaker 1

Non interest income totaled $4,200,000 and increased $1,800,000 or 73 percent over the prior quarter. The gain on sale of loans increased $1,100,000 quarter over quarter due to both the $9,000,000 increase in loans sold and an increase in GAAP gain of 133 basis points to 4.36 percent. Contributing to the favorable increase in non interest income was an increase in service loan servicing income of $474,000 as the Q1 reflected $400,000 of servicing asset write offs on previously sold loans. Non interest expense increased $758,000 during the quarter, primarily due to increased variable compensation paid related to significant volume of SBA loan originations and sales during the 1st 6 months of 2024 and $268,000 in one time expenses related to the bank card services investment as discussed earlier. The efficiency ratio favorably decreased to 58.86 percent for Q2 2024 from 63.41 percent in the prior quarter and from 68.96 percent for the same quarter in 2023 as the bank has been able to take advantage of the prior period investments in technology and people to minimize costs while maximizing revenues.

Speaker 1

The consolidated ROA of 1.9% for the quarter and 1.75% year to date and the bank's ROA was 2.16% for Q2 compared to the peer average of 1.07%, putting the bank in the 92nd percentile for income. Consolidated return on average equity was 17.59% for the quarter and 16.17% year to date. So moving over to the balance sheet, the assets increased by $45,900,000 or 5% during the quarter, due mainly to a $33,400,000 increase in deposits with quarter over quarter increases in every deposit category. Additionally, the company experienced a $30,700,000 decrease in investment securities due to the maturity of the $65,000,000 U. S.

Speaker 1

Treasury securities that we had and all the and all other assets increased by $7,500,000 with the primary driver being the $3,300,000 investment in bank card services. The bank paid down the $10,000,000 FRB borrowing in early April 2024 and then subsequently executed a short term borrowing of $12,000,000 at the end of June 2024, which we paid off at the beginning of July. The bank continued to see a broad momentum in SBA and conventional lending as balances increased 5% for the quarter and 77% over the prior year. New originations for our SBA and Commercial Banking divisions were approximately $127,000,000 during the quarter. In addition, the bank sold SBA guaranteed loan balances of approximately $78,000,000,000 during the quarter, an increase of 118% 14% on a year over year and linked quarter basis respectively.

Speaker 1

100 percent Gail Burbank guaranteed loan balances were $252,000,000 at quarter end, which represents 31% of the bank's total loan portfolio and these upheld steady during the quarter with minimal prepayments. So looking at the asset quality relating to the loans, a $283,000 provision for credit losses was recorded during the quarter, reflecting growth within the loan portfolio. The allowance for credit losses increased to 7,300,000 dollars Non performing loans remained stable with a small balance of net charge offs related to our credit card division that were within our expectations. The overall allowance for credit losses was 0.9% of gross loans and 1.31% of at risk loans, which is net of the government guaranteed balances. This is right in line with our peer group.

Speaker 1

Non performing assets increased from $6,100,000 at March 31 to $7,600,000 at June 30. The balance is comprised of 3 unrelated non accrual loans totaling $6,500,000 of which $4,600,000 is guaranteed and one loan 90 days past due and accruing of 1,100,000 dollars and this loan was brought current in early July 2024. While deposit generation remains competitive, the bank has been able to utilize the diversified channels that have allowed the bank to grow deposits in all categories during the quarter. The need for wholesale funding has decreased while the bank continues to work to replace those high cost funds with more core balances. Uninsured deposits are estimated to be 39.3 percent of total deposits.

Speaker 1

Non interest bearing deposits increased in balance from the prior quarter, but fell slightly as a percent of the total portfolio and represents 26.2% of total deposits. The loan to deposit ratio remained stable at 96.7% compared to 96.3% in the prior quarter. Our securities portfolio holds several short duration treasuries and variable rate Ginnie Mae mortgage backed securities. Overall yield on the investment portfolio of 4.7 percent for the quarter puts us in the top decile compared to our peers. OCI is still negligible and decreased during the quarter to $199,000 compared to $258,000 on March 31.

