GBank Financial Q1 2025 Earnings Call Transcript

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April 30, 2025

There are 3 speakers on the call.

Operator

Welcome, everyone, to our very first call as a Nasdaq traded company. It started this morning. I'm sure you all know that. We've been on an adventure with the SEC and the Nasdaq application with the whole goal to get to become trading as of the April 30 so that we would also be eligible for the wrestle two thousand reorganization.

Operator

So without one day to spare, we were live this morning. And so it's very we had board meetings yesterday, and we celebrated together because it is a a very big step for us. So we have a new birthday of GB Financial Holdings of April 30. I mean, April yeah. 04/30/2025.

Operator

But I want to welcome you this morning. We're gonna change our format a bit from our prior calls, and then Ryan and I have been going to be doing about, oh, fifteen minutes or so of presentations, and then we're gonna open it up for questions and answers. We're not gonna reread our report that we sent out. And Jeff Wicker, our chief financial officer, is also here in the room to answer questions as well. And I'm gonna start off because I will be we will be talking about our company, our growth company.

Operator

We're a banking and payments company, but we do and have been a growth company for some time. And our growth right now, if we focus on our report that we just submitted, we have really seen growth in other income. And our other income has always been led by our SBA gain on sales. Ryan and I were talking about the time where our our gap gain was well over 10% in our gain on sales. And, if someone told us that, several years from now, the gap gain would be in the threes or 3.8 or 9%, we would have been very concerned.

Operator

But it has done that, and yet we've been able to maintain our growth. Yes. We've increased our volume in SBA, and Ryan's gonna talk about that. And I wanna focus on our payments arena. Because if we look we looked year over year and seen that our other income has doubled, more than doubled in year over year the same quarter.

Operator

But let's even look at it sequentially. Because if we look sequentially in the fourth quarter, we had 5,700,000.0 in and I'm gonna round my numbers are rounded, please. We had 5,700,000.0 of other income, non interest bearing income. And in the first quarter, we had 5.4. The interesting anomaly there is that we had we had 5.4 with our gain on sale decreasing by 1 and a half million dollars.

Operator

Because our gain on sale in the first quarter is always lighter and always has been lighter because of the generations in the fourth quarter and have usually been a bit less than our normal. Although and this year, I think when you see that the gain on sale declined that much, but yet, we were still almost matched with the the noninterest income of the prior quarter. And the reason, of course, is interchange. Our interchange went from 1,000,000 contribution in the fourth quarter to 2,000,000 contribution in quarter one from our transactions on our credit card. So that when we look at it from the standpoint of growth, there's another issue.

Operator

If you look at other expenses, we had unusual expenses, other expenses in our financials. You'll see where our other total non interest expenses went to 10,900,000.0, and you'll see the various breakouts. But other expenses, in particular, went from up to 4,100,000.0 in the quarter. But we have a and, again, around the numbers of 800,000 of that is unusual expenses for accounting and finance and legal for our applications to the SEC as well as NASDAQ. Also, there was a there's about 200,000 that was an additional billing from FIS that they said that, you know, that we owed in additional funds that they didn't bill us for.

Operator

So we had a million dollars in one time expenses in that quarter as well. So if you add that and you look at and even equate our gain on sales, if you would for a moment, you see the kind of growth we are really experiencing. I mean, we add these numbers in and the the the earnings per share jumped significantly, you know, from 31¢. And if we also look at the fact that we now have 14,500,000 shares, and last year, we had 13,200,000.0 shares. We're 1,300,000.0 excuse me.

Operator

1,300,000.0 shares more to spread our earnings over. But at the same time, these earnings we think would be subs are are going to manifest themselves, especially as we continue forward. Now on on a little bit of a forward looking basis for the second quarter, you know, we have seen our credit card and our interchange And we have deliberately kept the program in in a in a manageable level from the standpoint of our marketing and how many the consumers in the consumer participation that we have because we have a system internal system that is has we think needs improvement. Because as we've done with everything else that g bank accomplishes, we do it ourselves.

Operator

And that way, we know that it's done well. So we want our gBank app in our credit card division of that app to be self sustaining where we have our own landing page to process our own applications and approve our own credit cards. And then we can do it on a timely basis. And that we have a consumer and customer service that is really performs well. Now to do this, we do have a remarkable IT division, and we are already well in under under our way to form this app.

