GBank Financial Holdings Inc. (GBFH) Q2 2026 Earnings Report, Transcript and Summary

Hello, and welcome to the gBank Financial Holdings Inc. Q2 26 Earnings Call. We ask that you please hold all questions until the completion of the formal remarks. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. With me here today are Edward Nigro, Executive Chairman and CEO Todd A. Nigro, Vice Chairman Jeffery Newgaard, president, CEO, and director of gBank and Olivia Cayley, Principal Financial Officer. The related Q2 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 would 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 statements 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 due 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 those non GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings release. I would now like to pass it over to Edward Nigro, executive chairman and CEO.

Good afternoon, everyone. We have some extraordinary events to discuss today, not only important issues impacting g Bank's financials, but also new gaming fintech initiatives. However, right now, and most importantly, I have the pleasure of introducing our new g bank president and CEO, Jeffery Newgaard Jeffery joined us on 06/08/2026 and already, he is prepared not only to discuss his first impressions, but also to report on key financial results of g bank. Jeffery Newgaard. Thank you, Edward. it is great to be here. In my initial assessment of the organization, I found a successful bank with a bright future. The culture throughout the organization is positive, collaborative, and deeply focused on serving our customers and communities. I have been warmly welcomed by team members across the bank, and their enthusiasm, professionalism, and commitment have made my transition both enjoyable and productive. I have also appreciated the opportunity to work closely with Edward. Whose support and alignment on key priorities have been instrumental in ensuring a smooth leadership transition. As part of our ongoing focus on organizational effectiveness, we accepted the retirement of our Chief Operations Officer and promoted our operations manager, to Director of Operations. After evaluating the bank's leadership structure, and operational needs, I determined that the COO position will not be replaced at this time. This approach allows me to remain closely engaged in the bank's operations, while maintaining strong leadership oversight and organizational efficiency. To further strengthen our operational and risk management capabilities, we engaged an experienced IT consultant to conduct a comprehensive review of our technology operations and cybersecurity risk profile. The assessment is complete, and we are actively implementing recommendations designed to enhance our technology infrastructure. Improve operational resiliency, and further strengthen our cybersecurity posture. I also found our SBA team to be 1 of the organization's greatest strengths, consistently delivering strong production and earnings results. At the same time, we have experienced an increase in SBA problem assets over recent quarters. Which I will address in greater detail during the credit quality discussion. Within finance, we identified a need for additional leadership and support in financial management and reporting. Given that our CFO, who has been on medical leave, will not be returning to the organization, we engaged an experienced CFO consultant to provide continuity and leadership while we conduct a search for a permanent replacement. During this transition period, management remains focused on improving net interest margin, enhancing financial performance and optimizing overall balance sheet Finally, I found our compliance department to be 1 of the organization's core strengths, The team has built a strong compliance culture and framework that positions the bank well to meet evolving regulatory expectations. Their expertise and commitment provide a solid foundation for the bank's continued growth and success. Overall, my observations reinforce my confidence in the strength of this organization. The quality of its people, and the opportunities that lie ahead We are well positioned to build on our successes address areas for improvement, and continue creating long term value. For our shareholders, customers, employees, and communities. With that, let me turn to our second quarter performance. Loan production remained strong during the quarter. With $131 million in SBA loan originations, of which $61.3 million was retained on the balance sheet at an average yield of 8.01%. Our conventional loan portfolio also continued to grow. Increasing by $855 thousand with $324 thousand retained and an average yield of 8.53%. The strategic alignment of SBA loan originations with targeted minimum gain on sale objectives has significantly improved both loan spreads to prime and the market pricing of sold loans. As a result, gain on sale income increased from $5.1 million for the first 6 months of 2025 to $9.3 million for the same period in 2026. These attractive yields and improved sales margins continue to support earnings growth, position us well as funding costs normalize and reinforce our commitment to further enhancing profitability and performance. Despite strong production, several factors negatively impacted quarterly results. First, provision expense increased by $2.8 million from $2.3 million in the first quarter. Reflecting higher reserve requirements associated with elevated nonperforming assets. Which I will discuss in greater detail during the SBA credit quality review. Second, net interest margin declined to 3.78% driven primarily by a 7 basis point decline in loan portfolio yields and the continued impact of an elevated funding cost environment. Despite this margin compression, average loan balances increased approximately $60 million quarter over quarter contributing to a $1.1 million increase in loan interest income. Compared to the first quarter. While margin pressures remain a near term challenge, we see opportunity. To explore our funding mix, to reduce our overall cost of funds, As higher cost certificates of deposit mature, we are actively transitioning toward lower cost funding sources, including money market deposit accounts, and the strategic use of FHLB advances where appropriate. We are also evaluating opportunities to enhance investment portfolio yields through disciplined balance sheet management and asset allocation strategies. To support these initiatives, we have engaged an experienced CFO consultant and Darling Consulting