GBank Financial Holdings Inc.

Hello and welcome to the G-Bank Financial Holdings Inc. Q4 2025 earnings call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. We appreciate you joining our earnings conference call. With me here today are Ed Nigro, Chairman and CEO, and Jeff Wicker, Chief Financial Officer of the company. The related Q4 earnings press release was filed with the U.S. Securities and Exchange Commission today and is available on the news and media section of our website, gbankfinancialholdings.com. Before we begin, I'd like to remind everyone that any forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe harbor statements in our earnings press release. All comments expressed or implied made during today's call are subject to those safe harbor statements. Any forward-looking statements made during this call are made only as of today's date, and we do not undertake any duty to update such forward-looking statements except as required by law. Additionally, during today's call, we may discuss certain non-GAAP financial measures, which we believe are useful in evaluating our performance. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings release. I'd now like to pass it over to Ed Nigro, Chairman and CEO.

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, T-Bank 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 cards because it seems to be drawing the most attention and it has had the most fluctuation in the last several quarters. I want to give you some insight in things that we've already listed or discussed in some length, but maybe not to the depth that I want to go in today so we can have a good understanding of what we're doing and where we believe that we are headed. First, I had reported that we had stopped our application process. We had two major events going on. We had an application automated product that wasn't working well, and actually our users were getting lost in the process, and applications were being dropped. And then we had another direct mail piece, massive application process going on from a contract that – I've always said 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 two, 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 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, you know, accelerated up to around $130 million in transactions for the second And then the third quarter and the fourth quarter, excuse me, the third quarter. But we stopped it because we were accelerating quickly, but not with the controls we wanted to 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 for our credit card. We then relaunched it, and we relaunched it with some amazing KYCs. fraud prevention with a neural ID and precise ID and multiple verifications of who you are to avoid fraud. We also learned, interestingly, that in the application process, bots are now becoming very active in loading these apps. But there's a way to determine the difference between a bot and a human. I suppose one day that's going to become more important than many other things. As an example, over the Martin Luther King holidays, we got bombarded with about 10,000 applications just over the weekend. Six were approved, and all the others were fraud. Not one fraud has gotten through. Not one fraud has penetrated our app product. 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 is a delay, sometimes up to three business days in ACH clearing. There are also consumer rights on ACHs. in terms of was that an authorized transaction? Well, our ACH, when it was launched for our credit card, it was launched for the vendor through our processor, I2C. We determined very quickly that this ACH process must be brought inside Gbank. We do ACH processing for our commercial clients, but to do it through a processor like I2C with Gbank, The ODFI for this process became a significant undertaking. However, we brought on the technology and payments experts in order to implement it, and we are very close to launching our own ACH transactions for our credit card players. Why this is important is that when you're doing $100 million a month or more in transactions, There are a lot of times that the credit card is paid off multiple times through the month, and they're paid off by ACH. Question, do we give that client instant credit for the payment of the ACH? Do we have that client wait three days? Do we put a seven-day waiting on that client? We have experienced some very valued clients that are deserving of credit. 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 payments more instant credit to some of our very 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, high end users, but that has the potential. You've seen the growth patterns that we can have. And those growth patterns can, we believe, be reinstituted, but they are going to be reinstituted with our new KYC, 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. We look at our higher users and treat them with special premium offers. We contact them. We make sure their accounts stand 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... the not-too-distant future. There have been another couple of headwinds in the credit card business. Some of you may have noticed that DraftKings, about 60 days ago or so, stopped all credit cards. And FanDuel just announced they're going to stop all