GBank Financial Holdings - Earnings Call - Q4 2024

Transcript

Ed Nigro (Executive Chairman)

Good morning for those of you on the West Coast, and good afternoon for those on the East Coast. This is Ed Nigro. I'm Executive Chairman of GBank Financial Holdings at GBank, and I have in the room with me Ryan Sullivan, our Chief Executive Officer and President, and also Jeff Whicker, our Chief Financial Officer. And both will be presenting today with me. And I'd like to kick it off by an introductory paragraph, or rather statement, that's important, and will set the tone for this call. On January 10th of 2025, GBFH filed on a confidential basis a selling shareholder reoffer of securities on an SEC Form S-1. In other words, we filed a registration statement for the 1,081,081 shares that we sold in a private placement offering in October, which I believe we concluded in October of 2024.

Now, we filed for the registration of those shares, as we had indicated we would in the offering document. This is also a filing to become a registered SEC company. Now, we must carefully control our communications, especially through this registration process. Even though we have no shares for sale, we're not doing an IPO, we are subject to many of the same application procedures and SEC rules and regulations. And most important among those are forward-looking statements and offerings during this period of registration from which we need to refrain. So you will notice, and we will not have as many forward-looking statements in order to comply with SEC regulations. We are in the 30-day period for response from the SEC, and it is a confidential filing, so none of the application or the responses are public information at this time.

That is also the reason for a lot of the requisites that are placed upon us for our statements. Having said that, we can comment, as we do in a normal business call, on what factually we are doing today and what we have accomplished in 2024. I'm very pleased, as you can imagine, to announce our net income of $18.6 million or $1.37 per diluted share for the year 2024, especially since it was a 70.6% increase compared to our earnings of 2023. I'm particularly pleased, as we all are, on the fact that we achieved over $500 million in originations in our SBA program, and Ryan will be digging more into that. That's $500 million in one year and over $2 billion since our origination in the SBA business.

I'll also be talking about our gaming fintech division, but particularly we noticed that the credit card transactions of $51.7 million in the fourth quarter compared to $13.9 million in the third quarter, and you will also recall $1 million in the first quarter, so it is showing particularly strong growth, and we also have achieved an interesting one-day margin of, when I say margin, we had one-day transactions of $1.5 million recently, so it is being very well accepted, and we'll be getting into more of those details, and so I will turn it over now to Ryan Sullivan.

Ryan Sullivan (CEO and President)

Yeah, thank you, Ed, and welcome everyone on the call. We're happy to celebrate a number of events during the quarter, and really it's the culmination of what has constituted a standout and breakout year for the company and bank. As Ed mentioned, total earnings for the year at $18.6 million, that's a 71% year-over-year increase. As we all get ready for a big football game with a team that's looking to three-peat, we're celebrating our own three-peats here with the company and the bank specifically. Q4 was our third consecutive quarter of both record-breaking earnings and net revenue earnings for the quarter of $5.2 million. And then also, many of you may have seen for the third consecutive year that the company was recognized with the OTCQX Best 50 for the company's stock performance.

Really pleased with continued performance and operating metrics of the company, as indicated, record low in origination for the year. Our SBA operations surpassed $500 million for 2024, as mentioned, and $2 billion cumulative since we launched in 2015. A big driver of our revenue and earnings for the quarter, obviously, was the gain on sale of loans, which was $4 million for the quarter on increased volume of nearly $99 million. We continue to see small improvements on the pricing there as we sell the guaranteed loans, and you can see in the quarter in the low 4% gain percentage. As Ed mentioned, we're particularly excited about credit card development and seeing very strong utilization growth there, over $51 million in credit card spend during the quarter.

And also, on a subsequent basis, we were celebrating $100 million in total credit card transactions, and that was the threshold that was surpassed in January after year-end. So that's very exciting as well. You'll note on the income statement that we broke out interchange specifically, as we see very high transaction and utilization rates, as we mentioned, within our credit card customers. We've seen significant growth in that line item. That line item is, we think, pretty interesting today and will be interesting to track as time goes on. As we think about credit card and its overall contribution, specifically in 2024, our credit card activities generated approximately a $1.1 million pre-tax loss. As mentioned, we did reach break-even during the quarter, and as we expect future growth into 2025, we think that there will be a significant swing in generated earnings from that line specifically.

