GBank Financial Holdings - Q4 2023

Transcript

Ed Nigro (Executive Chairman)

Well, I would like to welcome everyone today. This is Ed Nigro, and unfortunately, we won't have a video of Ryan, Jeff, and I. And of course, with me are Ryan Sullivan, our President and CEO, and Jeff Whicker, our Executive VP and Chief Financial Officer. Good morning to everybody on the West Coast. Good afternoon to everyone else, in Arizona or to the east. Ryan and I are currently at the Janney CEO conference in Scottsdale, Arizona, so we're broadcasting to you from the hotel. And I would like to start off with a little introduction and a few comments, but primarily referring back to my comments last quarter when I said the third quarter was indeed a great pivot for us in terms of how we're gonna manage our balance sheet and our future growth.

The fourth quarter was indeed a continuation of that, and I believe our comments were we're seeing some in the third quarter, but the full impact will hit the fourth quarter. And this centered around, you know, the repurchase and refinance of those SBA loans that were in our already managed servicing asset, which was in excess of $700 million at the beginning of the year. So we were, in essence, managing all these loans already, and what we did was start to repurchase and those that wished to refinance so that we would keep the relationship in the bank.

In the third quarter, we actually did $21.5 million in repurchases that we held, and in the fourth quarter, we did another $96.8 million that we repurchased for a total of $118.3 million now at the end of the year. We also, though, held those that we have for sale, because we now have two categories in our balance sheet, originated and Held for Investment and repurchased and Held for Investment, and also then Held for Sale. So in our Held for Sale, we had $36.6 million in the third quarter, but we held more of them in the fourth, up to $89.3 million. Then our originations, we held were $16.8 million in the third quarter and stayed at about $18.7 million.

Now, that amounts to $205.9 million fourth quarter total of guaranteed loans on our balance sheet, versus $91 million in the third quarter total, for 125% growth. Now, we had said that this was gonna be a great pivot, and we had anticipated very strong. Based on our results of the third quarter, we felt the fourth quarter was gonna be particularly strong, and indeed, it has been. The interesting thing, I think the most interesting thing now is that we have about 30% of our entire loan portfolio is guaranteed, and this really says a lot for our risk metrics.

I think also I wanted to point out that even though we have this substantive growth, and Ryan will get into the figures a little in more detail, as will Jeff, but we said that we were going to start changing the asset sensitivity of our balance sheet, that we wanted to have it less asset sensitive, and this is indeed what we're doing. I looked at the board. We had board meetings yesterday, and one of the things I said to the board, if you look at our financials and you look at our income summary, if we were sitting at the table and this was January of 2023, and I was sitting and telling you that this year we're gonna have a $9 million reduction in our gain on sale income.

$9 million, it went from $16.5 million for 2022 to $7.6 million in 2023. In other words, we went down $9 million in income. We would be, and obviously, very concerned because that was a significant portion of our entire earnings. But we did, and that's what the pivot did, because our interest income, our net interest income went from $25 million to $38 million year-over-year. So the pivot is working. And had we not been able to generate this increase in interest income, both through the existing loans we were creating, the gain on sale was very difficult. And those banks and others, unfortunately, that had to rely solely on gain on sale, had a difficult year.

But we were able to convert it to net interest income, and that conversion is continuing so that when interest rates, and I'm competing—we're competing with Powell right now, I think his conversation is going on, and we're not sure what he's saying, but should interest rates start down, in most occasions, the gain on sale premium increases. And we also have the protection of a substantial amount of our balance sheet is pretty well fixed. Oh, I think it's almost $300 million is fixed for the next year altogether this year. So the pivot is working. We're creating net interest income, we're creating a less asset-sensitive balance sheet, and we've been able to continue to grow the bank significantly, as Ryan will get into.

I'm gonna turn it over to Ryan now to get into more detail of the numbers, but I just wanted to reflect on the great pivot. It continues, and it will continue through the first quarter of next year. I'll come back a little later to talk about our application on BCS. Ryan?