Group to assist management in developing strategies to optimize net interest margin while maintaining prudent liquidity, capital, and interest rate risk management. Looking ahead, our focus remains on enhancing profitability through disciplined balance sheet management improving our funding mix and continuing to leverage the strong yields generated by our lending platforms. Turning to SBA credit quality, it is important to understand how our lending model differs from many SBA lenders. We operate as a collateral based SBA 7a lender. As a result, when a loan becomes nonperforming, we repurchase the guaranteed portion and report the entire loan balance as a non performing asset. This methodology can cause our reported non performing asset levels to be higher than our actual risk and distort reserve to NPA comparisons with our peers. Consequently, changes in our reported NPA balances reflect not only credit deterioration, but also the repurchase of previously off balance sheet assets. Our actual economic loss exposure is significantly mitigated by both collateral protection and SBA guarantees. Most SBA 7a loans carry a 75% guarantee while certain loans originated during the pandemic. Benefit from guarantees of up to 90% However, asset quality remains a top priority. We continue to invest in our SBA credit administration and special functions and we are aggressively managing problem credits. Particularly within our maturing hotel portfolio. Where industry pressures have contributed to a more mature portfolio and elevated non performing loan levels. To strengthen portfolio performance and enhance future underwriting decisions, we have developed proprietary analytics focused on 3 key drivers of credit performance. Geographic location, borrower capitalization, and management quality performance. We are intensifying collection efforts, expanding our focus on the early identification of financial stress, and developing earlier engagement to preserve borrower relationships and minimize losses for borrowers' SBA and G Bank. Additionally, we recently realigned the special assets group under the leadership of the chief credit officer. And enhance the function through targeted staffing investments These changes strengthen coordination between special assets and loan servicing. Improve information sharing, and support earlier intervention on emerging problem credits. We have also increased our focus on resolving troubled assets and accelerating OREO dispositions. Collectively, these actions are expected to improve workout efficiency, maximize recoveries, reduce risk, and support the long term performance of the portfolio. While we expect these initiatives to drive positive long term results, we also anticipate that the allowance for credit losses may remain at current levels in the near term as production remains strong and the SBA portfolio continues to grow. Maintaining appropriate reserves reflects our commitment to prudent risk management and ensures the bank remain well positioned to absorb potential losses while supporting future growth. Our focus remains on balancing portfolio growth with disciplined credit administration, proactive risk monitoring, effective workout strategies, and the maximization of recovery values through collateral protection and SBA guarantees. We believe these efforts position the bank to effectively manage current credit challenges while continuing to support profitable long term growth. Thank you, and I now return to Edward. Thank you, Jeffery Newgaard. And thanks for absorbing so much so fast. I think that is what happens when you have a real pro on your hands. And I cannot tell you how enthusiastic I am to have Jeffery at GBA. I will now address certain gaming fintech events. I know everyone wants to hear more details regarding the bankroll access agreement, which is indeed an inflection point for G Bank. Earl Hall Axis' cofounder and CEO, is a very renowned gaming and payments industry leader. Since 2005. it is important to know that all our gaming payments initiatives our pool player accounts, our Visa credit cards, our upcoming Visa prepaid cards, and gBank's noninterest bearing deposits shall all be impacted by our BoltBetz, Terrible's, and our future platforms. In the interim, however, our gaming credit card business was adversely impacted by 2 key developments during Q2. First, credit card interchange income declined. Due to major sports betting operators eliminating or restricting the use of credit cards. that is right. Eliminating or restricting. This resulted in significantly lower transactions for us. Because our players were using these larger platforms for very high level gaming. And gaming transactions. So our transactions declined to 84.2 million in Q2, and we anticipate some further contraction Until late Q4. This was a key income variation for us. And a disappointment for us. Because the credit card was well accepted was well defined, and a top earner for the bank. Secondly, elevated delinquencies among retail only cardholders drove an addition to the Q2 loan loss provisions of approximately 771 thousand. I hope the day comes I can stop talking about the impact of our retail cardholders. These card holders are being reduced and we anticipate these delinquencies to be reduced as well. We do not market retail users. As we had discussed prior, fraud was a non event. Despite these challenges, we do remain optimistic about the long term prospects of g bank credit card. Traditional casino patrons rely on cash from ATMs kiosks, and casino cages to fund gaming activities. And as our current and future digital platforms expand, gBank gaming cards shall be well positioned to become an increasingly important funding source within all of our partners' gaming ecosystems. On the horizon, we have our Visa prepaid card. it is currently in testing and commercial launch is expected during the fourth quarter. Importantly, this prepaid card will be directly integrated with gBank's pool player account. That infrastructure is going to provide functionality and payments not available to any other prepaid card. And we will be getting into that subject matter more as we develop the product more. The G Bank credit and prepaid cards will be integrated across bankroll, and we believe these products will further strengthen our position as a leading banking and payments partner to the gaming industry. Bankroll not only has a new partnership, but also its own website bankroll.com. But remember, use the brand name, an upside down a or a v. it is fun. Now, Todd will continue to brief us. Todd.