You'll also note we did have some net interest margin compaction or compression in the quarter. Now, part of that was shoring up, getting ready for really stabilizing them into 2025. As noted, approximately $170,000 in accelerated interest costs. What that allowed us to do was to call approximately $20 million in callable CDs during the quarter and put us in good shape for calling an additional $20 million in the current quarter, Q1. We do expect to see some significant repricing down in the CD books specifically. We were going into Q4 with approximately $64 million in maturing CDs. By and large, we were able to replace those on average between 50 and, in some cases, as much as 100 basis points lower as they matured and were replaced or renewed.

As we look into Q1, we have $20 million in brokered CDs that are callable that we expect to call during the quarter and another almost $100 million in CDs that will mature that will be repricing down on that portion of our funding mix as well. Another item just to highlight, and then I'll kick it over to Jeff. We're happy to celebrate 2024. Really, on the credit side was very benign. We've had very low non-performing assets. And then also, net charge-offs for the quarter and the year were $157,000 and $164,000 respectively. I think for the entire year, that's less than two basis points on average loans. We did, unfortunately, have some loans that migrated to non-accrual status, several of which right at year-end. Total NPAs at year-end were $14.2 million. Now, included in that is approximately $9.3 million in SBA guarantees.

Our at-risk non-performing assets and loans at year-end are $4.8 million. As you'd expect, and with that guarantee balance, most of those are SBA loans. There's 11 loans outside of the small, about $40,000 in credit cards. That balance was comprised by 11 loans, 10 of which were SBA, 8 of which were SBA hospitality. Very confident in our ability to work through that group. As we look kind of for possible trends and anything that would highlight kind of future growing problems, not really seeing anything there, as you might expect. We've been in very kind of elevated contact and communication with our borrowers through Q4, particularly in the East Coast with some of the storms and hurricanes, and then more recently with the fires in the LA area. Happy to report that we haven't seen really collateral issues or notable issues of damage there.

I will say, in some cases, maybe more of an impact on business conditions, particularly with some of the northern states that always have a little bit of slow time or slow period during the winter months. But on a relative basis, that $4.8 million, 0.4% of total assets or 3.2% of total equity capital plus reserves. So we have a really good track record working through those NPAs. We don't expect that to change, particularly on the SBA side, specifically in 2024. Really two notable dispositions, as we mentioned before, both of them were SBA hospitality. One involved zero loss, and then the losses that you see in Q4 was relating to an approximate $3.6 million loan, and our total charge-offs on that one came in at less than $200,000. So overall, a very good quarter. We think we're in really good shape as we head into 2025.

Very excited about our business lines and anticipated growth there, and with that, I'll turn it over to Jeff for his detailed comments.

Jeff Whicker (CFO)

Thank you, Ryan. Good morning, everyone. As Ed and Ryan had discussed, 2024 has been a better year for the bank, driven by strong growth and record earnings. The company reported earnings of $5.2 million or $0.36 per diluted share for the fourth quarter of 2024, which is a $200,000 increase over the prior quarter, earnings of $5 million. For the year, the company reported earnings of $18.6 million, which is a 71% increase over the prior year earnings of $10.9 million or $1.37 per diluted share. Net margins decreased quarter-over-quarter to 4.53% from 5% in the linked quarter. This decrease included a $341,000 reversal of interest and fees on non-accrual loans and $170,000 of accelerated amortization on callable brokered CDs, as Ryan talked about.

We anticipate continued pressure in margins in the first quarter as the additional 50 basis points Fed rate decrease will impact the variable rate loans as of January 1st and will be offset by $97 million of higher rate CD maturities that will be replaced at 40-80 basis points lower than their current costs. The bank's asset sensitivity has held steady as testing continues to show a 10% impact to net interest income with a 200 basis points change in rates either direction, and the company has made great progress in bringing down this asset sensitivity during the prior year. As Ryan mentioned, we are encouraged by the results of the SBA and credit card activity for the quarter. SBA and commercial lending activity has remained strong, with the bank producing $120 million in loans during the quarter.

SBA had a banner year producing a record $500 million in new loans through the year and crossing over $2 billion in total production since the inception of the program. SBA loan sales increased 38% to $98.5 million during the quarter, increasing the gain on sale income by $1.2 million. Sale pricing continues to trend up, providing an earnings hedge as we see reduced net interest margins related to recent rate decreases. Credit card has found a solid footing and continues to build on each quarter. Transaction volume increased 272% for the quarter to $51.7 million, as Ed talked about, from $13.9 million in the linked quarter. Additionally, the program is now showing a positive contribution margin and is expected to be a meaningful contributor to income in the upcoming year. SBA and credit card activity has led to a 49.1% increase in non-interest income quarter-over-quarter.