credit cards, direct loads with credit cards, because both of them have realized... there are about seven states right now that do not allow credit cards to direct credit cards to load these sports betting apps. And we know DraftKings got a fairly substantial fine from Massachusetts. And we know, we've read that Bandu also got a fine, I believe, from the state of Iowa. So rather than base 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 are bound for balance. single most in payments systems in the country alone. Now, that's excluding ACH, because ACH is towards everybody. But I'm talking about a payments method, and it's growing. So it's not to be ignored if you want an interesting market share, and we know that there will always be competition for market share, and those that will be able to follow the law and make sure they don't compromise in the loans in certain states. Our customers are very smart, and they know how to move their apps and join different apps and take advantage of apps that will accept our credit card. And, of course, that's direct credit card. Now, there's indirect credit card acceptance, too, which, of course, debit cards. 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 at. welcome. And we have not seen, well, we saw the draft teams did it abruptly, caught many of our players off guard, and it took them a week or two to realign with other apps and set up their accounts. But they did. And we saw the 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 a very comfortable with where we're heading. We're going to relaunch our marketing. As a matter of fact, you haven't seen Mike Tyson yet. We did an announcement on that, but he will be soon. I'd like to move on and talk next a bit about 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 both bets. So they still had a coverage that applied. And this will become a more routine application for other gaming tell Amy about it and get their acknowledgement and approval that it's an okay process. And, of course, this will be an okay process, wherever it applies, because Bullpets has its associated equipment provider license. The distilled taverns license was interesting because the license went on to say how they are approved to use Bullpets. It went on further to say in 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, 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 pool player account, which is a patented system that PCS developed that is under agreement, utilized by T-Bank. Also, as you know, T-Bank Financial Holdings owns 32.99% of PCS. But having said that, what those funds do in T-Bank, T-Bank now, those funds go to to a sub-ledger account at G-Bank, and G-Bank reconciles them, settles them, and distributes them. So all the transactions that would have taken place at the gaming operator now take place at the bank. So no longer must a gaming operator with slot machines face the issue of managing cash, because the bank will just pay them weekly all their wins. So it's a very, very It's actually a very good system for the gaming operators because the gaming operators, the bricks-and-mortar operators, are unlike the sports betting apps. Gaming operators have always paid a lot of money to have their cash managed because cash is something that is a necessary evil. But here, for the first time, they're not going to have to manage cash and slump machines. We, as a bank, have many people, one of them, that understand gaming. But I was involved in gaming when the system in slot machines was coin in, coin out. It was a very simple system. Machines were mechanical, you put your coins in, you did a jackpot, then the coins came clanging into the tray. You know, as a matter of fact, a little side story, I remember when Steve Wynn opened the Golden Nugget downtown, He put the coin noises over the loudspeakers so when you walked in the casino, everybody would think everyone was winning because the coins were dropping into the trays. Pretty good marketing. But then it changed when suddenly the digital machines, and they were first the poker machines, were put out by ITT, an actual gaming technology, which was founded by Cy Red. And so I started this, but also on his machine, these receptacles that took cash. Now, you could 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 applying, it gave you a slip. And you took that slip to the same page, and you cashed it in. You couldn't, and that was the 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. 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 But that ticket, you could go to the machine next to it and put it in and get instant credit for whatever was on that ticket. So it was called Ticket In, Ticket Out. And you could 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. So 1990s, I said, we're going to change the world. Everyone's going to have Tito. And everyone laughed at him. I mean, 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 bulb bits 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 move funds instantly. And there is a management, a settlement, distribution, and 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 G-Bank. Pretty interesting in both bets and the PPA system. So I wanted to give you that 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 the still, the operations have just launched, and they've been launching at all the stills, which has not been done yet, but it's on its way. Each still has to be trained. Stats have to be trained. 