GBFH - NASDAQ

Hello, and welcome to the GBank Financial Holdings, Inc. Q4 2025 Earnings Call. [Operator Instructions] Also as a reminder, this conference is being recorded today. [Operator Instructions] We appreciate you joining our earnings conference call. With me here today are Ed Nigro, Chairman and CEO; and Jeff Whicker, Chief Financial Officer of the company. The related Q4 earnings press release was filed with the U.S. Securities and Exchange Commission today and is available on the News and Media section of our website, www.gbankfinancialholdings.com. Before we begin, I'd like to remind everyone that any forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe harbor statements in our earnings press release. All comments, expressed or implied, made during today's call are subject to those safe harbor statements. Any forward-looking statements made during this call are made only as of today's date, and we do not undertake any duty to update such forward-looking statements, except as required by law. Additionally, during today's call, we may discuss certain non-GAAP financial measures, which we believe are useful in evaluating our performance. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings release. I'd now like to pass it over to Ed Nigro, Chairman and CEO.

Well, welcome, everybody. I'm Ed Nigro, and it's a pleasure to have the fourth quarter and some year-end numbers for you for today GBank Financial Holdings Report. I almost feel like I have to do some disclosures like I'm live, this is not prerecorded, I'm not a bot, and I'm capable of making all kinds of mistakes. However, I hope today to avoid all of that and give you some insights into what has been going on in our world at GBank. Jeff is going to follow me with some of the more specifics and details, but I'm going to take us through some initial discussions, particularly in our Gaming/FinTech arena and some of our core banking processes, particularly SBA. But I want to focus today very much on what's been going on in Gaming/FinTech. And my first comments are going to be focused around the credit card, because it seems to be drawing the most attention, and it has had the most fluctuation in the last several quarters. And I wanted to give you some insight on things that we've already listed or discussed at some length, but maybe not to the depth I want to go in today, so you can have a good understanding of what we're doing and where we believe that we are headed. First, I had reported that we had stopped our application process. We had 2 major events going on: we had an application automated product that wasn't working well, and actually, our users were getting lost in the process, and applications were being dropped; and then we had another direct mail piece, massive application process going on from a contract that I've always said in the past should have not been entered into, but it was, and this was a direct mail piece that went out to 700,000 recipients. Well, between the 2, the app not working and all of a sudden these massive applications coming in that were not designed or geared towards our primary gaming user, we were underwater very quickly with our entire app process. We shut it down, actually, and had to do what I call the redesign, development, engineering, and execution. And that took us until almost the end of October in the fourth quarter. And then we were able to gradually open up our application for real applicants. Naturally, this stopped all of our marketing. So we had to accelerate it up to around $130 million in transactions for the second quarter and then in the third quarter and the fourth -- excuse me, in the third quarter, but we stopped it because we were accelerating quickly, but not with the controls we wanted in place. The fourth quarter you've just seen settled in around $99 million in transactions, but that was to be expected. It was to be expected by us, anyway, and I know we may not have given guidance that it was going to decline some. But when we had these enormous fraud applications, we really shut down all applications to our credit card. We then relaunched it, and we relaunched it with some amazing KYC and fraud prevention metrics in place where we engaged Plaid, we now do fraud prevention with Neuro ID and Precise ID, and multiple verifications of who you are to avoid fraud. We also learned, interestingly, that in the application process, bots are now becoming very active in loading these apps. But there is a way to determine a difference between a bot and a human. I suppose one day that's going to become more important than many other things. But in credit card, it's become a big issue. As an example, over Memorial -- over, excuse me, the Martin Luther King holidays, we got bombarded with about 10,000 applications just over the weekend; 6 were approved, and all the others were fraud. Not one fraud has gotten through. Not one fraud has penetrated our app process in the last 60 days, so that is an accomplishment. But we also found the use by our customers to be problematic in the sense that we had high-volume users, we had an ACH payment process, which was how most of our credit card players were paying off their card. They were paying it off with ACH. And for those of you who may be exposed to ACH, there's a delay, sometimes up to 3 business days in ACH clearing. There are also consumer rights on ACH that extend often out to as much as 60 days in terms of was that an authorized transaction. Well, our ACH, when it was launched, for our credit card was launched with a vendor through our processor, i2c. We determined very quickly that this ACH process must be brought inside GBank. We do ACH processing for our commercial clients, but to do it through a processor like i2c, with our [ ledger ] process and the batch processing, and also to be the ODFI for this process, it became a significant undertaking. However, we brought on the technology and payments experts in order to implement it, and we are very close to launching our own ACH transactions for our credit card players. Why this is important is that when you're doing $100 million a month or more in transactions, there are a lot of times the credit card is paid off multiple times through the month, and they're paid off by ACH. Question, do we give that client instant credit for the payment of the ACH? Do we have that client wait 3 days? Do we put a 7-day wait on that client? We have experienced some very valued clients that are deserving of instant credit for ACH and others who are not. Well, when we saw some fraud penetrating ACH, and we knew we had to get control of our ACH payments, we also, in the fourth quarter, for a period of time, stopped and reduced transactions significantly, and waited and watched ACH clearance patterns without giving more instant credit to some of our better users. Well, this caused a decline in our transactions, and we knew it would, but it was more important to verify our client base and verify that no fraud users had penetrated our user base, and we did. But it took time to do that. We have since relaunched, and of course, as I said, we're going to soon have the ODFI for all of our consumers that own our credit card, and we are ready to relaunch right now, again, our marketing, which we stopped as well. It was very important that we do this right. We have high-volume users, but that has the potential, you've seen the growth patterns that we can have. And those growth patterns can, we believe, be reinstituted, but they are going to be reinstituted with our new KYC, our new fraud prevention, and our new payment systems. And we feel that we really have very good and very direct involvement with our customers. We've even started new host-style loyalty programs, meaning we look at our higher users and treat them with special premium offers. We contact them. We make sure their account's being managed properly. We make sure that they're getting the results they want when they want their card paid off. We have direct contact with them, and this is very important as well. And we have also instituted our own AI system for answering calls, and we've moved all calls away from a processor to ourselves. And this has been a transition process, indeed, for us, but it's working, and we're getting closer to our customers and our customers know us. And we think that -- and not only think -- we believe that we have a strong foundation now that we can scale, and we can begin to rescale. And I think you'll be seeing that in the not-too-distant future. There have been another couple of headwinds in the credit card business. Some of you may have noticed that DraftKings, about 60 days ago or so, stopped all credit cards. And FanDuel just announced they're going to stop all credit card -- direct loads with credit cards, because both of them have realized or have situations where some states do -- there are about 