Ryan Sullivan (President and CEO)

Great. Thank you, Ed, and welcome, everyone. Thank you for joining us today. This is Ryan Sullivan. As just to expound on a couple of the points made by Ed and tying back to, you know, our discussion about a quarter ago when we talked about the great pivot. Obviously, we're encouraged by the results posted for Q4, really showing that that pivot indeed has worked and will continue to work. In terms of earnings for the quarter Q4, approximately $3.5 million. So on a linked quarter basis, essentially, we doubled our earnings, and obviously, the balance sheet growth is additionally a big part of that story.

You know, the focus that we've had in this, during this pivot, as I've mentioned, is, you know, we do gain on sale would be a challenge this year, as it has been for all government-guaranteed lenders, and really showing the resiliency of our operating model and driving net interest income up. Ed gave you the year-over-year numbers. For the quarter, our net interest income was $10.4 million, which compared to the year-over-year quarter, Q4 a year ago, is up 19%. So we're obviously continuing to drive that revenue line and seeing the balance sheet grow quite significantly in Q4. Net interest margin was 5.16% for the quarter.

Certainly deposit cost pressure, you know, we're paying, like the rest of the industry, high levels, high rates on deposits. That's been offset by the significant 30% sequential loan growth and a larger percentage of our balance sheet being held in those higher-yielding loans. So we think as we look ahead for 2024, we're really encouraged with the metrics that we're seeing. And we really view, you'll notice a pretty significant expansion in the CD book. That's really kind of bridge funding for us as we seize the opportunities for rapid growth, which will continue into Q1. But maintaining the strategy of mitigating our asset sensitivity position that we were in two years ago, that allowed us to expand over a two-year period.

If you go back to Q4 of 2021, our net interest margin was 3.40%. So, to have that expansion from 3.40% in a two-year period to 5.16%, we're very pleased with. And really focusing on in 2024, you know, the our core deposit generation engines, which we're particularly excited about. Q4 was a good start for that on the liability side, and you'll note certainly we did have some significant expansion in the CD book, but every single category of deposits was up for the quarter, including non-interest bearing, which was up approximately $5 million during Q4. Now, on the position and on those CDs, obviously you know trying to maintain our strategy of mitigating asset sensitivity.

I will say that, nearly 80% of our CD book, we've kept short. We've kept it all short, but 80% specifically has a maturity or is callable in a year or less. You know, the balance sheet growth was significant, obviously. The loan growth with the $159 million in net gross loan growth in the single quarter. A lot of talk about, you know, the change in terms repurchase program, as Ed referenced. That will continue into Q1. We think between, you know, for the whole program, and we started with the $21.5 million in Q3, posted a significant increase in Q4.

We think Q1 will have a continuation, and we'll probably end up, in total, about $140 million in total repurchased loans, priced for five years at a range between 8.5% and 9%. Also encouraging is we're seeing significant volume in addition to the loan repurchase program in terms of loan originations. Loan originations and sales both surged quite a bit after some low marks in Q4. Specifically, sales were up 68% by volume when compared to Q3, which is a great number, considering our higher retention rate, and we're able to do that at the same time that we grew the balance sheet as significantly as we did.

As we think about going forward, obviously, we'll see a continued retention build in Q1 as referenced, but we really are targeting probably, at a minimum in 2024, in sales volume, $50 million per quarter. And that puts us in a very strong position with our SBA engine to benefit when those secondary market prices do go up. And we're already starting to see some signs where they're ticking up slightly. The GAAP gain in Q4 was, I believe, an all-time low at 3.18%. But even early in January, we're seeing some positive movement in prices, and we think that there could be some further movements up over the course of the year.

Again, on SBA, as we reported last time, we were number 22 in the country, as of the SBA fiscal year end, which was 9/30/2023. Very excited to report that, as indicated, with our loan origination surge, we've actually moved up to sixth in the country, and that's for the SBA fiscal year-to-date, which started on October 1. So since October 1, we have secured $168 million in SBA authorizations. So, we're very excited about the level of growth that we're seeing, the level of business. Our expanded SBA pipeline, as it stands today, is nearly $225 million. In addition, you know, credit card continues to be in beta.

