Hello, and welcome to the GBank Financial Holdings Inc Q3 2026 Earnings Call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Joining us this afternoon are Jeff Newgard, President and CEO of GBank Financial Holdings and GBank, and Ed Nigro, Todd Nigro, both Directors of GBank Financial Holdings.
The related Q3 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 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 would now like to pass it over to Ed Nigro.
Thank you. Good afternoon, everyone. Thank you for joining us. I am Ed Nigro. The engagement of Jeff Newgard in May of 2026 as President and CEO of GBank was the first phase of the GBank Financial Holdings succession plan. Recognizing Jeff's banking experience, we accelerated phase II, appointing Jeff as GBank Financial Holdings President and CEO, as well as Chairman of the Board of GBank. Now, with phase II completed, I decided that I would be more productive in my role as CEO of BankCard Services. Jeff, I pass on to you the leadership of the bank I founded 20 years ago, but I really look forward to working with you to grow the bank's Gaming FinTech business. Now to Jeff.
Thank you, Ed. Ed founded GBank and played a central role in building it into the company it is today, including the development of its national SBA lending franchise and its gaming and payment strategy. On behalf of the Board, I want to thank Ed for his vision, his years of service, and the drive he brought to building this company. We look forward to his continued service as a director and a partner as CEO of BankCard Services. I am honored that the Board has asked me to lead GBank Financial Holdings as well as the bank. I have spent more than 20 years growing banks. I led Bank of Idaho's growth from $250 million to $1.3 billion in assets before its sale to Glacier Bancorp. I am excited to bring that experience to GBank and build on the strong foundation already in place.
Today, I'll start with our third quarter results, then share some observations from my first five months with the company and the priorities that will guide our efforts going forward. Rather than rehash all the puts and takes in the quarter, I want to highlight what I think is important for shareholders and the analyst community. First, the earnings power of the bank can be clearly seen in the adjusted numbers, which are supported by higher net interest income and improving NIM, and the beginnings of solid expense management. While non-interest income is clearly lower than we would all like, the sequential reduction in gain-on-sale income is simply a timing issue. The 5.57% gain-on-sale margin is a taste of what's coming as the held-for-sale loans are monetized.
The decline in interchange income, though disappointing, was outside of our control, resulting from the decision by several online sports betting operators to disallow credit cards as a payment source. That change had a significant effect on third-quarter results. Credit costs have also weighed on earnings this year across our commercial, SBA, and credit card portfolios. We are confident those costs will move back toward more normalized levels as we move into 2027. While the reported numbers are much lower than expectations, I want to emphasize, and our results show that several areas of the bank are in fact performing well. Further, after detailed review of our loan portfolio and operations, I can assure you that I am comfortable with our processes and approach to underwriting, monitoring, and problem credit resolution.
While the last several quarters have been difficult for the bank and shareholders, I believe that GBank is now headed in the right direction. I'm building my team, and many of the challenges negatively impacting the bank should be fully addressed by year-end. With that, I'd really like to spend some time discussing my vision for the bank and how our gaming FinTech payments initiatives play a crucial role in that vision. Since joining GBank in June, I've spent a lot of time getting to know our team, our customers, and reviewing our operations and loan portfolio. What I found is a franchise with three distinct growth engines, an established commercial bank in Las Vegas, a national SBA lending platform, and a payments business serving the gaming industry.
As the largest independent bank headquartered in Las Vegas, we're part of a growing and increasingly diverse commercial market that we know well. Our national SBA business takes that reach well beyond our local markets. We are one of the largest SBA lenders in the country and the number one SBA lender in hospitality. Across our SBA and commercial banking businesses, we originated $171.7 million in loans this quarter. We also service $1.2 billion of loans we sold, allowing us to maintain customer relationships and generate reoccurring servicing income long after the loans are sold. Our payment business is still in its early stages and will take time to develop, but it gives us a third avenue for growth alongside commercial banking and SBA lending. Together, these businesses provide multiple sources of revenue, specialized expertise, and attractive opportunities for growth.
With that foundation in place, I have identified four priorities that will guide how we will build the company going forward. First, and most important, is growing the core bank. That means deepening our presence in the markets we already serve, adding experienced bankers where it makes sense, and continuing to build relationships in customer segments where we see attractive opportunities, including legal, healthcare, construction and real estate, professional services, manufacturing, and distribution. It also means doing more for the customers we already have through lending, treasury management, and deposit services.
Our SBA franchise will remain an important part of that growth through net interest income, gain on loan sales, and recurring servicing fees. We will protect our established hotel lending strength while expanding selectively into additional industries and using our broader banking capabilities to deepen customer relationships. We will do all of this with discipline and a focus on relationships.
