GBFH - NASDAQ

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 30th of April, so that we would also be eligible for the Russell 2000 reorganization. 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 very big step for us. So we have a new birthday of GBank Financial Holdings of April 30 -- yes, April 30, 2025. But I want to welcome you this morning. We're going to change our format a bit from our prior calls. And then Ryan and I are going to be doing about 15 minutes or so of presentations, and then we're going to open it up for questions and answers. We're not going to reread our report that we sent out. And Jeff Whicker, our Chief Financial Officer, is also here in the room to answer questions as well. And I'm going to start off because I will -- we will be talking about our company, our growth company. 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 really see 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 GAAP gain was well over 10% and our gain on sales. And if someone told us that several years from now, the GAAP gain would be in the 3s or 3.8% to 9%, we would have been very concerned. 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 is going to talk about that. And I want to focus on our payments arena. Because if we look year-over-year, it seems that our other income has doubled, more than doubled in year-over-year in the same quarter. But let's even look at it sequentially. Because if you look sequentially in the fourth quarter, we had $5.7 million -- and I'm going to round -- my numbers are rounded, please. We have $5.7 million of other income, noninterest-bearing income, and in the first quarter, we had $5.4 million. The interesting anomaly there is that we had $5.4 million with our gain on sale decreasing by $1.5 million, because our gain on sale in the first quarter is always lighter and always has been higher because of the generations in the fourth quarter have usually been a bit less than our normal. And this year, I think when you see that the gain on sale declined that much, but yet, we still almost matched the noninterest income of the prior quarter. And the reason, of course, is interchange. Our interchange went from $1 million contribution in the fourth quarter to $2 million contribution in quarter 1 from our transactions on our credit card. So that when we look at it from a standpoint of growth, there's another issue. If you look at other expenses, we had unusual expenses, other expenses in our financials. You'll see where our other total noninterest expenses went to $10.9 million, and you'll see the various breakouts, but other expenses in particular went from up to $4.1 million in the quarter. But we have -- and again, I'll round the numbers, $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 about $200,000 that was an additional billing from FIS that they said that we owed in additional funds that they didn't bill us for. So we had $1 million in onetime 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 had these numbers in and the earnings per share jumped significantly from $0.31. And if we also look at the fact that we now have 14.5 million shares. And last year, we had 13.2 million shares or 1.3 million -- excuse me, 1.3 million shares more to spread our earnings over. But at the same time, these earnings, we think, would be -- are going to manifest themselves, especially as we continue forward. Now on a little bit of a forward-looking basis for the second quarter. We have seen our credit card and our interchange growing significantly. And we have deliberately kept the program in a manageable level from the standpoint of our marketing and how many the consumers and the consumer participation that we have, because we have a system, internal system that we think needs improvement. Because as we've done with everything else that GBank accomplishes, we do it ourselves. 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 lending days 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 just really performs well. Now to do this, we do have a remarkable IT division, and we are already well under our way to form this app. But we want to, if you will, pause on 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 going to take about 30 to 60 days to do that. So we may see some slowdown in our growth in our credit cards for the next quarters, but we anticipate that we're going to be able to handle the much, much higher volume of applications. We are also looking in terms of our customer service, where we will have the very effective and efficient customer service that will work well for our consumers. So we want to 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 going to be starting in about 60 days -- 30 to 60 days actually, depending on our app. Because we have a great deal going on, and we have very, very high interest in this card, in this credit card for gaming. Now finally, when we're looking at growth, we cannot -- and we are looking at new -- 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, BoltBetz, is prepared to launch live with their slot program once the final regulatory approvals are done in the state of Nevada for the gaming operator to implement it, which should be forthcoming in this quarter. And BoltBetz 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 the BoltBetz funds are not -- the consumer funds are not held by BoltBetz, they're held by the bank. We've implemented RTP and RFP for moving money instantly on and off this app. We also have done -- he got his credit card approval from Visa and we will have an app direct for our credit card on this program as well, and it's also tied to his rewards program. It's an amazing program. It has tested really well, is live on his machines, but not live for use by the consumer until they get the final nod from gaming control, not BoltBetz, 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 in our deposit schedules for our Gaming FinTech division. Many exciting things, including the application we recently filed for a secured card, and it's an extension of our current, these signature cards, and that's an application with Visa. So there's a great deal going on from the growth standpoint, and you're going to see that manifested in other income. And I think once we look at taking out some of these anomalies, you'll see that net earnings per share could have easily achieved much higher numbers -- I'll let you do the math then around there if we added $2 million to other income. With that, I'm going to turn it over to Ryan.

