BM TECHNOLOGIES, INC.
The purpose of this Management's Discussion and Analysis ("MD&A") is to
facilitate an understanding of significant factors influencing the quarterly
operating results, financial condition and cash flows of BM Technologies, Inc.
("BMTX"). Additionally, this MD&A conveys our expectations of the potential
impact of known trends, events, or uncertainties that may impact future results.
You should read this discussion in conjunction with our interim unaudited
consolidated financial statements and related notes included in this Quarterly
Report on Form 10-Q and our Annual Report for the year ended December 31, 2021 .
Historical results and percentage relationships are not necessarily indicative
of operating results for future periods. Unless the context otherwise requires,
for purposes of this Management's Discussion and Analysis, references to the
"Company," "we," "us" and "our" refer to the business and operations of BM
Technologies, Inc. ("BMTX") and its subsidiaries.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, expectations, and intentions with respect to future operations, products, and services; and other statements identified by words such as "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "believe," "intend," "plan," "projection," "outlook", or words of similar meaning. These forward-looking statements include, but are not limited to, statements regarding the Company's industry and market sizes, future opportunities for the Company, and the Company's estimated future results. Such forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond our control. Actual results and the timing of events may differ materially from the results anticipated in these forward-looking statements.
BUSINESS OVERVIEW
BM Technologies, Inc. ("BMTX" or "the Company") (formerly known as BankMobile) provides state-of-the-art high-tech digital banking and disbursement services to consumers and students nationwide through a full service fintech banking platform, accessible to customers anywhere and anytime through digital channels. BMTX facilitates deposits and banking services between a customer and ourPartner Bank , Customers Bank ("Customers Bank "), aPennsylvania state-chartered bank, which is a related party and is aFederal Deposit Insurance Corporation ("FDIC") insured bank. BMTX's business model leverages partners' existing customer bases to achieve high volume, low-cost customer acquisition in its Higher Education Disbursement, Banking-as-a-Service ("BaaS"), and niche Direct to Consumer ("D2C") Banking businesses. BMTX has four primary revenue sources: interchange and card revenue, servicing fees fromBMTX's Partner Bank , account fees, and university fees. The majority of revenues are driven by customer activity (deposits, spend, transactions, etc.) but may be paid or passed through byBMTX's Partner Bank , universities, or paid directly by customers. BMTX is aDelaware corporation, originally incorporated asMegalith Financial Acquisition Corp ("Megalith") inNovember 2017 and renamedBM Technologies, Inc. inJanuary 2021 at the time of the merger betweenMegalith and BankMobile Technologies, Inc. UntilJanuary 4, 2021 ,BankMobile Technologies, Inc. was a wholly-owned subsidiary of Customers Bank, a wholly-owned subsidiary of Customers Bancorp, Inc. (the "Bancorp" or "Customers Bancorp "). Customers Bank isBMTX's Partner Bank .
22
--------------------------------------------------------------------------------
BMTX is not a bank, does not hold a bank charter, and does not provide banking
services, and as a result it is not subject to direct banking regulation, except
as a service provider to our Partner Bank . BMTX is also subject to the
regulations of the Department of Education ("ED"), due to its student
Disbursements business, and is periodically examined by it. BMTX's contracts
with most of its higher education institutional clients require it to comply
with numerous laws and regulations, including, where applicable, regulations
promulgated by the ED regarding the handling of student financial aid funds
received by institutions on behalf of their students under Title IV of the
Higher Education Act of 1965; the Family Educational Rights and Privacy Act of
1995 ("FERPA"); the Electronic Fund Transfer Act and Regulation E; the USA
PATRIOT Act and related anti-money laundering requirements; and certain federal
rules regarding safeguarding personal information, including rules implementing
the privacy provisions of the Gramm-Leach-Bliley Act ("GLBA"). Other products
and services offered by BMTX may also be subject to other federal and state laws
and regulations.
BMTX's higher education serviced deposits fluctuate throughout the year due
primarily to the inflow of funds typically disbursed at the start of a semester.
Serviced deposit balances typically experience seasonal lows in December and
July and experience seasonal highs in September and January when individual
account balances are generally at their peak. Debit spend follows a similar
seasonal trend, but may slightly lag increases in balances.