In markets where we know how to manage the risk, the goal is a broader, more durable franchise and a deeper customer relationship and more diverse mix of customers and industries. Second is credit. Non-performing assets remain higher than we want them to be, and resolving them is a priority. Since I joined GBank, we have increased the resources dedicated to credit administration and special assets, strengthened coordination across our credit, servicing, and workout teams, and become more proactive in identifying and addressing problem credits.
Those efforts enabled us to bring down early-stage delinquencies by more than $10 million from the end of the second quarter. While there is still work to do, I believe these efforts position us to improve portfolio performance and maximize recoveries over time. Third is growing our payments business. We are excited about that opportunity, and GBank is committed to building it for the long term.
We are currently using BankCard Services, LLC's patented payment technology to function as the sponsor bank for 19 gaming and FinTech clients. Average daily deposits for these relationships in Q3 were $31.2 million. GBank's role is to provide the regulated banking foundation for secure, compliant, and efficient funds flow across the gaming ecosystem. As a sponsor bank, GBank supplies the banking infrastructure, account framework, payment rail connectivity, and regulatory oversight while technology and gaming partners deliver the patron-facing experience in operator integrations. In an industry where funding, settlement, and cashless wagering often remains fragmented, GBank's infrastructure helps us streamline the movement of funds, supporting a better experience for patrons, greater efficiency for gaming operators, and a scalable source of deposits. New FinTech programs should be viewed as multi-stage bank-enabled businesses rather than near-term financial contributors. After a client signs, each program progresses through a deliberate launch process.
Technical integration, applicable regulatory approvals, GBank compliance review and onboarding, a gaming operator pre-launch audit, accounting setup, marketing and promotional planning, staff training, and ultimately go live. The process is not always linear, but each completed milestone reduces execution risk and brings the program closer to meaningful adoption, deposit growth, and payment volumes for the bank. That opportunity is beginning to take shape through specific customer and partner milestones. Distill, a group of neighborhood taverns with gaming machines, formally launched the BoltBetz application at all nine of its Las Vegas locations in September, following a limited launch in Q1, and early returns have been positive. Terrible's, a Nevada-based gaming operator with 3,000 gaming machines statewide, will go live with the BoltBetz application in early November. The integration of the AXES Casino Management System and the BVNKROLL payments infrastructure is also underway.
Once the technical integration is complete and the first AXES gaming operator signs, the launch process described above will begin for that operator. Each subsequent AXES operator will be signed, integrated, and launched separately, and we'll provide updates and material milestones as they are achieved. Not every part of the business is progressing at the same pace. The LuckyLoads prepaid card is taking longer than anticipated and is expected to launch in the second quarter of next year. I cannot express how important gaming and payments are to our long-term strategy. While we do not expect the developing programs to contribute materially to our results in the near term, GBank already supports a broader portfolio of gaming and FinTech clients through its relationship with BankCard Services, providing an established base of deposits and payment activity as the developing programs move towards scale.
We'll continue to report deposits, credit card transactions, and net interchange fee income each quarter. In addition, we'll focus on concrete milestones such as regulatory approvals, completed integrations, customer launches, and adoption. Once those programs are large enough to have a meaningful effect on GBank's results, we'll add revenue measures and metrics that provide insight into the success of each. We remain confident that this business can be a meaningful source of low-cost deposits and fee income over time. Fourth is running the company well. As GBank continues to grow, our processes and operating discipline must keep pace. Our independent IT and cybersecurity audits were completed last quarter with a satisfactory rating, the highest possible rating, and zero high or moderate-risk findings. We are implementing the remaining low and best practice recommendations, none of which require additional spending.
We have also established an enterprise-wide AI governance framework with policies and guardrails governing the use of AI. AI is already being deployed and integrated into GBank business processes, and we're accelerating and expanding its use as we identify additional applications. Strengthening our leadership team is part of this. We continue to make progress in our search for a CFO and look forward to providing an update when appropriate. We will also continue to build out our broader team with an emphasis on talent that can deepen relationships in existing markets and selectively expand our reach where we see attractive opportunities. I want to assure all shareholders that we will operate this company as efficiently as possible, and based on my relatively short time here, I'm confident there's ground to be gained on the expense front. Turning to capital, organic growth remains our top priority.
We have a strong capital position, and the priority is putting it to work in the core bank and the businesses we've talked about today to enhance shareholder value. That's the plan. Now it's on us to deliver it, and I'm looking forward to getting to know all of our analysts and shareholders better over the coming months. I'll be clear about priorities, candid about our progress, and we'll hold ourselves accountable for delivering consistent results over time. With that, we'll open the call up to your 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 one moment to allow the queue to form. Our first question will come from Joe Yanchunis with Raymond James. Please unmute your line and ask your question.
