GBank Financial Holdings Inc. (GBFH) Earnings Call Transcript & Summary

Well, ladies and gentlemen, I'm going to start our third quarter earnings call for GBank Financial Holdings. In the room with me, of course is Ryan Sullivan, our President and CEO of GBank Financial Holdings at GBank, and also Jeff Whicker, our Chief Financial Officer. This was a very unique quarter for us because there were a lot of moving parts. And I wanted to open by talking just a little bit about a very important pivot that we did in the third quarter. As we were coming through the middle of the quarter, we started to see the gain on sale prices for our SBA loans dropping precipitously. As a matter of fact, the GAAP gain got as low as, I think, 3.5%, 3.6%. This is sort of an awakening when we're writing loans. As a matter of fact, during the third quarter, we produced over -- our production was over $81 million in our new originations for the third quarter. Of course, those sales come in later quarters. But having said that, these loans are being boarded at 10%, 10%-plus interest. And you can see that at 3.5%, to hold the loan is very accretive, very fast, 90 days in some of them. So we knew that by not putting as many loans up for sale and retaining them that we would have the impact on this quarter, but we also knew that even selling as many loans as we sold last year, the returns would be far less, extraordinarily less. As a matter of fact, the quarter of 2022, the third quarter, we did $3.2 million in gain on sales. And this quarter, we did $750,000, but our earnings didn't drop $2.7 million for a lot of important reasons. But one of the things we started to do was retain more of these loans, the guaranteed loans. And the second part we saw was that there were requests for refinancing out in the marketplace. So we made refinancing available to our loans that were in our servicing asset. Remember, we had over $700 million of SBA loans in our servicing asset for which we receive a 1% fee. What we began doing during the third quarter was offering those who were looking for refinancing at fixed rate, somewhere between 8.55% and 8.75% on a 5-year level and buying that loan back from our investors at par. So as a matter of fact, that program has become so successful, you're going to see that in the month of September, we grew our guaranteed loan portfolio from, excuse me, in the third quarter from $47 million, which was what we used to carry on an average on our balance sheet to $91 million. And the interesting thing is, already in September, we've already added of -- I mean, in October another $80 million. So this is a growth in our guaranteed loan portfolio that we expect to exceed $200 million by the end of the year. And these are at a very -- we're converting a 1% fee, if you will, or a 3.5% GAAP gain into an extended 8.75% or 8.55% interest. And it's not hard to see that that math is going to add up real fast, especially as we grow our balance sheet. The other beauty in this methodology is that we're going to secure a significant interest income in the future quarters increase, but we also -- these are guaranteed loans. And as a guaranteed loan, we are not increasing the risk to the bank from a loan and a reserve aspect. So it's a very, very important move for us in which we're changing the nature of our balance sheet, and we're going to see it result in significant, we believe, interest income. Now we are not done selling SBA loans by a long shot. As I told you, our production was $81 million in the third quarter which annualized out is at a run rate of $320 million, which is what our goal was for this year. The second quarter was a little -- was less than the $81 million. But at the same time, that program on the top line is not declining. So we've been able to manage and increase our assets and increase our earnings, but we saw the decrease and the effect of it in the third quarter. Well, I wanted to give that introduction because that made the most difference. When you look at our sales from $3.2 million, as I said in the third quarter, which was one of our largest quarters ever of guaranteed loans to $750,000 in round numbers, it's a dramatic change. But we've seen the power of our loan portfolio, and we've seen the power of our interest income. And we've got some other very interesting things to tell you. And with that opening, I'm going to turn it over to Ryan to talk to you more about the balance sheet and the earnings.

