GBank Financial Holdings Inc. Common Stock Q2 2026 Earnings Call

Hello, welcome to the GBank Financial Holdings Inc. Q2 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. We appreciate you joining our earnings conference call. With me here today are Ed Nigro, Executive Chairman and CEO, Todd Nigro, Vice Chairman, Jeff Newgard, President, CEO, and Director of GBank, and Olivia Caley, Principal Financial Officer. The related Q2 earnings press release was filed with the U.S. Securities and Exchange Commission today and is available on the news and media section of our website, gbankfinancialholdings.com.

Before we begin, I would like to remind everyone that any forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe harbor statements in our earnings press release. All comments expressed or implied made during today's call are subject to those safe harbor statements. Any forward-looking statements made during this call are made only as of today's date. 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 those non-GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings release. I would now like to pass it over to Ed Nigro, Executive Chairman and CEO.

Good afternoon, everyone. We have some extraordinary events to discuss today, not only important issues impacting GBank's financials, but also new gaming fintech initiatives. However, right now, most importantly, I have the pleasure of introducing our new GBank President and CEO, Jeff Newgard. Already he is prepared not only to discuss his first impressions, but also to report on key financial results of GBank. Jeff. Thank you, Ed. It is great to be here.

In my initial assessment of the organization, I found a successful bank with a bright future. The culture throughout the organization is positive, collaborative, and deeply focused on serving our customers and communities. I have been warmly welcomed by team members across the bank. Their enthusiasm, professionalism, and commitment have made my transition both enjoyable and productive. I have also appreciated the opportunity to work closely with Ed, whose support and alignment on key priorities have been instrumental in ensuring a smooth leadership transition. As part of our ongoing focus on organizational effectiveness, we accepted the retirement of our chief operations officer and promoted our operations manager to director of operations. After evaluating the bank's leadership structure and operational needs, I determined that the COO position will not be replaced at this time.

This approach allows me to remain closely engaged in the bank's operations while maintaining strong leadership oversight and organizational efficiency. To further strengthen our operational and risk management capabilities, we engaged an experienced IT consultant to conduct a comprehensive review of our technology operations and cybersecurity risk profile. The assessment is complete, and we are actively implementing recommendations designed to enhance our technology infrastructure, improve operational resiliency, and further strengthen our cybersecurity posture. I also found our SBA team to be one of the organization's greatest strengths, consistently delivering strong production and earnings results. At the same time, we have experienced an increase in SBA problem assets over recent quarters, which I will address in greater detail during the credit quality discussion. Within finance, we identified a need for additional leadership and support in financial management and reporting.

Given that our CFO, who has been on medical leave, will not be returning to the organization, we engaged an experienced CFO consultant to provide continuity and leadership while we conduct a search for a permanent replacement. During this transition period, management remains focused on improving net interest margin, enhancing financial performance, and optimizing overall balance sheet management. I found our compliance department to be one of the organization's core strengths. The team has built a strong compliance culture and framework that positions the bank well to meet evolving regulatory expectations. Their expertise and commitment provide a solid foundation for the bank's continued growth and success. Overall, my observations reinforce my confidence in the strength of this organization, the quality of its people, and the opportunities that lie ahead.

We are well-positioned to build on our successes, address areas for improvement, and continue creating long-term value for our shareholders, customers, employees, and communities. With that, let me turn to our second quarter performance Loan production remained strong during the quarter, with $131.4 million in SBA loan originations. Of which $61.3 million was retained on the balance sheet at an average yield of 8.01%. Our conventional loan portfolio also continued to grow, increasing by $855,000, with $324,000 retained and an average yield of 8.53%. The strategic alignment of SBA loan originations with targeted minimum gain on sale objectives has significantly improved both loan spreads to prime and the market pricing of sold loans. As a result, gain on sale income increased from $5.1 million for the first six months of 2025 to $9.3 million for the same period in 2026.

These attractive yields and improved sales margins continue to support earnings growth, position us well as funding costs normalize, and reinforce our commitment to further enhancing profitability and performance. Despite strong production, several factors negatively impacted quarterly results. First, provision expense increased by $2.8 million from $2.3 million in the first quarter, reflecting higher reserve requirements associated with elevated non-performing assets, which I will discuss in greater detail during the SBA credit quality review. Second, net interest margin declined to 3.78%, driven primarily by a seven basis point decline in loan portfolio yields and the continued impact of an elevated funding cost environment. Despite this margin compression, average loan balances increased approximately $60 million quarter-over-quarter, contributing to a $1.1 million increase in loan interest income compared to the first quarter.

While margin pressures remain a near-term challenge, we see opportunity to explore our funding mix to reduce our overall cost of funds. As higher cost certificates of deposit mature, we are actively transitioning toward lower cost funding sources, including money market deposit accounts, and the strategic use of FHLB advances where appropriate. We are also evaluating opportunities to enhance investment portfolio yields through disciplined balance sheet management and asset allocation strategies. To support these initiatives, we have engaged an experienced CFO consultant and Darling Consulting Group to assist management in developing strategies to optimize net interest margin while maintaining prudent liquidity, capital, and interest rate risk management. Looking ahead, our focus remains on enhancing profitability through disciplined balance sheet management, improving our funding mix, and continuing to leverage the strong yields generated by our lending platforms.