Hey, guys. Thanks for taking my question. I apologize if I missed this as I have a couple going on right now. You said you expect 2027 to be a fresh start and that we should start seeing the gaming initiatives take hold during that year. Can you put some numbers around that for us? What would be considered successful in 2027 in terms of gaming deposits, slot machines, or transaction activity in your view?
Hi, Joe. Thank you. Appreciate that question.
[Audio distortion] While the math may not be ready for the fourth quarter, our long-term focus remains upon improving our core efficiency ratio.
[Audio distortion] There we go. That's better. Thank you. Still getting some feedback there. Joe, I think you're getting some feedback from me there.
I can hear you just fine.
Okay, excellent. We're just getting some disturbance on our end. As I described the process, we are going to look at the milestones that each one goes through, each one of these businesses that we bring on. There's been a full launch at Distill, and that started in September. Then we have Terrible's starting in November, and then AXES is going to be in next year. Integration starts end of this year. How we're going to measure results is growth in deposits. We're going to bring that to you every quarter, and we're going to show you the milestones that each one is going through. As far as the dollar amounts, I don't have projected dollar amounts for you, but we will see progress and traction through 2027.
Okay. I appreciate that. Again, I apologize that this was covered in the prepared remarks in detail. The NIM improved, what, 17 bps this quarter, which is pretty encouraging. How much of that improvement is structural versus mix? Then again, as we look into 2027, what are some of the biggest levers that could move that NIM higher from the 3.95%, absent the gaming deposit growth?
Yes. Thank you. I was very encouraged with the NIM results. You know what that does not include because of the way the SBA reprices is we are very asset sensitive, first of all. All those SBA loans they adjust the next month after an adjustment in Prime. The prime rate increase is not seen in that NIM. It will affect next quarter's NIM. Being very asset sensitive, we do better in a rising rate environment. We feel good about NIM. The other thing is for 2027, some of the levers is here locally in Las Vegas. We have a real opportunity to penetrate this market. We have existing relationships, and we are going to bring on experienced bankers to help us penetrate that market and bring in those relationships with loans and deposits. I have done this before at Bank of Idaho.
We entered many new markets. The benefit here is that we are already here. We are established. We are the largest independent bank in Las Vegas, and it is our home turf. We have a lot of advantage. It is the most exciting opportunity, except for our gaming FinTech side. I am pretty jazzed about that, too.
You had mentioned asset sensitivity. What is your asset sensitivity to a 100-basis-point increase?
We have 800 million in assets that float, so adjustable basically monthly after the adjustment in the Prime, and then 300 million deposits that float. Does that help you? 500 delta?
Yes. That's helpful. Just a couple more from me here. Your allowance ex-guaranteed loans is now 1.54%, but specific reserves increased again this quarter. How much additional reserve build should we be contemplating, and what would need to happen for you to feel comfortable that the credit cleanup is largely behind you?
Yeah. The good news, I want to take the opportunity to say that we went from 2.8 to 2.6, which at least it's moving in the right direction. As part of the allowance, $333,000 was for growth. That legacy retail credit card, $687,000. That number we are winding down. We are winding down that program and see that number diminishing. The specific reserves of $981,000, as you mentioned, and then the other part is there was a CECL adjustment of $600,000. That was a big part of that.
NPAs are down $5 million, which, as I mentioned last quarter, we hired a very seasoned special assets manager, and he came in and really made a lot of headway, and that's where you see the reduction in NPAs, and then the early-stage delinquencies down by over $10 million. That's indication to me that we're moving that in the right direction.
Perfect. That was very helpful. Last one for me, Jeff. As you continue to put your team in place, can you give us an update on the search for a permanent CFO? You touched on this a little bit in your prepared remarks. What other key hires or areas of expertise do you think you still need to add to the organization?
Yeah. On the CFO front, I have three candidates that I'm with right now. You'll get an update very soon. Believe me, I need a CFO as my partner. On the payments side, I think there's opportunities there. On the local market side, what I look for is a very seasoned, established banker that has relationships. In addition, filling out additional SBA business development officers in order to further diversify that portfolio. Those are the positions, if that makes sense.
Oh, perfect. That was great. Thank you for taking my questions, Jeff.
Yeah.
Congrats on the milestone and stay at it.
Thanks, Joe.
Our next question will come from Matthew Erdner with JonesTrading. Please unmute your line and ask your question.
Hey, good afternoon, guys. Can you hear me?
Yeah. Hi, Matt.
