GBank Financial (GBFH) 23 Oct 242024 Q3 Earnings call transcript

Well, welcome to GBank Financial Holdings third quarter earnings call. And this time we are not going to have it on Zoom for convenience of Ryan and Jeff and I because we're in each [ at ] -- I'm in a different location this particular call, and also, I think it gives us a little more freedom to move around while we're having the call. But I'd like to start off, and, of course, Ryan, our President and CEO, is with us; as is Jeff Whicker, who is our Chief Financial Officer, and they'll be giving you the much more in-depth look at what our quarter was about and what our year-to-date was about. But I'd like to focus on a few things. And I always like to say, I love the 30,000-foot level.

As you can tell, I like to fly. But the third quarter was very busy for us, both in operations as well as an extraordinary capital raise that we embarked upon, started and completed in the third quarter. But I want to point out a few things that I think tell our story very succinctly. Year-over-year our net interest income grew by 24.7% from the third quarter last year. I like to look at year-over-year because it's a little better breadth at what's been occurring for the past 9 months. We went from $34.4 million -- I mean, to $34.4 million from $27.6 million, a 24.7% increase.

Our [ net ] interest income increased 63.4% year-over-year to $10.4 million from $6.3 million. And our net income increased 81% to $13.4 million from $7.4 million.

So when people have asked why the capital raise, Ed, when you start to see 81% and 63% growth factors, we always wanted to make sure that we had the dry powder that could be used in any growth, or fast growth environment. And we know we are in a fast growth or a significant growth environment, as we have been, and we've always kept a great deal of dry powder. And we know that it is well received by our regulators too. We often [ tease ] them the FDIC, forever demanding increased capital, but we happen to share a philosophy that we want to be prepared for our growth.

Now, when we look at our growth from a standpoint of what has occurred this last year, one of the important elements, of course, has been our SBA division. We just finished the SBA fiscal year, which ended in September of '24. And during the last fiscal year from September to September, we grew -- originated $474.6 million in SBA loans in the last fiscal year, and that's up from $223.9 million the year before or a 112% increase. Why the capital? And part of that is not just the growth year-over-year of our existing production group, but the additional production. We brought in a very key SVP, Senior Vice President, Samir, up in New York, who has been very instrumental in our growth as well as our existing generators and producers. Nancy and her team are -- [ have ] just been quite amazing. But there's another important factor.

Someone asked me, he said, "You must have an enormous broker network to be able to grow and develop that fast." And the answer to that is, no. But we have a dedicated broker network. 2/3 of our generation of that $474 million come from our network that are either shareholders, significant shareholders or employees.

So that's very internal and very identified and very dedicated.

We are very dedicated to them, and they are very dedicated to us. And it's really not of them and us because when you look at it, it's all us. And that's the one thing that Ryan and I have focused on over the years, that we build everything from inside.

And so, we don't want to have a them and us relationship in anything we do.

So that growth, we look at it to be our strength, and we look at our ability to continue to grow. And I'm not saying a 110% a year growth, but I think that we have a very good foundation and a very good pipeline. And with all of these results, I'm not -- I'm going to talk about our Gaming FinTech division pipeline and business and our credit card business towards the end of this call because I'll just suffice it to say, at this point they have not yet begun to monetize, or they are just beginning to monetize. And of course, we have, we think, a very good pipeline for our deposits and Gaming FinTech division to grow, and I'll talk about that a little bit more towards the end. But our capital raise was very important during this last quarter, and you can see by those growth metrics why we did it.

Now granted, our capital -- our Tier 1 capital right now without the raise is at 13% in round numbers. But as we expect to continue growth, we know that capital gets used. It gets used for our balance sheet growth, it gets used for our concentrations, it gets used in many, many areas of measurement, and we want to make sure that we have a solid balance, explainable balance and definitive dry powder in all those arenas.

Now what we did, and I want to just cover this briefly because we didn't in our press release, we issued [ 1,81,081 ] shares for the $20 million. We realized $19.2 million in -- rounded in results after all expenses, legal, commissions, everything.

Now that brings us from 13.4 million shares rounded to -- fully diluted to about 14.48 million shares.

Now we set -- we were to close this transaction on -- excuse me-- September the 27, and we closed it instead on October 11, I believe it was. And we set the price for this transaction on September the 25 because we were already committing to contracts on the 27th. And on that date, our price, our stock was at [ $19 ] -- in the mid-19s per share, and we set the price on the transaction at $18.50 because the shares are locked up for 1 year, although we have issued registration rights with them because we intend, as we announced, to uplist to the NASDAQ by next spring, and we also are going to register those shares so that they would probably be tradable earlier once they're registered. But in any event they are -- there is a lockup, and the price was set in accordance with our stock price, which, of course, has changed rather dramatically in the last month, as it seems that we have been discussed in many arenas, including social media, and there has been more and more attention brought to GBank and GBank Financial and to our credit card and to our Gaming FinTech division. But having said that, I wanted you to have the history of what we did, precisely the shares that were issued and how we arrived at our issuing price. It's quite remarkable how much the stock has reacted in the last 30 days, but that's not within our realm of control. And at the same time, though, we expect that we are developing a solid growth platform. And with that, I'm going to turn it over to Ryan.