7 states right now that do not allow credit cards to -- direct credit cards to load these sports betting apps. And we know DraftKings has got a fairly substantial fine from Massachusetts, and we know, we've read that FanDuel also got a fine, and I believe, it comes from the state of Iowa. So rather than face these, they're deciding to not do credit cards. Well, that's their decision. But we know that there are at least 20 -- we have about 28 apps, sports betting -- legal sports betting apps across the country. Our customers use 20 of them right now. And when FanDuel announced they're going to stop credit cards in the month of March, most of our players have already moved off of FanDuel that want to use their credit card. So credit card people will find a place to use their credit card for loading these apps, because it is a legal process in almost all the states, and it is a very successful way of moving funds. I think that there's interesting note here, and we knew this some time ago, but I had to refresh my memory. Credit cards right now today account for about 30% of all our payments in this country, in the United States, which is about $6 trillion a year. It is by far the single most in payments systems in the country alone. Now that's excluding ACH, because ACH is towards everybody, but I'm talking about a payments method, and it's growing. So it's not to be ignored if you want an interesting market share, and we know that there will always be competition for market share, and those that will be able to follow the law and make sure they don't compromise loans in certain states. Our customers are very smart, and they know how to move their apps, again, join different apps, and take advantage of apps that will accept our credit card. And of course, that's direct credit card. Now there's indirect credit card acceptance, too, which, of course, debit card -- someone says if you use a debit card, but you can load a debit card with a credit card. You can load many payment systems with a credit card. So it's a system that is widely used. Some of the direct applications, of course, change from time to time. And our players and our customers know where to go and know where they're welcome. And we have not seen -- while we saw when DraftKings did it abruptly, caught many of our players off guard, and it took them a week or 2 to realign with other apps and set up their accounts, but they did. And we saw the resultant volume pick right back up from those customers. So I wanted to give you that insight on where we had been with the credit card, because you saw rapid growth, and you saw slow, and then you saw a decline, and now we feel very comfortable with where we're heading. And we're going to relaunch our marketing. And as a matter of fact, if you haven't seen Mike Tyson yet, we did an announcement on that, but you will be soon. I'd like to move on and talk next a bit about our BoltBetz and our PPA. It's a very important part of our Gaming/FinTech operations. BoltBetz got licensed on November 21, 2025. They have received 2 approvals. The first one was for BoltBetz, and the second one from Gaming was for Distill Taverns, authorizing them to use BoltBetz. The interesting thing is the BoltBetz license from Gaming, they are [ licensed ] as what's called an Associated Equipment Provider. It's interesting because it's described as a software solution that allows players to create and fund a wagering account via a mobile app. And that's what was licensed -- that's how they were licensed as an Associated Equipment Provider. The second part, the license was required by the gaming operator to use BoltBetz. So Distill Taverns had applied, and this will become a more routine application for other gaming operators, any system they might use that touches any of their gaming platforms, they have to tell Gaming about it and get their acknowledgment and approval that it's an okay process. And of course, this will be an okay process for whoever applies because BoltBetz has its Associated Equipment Provider license. The Distill Taverns license was interesting because the license went on to say how they are approved to use BoltBetz. And it went on further to say directly that GBank will be holding all the funds and not Distill, and as such, a reserve account is not necessary. Now this is quite, I think, remarkable in that Gaming understands that all the funds that are used to play slot or to go to the wagering account, to be used to connect to Konami's Casino Management System, are being held by GBank. And that is held by our Pooled Player Account, which is a patented system that BCS developed that is under agreement utilized by GBank. Also, as you know, GBank Financial Holdings owns 32.99% of BCS. But having said that, what those funds do in GBank, GBank now -- those funds go to a subledger account at GBank, and GBank reconciles them, sells them, and distributes them. So all the transactions that would have taken place at the gaming operator now take place at the bank. So no longer must a gaming operator with slot machines face the issue of managing cash, because the bank will just pay them weekly all their wins. So it's a very, very -- it's actually a very good system for the gaming operators, because the gaming operators, the bricks-and-mortar operators are unlike the sports betting apps. Gaming operators have always paid a lot of money to have their cash managed, because cash is something that is a necessary evil. Well here, for the first time, they're not going to have to manage cash in slot machines. There's a history here I thought was pretty interesting, and why we as a bank have many people, I'm one of them, that understand gaming. But I was involved in gaming when the system and slot machines was coin in, coin out. It's a very simple system. Machines were mechanical, you put your coins in, you hit a jackpot, and the coins came clanging into the tray. As a matter of fact, a little side story. I remember when Steve Wynn opened the Golden Nugget downtown, he put the coin noises over the loudspeakers. So when you walked in the casino, everybody would think everyone was winning, because the coins were dropping into the trays. It was pretty good marketing. But then -- and then it changed when suddenly the digital machines, and they were first the poker machines were put out by IGT, International Gaming Technology, which was founded by Si Redd. And Si started this -- but also on these machines, these receptacles took cash. Now you put a $5 bill on, a $20 bill on, and it would accept and give you credits on the machine. And when you were done playing, it gave you a slip. And you took that slip to the casino cage and you cashed it in. You couldn't -- and that was a process that existed for some time until the early '90s. And then another thing came to change the world. It's called TITO, Ticket-in, Ticket-out. And TITO was actually created by MGM. And MGM sold it to IGT for a lot of money because IGT saw it and said, this is going to change the world. Instead of getting just a receipt to go to the cage, and you get cash, and then you went and took that cash to go to a different machine, this gave you a ticket. But that ticket, you go to the machine next to it and put it in and get in some credit, whatever was on that ticket. So it's called Ticket-in, Ticket-out. And you can play all the time, as long as you had credits on that ticket. And then when you were done, you went and cashed it out at one of the kiosks or at the cage. In 1990, Si Redd said, "We're going to change the world. Everyone is going to have TITO." And everyone laughed at him. What is TITO? We have cash. People love cash. People are never going to get away from cash. Well, TITO still involves cash, but only cash-in and not cash-out. And lo and behold, TITO took over the whole world. TITO is everywhere, Ticket-in, Ticket-out. Well, now comes BoltBetz and our PPA. No longer does cash go to the machine. Cash goes to the bank. No longer does the casino even touch the cash. It goes to the bank. And now everyone is licensed. The app is licensed, the gaming operator is licensed, and the bank needs no license. We're a bank. We're a federally insured, state-chartered bank. And we have a system to manage billions of transactions, which we will be quite capable of doing. And holding -- imagine holding all of the funds that are currently in slot machines, which we'll distribute them weekly because the gaming operator will want their funds, the player will be able to move funds instantly, and there is a management, the settlement distribution that will be at the bank. And that's why we're excited. We think that this is one of those moments. It was coin in, coin out. It was cash in and slip out, it was TITO, and now there's GBank. Pretty interesting in BoltBetz and the PPA system. So I wanted to give you that -- a little bit of background on where we think