All right. Thank you, Ed, and hello, everyone. Well, as reported, Q3 for GBank Financial net income of $1.8 million diluted earnings, $0.14 a share, greatly impacted by gain on sale, as Ed indicated, and I'll get in some details on that in just a moment, for the first 3 quarters, translating to $7.4 million of net income or $0.57 and $0.58 diluted and basic respectively. So income certainly was below our long-term expectations in Q3. Gain on sale is probably the area to focus on the most because that have the largest departure of our run rate in prior periods, and it's really borne out of, as Ed mentioned, the 2 things. The first was an election that we made to hold a much larger percentage of originated loans and then secondary pricing, which outside of probably 3 weeks beginning in mid-March, these loan prices GAAP price for the quarter of 3.36% is the lowest I've ever seen. As Ed mentioned, referenced, whenever we have a loan and we originate it, we do a buy-sell analysis on every single loan and one of the things we look at is the payback period, how long if we held that asset, would it take for us to recoup in net interest income, what we would be foregoing in gain on sale. In the most extreme cases, as Ed said, it's 90 days. But even kind of the worst-case scenario in the current environment, it's about 6 months. So when we consider 3.36% on GAAP gain on sale and the fact that these earning assets are very solid, 75% guarantee. That's been a big part of the story, and that story will continue into Q4 and set us up for some significant net interest income expansion as we get into next year. So the gain on sale issue in terms of the reduction, you can see $763,000 for the quarter, a 53% reduction compared to the prior linked quarter and a 76% reduction compared to the $3.2 million in revenue that we generated in Q3 of 2022. Now on a year-to-date basis, it's kind of interesting to consider that $763,000 for the quarter takes us up for year-to-date 2023 gain on sale of loans of $4.4 million. That's a $7.4 million reduction compared to the same 3 quarters of the prior year, 63%. So in other words, we had a $7.4 million revenue hole that we've been working very hard to fill and margin expansion and increasing our earning asset is how we have done that. You can see that that same period year-to-date, our net interest income increased by $10.8 million year-over-year. So our net revenue, which considers both actually increased year-over-year from $30.4 million for the first 3 quarters of 2022 to the $34 million that we're reporting for the third quarter ending 9/30 of 2023. So just a significant change in the composition of the revenue. And the election to hold a higher percentage had an impact on, obviously, the gain on sale as well as earnings overall. And just kind of a what if. If you take a look at the linked quarter, we did $68 million in total originations in Q2 that related to $35.7 million in sold volume for Q2 and compare that to $81.1 million in originations in Q3 and only $22.7 million in sold volume. Now if we had just held the same sales which essentially and historically, we've generally sold nearly 100% of eligible loans as they become available for sale. If we had held that same sell rate in Q3 that we had in Q2, that would -- even with the depressed prices of 3.36%, that would have translated to additional pretax GAAP revenue of $1.2 million. On a tax equivalent basis, that equates to $0.07 a share. In addition to that, if we had sold that volume and prices hadn't declined as they did from 4.5% to the 3.36%, that would have translated to an additional $680,000 pretax, which is $0.04 per share. So you can see the decisions and the impact that it's having on short-term earnings, but will have a significant impact on earnings in Q4 and in 2024 in a very significant way. So combined between those 2 factors, if we had sold the same sell rate and if prices hadn't declined, those 2 equate to $0.11 combined on a per diluted share basis. So as Ed referenced, we also, during the course of the quarter, in addition to holding a larger portion of originated loans, we started the SBA change in terms program. He highlighted that. What we've seen this year as rates have gone up, is we've seen an accelerated level of prepayments. It's had a relatively minimal impact on the balance sheet overall because most of those guaranteed balances were previously sold. But if we look at Q3 and this kind of gives you an indication of some of the prepayment activity that we've had, we had a total balance sheet effect on SBA loan payouts during the quarter totaling $10.6 million across 20 loans. So what the change in terms program does? It does several things for us. It allows us to help our borrower convert a quarterly variable rate loan to a 5-year fix and fix that rate at a lower rate than what they're paying today. If you think about our vintage origination going back over the past 3 years, our average origination pricing on SBA loans, it was typically around prime plus 2%. So a lot of those 10.5% loans are talking to us in terms of converting their loan and changing that to a 8.55% to 8.75% 5-year fixed loan. So in terms of margin expansion, you can see, obviously, we've expanded the size of the balance sheet. The combination of all of these effects, even in a very competitive deposit rate environment, produced a net interest margin expansion of 32 basis points to 5.69%. Consolidated gross loan growth during the quarter of $66 million for unannualized 14%, as Ed alluded to, that rate is going to escalate going into Q4 on the guaranteed portion of the portfolio, which is now $91 million. We effectively doubled that in Q3. We will more than double it again in Q4. So we will have approximately $200 million in guaranteed on-balance sheet loans by the end of this year. And with that, I'll turn it over to Jeff and he can go into the finer details. Go ahead, Jeff.