Thank you, Ed, and good day to [ everyone ] on the call. Certainly pleased with the quarterly results that we posted, yet another quarter of record revenue and earnings and also a new record in terms of quarterly loan production driven by SBA and our Commercial divisions. I'll continue to kind of give some top [ lush ] comparisons, and I think it's important to look at year-to-date and year-over-year comparisons, in particular relation to a number of the key financial initiatives that we've been discussing on these calls over the course of many quarters. Ed highlighted the year-to-date revenue drivers, certainly, 24% increase year-over-year for the first three quarters of '24 compared to '25. A big part of that story, obviously, was from a number of initiatives where we've expanded the balance sheet significantly on a year-over-year basis. When you consider that our net total assets ended up the quarter at $1.048 billion, that's a year-over-year increase of 44%. A big driver of that certainly is our very robust loan activity.

So total gross loans increased by 62% year-over-year.

On the liability side, we saw deposits increase year-over-year by 49%, and then of certainly special interest to us and our shareholders, our total equity line increased by nearly $22 million year-over-year or an increase of 23%.

So our ability to continue to generate very strong earning asset base at growth levels that are well above industry averages and at the same time maintaining very strong net interest margins is really a key component to our success.

Another component, obviously, noninterest revenue as well, as Ed mentioned, 63%, nearly 64% increase year-over-year.

We have seen and we have -- as we've talked about in the past, we're migrating in our SBA activity back to a largely sell position.

So that one-line gain on sale year-over-year first three quarters has increased by nearly $3.7 million.

One of the key financial initiatives that we've been talking about over quarters is the culmination and totality of our revenue initiatives. And that's important and been a key focus of the company to not only continue to grow and improve our revenue drivers, but broaden them across multiple revenue streams. Certainly, net interest income is a meaningful component of that. Gain on sale, as mentioned, is a significant component. We're seeing meaningful revenue contribution in loan servicing income, which for the first three quarters was approximately $1.2 million -- just below $1.2 million. And then as we look ahead for some of our newer business lines, namely credit card, [ in ] the total other income, we expect as we go through Q4 and into 2025 that we anticipate significant growth in our interchange income overall.

So all of those things combined put us in a very strong position to generate the results that you see in Q3, a continuation of that into Q4 and 2025.

Another key initiative on the financial side has been efficiency, and we've talked a lot about efficiency in prior calls as well.

You may remember that the company made significant investments starting back in 2022, and we saw some increases in noninterest, other operating expenses as a result of that, with the mindset, as Ed alluded to, to really building the capacity for growth. In part, we've seen, as I just highlighted, that significant balance sheet growth over -- year-over-year, and we expect growth rates will continue to be strong as we look into the future quarters.

Specifically important for our Gaming FinTech and credit card lines are the investments that we've made in technology. And as you can imagine, our technology initiatives and road maps are quite robust.

We have an incredible Chief Technology and Chief Information Officer, Shouvik, who is managing those initiatives brilliantly.

One of the ones that I wanted to highlight specifically is -- and if you think about our Gaming FinTech and credit card lines specifically, an important initiative that we started in 2022 was really building out our capacity to grow, hold and control data.

So the development of a GBank data warehouse has been a key component of our growth and our success. And if you think about all of the data in our fintech lines and then now growing in credit card, our ability to manage, control, monitor and ultimately monetize that data will be a very important part of our continuing success.

On the efficiency side, that's measured by a number of ways. And many of you have heard us talk about our long-term goals of being 60% or better in our efficiency ratio. Happy to report for the quarter efficiency ratio of 56% for the company and on a year-to-date basis, it's 59% compared to 71% for the first three quarters of the prior year.

As we think about NIM and the balance sheet, we've taken significant strides to mitigate our overall asset sensitivity.

Now going back four, five and six quarters, that asset sensitivity has been a strong contributor to our growth in net interest margin.

You'll note that our Q3 consolidated margin was 5%, actually 5.11% at the bank.

So those mitigation efforts have gone a long way in expanding our margin. We still remain asset sensitive when you consider the components of the balance sheet, specifically, variable rate, prime, quarterly reset SBA loans are a significant part of the loan book, obviously, cash and variable rate securities. Those three categories when combined translate to over $500 million in variable rate assets. But as we've been talking about, we've also been very intentional in maintaining and optimizing our funding base. We did end the quarter with CDs of $344 million.

As mentioned previously, though, that is a very short portfolio.

So as we look out between now and March 31, 2025, approximately $155 million of the CD book matures or reprices. The approximate weighted rate on those CDs is 5.17%.

In addition to that, we have $40 million in callable CDs at a all-in rate on that portion of about 5%.

So our ability to manage in what is now a down rate environment as the Fed makes its decisions, will be an important contributor to supporting our NIM in the future quarters.

In addition to that, we had on the balance sheet $310 million in non-maturity interest-bearing deposits, and those are already pricing down.