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 stock machines are built into the barn. 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 Gating Control Board, as they still did, to be able to use the GoPets 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 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 want our agents to see this process grow. So I've covered a bit about BoldBets and hopefully brought you up to speed, and I'll be able to answer questions on both of them. And I want to close with some of my comments. on our core banking and our gain on sale and our non-interest income. Because you're going to see our non-interest income, that's where our interchange fees drop, and you'll see where they went up about $7 million this last year alone, just from the interchange activity of the credit card. But you're also going to notice our SBA gain on sales this year in particular because we changed an entire process there. where before when we sold guaranteed portions, the guaranteed portions were sold to the market, and the market would pay based on the spread. Well, our spread wasn't something that was being focused on on the basis of the incentive plans for our BDOs, our business development officers, and we changed that. We said, hey, we have to focus on The fact that the bank, sometimes this last year, our gap gain on sale, which means the gross price we were offered versus the price we realized after expensing the loan costs, was dropping below 3%. And that's quickly becoming a place where the value in selling the loan is questionable. 4% is where we like to live. So now we've changed our entire incentivization program sales loans at above 1%, at least a 1.25% spread to prime, the gap gain is much larger. So we also took and put an incentive program in that started in January where we were going to reward. The rewards would depend on the spread. The commissions would depend on the spread. Now, I want to share something with you, a little forward-looking. It's not forward-looking. It's actuals in January, which I can tell you today because we're on the call. We sold 12 loans in January for about $32 million. Of the 12 loans, eight were at one and a quarter spread or higher. Our gap gain has jumped significantly. and it will be a minimum or more than 4% every month now, and not dropping below 3%. So that's a significant, I think, 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 a sub-debt of $11 million. And we did that because we wanted to pay off the $6. going to go very high. So we raised $11 million to pay off that $6 million and have a little left over. But one of the important things that came up when some of the other banks were asking us about our subject, our ability to repay, we said, you have a concentration in the hotel industry. And I would respond on several calls, yes, we love it. Oh, you do? And I said, yes. I said, let me give you a little risk analysis we did before. So we went back to, let's see, we went back to June 2015, when we did our first SBA 7A loan. Since June of 2015, through the third quarter, I have, I just didn't update my numbers for the fourth quarter, but for the third quarter of 2025, we originated into two $1.473 billion in dollars in hotel loans, 7A hotel loans. We love them because of the collateral. The total number of loans we did since commencement was 1,002 loans. The total hotel loans have been default since the beginning. Now, default, remember I said on one other investor call that when we have a loan that looks as if we're going to have to foreclose on it, we buy back the guaranteed portion. That's why our NPAs tend to jump up, because we buy back, the loan immediately goes to four times the value that's 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 things. Well, of all the 1,002, we had a total default of 12 loans since our history began that we resold. We bought back and resold. Of those 12 loans, the total default charge-off after asset sale and payment of all the guaranteed portions since inception has been $2.8 million. That's right, $2.8 million. So when we're asked about our concentration and why we don't mind it, it's because of the collateral and the way we have in our broker assistance in liquidating collateral that sometimes we have to, we possess. Currently, as of the third quarter last year, we had 592 active hotel loans. We had $1.622 billion 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 at $2.4 billion today. But right, 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 hotels. For loans we've had 2.8 million in losses since inception. I just thought I'd give a little color on that because some people ask us about files very well with our capital. And I just want to give you that update because the things we're doing are getting vintage. The things we're looking to replace with deposits, I want to replace as soon as we can $400 million in deposits that we pay for. And $400 million at no cost is a big change, but then when we convert that to more SBA originations and more guaranteed loan sales, And a portfolio that operates this strong? We think we have. And we also, looking at our CRE and our own bank individual