GBank Financial Holdings Inc. (GBFH) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call presents a positive outlook with strong growth in credit card originations and SBA platform, strategic debt management, and favorable interest income projections. While government shutdowns impacted SBA originations, recovery is expected. The Q&A highlights management's confidence in growth opportunities, despite some unclear responses. Overall, the positive aspects outweigh the concerns, suggesting a positive stock price movement.

Key Financial Performance

Quarterly Earnings $7.4 million, or $0.52 per diluted share, an increase of $3.1 million compared to the prior quarter earnings of $4.3 million. This includes record levels of net revenue and $247,000 in net onetime expenses. Reasons for the increase include improved operational performance and the tail end of a marketing campaign for the credit card.

Net Interest Margin 4.33% for 2025 compared to an industry average of approximately 3.7%. This reflects the company's strong financial performance and effective management of interest-bearing assets and liabilities.

Noninterest Income Increased by $7 million year-over-year, driven by interchange activity from the credit card program.

SBA Gain on Sale Increased from 3.24% to 3.98% in the fourth quarter. The improvement is attributed to changes in the incentivization program for business development officers, focusing on higher spreads.

Credit Card Transactions Settled at $99 million in the fourth quarter, down from $130 million in the second quarter. The decline was due to the suspension of applications and marketing to address fraud issues and implement new KYC and fraud prevention measures.

Hotel Loan Defaults Since inception in June 2015, only 12 out of 1,002 hotel loans defaulted, with total charge-offs of $2.8 million. This demonstrates the strong collateral and risk management in the hotel loan portfolio.

Investment Securities Sale $52 million sold during the quarter, including both available-for-sale and held-to-maturity investments. This was done to better position the bank in a rates-down environment.

Subordinated Debt $6.5 million of subordinated notes redeemed to avoid a rate increase of 350 basis points. Additionally, $11 million of new subordinated debt was issued with a fixed rate of 7.25% for the first 5 years, providing additional capital while reducing costs.

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Operating Highlights

Credit Card Program: The company faced challenges with its credit card application process, including issues with an automated product and a massive direct mail campaign. These issues led to a temporary halt in applications and marketing. The program was relaunched with enhanced KYC and fraud prevention measures, including partnerships with Plaid, Neuro ID, and Precise ID. The company also plans to bring ACH processing in-house to improve transaction efficiency and fraud control. Despite challenges, the program is now contributing positively to the bottom line.

BoltBetz and PPA System: BoltBetz received licensing as an Associated Equipment Provider, enabling players to fund wagering accounts via a mobile app. The system eliminates the need for gaming operators to manage cash, as funds are held and managed by GBank. This innovation is expected to transform cash management in the gaming industry and expand to other operators and states.

Gaming/FinTech Expansion: The company is focusing on scaling its Gaming/FinTech operations, including the BoltBetz and PPA system. This includes licensing expansions and partnerships with gaming operators like Distill Taverns and Terrible. The system is expected to grow significantly, targeting 150,000 slot machines in Nevada and 800,000 across the U.S.

Fraud Prevention and ACH Processing: Implemented advanced fraud prevention measures and plans to bring ACH processing in-house to improve efficiency and control. This has already reduced fraud and improved customer onboarding.

SBA Loan Program: Revised incentive programs to focus on higher spreads, resulting in improved GAAP gain-on-sale income. January 2026 saw significant gains, with 12 loans sold for $32 million, achieving higher spreads and gains.

Digital Bank and Payments Products: The company is investing in digital banking and payment products, including the BoltBetz PPA system, to drive future revenue and improve net interest margins. This aligns with its strategy to replace $400 million in high-cost deposits with no-cost deposits.

Leadership and Organizational Changes: Reorganized credit card operations and hired new leadership, including a General Counsel, Chief Technology Officer, and Payments Technology Director, to support growth and innovation.

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Risk or Challenges

Credit Card Application Process: The company faced significant challenges with its credit card application process, including an automated product that was not user-friendly, leading to dropped applications, and a massive influx of applications from a poorly designed direct mail campaign. This overwhelmed the system and required a complete redesign, halting marketing efforts and causing a decline in transactions.

Fraud and Bot Attacks: The company experienced a high volume of fraudulent credit card applications, including bot attacks, which required the implementation of advanced fraud prevention measures. This issue caused delays and a temporary reduction in transaction volumes.

ACH Payment Processing: The reliance on an external vendor for ACH payment processing led to delays and fraud risks. The company had to bring ACH processing in-house, which was a significant undertaking and temporarily reduced transaction volumes.

Regulatory Challenges in Credit Card Usage: Some states have restrictions on using credit cards for sports betting apps, leading major players like DraftKings and FanDuel to stop accepting credit cards. This regulatory environment poses challenges for the company's credit card business.

Operational Challenges in Gaming/FinTech: The rollout of the BoltBetz system and its integration with gaming operators required extensive licensing, training, and operational adjustments, which could delay scaling and revenue generation.

SBA Loan Spread and Gain-on-Sale Income: The company faced declining gain-on-sale income from SBA loans due to insufficient spreads. This required a change in incentive programs to focus on higher spreads, impacting short-term financial performance.

Subordinated Debt Costs: The company had to issue new subordinated debt to replace maturing debt with high interest rates, increasing financial costs in the short term.

Nonperforming Assets and Credit Quality: The company is dealing with nonperforming assets and credit quality issues, although recent Federal Reserve rate reductions have provided some relief.