Well, thank you, everybody, and thank you, Ed. Just to start off also, celebrating the developments of the company and SEC registration and our first day at the NASDAQ Capital Markets. Specifically, I'd like to take a moment just to acknowledge the incredible efforts required to achieve this outcome and especially on the time frame that we did. So I just can't say thank you enough to all of our employees, our advisers, our stakeholders, our customers. Without you, it just would not have been possible. Thank you so much. So as stated, we're pleased to report net income of $4.5 million or $0.31 per diluted share in a quarter that included altogether nearly $1 million in extraordinary expenses, the $800,000 approximately 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, $17.4 million. It was down about approximately $196,000 on a linked quarter basis. However, year-over-year, it was actually up by $4.2 million or an annual increase of more than 31%. As we think about the different components of our top line, specifically net interest income was up $105,000 compared to Q4, mainly due to our growing balance sheet. Year-over-year, net interest income is up approximately $1.1 million 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 that in the release, specifically lower loan yields as the 50 basis points in rate reductions that occurred in Q4 went into effect for our variable rate SBA loans as of January 1. That was offset by lower funding costs and also higher investment yields. Investment yield and investment portfolio is performing nicely with quarterly yield of 4.94%. Overall, we're quite pleased with the NIM and how it's held up. On a bank peer comparison, we expect to remain in the top decile for net interest margin. As Ed mentioned, a big component of our top line is noninterest income, which totaled $5.5 million for the quarter. That was down approximately $300,000 compared to Q4, but year-over-year was actually up by $3.1 million or a year-over-year increase of 127%. The 2 largest components of that, as mentioned, gain on sale of SBA loans was down approximately $1.5 million compared to Q4 due to both Q4 sales being strong and Q1 being historically a little weaker due to seasonality in 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 million, and that's on spend volume of over $105 million for the quarter. And that compares to revenue of $1.1 million on spend of approximately $52 million in Q4 and $20,000 in revenue on volume of only $1.1 million in Q1 of last year when we were still really ramping up the program. Shifting to noninterest expenses. First on a linked-quarter basis, noninterest expenses were up by approximately $1.2 million 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 Ed alluded to, a significant portion of these costs are being driven towards improvements, enhancements and growth within credit card. Next, on a year-over-year basis, noninterest expenses were up by approximately $2.5 million, again, driven by increases in compensation and other operating expenses, which were up year-over-year by $1.1 million and nearly $1.5 million, respectively. Compensation specifically, you can see that FTEs increased year-over-year from 150 at March 31, 2024, to the most recent quarter at 175. That comprised approximately $850,000 of that year-over-year increase. And then also year-over-year, our stock-based compensation increased Q1 compared to Q1 by nearly 250,000. It's been great to see the stock price goes up. And as that happens, we get to recast those noncash expenses. From other operating standpoint, again, the SEC expenses on the accounting and legal really fall under 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 $1.19 billion, that's up 24% over the prior year. Total loans were at $843 million, which is up 15% year-over-year. The loan loss reserve stayed right around the $9 million mark, and that equates to 1.41% of at-risk loans or loans excluding the guarantees. Deposits were at $996 million, so just shy of a $1 billion mark. That's up 6.5% sequentially. Total equity now stands at $147 million for the company. 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 31, 2024. I'll also note that we did complete the downstream of $15 million 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. We did do that downstream of $15 million in Q1. That translated to an increase in the bank's Tier 1 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 and 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. Total nonperforming loans were up by $6.2 million to $20.4 million, of which $14.7 million of that was guaranteed by the SBA. A majority of the quarterly increase in total nonperforming translated into 1 purchase of an SBA loan of previously sold guarantee balances, which was identified as nonaccrual at the end of the year, but the repurchase actually took place in Q1, and that translated to approximately $3.6 million of that quarterly increase. With net at risk nonperforming loans of $5.7 million, that represents only 3.7% of the company's capital plus reserves. So we're very comfortable 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, we're certainly happy to be in a position that we're in with nearly 25% of our loan portfolio being guaranteed by the SBA and USDA. And specifically, as we look ahead in SBA and commercial, we still see some positive sentiment really remaining within that group and our customers, specifically, the SBA and commercial pipeline remains quite strong at an expanded pipeline of more than $300 million. 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?