loans, and we just, the other day, this is a little forward, this is important, 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 anyone borrowing. So we're moving. With that, I want Jeff Wicker, our chief credit officer. Oh, and there's just one last one. Oh, Jeff, excuse me. Since this isn't recorded, I told you I would mess up. We have been investing a great deal in people and resources. credit card operations, new leadership, and, of course, I spend a great deal of time on it. We also engaged our new general counsel and corporate secretary, and she has joined us, and we had a press release about Hillary. We also have engaged a new chief technology officer. We have a press release regarding Jason. We also have engaged a new payments technology director to help us get through this payment. 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 accredited agents. 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 52 cents per diluted share. This is an increase of $3.1 million compared to the prior quarter earnings of $4.3 million. This includes record levels of net revenue and $247,000 in net one-time expenses. The one-time items include the tail end of the marketing campaign for the credit card that began in the third quarter, which have now all been satisfied and the program has been closed out. That would be unusual in one-time items. The bank would have produced a diluted earnings per share of $1.66 for the year from $1.37 in the prior year. The Fed continues to grow with a compound average growth rate of 28.3% over the last eight years while maintaining top-tier earnings. In addition, as described by Ed, the company continues to develop the digital bank and payments products that will allow us to drive higher future revenue. We anticipate that one of the largest drivers of this will be related to the BoldVets PPA product that has now launched and is beginning to gather steam. We anticipate that this will significantly grow our non-interest-bearing deposits, resulting in an improved net interest margin, which was 4.33% for 2025, compared to an industry average of approximately 3.7%. ISBA had a record year for production, which wasn't easy given the recent government shutdown, and we continue to see strong year-over-year growth in low production and have a healthy pipeline going into the new year. In addition, the company has implemented several changes that it addressed that will lead to improved gain on sale income in the future. We're currently seeing the impacts of these changes as the gap came on sale increased from 3.24% to 3.98% in the fourth quarter. And as Ed alluded to, the credit card program is continuing to develop as most of the systems system changes are now implemented transaction volume for the last two quarters has been relatively flat while we have worked to correct identified weaknesses of the system and we are seeing much better results related to onboarding customers as these new systems have been able to withstand all of the recent fraud attacks that continue to plague the industry the most interesting thing the issues we have had related to credit and fraud in the last couple of quarters, the program is positively contributing to the bottom line of the bank on a consistent basis. This is very unusual for a program that's this young. You can see that the permitted expense came down during the current quarter. As discussed in our previous calls, We have seen a cresting in the non-performing assets over the quarter and have been able to make significant progress in working through the existing accounts, including a resolution of one of the non-performing assets in the first weeks of 2026, reducing the total balance by $3.6 million. In addition to the work that Spaniel Assets is doing to resolve credit issues, recent rate reductions by the Federal Reserve Bank have allowed our customers with variable rate loans to see some relief from the unusual upward swing in rates that occurred from June 2022 to July 2023. And this results in improved credit quality overall. The bank sold off about $52 million in investment securities during the quarter, which included both available for sale and held to maturity investments. Recent interest rate changes have tightened 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 a raised-down environment. As a note, all of the health and maturity investments were included in the sale through the building with no on-balance sheet adjustments to AOCI related to their remaining securities. The AOCI was $17,000 as of December 31st. Subsequent to year end, the bank did announce a redemption of 6.5 million subordinated notes, as Ed talked about, that would have repriced from fixed 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 a 10-year life and a fixed rate for the first five years of 7.25%. This provided additional potential capital for the bank while reducing costs. As the bank continues to work to develop new lines of business, the core bank continues to be one of the top-performing organizations in its peer group. The balance sheet remains strong with above-average liquidity and capital, and this provides the 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, the bank continues to be a top performer while we develop the new products and services to enhance shareholder value in the future.