Awesome. Thanks for taking the question, Ed and Jeff. Congratulations to you both. Exciting times. I kind of wanted to follow up a little bit on a previous question. You mentioned the early-stage delinquencies are down kind of $10 million there. How much do you feel like you can really work through in the next quarter? Then, following up on that, is there anything kind of within that between guaranteed versus non-guaranteed? Jeff, you kind of mentioned in your prepared remarks a big focus on credit. Is there anything under the hood that you guys are kind of really changing or taking control of in terms of different processes or procedures as you go through this stuff?
Yes, absolutely. My belief on credit is quicker is better. Early recognition is the whole key for credit quality. Getting on these credits early before they go past 60, 90 days and before they hit downgrades. I am very comfortable with how we are managing it now, but that is just the beginning. We are going to continue to look at past dues and manage those. We are down to about $2 million right now in the early-stage delinquencies, and we are going to continue to hit those. The way special assets works is it is kind of a life cycle unto itself. It starts with the past due and then downgrades, and then finally at the end, you have OREO, other real estate owned. We have about $10 million sitting in OREO that is going to come off. We are really focusing hard on getting those off our books.
Got it. That is helpful. I guess just looking into my model and the gain on sales, I was a little high there. Is there any kind of dynamics that were impacted during the quarter? How should we think about the timing of sales going forward?
Yeah. I am glad you asked that question because there is a dramatic change in the SBA SOP, the operating procedure, and it is a change for all banks, all banks involved in SBA, is that the month that you originate the loan, you cannot sell it and get that gain on sale in the same month. You have to wait till the next month in order to sell it. That is going to impact gain on sale in December because those originations that are done in December are then going to get pushed to January. It will even out after that. It will have an impact on fourth quarter. The positive side of that is that we will get interest income during those days that those are on our books. It is not going to offset the gain on sale.
We have a good pipeline, and I feel really confident about our pipeline. Until we get closer, not sure how much that will impact that-
Got it.
-December. The other really cool thing is look at our gain-on-sale margin. I was very pleased with that from 5.04% to 5.57%. That's a 10% increase. I'm very pleased with that.
That's great. Then, one more follow-up from me, and then I'll step out of the queue. That gain-on-sale margin, one, how sustainable is that over the course of 2027? I know that's looking into a crystal ball, but where do you think those settle out on a normalized basis? Then from a non-interest expense modeling thing, salaries, wages, and employee benefits increased a little bit quarter-over-quarter. Should we look at the second quarter or the third quarter as more of a run rate going forward? Thanks.
Yeah. So I'll answer your second question first because it's freshest in my mind, is the increase in salary and benefits. We had $520,000 in severance payments, and then the rest of that is because we had such a robust originations of $171.7 million increased commissions. We have to pay for that production. That's the increase there. Then we had, if you look on the last page of the press release, you'll notice that the severance is in there in the adjusted numbers as well as third-party , non-related to the credit card, by the way, of $100,000. Then we have off to the side, $600,000 in contract disputes. However, you want to look at that. But that's where expenses are going. Then the first part of the question was gain on sale.
What we have is a really well-oiled machine. Very consistent if you look over the last three quarters. We see the pipeline still being robust. We have a process that is very tuned as far as selling those guaranteed portions. I would say, if anything, we are going to spend more energy around getting those sold and making sure those get sold quicker.
Awesome. That is very helpful. Thank you, guys. Appreciate it.
Our next question will come from Tim Coffey with Brean Capital. Please unmute your line and ask your question.
Sure. Thanks for the opportunity to ask questions. Jeff, appreciate you framing the conversation the way you did and laying out the different verticals and what is going on there. One of the things you are, you are inheriting a really good growth engine. I wonder, what do you think is a normalized level of loan growth on an annualized basis for this company?
I think you are going to see it be pretty consistent with what we have done in the past. It is working well-
Okay. This quarter, I think, annualized-
-It makes sense to me-
Yeah, 16%?
What was the percentage you threw out there?
I think annualized, it was 16% in the quarter.
Yeah, 10% to 15%.
If we just look at the community bank in Las Vegas, where are the areas that you think the bank can grow loans? Where's the low-hanging fruit in your mind?
I think the business community is very robust here. What's nice is that people around this bank already have relationships. We just haven't fully tapped them. As I get out in the community, I'm going to make those relationships. The Board, frankly, has already done a lot of work on bringing deposits to the bank. But I want them to make introductions so that we can increase those relationships and deposits. The medical service area and contractors as well is low-hanging fruit.
Right. Yeah. The company is incredibly well-connected in the community.
Yes.