Turning to SBA credit quality, it is important to understand how our lending model differs from many SBA lenders. We operate as a collateral-based SBA 7 lender. As a result, when a loan becomes non-performing, we repurchase the guaranteed portion and report the entire loan balance as a non-performing asset. This methodology can cause our reported non-performing asset levels to be higher than our actual risk and distort reserve to NPA comparisons with our peers. Consequently, changes in our reported NPA balances reflect not only credit deterioration, but also the repurchase of previously off-balance-sheet assets. Our actual economic loss exposure is significantly mitigated by both collateral protection and SBA guarantees. Most SBA 7 loans carry a 75% guarantee, while certain loans originated during the pandemic benefit from guarantees of up to 90%. However, asset quality remains a top priority.

We continue to invest in our SBA credit administration and special assets functions, and we are aggressively managing problem credits, particularly within our maturing hotel portfolio, where industry pressures have contributed to a more mature portfolio, elevated non-performing loan levels. To strengthen portfolio performance and enhance future underwriting decisions, we have developed proprietary analytics focused on three key drivers of credit performance. Geographic location, borrower capitalization, and management quality performance. We are intensifying collection efforts, expanding our focus on the early identification of financial stress, and developing earlier engagement to preserve borrower relationships to minimize losses for borrowers, SBA and GBank. Additionally, we recently realigned the special assets group under the leadership of the Chief Credit Officer and enhanced the function through targeted staffing investments. These changes strengthen coordination between special assets and loan servicing, improve information sharing, and support earlier intervention on emerging problem credits.

We have also increased our focus on resolving troubled assets and accelerating OREO dispositions. Collectively, these actions are expected to improve workout efficiency, maximize recoveries, reduce risk, and support the long-term performance of the portfolio. While we expect these initiatives to drive positive long-term results, we also anticipate that the allowance for credit losses may remain at current levels in the near term as production remains strong and the SBA portfolio continues to grow. Maintaining appropriate reserves reflects our commitment to prudent risk management and ensures the bank remain well-positioned to absorb potential losses while supporting future growth. Our focus remains on balancing portfolio growth with disciplined credit administration, proactive risk monitoring, effective workout strategies, and the maximization of recovery values through collateral protection and SBA guarantees. We believe these efforts position the bank to effectively manage current credit challenges while continuing to support profitable long-term growth.

Thank you, and I now return to Ed.

Thank you, Jeff, and thanks for absorbing so much so fast. I think that's what happens when you have a real pro on your hands, and I cannot tell you how enthusiastic I am to have Jeff at GBank. I'll now address certain gaming fintech events. I know everyone wants to hear more details regarding the Bankroll AXES agreement, which is indeed an inflection point for GBank. Earle G. Hall, AXES's Co-founder and CEO, is a very renowned gaming and payments industry leader since 2005. It's important to know that all our gaming payments initiatives, our Pooled Player Accounts, our Visa credit cards, our upcoming Visa Prepaid Cards, and GBank's non-interest-bearing deposits shall all be impacted by AXES, BoltBetz, Terrible's, and our future platforms. In the interim, however, our gaming credit card business was adversely impacted by two key developments during Q2.

First, credit card interchange income declined due to major sports betting operators eliminating or restricting the use of credit cards. That's right, eliminating or restricting. This resulted in significantly lower transactions for us because our players were using these larger platforms for very high-level gaming and gaming transactions. Our transactions declined to $84.2 million in Q2, and we anticipate some further contraction until late Q4. This was a key income variation for us and a disappointment for us because the credit card was well accepted, was well-defined, and a top earner for the bank. Secondly, elevated delinquencies among retail-only cardholders drove an addition to Q2 loan loss provisions of approximately $771,000. I hope the day comes I can stop talking about the impact of our retail cardholders. These cardholders are being reduced, and we anticipate these delinquencies to be reduced as well. We do not market retail users.

As we had discussed prior, fraud was a non-event. Despite these challenges, we do remain optimistic about the long-term prospects of GBank credit card. Today's casino patrons rely on cash from ATMs, kiosks, and casino cages to fund gaming activities. As our current and future digital platforms expand, GBank gaming cards shall be well-positioned to become an increasingly important funding source within all of our partners' gaming ecosystems. On the horizon, we have our Visa Prepaid Card. It's currently in testing, and commercial launch is expected during the fourth quarter. Importantly, this prepaid card will be directly integrated with GBank's Pooled Player Account. That infrastructure is going to provide functionality and payments processes not available to any other prepaid card. We'll be getting into that subject matter more as we develop the product more.