On November 15, 2021 , the Company announced the signing of a definitive
agreement to merge with First Sound Bank (OTCPK: FSWA) ("FSB"), a Seattle,
Washington -based community business bank. BMTX will pay up to $7.22 in cash for
each share of FSB common stock or approximately $23 million in aggregate
consideration, subject to certain closing conditions and adjustments as outlined
in the definitive agreement. The combined company, to be named BMTX Bank , will
be a fintech-based bank focused on serving customers digitally nationwide,
supported by its community banking division that is expected to continue serving
the greater Seattle market. The transaction is subject to regulatory approvals
and other customary closing conditions and is still targeted to close in the
fourth quarter of 2022.
Merger with
OnJanuary 4, 2021 ,BankMobile Technologies, Inc. ("BankMobile"), Megalith, andMFAC Merger Sub Inc. , consummated the transaction contemplated by the merger agreement entered into onAugust 6, 2020 , as amended. In connection with the closing of the merger, Megalith changed its name toBM Technologies, Inc. EffectiveJanuary 6, 2021 , Megalith's units ceased trading, and the Company's common stock and warrants began trading on the NYSE American under the symbols "BMTX" and "BMTX-WT," respectively. The merger was accounted for as a reverse recapitalization in accordance withU.S. generally accepted accounting principles ("U.S. GAAP"). UnderU.S. GAAP, BankMobile was treated as the "acquirer" company for financial reporting purposes and as a result, the transaction was treated as the equivalent of BankMobile issuing stock for the net assets of Megalith, accompanied by a recapitalization. The excess of the fair value of the shares issued over the value of the net monetary assets of Megalith was recognized as an adjustment to shareholders' equity. There was no goodwill or other intangible assets recorded in the merger.
As a result of the merger transaction, BankMobile used proceeds from the
recapitalization transaction to pay down its
COVID-19
InMarch 2020 , the outbreak of COVID-19 was recognized as a pandemic by theWorld Health Organization . The spread of COVID-19 created a global public health crisis that resulted in unprecedented uncertainty, economic volatility, and disruption in financial markets and in governmental, commercial, and consumer activity inthe United States and globally, including the markets that BMTX serves. In response to the pandemic, we enabled nearly all of our employees to work remotely and limited business travel. We are a "Remote First" company and most of our employees have no assigned work location or regular in-office work requirement. 23 -------------------------------------------------------------------------------- With the initial outbreak of COVID-19 in 2020, the Company experienced an initial decline in revenues as compared to the pre-COVID-19 period. OnMarch 27, 2020 , the "Coronavirus Aid, Relief, and Economic Security ("CARES") Act" was signed into law and contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic and stimulate the economy, including cash payments to taxpayers, increased unemployment benefits, and to support higher education through theHigher Education Emergency Relief Fund ("HEERF"). This stimulus resulted in increased serviced deposit balances, debit card spend, and revenues, a trend that continued into 2021; however, growth has slowed in 2022 as compared to the accelerated growth rate we experienced during early 2021. BUSINESS MEASUREMENTS
We believe that the following business measurements are important performance indicators for our business:
•Debit card POS spend (higher education and new business). Spend represents the dollar amount that our customers spend on their debit cards through a signature or PIN network. Spend is a key performance indicator, as the Company earns a small percentage of every dollar spent as interchange income and spend is the primary driver of our card revenues. •Serviced deposits (ending and average; higher education and new business). Serviced deposits represent the dollar amount of deposits that are in customer accounts serviced by our Company. Our deposit servicing fee is based on a contractual arrangement with ourPartner Bank and the average balance of serviced deposits is the primary driver of our deposit servicing fees. Average deposits have the strongest correlation to current period serviced deposits, but ending deposits provide information at a point in time and serve as the starting point for the following period. •Higher education retention. Retention is a key measure of our value proposition with higher education customers. We measure retention in terms of Signed Student Enrollments (SSEs), which represents the number of students enrolled at higher education institutions. Retention is calculated by subtracting lost SSEs from starting SSEs and taking that amount as a percentage of the starting SSEs. •Higher education financial aid refund disbursement. Represents the dollar amount of all funds that we process for a college or university partner, whether it is distributed by ACH, check, or into a BankMobile Vibe account. This is a measure of the business we process for our higher education partners in exchange for their subscription and other fees, as well as a measure of the potential that we have the opportunity to capture into our serviced accounts. •Higher education organic deposits. Organic deposits represent the dollar total of all deposits made into a higher education BankMobile Vibe account except for funds processed through a college or university partner. Because this includes funds that the account holder adds to the account and excludes the funds processed through the higher education institution, it is viewed as a strong indicator of traction with the customer.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For information regarding our critical accounting policies and estimates, please refer to our Annual Report on 10-K for the fiscal year endedDecember 31, 2021 . There have been no material changes to the critical accounting policies and estimates previously disclosed in that report.