Speaker 1

The total unrealized loss on the investment portfolio is $451,000 tax affected, which is down 33% from the prior quarter due to maturities and valuation adjustments related to lower future rate expectations. Equity to assets increased to 11% from 10.6% in the prior quarter and the bank's Tier 1 leverage ratio was 12.88 percent compared to 13.03% in the prior quarter due mainly to asset growth, which was offset by organically produced retained earnings. The tangible book value per share increased to $8.49 on June 30 from $8 on March 31, 2024. The change in tangible book value per share reflects growth in shareholders' equity from both increases in retained earnings fueled by net income growth and higher common stock and paid in capital from the shares issued for the bank card services investment. Sensitivity at the bank continues to decrease.

Speaker 1

The bank continues to move toward a more neutral position related to interest rate risk to better position for all potential rate environments. The large increase in our fixed rate loans is in recent quarters combined with the short term funding has continued to reduce the asset sensitivity of the bank. Our most recent models reflect that a 12% reduction to net interest income would occur in a 200 basis point rate decrease. Liquidity remains very strong at the bank. During the quarter, the bank continued to enhance liquidity options to provide additional security to fund operations.

Speaker 1

Bank has on balance sheet liquidity of $130,000,000 and total liquidity including borrowing capacity of $664,000,000 Secured borrowing capacity through the Federal Reserve and the FHLB stood at $454,000,000 at quarterend. This puts the bank in position to immediately replace 78% of its deposit base if needed. So striving to provide customers and employees with the best banking experience ever has allowed G Bank to thrive as an institution. This is evident in our quarterly results and the bank continues to execute on its overall strategy. The company has continued to outperform expectations and as we continue to look for opportunities to support the small businesses and consumers all over this nation.

Speaker 1

With that, Ed, I'll turn it over to you.

Operator

Well, thank you, Jeff. I want to go for a minute to our gaming FinTech division. And it is a very important part of our activities here at G Bank. You may have heard and I know you heard, if you're in the FinTech business at all, the headlines on FinTechs have been very troubling these past few months. Failures of several of these or at least one in particular, banking as a service FinTech, where they aggregated almost 100 other FinTechs and opened banking as a service accounts at several banks.

Operator

Not accounts like we do, but very nice apps that provided very nice service to some of these customers that use those applications for their banking requirements. Now, we don't do that. We are non banking as a service and our FinTech and we're keeping the name FinTech because we are indeed in the financial technology arena that no one else is. We have our prepaid access structure that we receive through agreements with BCS, but our FinTechs are very carefully vetted by our bank. We have amazing personnel that do incredible vendor management on every client a processor may bring to us.

Operator

They are clients of the bank and we know everything about them and we know and are certain that they have the kind of internal controls that we try to assure that they do and the ones that they don't we have anyway as the buck always stops with us. We learn that very early in the game. So you've seen some press releases today that have just come out and forgive the timing on them, but these agreements have been in the works for some time. But we released the Trice press release. Now Trice is a company that we met that the bank met through our investment in Jacobs Asset Management or the J.

Operator

M. Finta fund that they have. And that fund provides us access to technology companies in their early stages that are providing some interesting solutions for banking. And TRICE was one of those solutions that has developed a format and API for real time payments. And real time payments and also a platform for RFP and RFP is request for payments.

Operator

So real time payments going out and real time payments coming in back and forth between your own personal accounts. Now RTP, we through this process of our pool player accounts, where if you're a bank, if you're a gaming company that has an agreement with us for our pool player accounts, then your app and the consumers on your app have a personal account. And with a personal account and they have a personal account at whatever bank that as long as they are a member of RTP, you can instantly and I mean instantly move money on and off your gaming app, utilizing Trice platform and utilizing our architecture, our account architecture at Cheebank. What does this mean? This means that we think we are going to be one of the first or possibly the first in the marketplace for RTP real time payments on in and out to gaming apps, large or small.

Operator

And we think this is going to be very important because there are many there are savings in it, there is time. So, imagine as a consumer, you are sitting and you are using a sports app that has an agreement with G Bank for our pool player account, you can instantly on a Sunday morning offload your money to your bank account, takes about 5 seconds. We think this is going to be revolutionary. We think it's very important for many gaming clients. And we executed our agreement and we hope to go live with some of our first clients in the Q3, 3rd Q4 for sure.

Operator

Real time payments and gaming apps, we think we will be one of the first. We also just released Masspay, which is another company and Masspay is a payment processor. So MassPay is a payment processor for a lot of entities that are engaged in social game, games of skill. And they really like and are going to be a PPA customer too, because they really like these consumers having the protection of a pool player account at G Bank. And they have a quite a few operators in the social gaming arena that they want to provide this kind of security to.