All right. Thank you, Ryan, and welcome, everybody. Good afternoon. I'd like to start actually by kind of focusing on the balance sheet. So GBank, as we talked about, ended the quarter at $729.3 million in total assets. So the asset increase of $44.4 million during the quarter was mainly due to the loan growth that Ryan actually just alluded to with the $81 million in new originations and $21 million in repurchase guaranteed balances. Our pipelines remain super strong, and we anticipate that loan growth to continue with those guaranteed balances doubling by the end of the year. But as we look at deposits, our total deposits increased by approximately $41.2 million during the quarter. As expected, the deposit market is getting more and more competitive. And so due to the strong loan growth and the competitive nature of the deposits, the bank has brought in an additional $32 million of brokered funding during the course of the quarter, bringing our grand total up to about $72 million. Now of that $72 million that we've got brokered funding, all of it is either callable currently or is going to be maturing within the next 12 months. So it's pretty short term in nature, and that will allow us to hopefully refinance those costs at a lower rate in the future as we continue to work our deposits. Our cost of funds continues to creep up approximately 2.26% in Q3 and 1.85% year-to-date. This represents about a 30 basis point increase for the quarter. Our uninsured deposits come in at about 36.3%, down slightly from the 43.25% that we reported in the prior quarter. Net interest-bearing to net -- noninterest bearing to interest-bearing deposits came in at about 35.7% and our loans to deposits came in at about 87.9%. So we still do have room to continue to grow, and we expect to be able to utilize that space through the end of the year. As we look at the securities portfolio, our securities portfolio decreased by about $10.8 million during the quarter. That was mainly due to 2 maturities on 1-year treasuries for about $10 million. We do not anticipate any additional maturities in our deposit -- in our securities portfolio until the month of February of next year, at which time between February and June, we should have about $40 million of low-yielding treasuries that will mature, and we'll be able to reinvest those at higher rates at that point in time. Overall yield on the portfolio, however, came in at 4.03% for the quarter. That's compared to a peer average of 2.46% and that puts us in the 94th percentile for our securities portfolio. So we are still very competitive in that market. The OCI held relatively flat at $270,000 with total unrealized losses on the total securities portfolio of about $1.69 million after tax. Equity is remaining strong. Our holding company's equity to assets at 12.97%, combined with the bank's tier 1 leverage ratio of 16.81% (sic) [ 16.18% ], shows that the bank has significant capital to keep moving forward with our current plans. This compares to a 10.51% peer average in the market, which is at about the 96 percentile from an equity perspective. And our equity increase is mainly due to earnings for both sides, but we did have a downstream capital infusion of $2 million that came from the holding company to the bank during the course of the quarter. So balance sheet remains strong. We have started shifting temporarily to the short-term holding the loans rather than selling them. But we do anticipate shifting that back as the loan markets strengthen, hopefully, in the fourth quarter and the beginning of next year. Income overall came in, as Ryan said, $1.8 million or $0.14 per diluted share. As we break that into its components a little bit, we talked a little bit about the net interest margin. Current quarter-over-quarter net interest income increased 10% to $9.5 million compared to $8.7 million in Q2. Our net interest income is up both quarter-over-quarter and year-over-year as the bank does continue to produce high-yielding assets and reaps the benefits from the Fed rate increases that we've seen over the last year. This has increased net interest income by $10.8 million year-to-date over prior [ 2002 ] year-to-date. Increase in yield on earning assets is partially impacted by the repurchase of the guaranteed loan balances that we talked about. So when we repurchased these SBA loans on the secondary market, we're required to write off both the servicing asset and the remaining discount on the loans. And both of those net to a very small number, but they hit 2 different places on the income statement. So it slightly inflates our yield on earning assets. About $140,000 of our net interest income was related to that. And that would have impacted our net interest margin. It would have been 5.61% as opposed to 5.69% without that extra income. But that's offset by about $156,000 on the servicing rights that we'll talk about in the noninterest income portion. GBank has seen a 200 basis point expansion in net interest margin over the last 12 months at that 5.69%. When you compare that to the peer at 3.5%, that gives the bank a 217 basis point advantage over our competitors. Now what does that mean to the bank's overall sensitivity? So sensitivity, we were highly sensitive a year ago. The sensitivity of the bank has come down significantly. We do remain asset sensitive. But in the most recent testing in a rates-up environment, 200 basis points, we would expect the net interest margin to increase about 200 basis points -- sorry, about 16%. And then in a 200 -- rates down 200 basis points, we would expect it to decrease about 15%. So it's pretty even both directions currently. But the current balance sheet growth that we have is working very powerfully to secure the increased margins that we're seeing right now at the bank and also put us in a much more neutral position overall from a sensitivity perspective, which is really good as we look at potentially rates coming down in the near future. Noninterest income totaled $1.2 million. We saw that decrease, about $1.1 million quarter-over-quarter or 48%. This is due mainly to the bank's pivot towards holding more of the assets as opposed to selling them in the secondary market as Ryan alluded or discussed earlier in the discussion. Year-to-date, we have shifted our focus to maintain those guaranteed loans as opposed to selling them in the secondary market. And over time we do believe that this will increase income for the bank overall, but it's spread out as Ed talked about earlier, over time as opposed to getting that onetime hit from the purchase. And that, as we discussed a little earlier, we did see a decline in loan servicing income of about $156,000 during the quarter due to those repurchases. Noninterest expense increased about $649,000 during the quarter. This is mainly due to the increased commissions related to the higher loan originations. We had about a $13 million increase in loan production for the quarter. On top of that, salaries and data processing costs do remain elevated as we work to position the bank to be a much larger organization in the future. So we are currently working to grow the bank into that position. So we do expect that number to stay pretty flat over the next little while, but that the bank's revenue will then grow into that. Credit card noninterest expense for the quarter was $435,000 approximately. The efficiency ratio still hovering just slightly over 70% as the bank continues to invest in its future. We do anticipate this improving in the fourth quarter and through 2024 as we grow into our expense structure, net interest income, and we'll continue to stay high. And then we also expect to see a return of those sales volumes from the SBA sales with pricing hopefully returns back to normal. Our returns on the bank, as we talked about, the ROA, 1.44%, when compared to our competitors or our peer group at 1.08%, remains strong, even with these changes that we've had. And then while this income is a little lower than the bank's historical average, it is part of the current plan, and we do anticipate seeing a long-term more stable income as a result of the actions that we've gone through over the last quarter. As we look at liquidity, our liquidity ratio came in 27.8% on balance sheet liquidity. We've got cash of $66 million. We've got a total liquidity, including our secondary sources, we approximate at about $399 million that we could turn around and bring into the bank in relatively short order. $244 million of that is in borrowing capacity that we could bring in the bank within a few hours, if necessary. So we've worked really hard to secure our liquidity going forward so that it won't interrupt our growth strategies and the overall balance sheet will remain strong, and we can continue to grow into the future. Asset quality continue -- improved significantly in the quarter. Our provision came in better than we expected. This was a lot due to the government guaranteed growth that we've got, brought the overall allowance of the credit loss down to 1.27% of gross loans. This is 1.54% of the loans at risk if you take out the guaranteed balances that are on the balance sheet right now. And this is compared to a peer group average of about 1.3%. So we're still adequately provisioned at this time. Overall, the ACL decreased to $6.6 million or $439,000, and this is mainly due to the resolution of the 2 nonperforming loans that we had on the books at the end of last quarter. One of those loans were sold off at a share of sale. The other loan we brought into ORE, it shows that we have got $1.1 million of ORE on the books at the end of the quarter. This ORE has been sold off during the month of October with no additional losses. And we are now sitting at nonperforming assets of 0 currently on the bank. We had a charge-offs during of quarter of $668,000. So overall, the balance sheet capital and liquidity for the bank remains strong. And this is allowing the bank to take advantage of this market and really utilize this time to grow with very strong accretive assets. And so we do anticipate that overall in the near future, we'll see significant benefits from what we've done over the last quarter. With that, I'll turn it back to you, Ryan.