On the CD book, specifically, we still have an all-in cost of funds for CDs of above 5%. And what we're seeing in the current environment is, we're -- we have the ability to originate and replace maturing CDs at an average lower cost compared to what's on the books today, of 75 to 100 basis points.

So managing our cost of funding going forward is going to be an important part of our continuing strategy.

In terms of loan production, obviously, we've talked about long-term production and operational goals of having the capacity to generate $100 million or more in our SBA Lending division. Q3 was a very strong performer in that regard at approximately $156 million in total commercial and SBA production.

Just real quickly, also encouraged by our ability to manage our limited number of nonperforming assets.

So overall, you saw a decline in nonperforming assets down to the $5.4 million.

So in a single quarter, that's a $2.2 million reduction. A big part of that -- and I'll highlight one disposition in particular, frankly because it's very rare. There was one disposition during the quarter of a single hospitality SBA asset to the tune of approximately $2.5 million. And what was unique about that recovery that happened in August is it was accompanied by a full recovery of 100% of [ principal ] and also recovery of past deferred interest and fees, which if you've ever been in special assets and banking, that's a rare event indeed. Included in the $570,000 quarterly provision, the biggest contributor to that was growth in -- obviously, with the high level of production. At-risk loans increased by more than $20 million, so provisioning for growth was the biggest contributor to that. Also -- and I think it bears highlighting, there was a single asset -- nonperforming asset that we report as of September 30. It's a $3.6 million hospitality SBA asset in gross, 75% guarantee.

So included in that $570,000 quarterly provision is approximately $217,000 in specific reserves that allows us to [ disposal ] that in Q4, and we anticipate that, that $3.6 million will be fully [ disposed ] during the current quarter.

So with that, overall, just a fantastic quarter in terms of results, also meaningful in terms of the baseline that it establishes for our company to be successful in the future quarters and as we head into 2025. And as promised, I'll hand it over to Jeff to go into some of the quarterly details.

Thank you, Ryan, and good morning, everyone.

As Ryan described, the bank continues to execute on its core strategies with strong asset growth, healthy margins, significant gain on sale revenue, consistent and growing loan volume and low nonperforming assets.

In addition, we are seeing increased revenue in the bank's credit card product, which is currently trending to have a positive pre-provision contribution margin as early as the fourth quarter of 2024. GBank again reported record quarterly earnings of $5 million or $0.37 per diluted share for the third quarter of 2024. This is a $300,000 increase over the prior quarter earnings of $0.35 per diluted share. Net interest income will be a focus area of the bank as short-term interest rates continue to decline. The company's net interest margin remained strong at 5%, which is up from 4.82% in the prior quarter. This is compared to a national average of banks between $1 billion and $10 billion of 3.42%. Quarter-over-quarter net interest income increased 8% to $12.3 million compared to $11.3 million in Q2 2024 and increased $27.9 million or $2.7 million when compared to the third quarter of 2023. The increase in net interest income was driven mainly by asset growth, increasing loan and cash balances and maturing -- and the maturing of lower-yielding securities that were repriced into higher-yielding assets.

In addition, the bank did receive a onetime $278,000 interest recovery during the quarter on the workout and disposition of a $2.5 million troubled asset, the one that Ryan described. Without this onetime adjustment, the net interest margin would have been 4.88%. Net loans produced an impressive 8.57% yield, up from 8.33% in the prior quarter.

With the remix of securities -- of the securities portfolio, the bank was able to increase yields on investment securities from 4.74% in the prior quarter to 5.06% in Q3.

While we do anticipate the margin to decrease as rates come down, the bank has been working diligently over the last year to lower the bank's sensitivity to interest rate risk. These efforts include purchasing $41.7 million in fixed rate securities and the repurchase of over $150 million in fixed rate loans. This effort has reduced the interest rate risk in a rates down 200 basis point scenario by 33% from 15% a year ago to approximately 10% currently. SBA and commercial lending activity remains strong with the bank producing a record $156.4 million in loans during the quarter. This is an increase of 23% over the prior quarter and brings total SBA and commercial originations for the year to $419.9 million. SBA loan sales were down from $78 million in Q2 to $71 million in Q3. This was due mainly to a change in the SBA process for selling loans that delayed loan sales during the quarter. This we expect to translate to higher expected loan sales during Q4 as the loans held for sale increased by approximately $27 million and loan pipelines remain strong. The bank's credit card product continues to grow with quarterly balances increasing almost 30% to $1.2 million, while the pre-provision net revenue increased almost 63% quarter-over-quarter from $167,000 to [ $272,000 ]. With this growth trajectory, we anticipate that the credit card will be providing positive pre-provision contribution margin by the end of Q4. Noninterest income totaled $3.8 million and decreased $307,000 or 7.4% when compared to the prior quarter. This was mainly due to a $325,000 decrease in the gain on sale income related to a $6.8 million decrease in the sales volume and a slight decrease in the sales prices. We anticipate the loan sales volume will be strong during the fourth quarter. Noninterest expense decreased $120,000 during the quarter, primarily due to lower variable compensation accrued related to a true-up in the short-term incentive calculation.