Thank you, Edward. I will begin with an update on bankroll. On our last call, we introduced bankroll and noted that both BoltBetz and bankroll had active and developing pipelines and we are excited about Bankroll's execution of its first enterprise agreement. On July 21, we announced a strategic partnership with Axis, the developer of the world's first cloud native intelligent management system for the global gaming industry. Serving 67 gaming operators and distributors across 12 states. Under the agreement, Bankroll will serve as the white labeled payments infrastructure powering an Axis branded enterprise digital wallet. To be deployed across the Axis operator network. Axis is working on its first operator now. This partnership illustrates a key distinction between BoltBetz and Bankroll. BoltBetz is our direct to operator platform, where we manage the operator relationship and the patron experience. Bankroll is the infrastructure layer. When an enterprise partner like Access deploys bankroll, they own the brand, the operator relationships, and all marketing and business development efforts. Our role is to power the platform invisibly. This is what makes Bankroll highly scalable. Every new operator Axis brings on to their platform is a new source of patron accounts held at gBank, without requiring additional direct effort on our part. The bankroll pipeline continues to grow, and we look forward to sharing updates on Axis operators and distributors as they sign on to the plat platform. On the BoltBetz front, I am pleased to report that Terrible's Gaming has received approval from the Nevada Gaming Control Board to deploy the BoltBetz platform. The approval was granted with 60 days of application. A timeline we believe reflects the strength and credibility of the regulatory framework we have built. As was the case with Distill Taverns, the reserve requirement was waived, as patron funds are held at G Bank rather than by the operator. Or fintech. This continues to demonstrate the structural advantage of G Bank's role as sponsor bank and the confidence regulators place in the model. We are currently in the technical integration phase with Terrible's gaming. With a targeted initial rollout at select grocery stores later this year. We look forward to sharing further updates on that launch as we progress. On the Distill Taverns deployment, we are now accumulating meaningful data on patron behavior. We had a 4-fold increase in sign ups driven by the improvements in v 2, a persistent concern in taking the gaming industry cashless has been the assumption that players will resist the identity verification requirement for compliance. Our early results suggest that resistance is far lower than the industry has assumed. While we continue to improve the patron experience, we are now focused on increasing sign ups visit frequency, and patron worth as we scale the Distill Taverns deployment. I will now turn it back over to Edward.

Thank you, Todd. In closing, we continue to operate from a position of strength. We maintain a strong capital base, a very differentiated business model, an experienced management team, and a culture focused on execution and innovation. And I am extremely encouraged by the leadership transition underway at gBank. Having worked closely with Jeffery over the past few weeks, I am confident that his experience, strategic focus, in disciplined approach will be valuable assets to G Bank. And now I would like to open it to questions.

Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. We will wait a moment for the queue to form. Our first question will come from Joe Yakunich with Raymond James. Your line is open. Please go ahead.

Hey there, guys. Good afternoon. Hello. Hello, Joe Yakunich. Access bankroll partnership and kind of more specifically the economics behind it. So what does the first signed Access contract actually mean? Economically for g bank and bankroll? And when should investors expect to see, you know, the contribution from this?

Okay. Joe Yakunich, this is Edward. I believe I understand the question. It was a little garbled to me, but what you were asking me is what are the economics, so what do the economics mean to g bank on the access transaction with Bankroll. Yeah. I was just hoping you could kind of talk about how that will impact g bank financially and, you know, any sort of expected timing. Sure, Joe Yakunich. Let me start by saying this agreement was just executed on July 21. So, you know, a week ago. And access, if you go on to their website, and I think you have, you have seen is a substantial company with many operators across 12 states, 67 operators, So to try to give some insight and I know Todd's traveling and trying to get back to help answer some of these questions, but to give some insight into it, Todd had advised me that he and Earl are moving very quickly to integrate their--their first operator. And their first operator out of the 67 he has over 3 thousand slot machines. he is a little larger than Terrible's. And that is just his first operator. Now he has a platform. He has a very substantial platform for these distributed gaming operators. That are in these many states. So when we talk about the integration, his--well, his first operator is the size of Terrible's. Give you an idea of the potential financial impact you know, that 125 machines. Terrible's has patrons, and they are business lines of about 250 thousand. And Earl has patrons in the millions. And I believe, Todd, did you join? Are you on the line? Yes. I am. Well, why do not you go ahead and talk about what you think the impact of the Axis transaction will do? And I do not mean necessarily think it is early to let me just add this 1 aspect. The entire goal in the beginning was to have the transactions that are normally held in the funds that are normally held by the gaming operator to be held by g bank. And that is the fundamental formula that is very important. In addition to that, we are also going with the verticals of our credit card our prepaid card, which are going to also generate income for the bank as well. So we plan on a total vertical integration, but most importantly, will be the replacement of our deposits are expensive deposits. And how fast that transition takes place. Remember, we are transitioning the gaming bricks and mortar gaming from cash to digital. And the transition to each operator is a process. And I will let Todd talk a little bit about that process. And then I will finish up with some of what we think the impact is.