Total net non-interest income of $5.8 million was driven by the increased gain on sale income and a $700,000 increase on net interchange income on the credit card portfolio. Non-interest expense increased approximately $700,000 during the quarter, primarily due to the $367,000 stock compensation expense related to a one-time employee stock grant. In addition, the company incurred approximately $300,000 in expenses related to the filing of the S-1 and registration of the shares from the 2024 offering. The efficiency ratio favorably decreased to 55.4% for Q4 2024 from 55.9% in the linked quarter and improved to 58.1% from 68.1% year-over-year as the bank has been able to continue to execute on the technology initiatives that were launched in 2022 and 2023.

Taxes decreased quarter-over-quarter by $273,000 due mainly to the additional tax write-off the company can record on vesting stock-based compensation due to the recent increase in stock price. The bank continues to grow the balance sheet, increasing assets by 7.1% in the quarter and 22.4% for the year. Assets closed the year over $1.1 billion, and shareholders saw, and shareholders' equity saw 42.9% growth year-over-year related mainly to earnings and the $20 million private placement that was in October of 2024. The bank continues to fund the loan growth with a mixture of deposits, effectively growing deposits in all categories year-over-year. Loan growth has mainly been focused in the CRE and C&I portfolios as SBA lending continues to grow the lending pipeline. In addition, the bank purchased $29 million in fixed-rate government-guaranteed securities during the quarter with an average yield of 5.1%.

This brings the overall book yield on the securities portfolio to 4.78%. 100% government-guaranteed loan balances were $231 million. The decrease of $36 million from the prior quarter is mainly due to a decrease in loans held for sale. The loans held for investment guaranteed balances only decreased $1.5 million due to normal paydowns. The bank recorded $1.3 million of provision expense during the fourth quarter, approximately $800,000 of which was due to an increase of reserves on at-risk non-accrual loans, while the remaining $500,000 was due to the portfolio growth. Total non-accrual loans increased $8.7 million quarter-over-quarter. While the increase in non-accrual loans for the quarter was higher than we had seen in the prior quarters, the bank continues to show better-than-anticipated losses portfolio-wide year to date.

Given the workout history of the Special Assets Department of the bank, we anticipate being able to quickly work through the troubled assets and have provision recorded for anticipated losses. The overall allowance for credit loss was 1.07% of gross loans and 1.47% of at-risk loans, which is net of the government-guaranteed balances. Capital levels remain strong with the bank's Tier 1 capital ratio at 12.9%. In addition, as discussed, the holding company has raised $20 million in new capital during the month of October and will look to inject some of the capital down to the bank to provide for future growth expectations. The bank continues to focus on liquidity, with on-balance sheet liquidity increasing $44.9 million quarter-over-quarter. Total liquidity of $738 million as of the year-end was 76.9% of total deposits, which included $475 million in untapped borrowing capacity.

This year has been a record-breaking year for the bank, and we look forward to continuing to execute on the current initiatives to strengthen and grow the organization and continue to return strong earnings to the shareholders. With that, I'll turn it back over to you, Ed.

Ed Nigro (Executive Chairman)

Thank you. I wanted to go back to my quote at the beginning of the press release where I identified GBank as a digital bank that is involved in digital banking and payments as a digital banking and payments company, and that's the first time we've really focused on identifying ourselves as a digital bank and a payments company because we have been in payments since 2015 when we launched our Play+ card, our prepaid card with Discover, way back in 2015. MGM was our first client, and only in the state of Nevada, so we were focusing on payments and gaming, and as we discuss who we are as a bank, our gaming fintech division focuses on gaming and payments, and the gaming and payments world has changed a great deal, especially as an article in the Banker magazine pointed out, even since 2019.

In 2019, there started a revolution in digital banking amongst banks where everyone wanted to get into this digital banking world very quickly with a lot of fintechs offering different digital banking solutions to clients, customers, and consumers. Some have been good, and some you've seen over these recent two years have been not so good. Well, we've been developing our digital banking processes for 10 years now, and we've been particularly spending what people do not see these last two years or three years since we brought in our own IT officer. Our technology development with protecting the consumers and knowing our clients, our vendor management, and how we manage our payment system is very unique. You have seen programs like our Play+ player accounts and Play+ consumer accounts that are going to be foundations and our foundations for customers we're developing today.