In addition, the bank had an increase of $228,000 in data processing expense due to a true-up of the accrual in Q2 2024, which resulted in a decrease to the expense in that quarter. The efficiency ratio favorably decreased to 55.92% for Q3 2024 from 58.86% to the prior quarter and improved from 76.65% for the same quarter in the prior year as the bank has been able to continue to hold expense levels flat while continuing to increase the net revenue through its strategic incentives. Consolidated ROA was 1.96% for the quarter and 1.82% year-to-date, while consolidated return on average equity was 17.29% for the quarter and 16.58% year-to-date. This continues to put the bank in the top [ decile ] for returns when compared to its peers and demonstrates the bank's ability to continue to produce strong earnings results.

Looking at the balance sheet, assets increased by $38.6 million or 3.8% during the quarter due mainly to a $43 million increase in deposits with quarter-over-quarter increases spread over every major deposit category. This was offset by a $12 million payback of short-term borrowings during the quarter.

Additionally, the company experienced a $26.6 million increase in investment securities due to the purchase of fixed rate government-guaranteed mortgage-backed securities to help reduce the interest rate risk at the bank while producing incremental yields of approximately 4.5%. All other assets decreased $6.5 million with the primary driver being the settlement of cash on a maturing security that overlapped quarter end. The bank paid down $12 million of short-term borrowings, as I just described, in early October 2024, leaving approximately $448 million in total borrowing capacity available for future liquidity needs. A 100% government-guaranteed loan balances were $267 million, which represents 31.5% of the bank's total loan portfolio. This continues to provide a strong risk mitigant to the bank.

Asset quality, as Ryan talked to, remains relatively strong when compared with the bank's peer group. [ Relating ] to the loans, a $570,000 provision for credit losses was recorded during the quarter, reflecting growth within the loan portfolio and a $217,000 specific reserve related to the disposition of a [ $3.6 million ] impaired loan, which is anticipated to be fully resolved in Q4. The allowance for credit losses increased to $7.9 million. Nonperforming loans decreased $2.2 million quarter-over-quarter with only $1.5 million of at-risk loans balances currently classified as such. The overall allowance for credit loss was 0.94% of gross loans and 1.36% of at-risk loans, which is net of the government guaranteed balances. This is consistent with prior quarter reporting.

New deposit generation is allowing the bank to reduce the overall dependence on wholesale funding, which will assist us in reducing the cost of funds as rates decrease in the future. Wholesale funding to total assets has decreased from 18.9% in Q2 to 15.3% in the current quarter. Uninsured deposits are estimated to be 39.2% of total deposits. Noninterest-bearing deposits increased $9.4 million from the prior quarter and represents 26% of the total deposits. The loan-to-deposit ratio has started to come down as we ended the quarter at 95.9%, down from 96.7% in the prior quarter. The securities portfolio continues to outperform its peer group. Overall, yield on investment portfolio was 4.6% year-to-date, up 49 basis points when compared to the prior year. Other comprehensive income is coming down as rates continue to decrease and is currently at $97,000, which is down 51% from the prior quarter. The total unrealized loss on the investment portfolio is $132,000 post tax, which is down 70% from the prior quarter due to lower future rate expectations. Capital levels remain strong at the bank. Tier 1 capital ratio increased slightly to 13.08%.

In addition, as announced, the holding company has raised $20 million in new capital during the month of October to support the future growth initiatives of the company. Tangible book value per share increased to $8.91 as of September 30 from $8.49 in Q2, mainly related to the production of [ our ] income during the quarter. And finally, the liquidity continues to adequately support the growth forecast for the organization. The on-balance sheet liquidity of $156 million and total liquidity, including borrowing capacity of $692 million. With this on-balance sheet liquidity and the bank's robust borrowing availability, it puts the bank in a position to immediately replace 78% of its deposit base, if needed. The bank has continued to execute on the growth and development strategies that have made us successful in the past, while developing new revenue products in Gaming and FinTech division and the credit card. This has provided the opportunity for the bank to continue to grow revenue and provide strong earnings quarter-over-quarter. With that, I will turn it back over to you, Ed.

Well, thank you. I believe I'm off mute.

Yes. Yes.

Good. I want to make sure I'm not talking to myself, but I do plenty of that. [ And ] I want to thank Ryan and Jeff for digging deep, and I know that many of you are very much interested and focused on much of what they discussed. I want to go back now to and round out our programs with our Gaming FinTech division and what has been going on, especially in this third quarter, because we said before, I think, back in the second quarter that the third quarter would be a building process, that we hope to have executed several agreements that would be very important. And we are -- most of the agreements have carried over into the beginning of October, but let me start with a few items. One that is going to be announced by Mastercard next week, and we have been authorized by Mastercard to talk to our shareholders and our Boards about it because we have entered in an agreement. They want to launch their Mastercard Express program, and it's an Express program for companies that wish to issue prepaid cards. Right now with all the headlines you may have seen or the Synapse failure or other fintechs that are having trouble and many banks are pulling their support and banking of fintech companies strictly because of certain -- maybe their own compliance issues or their own desire to reduce their risk. But there is -- and has been for some time, and Mastercard has recognized this on one of their worldwide programs, that for a company that needs to -- that wants to have -- that has a product, that wants to launch in the prepaid card business, it generally takes 7 to 9 months to get the networks together and get network approval required in order to meet their requisites to launch a prepaid card program. Well, Mastercard has developed an accelerated process that could take from 30 to 60 days.