We're having some great progress there. We really think 2024 is gonna be a breakout year for that. We're having some, you know, some great conversations in terms of growing that program, starting to get some good visibility. In terms of marketing that, you know, we still have a direct marketing program, but one of the things I'm particularly excited about announcing in the near future is we're having some very important conversations with potential large companies that could represent, you know, some rather significant affiliate partnerships that will really drive those credit card, that credit card portfolio up.

Also kind of interesting anecdotally, you may have seen it, the GBank Visa Signature credit card was featured on a NerdWallet article talking about the unique features and benefits of that product. So with that, I will turn it over to Jeff Whicker to give you some of the details on the numbers. Jeff?

Jeff Whicker (EVP and CFO)

Thank you, Ryan, and good morning, everyone. Typically, the financial portion of the earnings call begins with net income, but the star of the show this quarter, as discussed by Ed and Ryan, is asset growth. So looking at the balance sheet, GBFH ended December 2023 with $917 million in total assets. Assets increased by $187.7 million, or 26% during the quarter, due mainly to an increase of $159 million in gross loans. This puts the bank in the 98th percentile in growth when compared to its peers. Loan growth came in through both SBA and conventional lending, as balances increased 30% for the quarter and 67% over the prior year.

New originations were approximately $135 million during the quarter, with $113 million coming from SBA and $21 million from conventional lending. In addition, the bank repurchased $86 million in SBA government-guaranteed loans and repriced them to a five-year fixed term with an interest rate between 8.75% and 9%, bringing the year-to-date total to $106 million. Loan sales during the quarter were approximately $37 million, which was reflective of the low pricing levels. 100% government-guaranteed loan balances grew to $205 million, as Ed discussed earlier, and represents 30% of the bank's total loan portfolio at year-end. This is up 125% from prior quarter and 446% from the prior year.

The bank funded this asset growth by increasing total deposits by $152.1 million during the quarter and taking out a $30 million short-term borrowing from the Federal Reserve Bank. While the deposit growth was mainly in CD and savings accounts, as Ryan mentioned earlier, the bank did see quarter-over-quarter growth in every deposit classification, demonstrating the bank's ability to bring on additional funding. The bank subsequently paid off the $30 million borrowing in January. How about that? As expected, deposits are getting more and more competitive. Cost of funds increased 62 basis points for the quarter to 2.88% and 2.14% year-to-date. Uninsured deposits are estimated to be 38.32% of total deposits, and non-interest-bearing deposits represent 29.1% of total deposits.

Our loans to deposit ratio increased to 91.6% from 88.28% in the prior quarter. The securities portfolio is mainly made up of short-term duration Treasuries and variable rate Ginnie Mae mortgage-backed securities. $45 million of the Treasuries will mature between February and June of this year to be reinvested at higher yields or pay off high-cost deposits. Overall yield on the portfolio is 4.1% year-to-date, which is compared to the bank's peer group of 2.53% and puts us in the 96th percentile when compared to our peers.

The OCI is still negligible and down from $270,000 to $252,000 in the quarter, and the total unrealized loss on the combined Held to Maturity and AFS portfolio is $1.65 million, which is expected to decrease significantly during the year due to both maturities and potential rate decreases. GBFH equity to assets ended at 10.73%, down from 12.97% in the prior quarter, and the bank's Tier One leverage ratio was 14.06%, which compared to 16.18% in the prior quarter. The decreases are due mainly to the strong asset growth, which we expect to continue in Q1.

Overall, the record balance sheet expansion, driven by both organic and repurchased loan growth, has allowed the bank to take advantage of its strong balance sheet and grow when other banks are stepping back. In addition to the asset growth, the company experienced strong earnings this quarter. For the quarter, GBank Financial Holdings generated income of $3.5 million, or $0.27 per diluted share. The annual income was $10.9 million or $0.86 per share diluted. This is compared to the $10.9 million in the prior year, or $0.87 per diluted share, and puts the bank in the 85th percentile when compared to our peers. Quarter-over-quarter, net interest income increased 8% to $10.4 million, compared to $9.6 million in Q3 2023.