Yes. So, Joe Yakunich, just some just some high level data points. So the way that, that all of the organizations benefit economically is, obviously, there is a fee structure related to the bankroll platform. And as Edward explained, the deposits will end up, coming into GBANK for the patron wallets for each of the gaming operators. I think that it is you know, I understand everybody wants to jump to the finish line. When we sign a new operator. Especially 1 like Access. But I think what Edward alluded to is I everybody needs to appreciate the complexity of an organization like this. You know, he is in 11 different states. he is got 67 different clients, if you will, representing you know, a machine count that is 10x larger than collective of, distilled and terribles together. And the breadth of that contract alone is very large, and at the same time, it makes it complex in that we have to roll out each 1 of those gaming operators of his independently even though they are all running under his casino management system. So it has a lot of upside, and it has a lot of integrations that we have to do. But I think to what Edward alluded to is, Earl moves pretty fast. he is a very ambitious person, and he already has his first gaming op operator that he is negotiating with to launch our platform. And 1 of the things that is fantastic about Earl is that he understands the true benefit of having a bankroll product embedded in his casino management system because it smooths, many of the friction points for cashless to be rolled out at a gaming operation. So it is it is tough given that we just signed the deal with Earl. Our tech development teams, his and ours, are working on the integrations right now. His system is new to us. it is not 1 of the systems we had worked with before. So there will be some things that we have to do in order to in order to roll it out. But, I can tell you this about Earl is that it is not just getting his existing customers on cashless. He views this as a opportunity to expand his breadth in the distributed and non gaming world. When I say nondistributed, I mean bricks and mortar casinos. And, here's a high level data point for everyone, is that there are approximately 250 thousand distributed gaming machines across the country in 11 states. Those are when you say distributed gaming, those are organizations like Terrible's. These are the restaurants, the gas stations, convenience stores, gaming. These are not bricks and mortar. Single casinos. Earl probably represents, we do not have the authority to disclose, you know, confidential details of 20-plus percent of that market already. So there is a great opportunity for us to grow with him, in the future, and we are just really excited about the opportunity. But the monetization will come in the way of it is the same thing that we talked about with BoltBetz and Terrible's. it is fees and it is deposits and it is part of the, you know, the business plan that we have been trying to roll out.

Got it. I appreciate a very thorough answer, and seems like a pretty big contract win there. So congrats on that.

Thank you. Stepping over to gaming deposits, kind of a similar theme. So how much in gaming related deposits are currently on the balance sheet? And what would you say is a realistic year end target? It sounds like it is not going to be a big contributor, but by that by year end, you know, the Terrible's rollout should have already begun. Just trying to get a sense for, you know, that kind of near to intermediate term growth. I can handle that 1, Joe. Right now, we have about we average daily from $35 million to $50 million. In balance sheet from gaming operations. We have said that we had anticipated this to be expanding in the fourth quarter, but because of the delays last year in the gaming control board and the launching and licensing of both bets in the process, we fell behind about 10 to 12 months. So I really expect, you know, with the launching remember, the taverns are small, relatively small, and we projected at the most about 2 million in deposits from that activity. And we are starting to see that grow now. Slowly but surely. And the other thing, so that we remember, when we board a gaming operator, soon we will be seeing we have to have an operating account, a reserve account, and then the account that has the deposits of all the gamers activities. which is the transactional account. So those 3, you know, for the taverns, we said it will be a couple of million, and that is a roughly around 100 slots. So you can take the numbers and multiply them there. But what Todd mentioned, if you do the math, remember, I said the entire state in Nevada had 150 thousand slot machines, and all of a sudden, we are in onboarding companies that have about 20% of that number. So we are starting to show some significant market penetration. And when we start to talk about the kind of deposits and numbers, I cannot say how fast the transaction will take place. But I do not think our deposits are going to grow significantly this year. We think we will see some lift, you know, in the fourth quarter, but primarily, you know, 2027 is going to be our year But once we know and we will share this with you, once we know how these transactions I mean, how the transformation occurs, how fast it occurs, how fast these players adapt, We will be able to put together some reasonable, you know, assumptions for you or at least some reasonable market considerations of what the market is. But when you take a market size, remember I said Nevada had a 150 thousand machines, and last year, they won $10 billion. The transactions for that would have been about $50 billion. And so if a 100 and some thousand machines can have 50 billion in some of these markets, the concentration of these slots is as bit is equal to the earnings per day of slots and in Nevada. I mean, these are highly concentrated uses. Taverns are used even more than the average large casino is. Because of the fact that there is so few machines and so many more patrons. So I think that the market that we are entering into even with the products we have signed now, you know, just by the virtue of the amount we are talking about has transacted in the billions. And so we think that we are we are approaching it correctly. We believe that we have to do it correctly and well. And be well prepared to manage it, and that is what we are working on. And I hope that helps you. Yeah. That was a great answer. And then just kind of 1 more from me here. Try to bring Jeffery into the fold. So in relation to the IT side review, what were the most important findings that the outside consultant identified I mean, are there any recommended fixes that were material enough? And you know, if you could comment on how you expect this will impact the expense run rate from here? Okay. Let me let me weigh in that first, and I will let Jeffery follow-up. But just about the time Jeffery was arriving, I had made the decision that our IT was heading in a direction that was not going to meet our specific business objectives. That the internal development of this site and the internal development of our own AI once we really started to identify its business plan, was beyond the financial economics that we would want to address. Meaning, it was way too expensive. And when I really dug into how long how much it would take to manage it and keep it updated, it too would not fit our objectives. But most importantly, the time it was going to take to complete the development was not matching the time we needed to be prepared to handle high volume. And so we made a change. And 1 of the first things I asked Jeffery was, to help address and solve the IT issue with respect to having a good solid banking IT person, but also when and with that, we are tackling the technology we need to manage these systems on a large scale because BoltBetz has already developed the API technology and we are going to be moving through a bankroll and the bank side of that API very quickly because we have experienced coders, developers, and builders. So what we needed was a really good connection at the bank side. And, I will let Jeffery answer that because I think he found a really wonderful solution to us, whom, by the way, has already been accepted with welcome arms by all of our other tech sources, including, you know, bankroll, BCS, BoltBetz, Yeah, Jeffery. So the first thing is I wanted to be sure that our cybersecurity profile was good. We got to make sure that we just verify that everything was secure. And we brought in this IT consultant who by the way, was my CIO chief information officer of at Bank of Idaho, my last bank. And I knew him for about 10 years and I trusted him. He did a really good job. And was really accomplished on the cybersecurity side as well as the other aspects. He even had a medical background as far as on the IT side. So very good background. Good in banking, The good news is we are secure on the cybersecurity side. He found that to be in good shape so we are secure there. The recommendations are really centered around reporting. And infrastructure areas that we can be more efficient and effective and just operate better. And he is already had those recommendations being resolved as we speak. he is made an impact on our reporting side. So that we can monitor some of these activities and know better what is going on in real time. The other aspect that Edward mentioned was with the development of these payment rails and how things move to our core and to the APIs and all those things he can help guide that in a compliant way from the bank side. And really works well with the fintech side. Yeah. it is it is been it is it is it has been an immediate result. I am really pleased about too because there are many great sources that we can use and implement much faster. That will create the AI and the API systems in the internal technology platforms that we want, that we could acquire much faster and in a much better pace. It took a it was a very good initial process because it opened our eyes to many, many things and it educated us. And as we became more educated, we were able to pick some better solutions. And, I think this is the best. I hope answered your question. No. That was great. Thanks for taking my questions.