We had hoped to go live in the fourth quarter with our first major client, OPETS, for cashless gaming for slot machines. Actually, they're in live testing right now with all of the processing necessary to create the digital accounts that the platform or the app needs and how they flow to the bank because all those funds on that app, on that gaming app, are going to be held at the bank, and all the transactions are done at the bank. There's also recent articles on the payments industry in American Banker magazine on the December issue, which talks about these revolutions that are occurring and says that it will occur even faster with the faster pay mechanisms such as the Clearing House RTP. We will be live with the Clearing House RTP. The advantages, we also believe, of focusing on the gaming industry.

The gaming industry, and I've been in it a very long time, used to have a stigma attached to it. Not anymore. It's part of everyday life. Turn on an NFL game, and they'll tell you how to bet the odds. The analysis will tell you the odds of certain things occurring during that quarter. College football has paid athletes now. Look at the college football playoffs. Look what's coming up with March Madness. Look how sports and sports gaming are part of everyday life across America. And this has been our focus for 10 years. And we're starting to see, and we shall see, the participation of our clients in this arena and as manifested by our credit card, which we're specializing for our gaming clients, for our consumer of our gaming clients.

What we did that is so different than anyone else is that we wanted, as a bank in Nevada, we wanted to bank our gaming industry from the beginning. But we can't do loans to these multi-billion dollar companies to build a casino or finance their operations. We can't give $2 billion loans. But what we can do is finance their customers, the consumer. And so way back in 2015, we went to service the consumer who likes to participate in both licensed gaming and skills gaming. And we developed this credit card so that we would have a clear another process besides our prepaid cards of uploading these apps so that the consumer can participate in this activity. And the way we do it, we protect the consumer because we have worked so diligently to create our internal processes.

I guess what I'm saying and why I'm bringing this up is because as you look at the credit card growth, we did what I said, one million in transactions the very first quarter of 2024, and we did 1.5 million in transactions in one day this month. We're seeing that the participation in the groundwork and the foundations that we've built are working. Now, we proved ourselves when we had 700,000 prepaid cards in the gaming industry. Our transition to the credit card was based on a lot of experience in being a card issuer. This particular card, of course, now has credit. The credit side is relatively small, which we had anticipated. The transaction side is what we had focused upon, and that is what is working.

But I wanted to say that we believe that we are finishing this year and in the technology aspects of what we're doing to be able to process very accurately, very rapidly, and very large volumes all the payments mechanisms that our digital wallet clients are going to require. And we are building that network right now. We have been building it for years. And we've been building it on a foundation of good governance, consumer protection, and safety and soundness. So I just wanted to conclude with that because we are in very many markets with very interesting products, and we believe that our focus on the consumer side and on the protection of the consumer is and has been and will continue to be very important.

You can see we reported on our gaming fintech division and the clients that we are boarding and the activity we believe will be occurring very soon, especially our first live Play+ WarHorse Casino payments program. With that, I will conclude, and thank you all very much, and open it up for questions.

Tim Coffey (Managing Director)

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

Ed Nigro (Executive Chairman)

Hey, Tim.

Jeff Whicker (CFO)

Hi, Tim.

Tim Coffey (Managing Director)

Hey, guys. Hey, Ryan? Hey, Jeff. I guess my first question is, what is the timeline for being a fully registered SEC company?

Ed Nigro (Executive Chairman)

Unfortunately, the only timeline I can give you is the one that is published right now. When we submitted our application on January 10th, we are in what is called the comment period with the SEC. So we will now wait to hear back from them commenting on our application. And that generally happens within 30 days. Then the rest of the process is a process that's published, is that you conclude and you respond to their responses and move towards the registration. Now, I can't give you a specific timeline because we haven't seen their comments yet. And I think that's the best answer I can give you. Other than we reported in the past that we had hoped to accomplish all this by the end of the first quarter. We shall see.

Tim Coffey (Managing Director)

Okay. As far as expenses and being a fully SEC-registered company, are there additional expenses you're anticipating this next year?

Ryan Sullivan (CEO and President)

Yeah, I would say, Tim, this is Ryan. Yes, there are, although I think we started to see the incurrence of those expenses in Q4. So Jeff had highlighted that there was about approximately $300,000 in expenses related to SEC in the Form S-1. We think that that's a pretty good run rate going forward. It might ebb and flow a little bit, change a little bit on any particular quarter. But we think that that'll probably be relatively stable as part of the overhead structure.