Operator

What this FinTech attention is doing is pushing a lot of people to understand that they want to protect the consumer. And we have, we believe the ultimate solution for protecting the consumer because of the architecture of our prepaid access accounts at GBank. So those 2 are very important and we actually have another 4 that will go live in this quarter. We have another 12 fintechs in the pipeline that we hope to get as many as we can active by the Q4. It takes time both for them to develop their platform.

Operator

But once they've developed their platform and many of them are existing very large platforms already, but they have to endure the rather rugged vendor management programs that we have, preliminarily at BCS and then they get the heavy hitter at G Bank. Those are very exciting programs. And I think that you're going to see that with this pipeline, you're going to see a lot of releases start to come out over the next several months of new clients and new customers for G Bank. I also want to point to one other thing, one other important element of our gaming business and that's our gaming specific credit card that we launched. You've heard us talk about it before.

Operator

To say this has been a long process would be understating it because we started looking at the credit card program for gamers back when we were very big Sightline and we still are Sightline providers of their prepaid card. But in their payday of Sightline, we had issued and opened almost a 1000000 accounts for Sightline. We had about 700,000 active prepaid cards that we were processing at eBay. So we have really understood and know and the biggest clients that were these cards were being used with were BetMGM, FanDuel, DraftKings, Caesars and about 50 other small clients. But a change happened in the world of loading these prepaid cards And the preferred way to load them was with a credit card.

Operator

But then both Mastercard and Visa changed their merchant code to where this activity was and became a gaming transaction instead of the financial transaction of loading a prepaid card. Without getting into too much detail, that really reduced the amount of loads that went in because the banks that issued the prepaid that issued the credit cards, many of them do not like the gaming transaction merchant code and will not approve that merchant for their card. So that this transaction is denied. But these are many of our prime customers. We recognize this.

Operator

So we started the process some time ago in developing and then we believe that the best card to issue was Visa. And we went and have become a Visa issuer, not just a Visa issuer, we're issuing a Visa Signature card, which has instant credit if you qualify for $11,000 $12,000 about $11,000 I believe, right? That's the

Speaker 1

average, yes.

Operator

And the important part of this is that these are quality customers and the unfortunate part of it is that it takes a pretty high credit rating to get instantly approved for $11,000 of credit. So the process of finding approved players has been a long one, but at the same time, they're starting to develop and it's a premier customer. Here's some interesting numbers. We really launched the program in the Q4 where we started some serious marketing, but today our marketing program is increasing and I'll tell you a little bit about that. But right now, the Q1, we had $1,000,000 in transactions on our credit card program.

Operator

In the Q2, we had $7,000,000 in transactions in our credit card program. So we increased $6,000,000 and we're seeing the growth rate continue at pretty much the same rate through the month of July. What this is, is the number of transactions that they do with various merchants, if we look at the gaming operator as a merchant, which he is. That means that our customers spent $7,000,000 with our merchants in the Q2. And that the merchants that they are spending, the top 4 are MGM, FanDuel, DraftKings and Caesars.

Operator

Those are our prime merchants for our credit card program. Now and this is in its infancy. And of course, there's the interchange fee and we pay rewards programs, but we believe that this and the $7,000,000 I mentioned to you, 90% of it is our gaming transactions. And they're instantly paying off their credit card each month. So the behavioral pattern is exactly what we were hoping for.

Operator

The volume exceeds our expectations. And we believe this is going to become a very significant program and you're going to start to see our gaming FinTech division being monetized not only by increased deposits, but also by the fees we earn from the credit card program. And we haven't even gotten into the credit part yet, but the credit card is very small, the credit part. And that's fine. We love the fact that it's generating a great revenue from the interchange fee force.

Operator

Interestingly and how we're marketing it now, we've just signed an agreement with Ebury. Now some of you will know Evertie, some of you will not. Evertie is currently in agreement to merge with International Gaming Technology, IGT and be based in Las Vegas. IGT is moving their headquarters back to Las Vegas. They were actually bought by an Italian firm.

Operator

But EVRI is one of the largest casino cash management companies in the United States with over 700 casinos, most of the strip and they manage about 40,000,000,000 dollars to $42,000,000,000 to $45,000,000,000 a year in cash transactions for the casinos, for the casino cages, their kiosks. And we just signed an agreement, a marketing agreement with them because they love this. They really like the gaming friendly credit card that we have and they are trying to develop a wallet for their customers to use that are customers of every. So this has we think some amazing potential for us as well. We just executed that agreement.