With that, I will turn it back over to you, Ed. Well, thank you, and I believe we've covered everything that we wish to.

At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. We will wait one moment to allow the queue to form. Our first question will come from Brett Rabaton with Hovde. You may now unmute your line and ask your question.

Hey, guys. Good afternoon. Can you hear me? Yeah, Brett, we can. Hi, it's Ed. Hey, Ed. Thanks for all the detail between yourself and Jeff with what's going on with the company. Can we maybe just start, you know, and it might not be fair just given, I'll call it the fits and starts of the programs that have meaningful potential, but I know we've talked about some fairly big numbers around credit card and what that platform could look like, you know, in four to six quarters. Can you maybe give us, you know, 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 rear view mirror, which was my understanding from your conversation. But, you know, can we talk about credit card and what the potential for interchange might be this year in volumes? as you see it, and if you don't want to give specific guidance, that's fine, but just, you know, directionally and volume-wise, as you see the year developing.

Well, I think that when we look at the year-over-year growth that we just had, even with all of the breaks we've had in place, by breaks I mean the stoppages we've had, we went up to $400 million this year from about... Well, my numbers last year, I had 73 million. So you can see that that's, what, 500% growth. But I'm not placing 500% growth on 400 million. But, you know, we feel that – and while I'm not going to be giving too much forward guidance today in any specific numbers – But if I were trying to put some projections on it, I think that we would probably... I think we could at least... If we don't double it, I mean, I think we would not be doing it justice. But when you talk about going from $400 million to $800 million, you know, in originations a year, to where we, that means by the end of the year, we better be doing, you know, 60 million, 40 or 50, 60 million a month. We see some good growth. We know we now have the capability to handle that kind of growth. So, and we don't see that as an unreasonable number, you know, 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, you know, some of the big platforms like FanDuel and DraftKings, not accepting any credit cards. It will remain to see because some of the others we know have seen significant increase in credit card use. So it's that volume they want and the volume that is worth getting. We look at their public announcements and it's pretty significant. So we think there is opportunity for some substantial growth. And, of course, the interchange fees will be very important to us. I hope I've answered your question without sounding too evasive.

No, you've added some good color to, you know, kind of what the year might look like. So appreciate all that. And then, you know, the other thing is we think about SBA, maybe an easier business to forecast, you know, given that that's a much more mature piece of your platform, you know, and some of this will depend on the market. But would you anticipate trying to grow volumes from here? And then I know last quarter, You did, we'll call it a revitalization or reorganization of that platform. You know, 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 because we want the – materialization of a higher gap gain on sale to the bank, and the materialization that will selling a higher spread be more difficult? Well, it's always more difficult to sell a higher spread, but there are other factors involved. We have the most amazing broker network on earth, I believe, because our key brokers are all significant shareholders of ours. and uh reside in chicago new york north carolina and florida and i mean they're amazing so yeah we expect our growth pattern to continue with what's been in the past so you know you sort of project that out it's uh but we really believe that we can sustain that kind of continued growth with the lower interest rates we think you can see more hotel deals out there okay and if i could just ask one last quick one just around provisioning for the fourth quarter

You know, you had a little higher non-guaranteed NPAs, but charge-offs were lower. The negative reserve, you know, was there any change in the Q factor for the ACL or anything else that drove that negative provision? And then, you know, is there anything that you see kind of changing with, you know, the criticized asset list?

yeah this is jeff there actually was a little bit of change in that um analysis that we did on the sba loans so for the beginning of the sba program um we've always kept a little higher reserve on sba because of the concentration and we call the 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

Yeah, I think you saw the reserve I mentioned was so high based on our historical analysis. Remember the old days when we did our reserves only on the historical analysis? Cecil kind of changed on that, but I think this is one of the demonstrations of how different it would have been. Okay.

All right. Well, thanks for all the color. I'll let the other guys ask about bulbets, but I'm sure they'll be addressed too. Thanks, guys. Thank you.

Our next question will come from Matthew Erdner with Jones Trading. You may now unmute your line and ask your question.

Hey, good afternoon, guys. Can you hear me all right?

Yeah, man. You're great.

Awesome. Thanks for the comments earlier, Ed. I appreciate it. So I'd like to kind of touch on the slot opportunity, you know, and kind of rehash some things from the prior quarter just to see if they stack up, you know, in today's environment. So previously per, you know, 100 slot machines, there 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? When your customer base that utilizes those 100 slot machines, you have a customer base of about 10 or 15,000 people, players, that come more than, you know, once a month to play your slot machines. So if you do have that customer base, this analyzes your total drop, and then it analyzes your customer base. It analyzes the 50% penetration in your customer base, and then comes up with the number. So that means that of their customer base, half of them have to be users of the app. How long is it going to take us? What we didn't give you was, okay, how long is it going to take from the time we sign up as gaming operator till that deposit is realized? And that's how long does it take the gaming operator to onboard his customers? That's an unknown. And it's not going to be instant. Like right now, particularly right now, 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, you know, and then they have to sign up and use it. The interesting thing that I didn't say is that, you know, we hope that one of the preferred loads, and because we're marketing it right with it, is going to be our credit card. So that's moving side by side with some of this. So what I can't tell you is how fast it ramps up to that. So we'll be having more and more information as quarters go by, and we have some history under our belt, but it's going to take some time. Remember I told you about Tito? It took time. It wasn't something that was done overnight. I joked with someone the other day when I was saying... To someone, you know, when Thomas Edison invented the light bulb, I wonder who the analyst was who asked him, well, how many light bulbs 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've got to re-educate some, and you've got to spread it. But what we do know is this works amazingly. And then once they get on it, we've seen amazing feedback already. They love it. So I guess as we get a few quarters under our belt, we'll be able to tell you more about how the growth is going. But for right now, the number of machines are relatively small. The transition is going to take place, but the market is, you know, dramatic. I said, you know, in our state, we have 154 primary providers of that machine. Konami is one who has 300,000 machines alone. Excuse me, 140,000 machines alone. Several of the others that we, you know, that are going to be seeing this app have a lot more. So we know there's a good market out there. It's up to the gaming operator as well as the slot manufacturer, you know, and everyone to participate to get their players to use the app, but we think that the app is going to be very convenient for the player. It's a very convenient wallet.