Ed Nigro (Executive Chairman)

That amount was included in our fourth quarter results. That's right. So we didn't pull it down as a one-time expense because Ryan and Jeff and I were talking it'll probably continue for some time.

Tim Coffey (Managing Director)

Yeah. Okay. That's helpful. And then the credit card product. As a way of just kind of determining how additive it could be to earnings in 2025, if it just now was break-even, how much did the product lose in 2024?

Ryan Sullivan (CEO and President)

Yeah, I mentioned that, but if you think about credit card in 2024 on a pre-tax basis, the burn rate for the whole year would constitute approximately a $1.1 million pre-tax loss, and then we turned the corner, obviously, in Q4, so how big that swing is in 2025 is going to be exciting to see, and I think it'll really tie into what's the growth rate going forward, but we're encouraged by what we see so far.

Ed Nigro (Executive Chairman)

One of the things that I think that we have to refrain from forward-looking statements right now about the credit card, but we can actually report. You've seen the growth in the first year, and we have active programs to continue issuing those cards, so I wish I could give a little more information than that. I cannot at this time, other than I do know, and we do know that we're very early in the game.

Ryan Sullivan (CEO and President)

Yeah. And we've talked about this in the past, Tim. I mean, we are continuing to see some of the metrics that we talked about before. In terms of spend, greater than 90% of the credit card spend is still gaming. So these are heavy gaming transactors, which is great for us as we look at the income statement and net interchange. That's really kind of the key utilization.

Ed Nigro (Executive Chairman)

We think that if you look at our current revenues, $26.1 million for December, and I also said that in January, we hit $1.5 million a day. The interchange fee and the revenue, the gross revenue we're experiencing right now, as an example for the month of December, reached almost $1 million in gross interchange rate.

Ryan Sullivan (CEO and President)

Gross interchange.

Ed Nigro (Executive Chairman)

So you can sort of put those numbers together, and that has that kind of and out of the gross revenue comes, of course, our rewards program and our marketing and participation programs. But we anticipate that 50% of that revenue is to the net for the bank. That's about half.

Tim Coffey (Managing Director)

Okay. How is it going getting non-gaming transactions through that pipeline? Because, I mean, obviously, 90% of the spend in gaming is pretty good, but is there an opportunity?

Ed Nigro (Executive Chairman)

We geared all our marketing to gaming, so we have not geared our marketing to non-gaming. We give a 1% reward for every $1 you load onto your gaming app, and we give a 2% Visa Cash Rewards for all non-gaming transactions. So we feel that that reward for gaming transactions is an important driver, and we want the card in the hands of people that enjoy skill games and, well, enjoy legalized gaming. And that's where 95% of our transactions are in legalized gaming. Our primary merchants are BetMGM, DraftKings, FanDuel, Caesars, and six or seven other companies in Pennsylvania.

Tim Coffey (Managing Director)

Okay. And then my next question goes to, I mean, obviously, credit card's doing well. SBA's doing well. Is it your expectation that you'll be able to continue to do really well if both of those go into 2025?

Ed Nigro (Executive Chairman)

I can give the question.

Ryan Sullivan (CEO and President)

Yeah. Maybe the question was just to restate for Ed, is SBA's going very well, credit card's going well. Do we expect that to continue? Generally, yes, I would say. We did see on the production side for SBA, we saw something that we hadn't seen for the prior couple of years, an actual seasonal slowdown on production. So even though we did total new loan origination was of $120 million, mostly SBA, we did see some of the pipeline shift to Q1 anticipated. But on SBA side, we're sitting with one of the strongest pipelines that we've ever had, expanded pipeline of nearly $250 million. Then credit card is really the kind of the interesting one to watch. We're still just scratching the surface, we think, in terms of what that market could represent.

Ed Nigro (Executive Chairman)

We also are most anxious to go live with two slot programs, Lincoln WarHorse programs, hopefully in the first quarter, which we believe one of the things that and it caused some slowdown for the launching of these is that November and December for the credit card companies and a lot of the payments companies is very difficult to launch new programs. Launching these programs, we're in live testing right now with integrating the slot machine, the payments app, and the banking apps to have this process move quickly, including RTP. As a matter of fact, we exercised yesterday our first ACH, and RTP is being worked on today to where it will actually occur with these wallets. These are major breakthroughs.

Tim Coffey (Managing Director)

All right. Great. Thanks. I'll step back. Appreciate you taking the time to answer my questions.

Ryan Sullivan (CEO and President)

Thank you, Tim.