Now, it requires some very important [ vetting ]. And of course, we at GBank and BCS have spent our last 10 years making sure and certain that the companies we bring on are legal, that the companies we bring on are properly licensed, that the companies we bring on are properly licensed in every state that they plan to operate.

So we have developed a [ vending ] process for vendors at GBank and also a preliminary process at BCS that is extremely thorough. Well, i2c recognized this and Mastercard and i2c are launching the program together in the U.S. with the initial bank being us, Gbank, and with BCS. And what Mastercard will do will be develop a portal for applications, submit that portal to us, and we will determine what programs we believe we wish to push through -- when I say push through, become [ a ] part of or not.

Now we have emphasized to Mastercard and i2c that we are going to focus on only three specific areas: gaming, because we understand and know gaming and understand and know the regulatory processes in gaming and gaming license companies; health care.

We haven't been in health care, however, we are receiving certain inquiries in the health care industry for issuing prepaid cards. And also, government.

Of course, we were involved with the state of [ Oregon ] with their gaming program, but there are government lotteries that we are -- have one particular fintech that is going to and has engaged in a contract with the state to issue prepaid cards for payment of their lottery fees or lottery winnings, and we are in the process of vetting them for a contract with GBank and BCS.

Now this could be an exciting program if we can indeed get the kind of applicants that we would work with, because we are emphasizing that we are not a Banking-as-a-Service. We do not provide any Banking-as-a-Service products to the consumers, only products that we have to the consumers that are in those industries that I indicated. And that's very different than being in many of the prepaid products that exist, that we would not participate in.

Now we already have one or two applicants through the Mastercard program.

One of them is [ Passport ], which is an interesting payments company that wants to issue prepaid cards with certain gaming operators across the country.

We are in the final stages of vetting, our BCS is in their final stages of vetting their contract, and then they would have to undergo the vetting of GBank, the vendor management process. Everyone has to go through a dual process. And the interesting thing is, it's important to note that we have and are unfortunately declining quite a bit of business that doesn't fit within our business programs. And we want to make sure we stay focused because we understand these divisions and we know that there is an extraordinary amount of business within the three divisions I mentioned.

We also executed -- BCS executed the contract and submitted it to the bank with BoltBetz, and BoltBetz is the program we talked about, which is going to be our first bricks-and-mortar gaming app for access to cashless slot machines. And that is Todd's company. The [ BoltBetz ] is integrated with the Konami casino management system. And the first program will be at Distill Taverns in Las Vegas. But it's really the first -- it's not our first gaming app for slot machines.

We have issued prepaid cards to Resorts World with [ Sightline ] Payments that had a gaming app for slot machines. And that particular program has had a difficulty launching. Well, it's been launched, but it has had difficulties in expanding. This particular program involves full banking solutions with it, which we talked about before. It's going to use our Pooled Player account. It's going to use our Trice agreement with RTP, real-time payments in and real-time payments back, you mean onloading and offloading your bank account or your app back to your bank account instantly.

So it has full banking solutions and we're excited about it, as is we believe Konami, with respect to launching it [ and ] this program with Distill.

So we hope that -- we believe that will be launched in the fourth quarter.

We have other in our pipeline with [ FABI ]. We've talked about it before. [ FABI ] is an acquirer that has anywhere up to 20 million and some days in deposit with us. They are a very active program. They're a wonderful client of ours for many years, and they're branching out into applications for bricks-and-mortar casinos, and we should have more to say about one of their first ones that we hope to launch in the fourth quarter as well. The government lottery program I talked about could be very interesting because many government lotteries pay by check or pay at various locations. This would involve them paying the lottery winners over a certain amount with a prepaid card, prepaid card issued by GBank.

Now, all those -- and there are more. There are more in our pipeline, but they're in their early stages. And what we are finding is that because out there right now there is more clients or tech companies that are losing their relationships with their bank because of various issues that either they have or their bank is identifying a new business approach and they're not part of it. We're seeing a great deal of activity, but unfortunately, much of it is -- are activities that we will not -- with which we will not participate. But at the same time there are those that we will. And we think that the pipeline will grow and that the actual vetting process will eventually bring us a good flow of business. The ones I mentioned, we feel are very comfortable with, and are very comfortable with knowing that they will be pass muster with us.

So that is an ongoing process, an exciting one.

Fortunately, we're very experienced in it. And by the time we get them launched at the bank, we feel that they're going to be successful. Credit card. We had an interesting little process [ happen ] with our credit card, but let me just focus on one thing. Remember, we said we had $3 million in transactions in the first quarter of this year, $7 million in transactions in the third quarter -- second quarter of this year. And -- if I gave you all a guess of what the third quarter transactions was, if you double the $7 million, you'd be right. It's approximately $14 million in transactions for the quarter.

So we're growing at a 100% a quarter.