The GBank credit and prepaid cards will be integrated across BVNKROLL, we believe these products will further strengthen our position as a leading banking and payments partner to the gaming industry. BVNKROLL not only has a new partnership, but also its own website, bvnkroll.com. Remember, use the brand name, an upside-down A or a V. It's fun. Todd will continue to brief us. Todd. Thank you, Ed. I will begin with an update on BVNKROLL.

On our last call, we introduced BVNKROLL and noted that both BoltBetz and BVNKROLL had active and developing pipelines, we are excited about BVNKROLL's execution of its first enterprise agreement. On July 21st, we announced a strategic partnership with AXES.ai, the developer of the world's first cloud-native intelligent management system for the global gaming industry, serving 67 gaming operators and distributors across 12 states. Under the agreement, BVNKROLL will serve as the white-labeled payments infrastructure powering an AXES-branded enterprise digital wallet to be deployed across the AXES operator network. AXES is working on its first operator now. This partnership illustrates a key distinction between BoltBetz and BVNKROLL. BoltBetz is our direct-to-operator platform where we manage the operator relationship and the patron experience. BVNKROLL is the infrastructure layer.

When an enterprise partner like AXES deploys BVNKROLL, they own the brand, the operator relationships, and all marketing and business development efforts. Our role is to power the platform invisibly. This is what makes BVNKROLL highly scalable. Every new operator AXES brings onto their platform is a new source of patron accounts held at GBank without requiring additional direct effort on our part. The BVNKROLL pipeline continues to grow, we look forward to sharing updates on AXES operators and distributors as they sign onto the platform. On the BoltBetz front, I'm pleased to report that Terrible's Gaming has received approval from the Nevada Gaming Control Board to deploy the BoltBetz platform. The approval was granted within 60 days of application, a timeline we believe reflects the strength and credibility of the regulatory framework we have built.

As was the case with Distill Taverns, the reserve requirement was waived as patron funds are held at GBank rather than by the operator or fintech. This continues to demonstrate the structural advantage of GBank's role as sponsor bank and the confidence regulators place in the model. We are currently in the technical integration phase with Terrible's Gaming, with a targeted initial rollout at select grocery stores later this year. We look forward to sharing further updates on that launch as we progress. On the Distill Taverns deployment, we are now accumulating meaningful data on patron behavior. We had a fourfold increase in sign-ups driven by the improvements in V2. A persistent concern in taking the gaming industry cashless has been the assumption that players will resist providing the identity verification requirement for compliance. Our early results suggest that resistance is far lower than the industry has assumed.

While we continue to improve the patron experience, we are now focused on increasing sign-ups, visit frequency, and patron worth as we scale the Distill deployment. I will now turn it back over to Ed.

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

Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you'll receive a message on your screen from the host allowing you to talk, then you will hear your name called. Please accept, unmute your audio, and ask your question. We'll wait a moment for the queue to form.

This one? This one. Our first question.

Hi. The next question will come from Joe Yacunas with Raymond James.

Your line is open. Please go ahead.

Hey, guys. Good afternoon. Good afternoon.

Hello, Joe. I just wanted to go over the AXES BVNKROLL partnership and kind of more specifically the economics behind it.

What is the first signed AXES contract actually mean economically for GBank and BVNKROLL, and when should investors expect to see the contribution from this?

Okay. Joe, this is Ed. I believe I understand the question. It was a little garbled to me, what you were asking me is, what are the economics, or what do the economics mean to GBank on the AXES transaction with BVNKROLL?

Yeah. I was just hoping.

And- You could kind of talk about how that'll impact GBank financially and any sort of expected timing.

Sure, Joe. Let me start by saying this agreement was just executed on July 21st, a week ago. AXES, if you've gone to their website, and I think you have, you've seen is a substantial company with many operators across 12 states, 67 operators. To try to give some insight, and I know Todd's traveling and trying to get back to help answer some of these questions, but to give some insight into it, Todd had advised me that he and Earle are moving very quickly to integrate their first operator. Their first operator out of the 67 he has over 3,000 slot machines. He's a little larger than Terrible's. That's just his first operator. Now he has a platform. He has a very substantial platform for these distributed gaming operators that are in these many states.

When we talk about the integration, his first operator is the size of Terrible's. Give you an idea of the potential financial impact, the taverns have patrons about in the thousands for 125 machines. Terrible's has patrons and their business lines of about 250,000, and Earle has patrons in the millions. I believe, Todd, did you join? Are you on the line?

Yes, I am. Why don't you go ahead and talk some about what you think the impact of the AXES transaction will do.

Let me just add this one aspect. The entire goal, in the beginning, was to have the transactions that are normally held, and the funds that are normally held by the gaming operator to be held by GBank. That is the fundamental formula that's very important. In addition to that, we're also going with the verticals of our credit card, our prepaid card, which are going to also generate income for the bank as well. We plan on a total vertical integration, but most importantly will be the replacement of our deposits, our expensive deposits. How fast that transition takes place, remember, we're transitioning the bricks-and-mortar gaming from cash to digital.