Mike Galantino (President)

Hey, Ed and Ryan, Mike Galantino. How are you guys doing?

Ryan Sullivan (CEO and President)

I'm doing fine, Mike. Doing great.

Mike Galantino (President)

Ryan, that 3P thing with the Kansas City Chiefs you brought up at the beginning of the call as well.

Ryan Sullivan (CEO and President)

It's not going to happen, right, Mike?

Mike Galantino (President)

It's not going to happen. 40 years in the field, most of us, including all my boys from Janney from Philadelphia. So I would appreciate it if you didn't throw that out there. It's bad mojo.

Ryan Sullivan (CEO and President)

I said that truly.

Mike Galantino (President)

Actually, I have a two-part question. One of them, I guess, to Ryan in terms of how many number of SBA loans were originated in 2024? And then on the flip side of that, what's the total number of SBA loans that were sold in 2024? And the second part of my question might be to Ed. I know you can't comment because you're kind of going through a semi-quiet period here, but the massive growth, by the way, you guys had a phenomenal quarter. I mean, congratulations on that. But the massive growth in the interchange fees, do you see that hockey stick continuing, or aren't you allowed to comment on that right now, Ed?

Ed Nigro (Executive Chairman)

You go ahead first, Ryan.

Ryan Sullivan (CEO and President)

Yeah, we probably can't comment specifically to kind of tie into Ed's forward-looking statements. I will say, obviously, from Q3 to Q4 on the interchange, that was great. Not that we expect that to continue, but on the SBA side, just kind of in some round numbers to kind of give you a sense, and that was part of the big increase in SBA year-over-year. I think 2023, that was in the low hundreds in terms of new individual loans, and essentially, we got a double on the number of loans in 2024, nearly 200. And then the sold, I get back to you with an exact number, Mike, but it would be about 70% of the origination volume would be the sales for 2024. So probably about 140 in terms of kind of individual sales transactions during the year.

Mike Galantino (President)

So for clarity, what would be the dollar amount of originations? Do you have a rough estimate of what that number would be?

Ryan Sullivan (CEO and President)

Yeah. So dollar amount, like we said, is for the year, just the SBA operations was $500 million or just slightly above $500 million. And we expect that level to, by and large, be repeatable, maybe with some small growth in 2025.

Ed Nigro (Executive Chairman)

The interchange fee is based on transactions, and the transaction is a load to your app from the credit card.

Mike Galantino (President)

Okay.

Ed Nigro (Executive Chairman)

On the credit card. The transactions have nothing to do with bets. The credit card has nothing to do with bets or placing away. What the credit card does is just simply like every time you use the credit card to load an app, you have an interchange fee. The merchant pays an interchange fee. Of course, our merchants will gladly pay the interchange fee because they're getting an active customer who is staying active by the use of the card multiple times during the month. It is really transaction-based revenue.

If you remember the old, oh God, the old American Express business plan, when they first came out was, "We're going to bring you the best customers, and we're going to charge you a higher interchange fee." Because most of the A customers back in those days paid their account down every month. So they just wanted the transactions. And that's what we're doing. Our customers are paying off their credit card multiple times a month. And this is a setup we created and arranged because we know how one who's interested in gaming performs. And they like to load their app. Then they'll do whatever they want with multiple bets or wagering. And then they'll pay their card off so that they can load it again another time. So the transaction amounts on these cards are very good. And we knew they would be transaction-based.

That's why we started it. So we're seeing the transactions occur. And so the interchange fee growth is going to a function of how the card is utilized by the gamer. And the gamer likes this card because they are able to use some credit to initially launch their wagering accounts or to load their apps. I hope I answered the question.

Mike Galantino (President)

No, no, no. That's great. I'll step aside. But I got one last question for Ryan. Back to the SBA question. So you did $500 million, and you said about 70% was sold. So that's $350 million. You guys are just killing it in this space, right? Do you have any competition? Or do you see any competition on the horizon for that business? And the second part would be my question would be, how does 2024 in terms of SBA loans you sold in 2023? Was that an increase? Was there more opportunistic profits for you in 2024 than 2023? Or was it basically flat year-over-year?