Yeah, that's great. I appreciate the color there. And I guess as a follow-up to that, you know, around the current deposit mix and net interest margin, you know, would we expect there to kind of be an inflection point, you know, on that net interest margin, you know, as these slots are started to, you know, more frequently get onboarded and really drive, you know, that increase in the non-interest bearings?

Well, I think the slots is a great opportunity and a great path, and we're starting to see the pipeline of some very interesting players. But remember, our bank has 16 other PPA clients onboarded right now, and many of them are startups, and many of them have programs, and some of them deal with sports apps that others deal with. We're dealing with one that's dealing with two big statewide other avenues for our PPA as well. And, of course, sports betting is, we still believe that one day a sports betting app will say we don't want to hold the cash anymore. That we do want to see, we do, it would appreciate a system where we get the cash for this liability off our balance sheet. Right now, as they start to make more money, the cash management is going to become more of a headache. When everybody was a startup, everybody wanted to hold all the cash because they liked to float, they liked to, you know, 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 consumer some money, they're going to be looking at us because we protect the consumer. 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. Well, believe me, because what these banks are pretty good at is knowing where the money is.

Right, right, right. Yeah, that's helpful there. And then one last quick one, and then I'll step out. As it relates to the SBA business, what impact did the government shutdown have on your fourth quarter origination numbers? And then, you know, 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 big closing coming, so we went and got as many PLPs as we could get pre-approved as possible. So we spent all our effort, you know, getting our loans in front of them for our PLPs, our applications. And then once they reopened, we did our entire number of sales in the fourth quarter of December that we did. So our sales for the fourth quarter were, what, 90? Our originations for the fourth quarter dropped way down. And why the originations dropped way down, and I talked to our broker directly, is because of the unknowns out there and the customers who are not sure whether to even apply for the loan. because they knew the government was shut down, they knew they couldn't get it approved, so they said, well, we'll just wait and see. So the deals didn't get done. And when deals don't get done, originations go down. And our originations went from $200 million plus the third quarter to less than $100 million in the fourth quarter. $118 million. And our sales, for the first time in our history, in the fourth quarter, our V&I sales were less than the third quarter. It had never been that way before. So we figured that there was probably... You know, a couple of million dollars left on the table and made on sales. But I believe that we're already hoarding, if you will, PLPs on the prospect of another shutdown. And the news we receive from our association, which is NAGEL, which is the National Association of Guaranteed Government Lenders, they believe the shutdown is going to happen.

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

It was the fourth quarter last year that we had no catch-up. We could do that.

Got it. Yeah, that's helpful there. Yeah, I just wanted to get that across and get your guys' thoughts. But I appreciate all the comments, guys. Thank you.

Our last question will come from Tim Coffey with Jenny Montgomery Scott. You may now unmute your line and ask your question.

Afternoon, gentlemen. Hey, everyone. Nice to hear your voice. Yeah, good to hear yours too, Ed. So I guess my first question has to do with the SBA. Let's follow up on the last one. So you sold more SBA originations in Fort Q than you have pretty much all year. Was that a function of the government shutdown or the change in incentives for originators?