The transition to each operator is a process. I'll let Todd talk a little bit about that process, then I'll finish up with some of what we think the impact is.

Yes. Joe, just some high-level data points. The way that all of the organizations benefit economically is obviously there's a fee structure related to the Bankroll platform. As Ed explained, the deposits will end up coming into GBank for the patron wallets for each of the gaming operators. I understand everybody wants to jump to the finish line when we sign a new operator, especially one like AXES, but I think what Ed alluded to is everybody needs to appreciate the complexity of an organization like this. He's in 11 different states. He's got 67 different clients, if you will, representing a machine count that's 10 times larger than collective of Distill and Terrible's together.

The breadth of that contract alone is very large, and at the same time, it makes it complex in that we have to roll out each one of those gaming operators of his independently, even though they're all running under his casino management system. It has a lot of upside, and it has a lot of integrations that we have to do. But I think that what Ed alluded to is, Earle moves pretty fast. He's a very ambitious person, and he already has his first gaming operator that he's negotiating with to launch our platform. One of the things that's fantastic about Earle is that he understands the true benefit of having a Bankroll product embedded in his casino management system because it smooths many of the friction points for cashless to be rolled out at a gaming operation.

It's tough given that we just signed the deal with Earle. Our tech development teams, his and ours, are working on the integrations right now. His system is new to us. It's not one of the systems we had worked with before, so there will be some things that we have to do in order to roll it out. But I can tell you this about Earle, is that it's not just getting his existing customers on cashless. He views this as an opportunity to expand his breadth in the distributed and non-distributed gaming world. When I say non-distributed, I mean bricks-and-mortar casinos. Here's a high-level data point for everyone, is that there are approximately 250,000 distributed gaming machines across the country in 11 states. When you say distributed gaming, those are organizations like Terrible's. These are the restaurants, the gas stations, convenience stores gaming.

These aren't bricks-and-mortar single casinos. Earle probably represents. We don't have the authority to disclose confidential details of Earle's operation, but he represents upwards of 20-plus% of that market already. There's a great opportunity for us to grow with him in the future, and we're just really excited about the opportunity. But the monetization will come in the way of the same thing that we talked about with BoltBetz and Terrible's. It's fees and it's deposits, and it's part of the business plan that we've been trying to roll out.

Yeah. I appreciate the very thorough answer. Seems like a pretty big contract win there. Congrats on that. Thank you.

I'm going to shift over to gaming deposits. Kind of a similar theme. How much in gaming-related deposits are currently on the balance sheet, and what would you say is a realistic year-end target? It sounds like AXES isn't going to be a big contributor, but by year-end, the Terrible's rollout should have already begun. Just trying to get a sense for that kind of near to intermediate-term growth.

I can handle that one, Joe. Right now, we average daily from $35 million-$50 million in balance sheet from gaming operations. We have said that we had anticipated this to be expanding in the fourth quarter, but because of the delays last year in the Gaming Control Board, and the launching and licensing of BoltBetz and the process, we fell behind about 10 months to 12 months. I really expect, with the launching. Remember, the taverns are relatively small, and we have projected at the most about $2 million in deposits from that activity. We're starting to see that grow now, slowly but surely.

The other thing, though, that we remember, that when we board a gaming operator, soon we'll be seeing we have to have an operating account, a reserve account, and then the account that has the deposits of all the gamers' activities, which is the transactional account. Those three, for the taverns, we said will be a couple of million, and that's roughly around 100 slots. You can take the numbers and multiply them there. What Todd mentioned, if you do the math, remember, I said the entire state of Nevada had 150,000 slot machines, and all of a sudden we're in onboarding companies that have about 20% of that number. We're starting to show some significant market penetration.

When we start to talk about the kind of deposits and numbers, I can't say how fast the transaction will take place, but I don't think our deposits are going to grow significantly this year. We think we'll see some lift in the fourth quarter, primarily, 2027 is going to be our year, where once we know, and we will share this with you. Once we know how these transactions occur, how the transformation occurs, how fast it occurs, how fast these players adapt, we'll be able to put together some reasonable assumptions for you, or at least some reasonable market considerations of what the market is. When you take a market size, remember I said Nevada had 150,000 machines, and last year they won $10 billion. The transactions for that would've been about $50 billion.

If 100 and some thousand machines can have $50 billion, in some of these markets, the concentration of these slots is as every bit is equal to the earnings per day of slots in Nevada. These are highly concentrated uses. Taverns are used even more than the average large casino is because of the fact that there's so few machines and so many more patrons. I think that the market that we're entering into, even with the products we've signed now, just by the virtue of the amount we're talking about, has transactions in the billions. We think that we're approaching it correctly. We believe that we have to do it correctly and well, and be well-prepared to manage it, and that's what we're working on, and I hope that helps you.

No, that was a great answer. Just one more from me here. Try to bring Jeff into the fold. In relation to the IT site review, what were some of the most important findings that the outside consultant identified? Are there any recommended fixes that were material enough? If you could comment on how you expect this will impact the expense run rate from here.