Of course, remember the old story, when you go from 1 to 2, you grew a 100%. Well, our numbers are still relatively small, but $14 million in transactions is -- starts to develop some good fees for us. And if we continue on a significant growth rate, which we believe we will because we have signed some co-merchant -- co-marketing agreements, if you will, with some very important merchants, including [ Everi ], who has a very big audience. [ Everi ] is a cash management system that manages most of the cash in the strip casinos. They handle about $45 billion in cash a year. But they are interested and have an agreement with us now to co-market our credit card. We'll see how it goes.

We also had this little interesting incident on social media, where one of these influencers actually brought up our card by name and said, "Do you really want a credit card that will make it easy to load your gaming apps?" What he didn't understand is that credit cards [ can ] load gaming apps today. It's just that many are rejected by the issuing banks because of the merchant code of gaming. And many of these activities, also the credit card company or the bank adds cash transaction fees and other fees to it.

So he explained how you really don't want this card, and he usually had about 3,000 viewers and his viewing audience went to 700,000 plus because we believe most of them wanted to know how they can get this credit card.

So we think social media, obviously, is a marketing opportunity for us.

We have had certain social media activity, but this opened up an interesting little window, and we believe that there may be a marketing opportunity here.

The important thing, though, that we have to remember is that our credit card is a Signature Visa card, which has an instantly approved credit rating.

So your credit score has to be fairly high in order to get this card. Yet at the same time, the resulting use of the card has manifested itself in the transactions we have and that it's used 90% -- over 90% for loading gaming apps, which is -- and they are paid every month.

We have a very small credit balance, I think, what, Ryan, only about $1 million or so.

Its $1.2 million.

$1.2 million with $14 million in transactions.

So you can see that over 90% pay it down every month, which is exactly what we want it used for. We want it used as a payment card as much as possible.

So when we get back to our pipeline with Gaming FinTech, and as I said, we haven't monetized it yet. The deposits haven't started to pick up yet. But when we get programs like BoltBetz and [ FABI ] and potential government lottery and potential Mastercard prepaid cards, although the balances on prepaid cards are never as significant as in our PPAs because our PPA settle the account as well as [ hold ] the funds, but we're seeing growth, and we believe we'll start to see some monetization and growth in deposits and a consequential reduction in our deposit costs throughout the year of 2025. With that, I want to just conclude by one thought. And as I look back, and Ryan and I often have talked about with many of you with our one-on-ones and with our shareholder conversations, and they ask about our story and our history. I believe our strength today and our growth today, when we say we want to grow internally, we want to do things ourselves. We want to issue and manufacture and develop and credit our own credit card. We want to issue and create our own SBA division. And we want to -- everything we do, technology and otherwise, we want internal to our bank. We don't want our bank tied simply by APIs with every kind of program there is on earth to function. We want to do it ourselves. But it's a part of our founding principle and our founding strategy. When we were founded -- our strength really lies in our Board and our shareholders. We had 180 shareholders when we were founded back in 2007 and the reason for that is, we didn't want there to be one influencer and the shareholders that would own over 10% and be able to influence through his vote or her vote the outcome of our company. And our independent Board members, 9 out of 11 were independent from the beginning, 7 out of 9 at the holding company today.

Now that independent score will change a little bit with the way the SEC counts, but still a majority independent. And when you look at our -- excuse me, my sound went [ off ]. When you look at our structure, we have about 14% of our shares are owned by institutions, about 49% to -- 46% or 49% by our Boards and the rest by individual shareholders, and that was before this recent offering. But the recent offering was only about 8% dilutive. It wasn't a significantly large offering for the amount of equity we have.

Our strength has always been our Boards and our shareholders, and you will remain in this last [ $20 million ]. I want to thank all of you on this call who participated in it. We won't let you down. We're going to work very hard for our shareholders because our Boards, our institutions and our individual shareholders are us, and thank you very much for being us. And with that, I would open it up to any questions.

Hey, Ed. It's Brad from Down Range.

So when we look back at the -- so first of all, this time last year we spoke about -- you put this quote out there to the shareholders and you said this is the great pivot.

So how do you believe that's gone in the last four quarters? What would you give you guys as -- in terms of that statement was kind of impactful, I think, for existing shareholders, but the company has made some changes here.

So what do you think about over the last four quarters the kind of leaps this company has done?

Well, I think that the great pivot was the enormous growth in our balance sheet over the last year. Ryan, what was the specifics on it? I [ haven't ] those numbers right in front of me as I'm looking at it, but our balance sheet grew extraordinarily...

44%, so we grew year-over-year by $319 million in total assets.

And so when we talked about the great pivot, we said, well, we want to grow our balance sheet and we want to grow our base. And in order to do that, we're going to take these moves, and we listed a series of actions we're going to take.

And so, I believe when you see the growth numbers in the 60s and 80s and 100% levels, that's the pivot that we talked about towards the end of last year -- towards the fourth -- third quarter and fourth quarter of last year when we mentioned that.

So I think it's been manifested that way. And I believe the launching of the credit card was part of the pivot. The stress that we are -- the importance we are paying upon our payments industry and our gaming industry. We believe that we have developed through this pivot the growth metrics for the future, and that's how I think it's been manifested, Brad.

