BM Technologies - Q4 2021

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the BMTX fourth quarter and full year 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Bob Ramsey, CFO. Please go ahead.

Bob Ramsey (CFO)

Thank you, Jerome, and good morning, everyone, and thank you for joining us for BM Technologies fourth quarter and full year 2021 earnings call. Our earnings release and investor presentation are both posted on the investor relations page of the company's website at ir.bmtxinc.com. Our investor presentation includes important details that we'll be walking through on this morning's call, and I encourage everyone to pull up a copy. Before we begin, I would like to remind you that some of the statements we make today may be considered forward-looking. These forward-looking statements are subject to a number of risks and uncertainties that may cause actual performance results to differ materially from what is currently anticipated.

Please note that these forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update these forward-looking statements in light of new information or future events, except to the extent required by applicable securities laws. Please refer to our SEC filings, including our Form 10-K and 10-Q for a more detailed description of the risk factors that may affect our results. Copies may be obtained from the SEC or by visiting the investor relations section of our website. This morning, I'm joined by BM Technologies Chair and CEO, Luvleen Sidhu. At this time, it's my pleasure to turn the call over to Luvleen. Thank you.

Luvleen Sidhu (Chair and CEO)

Good morning, everyone. Thank you for joining BM Technologies fourth quarter and full year 2021 earnings call. Joining me today on the call is Bob Ramsey, our CFO, and also joining us is our COO, Bob DiIulio, who is on the line and available during the Q&A section if needed. We are thrilled to be sharing with you our record Q4 and full year results and also highlight our great accomplishments over the last year. Before we get started, I wanted to also acknowledge that we announced yesterday a non-cash restatement of our financials related to severance awards granted by Customers Bank to certain employees and executives of BMTX in connection with its January 4th, 2021 divestiture of BM Technologies.

These awards were reported in our company's filing, but the associated expense was not recognized by BMTX because it was considered an expense of Customers Bank since they made the award. BM Technologies management and board were not involved in the granting of these awards. However, upon further analysis of technical accounting principles, the company determined that this non-cash share-based compensation expense related to these Customers Bank granted severance awards should be included in BM Technologies standalone financials. I want to emphasize that this correction has no impact on the company's previously reported revenues, core EBITDA, cash balance, assets or equity, and no impact on the company's operations or its underlying business fundamentals. Bob Ramsey will share more details shortly. Now on to more exciting matters. For those joining us for the first time, I wanted to provide a very brief overview of who we are.

BMTX is one of the largest digital banking platforms and banking-as-a-service providers in the country today. We are on a mission to financially empower millions of Americans by providing a more affordable, transparent and consumer friendly banking experience. We were one of the first neobanking fintechs to go public last year, are one of the first to have a profitable business model, and are now among the first fintechs embracing a bank charter to create an innovative fintech bank with a sustainable, profitable business model into the future. We pursue a B2B2C and a banking-as-a-service strategy, which allows us to acquire bank customers at low cost and at high volume. Today, we are acquiring customers at less than $10.

This provides a tremendous competitive edge for us relative to not only traditional banks, but also to most challenger banks, which are having to spend an exorbitant amount to acquire a bank customer. Today, we are leveraging our B2B2C and Banking-as-a-Service strategy in three main verticals. The first being our higher education vertical, where we have relationships with approximately 750 campuses across the country, which allows us to touch one in every three college-bound students and introduce them to BM Technologies and offer them a choice to open a BankMobile Vibe checking account through our partner bank. The second vertical is our Banking-as-a-Service business.

Through our proprietary API-driven banking-as-a-service platform and our white label interface, we are able to help fintechs and brands launch fully branded financial services products to their customers and to their employees at a fraction of the cost and at a fraction of the time it would take them to roll this out on their own. Our offerings provide them with a strong point of differentiation that leads to attracting new customers, building greater customer loyalty, adding new revenue streams, and accessing data to provide an even more personalized experience to their customers. Additionally, we manage the entire program end-to-end and also provide back-office banking operations, compliance, fraud and risk management, and customer service support, which is an important differentiator and a competitive edge in the banking-as-a-service space. Our BaaS vertical is best exemplified today by our partnership with T-Mobile and with the launch of our checking account product, T-Mobile MONEY.

We continue to expand and significantly grow this relationship. Lastly, our niche direct-to-consumer vertical as our most nascent vertical. We continue to have high conviction in the market need and value in executing targeted direct-to-consumer strategy to underserved affinity groups. This will include continuing to focus on an employee demographic, as we have talked about before, but will extend beyond that to other attractive segments. More to come on this over the next six to 12 months. Overall, we continue to make solid progress in all three of our verticals. From a financial standpoint, our vision continues to be to create a company with a market cap of $500 million-$1 billion over the next three-five years by executing on the strategy that we've laid out and building upon the strong foundation we already have. Let's get started. Flipping to slide four.

