GBank Financial Holdings Inc. ($GBFH)

Hello, and welcome to the GBank Financial Holdings, Inc. Q1 2026 Earnings Call. [Operator Instructions] Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. We appreciate you joining our earnings conference call. With me here today are Ed Nigro, Executive Chairman and CEO; Todd Nigro, Vice Chairman; and Olivia Caley, SVP, Financial Reporting Director. Jeff Whicker is on medical leave. The related Q1 earnings press release was filed with the U.S. Securities and Exchange Commission today and is available on the News and Media section of our website, gbankfinancialholdings.com. Before we begin, I'd like to remind everyone that any forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe harbor statement in our earnings press release. All comments expressed or implied made during today's call are subject to those safe harbor statements. Any forward-looking statements made during this call are made only as of today's date, and we do not undertake any duty to update such forward-looking statements, except as required by law. Additionally, during today's call, we may discuss certain non-GAAP financial measures, which we believe are useful in evaluating our performance. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings release. I'd now like to pass it over to Ed Nigro, Chairman and CEO.

Thank you. It is with great regret that we issue our earnings release today with a $0.22 per share charge-off for third-party credit card fraud. Fraud that was contained in a retail card program that was launched last year that we canceled. This program was atypical to the GBank gaming credit card program. We were in the business of issuing a transactional card, not a retail card to pay merchandise that built credit balances. Beyond the pursuit of retail cardholders, the 2 direct mailings totaling $900,000 to prequalified recipients exposed the bank to various types of creative and illicit fraud. This type of fraud was new and subjected an entire industry to AI-generated bot fraud. Fortunately, the new system we developed and launched on November 17 of last year is very robust. It's state-of-the-art, and we have seen no additional substantive fraud issues prospectively. New fraud is being well contained. I am disappointed to have to even discuss this, but as a shareholder like you, I wanted to explain the issue and identify the solutions. We've attached an exhibit to the earnings release that details the credit card enhancements. I would like to address our core banking operations, including our gaming fintech developments, which are extensive. I believe that it's imperative that this fraud event does not mask the continued remarkable growth and accomplishments of GBank. First, loan originations. Our loan originations exceeded $208 million for the first quarter of 2026, a 56% increase when compared to the first quarter of 2025 and a 65% increase when compared to the fourth quarter of 2025. SBA originations totaled $190 million, an impressive feat given the lingering effects of the government shutdown of the fourth quarter. For the first time in GBank history, we've exceeded $1 billion in on-balance sheet loans. Including our off-balance sheet loans, our total assets under management were $2.5 billion as of March 31, 2026. Of course, when we talk about loans, we also talk about our allowance for credit loss provision expense, which this time was $2.3 million for the quarter, comprised of $860,000 related to loan growth and $1.4 million increase in specific reserves on non-performing loans and updated collateral balances of existing NPAs. The balance of on-risk -- or excuse me, the balance of at-risk non-performing loans increased from $12.5 million in December 31, 2025 to $13.2 million as of March 31, 2026. Our net interest margin. The bank experienced a lower net interest income and some net interest margin compression when we compared to our fourth quarter of 2025. The 50 basis point decrease in market rates enacted in the fourth quarter impacted our loan portfolio effective January 1, 2026, as approximately 65% of our loan portfolio reprices quarterly. That's approximately $686 million. Our funding costs, on the other hand, remained stubbornly high as deposit market prices lag Federal Reserve actions. And we did not adjust our deposit pricing in the first quarter to remain competitive, although we are currently implementing several measures to lower deposit costs. Additionally, interest income was affected by the sale of $52 million in investment securities, securities we sold during the fourth quarter. We redeployed $44 million in the first quarter. However, these investments were spread throughout the quarter. The full interest impact of these purchases will be reflected in the second quarter. The bank-only net interest margin of 4.03% is still amongst the highest of our peers. Now I would like to discuss our SBA operations. Our efforts in the fourth quarter of last year to restructure our gain on sale pricing has resulted in gain on sale margin of 4.79% for the first quarter, exceeding our budget expectations of 4%. The bank sold $79 million of government-guaranteed loans during the first quarter, generating a net gain on sale of $3.8 million. Loans held for sale were $74 million as of March 31, 2026. And to date, April sales volumes are exceeding expectations as we've sold $39.5 million in loan balances month-to-date at a gain on sale of $2 million. The earnings power of our core bank remains resilient and strong. As we continue our fintech operations, I again wish to discuss credit card, because we faced restrictions by several of the major sports books on our credit card acceptance. These restrictions resulted in a decrease of spending from our lower limit customer base for the quarter. However, we still grew our quarter by $10 million in transactions over the previous quarter. This was accomplished with a new gaming credit card program targeting our high-demand, high-limit customer base, creating a secured card account system at the bank, enabling these preferred customers to move larger sums of funds frequently with limited credit risk to GBank. We expect the steady performance of our credit card, especially with these high-limit players to continue throughout the year and subsequent growth commencing with the advent of BoltBetz and Bankroll adoption. ACH, we had discussed ACH processing, and now we are live with our own ACH processing of our credit card, which gives us in-depth viewing of immediate cash transactions and enables us to track our customers much more efficiently. We shall also grow as an ODFI, the originating depository financial institution, as we have a pipeline of customers for ACH processing. This becomes even more important as we grow BoltBetz and Bankroll. ACH is a principal form of payments. Additional prepaid card program, we're announcing that GBank is launching a new Visa prepaid debit card. Actually, it's our third prepaid card we're issuing. So issuing prepaid cards is not a new event for GBank. This particular card, however, is designed for our gaming app customers, designed to create access for them to all wagering platforms, including sports apps that limit credit cards. We've developed unique funding processes for this prepaid card, and these funding processes will enable ease of payments to our high-profile customers while providing a new source of non-interest deposits for the bank. And lastly, technology, and I will probably understate our technology efforts, but we are growing technology capabilities significantly. Our Chief Technology Officer and his team are developing our in-house platforms, which include our own AI. Her name is Gigi. She's going to be very smart. She's going to know every policy, procedure, application, regulation that affects GBank. And she's going to provide invaluable guidance for productivity of our operations and help us plan, organize, direct and protect GBank. I'm really looking forward to knowing her better. And I think our operations staff are enthusiastic about Gigi. Well, this concludes my comments on our operations. Now Todd, our Vice Chairman, shall discuss BoltBetz and our new venture, Bankroll.

