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

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

Overview

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.

Key Financial Performance

Quarterly Earnings $4.3 million or $0.30 per diluted share, a decrease of $500,000 compared to the prior quarter earnings of $4.8 million. The decrease was due to approximately $2 million or $0.14 per share in unusual operating expenses, including $900,000 for the resolution of the contract related to the departure of the prior CEO, $728,000 for a direct mail marketing campaign, $258,000 related to a DDoS cyber attack, and $707,000 related to fraudulent revolving balance accounts.

Net Revenue $20.2 million, a 13.5% increase quarter-over-quarter. This growth demonstrates the impact of digital banking programs on earnings.

Interest Income $13 million, a 4.9% increase due to significant loan production and an additional day in the quarter.

On-Balance Sheet Guaranteed Loan Balances $260.5 million, an increase of $22.9 million for the quarter.

Net Interchange Income Up 56.7% over the prior quarter, with total credit card transaction volume increasing by 57% to $131 million. This was driven by the launch of a new online credit card application system.

Gain on Sale Revenue Increased 38.5% over the linked quarter, with SBA and commercial lending achieving record loan production of $242 million, up $82 million over the prior quarter. GAAP gain on sale pricing increased by 15 basis points in the quarter.

Total Assets Over $1.3 billion, an increase of $69 million or 5.6% during the quarter. Shareholders' equity grew 4.2% to $158 million.

Average Earning Assets Increased by $34 million over the linked quarter, supporting the bank's growth strategy.

Nonperforming Assets (NPAs) Increased by $5.8 million to $10.4 million, representing 0.8% of total assets. The increase was attributed to 7 loans, including 4 hotel loans and 3 non-hospitality loans, but no significant trends indicating additional risk were identified.

Loan Growth Over $90 million in loan growth during the quarter.

Net Interest Margin Well over 4%, supported by funding growth with time deposits and interest-bearing money market accounts.

Liquidity On-balance sheet liquidity of $253 million and borrowing capacity of $504 million. The bank replaced 70% of on-balance sheet deposits in under 24 hours.

Tier 1 Capital Ratio 13.37%, down from 13.82% last quarter due to balance sheet growth offset by current earnings.

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Operating Highlights

New online credit card application system: The company launched a new online credit card application system with enhanced features for detecting bad actors, aiming to increase the customer base and drive future transaction volumes.

BoltBetz gaming application: The company introduced BoltBetz, a gaming application enabling direct transactions with slot machines using a patented prepaid access system. This system is expected to generate significant deposits and transaction volumes starting in the second half of 2026.

SBA and commercial lending growth: Record loan production of $242 million in the quarter, up $82 million from the prior quarter, with a 15 basis point increase in GAAP gain on sale pricing.

Credit card transaction volume: Credit card transaction volume rebounded, hitting $131 million, a 57% increase over the prior quarter.

Fraud detection enhancements: Implemented advanced fraud detection systems, including Experian BustOut Score, NEO ID, Precise ID, and Plaid identification verification, along with a 2-4 day hold on ACH payments to prevent fraud.

CRA compliance improvements: Quadrupled CRA-qualified loans in Clark County within 60 days to address regulatory concerns and improve the bank's CRA rating.

Digital banking transformation: Focused on becoming a digital bank with technology-driven infrastructure, including cloud and API-based systems for online operations.

Shift to digital banking and payments: The company is transitioning to a digital bank and payments company, emphasizing technology-driven solutions and instant payment capabilities.

Acquiring bank initiative: Plans to become an acquiring bank for credit card transactions, particularly in the gaming sector, to complement its role as an issuing bank.

Stablecoin exploration: Investigating stablecoin opportunities as part of its payments strategy.

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Risk or Challenges

Unusual Operating Expenses: The company incurred $2 million in unusual operating expenses, including $900,000 for resolving a contract related to the departure of the prior CEO, $728,000 for a direct mail marketing campaign, $258,000 due to a DDoS cyberattack, and $707,000 from fraudulent revolving balance accounts. These expenses impacted financial performance and required operational adjustments.

Fraudulent Activities: The company faced significant fraud issues, including bad actors bypassing detection systems to create accounts leading to charge-offs. This necessitated the discontinuation of certain marketing campaigns and the implementation of new fraud detection systems.

Government Shutdown Impact: The ongoing government shutdown has delayed SBA loan origination and sales, potentially impacting revenue growth in the short term.

CRA Rating: The company received a 'needs improvement' CRA rating from the FDIC due to insufficient qualified loans in its local area, posing reputational and regulatory risks.