Your next question will come from Matthew Erdner with JonesTrading. Your line is open. Please go ahead.

Hey, good afternoon, guys. Thanks for taking the question. Jeffery, welcome. Excited to start working with you.

You touched a little bit about kind of the CECL and the NPAs. You know, as it relates to the way that you guys have to account for those. Could you refresh me, you know, on the kind of the inner workings of how that, I guess, kind of works and just overall structure there?

On our NPAs, Matthew, this is Edward. Since I own most of the quarter, and Jeffery is absorbing it really fast. I think I might address that. If you are talking specifically about our provision, this time of 2.8 million Yeah.

A little bit about that, but mostly kind of the NPAs getting elevated to 4.2%.

Oh, sure. Sure. Let me talk first about the elevated NPAs. I would like to respectfully point out that in the past, we have had so many months and so many quarters and so many years of zero nonperforming assets, anything we do is elevate. But there is a point at which we are now having a mature a more mature portfolio. And that portfolio of SBA loans and other CRE loans are now totaling $2.3 billion that we manage. And only--you know, our total assets on balance sheet are 1.4 billion but we are really managing 2.3 billion now, almost 2.4 billion in loans. And so when we look at our nonperforming assets, we always have to remember that it is in consideration of the 2.4 billion because of the way we administer it. Now our nonperforming assets are now at 60 million. And we fully expect them to grow reasonably as our as our loan portfolio grows because we have a we have a thousand loans in that portfolio now. You know? And we have let me give you an example of how it works. So we are at 60 million right now in our nonperforming assets. And if you look at our balance sheet of 1.4 billion you say that is high. And that really and our Ubiparid appears very high at over 4%. But let me tell you, give you an analysis Let's take that 60 million. Right now today, and let me tell you how we are managing that and what is going to happen to that 60 million. And what it really means in the loan loss to us. We take the 60 million. It goes in our special assets division, which, by the way, we built up over the last year and a half, especially this last year, it is a very significant division of our bank that actually moves and manages these nonperforming assets liquidates them, gets them sold, and gets them off our balance sheet. Well, if we take that 60 million and I use a historical analysis of what our provisions have been or how we have handled the provisions in this special assets. We will take the full 60 million and our recovery has been better than this number, but I am gonna use this number to give you an example. Remember, we are collateralized. So by the time we just dispose of that asset, resell it, or and often resell it before foreclosure, go to foreclosure, and even in certain instances, not many, we go to OREO. We take that 60 million and we know that we are gonna recover or we believe, based on our history analysis, that 70% recovery of that 60 million will happen in special assets, meaning when we liquidate the collateral. That means that we will sell off and 42 million of the 60. 18 million will be a loan loss. Of the 18 million 25% of that is ours. 75% is guaranteed by the SBA. So 25% of the 18 million is a 4.5 million anticipated loss. So in that 60 million we are anticipating loss of about 4.5 million. Now that is not an unreasonable amount when you consider how it works. Now let's take another aspect of that. Let's look at that 60 million. In our special assets right now, we put 60 million Our special assets based on my daily involvement with them, anticipates that the minimum of 20 to probably 30 million of those special assets will be gone by September 3 by the end of September. Meaning we will have moved them through special assets. that is the kind of operation we have. We are not gonna let these mature on our balance sheet. And we particularly do not want closed hotels, although we have 1 right now And we want to make sure that we move some of these very quickly. So when we start looking at a mature portfolio, to have $60 to 80 million or somewhere, you know, and growing is not unusual for us and is not necessarily elevated in the sense of how we manage If you take a look at the kind of income we generate out of our SBA operations, gross income, not net income, but gross income, when we are doing about 90 million a year in revenue, through all the sources, through the gain on sale, which you saw went up to 9 million from 5 million at the same time the year before, the same 6 months, we will manage these special assets very well. We have reserves of 12.7 million against an anticipated loss of 4.7. I think we are really well reserved. As a matter of fact, if we were on the old ALLL, which I still call it from now and then, I have to stop using that, a historical analysis, we would not have a $12.7 million reserve. But there are many wiser people than I am, and we do, but I think we are very well protected. I hope that answers your NPA question. Yeah. No. That definitely does. I really appreciate all the information there. That was extremely helpful.