Wait a minute. We had our most originations last year in Q3, which was 200 and –

So in the fourth quarter, you sold about three out of every four loans you originated in SBA. The previous three quarters is about, say, one in two. So I'm trying to figure out, was it an increase in the selling of your originations related to government shutdown and the market being closed, or was it the change in incentives for the originators?

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

Well, yeah, so what you're talking about is that we sold one and two loans in the fourth quarter, and we earned a little more than that in the fourth quarter. We weren't that high in the previous quarter. Is that what you're talking about, the percentage? Yeah, your loans sold as a percentage of your originations were about 73% in the fourth quarter. Do you have that? Three or closer to 50%. Yeah, 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 avoid 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 talk about executed drones on Earth that we have in place here and approved by the SBA. Approved. They have to be approved by the SBA to be boarded. Then they have to be approved by the SBA to be sold. So when we say originations, I don't mean 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. 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 and our SBA originations, because our SBA originations include para-pursue loans. Okay? Now, a para-pursue loan is an SBA loan of $5 million plus the remaining part of the loan. Let's say it's a $10 million loan. It's a good example for para-pursue. We count the para-pursue, 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 the $5 million is. The rest becomes the non-hearing aid portion and the balance over the $5 million is just a straight CRE commercial loan with us that's on our books. So when we look at loan originations, if you figure that 75% of them are guaranteed, it's a wrong calculation. It's not that way. If you want to run some average statistics, we sell about 64% of our total originations. They're selling, okay, because... Some of them are para-pasu, and we're doing, we did, what, 65 million in para-pasu last year? Yes. And we're going to do more this year. We like the para-pasu loans. They're a higher-up in a 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 you've got to reduce out all the para-pasu 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 unoriginated, And it depends upon the day of the month that the loans were originated. If we had a high volume of the last week of the month, or a quarter, it could distort the quarter.

Yeah, to that point, September, we had a whole lot of things go in our favor, and it actually was a very big origination month for us. That's huge. And all those originations would have gotten sold in the fourth quarter. So that relationship got a little skewed because of that one relationship. So we've had great growth throughout the year, but September is unusual. That's right. I mean, all our cylinders hit that month.

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

And it might have been just people prepping for the government to get shut down and push everything through.

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

Okay, got it. Thanks. Switching over to the credit card, the bank 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?

We think we 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 is interesting, Tim, is that we get 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 non-gaming cards. So when we talked about increasing our volume, it's strictly adding the players. And most of our players have come through certifications. and we will start to gain players again.

Okay. And then on non-interest expenses, Jeff, what's kind of the starting point for 1Q? I mean, you've been a lot of noise the last couple quarters, so what's kind of the starting point might be for that? Oh, that's a good question, and I'm not sure I can give you an absolute number, but I would say that, you know, 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 one-time items will offset a little bit of the salary 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 this year might not be that different than 25. Is that reasonable?

I didn't hear the question.

Oh, just the expense growth rate for this year?

Anticipated growth rate? Well, yeah, I think that – You know, when we look at our non-interest expenses, you know, our yeah, when we look at our non-interest expenses, we see some significant increase there because we're investing in our growth. But a lot of them are relative to our growth.

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

Yeah, 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 has a cost to it. It has an these that we've made of these uh it's just a while our direct cost in the office for staff may not increase as dramatically those direct costs of transactions are something we all have right yeah 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 two rate cuts this year? The question is, what kind of volume are we going to be able to do in non-experient deposits? And depending on where you fork out of that, I would say that the margin should, that that offset should decrease. I mean, should offset decrease. The increase should offset the Fed decreases. Yeah. So I would say that we should at least see a very similar interest margin this year than we saw last year. We're anticipating a couple of great decreases right now. Yeah. Okay. All right. Those are my questions. Thank you very much, gentlemen. Thanks, Tim.

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

Okay. Well, thank you. I just wanted to thank everyone for their questions. We're looking forward to an exciting year of growth, and 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 JANI conference in Arizona 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.

Thank you for joining the G-Bank Financial Holdings, Inc. Q4 2025 earnings call. You may now disconnect.