No, we'll open it up for questions now.

Okay.

This is Tim Coffey from Janney. Congratulations on a very active quarter. Speaking of which, Ryan, a couple of times in the press release, you discussed that SEC uplift costs were, I think, $1.1 million to date. Are you expecting more in the second quarter?

Yes, there will be some. And I think that -- so just to break that down, like I said, about the $800,000 in Q1, it was approximately $300,000 in Q4. And I believe we have -- what do we have slated for...

We've got $1 million budget for Q2, but I don't know we'll get quite that high.

Yes. So we've got $1 million in our forecast. But right now, we're looking at it maybe being a little bit less than that.

Okay. Great. That's helpful. And then, Ed, a lot of stuff to talk about on the credit card this next quarter. How should I be thinking about the daily transaction volume in that card for the second quarter?

Well, I think that we're going to -- when I mentioned a pause, I think that our transaction volumes are going to stay while we're in this process since we're not going to be growing our card other than through our incidental growth, word of mouth, other things. I think we can look at our transactions. And remember, the part about the second quarter, we've been doing this for a long time. As you know, we had 1 million accounts with Play+ on prepaid cards. The second quarter always sees a decline in sports betting activity that we've seen every year in terms of our load factors. So given all that, we think it's going to stay probably flat for a quarter until we start picking up our momentum again into the third quarter.

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

Yes. The credit line, I think, it 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 -- that at the Board level as our max credit line level. I did mention the potential for a secured card, which we've applied for the bids for where the applicant in lieu of his credit rating provides the capital upfront for his credit card app operation. But that is an interesting program that would open up to gig workers and other part-time workers that just don't get -- certainly have the wherewithal and the wood class would qualify for another card but cannot because of their -- the way that they -- their work status. I hope that answered it.

It did. Yes. And are these things that -- obviously, the credit line is already in place, the other parts of it -- is that something you plan on having in place later this year?

Yes, yes. So we're working on all of that right now, and that's part of what we talked about in terms of Q2 leading into the second half of the year, is our expectation is the application flow enhancements, the customer service enhancements and the secured card should be in the market going into Q3.

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

Largely, yes, yes. Although there will be some technology expenses, particularly in Q2 and Q3 for some of those enhancements, but they won't be significant...

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

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

We believe the program is going to launch in this quarter, this second quarter. And like all launches, it will walk before it runs. So I think you'll start to see 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 the gaming operator and it's going to be very controlled, but we have some very active players that are going to be participating. And the beauty of that app is that it's going to 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 credit card and participate in their gaming activity. Because most of the time in 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. 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've chatted with you about it. But there was 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 licensed gaming apps like Konami's system. And that process of review is -- we believe, shall be completed very shortly. And it's not on BoltBetz, as I said, that's on the gaming operator. So that was another little time-consuming process. But at the same time, everybody in the state of Nevada has to go through it, and that's not the case for 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.

Great. That's great detail. And then, Ryan, just on the SBA business, did I catch that at the end of your prepared comments that the pipeline was $300 million?

Yes. So right now, our expanded pipeline is slightly above $300 million, that's both SBA and commercial. If I was to break SBA out, Tim, it's running around -- it's a majority of it. It's nearly $250 million.

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

Yes. It's behaving pretty well, I would say. I mean, overall, we've obviously had some migrations. Very happy to have our collateral backstop on our SBA loans, that's very helpful in addition to the guarantee. But we're working through that in an orderly basis. In terms of demand, demand still seems pretty strong. And on an anecdotal basis, we're getting feedback from our referral sources, and they think that, barring some notable contraction, that the next 2 quarters are going to continue to have strong demand.

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

That's a $10 million question. We were hoping that they start to strengthen. That hasn't happened so far. They kind of remain at where they've been in terms of soft levels. For us, we had forecasted some improvements in the second half of the year. For that to happen, it's -- I think there's going to be a little bit more certainty -- need to be a little bit more certainty on rates and prepayments, which we're not seeing yet. But to be clear, we don't expect GAAP gain to return to 10% anytime soon as tying into Ed's comment on our prior conversation. We do think that over time that the GAAP gain for hospitality in particular will get back to a long-term average, which we think is probably close to high 4s and 5% but that might take a little bit of time. Any other questions?

Well, I think that if there are none, we'll be closing this call now, 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.