and what is happening with them because right now, we know that our second operator, and in Distill, the operations were just launched, and they're going to launch it at all Distills, which has not been done yet, but it's on its way. Each Distill has to be trained, staffs have to be trained. And by the way, the app is approved by Gaming, where it even has a process where you can tip the bartender right from the app. Pretty amazing. And that's important for a lot of taverns where the slot machines are built into the bar. And we know that Terrible has had meetings to start their process and believes that they'll be launching in the second quarter. And they're making their application to the Gaming Control Board, as Distill did, to be able to use the BoltBetz app. So that is all in process. Now this is a process, and it's going to take integration with the players, and there's a pipeline of users that we'll be announcing in the future. But remember, the state of Nevada has 150,000 machines. So that's a big industry for us to tackle a little bit at a time with this process. But across the country, there's another 800,000 licensed slot machines [ amongst ] when we start looking at all of the tribal gaming casinos and all of the other casinos and all the other states. Now we are talking about bricks-and-mortar casinos, not digital casinos or apps. This is real slot machines across the country, and we think it's going to be a great market, and we are anxious to see this process grow. So I've covered a bit about BoltBetz and hopefully brought you up to speed and I'll be able to answer questions on both of them. And I want to close with some of my comments on our core banking and our gain on sale and our noninterest income because [ you're ] going to see our noninterest income, that's where our interchange fees drop. And you'll see where they went up about $7 million this last year alone just from the interchange activity of the credit card. But you're also going to notice our SBA gain on sales this year in particular, because we've changed an entire process there, where before when we sold the guaranteed portions, the guaranteed portions were sold to the market, and the market would pay based on the spread. Well, our spread wasn't something that was being focused on, on the basis of the incentive plans for our BDOs, our business development officers, and we changed that. We said, hey, we have to focus on the fact that the bank, sometimes this last year, our GAAP gain on sale, which means the gross price we were offered versus the price we realized after expensing the loan cost, was dropping below 3%. And that's quickly becoming a place where the value in selling the loan is questionable. 4% is where we like to live. So now we've changed our entire incentivization program where the spread is critical. And if we sell loans at above 1%, at least 1.25% spread to prime, the GAAP gain is much larger. So we also took and put an incentive program in that started in January where we're going to reward -- the rewards would depend on the spread. And the commissions would depend on the spread. But we wanted the spread to be at least 1.25% or higher, because we didn't want the 75 basis points or 100 basis points spread. Now I wanted to share something with you, a little forward-looking. It's not forward-looking. It's actuals in January, which I can tell you today, because we're on the call. We've sold 12 loans in January for about $32 million. Of the 12 loans, 8 were 1.25% spread or higher. Our GAAP gain has jumped significantly, and it will be a minimum or more than 4% every month now, and not dropping below 3%. So that's a significant, I think, occurrence. But one other thing came up that I want to share with you when we're talking about SBA. We put in our report -- after the quarter closed, we closed on sub debt of $11 million. And we did that because we wanted to pay off the $6 million of sub debt that was due in January, and the rates were going to go very high. So we raised $11 million to pay off that $6 million, and have a little leftover. But one of the important things that came up when some of the other banks were asking us about our sub debt and our ability to repay, we said, do you have a concentration in the hotel industry. And I would respond on several calls, yes, and we love it. Oh, you do? And I said, yes. I said, let me give you a little risk analysis we did for you, because we were getting this question. So we went back to, let's see, we went back to June 2015, when we did our first SBA 7(a) loan. Since June of 2015 through the third quarter, I have it. I just didn't update my numbers for the fourth quarter. But for the third quarter of 2025, we originated $2.473 billion in hotel loans, 7(a) hotel loans. We love them because of the collateral. The total number of loans we did since announcement was -- since commencement was 1,002 loans. The total hotel loans in default since the beginning, now default -- remember, I said on one other investor call that when we have a loan that looks as if we're going to have to foreclose on it, we buy back the guaranteed portion. That's why our NPAs tend to jump up because when we buy back, the loan immediately goes to 4x the value that's been on our books. So we buy back that so we can sell the asset and handle the closure. We have a great division within our SBA division that handles these. Well, of all the 1,002, we had a total default of 12 loans since our history began that we've resold. We bought back and we sold. Of those 12 loans, the total charge-off after asset sale and payment of all the guaranteed portion since inception has been $2.8 million. That's right, $2.8 million. So when we were asked about our concentration and why we don't mind it is because of the collateral and the way we have in our broker assistance in liquidating collateral that sometimes we have to [ repossess ]. Currently, as of the third quarter last year, we had 592 active hotel loans. We had $1.622 billion current principal balance on and off balance sheet. We had $860 million hotel loans off balance sheet. We have over $1 billion in loans off balance sheet that we manage right now. So I guess we're really a $2.4 billion [ to date ]. So to date we have $761.6 million of current principal balance on balance sheet, of which $243 million is guaranteed. And also, we have $10.5 million reserved for the loan loss reserve for those hotel loans. For those loans we've had $2.8 million in losses since inception. I just thought I'd give a little color on that because some people ask us about our hotel business, and I love it. It's the 7(a) business with collateral, and we're going to see our participation in that grow. We're staying within our risk profiles very well with our capital. And I just wanted to give you that update because the things we're doing in our Gaming/FinTech, the things we're looking to replace with deposits, I want to replace as soon as we can $400 million in deposits that we paid for. And $400 million at no cost is a big change. But then when we convert that to more SBA originations and more guaranteed loan sales and a portfolio that operates this strong, we think we have -- and we're also looking at our CRE and our own bank individual loans, and we just -- the other day, [indiscernible], but we just approved it. And I can tell you that we increased our individual borrower to 70% of our legal limit for the bank, which now goes to $32 million to any one borrower. So we're moving, and we're moving in anticipation of the kind of growth we believe we can have and the way we can manifest it in our core bank. With that, I want Jeff Whicker, our Chief Credit Officer -- oh, and there's just one last point, though, Jeff, excuse me, since this isn't recorded, and I told you I would mess up, we have been investing a great deal in people and reorganization. We've reorganized in the last 4 months our entire credit card operations, new leadership, and of course, I spend a great deal of time on it. We've also engaged our new General Counsel and Corporate Secretary, and she has joined us -- we had a press release about Hilary. We also have engaged a new Chief Technology Officer. We had a press release regarding Jason. We also have engaged a new Payments Technology Director to help us get through this payments. Remember the ACH I was talking about? She's leading that effort. She's very talented and rated in ACAM and PCI ratings as well, or accreditations, and it's very important to us. I think you're going to see that the manner in which we're moving and the way we want to grow our technology capabilities, and the way we want to accomplish our internal payments processes, and the way we want to grow our deposits and grow our Gaming/FinTech, our plate is full, but we love it. We're working diligently towards those objectives. And Jeff, fill us in on more of the specifics.