Okay. Great. Just a couple of things on asset quality and the reserve. As indicated, NPAs were 0.15% of total assets with the disposition of the one. The other one SBA loan brought back into OREO as of 9/30. As Jeff mentioned, that has since been sold and actually was on the contract immediately. We did have one unfortunate event with the OREO property, it was damaged during the quarter, which translated to some additional cost borne by the Bank. Outside of that issue, we would have had a 0 provision for the quarter. So that was a negative event, but it's fully marked forward and off the book. So we're happy about that. From a ACL standpoint, one of the things that's driving our reserve write-down in relation to total loans, a few things, the shortening of the portfolio is having the effect as the average life shortens under the current expected credit loss, the function of that calculation goes down. And then we also expect those levels to probably continue to come in as we increase the percentage of guaranteed loans that we're holding on the books. In other words, Ed mentioned, we're targeting year-end to be approximately $200 million in total guaranteed on the balance sheet. So in other words, in 2 quarters, we will have quadrupled the size of our held on balance sheet guaranteed loans. In terms of growth, this, as alluded to, the growth is escalating into Q4. You can see total assets of approximately $729 million as of 9/30. We're currently anticipating it being at or near $850 million in total assets at year-end with a large portion of guaranteed loans. So we're pretty excited about that. One of the things that is part of kind of these joint strategies that I did want to touch on a little bit is this notion of sensitivity. And Jeff talked about how we've been mitigating our asset-sensitive position, and we started that actually 2 years ago. One of the strengths that we have as an organization, and what is allowing us to not only compete in a hypercompetitive deposit market, but actually expand our margins doing that is the strength that we have in our asset model and our asset generation. In fact, if you go back 2 years, one of the things, and if we just look at assets, short-term assets as a percentage of our earning assets. So assets that are fully variable or mature within a 1-year period. That portion of our earning assets 2 years ago, 9/30/2021 was 80% of our earning asset base. So as many were saying, they were asset sensitive. We were in fact asset sensitive and you see that further supported by the fact, again, I'm going back awhile now. But 2 years ago, in Q3 of 2021, we had a net interest margin of 3.33% (sic) [ 3.40% ] compared to the 5.69% that we reported for the most recent quarter. Now update that 80% in short assets to where we are today. As of 9/30/2023, that 80% has gone down to 63%, and will most likely be down to the mid-50s, probably about 55% by year-end. So when Jeff talks about getting to a more neutral position, one of the ways that we're doing that is by very materially changing the nature and composition of our earning assets. So we will be well prepared to maintain a very strong net interest margin should raise go back if and when that happens. So another couple of updates. We do continue to develop the credit card program. We're still really kind of in a beta at this point. We're expecting 2024 really to see some scale there. We are seeing some encouraging preliminary metrics as we've seen the portfolio growth. Maintaining our credit quality within that portfolio, our average [indiscernible] is about 750. We still have less than 200 accounts in total. But one of the things that we're particularly excited about is the spend rate that we're seeing in gaming compared to nongaming is much higher than originally model. So we're seeing right now the gaming spend as a percentage of overall spend within a small portfolio, but it's approximately 85% of the total spend. So we're encouraged by that and really focusing on the credit card program, scaling and growth in 2024. We believe one of the best ways we'll be able do that is through co-branding and co-marketing affiliate relationships with gaming entities, and we have a number of conversations going on with some significant gaming operators who have an interest in our credit card program. So with that, I'll turn it back to you, Ed.