Ryan Sullivan (CEO and President)

Yeah, pretty big increase year-over-year compared to 2023, Mike. Just to clarify the number of loans, the sold portion is the guaranteed portion. So our total sale volume for 2024 wouldn't be 350. It'd be less than that because we're just selling the guaranteed portions. But certainly, nearly a double in volume year-over-year, an improvement. Obviously, you remember in 2023, there's some instability, I would say, in terms of the financial markets. So we saw that in SBA pricing. We've seen some recovery there. We think that the recovery on the pricing could continue. Like I said, the most recent quarter, our gain on sale % was still in the low fours. Long-term average is above that. So hopefully, we start to see that bump up in some of the future quarters.

But in terms of competition, that question, there are a number of SBA lenders up there. It tends to be a pretty concentrated business. Some are really good at it. One of the things that really causes us to stand apart is our core competency in hospitality. We don't really have an effective peer or competitor on that. 2024 would be the fifth year in a row that we were the number one hospitality SBA 7(a) lender. We don't expect that to change. There are some banks that focus on hospitality, and they do a very good job in their own right. But a lot of times, that's not government-guaranteed lending, which is very specialized. So we feel really good about our competitive position.

Ed Nigro (Executive Chairman)

I think from the competitive position, there's an important move we did and we have been doing over the last three years, three to four years. And a lot of many SBA banks use a massive broker network to generate their loans. We do not. We use a relatively small broker network. And our brokers are major shareholders of our bank. Most of the five top brokers that we have are major shareholders of our bank and significant participants with us. They're valued assets to us. And our relationship, we believe, will remain very strong. And this is a vast majority of the production of our loans come from this relatively small network. But the relatively small network is part of us. And they're part of ours, they're as much part of us as I am.

Mike Galantino (President)

Thank you. I'll step aside.

Ryan Sullivan (CEO and President)

Thanks, bud.

David Verlander (Managing Partner)

Hey, good afternoon, guys. It's David Verlander.

Ed Nigro (Executive Chairman)

David.

Ryan Sullivan (CEO and President)

Hi, David.

David Verlander (Managing Partner)

Hi, Ed, Ryan, and Jeff. Congrats on a great quarter. Can you give us an update on the state lottery initiatives? What's going on there? And can you help us understand why the states would elect to use a prepaid card versus what they're doing now, whether it's checks or what have you?

Ed Nigro (Executive Chairman)

The tech company that brought the state lottery program to us that has executed an agreement with us has been unable to launch the first state yet. Some of the obstacles seem to be that the individuals running the state lottery don't want to change the way they are functioning for whatever reasons they have in the sense of the manual processes they're doing and the number of employees they have and the number of just the way they do it. Although because the concept of issuing a prepaid card is much less expensive than writing these checks that they have to do for every lottery winner. Some lottery winners, remember, are relatively small.

So the intent of this technology company was to issue prepaid cards for all lottery payments over $500 because some of the smaller payments are given by some of the locations themselves where you scratch and win. But the interesting part is the state approved it, but the process, but they haven't been able to launch it yet. So it's still on hold with this one processor. And we have one technology company. And we haven't pushed him really hard because he's pushing as hard as he can. And I think that's the only update I have on the state lottery because he believes he has several other states lined up once he launched his first one, which he has been unable to launch. What was the second part of your question?

David Verlander (Managing Partner)

I was just trying to understand the economics of the state lottery program. One, why would they elect to use prepaid cards versus checks? You answered that.

Jeff Whicker (CFO)

It's cheap.

David Verlander (Managing Partner)

It's lower cost.

Ed Nigro (Executive Chairman)

It's lower cost.

David Verlander (Managing Partner)

Are there any insights you can give us as to the economics for you? How do you get paid? Do you get paid when the card is loaded, or do you get paid when the consumer uses the card? And can you give us an idea of what that interchange would be?

Ed Nigro (Executive Chairman)

Yeah. The fee would be when the card's loaded.

David Verlander (Managing Partner)

Okay.

Ed Nigro (Executive Chairman)

And then if they spend the card in a merchant services area, there's an interchange fee there. But it's very small. It's like what's been happening, as an example, in many of these critical areas that have suffered, especially like in North Carolina, where so many people suffered some huge losses. The best way to get money to these people is with prepaid cards. And so there are many of the charitable organizations and the organizations set up to help those are giving them prepaid cards. And it's the easiest way to move money to disaster areas and to people. Well, the same thing's true of lotteries. We only hear about the major lottery winner who wins millions of dollars. But there are a lot of lottery winners that win a small amount of money. And so it becomes much cheaper just to issue the prepaid card.