Okay. Let me weigh in that first, I'll let Jeff follow up. Just about the time Jeff was arriving, I had made the decision that our IT was heading in the direction that wasn't going to meet our specific business objectives, that the internal development of this site, and the internal development of our own AI, once we really started to identify his business plan, was beyond the financial economics that we would want to address. Meaning it was way too expensive. When I really dug into how long, how much it would take to manage it and keep it updated, it too would not fit our objectives. Most importantly, the time it was going to take to complete the development was not matching the time we needed to be prepared to handle high volume.

We made a change, and one of the first things I asked Jeff was to help address and solve the IT issue with respect to having a good, solid banking IT person. Also, with that, we're tackling the technology we need to manage these systems on a large scale because BoltBetz has already developed the API technology, and we're going to be moving through Bankroll and the bank side of that API very quickly because we have experienced coders, developers, and builders. So what we needed was a really good connection at the bank side. I'll let Jeff answer that because I think he found a really wonderful solution to us, whom, by the way, has already been accepted with welcome arms by all of our other tech sources, including Bankroll, BCS, BoltBetz.

Yeah. Jeff. The first thing is I wanted to be sure that our cybersecurity profile was good.

We got to make sure that we just verified that everything was secure, and we brought in this IT consultant who, by the way, was my CIO, Chief Information Officer, at Bank of Idaho, my last bank. I knew him for about 10 years, and I trusted him. He did a really good job and was really accomplished on the cybersecurity side as well as the other aspects. He even had a medical background as far as on the IT side, so very good background, good in banking. The good news is we are secure on the cybersecurity side. He found that to be in good shape, so we are secure there.

The recommendations are really centered around reporting and infrastructure areas that we can be more efficient and effective and just operate better. He's already had those recommendations being resolved as we speak. He's made an impact on our reporting side so that we can monitor some of these activities and know better what's going on in real time. The other aspect that Ed mentioned was with the development of these payment rails and how things move to our core and to the APIs and all those things. He can help guide that in a compliant way from the bank side, and really works well with the fintech side.

It has been an immediate result I'm really pleased about, too, because there are many great sources that we can use and implement much faster that will create the AI and the API systems and the internal technology platforms that we want, that we can acquire much faster and at a much better pace. It was a very good initial process because it opened our eyes to many things, and it educated us. As we became more educated, we were able to pick some better solutions, and I think this is the best. I hope we answered your question.

No, that was great. Thanks for taking my questions.

Your next question will come- Thank you from Matthew Erdner with Jones.

Your line is open. Please go ahead.

Hey, good afternoon, guys. Thanks for taking the question. Jeff, welcome. Excited to start working with you. You touched a little bit about the CECL and the NPAs, as it relates to the way that you guys have to account for those. Could you refresh me on the inner workings of how that, I guess, works and just the overall structure there?

On our NPAs, Matt, this is Ed. Since I own most of the quarter and Jeff is absorbing it really fast, I think I might address that. If you're talking specifically about our provision this time of $2.8 million.

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

Oh, sure. Let me talk first about the elevated NPAs. I would like to respectfully point out that in the past we've had so many months and so many quarters and so many years of zero non-performing assets, that anything we do is elevated. There is a point at which we are now having a more mature portfolio, and that portfolio of SBA loans and other CRE loans is now totaling $2.3 billion that we manage. Our total assets on balance sheet are $1.4 billion, but we're really managing $2.3 billion now, almost $2.4 billion in loans. When we look at our non-performing assets, we always have to remember that it's in consideration of the $2.4 billion because of the way we administer it.

Our non-performing assets are now at $60 million, and we fully expect them to grow reasonably as our loan portfolio grows because we have 1,000 loans in that portfolio now. Let me give you an example of how it works. We're at $60 million right now in our non-performing assets, and if you look at our balance sheet of $1.4 billion, you say, "That's high." Our UBPR, it appears very high at over 4%. Let me give you an analysis. Let's take that $60 million right now today and let me tell you how we're managing that and what's going to happen to that $60 million and what it really means in the loan loss to us.

We take the $60 million, it goes in our special assets division, which by the way, we've built up over the last year and a half, especially this last year. It is a very significant division of our bank that actually moves and manages these non-performing assets, liquidates them, gets them sold, and gets them off our balance sheet. If we take that $60 million, and I use a historical analysis of what our provisions have been or how we've handled the provisions in this special assets. We'll take the full $60 million, and our recovery has been better than this number, but I'm going to use this number to give you an example. Remember, we're collateralized, so by the time we dispose of that asset, resell it, and often resell it before foreclosure, go to foreclosure, and even in certain instances, not many, we go to OREO.