Thank you, Ed. As mentioned in the 8-K, BoltBetz launched Version 2 of its app this month. V2 now available for download on both Android and Apple devices has been under development for the past 6 months and was created to onboard multiple gaming operators and maximize payments and rewards functionality while staying in compliance with all gaming and banking regulatory frameworks. The approval by the Nevada Gaming Control Board's Technology Division will allow for faster licensure in other states as the Nevada Gaming Control Board is considered the gold standard of national and international gaming regulatory bodies. Distill Taverns submitted and received GCB approval to utilize the V2 BoltBetz wallet technology provided that GBank as a sponsor bank. Again, we expect other states' regulatory bodies to acknowledge the bank's role in ensuring player funds are protected while using the platform, resulting in shortened time lines to launch. We believe the significance of successfully creating banking and financial technology that simultaneously satisfies gaming and banking regulatory requirements is an important achievement and places BoltBetz and GBank in a unique position with proprietary scalable solutions. BoltBetz combines both payments and loyalty solutions that provide the necessary components for player adoption and engagement, which are the ultimate indicators of success. Also mentioned in the 8-K, BoltBetz and BCS have signed a binding term sheet establishing Bankroll. Bankroll focuses on the digital wallet or payments layer of the BoltBetz technology platform. It specifically allows for other gaming payments providers who may be directly or indirectly in competition with BoltBetz to quickly and efficiently access the BCS and GBank proprietary systems and provide the state-of-the-art payment solution to their gaming clients. In our view, this product increases the total addressable market to include casino management systems and other third-party cage and credit payments providers. BoltBetz becomes an example of the possibilities of integrating this platform into their own systems. Both BoltBetz and Bankroll have active and developing pipelines with ongoing negotiations across gaming and payments operators. We look forward to sharing further updates as these discussions mature.