And then kind of changing gears here, I would like to talk about the credit card. Yeah. I completely understand all the things that you had mentioned kind of with the big you know, sports betting operators and them not being able to load on. You know, I guess, how are you guys feeling about that going forward? And then, you know, with the prepaid card do you feel like that is going to be able to pick up the incremental I guess, transactions that you lost due to these I guess, guys shutting down credit cards.

Yeah. We are not totally shutting it down, but the but the we are we have seen it drop to about, you know, 2 or 300 thousand a day because of all of these large sports betting. And we know that and you know we happen to have a very we happen to have very good knowledge of how the sports betting works. And we know that the sports betting industry is hurting very badly from the cost of funding. The cost of funding is hurting them enormously. And we have heard some instances where the cost of funding is greater than their entire cost of all their personnel. So these kinds of things, we know and by the way, we believe we have a solution for them. it is called our pool player account, but I am not even gonna start to get into that. Just yet.

But right now, the credit card, yes.

Here's the--let me let me give you the big I think what is at the high level vision of it We have proven the concept. We have done 622 million in transactions since we launched our credit card in 2024. We have proven the concept that players like to use the credit card. Because of the way they are able to use and pay it off and the way we have set up even secured accounts. Remember, we still have another 15 million on which got up to 25 million in deposits. From where we created secured accounts where we could move and have players move their money much quicker. And I do not wanna get into a great deal of detail on that because that is another 1 of our proprietary processes. When I say proprietary, I just our own business. But having said that, these customers are indeed waiting for our prepaid card. Because they like the way we work, and we can tie their prepaid card to these secured accounts as well for high limit players. We have an enormous following of high limit play that is very valuable in the gaming industry, And they like our card, and they like our bank, and they like the way we have treated them. This is as is going to be a good resource for the future growth as we launch our prepaid card. But most importantly, the credit card, if any of you go to a casino in or in New Jersey or Pennsylvania or Detroit or Nevada or anywhere that has the legal bricks and mortar casinos or the tribal casinos, the first thing that players do, they all need cash. You have to start the process with cash. So they go to an ATM machine, they go to a kiosk, or they go to the cage, and what do they do? They give them their credit card or a prepaid card, and they get cash. We know our credit card is going to play an important role in these verticals we are creating. With the bricks and mortar and distributed gaming operators. Especially as they go to cashless and to be able to load, we will be on their platforms. Ours will be a preferred loading on all the platforms that we support at g bank. Not just the deposits, but also the way to load the deposits as well. We want to be involved in the complete verticals. So I believe the credit card is going to see an important role in the future, and we are going to make sure we keep it But for right now, yes, We the big miss in our earnings is credit card. Because of the not because the card did not work, it worked really well. I mean, you saw the fact of our transactions even in my last call, I said the transactions that month were approaching 40 million. But then the rest of the sports shut down on us, or at least the big venues did. So now we are looking at, you know, as I said, a couple of 100 thousand a day, and we will have to hold for that for a while until we start to rebuild And I think that rebuild will really start hopefully, in the you know, first quarter of next year or maybe a little bit at the fourth quarter, but we are not gonna rush it But the point that we wanna make is that it is still a valuable product, and it is gonna be important in our bricks and mortar business.

Got it. that is helpful. And then just as a quick follow-up, you know, the interchange fees, I guess, were call it 2% ballpark, I know they kind of fluctuate quarter to quarter. How should we think about that from prepaid card standpoint? Is there going to be a fee attached to it based off of, you know, reloads or something like that? You know, I guess just what is the economic difference as the prepaid card increases as a percentage of use versus the credit card?

1 of the interesting things with the prepaid card is that this is gonna be a bank owned pre I mean, it is going to be issued by we are gonna develop and present the marketing plan to you very soon. We are in the final details of it, but there are some so fascinating aspects to it. I will give you just a little peek, but it is all I can do right at this point. Is it the prepaid card is going to develop deposits. But we are going to create the prepaid card and tie it to our pool player account. So these are going to be accounts at the bank, and they are going to be managed a little differently. And it is also going to be able to have the fact that since we control it, we can determine what interchange we charge and whether we even want to charge an interchange, or whether we want to have it move money very easily or very small amounts, and whether we want to create our own rewards. Because these are going to create another source of deposits for us, which are the loading aspect as well, which are the payment process as well. Not just the amount that sits on the slot machines, but the amount the transactions So we are looking at it becoming a key transactional vehicle for us and I will be able to give you more details. In the future, but please bear with me. We have some interesting ideas and thoughts, and we believe that it is going to be very important monetization of the bricks and mortar platforms we are developing. Got it. that is helpful. I appreciate the comments as always. And thank you, guys.