Operator

We haven't even begun our marketing yet, but it's going to start. The other important one is Siteline Payments. Now we haven't been talking about Siteline in quite some time, but we still have a very viable business with Siteline prepaid cards and Siteline is going to has just executed a marketing agreement for our credit card as well. Plus there are 3 other companies that have executed marketing agreements and these have all been happening in the Q1 of this year. So our gaming FinTech division with the access to our prepaid account structure, with their access to our credit card and with our access to I think the gaming industry as a whole and the recognition of what we do full circle in payments, prepaid cards, credit cards, DPA accounts and we're going to get our 1st full consumer account customer we believe in the Q3 as well.

Operator

So we think the outlook is very strong for our gaming FinTech division. We believe we're going to start to see the monetization of it. We believe we're going to start to see the deposits pick up because Ryan sure uses them quickly, as you can see by our balance sheet growth. So we think we have an amazing complex of businesses with our SBA division, our commercial division, our payments division, our gaming division, our credit card division and we are really growing. In closing, I wanted to make one statement, which has been a subject matter of discussion.

Operator

And I'm making the statement with very explicit instructions of how I say it. But preliminarily, we are exploring becoming an SEC reporting company and the possibility of public offering of our shares. So with that, I would like to conclude our prepared remarks for our earnings call and open it up to questions and also wonder what kind of Olympic medal, if we got any, or did we just get a participation medal. But thank you.

Speaker 2

Hey, guys. I got a question, Tim, if you don't mind.

Operator

Yes. Hi, Tim. Hey, Tim.

Speaker 2

Hey. So Ryan, how should we think about loan growth in the second half of this year, right? I mean, Q1 was, I think, 14% sequentially, Q2 was 5%. Like, is it somewhere in between those ranges? Or is it reasonable to think that it might be better?

Speaker 3

Yes, I think there will be somewhere

Speaker 1

in between there. Although I do think that the 5% sequentially probably are closer to that is kind of what we expect for Q3 and Q4. The composition will drive that a little bit, but

Speaker 2

talking about

Speaker 1

net quarter over quarter growth, we're probably in the 8% range.

Speaker 2

Okay. Okay. And then with the prospect of lower funding costs coming down the pipeline, fingers crossed later this year, does that encourage you to get a little more competitive on pricing in advance of that?

Speaker 1

Competitive on the liability deposit side?

Speaker 2

No, on the loan pricing. Sorry.

Speaker 1

On the loan pricing. Yes. And I think a lot of that has already happened. That's certainly what has helped support the volumes that we've seen on the commercial and SBA side. Comparison to 3 years ago, as an example, really most of our new SBA origination volume was at prime plus 2.

Speaker 1

Most of the average is prime+1 today on commercial real estate secured and more than that on anything else. But I think we've been pretty competitive there. We'll continue to, as Jeff mentioned, we'll continue to work on arriving at neutral. So we are seeing some opportunities for fixed rate lending as well, because the inversion of the curve, those rates are a little bit lower. But overall, we're incrementing or generating new volume per quarter all in, it's still a contractual rate close to 9%.

Speaker 1

So that's what we expect to continue.

Speaker 2

Okay. Okay, great. And then in terms of expenses, do you feel like you have the people necessary to continue to grow or you feel like you kind of reaching them to got maxed out on their bandwidth?

Speaker 1

Well, I think we definitely have more bandwidth. I think as we will see that FTE count go up slightly, probably, certainly as we look over the course of the next few years. But by as we look over the course of the next few years. But by and large, we feel good about where we're at and it'd be just a small increase in FTE. Okay.

Speaker 1

And then if I can turn to BCS,

Speaker 3

Ed,

Speaker 2

if I read this right, it looks like you could double the number of clients by year end. Is that what you're kind of indicating?

Operator

Yes, I believe easily. We have as I said, we have about 12 others in the pipeline right now that we're working with, 4 others that are going to go active in the Q3. And how many of these 12 will make it to the Q4? We don't yet know yet, but that number keeps increasing. What's happening right now, Tim, is we're calling out a lot of the callers now, a lot of the companies.

Operator

A lot of the startups we're not working with anymore because startups are we want a more mature processor. We want to see customer base and we want to be able to see those that have a customer base we can bet really well. So the answer to that is yes.