Operator

But we want to, if you will, pause our marketing until we have this app completely tested and developed, and we've been working on it for some time now. And we believe it's gonna take about thirty to sixty days to do that. So we may see some slowdown in our growth in our credit cards for for the next quarters, but we do anticipate that we're going to be able to handle a much, much higher volume of applications. We are also looking in in in terms of our customer service where we will have a very effective and efficient customer service that will work well for our consumers. So we wanna take this little window of opportunity to do that so to make sure we're ready because we are planning in major marketing efforts that are gonna be starting in about sixty days thirty to sixty days, actually, depending on our app.

Operator

Because we have a great deal going on, and we have a very, very high interest in this card, in this credit card for gaming. Now, finally, if when we're looking at growth, we cannot and we were looking at new amortization excuse me, new monetization of our gaming fintech division. We have to also talk a bit about our slot program. When I talk about our slot program, I mean, our primary one of our primary customers, Bold Bets, is prepared to launch live with their slot program. But once the final regulatory approvals are done in the state of Nevada for their gaming operator to you to implement it, which should be forthcoming in this quarter.

Operator

And Bold Bets has developed with the Konami casino management system, a system that uses that identifies all the banking requirements, the payments requirements, the gaming requirements. It uses our pool player account for all of their consumers so that BotBets funds are not the consumer funds are not held by BotBets. They're held by the bank. We've implemented RTP and RFP for moving money instantly on and off his app. We also have done he has gotten credit card approval from Visa, and we will have a app direct for our credit card on this program as well, and it's also tied to his rewards program.

Operator

It's a it's an amazing program that is has tested really well. It's live on his machines, but not live for use by the consumer until they get the final nod from the from gaming control. Not both beds, but until the gaming operator does. There is and there are other programs that are also being groomed by us that are going to increase, I think, our activity and our deposit schedules for our gaming fintech division. Many exciting things, including the application we recently filed for a secured card.

Operator

So that is an extension of our current Visa signature card, and that's an application with Visa. So there's a great deal going on from the growth standpoint, and you're gonna see it manifested in other income. And I think once we we look at taking out some of these anomalies, you'll see that that earnings per share could have easily achieved, you know, much higher numbers, and I'll let you do the math, than around there if we added $2,000,000 to other income. With that, I'm going to turn it over to Ryan.

Speaker 1

Well, thank you, everybody, and thank you, and thank you, Ed. Just to to start off also celebrating the developments of the company and SEC registration and and our first day of the Nasdaq Capital Markets. Specifically, I'd like to take a moment just to acknowledge the incredible efforts required to achieve this outcome, especially on the time frame that we did. So I I just can't say thank you enough to all of our employees, our advisers, our stakeholders, our customers. Without you, it it just would not have been possible.

Speaker 1

Thank you so much. So as as stated, we're pleased to report net income of 4,500,000.0 or 31¢ per diluted share in a quarter that included, altogether nearly a million in extraordinary expenses, the 800,000 approximately in, related to the SEC uplift and the other 200,000 in technology projects, on work that was done in prior periods. Net revenue, continues to be strong for the quarter, 17,400,000.0. It was down about approximately a hundred and 96,000 on a linked quarter basis. However, year over year, it was actually up by 4,200,000.0 or an annual increase of more than 31%.

Speaker 1

As we think about the different components of our top line, specifically net interest income was up $105,000 compared to q four, mainly due to our growing balance sheet. Year over year, net interest income is up approximately $1,100,000 or more than 10%, again, on a much larger balance sheet. NIM was down somewhat quarter over quarter to 4.47, and there's a good, breakdown of of of of that in the release. Specifically, lower loan yields as the 50 basis point in rate reductions that occurred in q four, went into effect for our variable rate SBA loans, as of January 1. That was offset by lower funding costs and also higher

Speaker 1

Investment yield, investment portfolio is performing nicely with quarterly yield of 4.94%. Overall, we're quite pleased with the NIM and how it's hold held up. On a bank peer comparison, we expect to remain in the top decile, for net interest margin. As Ed mentioned, a a big component of of our top line is noninterest income, which totaled 5,500,000.0 for the quarter. That was down approximately 300,000 compared to q four, but year over year was actually up by 3,100,000.0 or a year over year increase of a 27%.