Net interest income is up both quarter-over-quarter and year-over-year as the bank continues to produce high-yielding assets and reaps the benefit of the Fed rate increases. This has increased net interest income by $12.7 million or 50% over the prior year. The increase in yield on earning assets is particularly impacted by the repurchase of the guaranteed balance loans. When we repurchase an SBA loan, we are required to write off both the remaining servicing right and the remaining discount on the loan. This has slightly inflated the yield on earning assets, which is offset by a reduction in servicing right income, which totals into non-interest income. The discount was reduced by approximately $596,000, while the servicing rights were reduced by $607,000 during the quarter.

GBank has seen some net interest margin compression in Q4 2023, due mainly to the higher cost deposits. The bank's key 2024 initiatives include significant growth in core deposits, which will reduce the cost of funds and increase our margins. The bank's net interest margin of 5.3% for the quarter and 5.72% for the year puts the bank in the 98th percentile when compared to its peers. As we look at sensitivity, the bank's sensitivity continues to decrease. The large increase in fixed rate loans during the quarter, combined with the short-term funding, has continued to reduce the asset sensitivity of the bank. Fixed rate loans greater than one year increased $109 million during the quarter, while CDs greater than one year increased only $40 million.

The bank's total non-callable CD balances greater than one year are just $60 million. During the year, the bank has brought on $82 million in brokered CDs, which are either callable or mature in under 20 -- in under 12 months. The most recent models show the bank's net interest income will change by approximately 12% in a 200 basis point rate change either direction. Current balance sheet growth is working to secure the increased margins and continues to move the bank into a more neutral position related to sensitivity. Non-interest income totaled $1.3 million and increased $89,000 or 7.4% over the prior quarter.

Gain on sale of loans increased $413,000 quarter-over-quarter, due to a substantial increase in the volume of loans sold, which more than offset the decrease in loan servicing income that was discussed previously related to the loan purchases. One thing that I'd like to point out is the natural hedge between the gain on sale of SBA loans and the net interest margins. As interest rate rose this year, we saw a significant increase in margins at the bank that offset the reduction that we saw in the gain on sale revenue. As rates begin to come down, we would expect that the gain on sale of revenue would rebound, providing additional revenue to the bank.

Combined with the additional fixed rate loans that the bank has brought on the balance sheet and the short-term maturities on the high cost deposits, we would expect that the bank would perform well in a rates down environment. Non-interest expense decreased $1.4 million during the quarter, primarily due to decreases in salaries and other operating expenses. Salaries decreased quarter-over-quarter as a result of an increase in the dollar amount and volume of deferred loan origination costs related mainly to the high loan production and repurchases. Other expenses decreased primarily due to the release of certain early year accruals for IT initiatives. Credit card non-interest expense for the quarter was $499,000. The year-over-year increase in expenses was anticipated as the bank has continued to invest in future initiatives, including credit card and SBA divisions.

The efficiency ratio for the quarter was substantially impacted by the decrease in non-interest expense and the increase in revenues for the quarter. Ratio fell to 59% for the quarter and was 68% year-to-date. This is compared to 63% for the prior year, as 2023 reflected substantial investments in credit card, infrastructure, and personnel as a basis for future growth. The company's ROA was 1.51%, compared to the peer average of 1.16%, and the return on average equity was 11.78%. During the quarter, the bank continued to enhance liquidity options to provide additional security to fund bank operations. The bank has on-balance sheet liquidity of $190 million and total liquidity, including borrowing capacity of $583 million.

This puts the bank in the position to replace 77% of its deposit base, if needed, and with short-term notice. Looking at asset quality, provision came in better than we expected due to government guaranteed growth, bringing down the overall allowance for credit loss to 1.04% of gross loans and 1.48% of at-risk loans, which is net of the government guaranteed balances. Overall, ACL increased $458,000 to $7.1 million during the quarter, and ACL ratios relative to the total loan portfolio size decreased mainly due to the significant increases in guaranteed loans. Non-performing assets increased from $1.1 million in September to $6.3 million at December 31st. The September 30 balance was comprised of two ORE properties that were sold during the fourth quarter.