So last year one of the biggest things that got investors excited was this licensing potential of BCS, and we didn't speak about that, and it doesn't seem like it's as big on the radar. Obviously, slot machines and some other stuff is ahead of that now. [ And ] you saw this [ Evolve Bank ] fail causing massive problems for fintech companies that use Evolve Bank as this Banking-as-a-Service and something you said that was a concern of yours that this Banking-as-a-Service aren't real banks. Is there any business pickup there or is there any more initiatives there that looks like we may see some growth there in '25 or '26?

One of the important things, I think, Brad, in the licensing of our PPA or the licensing of it with the -- because we've talked in a way in which this consumer protection is something that we offer in an ability to create these accounts into consumer notational accounts under our architecture of the PPA. We still believe there are going to be licensing opportunities for that with the big players because the CFPB is not going to go away. The fact that there's enormous pressures on banks and how they bank Banking-as-a-Service now from the regulators, all of them, not just the FDIC, but the OCC and the Federal Reserve, they're all looking at these.

So -- but one of the important elements will be when someone besides the smaller payments entities have to change. And they're not going to -- I don't believe any of them are going to change until they absolutely have to change because there's too much funds at stake that they -- that are utilized in their normal operations.

So we're not taking it -- it's not been taken off the table, but the other very important thing is going to have some really good working models too. And [ we ] -- that's why we think BoltBetz is going to be a very important first working, when I say working model because the scale is small, but you will be able to really dig deep and really understand the process and really be able to demonstrate how the entire banking solution really works because none of them, not one program that exists in any casino today works the way the casino operator wants it And there's only a couple of them. They -- And we are very aware of them and very aware of their process. We go, we sign up for them, we use the app. We dig deep into understanding and knowing how they work. And we know that the gaming operators are not pleased with them.

So there's a lot of work to do. And this is -- and we think that as the process continues, we'll get our share. And if someone like one of the very large banks wants to -- and finds there's an opportunity because their customer wants it, it's not going to be because the bank wants it. It's going to be because their customer comes to them and says, "I need you to do this. We need to do this, and we know this company has the solutions." I mean, BCS has been in touch with every major bank in the country at one point or another.

So we're out there and we shall see.

So one question I keep getting from some investors, I don't know how to answer it is, let's say we would get regulatory relief as in terms of with M&A. Obviously, it was disappointing that the regulators didn't take us seriously. Would you in 2025 or 2026, if you felt like the regulatory pressure was off, take another run at buying a 100% of BCS?

Here's the problem with that, that I think that we've learned. And Rodge Cohen, who is a brilliant attorney with Sullivan & Cromwell gave us some very sound advice. And when we look at it in retrospect, it was so smart to do the 32.99% because -- you've answered your question almost before you asked it. When you talked about Synapse and the fintech failures and the banks that are getting much pressure on it to -- for a bank our size to buy a fintech like BCS, unfortunately, it gets classified as a technology company, but also a financial company.

So I guess fintech fits, although that word is becoming -- people are starting to not use that label anymore.

I think that we find that it's -- there were two things that really came out of the last effort to buy the entire thing.

The first was the governance we'd have to have in place to operate BCS because the governance would have to be like a financial institution. I mean, we -- you do see because of the stress right now that's coming from your regulators.

So if we had to function -- if BCS had to function more like a financial institution and less like an entrepreneurial technology company, it would slow -- I think it would create real issues for BCS from the standpoint of having to have a Board of Directors, from a standpoint of having to have compliance committee, from the standpoint of having to have internal -- the kind of internal controls with respect to a three employee company.

So it starts to become a little overwhelming to where our interest right now is 32.99%, is interesting because the valuation of whatever happens -- the bank, of course -- the holding company, of course, owns 1/3.

So I'm not -- we're not rushing to go do the rest of the deal or look at it. Would we ever look at it again? Of course, we will.

I think that's just a normal course of events, but it's not on our radar for '25 or in the short-term.

Tim Coffey from Janney. I got a couple of questions.

Just -- I mean, we've got a lot of great details here on this call, and I really appreciate you guys going through all the different line items. My question had to do with the credit card. I just want to kind of circle the square here. Is the expectation that the credit card product could be profitable by year-end?

Yes, I'm going to let Ryan answer that because he's got his fingers more on those numbers than I do.

Yes. Yes, as Jeff stated, we think of profitability for that division achievable by year-end, end of Q4.

So what we're seeing there is, even though it's not a significant increase in balance sheet receivables, but the utilization of the card, as we've talked about, is much higher than our original modeling.

So a big driver of that is anticipated growth in interchange income specifically.

All right. Great. And then, Ryan, since I got you, margin, right? I mean, you sound pretty optimistic on it in a down rate environment. Where would you see margin exiting 2025 at?

I was waiting for you to ask this question, Tim. Certainly, we -- as we indicated, we're still asset sensitive. We had some tailwinds in Q3 that helped to get the consolidated up to 5%.