Speaker 1

The two largest components of that, as as mentioned, gain on sale of of SBA loans was down approximately 1,500,000.0 compared to q four due to both q four sales being strong and q one being historically a little weaker due to seasonality and the year end holidays. Year over year gain on sale of loans was actually up by 454,000 or an increase of 22. Net interchange on credit cards was, right at 2,000,000, and that's on spend volume, of over a hundred and 5,000,000 for the quarter. And that compares to revenue of 1,100,000.0 on, spend of approximately 52,000,000 in q four and 20000 in revenue on volume of only 1,100,000.0 in q one of last year when we were still really ramping up the program. Shifting to noninterest expenses.

Speaker 1

First on a linked quarter basis, noninterest expenses were up by approximately 1,200,000 compared to Q4. This was due to, again, the SEC uplift expenses as well as increased compensation on higher loan origination volume during the quarter compared to Q4. We also had an increase in employee count and continued growth in technology development costs. As that alluded to, a significant portion of these costs are are being driven towards, improvements, enhancements, and growth within credit card. Next, on a year over year basis, noninterest expenses were up by approximately 2,500,000.0, again, driven by increases in compensation and other operating expenses, which were up year over year by 1.1 and nearly 1,500,000, respectively.

Speaker 1

Compensation specifically, you can see, that FTEs increased year over year from a 50 at 03/31/2024 to the most recent quarter of a hundred and seventy five. That comprised approximately $850,000 of that year over year increase. And then also year over year, our stock based compensation increased, q one compared to q one by nearly 250,000. It's been great to see the stock price goes up. And and as that happens, we get to recast those noncash expenses.

Speaker 1

From other operating standpoint, again, the SEC expenses on the accounting and and legal, really fall into this line primarily. In addition to that, there was over 500,000 in year over year increases in data processing on increased, credit card volumes and, technology improvements and projects. Moving on to the balance sheet. Total assets were at 1,190,000,000.00. That's up 24% over the prior year.

Speaker 1

Total loans were at 843,000,000, which is up 15 percent year over year. The loan loss reserve stayed, right around the $9,000,000 mark, and that equates to 1.41% of at risk loans or loans excluding the guarantees. Deposits were at 996,000,000, so just just shy of the $1,000,000,000 mark. That's up 6.5% sequentially. Total equity now stands at a hundred and 47,000,000 for the company.

Speaker 1

That is up 43% compared to a year ago. The book value per share also broke the $10 mark and is now at $10.27. That's up by more than 28% compared to March thirty first of twenty twenty four. I'll also note that we did, complete the downstream of, $15,000,000 from the parent to the bank that actually happened, during the quarter. That relates to the private offering that was completed in October of last year.

Speaker 1

We did do that downstream of $15,000,000 in Q1. That translated to an increase in the bank's Tier one leverage ratio, which at the end of the quarter was 14.23, which will place us again well in the upper decile for our bank peer group, in total asset size. Speaking a little bit about asset quality, we recorded a provision for the quarter of $710,000 or $721,000 if you include the off balance sheet portion. Net charge offs for the quarter were approximately 828,000. These were all partial charge offs on loans that, were previously identified as nonaccrual and, actually had specific reserves recorded last year in 2024.

Speaker 1

Total nonperforming loans were up by $6,200,000 to $20,400,000 of which $14,700,000 of that was guaranteed by the SBA. A majority of the quarterly increase in total nonperforming translated to one, repurchase of an SBA loan of previously sold guarantee balances, which was identified as as nonaccrual at the end of the year, but the repurchase actually took place in q one, and that translated, to approximately 3,600,000.0 of that, quarterly increase. With net at risk non performing loans of of 5,700,000.0, that represents only 3.7% of the company's capital plus reserves. So we're very comfortable and and pleased with the continued performance of the loan portfolio, and we are encouraged by the fact that, specifically, our SBA loan performance continues to outperform our SBA peers. As we think about the future, you know, we're certainly happy, to be in the position that we're in with nearly 25% of our loan portfolio being guaranteed by the SBA and USDA.