We take that $60 million, and we know that we're going to recover, or we believe based on our historical analysis, that 70% recovery of that $60 million will happen in special assets, meaning when we liquidate the collateral. That means that we will sell off $42 million of the $60 million. $18 million will be a loan loss. Of the $18 million, 25% of that is ours. 75% is guaranteed by the SBA. 25% of the $18 million is a $4.5 million anticipated loss. In that $60 million, we're anticipating loss of about $4.5 million. That is not an unreasonable amount when you consider how it works. Let's take another aspect of that. Let's look at that $60 million. In our special assets right now, we put $60 million.

Our special assets, based on my daily involvement with them, anticipates that a minimum of $20 million to probably $30 million of those special assets will be gone by the end of September, meaning we will have moved them through special assets. That's the kind of operation we have. We are not going to let these mature on our balance sheet, and we particularly don't want closed hotels, although we have one right now, and we want to make sure that we move some of these very quickly. When we start looking at a mature portfolio, to have $60 million to $80 million or somewhere, and growing is not unusual for us and is not necessarily elevated in the sense of how we manage it.

If you take a look at the kind of income we generate out of our SBA operations, gross income, not net income, but gross income, when we're doing about $90 million a year in revenue through all the sources, through the gain on sale, which you saw went up to $9 million from $5 million at the same time the year before, the same six months, we will manage these special assets very well. We have reserves of $12.7 million against an anticipated loss of $4.7 million. Now, I think we're really well-reserved. As a matter of fact, if we were on the old ALLL, which I still call it from now and then, I have to stop using that, in a historical analysis, we wouldn't have a $12.7 million reserve. There are many wiser people than I am, and we do, but I think we're very well-protected.

I hope that answers your NPA question.

No, that definitely does. I really appreciate all the information there. That was extremely helpful. Changing gears here, I'd like to talk about the credit card. I completely understand all the things that you had mentioned with the big sports betting operators and them not being able to load on. I guess, how are you guys feeling about that going forward? With the prepay, do you feel like that's going to be able to pick up the incremental transactions that you lost due to these guys shutting down credit cards?

We're not totally shutting it down, but we've seen it drop to about $200,000 or $300,000 a day because of all of these large sports betting. We happen to have very good knowledge of how the sports betting works. We know that the sports betting industry is hurting very badly from the cost of funding. The cost of funding is hurting them enormously, and we've heard some instances where the cost of funding is greater than their entire cost of all their personnel. These kinds of things we know, and by the way, we believe we have a solution for them. It's called our Pooled Player Account, I'm not even going to start to get into that just yet. Right now, the credit card, yes. Let me give you the big, I think, what is the high-level vision of it. We've proven the concept. We've done $622 million in transactions since we launched our credit card in 2024.

We've proven the concept that players like to use the credit card because of the way they're able to use and pay it off and the way we've set up even secured accounts. Remember, we still have another $15 million on, which got up to $25 million in deposits from where we created secured accounts where we could move and have players move their money much quicker. I don't want to get into a great deal of detail on that because that's another one of our proprietary processes. When I say proprietary, just our own business. Having said that, these customers are indeed waiting for our prepaid card because they like the way we work, and we can tie their prepaid card to these secured accounts as well for high-limit players.

We have an enormous following of high limit play that is very valuable in the gaming industry. They like our card, and they like our bank, and they like the way we treated them. This is going to be a good resource for the future growth as we launch our prepaid card. Most importantly, the credit card, if any of you go to a casino in New Jersey or Pennsylvania or Detroit or Nevada or anywhere that has the legal bricks and mortar casinos or the tribal casinos, the first thing that players do, they all need cash. You've got to start the process with cash. They go to an ATM machine, they go to a kiosk, or they go to the cage. What do they do? They give them their credit card or a prepaid card, and they get cash.

We know our credit card is going to play an important role in these verticals we're creating with the bricks and mortar and the distributed gaming operators. Especially as they go to cashless and to be able to load, we will be on their platforms. Ours will be a preferred loading system on all the platforms that we support at GBank. Not just the deposits, but also the way to load the deposits as well. We want to be involved in the complete verticals. I believe the credit card is going to see an important role in the future, and we're going to make sure we keep it. For right now, yes, the big miss in our earnings is credit card. Not because the card didn't work. It worked really well. You saw the fact of our transactions.

Even in my last call, I said the transactions that month were approaching 40 million. The rest of the sports shut down on us, or at least the big venues did. Now we are looking at, as I said, a couple of hundred thousand a day, and we'll have to hold for that for a while until we start to rebuild. I think that rebuild will really start hopefully in the first quarter of next year or maybe a little bit at the fourth quarter, but we're not going to rush it. The point that we want to make is that it's still a valuable product, and it's going to be important in our bricks and mortar business.

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

One of the interesting things with the prepaid card is that this is going to be a bank-owned. It's going to be issued. We're going to develop and present the marketing plan to you very soon. We're in the final details of it, there are some so fascinating aspects to it. I'll give you just a little peek, but it's all I can do right at this point, is that the prepaid card is going to develop deposits. We're going to create the prepaid card and tie it to our Pooled Player Account. These are going to be accounts at the bank, and they're going to be managed a little differently.