NEW ACCOUNTING PRONOUNCEMENTS
The FASB has issued accounting standards that have not yet become effective and that may impact BMTX's interim unaudited consolidated financial statements or its disclosures in future periods. Note 2 - Basis of Presentation and Significant Accounting Policies provides information regarding those accounting standards. RESULTS OF OPERATIONS
The following discussion of our results of operations should be read in
conjunction with our interim unaudited consolidated financial statements,
including the accompanying notes. The following summarized tables set forth our
operating results for the three months ended
24
--------------------------------------------------------------------------------
Three Months Ended
March 31, %
(dollars in thousands, except per share data) 2022 2021 Change Change
Operating revenues $ 25,047 $ 24,202 $ 845 3 %
Operating expenses 22,084 21,379 705 3 %
Income from operations 2,963 2,823 140 5 %
Gain on fair value of private warrant liability 2,644 15,003 (12,359) (82) %
Interest expense - (54) 54 (100) %
Income before income tax expense 5,607 17,772 (12,165) (68) %
Income tax expense 1,643 1,713 (70) (4) %
Net income $ 3,964 $ 16,059 $ (12,095) (75) %
Basic earnings per share $ 0.33 $ 1.37 $ (1.04) (76) %
Diluted earnings per share $ 0.32 $ 0.07 $ 0.25 NM
NM refers to changes greater than 150%.
For the three months endedMarch 31, 2022 , operating profitability remained generally consistent with the three months endedMarch 31, 2021 . Operating revenues increased by$0.8 million or 3% as compared to the prior year which is primarily driven by a$4.8 million or 51% increase in revenues from Servicing fees fromPartner Bank . This increase was partially offset by decreases in Other revenue, Interchange and card revenue, and Account fees. Contemporaneously, operating expenses increased by$0.7 million or 3% as compared to the prior year. This increase was primarily driven by a$0.9 million or 11% increase in Salaries and employee benefits and a$0.6 million or 37% increase in Professional services. These increases were partially offset by a decrease in Technology, communication, and processing costs. Tax expense also remained consistent with the period year. Basic and Diluted earnings per share, which decreased to$0.33 and increased to$0.32 respectively, are both driven primarily by the impact of the private warrants adjustments on the earnings per share calculations. During the three months endedMarch 31, 2021 , the average common stock share price was greater than the warrant strike price resulting in the warrants being considered dilutive. During the three months endedMarch 31, 2022 , the average common stock share price was below the warrant strike price, and, as a result, the warrants are not considered dilutive. Operating Revenues Three Months Ended March 31, % (dollars in thousands) 2022 2021 Change Change Revenues: Interchange and card revenue$ 6,643 $ 8,244 $ (1,601) (19) % Servicing fees from Partner Bank 14,192 9,372 4,820 51 % Account fees 2,555 2,661 (106) (4) % University fees 1,603 1,324 279 21 % Other revenue 54 2,601 (2,547) (98) % Total operating revenues$ 25,047 $ 24,202 $
845 3 %
Total revenues increased$0.8 million , or 3%, in the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . This increase is primarily attributable to a$4.8 million increase in Servicing fees fromPartner Bank . The increase is due to an increase in average serviced deposit balances for the period which increased approximately 60% to$2.1 billion for the three months endedMarch 31, 2022 as compared to$1.3 billion for the three months endingMarch 31, 2021 . These increases were partially offset by a$1.6 million decrease in Interchange and card revenue driven by lower spend volume and a$2.5 million decrease in Other revenue due to a reduction in development projects for our BaaS partner which vary based on project status, contracts, and milestones. 25 --------------------------------------------------------------------------------
Operating Expenses
Three Months Ended
March 31, %
(dollars in thousands) 2022 2021 Change Change
Technology, communication, and processing $ 6,918 $ 8,422 $ (1,504) (18) %
Salaries and employee benefits 9,482 8,557 925 11 %
Professional services 2,372 1,737 635 37 %
Provision for operating losses 1,602 1,329 273 21 %
Occupancy 307 309 (2) (1) %
Customer related supplies 230 377 (147) (39) %
Advertising and promotion 113 191 (78) (41) %
Merger and acquisition related 289 - 289 100 %
Other expense 771 457 314 69 %
Total operating expenses $ 22,084 $ 21,379 $ 705 3 %
For the three months ended March 31, 2022 , operating expenses increased $0.7
million , or 3%, as compared to the three months ended March 31, 2021 . The
increase is primarily attributable to a $0.9 million increase in Salaries and
employee benefits, a $0.6 million increase in Professional services, and a
$0.3 million increase in Merger and acquisition related expenses. The increase
in Salaries and employee benefits is driven by an increase in average headcount,
annual merit raises, and the vesting of equity awards granted in September 2021 .