Your next question will come from Timothy Coffey with Janney Montgomery Scott. Your line is open. Please go ahead.

Afternoon, gentlemen.

Hello, Timothy.

So I have some questions about the core banking operations here. What I mean, how should we think about margin going forward? Good margin. Yeah. NIM. Yep.

that is a I have just the man, Timothy, sitting to my right here.

Perfect.

Well, first, I think it is important to understand what happened, and then I will talk about the challenges going forward. So first off, NIM went from or net interest margin went from 3.86 to 3.78. Quarter over quarter. There were 2 drivers to that. 1 was the loan yield and then the special dividend from the Federal Home Loan Bank San Francisco FHLB. The majority was from the loan yield. Decreasing by 7 basis points. From 38 to 31. And that was solely because we wrote off $369 thousand of accrued interest related to loans transferred to non accrual And then the other aspect was the dividend rate went from 8.75 to 4.75, and that reduced our special dividend by 158 thousand. So those 2 areas really impacted the NIM. And had that not been the case, we would have actually been at 3.91. So the good news on that is we had a favorable decrease in cost of funds because of matured CDs that rolled off. And we were able to replace those at a lower cost. So that went down from 3.93 to 3.86.

So there is really 2 areas of focus going forward. 1 is on the special assets area, the non accruals, That whole area is getting a lot of attention. I am gonna be right in the middle of that restructuring, and we have already done a lot of work in that area, as Edward mentioned. But, we are doubling down as we say in Vegas. We are we are doubling down our efforts. And restructuring meeting weekly with the special assets area, we have a really robust plan and I will be in the middle of that managing it. I have stepped into these many times. And it just takes attention. To manage and understand every single 1 of those credits what the backing is, what the collateral, and the borrower and early detection is key. On these. Working with the bar instead of against them. And not saying that we have, but, that is a key element The other aspect is on the deposit side or the funding side, We did not have a CFO for a short time here. We 12 weeks. Yeah. Yes. Here we yeah. 12 weeks. That has a bit of an impact.

So we have spun up our wholesale sources again. Looking at local markets for funding. I have some ideas in mind there. We were bringing in Darling Consulting We have a CFO consultant that is very experienced. he is working with me daily. Looking for opportunities to work on NIM. So his challenging environment on the funding side because, you know, you are replacing these things at 4% to 4.25% on quick rate and some of the other wholesale funding sources. So you know, going forward, we are still going to be challenged on that side, but I do not see it like a huge dip. it is going to be managed. If that helps you.

Yeah. Okay. So let's start on the earning, the net interest income side. Given the reviews that you are doing with loan portfolio, does that necessitate a slowdown in production? That is not I am sorry. I am so sorry. What I did not hear you. Yeah.

So, is it going to be a slowdown in our production? Then I will say no. No. We are going to manage through this and continue to keep the machine running. But we are really paying attention to geographic--yeah, where these kind of problem loans exist so that we can do the whole smarter in where we originate. And keeping hotels from being shut down. Or closed. So managing that process. Go ahead.

I can add just a little color to that because 1 of the things, Timothy, we have originated last year $576 million in SBA loans. And already this year, for the first 6 months, we have originated $321 million. And we do not see it slowing down. As a matter of fact, we have said our pipeline is stronger than ever. And we also know that we have sold loans last year at $354 million, and we have already sold $190 million this year. In the first 6 months. And the important thing that production is not gonna slow down, as a matter of fact, we see it increasing over last year as we reported. I but and there is 1 thing about SBA that I wanna point out, and that I was gonna describe in my last answer on Joe Yakunich was on our nonperforming assets and especially on our provision, we had a $2.8 million provision, but I do not want you to go away with thinking that was our hotel portfolio. 1.1 million of it was our hotel portfolio. Was our SBA. Remember, 700 thousand was credit card, and that is going away. I mean, that is declining rapidly. A couple of $200 thousand of that was an over 120 days that we had to catch up on. That pretty much is going to be bringing that down significantly. And the other part was 900 thousand was into some loans in Las Vegas that we have. A matter of fact, with 1 particular customer who had been a customer for a long time, and he has food court operations in hotels. And we do not believe there is been a provision, but we have the great optimism that we are not going to lose that money, that we will be recovering it. So there were some unusual events during this and about $250 thousand of that reserve was on growth alone. So the 2.8 million had some unusual events in it, The credit card is--we do not believe it is going to repeat that level. The this 1 particular operation in Las Vegas, we really have confidence in this borrower. I know the borrower. he is--and I believe that and we have very great confidence in him But I wanted to point that out, and then I gave you a good demonstration, of what our nonperforming assets were going to do. But I just wanted to focus on that existing loan loss reserve that why it hit 2.8 million.