Speaker 1

And specifically, as we look ahead in SBA and commercial, you know, we we still see, some positive sentiment sentiment really remaining within that group and our customers. And specifically, the SBA and commercial pipeline remains quite strong at an expanded pipeline of more than $300,000,000 So altogether, a really strong quarter. We have a lot of great things that are happening. And with that, Ed, did you have any other comments?

Operator

No. We'll open it up for questions now. Okay.

Speaker 2

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

Operator

Hey, Tim.

Speaker 1

Hi, Tim. Good morning.

Speaker 2

Oh, hey. Congratulations on a very active quarter.

Operator

Yeah. Speaking

Speaker 2

of which, Ryan, a couple times in the press release, you discussed that SEC uplift costs were, I think, 1,100,000.0 to date. Are you expecting more in the second quarter?

Speaker 1

Yes. There will be some, and I think that you know? So so just to break that down, it was, like I said, about the 800,000 in q one. It was approximately 300 in q four. And and I believe we have what do we have slated for for q two?

Speaker 1

A million in the budget for q two, but I don't know if we'll get

Speaker 1

Yeah. So we've got a million in our forecast, but but right now, we're looking at at at maybe being a

Operator

little bit less than that.

Speaker 2

Okay. Great. That's helpful. And then, Ed, lot of lot of stuff to talk about on the credit card. This is next quarter.

Speaker 2

How should I be thinking about the daily transaction volume in that card for the second quarter?

Operator

Well, I think that we're gonna when I

Speaker 2

mentioned a pause, I think that our transaction volume is gonna stay while we're in this process since we're not going to be growing

Operator

our card other than through, you know, our incidental growth, word-of-mouth, other things. I think we can look at our transactions. And and remember,

Speaker 2

the the part about the second quarter, we've been doing this for

Operator

a long time. As you knew, we had a million accounts with Play Plus on prepaid cards. The second quarter always sees decline in sports betting and activity that we've seen every year in terms of our load factors. So given all that, we think it's gonna stay probably, flat for a quarter until we start picking up our momentum again in the third quarter.

Speaker 2

Okay. And then in terms of kind of the expansion of the product overall, obviously, you went to detail on the marketing side. Are you planning any enhanced offerings associated with the card, bigger credit lines, things like that?

Operator

Yeah. Yeah. The credit the the the credit line, I think, depends greatly on the customer and the customer's application because we do have credit lines, I think, that go as high as 50,000. 50. Yeah.

Operator

Currently that at the board level Yep. As our max credit line level. I did mention the the potential for a secured card, which we've applied a bit for the bins for where the applicant, in lieu of his credit rating, provides the capital upfront for his credit card app operation. But that is an an interest interesting program that would open up to gig workers and other part time workers that just don't get certainly have the wherewithal, and Woodclask would qualify for a credit card but cannot because of their the way they have their work status.

Speaker 2

Okay. So okay.

Operator

I hope I answered that. It

Speaker 2

did. Yeah. And now are these things that, obviously, that the credit line's already in place. The other parts of it, is that something you plan on having in place later this year?

Speaker 1

Yes. Yeah. So we're working on all that right now, and and that's part of what we talk about in terms of q two leading into the second half of the year is is our expectation is, you know, the the, you know, the application flow enhancements, the customer service enhancements, and the secured card should, you know, should be in the market going into q three.

Speaker 2

Okay. Are these investments that you'll be making already in the expense run rate?

Speaker 1

Largely, yes. Yes. Although there will be some technology expenses, particularly in in, q two and q three, for some of those enhancements, but but they won't be significant.

Operator

Ryan Ryan already mentioned an sort of a $200,000 technology expense in the second in the first quarter, which was above our normal activity.

Speaker 2

Okay. That's what that was. Okay. Great. And then and on the on the slot program, do you have visibility onto when you might start to see deposits from that product?

Operator

We believe the program's gonna launch in this quarter, the second quarter. And like all launches, it will walk before it runs. So I think you'll start to see, you know, the deposits increase in the third quarter. And, of course, this will be the first launch will be with one of the with the Distill as a gaming operator, and it's gonna be very controlled. But we have some very active players that are participating.