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Guidance & Outlook

Credit Card Program: The company plans to relaunch its marketing efforts for the credit card program, which had been paused to address fraud and operational issues. New fraud prevention measures, including KYC, Neuro ID, and Precise ID, have been implemented. The company is also launching its own ACH transaction processing to improve payment efficiency and reduce fraud risks. Growth patterns are expected to resume with these new systems in place.

Gaming/FinTech Operations: The BoltBetz product has been licensed and launched, with plans to expand its use across additional gaming operators, including Distill Taverns and Terrible. The company anticipates significant growth in noninterest-bearing deposits and improved net interest margins as the product gains traction. The system is expected to revolutionize cash management for gaming operators by transferring cash handling responsibilities to the bank.

SBA Loan Program: The company has implemented changes to its SBA loan program to focus on higher spreads, which are expected to result in improved gain-on-sale income. The GAAP gain-on-sale is projected to exceed 4% in 2026. The company also plans to continue growing its SBA loan portfolio while maintaining strong credit quality.

Capital and Liquidity Management: The company has raised $11 million in subordinated debt to pay off $6 million of higher-cost debt and provide additional capital for growth initiatives. This move is expected to reduce costs and support the development of new lines of business.

Market Trends and Strategic Focus: The company is focusing on expanding its digital banking and payments products, which are expected to drive higher future revenue. The balance sheet remains strong, providing the necessary support for these growth initiatives.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Can you provide an update on the credit card platform's potential for interchange and volume growth this year?

A:The company experienced 500% growth in credit card originations, increasing from $73 million to $400 million year-over-year. While specific forward guidance was not provided, management expects to potentially double originations to $800 million by year-end, assuming monthly originations of $40-$60 million. Growth is contingent on eliminating user fraud and abuse. Management also noted opportunities for growth in interchange fees and highlighted the impact of platforms like FanDuel and DraftKings not accepting credit cards.

Q:What are the expectations for the SBA platform's growth and gain-on-sale margins?

A:Management expects continued growth in the SBA platform, supported by incentivizing the team with stock options and leveraging a strong broker network. They anticipate sustained growth patterns and improved gain-on-sale margins, particularly with lower interest rates potentially driving more hotel deals.

Q:What drove the negative reserve in the fourth quarter, and are there changes in the criticized asset list?

A:The negative reserve was due to adjustments in the Q factors for the ACL, particularly for SBA loans. Historical analysis showed no need for additional reserves on the SBA portfolio. Management noted that the reserve was previously high based on historical analysis, and there were no significant changes in the criticized asset list.

Q:Does the $2.5 million deposit per 100 slot machines still align with current observations?

A:Management clarified that the $2.5 million deposit figure represents a mature market with 50% penetration. The timeline for achieving such deposits depends on onboarding and training by gaming operators. They emphasized that the app is new and will take time to gain traction, but feedback has been positive.

Q:Will the onboarding of slot machines impact the deposit mix and net interest margin?

A:Management sees slots as a significant opportunity but noted that the bank has 16 other PPA clients, including startups and state lotteries. They believe the deposit mix and net interest margin will improve as slot machines are onboarded and noninterest-bearing deposits increase.

Q:What impact did the government shutdown have on SBA originations and sales in the fourth quarter?

A:The government shutdown led to a significant drop in SBA originations, from over $200 million in Q3 to $118 million in Q4. However, sales in Q4 matched Q3 levels due to pre-approvals obtained before the shutdown. Management expects a rebound in originations and sales in subsequent quarters.

Q:Why was there an increase in the percentage of SBA loans sold in the fourth quarter?

A:The increase in SBA loans sold as a percentage of originations (73% in Q4 compared to 50% in previous quarters) was attributed to the timing of originations and sales, influenced by the government shutdown. Many loans were pre-approved before the shutdown and sold once the government reopened.

Q:How quickly can the credit card platform return to $330 million in transaction volume?

A:Management believes the platform can quickly return to $330 million in transaction volume once marketing resumes. They noted that most players pay off their balances quickly, and growth will depend on adding new players through influencers.

Q:What is the outlook for noninterest expenses in Q1 and the growth rate for 2025?

A:Noninterest expenses in Q1 are expected to be similar to the previous quarter, with some onetime items offsetting salary increases. For 2025, expense growth will be driven by variable costs associated with transaction volume growth, particularly in the credit card platform.

Q:What is the margin outlook if there are two rate cuts this year?

A:Management anticipates that growth in noninterest-bearing deposits will offset the impact of rate cuts, resulting in a net interest margin similar to the previous year.

Q:Review of Unclear Management Responses

A:Management appeared to avoid giving a direct answer to the timeline for achieving $2.5 million deposits per 100 slot machines, citing the need for onboarding and training by gaming operators. Additionally, they did not provide a clear timeline for returning to $330 million in credit card transaction volume, instead emphasizing the need to resume marketing and add new players.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

GBFH Transcript

GBank Financial Holdings Inc. (GBFH) Q4 2025 Earnings Call Transcript

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GBank Financial Holdings Inc. (GBFH) Q3 2025 Earnings Call Transcript

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The earnings call summary shows strong financial performance, with significant increases in net interchange income, gain on sale revenue, and total assets. The Q&A session reveals proactive measures against credit card fraud and expected growth from influencer partnerships. Despite some uncertainties, like the SBA pipeline shutdown, the overall sentiment is positive due to robust financial metrics and optimistic growth strategies. The expected normalization of noninterest expenses further supports a positive outlook. Given the lack of market cap data, the prediction leans towards a moderate positive impact on stock price.

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