I am delighted to report to you record results for the fourth quarter and full year 2021. We are pleased to report Q4 2021 revenues increased 46% to $25.3 million, up from $17.3 million in Q4 2020. 2021's full year revenues increased 41% to $94.6 million, from $66.9 million in 2020. Additionally, Q4 core EBITDA increased over 400% to $7.8 million, from $1.5 million in Q4 2020. 2021 full year core EBITDA increased 625% to $28.6 million from $3.9 million in 2020. Q4 core earnings were $3.1 or 26 cents per diluted share compared to a loss of $2.2 million in Q4 2020.

2021 core earnings were $10.9 million or $0.92 per diluted share compared to a loss of $9.9 million in 2020. We continue to show strength in new account origination, opening approximately 440,000 new accounts in 2021. Moving on to slide five. You can see that our average service deposit totaled $2 billion in Q4 2021, a 111% increase compared to Q4 2020. Average new business service deposits increased over 200% to $1.3 billion compared to Q4 2020, which is about a $900 million increase. As a reminder, our new business segment includes our Banking-as-a-Service and niche direct-to-consumer banking verticals. In our student business, organic deposits, and also as a reminder, these are deposits that are above and beyond any school disbursement.

These organic deposits increased 17% year-over-year to $2.2 billion for the twelve months ended December 31st, 2021, indicating strong primary banking behavior. Additionally, debit card spend was $777 million in Q4 2021, a 14% increase compared to Q4 2020. New business debit spend increased 35% compared to Q4 2020. Lastly, in the higher education vertical, we disbursed $13.4 billion in refunds to students for the full year, of which $1.8 billion was deposited into BankMobile Vibe accounts held at our partner bank. Let's move to slide 6. We continue to see strong performance in the overall business. Our revenue per ninety-day active account increased 39% year-over-year to approximately $188 in 2021.

The strong revenue per account metric is driven by healthy average balances and spend across the portfolio. Again, our CAC, or Customer Acquisition Cost, remains low at less than $10, demonstrating our strong margin on a per account basis. Again, we couldn't be more excited about our record financial results for the fourth quarter and full year 2021. I will now pass it on to our CFO, Bob Ramsey, for some additional financial details.

Bob Ramsey (CFO)

Thank you, Luvleen. The 39% year-over-year growth that Luvleen referenced has really been driven by both strong growth in deposit balances as well as spend in both our higher education business and the new business vertical. The tailwind from stimulus in 2021 is evident in the first half of the year. The typical seasonality in the higher ed business is also evident, with seasonal peaks in spend in the first and third quarters and lower spend in the second and fourth. Turning to slide seven, you can see that debit spend increased 14% from the fourth quarter of 2020 to the fourth quarter of 2021, and average service deposits increased 111%. The increase in total disbursements from the fourth quarter to fourth quarter was approximately 56%.

Taking a step back to exclude a little quarterly timing volatility, disbursements increased on a year-over-year basis for all of 2021 by 15%. Turning to slide eight, I want to take a minute to discuss the restatement that Luvleen already referenced. In connection with the January 4th, 2021 separation from Customers Bank, Customers made severance awards of shares of the BMTX that it had received as merger consideration to certain employees. We disclosed the award, but the associated expense was not recognized previously in our standalone financials because it was considered an expense of Customers Bank, as Customers had made the award after the divestiture closed.

In connection with the preparation of our year-end consolidated financials, we did determine that based on the technical accounting application of U.S. GAAP, the non-cash compensation expense related to these awards should be included in our financials, even though we did not make the awards. As a result, we've concluded that our previously issued financials for the first three quarters of 2021 need to be restated to reflect the appropriate accounting of those awards. Now, I want to emphasize that this restatement is very narrow in scope. It only touches the non-cash compensation expense of the company. It has no effect on the company's previously reported revenues, EBITDA, cash, total assets, total liabilities, total equity, net working capital, or cash flows from operations, investing activities or financing activities. Similarly, this correction has no impact on the company's operations or its underlying business fundamentals.

Our earnings release and slides do reflect the restated amounts, and I would point you to slide 16 in the appendix of our investor deck, which was filed this morning for additional details that point to exactly the amounts and geography the restatement touches. On slide 18, you can see here that our revenues grew in 2021 by an impressive 41% year-over-year to $94.6 million. Our disciplined expense management resulted in a much more modest 5% increase in our core expenses to $66 million. The strong revenue growth, combined with expense discipline, yielded an impressive $24.7 million increase in our core EBITDA to $28.6 million, which I'll also remind everyone exceeded our full year guidance.

I'd also note that during 2021, we grew the cash on our balance sheet by approximately $20 million and paid off just over $5 million of debt. With that, I'll turn it back over to Luvleen to discuss slide nine.