Speaker 2

Okay. So now we're doubling both adding a more mature customer?

Operator

Yes. Okay. That's why we talk about people like Everi and Sightline and we're working with Sightline to possibly open one of our full player accounts and start bringing their clients into it.

Speaker 2

Okay. All right. Great. Thanks. Those are my questions.

Speaker 2

I'll step back. I'm sure Brad's got some, but I'll definitely give you guys a gold.

Operator

Brad, are you out there?

Speaker 4

Hello. I guess I have to ask a question since I got teed up.

Speaker 1

Yes. Yes. Is Brad okay?

Speaker 4

So should I think of this as with that down 200 basis points, your net interest income being down 12%. Could that be offset with the change of deposit composition that's expected over the course of the next year plus. So really, top line loan growth of if it's 20%, that should actually be 20% increase in net interest income. So even if we have rates down 200 basis points. So that's pretty much going to be mitigated by the change in deposit mix.

Speaker 1

I believe that's a fair assessment and accurate. I think one of and Jeff can speak to this. But one of the things our models don't necessarily contemplate are significant changes in mix, which could happen, particularly with some of

Speaker 3

the growth expectations we have in gaming, fintech, deposit

Speaker 1

generation there, which are largely a expectations we have in gaming, fintech, deposit generation there, which are largely a non interest bearing. So, yes, long answer to the short version, which is, yes. Yes. I'll echo that. The change in mix is probably going to be more important and that is not factored into the models as we model.

Speaker 1

So this would be if we just stick with the same mix. Like we said before, being able to move out of those more risky or more high cost deposits into more core, I think will could actually benefit us even more than that. Yes. Probably the long run.

Speaker 3

Okay, great. And if my math is correct, most of the originations

Speaker 4

on the loan side for this year have been in the SBA category. So you're kind of local business, Las Vegas loans is pretty

Speaker 3

insignificant. Is that correct? Or what's

Speaker 4

is that an area of focus going forward?

Speaker 1

Well, the biggest portion certainly in the current volume, you're right, is SBA, and I wouldn't ever question your math, Brett. I think we're being very selective on what we choose. There is a market that is very dynamic and there's a lot of upside, we believe, in the Nevada market. In terms of asset generation, we're seeing and some of this ties into balance sheet management, but we're seeing there are opportunities for, as an example, conventional commercial real estate that tends to be originated closer to 7% or below. So in terms of maximizing revenue, we're certainly hyper focused on government guaranteed at the moment.

Speaker 4

Okay. Got it.

Speaker 1

And lastly I will add that, I mean, we are seeing and obviously, we're growing into gaming as well as an industry. Trust services is something that we've talked about in prior calls. So we're seeing some even related credits that in some of those specialty lines that are coming on to.

Speaker 4

Okay, great. Lastly here on the credit card portfolio, I was thinking it was running at maybe a cash burn of $400,000 per quarter or something like that. It sounds like you have tremendous momentum with all of these marketing partnerships. So is there a revised maybe breakeven in this credit card division?

Speaker 1

Yes. What we're finding, Brad, with some of these metrics is our original projections were way off and it's actually performing better than some of our expectations. And Ed highlighted some of the numbers on credit card. Gross interchange for Q2 was $220,000 Now there's expenses there that net out, including rewards and revenue shares on marketing contracts and things like that. But that $400,000,000 as of Q2 was actually closer to $300,000,000 in terms of burn as you think about it going forward.

Speaker 1

If we have just a moderate increase in some of the levels that we see in balances and accounts, we could breakeven by the end of the year pretty easily.

Operator

Yes. As I said, we're forward looking, of course, July has seeing the expected growth continue. And coming up on NFL, So we look for some interesting things in September, October, November December too.

Speaker 1

So apply for your G Bank Visa Signature.

Operator

Yes, everybody wants to put any NFL, get a GBFH G Bank rather, signature credit card.

Speaker 3

Ed, it's Brad Rangel from Downrange Capital. How are you guys? Hi, Brad. Not bad. A couple of things.

Speaker 3

So on the potential IPO, obviously, that will be a NASDAQ listing. Is that correct?

Operator

We can't, but we're in the the only thing we can say right now, I have said, we're in the preliminary discussions and we can't comment any more than that Brad at this time.