Thank you, Ryan. I'm going to switch gears a minute here to our Gaming FinTech Division, which, as you see in the press release, I commented about Sightline and I commented about the fact that there is an interesting, going with the phrase again, pivot going on in our Gaming Division because Sightline's participation in sports wagering, their margin penetration has been declining substantively. But also our participation in the Pooled Player Accounts and the Pooled Consumer Accounts that are patents that BCS has and we through our contract with BCS right now have access to those tools, we're seeing those accounts start to grow. Now it's interesting that while the sports wagering accounts through Sightline have decline, our balances with Sightline used to average about $35 million to $40 million. Our balances with Sightline right now average about $9 million. And it's just because of the decline in market penetration of prepaid, general reloadable prepaid card that is issued by 2 banks, we're one of them, and there's another bank [indiscernible] that issues the other half of their business, it was in a -- actually prior to us. Having said that, we still are carrying average balances of over $30 million with some days higher than 40 million. And these are being developed by new clients of ours. We've talked about [ FABI ] which is a cash management company for about 150 tribal casinos [indiscernible], but they are also developing their own wallet and they -- through a company, their first effort is through an entity called [indiscernible] with which they're making available to their tribal casinos for various cashless gaming. Also though, we have companies like FABI, [ DubHub, Paydala, 1010 ]. The other 3 are skills game company. As a matter of fact, 1010 is promising. They were -- some of their founders who were part of Chumba, and I'm not big game player. In fact for those who are, Chumba is a pretty big name because they have over 100 active games that are being played. Now they look very promising and are starting to actually pay their fees to BCS. And we're starting to see some deposit growth. But some of -- these startups look more promising than some of the others have been. But most importantly, we have developed -- BCS has developed a referral pool. It's been created because of the business BCS is in because of these [indiscernible] but also because of BCS' agreement with GBank. We have -- our referrals come from people i2c. i2c is our processor for our credit card, but they're also the processor for the Sightline prepaid card. And i2c is one of the largest prepaid processors in the world. They're referring customers to us. You've heard of [indiscernible], they're referring customers to us as are many gaming attorneys and Worldpay, one of the largest acquirers who is our acquirer for, originally for the Sightline prepaid card. So we've created this network, and we really believe that the Gaming FinTech Division is going to manifest itself in future deposits. And this is very important to our growth. Very important to our growth in terms of being able to continually increase our guaranteed loan portfolio. And we believe that this growth will be there for us as we move forward. So I wanted to point that out because had we been just totally engaged without these other resources, our deposits would be fairly really low right now. But we think that this is going to be the machine and the mechanism that it was, and there wasn't -- it was just a very few 2 or 3 years ago, we were -- our loans were just $70 million a month with Sightline and they're down to about 24 million a month right now. So that's the difference in market penetration. But they are working on cashless gaming solutions for bricks and mortar casinos. And as we are talking to more and more of the bricks and mortar casinos that have cashless gaming apps about our credit card and about our PPA. So we believe there's a lot of opportunity yet on the horizon at this new pivot as well, and we wanted to discuss some of those with you today. Actually, I think Ryan has a brief summary, and then I'll close the meeting. Did you have anything else after mine?