Thank you, Todd. And now we'll go to our question-and-answer period.

We'll take our first question from Tim Coffey with Brean Capital.

Yes. So if we could kind of start with the fraud prevention efforts. You put the slide in there, but can you kind of walk through what you've done to prevent these issues from reoccurring?

Yes. Tim, thank you. Let me open that exhibit, if you will. If you go to the 8-K, I had an Exhibit A right after our financials. It says GBank Financial Holdings Exhibit A and it said credit card application and monitoring enhancements. What occurred, Tim, was that these were bot attacks that went undetected and they were embedded in our system. With our new system that was launched in November, it protected us against these attacks, but the old system, the legacy system, which many in the industry suffered from did not. Now these bot efforts were embedded in our retail credit card system. These were not with our gamers. And what they did, they acted very human, very small placement of credit in the beginning, card testing, spending was spread out over a 3 and 4-month period with small incremental spends, but yet they built it up to, obviously, their card limits in the long run. These were embedded mostly and we traced them back with the new monitoring system we put in place, which was an adjunct to the card application system. And we even have, as you see in that exhibit, behavioral analytics. This new system can even tell and even tracks the mouse when it's filling out an application and can tell you whether it was a human or a robot. It also -- we have so many different verifications of identification now. It's next to impossible, at least we believe so, to create the kind of IDs the bots did. So when they were so insidious that they were over 600 accounts that were small spends, but spent that time gradually spending over 4 or 5 months. So these started to manifest themselves in February and March in our receivables. And that's where with our new systems, we went in and did all of these analytics on them and actually tracked all 10,000 accounts and extricated all the bot accounts. So it took a bit of time to do it. And it really was manifested, and we started to generate the real numbers in the early April. At first, it looked like it might be around $1.5 million, and it kept growing until we finally had purged our entire system. We believe that we have identified, extricated, closed and eliminated all of these bot frauds. Since the new system was put in place, our new applications, and of course, we don't have this mass direct mail piece that says you're prequalified, just fill this in, which was a very ill-advised marketing campaign. And we're not targeting credit card users, retail credit card users. We never were to target them. It was done. It was canceled, as you remember, when I notified everyone in the fourth quarter. Having said that, the extensiveness of our new application and the extensiveness of our algorithms we're preparing even ourselves to identify behavioral trends, behavioral patterns that have enabled us to identify, eliminate and move forward. And as I was saying, in our new system, we've had 11 bot attacks in that new system since we put it on with tens of thousands of applications and none have gotten through. And several have gotten through, but they've been eliminated at the very first spend by our analytics. We feel good about where we are with it. And we also know that our gaming customers and with our secured card program, which has the customer advancing their own funds. But before I get into that, I wanted to just stay with the fraud part. We've identified it we believe -- and in our monitoring now, we're seeing no additional fraud in our account system. And we ran a very stringent test now for all new cards launched since December, and we've had very limited, very minimal fraud exposure. Did I answer your question, Tim?

Yes, absolutely, completely. My follow-up question on that would be, do you anticipate any residual expenses in the next quarter related to this?

No. I think that we're back to our -- what we call our normal operations and our residual expenses are really being defined in managing the system right now, managing our interchange. And we're growing the card slowly. The card is not going to, and I think I mentioned it before, grow as fast as we had anticipated until the launches of our slot programs, BoltBetz and Bankroll begin, because then the card is going to accelerate again, we believe, because the use of credit cards in bricks-and-mortar casinos is second nature. It's used extensively unlike the big 4 sports books. But at the same time, we have a unique position with some of our high limit customers that we think we will maintain a steady pace of our credit card, which we're doing. We did $109 million in transactions this last quarter, and off in April, we're already off to about $40 million in the first month in transactions. So it's staying steady, but I don't expect any extraordinary expenses.

Okay, great. And the other item from this quarter was on the specific reserve and recognizing what you did kind of call out 3 different loans in the line about the specific reserve. But I was wondering if you could give a little more color. Was it just 3 loans? Or what kind of -- what additional color can you provide on that?

On the reserve, was it just 3 loans?