The increase in Professional services is driven by increases in legal, audit,
and consulting costs associated with the Company's restatement activities and
the filing of its fiscal year 2021 Form 10-K. The increase in Merger and
acquisition related expenses is due to activities related to the proposed FSB
merger that was previously announced in November 2021 . These increases were
partially offset by a $1.5 million decrease in Technology, communication, and
processing. The decrease in Technology, communication, and processing is related
to a renegotiation with one of the Company's primary vendors which took effect
in the third quarter of 2021.
Income Tax Expense
The Company's effective tax rate was 29.3% and 9.6% for the three months endedMarch 31, 2022 and 2021, respectively. The effective tax rate differs from the Company's marginal tax rate of 27.4% due to the non-taxable fair value adjustments related to the non-compensatory private warrant liability being recorded through earnings, offset by the tax associated with the estimated annual increase of the valuation allowance established against deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Our Cash and cash equivalents consist of non-interest bearing, highly-liquid demand deposits. We had$30.6 million of Cash and cash equivalents atMarch 31, 2022 as compared to$25.7 million of Cash and cash equivalents atDecember 31, 2021 . We currently finance our operations through cash flows provided by operating activities. We continue to project positive operating cash flows for the 2022 fiscal year and we intend to fund our ongoing operating activities with our existing cash and expected cash flows from operations. However, should additional liquidity be necessary, the Company could consider equity or debt financing, but there are no assurances that additional capital would be available or on terms that are acceptable to us.
The table below summarizes our cash flows for the periods indicated:
Three Months Ended
March 31, %
(dollars in thousands) 2022 2021 Change Change
Net cash provided by operating activities
(3) %
Net cash used in investing activities (2,138) (117) (2,021) NM
Net cash (used in) provided by financing
activities (2,202) 4,988 (7,190) (144) %
Net increase in cash and cash equivalents
(66) %
NM refers to changes greater than 150%.
26
--------------------------------------------------------------------------------Cash flows provided by operating activities
Cash provided by operating activities was$9.2 million in the three months endedMarch 31, 2022 which is generally consistent with the cash provided by operating activities of$9.5 million in the three months endedMarch 31, 2021 . Cash flows used in investing activities Cash used in investing activities increased$2.0 million in the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 , primarily due to increased capitalization of development costs related to internal use software. Cash flows used in financing activities Cash used in financing activities in the three months endedMarch 31, 2022 decreased$7.2 million as compared to the three months endedMarch 31, 2021 , primarily due to the private warrant repurchase transaction during the current period versus the recapitalization transaction and payoff of borrowings in the prior period. CONTRACTUAL OBLIGATIONS A summary of the Company's contractual lease obligations as ofMarch 31, 2022 is as follows: Payments Due by Period Within 1 to 3 More than Total Amounts (dollars in thousands) 1 year years 3 years Committed Operating leases$ 237 $ - $ - $ 237$ 237 $ - $ - $ 237
Off-Balance Sheet Arrangements
As of
© Edgar Online, source