No.

Okay. Then it's -- I wanted to point out something that when we look at the overall discussions today, our top end is really strong. I mean, our loan portfolio grew 30% year-over-year since the last quarter, and it's going to grow substantially between now and the end of the year, which is going to reflect, we think, in our future earnings. And we believe our Gaming FinTech Division is going to have some similar growth. And there's something that I want to announce today that we were debating on the timing of this, but we think it's important, and we're going to put another press release out after this meeting because we believe that this is becoming more known, and it's the potential acquisition and merger of GBank with bank card services. We actually -- this is not a new effort for us, back in 2020 we entered into an internal agreement, acquisition agreement for BCS to be part of the holding company. But as a single bank holding company, it wasn't the best fit. So we withdrew that application. And this time, we are looking at a merger with GBank, where it would be a subsidiary of GBank. Now we've -- the actions we've taken, we have appointed an independent directors, 2 directors from the holding company and 2 directors from GBank that have no interest in BCS because as many of you know, and we've reported consistently, that there is cross-ownership. As a matter of fact, everyone knows, with Hanan Sabri as our President, and I, we operate -- I'm very much involved in the operations of BCS as well. I'll be very glad if this transaction occurs so that we're all under the same umbrella, but I wanted everyone know that that board has been appointed. They've engaged a company and we'll be coming out with more specifics very soon to look at a valuation and a fairness opinion. And there's an entire process that we're looking at for this potential acquisition. We think it's an -- it will be important. There will be many details coming out yet. I cannot give you any right at this point because they may change. And -- but what I can say is that we're excited about BCS' patents. We think they are very real and very strong to attack things like storage funds and consumer payments companies as well as protecting the consumer with another layer of providing individual insured accounts at GBank for many of our customers that handle consumer funds, whether they're wagering accounts or payments businesses. So wrapping this all up, we think this was a very important quarter for us. Granted, we saw some impacts upon earnings, but every now and then, it's important, we think, to put a bit in our teeth and make sure we're ready for the future. And this is one of those quarters where we made some decisions, and I think you can see from our report today that impacted our earnings for the third quarter that we feel are going to be well earned in the future. So with that, we will open it up to any questions.