No, no. Let me -- it wasn't just 3 loans. Well, those were the total number of loans. Our NPAs -- our risk NPAs went from $12.6 million in the fourth quarter to $13.2 million in the first quarter. That's our at-risk portion. Now the NPA, the $2.2 million was divided mostly amongst new generations. Remember, I reported -- we reported $208 million in new loan originations in the first quarter. That's huge. And it's really interesting when we look at that $208 million because we had to reserve against the retained portion, and we retained about $85 million of that $208 million. So that's where the reserve went up in the growth. Now in the non-performing side, there were 2 key areas. Yes, there were 3 loans, I believe, but there were also an increase in the reserve for the existing NPA portfolio where some of the valuations had to be adjusted while we're in the process of liquidating those assets.

Okay. That makes sense.

Okay. Thanks, Tim. I hope I answered that one.

Yes, you did. And then my other question is on the time deposits. What percentage of those on a dollar amount repriced in the second quarter?

Well, I don't have the exact dollar amount because we're looking at the terminations of many of the dates of the certificates, not the deposits that we have that are going to be repricing. But let me talk about NIM for a minute. We had the perfect storm on NIM, which shouldn't have happened the way it did. Unfortunately, it did. And yes, it was some with the repricing of our existing deposits, but that price -- that cost stayed relatively flat. And we're adjusting those prices now, and we're adjusting all of the deposit prices, and we feel that there's going to be some obvious benefit there. The other aspect of it was, Tim, we sold $52 million in our investment portfolio in the fourth quarter. We repositioned $44 million of that, but mostly in the month of February and March. And the last disposition of that, we just purchased $10 million in new investments in April. So we lost about $300,000 in net interest income from the disposition of the investment portfolio. And with the 50 basis points, that hit us by a tune of about $580,000. And I think that those factors and the factors that all these loans that we created came on mostly in the month of March, so we didn't get the benefit of the interest income from these loans. So we're very confident you're going to see this net interest margin recover nicely, and you're going to see our net interest income expand in the second quarter.

The next question comes from Matthew Erdner with Jones.

In the release, it says you guys expect gaming accounts to grow towards year-end. Was that a little bit what you were alluding to in terms of BoltBetz V2 coming out, you guys are live in the Distill Taverns, Bankroll is going to increase? So does that kind of coincide with what you're expecting on the credit card front in terms of transactions and scaling that up? I know I kind of loaded 2 questions there into one, but what's your expectation there in terms of growth?

I'll answer the credit card side, and I'll let Todd answer the BoltBetz and Bankroll side. But yes, the credit card used to load the BoltBetz app and the Bankroll app will be accepted. Obviously, there are apps, but also the clients, the bricks-and-mortar clients and the operators of these casinos, credit cards are a mainstay of their business. So that's why we expect the credit card to grow. And I'm just going to throw in one little addition there is our prepaid card, because we announced that we're going to launch our prepaid card probably in the third quarter. And that prepaid card is going to be a sister card to our credit card so that all our players can load any sports app they want with their prepaid card. But we're also developing some very proprietary ways of loading that prepaid card, which is not being done today. And it's going to be very, very interesting, and we think we're going to have a very big audience for it. And that, too, is going to create deposit growth as well. But Todd, do you want to talk to the growth towards the third or fourth quarter of this year of BoltBetz and Bankroll?

Yes. So given that V2 is now approved and launched at -- my Distill Taverns, that's going to progress over the next couple of months into a more active launch and more adoption and usability for the patrons at Distill. But what's going to really start to move the needle as we reach the second part of the year would be the Terrible's gaming launch, which we're turning our attention to now because V2 was always the version of the app that was going to be launched by Terribles. And so we are actively now that we have our approvals in integration mode with them and expect that we'll be busier launching them in the second half of the year than we will be launching Distills in the next couple of months. That will start to make a meaningful difference in the activity.