Nonperforming Assets: Nonperforming assets increased by $5.8 million to $10.4 million, representing 0.8% of total assets. This increase, while manageable, reflects a shift from historically low delinquencies to a more normal range.

Cybersecurity Risks: A DDoS cyberattack disrupted operations, highlighting vulnerabilities in the company's systems and necessitating investments in cybersecurity measures.

Credit Card Fraud: The company had to shut down its credit card application process temporarily due to fraudulent applications, delaying growth in this segment.

Regulatory Compliance: The company is under scrutiny for its CRA rating and must address compliance issues to avoid further regulatory challenges.

Economic Sensitivity: The company remains asset-sensitive, with changes in short-term rates expected to impact net interest income by 13 basis points, posing risks in fluctuating economic conditions.

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Guidance & Outlook

Net Revenue Growth: The bank anticipates continued growth in net revenue, driven by digital banking programs and enhanced operational strategies.

Interest Income: Interest income is expected to grow due to significant loan production and favorable market conditions.

Credit Card Program: The company plans to expand its credit card program, leveraging new application systems and influencer campaigns, including a partnership with Mike Tyson. Growth may be delayed slightly due to recent fraud prevention measures.

SBA Loan Sales: The bank expects to sustain a minimum 4% GAAP gain on SBA loan sales, with measures in place to improve profitability and align incentives with organizational goals.

Government Shutdown Impact: A prolonged government shutdown could impact SBA loan origination and sales, though the bank has secured PLP numbers for 19 loans to mitigate immediate effects.

Digital Banking and Payments: The company is focusing on enhancing digital banking capabilities, including instant transfers and access, and plans to monetize new programs like BoltBetz in the second half of 2026.

Stablecoin and Acquiring Bank Initiatives: The bank is exploring stablecoin opportunities and aims to become an acquiring bank for credit card transactions, particularly in the gaming sector.

Operational Enhancements: The bank is investing in AI and technology-driven enhancements to improve efficiency and support growth in payments, ACH, credit card operations, and underwriting.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:How long has the fraud in the credit card side been taking place, and when was it detected?

A:The fraud has been ongoing since the inception of the card, but a significant fraud issue started in July. It involved application fraud, where fraudsters exploited a $200 reward for spending $1,000. The company detected it last year and implemented various measures, including spend limits and manual controls, to address it. They have since shut down the problematic program and developed a stronger application system.

Q:Was the credit card transaction volume still strong this quarter despite the shutdown?

A:Yes, the transaction volume remained strong due to existing users who continue to use the card effectively. The growth in new users has slowed down.

Q:Were the new nonaccruals in the quarter relatively recently funded loans or older loans?

A:The new nonaccruals were older loans, with none being less than 18 months old.

Q:Is the SBA pipeline essentially shut down right now?

A:Yes, the pipeline is shut down as the company has funded all the loans it can and cannot issue more without SBA approval. The government shutdown has also prevented the sale of loans, stressing cash flow but not causing significant losses.

Q:Is there any turnover in employees due to the new incentive structure?

A:No, there has been no significant turnover. The key producers and senior management team are committed and on board with the changes.

Q:How is the CEO succession search going?

A:There is no CEO succession search currently underway.

Q:Can you elaborate on the partnerships with influencers and their transaction structure?

A:Influencers, including Mike Tyson, receive a portion of the interchange fee for each card identified as their player. The company does not pay substantial upfront or promotional fees, unlike some competitors. Marketing costs related to influencers are lower than those of direct mail campaigns.

Q:Have transaction numbers accelerated since reopening, and what are the expectations from influencers?

A:Three influencers currently account for $25 million in monthly transactions. The company expects significant growth in card usage as influencers expand their reach. The volume is still relatively small, but influencers have shown strong potential to drive growth.

Q:Will noninterest expenses remain high going forward?

A:Noninterest expenses are expected to return to a normal range, as most of the higher expenses this quarter were unusual or one-time related.

Q:What preparations are being made for the expected growth in gaming deposits and profitability?

A:The company is enhancing its technology and API development to handle high-value transactions. They are also bringing on subject matter experts and development staff. Growth in deposits is expected to become significant by the second quarter of next year, as market penetration takes time.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details about the interchange fee structure for influencers, citing competitive reasons. Additionally, they did not provide a clear timeline for the CEO succession search, stating that no search is currently underway.

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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) Q3 2025 Earnings Call Transcript

Positive10-29

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