This is [ Brad Ness ] calling. Thanks for the detailed update. If you're buying back $110 million of these guaranteed loans in the fourth quarter, what does the opportunity look like in 2024 for similar repurchases?

I think that there's the opportunity for that to continue, and we expect that it will. I do think that probably the largest portion of that activity or volume will be recognized in Q4 because typically the candidate loans that are the best fit for that are loans that are 3 years or older. And there's some of the -- it's obviously an optional program, some of ours don't participate. But I think that we had the 21.5. We're going to do another 80 in Q4. But I think that as we think about next year, probably a smaller amount in this program, somewhere around 50 or 60 in the first half of the year is what we expect.

I think as Ryan said, in the first 3 years of these loans there's prepayment penalties for our borrower. And of course, the money for our buyers of our loans and the reason that it's growing right now is because they're willing -- they do not want the fixed rate, they'd rather buy new ones from us at 10.25%. And after 3 to 4 years, many of these loans do refinance out in the marketplace. So we see at the end of the third year anniversary, as we look at our loans, as we projected out that's our target. And so we haven't -- we would be looking at calculating what that looks like as we get closer to past the first quarter of next year.

So it seems like for next year, that 30% loan growth that I was modeling should be somewhat easy to hit if you're repurchasing $50 million first half?

I like the way you described that. Sure. It's easy.

We tend to agree with your analysis, Brad. Thank you.

So when I think of the FinTech deposits, you're sitting here at $35 million, what should I think about year-end next year? Can that be $150 million, $200 million? Or like what do you guys project for those FinTech deposits?

Let me tell you how difficult that is to project to give you an idea. We believe that one of these companies DubHub, Paydala, 1010, a couple of others we have in the pipeline, if one of them, any one of them hits, can bring $20 million or $30 million. And if they don't, I mean, look, Wager went away, look, Golf went away, [ Game Plus ] went away, and they all had great potential. So in today's ability for some of these people to get capital is harder for them. But these companies have -- we are working with now, been in bedding for 6 months with us, some of them 8 months in developing. And we actually help them develop their programs because we have so much experience in the wagering arena and it comes to dealing with their terms and conditions. And we also, if this acquisition occurs, there's another entire income stream, we believe, which is in the licensing of these IPs. And I don't want to get into that yet because there is we think, an enormous opportunity there, but we don't -- there's more to come out on that transaction, and let's see where we end up with it, and we can give a full release and some more analysis. But we believe that there are some significant income sources for us in that arena as we look forward. And some of it is going to take time to develop because some of it is involved some very large clients because we're going to be going after storage funds and companies with storage funds. And what I mean by companies with storage funds where they hold consumer funds and actually use them for many different reasons. I think that that's going to change. We know the CFPB and many regulators want to see those funds in banking. So we feel that we're in a somewhat pioneering, but also have some solutions that we're working with BCS on as a contractor, and we would be able to work with them even more closely as part of the bank. So we shall see where that comes and where that goes. So to tell you -- to answer your question, Brad, do we believe it's going up? Yes. By how much, it's really hard for me to put my hands around right now.

And to the extent the funding isn't keeping up with this tremendous loan growth. I imagine continued reliance on some brokered CDs and the like. Net-net, what does that mean for your interest margin trajectory as I look out the next 6 months or so?