I think we're going to remain in the high 4s as we see assets reprice for the remainder of the year, but then obviously, the offset on the cost of funding side. But we think Q4 will be somewhere -- most likely in the [ 4.70% ] range, somewhere around there. And then with the kind of the backlog of sellable loans, we expect to see some pretty good gain on sale numbers to counteract.

Yes. That was my other question with SBA. Obviously, you guys are doing really well, probably clearly better than you expected. What's your expectation for volumes in 2025?

Well, that's a good question. What I can tell you is right now, the pipeline is obviously really strong. We closed on a significant portion of that pipeline in Q3. We don't see currently a significant slowing. And we've talked about this in the past.

I think that as we look at our overall SBA production, for the SBA fiscal year of [ $475 million ], we don't necessarily expect nominally that number to go up materially, but we do expect some progress in terms of pipeline in additional product types, specifically commercial real estate, secured 7(a). Obviously, hospitality is a key focus and competency of ours.

So that's -- continue to grow. But really, our focus for 2025 is to diversify that production in other types of CRE. But in terms of -- if your question is, are we going to grow SBA production 112% again next year, probably not. It's probably going to stay pretty close to what we just were able to generate, but the composition we do expect to change.

Okay. And what impact do you think that would have on margins or on gain on sale margins?

Gain on sale has the potential of being significant and we see that in our sales volume for the year-to-date period. And obviously, in our release we give overall kind of aggregate numbers for GAAP percentage premium. On average, we see non-hospitality similar structured CRE loans generating typically as much as 2% higher than...

Yes. When you look back, Ryan, at our year, one of our highest gain on sale years, wasn't that [ 22% ]?

Yes.

And if we had even close to those gain on sale numbers with the volume we have today, it's -- would be quite amazing results.

Yes, that'd be a material number.

Well, I want to thank everyone if there are no additional questions.

Ed, it's Dave [indiscernible]. Can I just a quick question on the slot business. Can you talk about it, implementing this in the fourth quarter? Can we get an idea about what kind of deposit revenue we could perhaps generate in 2025, how that's looking?

Well, here's what we know. We believe that from the analytics we've done and the participation that we might have that this process with Distill and with BoltBetz could generate about $25 million in deposits -- $2.5 million rather in deposits per month on a going basis because it's a relatively small business and a relatively small number of slot machines. But it's going to be very important because it's obviously the first -- [ we're ] the first using these components of PPA and RTP.

Now, what we also know is that the process of signing people and getting participants is also going to be new. In other words, it's going to be a -- can you still hear me?

Yes.

My phone went dark, and I was looking -- I thought maybe I lost signal.

So there's going to be a process of developing the participants, developing the participation, developing the customer utilization. And I know there are very good marketing programs to do that.

So we'll see how soon that occurs and then to bring in the other users. What happens with a major user of slot machines that has, whether Todd's, the Distill audience, whether it's 4,000 or 5,000 or 6,000 people, their core, however many it is, or versus a larger operation where there may be 20,000 or 30,000 people or 40,000 people as a core to the really big ones with millions. Well, it takes time to convert and develop the process of utilization. But we believe that the deposit growth are going to be not -- are going to start surely in '25. And if we -- and as we sign additional programs to it, we believe it will grow. But like we put out our estimates, what were they, Ryan? We -- our projections for '25, we're still sticking with pretty much in terms of where our gaming fintech deposits will be at the end of the year. Was it about $100 million or is it a little more than that?

Yes, I think we're talking about more than that. And I think it's important to highlight why we're so excited about the bricks-and-mortar opportunity and partnership with Konami as a casino management system.

If you're not in gaming, you [ don't ] really understand how much cash there is in the bricks-and-mortar environment, and Ed shared some of those metrics. Konami is probably in the U.S. the third largest provider of CMS. Their universe is 140,000 machines. But just to kind of give you an indication of how significant those deposits could be for GBank. A midsize -- a lot of their systems are in native American casinos, a midsized American casino at any time, between 2,000 and 3,000 machines and $50 million in cash on the floor.

So when you think about the ability for us to really begin to penetrate that market in 2025. And instead of replacing CDs that's now in the low 4%, but replacing those with noninterest-bearing deposits to the degree that we grow gaming fintech, it provides a pretty powerful story.

Right.

I think I may have misled you just a little bit because I was saying that we expect deposits of about $2.5 million -- each machine can develop $2.5 million...

That just sell local.

I'm sorry, I'm breaking up a little bit.

I think that, that program could develop $25 million in deposits.

So -- it can monetize very quickly with larger programs, but the larger programs are going to take time to develop. But remember, I mentioned several other platforms and programs that are in existence. Sightline, by the way, which I failed to mention, actually signed up three new clients that are now booking -- that are now starting to see business grow within our Sightline program at GBank.

So when we look at all of them, we're still running around $32 million in average monthly deposits right now.

We expect those to start to grow in -- some in the fourth quarter, but we see those growing to $100 million to $150 million next year. And we think that's achievable just with the programs we have on the pipeline. And I think that -- I can't think of anything else to say to all of you on this particular call. And Ryan and Jeff, if you have nothing further, I think we can terminate the earnings call for the third quarter. Thank you all so much for participating, and thank you again for being part of us.

Thank you, everyone.