Thank you, Ed, and good afternoon, everyone. The company reported record quarterly earnings of $7.4 million, or $0.52 per diluted share. This is an increase of $3.1 million compared to the prior quarter earnings of $4.3 million. This includes record levels of net revenue and $247,000 in net onetime expenses. The onetime items include the tail end of the marketing campaign for the credit card that began in the third quarter, which have now all been satisfied and the program has been closed out. Net of the unusual and onetime items, the bank would have produced a diluted earnings per share of $1.66 for the year, up from $1.37 in the prior year. The bank continues to grow with a compound average growth rate of 28.3% over the last 8 years while maintaining top-tier earnings. In addition, as described by Ed, the company continues to develop the digital bank and payments products that will allow us to drive higher future revenue. We anticipate that one of the largest drivers of this will be related to the BoltBetz PPA product that is now launched and is becoming -- and is beginning to gather steam. We anticipate that this will significantly grow our noninterest-bearing deposits, resulting in an improved net interest margin, which was 4.33% for 2025 compared to an industry average of approximately 3.7%. SBA had a record year for production, which wasn't easy given the recent government shutdown, and we continue to see strong year-over-year growth in loan production and have a healthy pipeline going into the new year. In addition, the company has implemented several changes that Ed addressed that will lead to improved gain-on-sale income in the future. We're currently seeing the impacts of these changes as the GAAP gain-on-sale increased from 3.24% to 3.98% in the fourth quarter. And as Ed alluded to, we anticipate that to trend up above 4% in 2026. The credit card program is continuing to develop as most of the system changes are now implemented. Transaction volumes for the last 2 quarters has been relatively flat, while we have worked to correctly identify weaknesses in the system, and we are seeing much better results related to onboarding customers as these new systems have been able to withstand all of the recent fraud attacks that continue to plague the industry. The most interesting thing about the credit card program is that despite the issues we have had related to credit and fraud in the last couple of quarters, the program is positively contributing to the bottom line of the bank on a consistent basis. This is very unusual for a program that's this young. You can see that the provision expense came down during the current quarter. As discussed in our previous calls, we have seen a cresting in the nonperforming assets over the quarter and have been able to make significant progress in working through the existing accounts, including the resolution of one of the nonperforming assets in the first weeks of 2026, reducing the total balance by $3.6 million. In addition to the work that Special Assets is doing to resolve the credit issues, recent rate reductions by the Federal Reserve Bank have allowed our customers with variable rate loans to see some relief from the unusual upward swing in rates that occurred from June 2022 to July 2023, and this results in improved credit quality overall. The bank sold off about $52 million in investment securities during the quarter, which included both available-for-sale and held-to-maturity investments. Recent interest rate changes have tightened the spreads and impacted the long-term impacts of these securities on the bank's asset sensitivity, and management determined that it is in the best interest of the organization to move into securities that will better protect the organization in the rates-down environment. As a note, all of the held-to-maturity investments were included in the sale, resulting in no on-balance sheet adjustments to AOCI related to the remaining securities. The AOCI was $17,000 as of December 31. Subsequent to year-end, the bank did announce a redemption of $6.5 million of subordinated notes, as Ed talked about, that we would have repriced from -- that would have repriced from fixed to variable rate in January. This would have led to a rate increase of 350 basis points on the debt, resulting in a cost of over 8%. In addition, the bank issued $11 million of additional subordinated debt with an 11 -- with a 10-year life and a fixed rate for the first 5 years of 7.25%. This provided additional potential capital for the bank while reducing costs. As the bank continues to work to develop new lines of business, the core bank continues to be one of the top-performing organizations in its peer group. The balance sheet remains strong with above-average liquidity and capital, and this provides the needed support to fund our growth initiatives as we move further into the digital bank and payments industry. While we have experienced a few hurdles along the way, bank continues to be a top performer, while we develop the new products and services to enhance shareholder value in the future. And with that, I will turn it back over to you, Ed.