It's also going to be able to have the fact that since we control it, we can determine what interchange we charge and whether we even want to charge an interchange, or whether we want to have it move money very easily for very small amounts, and whether we want to create our own rewards. These are going to create another source of deposits for us, which are the loading aspects as well, which are the payment process as well. Not just the amount that sits on the slot machines, but the amount, the transactions. We're looking at it becoming a key transactional vehicle for us, and I'll be able to give you more details in the future. Please bear with me. We have some interesting ideas and thoughts, we believe that it's going to be very important monetization of the bricks and mortar platforms we're developing.

Got it. That's helpful. I appreciate the comments as always. Thank you, guys. Your next question will come from Tim Coffey with Brean Capital.

Your line is open. Please go ahead.

Great afternoon, gentlemen. Hello, Tim.

I got some questions about the core banking operations here. How should we think about margin going forward?

Margin. Huh? Margin. Yeah. NIM.

Yeah. I have just the man, Tim, sitting to my right here.

Perfect. First, I think it's important to understand what happened, then I'll talk about what the challenges are going forward.

First off, NIM, or net interest margin, went from 386 to 378 quarter-over-quarter. There were two drivers to that. One was the loan yield, then the special dividend from the Federal Home Loan Bank of San Francisco, FHLB. The majority was from the loan yield, decreasing by seven basis points, from 738 to 731. That was solely because we wrote off $369,000 of accrued interest related to loans transferred to non-accrual status. The other aspect was the dividend rate went from 875 to 475, that reduced our special dividend by $158,000. Those two areas really impacted the NIM. Had that not been the case, we would've actually been at 391.

The good news on that is we had a favorable decrease in cost of funds because of matured CDs that rolled off, we were able to replace those at a lower cost. That went down from 393 to 386. There's really two areas of focus going forward. One is on the special assets area, the non-accruals. That whole area is getting a lot of attention. I'm going to be right in the middle of that restructuring. We've already done a lot of work in that area, as Ed mentioned, we're doubling down.

Yeah in Vegas. We're doubling down our efforts and restructuring, meeting weekly with the special assets area.

We have a really robust plan. I'll be in the middle of that managing it. I've stepped into these operations many times. It just takes attention to manage and understand every single one of those credits, what the backing is, what the collateral and the borrower, and early detection is key on these. Working with the borrower instead of against them. Not saying that we have, but that is a key element. The other aspect is on the deposit side or the funding side. We didn't have a CFO for a short time here. We- 12 weeks. Yeah. Yes.

Yeah, 12 weeks. That has a bit of an impact. We've spun up our wholesale sources again, looking at local markets for funding. I have some ideas in mind there. We're bringing in Darling Consulting. We have a CFO consultant that is very experienced. He's working with me daily looking for opportunities to work on NIM. It's a challenging environment on the funding side because you're replacing these things at four to four and a quarter on QwickRate and some of the other wholesale funding sources. Going forward, we're still going to be challenged on that side, but I don't see it like it's a huge dip. It's going to be managed, if that helps you.

Yeah. Okay, let's start on the interest income side. Given the reviews that you're doing with loan portfolio, does that necessitate a slowdown in production?

That is not. I'm sorry.

I'm so sorry. Sorry. I didn't hear the question.

Yeah. Is it going to be a slowdown in our production? I will say no. No.

We are going to manage through this and continue to keep the machine running. We're really paying attention to geographic.

Yeah Where these kind of problem loans exist so that we can be a little smarter in where we originate, and keeping hotels from being shut down or closed.

Managing that process. Go ahead, Ed.

I can add just a little color to that because one of the things, Tim Coffey, we've originated last year $576 million in SBA loans, already this year for the first six months, we've originated $321 million, and we don't see it slowing down. As a matter of fact, we have said our pipeline is stronger than ever. We also know that we've sold loans last year at $354 million, and we've already sold $190 million this year in the first six months. The important thing, that production is not going to slow down. As a matter of fact, we see it increasing over last year as we've reported.

There's one thing about SBA that I want to point out and that I was going to describe in my last answer to Joe was on our non-performing assets, and especially on our provision, we had a $2.8 million provision, but I don't want you to go away with thinking that was our hotel portfolio. $1.1 million of it was our hotel portfolio, was our SBA. Remember, $700,000 was credit card, and that's going away. That's declining rapidly. $200,000 of that was an over 120-day that we had to catch up on. That pretty much is going to be bringing that down significantly. The other part was $900,000 was into some loans in Las Vegas that we have.

A matter of fact, with one particular customer who'd been a customer for a long time, he has food court operations in hotels, we don't believe there's been a provision, we have the great optimism that we're not going to lose that money, that we'll be recovering it. There were some unusual events during this, about $250,000 of that reserve was on growth alone. The $2.8 million had some unusual events in it. The credit card, we don't believe is going to repeat at that level. This one particular operation in Las Vegas, we really have confidence in this borrower. I know the borrower. We have very great confidence in him, but I wanted to point that out. Then I gave you a good demonstration, I think, of what our non-performing assets were going to do.