The December 31st balance is comprised of one nonaccrual loan of $2.7 million, $2 million of which is guaranteed, and one loan past due 90+ days and accruing of $3.6 million, $2.7 million of which is guaranteed. No charge-offs were recorded during the fourth quarter. So overall, as we look to the coming year, the bank will focus on three main areas to ensure its continued success. Improved efficiency through cost maintenance, continued strong SBA originations and sales, and increased core deposits. The bank had an incredible 2023 and is positioned well to perform in 2024. With that, I'll turn it back over to you, Ed.

Ed Nigro (Executive Chairman)

Well, thank you, Jeff. I want to just finish by talking a little bit about our BCS GBank merger. But one thought came to my mind as Jeff was finishing up. When we looked at and talking about the gain on sale, that $9 million, that always sticks out in my mind. That when you see a 53% decline in gain on sale year-over-year, you would think that the originations were adversely impacted. And it's interesting to note that our originations in 2022 were $290 million, and in 2023 were $318 million. So you see our originations really increased almost $30 million. And the price reduction, of course, was the premium going down to ridiculously low amounts.

But with that, I want to move on to BCS GBank merger, because we went up in December and submitted our application for the merger to the FDIC in San Francisco. Ryan and I went up personally and delivered the application, and we've learned a lot since then, and a great deal has been happening. One of the most important aspects of this application is that how it fits into the FDIC statutory and regulatory process, and how the FDIC processes such an application. The first was the identification of the application as an IDI, which is an Insured Depository Institution, acquiring a non-IDI, which is BCS, a non-insured depository institution. This creates an entire series of additional processes by regulation that the FDIC must undertake.

In any application we learned through going through this process to the FDIC by a bank is referred to the bank's case manager. The bank's case manager is responsible for writing the SOI, which is called a Summary of Investigation. That Summary of Investigation is contained in the FDIC regulatory regulations as to what it must do, what it must say, what it must cover, and the information that must be in the SOI, and it is enormous. I went through the regulations in order to understand the task that our case manager had before her. By the way, this is standard procedure. The case manager for any institution is the one who must write this SOI for any application for merger or otherwise.

So we delved deep into what is required in this SOI and started working with our case manager and other staff at San Francisco in creating the documents they need to answer the specific questions that are in the regulation, and to address with specificity, and not wait for a letter back from the FDIC saying, "Hey, we need this information." And the letter would be obviously extraordinarily long because we have been providing the data they need in order to fill in all of the required statutory answers they must do, including risk analysis, including a cost, you know, benefit, cost basis, benefit analysis, we have just been submitting a great deal more information, but specifically designed to be able to arm our case manager with all the tools she will need to complete the application process.

We know we're gonna have additional meetings with them. We believe we are making good progress with the FDIC. We have had really great open communications with them, and we understand what they need, and we've been providing, we believe, what they need in order to complete the acceptance of the application, and which we're hoping to achieve, you know, in the next, you know, 30-60 days, we believe. So having said that, you know, the BCS, it had another interesting thing occur. Well, not interesting, very important. It actually received its third patent approval on the 23rd of January of this year. Now, the third patent is a continuation of the first one. In the first patent, we patented the architecture and structure of the player information management system.

In the second patent, we actually broke it into further and patented the reconciliation, compliance, management, and dashboard reporting processes of the PPA. And then in the third patent, we provided all of the structure, application of the first two patents to consumers and to the consumer program, and now we have the patent on all three... So that was a very important move for BCS, and of course, in the merger, we want GBank to own that IP. Right now, BCS is working on a good pipeline; they have a niche right now with startup wallet programs, both consumer and skills gaming.