Well, thank you. And I believe we've covered everything that we wished to on the call, and we'll take questions at this time.

[Operator Instructions] The first question will come from Brett Rabatin with Hovde.

Can you hear me?

Yes, Brett. We can. It's Ed.

Can we maybe just start -- and it might not be fair just given, I'll call it, the fits and starts of the programs that have meaningful potential. But I know we've talked about some fairly big numbers around credit card and what that platform could look like in 4 to 6 quarters. Can you maybe give us an idea, and I guess this would presume that the fraud -- all of the fraud detection and all the stuff around fraud might be in the rearview mirror, which was my understanding from your conversation. But can we talk about credit card and what the potential for interchange might be this year and volumes as you see it? And if you don't want to give specific guidance, that's fine, but just directionally and volume-wise, as you see the year developing?

Well, I think that when we look at the year-over-year growth that we just had, even with all of the breaks we've had in place, by breaks, I mean the stoppages we had, we went up to $400 million this year from about -- what were my numbers last year I had...?

$73 million.

$73 million. So you can see that that's what 500% growth. But I'm not placing 500% growth on $400 million. But we feel that -- and while I'm not going to be giving too much forward guidance today in any specific numbers, but if I were trying to put some projections on it, I think that we would probably...

I think we could at least grow on that same trend...

If we don't double it, I mean, I think we would not be doing it justice, but that's -- but when you talk about going from $400 million to $800 million in originations a year to where we -- that means by the end of the year, we've got to be doing $60 million -- $40 million or $50 million -- $60 million a month, we see some good growth. We know we now have the capability to handle that kind of growth, and we don't see that as an unreasonable number of cards to expand to get there as long as we have -- and don't have the process of user fraud, or user abuse, and we've managed to eliminate that. So we think there's quite a pathway here. Now the other side is some of the big platforms like FanDuel and DraftKings not accepting any credit cards. It will be remained to see, because some of the others we know have seen significant increase in credit card use. So is that volume they want, and the volume that is worth getting, we look at their public announcements, and it's pretty significant. So we think there is opportunity for some substantial growth. And of course, the interchange fees will be very important to us. And I hope I've answered your question without sounding too evasive.