The SBA division is really, really strong. Is there a normalized level of gain-on-sale on a quarterly basis that you think is reasonable?
Well, we were at 557 this quarter. I would say in that 5% to 5.5%, 6% range is reasonable.
All right. Great. Those are my questions. Thank you.
This completes our Q&A session. I will now turn the call back over to Jeff Newgard, President and CEO of GBank Financial Holdings and GBank, for any closing remarks.
Thank you. I'd like to take this time to have Todd Nigro give a little update on our FinTech area.
Thanks, Jeff. I got a few things to report on, so bear with me. It's been an exciting time. I think the Q3 and Q4 really represents going from development mode with our capabilities in FinTech to launch mode. Albeit initially at a smaller scale, but Distill launching in September. We got all nine locations, as you mentioned, up and running. That's quite a process to do that, as you alluded to in your opening remarks. It starts with signing up a gaming operator and goes all the way through regulatory audit accounting and go live training and approvals. In just the short two months that we're doing it, I'm going to share just a little bit of data on Distill. We've already achieved 5% adoption on patrons that are using the app as their primary loading mechanism.
When I say 5% adoption, I'm speaking with regards to the gaming club. We've also had a 10% adoption of our top 10% of our gaming club members. So the high end of the market, which is a larger transaction volume customer, seems to be willing to use the app on a more regular basis. I just want to frame that up with, in the casino industry, especially bricks and mortar, if you sat in front of any gaming executive that operates in a casino and said you were going to get to 15%-20% cashless adoption with a system like ours, they would think that that would be an absolute home run. So the industry has, to our benefit, quite low expectations about cashless, but we're already seeing some numbers that are really encouraging.
I just feel like I want to share that when I share information about the Distill operation, I'm the gaming operator. I'm the owner of that organization. I don't want to imply that as we roll out to gaming operations that are not owned by a Nigro or even a Tim Herbst, who sits on our Board for Terrible's, we're likely not to be able to share confidential information on gaming club numbers and adoption rates and things like that. Hopefully, we'll get to deliver some, but that's really up to the gaming operator to share that information. But I have the benefit of being involved in the ones that I'm reporting on, so we can share some additional stuff. Terrible's is really a whole another level as far as complexity.
They've also gone through the entire process Jeff explained and have all of the regulatory and internal approvals to launch the product. It's important to grasp the scope of the Terrible's organization. There's 3,000 gaming machines. They have 300 individually licensed gaming locations across Nevada. That's all the way from northern to southern Nevada. They do approximately $1 billion in transaction equivalent value a year going through those machines. This is a very large, very complex organization, and launching them after the small Distill operation is an endeavor that's going to give us a lot of really good data and experience in the industry because launching an organization like Terrible's in the cashless world is unprecedented. I do not believe that anybody else in our industry is even tackling an organization like this.
We're super excited about it, and we are going to see material data coming out of the Terrible's organization, some of which we will likely be able to share next year. AXES is in an earlier stage. We signed them in July, and now we're doing our technical integration with their Casino Management System. We expect the technical integration to complete in 2027. I'm sorry, our technical integration is going to be complete in December of this year. That sets us up for AXES signing on a gaming operator, which we expect to happen, and us launching one of those in 2027 because the technical integration phase is one of the longer lead time items in the process. We're still very excited about that product and that launch coming next year with a gaming operator or two.
I also wanted to state that what we're doing right now at GBank, BCS, BoltBetz, BVNKROLL, we're doing multiple integrations with other Casino Management Systems and cashless and cash access payment providers in the gaming industry, and we're having active and ongoing discussions with both online and bricks-and-mortar gaming operators. There's a lot of activity going on in the organizations right now, and one of the things that we've been doing, which I think we're going to start to see results, is we've been building the infrastructure both in the bank at BCS, at BVNKROLL, at BoltBetz, in order to start delivering on deposit growth for the organization going forward. The LuckyLoads prepaid card has hit some technical delays. It seems like technical delays are the commonplace in the gaming FinTech world that we live in. However, we still remain very enthusiastic about the product.
It's going to do really well out there in the marketplace because it's being built on all of the systems that we're currently using at BoltBetz and BVNKROLL. That's going to happen in 2027, and I also think that that's going to generate some material data for us on how FinTech can deliver for the bank. Unless I missed anything, Jeff?
No. Excellent.
That's it in a nutshell.
Thank you. We're very excited about it. Well, before we conclude, I'd like to thank our Board, our employees, and our shareholders for their continued support. We remain focused on executing against the priorities I've outlined today, and we look forward to updating you on our progress. Thank you.
Thank you for joining the GBank Financial Holdings Inc Q3 2026 Earnings Call. You may now disconnect.