Yeah. Okay. I got that. As we are talking about since we are I will talk about the allowance. When we talk about the allowance kinda staying at these levels, are we talking about the allowance to the total portfolio? Or the allowance to the non-guaranteed portions Of the loan portfolio?

When I talk about 60 million is that what you are referring to?

Yeah. The allowance. We talk during the prepared remarks, you talked about the allowance on the for the portfolio. The allowance being at these kind of current levels we talking about the allowance relative to the total loan portfolio? Or the loan portfolio excluding the government guarantees?

Portfolio? Or Well, Timothy, we talked about them both in the release. We talked about we also have a number in there that says our total at risk is 23 million. Of the 60 million. But then I also demonstrated that is even before collateral consideration as well. Now if you if so that when we talk about our NPA levels, those are the include both the guaranteed and non guaranteed portion. it is they include whatever is on our balance sheet. Now we our reserve of 12.7 million is reserved against the guaranteed portion. it is not a reserve against the nonguaranteed portion. But I also try to demonstrate how we think that reserve is very strong compared to what our real losses have been. Did I answer your question? I am not because I am not sure I understood it, Timothy.

Well, I have got the allowance relative to the loans at risk. At about a 150 basis points. Which seems high to me. Right? So I would think that would come down. What I am trying to get confirmation is that accurate? Am I am I thinking about that correctly?

I am trying to get clarification I mean, Timothy. Because you are coming in a little garbled for me, and I am not quite following it with none of us are.

We have several numbers in here. So which number? Give me the percentage you are referring to. Yeah. You know, I can follow-up offline. What about expenses? You have a lot of moving parts. You know? We are not replacing the chief operating but you also have some consultancy expenses. what is a good run rate for non-interest expenses?

We you know, you saw our efficiency ratios to 54% because we are producing so much revenue. But the point is that, yes, we have we are changing, but some of the expenses have gone away. With the expenses of Jeffery Whicker, we are obligated to pay him for a year. Under the disability provisions of his contract. And I think that you have seen our noninterest expense line, which is and it is high. I mean, if you look at our report right now, we think we have got plenty in there. We do not--I would not say we are going to continue to grow it. As a matter of fact, we wanna see it decline some, but as Jeffery gets more into the noninterest expense and some of the things we are doing to identify our noninterest expense is to identify ex expense lines across the divisions of each 1 of our operations, and that is an important undertaking we are doing. But that is a discipline we will watch very carefully, Timothy. it is are we spending money to continue to develop our IT and to be ready for these big transactions to be a payments bank, to be a payments bank, a tech technically competent payments bank, as well as a lending institution as well as a sound and secure lending institution. So, yes, some of our noninterest expenses are going to be a bit elevated, but we do not see them growing disproportionately to what they are today.

Alright. Brett. Thank you. Those are my questions.

Your next question will come from David Verlander, a private investor. Your line is open. Please go ahead.

Hey, guys. Thank you. Thank you, Edward, for explaining this press release and all. But my question is for Jeffery. Can you just try to walk us through This is not the typical bank, obviously, for you. And you know, it is a new challenge for you. But can you just explain to us like, maybe your thought process and what made you decide, you know what? Honey? We are gonna sell the house. We are gonna move the kids to Las Vegas. Because this is a challenge. This is a challenge I wanna accept. Can you just give us a little color there? Sure. I would love to. It was definitely a fork in the road I have been doing this for about 30 years. I have been in the CEO role for about 20. And been in the community banking space. You have seen my background where I come into small banks, grow them, and really bring value. And I have enjoyed that. That chapter of my life. But as the glacier opportunity came about, I had an opportunity to really reassess where I wanted to go in my next chapter. And I wanted to do something different. I wanted to do something that had a big impact and contribution And I had a I had a lot of opportunities to look at and a lot of them were in the community banking space. I even looked outside of banking for a minute. And then I met Edward, and Todd, and Nicholas Nigro and came across this opportunity. And it really struck me. It excited me. And I thought this is an opportunity to change an industry. it is a an opportunity to make a huge impact They have already done so much. But I could bring my skill set to the banking side and to really learn the payment side And I already have learned a lot And I love what we are doing, and that thankfully, was supported by my family and my wife And yeah, we moved the whole family. We got a house and everybody will be moved on August 2. We will have the whole family down here. Very good. And you know what is been really fun too is I have to say that I thought Edward was going to be great to work with. And it was double my expectations. We are aligned in how we think about things, transparency, honesty, We both are very committed to doing this right. And doing it well. And we are we are kind of joined at the hip as we say.

Yeah. And he is got a big hip. he is a much bigger hip than me. that is good. Okay. Thank you. it is our humor. it is all good. Thank you. Well, thank you.

This completes the allotted time for questions.

On that, then I would like to thank everyone very much for joining us all of our investors, our shareholders, our staff members, on behalf of our board of directors, and our management team, I want to wish you very well, and we are very excited. We are very excited about our future, and we are going to remain committed to delivering a sustainable long term growth and value for all. Thank you.

Thank you for joining the G Bank Financial Holdings and Q2 26 earnings call. You may now disconnect.