I can take a stack with that. I think even with us taking down some of those higher cost deposit sources, we're still able to increase the margin. So I think that with the expansion that we expect into year-end and then we're still forecasting roughly about 30% growth in '24 overall. I think that we'll be able to manage. We'll probably see them come in a little bit from the 5.69%. It will probably be about that or the same, Q4. But we really believe that we can maintain above -- in the low 5s. I think is what we're modeling, 5.20% for the next year.

Yes, I will expect that.

Brad always ask good questions. Do we have any other questions? Well, then Brad, if you don't have anything else, we're going to sign off the meeting. But we give you a chance to ask anything else you wish.

Let me -- I'm sure I can think of something here.

Okay. I can have that.

Yes. So with the credit card business, I imagine that if you're spending as you are on it, it's beta so you're not bringing in any revenue, that probably becomes increasingly accretive to earnings as I think about kind of the quarterly sequence in 2024. Would you maybe project it to be earnings neutral by the fourth quarter? Do you have higher ambitions for that program?

Yes. I think it depends on the ramp rate. What we're seeing with kind of our marketing efforts right now. Originally, we thought we'd start to see some ramp this year. I think everything is going to happen in 2024 at this point. But we're definitely targeting what we've modeled is our breakeven, which is 15,000 accounts. It actually probably come in a little bit from there because of the high percentage of damage and that has an effect on the net interchange. But I think that it is possible by year-end that it's neutral. One of the things, as you know, Brad, as you build that portfolio upfront, you're taking some pretty heavy provisioning. So as you grow it, that's a big impact to that. And of that $435,000, I mean it's mostly compensation. We've got a small team there of 6. So we've been able to scale those noninterest expenses and not spend more than we need to until we know that it's ready to scale upward.

One of the things, Brad, with this interesting program from the perspective of why we created this card that would accept the gaming code, merchant code and not deny that transaction for people who are trying to load like Sightline apps or any other gaming apps. We showed that back in 2022, where the credit card denials when the gaming code was changed, with as high as 70% in these apps. So that the cards were being denied by all the issuing banks because they did not want to participate in a gaming code transaction. We understand that transaction. Many of these are our clients or people who we have had prepaid cards with. And so we created this card to be able to have effective in loading many different gaming apps. And the interesting thing is out of the first couple of hundred thousand spends that we see, 85% has been loading gaming apps. So they're using it for that which we market it so that you could have an access. And remember, we're only getting these out to prime and super prime customers, too. The average credit that they're receiving is around $11,000. Now what is going to attract these gaming apps creators and users and owners is that kind of success in achieving a transaction applicable to our card is not matched by anyone. So one of the processes we're looking at is to ultimately do a branded card with some of these gaming operators or apps. And we believe that's a distinct possibility. So I hope that shed some light on what our marketing efforts and what we hope to do in the year to come.

I'll just say one more question, then I'll step away. With all of these really exciting things on your plate and a lot of things, the credit card program, BCS, et cetera, and this tremendous growth all seem very accretive to earnings and accretive to profitability. Maybe you can remind me and everyone else on the call kind of the end game as far as ROA targets, is that 2%, is that 3% in 2 years, 3 years, just some general road map?

You're looking for help on your model. Well, we think it's very easy -- no, very easy, easy the way you put easy. 2% ROA is always on our target. So we think we can get back there. Now the composition of that could change because typically, what we see in credit card build is just that component once stabilized that stabilization can take 2 to 3 years, just that component can be upwards of 3.5% to 5% ROA. So if that scales up much more significantly than that 2% will scale-up.

You remember, Brad, I go back to my Western Alliance days, when I was on the Board, and we were about a $5 billion, $6 billion bank and we always -- our goals for was 2% to 20%.

ROA ROE?

ROA ROE. So I like those numbers. Anything to start with a 2, but we'll see. Ryan gets a headache sometimes when I throw those out in the Board meetings, but.

That was not true.

You have to -- if you aim low, you achieve low.

That's right.

Great. I love those goals. Good job.

Any other questions? Okay. Well, thank you all very much for tuning in. And like we say, stay tuned, watch for our press releases, we have some interesting things there. Thanks.

Thank you.