And we're continually—they're continuing to receive recommendations from some interesting sources, which are developing a good pipeline on a fee basis for BCS and hope—and potentially a good increase in deposits for the bank with its existing contract. But I wanted to bring that, those several points up about where we stand with the application and where BCS stands, currently. So with that, Ryan, unless you had anything to finish up with.

Ryan Sullivan (President and CEO)

Yeah, I would just, you know, further discussion of the BCS and GBank merger. I think, you know, we're particularly excited as that progress or that process continues. There's really three main points, you know, in terms of why we think that's important. Obviously, there's some significant interest in the structure as it is, and certainly the possibility in the future for licensing fees, and that's all particularly exciting. I will note that the additional benefits for GBank, you know, really establishing control and exclusivity on the existing clients and the clients as we continue to grow those relationships within Gaming, FinTech.

The existing fee income that is outside of any potential future, you know, direct patent-related or licensing fees, and the PPA fees that, you know, that are generated with the, you know, what is an expanding and growing pipeline within PPA clients. As we mentioned in the earnings release, we're working on currently five or excuse me, four live PPA clients that we hope to close in the next 90-120 days and get them on the books and, you know, supporting them and their clients through PPA and PCA. So-

Ed Nigro (Executive Chairman)

So we have a lot going on, and we'd like to open it up to any questions at this time.

Tim Coffey (Managing Director and Associate Director of Depository Research)

Hey, Ed, it's Tim Coffey at Janney. How are you doing?

Ed Nigro (Executive Chairman)

Great, Tim. Are you here in Arizona?

Tim Coffey (Managing Director and Associate Director of Depository Research)

I am, yes. Yes.

Ed Nigro (Executive Chairman)

Oh, good. We're in our hotel room. We'll see you later.

Tim Coffey (Managing Director and Associate Director of Depository Research)

Same. Yeah, same here. Hey, just kind of following the conversation about the due diligence you're having on the PPA and PCA clients. Would the financial benefit of those contracts be meaningful?

Ryan Sullivan (President and CEO)

Would be what?

Tim Coffey (Managing Director and Associate Director of Depository Research)

The-

Ryan Sullivan (President and CEO)

The financial-

Tim Coffey (Managing Director and Associate Director of Depository Research)

Yeah, meaningful results.

Ryan Sullivan (President and CEO)

The financial benefits of which? I'm sorry, Tim.

Tim Coffey (Managing Director and Associate Director of Depository Research)

Oh, of the four companies that you're in a due diligence with right now.

Ed Nigro (Executive Chairman)

Oh, well, let me explain how the economics work with startups. Once, BCS signs an agreement with the startup to provide a PPA or an acquiring account system at the bank, like we do for one of our other very big $20 million clients, BCS starts charging them a minimum fee per month of $10,000 per month. So these four clients, if they all four come on board, as soon as they sign the contract and we begin the boarding them with the bank, they start paying BCS $10,000 a month each, as a fee.

Tim Coffey (Managing Director and Associate Director of Depository Research)

Okay.

Ed Nigro (Executive Chairman)

That's a minimum fee they provide. And then, BCS has a load fee, you know, based upon if the deposits or the transactions that are done, they kick in once the $120,000. In other words, $120,000 a year is to cover the first $120,000 in load fees. So then if the activity is a little slow, because of all of the work that has been engaged, it takes BCS about four months to board a new client, especially startups in the wallet business, because they have great ideas, great technology, but when they start to get into compliance like we do, and they start to get into the regulatory side of moving money.

And of course, one of the beauties of this system, we have it, with it being in the bank, that these wallets are not money - they're not money service-

Tim Coffey (Managing Director and Associate Director of Depository Research)

Money transmitters.

Ed Nigro (Executive Chairman)

Yeah, they're not money transmitters. The bank moves all the money. So the fees would kick in, and if there's a licensing fee with another bank, and we are under several NDAs discussing licensing, that fee would be substantially different. You know, we don't have the economics. It would depend upon the size of the program and the size of the bank.

Tim Coffey (Managing Director and Associate Director of Depository Research)

Okay.

Ed Nigro (Executive Chairman)

I hope I answered your question.