No, you've added some good color to kind of what the year might look like. So appreciate all that. And then the other thing as we think about SBA, maybe an easier business to forecast, given that that's a much more mature piece of your platform, and some of this will depend on the market, but would you anticipate trying to grow volumes from here? And then I know last quarter you did, we'll call it, a revitalization or reorganization of that platform. Should we expect continued improvement in gain-on-sale margins, et cetera, from that platform from here?

Well, I think you'll love this, because we've incentivized our team more with stock options than we have -- than with some cash bonuses, and again, because we want the materialization of a higher GAAP gain on sale for the bank, and the materialization that will selling at higher spread be more difficult. Well, it's always more difficult to sell a higher spread. But there are other factors involved. We have the most amazing broker network on earth, I believe, because our key brokers are all significant shareholders of ours, and reside in Chicago, New York, North Carolina, and Florida. And I mean, they're amazing. So yes, we expect that growth pattern to continue with what it has been in the past. So you can sort of project that out. But we really believe that we can sustain that kind of continued growth. And with the lower interest rates, we think you're going to see more hotel deals out there.

Okay. And if I could just ask one last quick one, just around provisioning for the fourth quarter. You had a little higher nonguaranteed NPAs, but chargeoffs were lower. The negative reserve, was there any change in the Q factor for the ACL or anything else that drove that negative provision? And then is there anything that you see kind of changing with the criticized asset list?

Yes. This is Jeff. There actually was a little bit of change in that analysis that we did on the SBA loans. So for the beginning of the SBA program, we've always kept a little higher reserve on SBA because of the concentration, and we call it a concentration risk. But with the analysis that we did on the SBA program from the beginning of time, it doesn't really support us holding additional reserves on that portfolio anymore. So we actually did have some adjustments to the Q factors that did impact that number in the quarter.

Yes. I think you saw the reserve I mentioned was so high based on our historical analysis. Remember the old days when we did our reserves only on historical analysis, CECL [indiscernible], but I think this is one of the demonstrations of how different it would have been.

I'll let the other guys ask about BoltBetz, but I'm sure that'll be addressed too.

Our next question will come from Matthew Erdner with JonesTrading.

Can you hear me all right? Awesome. So I'd like to kind of touch on the slot opportunity and kind of rehash some things from the prior quarter just to see if they stack up in today's environment. So previously per 100 slot machines were about $2.5 million in deposits. Does that still jive with what you guys are seeing as you start to onboard some of the clients?

The danger in that, and let me express that, that's a mature-- that's about 50% penetration of a mature market. So what that means is in order to generate those numbers, the customer base has to be there for the particular gaming operator. So let me give you an example. Let's suppose you're a gaming operator with 100 slot machines, okay? And your customer base that utilizes those 100 slot machines, you have a customer base of about 10,000 or 15,000 people -- players that come more than once a month to play your slot machines. So if you do have that customer base, this analyzes your total drop, and then it analyzes your customer base, it analyzes a 50% penetration in your customer base, and then comes up with a number. So that means that of their customer base, half of them have to be users of the app. How long it's going to take us -- what we didn't give you was, okay, how long is it going to take from the time we sign up a gaming operator until that deposit is realized. And that's how long does it take the gaming operator to onboard his customers. That's an unknown. And it's not going to be instant, like right now with -- and particularly right now with, as an example, Distill. This is brand new. And they have to train their clients, they have to train their employees, they have to train their bartenders, they have to train -- and then they have to sign up and use it. The interesting thing that I didn't say is that we hope that one of the preferred loads, and because we're marketing it right with it, is going to be our credit card. So that's moving side by side with some of this. So what I can't tell you is how fast it ramps up to that. So we'll be having more and more information as quarters go by, and we have some history under our belt, but it's going to take some time. Remember, I told you about TITO? It took time. It wasn't something that was done overnight. I joked with somebody the other day when I was saying to someone, when Thomas Edison invented the light bulb, I wonder who the analyst was who asked him, well, how many lightbulbs are you going to sell next quarter? So I think it's analogous in the sense that this has never been done before. It is new. The apps that are out there just don't work, and many customers have just said, I'm not paying, those apps don't work. So you got to reeducate some and you got to spread it. But what we do know is this works amazingly. And then once they get on it, we've seen amazing feedback already. They love it. So I guess as we get a few quarters under our belt, we'll be able to tell you more about how the growth is going. But for right now, the number of machines are relatively small, the transition is going to take place, but the market is dramatic. I said in our state, we have 154,000 slot machines, and across the country, there's another 800,000, Matt, that are legal machines. And the primary providers of that machines, Konami, is one who has 300,000 machines alone -- excuse me, 140,000 machines alone. Several of the others that are going to be seeing this app have a lot more. So we know there's a good market out there. It's up to the gaming operator as well as the slot manufacturer like everyone to participate to get their players to use the app. But we think that the app is going to be very convenient for the player, a very convenient wallet.