Operator

And the beauty of that app is that it's gonna use all of our bank platforms. So by that, I mean, the pool player accounts, our RTP, And it also, very importantly, is going to, we think, be a very important resource for the credit card because the credit card really fits the pattern of behavior for a slot player where they can load the app with the with the credit card and participate in their gaming activity. Because most of the time, today's world, the slot players go to ATM machines to get their cash, or they go to these cash advance machines to get their cash. So they're paying a lot of money in order to play. And with our credit card, they won't be.

Operator

So it's going to be very interesting, I think, on all fronts. And this program is being watched very carefully by other of our clients. So it's going to be, we think, a very, very important launch. And we've been talking about it for some time. I know, Tim, we chatted with you about it.

Operator

But there was there was there's one part in Nevada that was very important. Is that the gaming operator, whenever they utilize a software process, even in the payments app side where they're not handling any wagers, they're just moving money. And in reality, they're not even moving the money. The bank is moving the money. Gaming control gets involved to make sure the application is not interrupting any of the the licensed gaming apps like Konami's system.

Operator

And that process of review is, we believe, shall be completed very shortly. And it's not on both beds, as I said, that's on the gaming apps. The operator. Yeah. Yeah.

Operator

Right. So so that was another little time consuming process. But at the same time, everybody in the state of Nevada has to go through it. That's not the case for, you know, gaming operators in other states. They don't we don't have the same rules everywhere, and particularly for tribal casinos that are very important very, very important customers in this arena.

Speaker 2

Great. Thanks. That's a lot. That's great detail. And and then, Ryan, just on the SBA business, did I catch that at the end of your prepared comments that the the pipeline are was 300,000,000?

Speaker 1

Yeah. So the the right now, our expanded pipeline is is, slightly above 300,000,000. That's both SBA and commercial. If I was to break SBA out, Tim, it's it's, it's running around, it's it's a majority of it. It's it's, nearly 259.

Speaker 2

Okay. How is that product behaving right now? Are the demand for, loans in that product right now given the uncertainty?

Speaker 1

Yeah. It's it's behaving pretty well, I would say. I mean, overall, you know, we we've obviously had some migrations. You know, very very happy to have our our collateral backstop on on our SBA loans. That's very helpful in addition to the guarantee.

Speaker 1

But, you know, we're working through that in in orderly basis in in terms of demand. Demand still seems, you know, pretty strong. And and and, you know, on an anecdotal basis, we're getting, you know, feedback from from our referral sources, and and, they they think that, you know, barring, you know, some notable contraction that, the next two quarters, are are gonna continue to to have have have, you know, strong demand.

Speaker 2

Great. Great. And then is it too soon to ask you what you think premiums might look like this year?

Speaker 1

That's a that's a $10,000,000 question. I'm tell you that it's, you know, we were hoping that they'd start to strengthen. That hasn't happened so far. You know, they kind of remain at at where they've been in terms of soft levels. You know, for for us, you know, we had forecasted some improvements in the second half of the year.

Speaker 1

For that to happen, it's you you know, I think there's gonna be, you know, a little bit more certainty need to be a little bit more certainty on rates and and prepayments, which we're not seeing yet. But, you know, to be clear, we don't expect gap gain to return to 10% anytime soon. It's tying into Ed's comment on our prior conversation. You know, we do think that, you know, over time, that the gap gain for hospitality in particular will, you know, get back to a long term average, which we think is probably close to, you know, high fours and 5%, but that might take a little bit of time.

Speaker 2

Yeah. No. Makes sense. Alright. Well, I'll stop there and I'll I'll step back.

Speaker 2

I appreciate the time. Thank you.

Speaker 1

Thank you, Tim. Any other questions?

Operator

Well, I think that if there are none, we'll we'll be closing this call down, our first official call as a NASDAQ company and on the NASDAQ exchange, which we're obviously very excited to be. And we look forward to working with all of you and continuing the journey. Thank you.

Speaker 1

Great.

Speaker 2

Thank you, everyone.

Operator

The recording has stopped.

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GBank Financial Q1 2025
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