I think there's another important thing that we wanted to mention. I did -- I mentioned it in the release, but there's something really, really important about the apps that exist right now. And the first is that you can go on the Apple App Store or the Android App Store and download and get the BoltBetz app. It is now on the app stores. Of course, the only client for the BoltBetz apps right now is Distill. But the other interesting thing about this app and why GBank is in love with it is that it is now multi-casino operational. Meaning on the same app, you can have Distill Taverns and then right next to it, you could punch the button for Terribles. And the next client we put on can be on the same app. So you as a player, if you put an account with each one of those, you have one app and you can go from one casino next door to the next casino and play their slots. And that is the real breakthrough of this app. It's going to be universal across all CMSs, and it's going to be usable all on one app by one customer. And most importantly, it's the availability on the Android phones and Apple phones is quite remarkable. Plus, Todd has, I know, many negotiations going on for users of these apps.

Got it. Yes. And that leads into my next question. It seems like you guys have a pretty ripe pipeline there. That hasn't changed quarter-over-quarter, has it?

Todd, do you want to take that?

Sure. Yes. So no, it hasn't. It's still very active. And with the addition of Bankroll, there are as many potential customers in the Bankroll pipeline right now as there are in BoltBetz.

See, let me just explain one thing about Bankroll, and Todd can correct me. But from the bank standpoint and BCS' standpoint, Bankroll is a joint venture 50-50 between BCS and Bankroll. And remember, GBFH owns 32.99% of BCS. And what this joint venture does is it takes that BoltBetz app, but it disconnects the CMS and has this amazing payment system that can be used across enormous clients to use it with whatever attach whatever CMS they want or whatever payments process they want. This is what's quite remarkable, and this is what's drawing a very great deal of attention because of the way the app performs and the way the payments perform. And the thing to remember and why we're enthusiastic about it is that everyone who signs up for this app, the money goes to GBank. So it is creating a great deal of interest. There are very -- I happen to know because I also run the other half of the Bankroll. Bankroll is a joint venture and Todd and I are the 2 managers of it.

Got it. That's helpful. And then one last one for me. Apologies if I missed this earlier, but the gain on sale, you mentioned a strong start already to April with about $2 million there. Should we kind of expect 4.8%, 4.79% to be the new normal? Or is that going to kind of normalize back down to your long-term goal of 4%?

What has happened is that our goal was 4%, but we quickly exceeded that because the spreads -- as interest rates came down a bit, spreads increased, as spreads increased, our tax gain on sale increases. So we actually hit over 5% in the month of April. So we expect it to be higher than our projections by at least 0.75% to almost 1%. And we also had pent-up demand. We sold -- I have the numbers here. I think in the month of April, we sold $39.8 million of SBA loans with a GAAP gain so far of $2 million. Now remember, we created $208,000 in new loans in 1 quarter. Some banks our size, that would be a year's growth. Now granted, we sell off a portion of those, we'll sell off about $100 million of those. But $38 million were new pari passu loans, and that's the unguaranteed additional portion over and above the limit of SBA lending. Half the loans SBA and half of it isn't. We retained that on balance sheet. We grew $38 million with that alone in the first quarter. We think we're on track in April and with what we're producing already to have another $200 million quarter in loan growth. So our machine is really working, and we're really able to generate some very strong interest income that we think -- and that's why I feel very confident that our interest income is going to continue to grow and we'll reach normal. We'll get back to some of our normal performance percentages in the 4.1% to 4.3% area.

[Operator Instructions]

Well, if there are no additional questions, I think I will conclude the meeting, and I just want to say these numbers for this quarter are not nice to look at. The fraud attack was a hiccup, not a heart attack. And we're through it. It's behind us. And we're really excited about our future, not only in our gaming payment side and our technology side, but we have a very strong core bank. I keep reminding everybody, we just reached $1 billion in on-balance sheet loans now, $1 billion in loans. We also have $1.1 billion in off-balance sheet loans we manage. That's the guaranteed portion. So our SBA portfolio or our loan portfolio is rather really at $2.2 billion -- $2.1 billion. And we are, I believe, a very high-performing bank, and we will not disappoint you in the future. Thank you for believing us. Thank you for believing in us. And we really enjoy having you as partners, every one of you.

Thank you for joining the GBank Financial Holdings, Inc. Q1 2026 Earnings Call. You may now disconnect.