And I guess as a follow-up to that, around the current deposit mix and net interest margin, would we expect there to kind of be an inflection point on that net interest margin as these slots are started to more frequently get onboarded and really drive that increase in the noninterest-bearing?

Well, I think the slots is a great opportunity and a great [ path ], and we're starting to see the pipeline of some very interesting players. But remember, our bank has 16 other PPA clients onboarded right now. And many of them are startups and many of them have new programs, and some of them deal with the sports apps, but others deal with -- we're dealing with one that's dealing with 2 big state lotteries. So there are other avenues for our PPA as well. And of course, sports betting is -- we still believe that one day a sports betting app will say we don't want to hold the cash anymore, that we do want to see -- we do -- and we'd appreciate a system where we get the cash or this liability off our balance sheet. Right now, as they start to make more money, the cash management is going to become more of a headache. When everybody was a startup, everybody wanted to hold all the cash because they liked the float, they liked it in their operational accounts. But will that change and if that changes, we have the solution for them. We have a solution. If the first sport app that goes under and costs the consumers some money, they're going to be looking at us because we protect the consumer where no matter what happens to the app, no matter what happens in bankruptcy or anything else, our consumers' money is protected because it's guaranteed by the FDIC, and we hold it, not the app. It can't be mixed with their funds. It can't be mixed with, oh, we don't know where that money is, believe me, because one of the things banks are pretty good at it is knowing where the money is.

And then one last quick one, and then I'll step out. As it relates to the SBA business, what impact did the government shutdown have on your fourth quarter origination numbers? And then as we're kind of staring down another government shutdown, what impact do you think that's going to have for the first quarter of this year until that's resolved?

Let me tell you -- that's a great question, because it was a little insidious for our SBA division because we saw the closing coming, so we went and got as many PLPs as we could get preapproved as possible. So we spent all our effort getting our loans in front of them for our PLPs for our applications. And then once they reopened, we did our entire number of sales in the fourth quarter in December that we did. So our sales for the fourth quarter were, what, 9 -- but what happened is our originations for the fourth quarter dropped way down. And why the originations dropped way down, and I talked to our brokers directly, is because of the unknowns out there, and the customers were not sure whether [ they're going to ] apply for a loan because they knew the government was shut down, they knew they couldn't get it approved, so they said, well, we'll just wait and see. So deals didn't get done. And when deals don't get done, originations go down. And our originations went from $200 million plus in third quarter to less than $100 million in the fourth quarter.

118.

What?

$118 million.

$118 million. And our sales for the first time in our history -- in the fourth quarter, our gain on sales were less than the third quarter, and it had never been that way before. So we figured that there was probably a couple of million dollars left on the table in gain-on-sales. But I believe that we're already [ porting ], if you will, PLPs on the prospect of another shutdown. And the news we received from our association, which is NAGGL, which is the National Association of Guaranteed Government Lenders, they believe the shutdown is going to happen.

So if you think about the year as a whole, the government shutdown, I mean, should come out awash because if somebody -- I mean if somebody's working on a loan today, they're not going to [ knock you ] the loan at some point. So even if volumes were to go down a little bit in the first quarter, they would have to rebound in the second quarter.

Yes, we'll catch up this year. It was the fourth quarter last year, we had no catchup. We could do it.

There was no time to catch up.

Yes, I just wanted to get that across and get your guys' thoughts. But I appreciate all the comments, guys.

Our last question will come from Tim Coffey with Janney Montgomery Scott.

So I guess my first question has to do with the SBA. Let's follow up on the last one. So you sold more SBA originations in 4Q than you had pretty much all year. Was that a function of the government shutdown or the change in incentives for originators?

Wait a minute. We had our most originations last year in Q3, which was [ 270 ].

Well, no. In the fourth quarter, you sold about 3 out of every 4 loans you originated in SBA. The previous 3 quarters is about, say, 1 in 2. So I'm trying to figure out, was the increase in the selling of your originations related to the government shutdown and the market being closed? Or was it the change in incentives for the originators?

I don't understand the question or the numbers. Do you?

Well, yes. So what you're talking about is that we sold 1 in 2 loans in the fourth quarter, and we are a little more than that in the fourth quarter. We weren't that high in the previous quarters. Are you talking about as a percentage?

Yes. Your loans sold as a percentage of your originations were about 73% in the fourth quarter. Previous it was closer to 50%.

Yes. That's the government shutdown because we could continue to originate loans in the third quarter during the government shutdown -- I mean, during the government shutdown, but we couldn't sell any loans.

Well, we couldn't [ void ] the loans, so we couldn't execute the loans because even though the loans -- when we say originating, let's understand that as a defined term. When we talk about originating, we've talked about executing loans on our -- that we have in place here and approved by the SBA, approved -- they have to be approved by the SBA to be boarded. Then they have to be approved by the SBA to be sold. So when we say originations, I don't mean the pipeline out in the field. I mean, ones that are -- that have been underwritten and processed and signed and executed with a deposit and ready for the SBA approval and then funding. Once -- that's why after our originations, the time between our originations and sales is very short. We don't have and hold loans a long time that are ready to sell. But there is also something to consider in our SBA originations, because our SBA originations include pari-passu loans, okay? Now a pari-passu loan is an SBA loan of $5 million plus the remaining part of the loan. Let's say it's a $10 million loan. It's a good example for pari-passu. We count the 10 -- we count the pari-passu -- we count the entire loan as an SBA origination, that whole $10 million. Now of that whole $10 million, we can only sell $3 million of it or whatever the 75% of $5 million is. The rest becomes the nonguaranteed portion and then the balance over the $5 million is just a straight CRE commercial loan with us that's on our books. So when we look at loan originations, if you figure that 75% of them are guaranteed, it's a wrong calculation. It's not that way. If you want to run some average statistics, we sell about 64% of our total originations end up selling, okay? Because some of them are pari-passu. And we're doing -- we did what $65 million in pari-passu last year?