Speaker 3

Okay. More to come soon. On the FinTech game and obviously we started talking about monetizing it. And how should we view it kind of on a modeling basis when you talk about monetizing? Is there any type of roadmap you can give us as in terms of earnings or potential earnings or total available market, anything like that?

Operator

As Ryan said, every projection we've made has been wrong in one way or another. But here's what we look at. When we do our pipelines, we do a pipeline report for our Board and just like we do with our SBA or our loan pipelines and we estimate the closing percentage and we estimate the amount of deposits we think could come in the short term and then the longer term from each one. BCS works off of a model of about 20 basis points per transaction to the accounts, the structured accounts of the bank. But the real monetization of it for the bank obviously is in the credit card side and the use of the deposits and the value of the deposits.

Operator

So when we look and try to say going forward, what does this mean to us? It's hard because they don't have a really solid monetization model to give you that says here is what we did last quarter with 14 clients and here is what they produced because the clients we are working with are building their platforms as we speak. You hear the term a wallet or you hear the term a gaming app. Well, you know right now the gaming app process to do an app that does all the things we say like works with slot machines right now. There are a couple, but they are pretty clunky and moving money on and off them are pretty clunky.

Operator

We are working on one with a client that we hope will be our first real time payment client and will be our first PPA client for slot machines. And that's a program that could launch in the 3rd or Q4. So these are some of the big markets we are in. There are some big opportunities. We think that the deposit growth is one measurement that we look at when we do our projections for the bank, And when we do it for the credit card, of course, we're looking at interchange.

Operator

And the interesting thing on the credit card is we haven't gotten any real credit issues. And by that, I mean, we're not using it for credit, which actually we like. So to answer it, I know I haven't given you an answer to the question. I've probably given you all a lot of things that go into the answer. But we have a model.

Operator

Our model is we look at PCS projections, what they give us, to what they believe they are going to be doing in the next 12 months. We look at how we are going to utilize those deposits. And now though, projecting the credit card, we have got to do new projections because growing 700% in the quarter is not something we projected. Now if we continue to grow, are we going to continue to grow at $6,000,000 a quarter or is that $6,000,000 going to go to $12,000,000 a quarter? Or we will be able to tell you probably at our next quarterly report what the Q3 looked like and we will be able to project a little better.

Operator

I know I haven't answered your question, Brad. It's a but it's because it's a well, we just signed a $40,000,000,000 cash company to a credit card transaction now. How many of their how good is your wallet going to work? They don't have the wallet yet. They're working on it.

Operator

They've been working on their wallet for some time. And how but how many credit cards will they get in the hands of their customers who are all gamers? These are all the $40,000,000,000 in cash they handle a year is all in gaming. It's in 700 casinos across the country. Every handles most of the cash on the Strip in Las Vegas.

Operator

So these are pretty heavy and they're merging with ITT, International Gaming Technology. Now they have a they're developing a wallet as well. So and we've had relationships with IGT and BCS before. We presented together to gaming companies, BCS and IGT. So as these things happen, it's sort of like the credit card thing.

Operator

There will be pops here and pops there, but it's hard for us to say how successful each operator is in implementing their specific business plan to get their customers that shall become account holders at G Bank. Sorry, I couldn't give you a better answer.

Speaker 1

Thanks, Ed. Any other

Operator

questions? Well, thank you. You all have been such great supporters of ours and we appreciate the interest and we think some exciting things are yet to come. So thank you. Thank you everybody.

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Key Takeaways

  • Crossed $1 billion in total assets—a 47% year-over-year increase—and reported record Q2 earnings of $4.7 million, up 103% from Q2 2023.
  • Generated a quarterly record of $15.5 million in net revenues, driven by a 30% year-over-year rise in net interest income and an efficiency ratio of 59%, nearing its long-term 60% target.
  • Acquired a 32.99% non-controlling interest in Bank Card Services LLC in an all-stock deal valued at $3.3 million, strengthening its FinTech and prepaid processing capabilities.
  • Achieved $384 million in SBA 7(a) loan authorizations year-to-date—set to surpass $400 million for FY 2024 versus $224 million last year—demonstrating robust production in its SBA lending division.
  • Advanced its Gaming FinTech division with real-time RTP payments via a new Trice partnership and launched a Visa Signature gaming credit card, generating $7 million in Q2 transaction volume and strong early adoption.
AI Generated. May Contain Errors.
Earnings Conference Call
GBank Financial Q2 2024
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