I just wanted to focus on that existing loan loss reserve and why it hit $2.8 million.

Yeah. Okay. I get that. As we're talking about the allowance, when we talk about the allowance kind of staying at these levels, are we talking about the allowance to the total portfolio or the allowance to the non-guaranteed portions of the loan portfolio?

When I talk about the $60 million, is that what you're referring to?

Yeah, the allowance. During the prepared remarks, you talked about the allowance being at this kind of these current levels. Are we talking about the allowance relative to the total loan portfolio, or the loan portfolio excluding the government guarantees?

Well, Tim, we talk about them both in the release. We also have a number in there that says our total exposure at risk is $23 million of the $60 million. I also demonstrated that that's even before collateral consideration as well. When we talk about our NPA levels, those include both the guaranteed and non-guaranteed portion. They include whatever's on our balance sheet. Our reserve of $12.7 million is reserved against the guaranteed portion. It's not reserved against the non-guaranteed portion. I also try to demonstrate how we think that reserve is very strong compared to what our real losses have been. Did I answer your question? I'm not sure I understood it, Tim.

Well, I've got the allowance relative to the loans at risk at about 150 basis points, which seems high to me. Right? I would think that would come down. What I'm trying to get confirmation. Is that accurate? Am I thinking about that correctly?

I'm trying to get clarification, Tim, you're coming in a little garbled for me, and I'm not quite following it. None of us are. We have several numbers in here. Which number? Give me the percentage you're referring to.

I can follow up offline. What about expenses? You've got a lot of moving parts. We're not replacing the Chief Operating Officer, but you also have some consultancy expenses. What's a good run rate for non-interest expenses?

You saw our efficiency ratio is still 54% because we're producing so much revenue. The point is that, yes, we are changing, but some of the expenses have gone away. With the expenses of Jeff Whicker, we are obligated to pay him for a year under the disability provisions of his contract. I think that you've seen our non-interest expense line, and it's high. If you look at our report right now, we think we've got plenty in there. I wouldn't say we're going to continue to grow it. As a matter of fact, we want to see it decline some. As Jeff gets more into the non-interest expense and some of the things we're doing to identify our non-interest expense is to identify expense lines across the divisions of each one of our operations, and that's an important undertaking we're doing.

That's a discipline we'll watch very carefully, Tim. It's are we spending money to continue to develop our IT and to be ready for these big transactions to be a payments bank, to be a technically competent payments bank as well as a lending institution, as well as a sound and secure lending institution. Yes, some of our non-interest expenses are going to be a bit elevated, we don't see them growing disproportionately to what they are today.

All right. Great. Thank you. Those are my questions. Your next question will come from David Balestra, private investor.

Your line is open. Please go ahead.

Hey, guys. Thank you, Ed, for explaining this press release and all. My question's for Jeff. Can you just try to walk us through, this is not the typical bank, obviously, for you, and it's a new challenge for you. Can you just explain to us maybe your thought process and what made you decide, "You know what, honey, we're going to sell the house, we're going to move the kids to Las Vegas because this is a challenge I want to accept." Can you just give us a little color there?

Sure. I'd love to. It was definitely a fork in the road. I've been doing this for about 30 years. I've been in the CEO role for about 20. Been in the community banking space. You've seen my background, where I come into small banks, grow them, and really bring value. I've enjoyed that chapter of my life. As the Glacier opportunity came about, I had an opportunity to really reassess where I wanted to go in my next chapter. I wanted to do something different. I wanted to do something that had a big impact and contribution. I had a lot of opportunities to look at, and a lot of them were in the community banking space. I even looked outside of banking for a minute. Then I met Ed and Todd, and Nicholas Nigro, and came across this opportunity.

It really struck me. It excited me. I thought, this is an opportunity to change an industry. It's an opportunity to make a huge impact. They've already done so much. I could bring my skill set to the banking side and to really learn the payment side. Already I've learned a lot. I love what we're doing, and that, thankfully, was supported by my family and my wife. Yeah, we moved the whole family. We got a house and everybody will be moved in August 2nd. We'll have the whole family down here.

Very good. You know what's been really fun too is, I have to say that I thought Ed was going to be great to work with.

It was double my expectations.

Right. We are aligned in how we think about things, transparency, honesty.

We both are very committed to doing this right and doing it well. We're kind of joined at the hip, as we say.

Yeah. He's got a big hip.

He's a much bigger hip than me.

That's good. Okay. Thank you.

Excuse our humor today. All good.

It- Thank you. Well, thank you.

This completes the allotted time for questions.

Well, if that's all the questions.

On that. I would like to thank everyone very much for joining us, all of our investors, our shareholders, our staff members.

On behalf of our board of directors and our management team, I want to wish you very well, and we are going to be very excited. We are very excited about our future, and we are going to remain committed to delivering the sustainable long-term growth and value for all. Thank you. Thank you for joining the GBank Financial Holdings and Q2 2026 earnings call.