Yes.

And we're going to do more this year. We like the pari-passu loans. They're [ higher up ] and hotel. And they're usually a total of around $8 million to $10 million loan. Well, SBA loans only go up to $5 million. And then only 75% of that can be sold. So for every -- we got to reduce out all the pari-passu loans from our origination. And then also in our originations, we have some other loans that have 90% guarantees or 80% guarantees, some of the smaller ones. So it's a slippery slope, Tim. But I think that when you're looking at the relationship of the loans sold to the loans [ on originated ], and it depends upon the day of the month that the loans were originated. If we had a high volume in the last week of the month or the quarter, it could distort the quarter, so.

Yes. To that point, September, we had a whole lot of things go in our favor, and it actually was a very big origination month for us.

That's huge.

And all those originations would have gotten sold in the fourth quarter. So that relationship got a little skewed because of that one relationship. So we had great growth throughout the year, but September had this unusual growth that was just -- I mean, all our cylinders hit that month [indiscernible].

Yes. That's true. That timing was really weird because I remember that last week in September, we were bombarded. And then October 1, the government was shut down. So it really skewed a lot of things, Tim.

And it might have been just people prepping for the government to get shut down [indiscernible].

No, that's what -- that's exactly what it was. We had all those originations because they wanted their loan approved before the government shutdown. So while we got the loan approved, we couldn't get the sale approved.

Switching over to the credit card. GBank did about $330 million in transaction volume in the third quarter. How long do you think it takes you to get back to those levels?

Oh, we think it can happen rather quickly once we get our marketing started again, because remember what I told you, we also reduced the ability of our players to pay off their credit card on a fast basis because they don't want any debt on the credit card. You know what, it's interesting, Tim, is that we did $400-some-million in transactions and the entire credit card balance is averaging around, what, $9 million?

$10 million.

$10 million. So you can see that everyone wants to pay it off. No one wants a balance. And of the $10 million, there were some cards that are nongaming cards. So when you -- when we talk about increasing our volume, it's strictly adding the players. And most of our players have come through certain influencers, and we just have to turn the switch on, and we will start to gain players again.

Okay. And then on noninterest expenses. Jeff, what's kind of the starting point for 1Q? I mean there's been a lot of noise in the last couple of quarters. So what's kind of the you think the starting point might be for that?

That's a good question. I'm not sure I can give you an absolute number, but I would say that we'd probably be looking pretty similar to this quarter. I don't see a lot of increase in the first quarter right now. I think some of the onetime items will offset a little bit of the salaries increase that we're going to probably see. So I would say very similar to what we saw last quarter.

Okay. And just kind of listening to the things you've been talking about, Ed, I would think that your kind of expense growth rate for this year might not be that different than '25. Is that reasonable?

I didn't hear the question.

Just the growth rate for the...

Anticipated growth rate.

Well, yes, I think that when we look at our noninterest expenses, our -- yes, when we look at our noninterest expenses, we see some significant increase there because we're investing in our growth, but a lot of them are relative to our growth. And I believe...

So there's a significant amount of expenses that are variable based on transactions. So as the transaction volume goes up with our credit cards and also the number of accounts that we hold, we're going to see a lot of those variable rate and variable expenses go up. I would say there would be an increase through the year on expenses.

Yes. We can't stay flat when our credit card -- if our credit card growth, we talked about doubling as an example, went from 440 to 850 or something like that. Every transaction and every -- has a cost to it. It has an influencer cost of so many basis points. It has transaction costs, interchange fees that we pay to Visa. It's just that while our direct cost in the office for staff may not increase as dramatically, those direct costs of transactions are something we all have.

Right. Yes. I remember talking about that last quarter. So thanks for reminding me. And then, Jeff, what's kind of the margin outlook if we get 2 rate cuts this year?

Question is, what kind of volume are we going to be able to do in noninterest-bearing deposits. And depending on where you forecast that, I would say that the margin should -- that offset should decrease -- I mean, should offset -- the increase should offset the Fed decreases. So I would say that we should at least see a very similar net interest margin this year that we saw last year. And we're anticipating a couple of rate decreases in our forecast.

This completes the allotted time for questions. I will now turn the call back over to Ed Nigro, Chairman and CEO, for any closing remarks.

Okay. Well, thank you. I just wanted to thank everyone for their questions. We're looking forward to an exciting year of growth. And we'll talk to you in another -- if not before, if I don't see you at a conference, I think I'm going to the Janney conference in Arizona at the beginning of February. So I may see quite a few of you there, and [ Tim ] will have a chance to sit and go through some stuff as well. But thank you for the calls. And if I don't talk to you sooner, we'll talk to you in April. Good day.