Tim Coffey (Managing Director and Associate Director of Depository Research)

Yeah, it does. That's very helpful.

Ed Nigro (Executive Chairman)

Because right now, I think we project BCS to have fees of about in 2024, you know, I think their projection that we had given before is about $1.1 million-$1.2 million in fees.

Ryan Sullivan (President and CEO)

About that.

Tim Coffey (Managing Director and Associate Director of Depository Research)

Yeah. Okay. All right, that's, that's helpful. Thank you. And then Ryan or Jeff, if I kind of look at, you know, so there's a positive gap between your period end loans and your average loans, and you've already made some more, kind of gains so far this quarter. The outlook on the margin, would that be flat to slightly up?

Ryan Sullivan (President and CEO)

Yeah, I'll start, and then Jeff can fill in any gaps. Yeah, we're managing to, and we think we're going to stabilize. Obviously, we had the big, you know, jump in high-cost deposits in Q4, so we're targeting to be in the low fives for the rest of 2024, certainly as our target. And our ability to, you know, to execute on that, and as we discussed, improve on it, really will, as we talked about, it's on our execution of core deposit growth, which, you know, we got a good start in Q4. And, you know, we expect that to continue and escalate over the course of the year.

But as we think about margin going forward, we're certainly, you know, I would say we're giving some of the margin up when we hit 6% at the bank level. But what we're getting out of that is we're really fixing a good portion of that NIM, if and when rates go down and, you know, by what degree, I think we're also trying to figure that out.

Jeff Whicker (EVP and CFO)

Mm-hmm.

Ryan Sullivan (President and CEO)

Jeff, anything else to add on that?

Jeff Whicker (EVP and CFO)

No, I totally agree with those statements. And I think the biggest question to that is our ability to backfill our deposits with more core deposits during the course of the year. So but we should stay kind of running around that low fives and then bring that up as we get more competitive here in the future.

Tim Coffey (Managing Director and Associate Director of Depository Research)

Okay. All right. Useful. Thank you. And then, question on the SBA premiums that you saw in January. Obviously, you know, the average in December was pretty low, but what can you give, like, round numbers about what you've seen in this month?

Ryan Sullivan (President and CEO)

Yeah, I can take that. I think, you know, we're seeing kind of a different composition of loans, you know, so the you know, hospitality versus the non-hospitality. On a cash basis, we saw a couple of those loans come in at a 107, which was super nice to see. We hadn't seen that in a while. You know, that 107 would equate to, you know, more like a 4.5 GAAP margin. And on average, obviously, that was one of the higher ones. But, you know, we're seeing, you know, more like, a 106, just early on so far this quarter.

Tim Coffey (Managing Director and Associate Director of Depository Research)

Okay. And do you have any sense of how much interest rates would have to come down to start seeing a really big move in that premium?

Ryan Sullivan (President and CEO)

Yeah, I think there's a couple things that we're tracking there. You know, first of all is, you know, what would happen with the premium? I think the other issue is kind of the overall liquidity positions as well, that can drive the market. But the other issue that we're, you know, we're modeling as well is, you know, as we fix some of these assets, what would happen with prepayment speeds, you know, based off of different down rate scenarios? By and large, we think we would start to see, you know, something pretty notable when we have a 100 basis point change from where we are today. We think that that could have a, you know, pretty material impact on the prices.

And then the other side of that is we might start to see some prepayments on some of those longer-term loans that we've been working so hard to secure.

Tim Coffey (Managing Director and Associate Director of Depository Research)

Right. Okay, great. Those are my questions. Thank you very much.

Ryan Sullivan (President and CEO)

Thank you, Tim. It's great to have you on the call.

Tim Coffey (Managing Director and Associate Director of Depository Research)

Glad to be here.

Ryan Sullivan (President and CEO)

Okay. Anyone else? Any other questions?

Ed Nigro (Executive Chairman)

All right. Well, I want to thank everyone once again, and we will be talking to you in another quarter.

Ryan Sullivan (President and CEO)

All right. Thank you, everyone.