Ryan Sullivan (CEO and President)

One of the key economic drivers on that program, like others, is when you think about the payments that are being processed above the de minimis, either 500 or 600. That's a pretty substantial amount in aggregate. I think one of the big economic drivers for us as we look forward is the continuation of growth of non-interest-bearing deposits. That's certainly our key focus.

Ed Nigro (Executive Chairman)

Our tech company has reported to us that the cost is about $6 a check to pay these lottery people because of all of the divisions it goes through and the state's treasury and all the other hands that touch it. It's expensive.

Ryan Sullivan (CEO and President)

It's a cost. It's a convenience. There's also a compliance factor of it. It's easier in a prepaid access and prepaid environment to meet all the compliance.

Ed Nigro (Executive Chairman)

We think that we stay very active, David. In as an example, the FDIC had come out with two rulemakings recently. The one about core deposits and changing it, they withdrew. They withdrew that whole proposal, and the most recent one on custodial accounts and how they want to administer and understand and provide greater consumer protection in custodial accounts. I've been involved in responses to the FDIC on that in the fourth quarter, and we believe there are some very interesting things occurring at the FDIC. Of course, you've seen Travis Hill is now the acting chairman of the FDIC, and if anyone wants to see what Travis Hill thinks, he gave a speech about three weeks ago before he was named acting chairman, and it's really an interesting speech. And in the speech, he said he wants to reactivate FDITECH.

And FDITECH was a division that Jelena McWilliams had set up to create what they called government-private partnerships to enhance new technology for banking. And I think Travis Hill is going to reinstitute that division. And that is a division that we are most interested in talking to with respect to our Play+ player accounts and our Play+ consumer accounts because we know, as you have dug deep into it, David, that it is a very, very effective solution in protecting the consumer. So there's a lot going on in that arena right now. But early monetization of it, I don't have any projections.

I think that one of the things (and that's why I mentioned so much our payments and our gaming) we are so focused on that right now for our bank because there, where we see the sort of more instant gratification in terms of earnings potential because of the programs. We've been working on some of them for three and four years now. And when they finally get launched, it's going to be, "Oh, what took you so long?" But the reality of it is we get calls all the time from banks that are having problems with their tech divisions. Fresno Bank recently. You know some of the other stories of some of the other banks and some apps. And the way that some have chosen (and I'm not throwing any allegations at any of them) but some have chosen their relationship with the fintechs is different than what we do.

That's why I mentioned the technology we're developing. We manage them all inside. We know who everybody is that we do business with. We took. There were about four companies in our pipeline that were going to bring us a considerable amount of deposits that we did not onboard at the bank or ECS because once we dug deeper into our vendor management and looked at their consumer customers and the merchants they were using for bringing aboard, we did not want to be exposed to them. So we canceled. We are very discriminatory. Gaming, see, when I pointed out gaming as our industry because it's so regulated, the programs in licensed gaming that we're doing, we're dealing with highly regulated entities. You saw where we even have now. He's a very fine distinguished gentleman,

A.G. Burnett, who was our former Gaming Control Board chairman in the state of Nevada. And that's the top cop. The Gaming Control Board are the ones that issue the licenses and issue the fines. And they're the ones that control our $15 billion a year industry in the state. So many states have controlling entities like that. And the companies we're doing business with, when we go in vendor management then, as an example, I'll give you one example on our credit card. Because of the high volume that we're generating already, we've gone to BetMGM and MGM Resorts. And their compliance people are talking directly with our compliance people. And we want to make sure that these transactions with their digital accounts at BetMGM are really being used for what they say they are, and they are. We dig that deep.

It's difficult for us to vet many customers as fast as some other banks do because of the way we function. I hope I answered that question. But that does not mean we're not working on some licensing transactions, especially the custodial account issues with the FDIC. We think we're in a very important place to do some very. Without forward-looking on it.

David Verlander (Managing Partner)

Yep. That's right.

Ed Nigro (Executive Chairman)

I'm talking about what we're doing today.

David Verlander (Managing Partner)

Gotcha. And that leads to my final question, which is, as you're going through your final testing on the slot program and as you interact with Konami or other slot companies, has anything happened that would cause you to temper your expectations or, conversely, make you more optimistic than you were for this opportunity?

Ed Nigro (Executive Chairman)

I think both are forward-looking, David. I can say that nothing's changed our status in terms of we believe, as we have said before and we'll say today, this is a very, very important program that we're going to launch very soon.

David Verlander (Managing Partner)

Gotcha. Okay. That was helpful. Thanks, Ed.

Jeff Whicker (CFO)

Thank you, David.