Luvleen Sidhu (Chair and CEO)

Thank you, Bob. On slide nine, I would now like to provide you with a few key accomplishments and highlights of 2021. First, let us not forget we were one of the first neobanking fintechs to successfully go public in 2021. We finished the year with strong performance and exceeded guidance, with EBITDA increasing over 600% year-over-year and revenue increasing over 40%. On top of this, our average deposits grew over $1 billion. Additionally, we announced the signing of a definitive agreement to merge with First Sound Bank, a Seattle, Washington-based business bank, which was a major step forward in executing our vision to create a disruptive fintech bank. We are joining the likes of a few other innovative fintechs in the marketplace that have taken a similar step of combining a fintech with a charter such as Square, LendingClub, Varo, and SoFi.

Similar to these other fintechs, we believe this is a critical step in order to create a sustainable, profitable company with numerous growth opportunities in the future. We recently submitted our merger application and are working through the regulatory process as we plan for the merger. We expect the merger will close sometime in the second half of 2022, and we are excited about our oportunity as a chartered fintech bank. Next, we continue to expand our Banking-as-a-Service business. For example, we continue to expand the product and features of the T-Mobile MONEY account. T-Mobile MONEY customers can now use True Name by Mastercard, a feature that lets customers display their chosen name on their T-Mobile MONEY debit card. Additionally, T-Mobile MONEY checking account customers can also now open a savings account.

We are also proud to share that BMTX and T-Mobile were selected as best fintech partnership at Finovate 2021, one of the leading fintech organizations, for the innovation we together have demonstrated through the launching of the T-Mobile MONEY checking account. Lastly, our Banking-as-a-Service pipeline remains strong and we still aspire to bring on board one meaningful, significant SaaS partner every 12 to 18 months. We also continue to demonstrate growth in our higher education business. In addition to disbursing $13.4 billion in refunds to students for the full year 2021 and opening several hundred thousand new student accounts, we also continued to grow our B2B side of the business and added 16 new colleges and universities to our roster through December 31st, 2021, providing over 83,000 additional students access to BankMobile disbursement and the BankMobile Vibe checking accounts.

In addition, we signed four colleges and universities up for our new Vendor Pay offering, which increases stickiness with our schools and even provides us with a small revenue generation opportunity. Lastly, we are preparing for a credit product rollout to non-enrolled or graduated students over the next six-12 months to drive stronger engagement and customer lifetime value. Next on slide 10. I covered this last time, and the point here is that we continue to have tremendous growth opportunities in front of us. In our student business, we continue to work on expanding the number of college relationships that we have, which gives us access to more students who we can potentially convert to bank account customers. We are also investing in marketing and product enhancements to drive more bank account adoption and retention.

With regards to existing Banking-as-a-Service partnerships, we continue to enhance our product offering for T-Mobile MONEY. We also continue to work on our pipeline for new partners. We are a bit picky and choosy with who we want to work with and at this time remain committed to working with larger brands that can bring scale. Lastly, we are also open to exploring possible strategic M&A opportunities where one plus one can equal three or more. The latest example of this is our announced merger with First Sound Bank. On slide 14, we reiterate that we want to continue expanding our product offerings so we have the best-in-class digital banking platform that includes banking, lending, advice, crypto, investing, and insurance. We will keep you posted as we continue to add new products and services over the next six-18 months.

On slide 12, I would like to end by summarizing our key investment highlights. We continue to share record results with core EBITDA up over 600% year over year and revenue up over 40% year over year. We have an established customer base with approximately 2 million accounts. We have solid account growth and opened approximately 440,000 new accounts in 2021. We demonstrate deep customer engagement. Our revenue per account increased 39% year over year to approximately $188 in 2021, driven by higher average balances and spends. We have strong existing partnerships with approximately 750 university partners and T-Mobile. We have developed a proprietary Banking-as-a-Service platform which is API-driven and ready to roll out quickly and integrate with partners easily.

We have a very attractive valuation, which today is at a deep discount relative to both private and public peers. Lastly, we couldn't be more thrilled and excited about our growth prospects once our merger is complete and we become a true fintech bank. Once again, I want to thank our investors and shareholders for their continued support and also to all the entire team members whose passion and dedication makes all of this possible. Operator, we would now like to open the line for questions. Thank you.

Operator (participant)

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad, and if you would like to withdraw your question, press the pound key. One moment for your first question. Your first question comes from the line of Mike Grondahl with Northland Securities. Your line is open. You may ask a question.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

Hey, thanks, and good morning, Bob and Luvleen. First question, just anything one-time in revenues or adjusted EBITDA for 4Q? I know a couple quarters ago there was like some, you know, development fees and whatnot. Just trying to understand if there's anything one-time.

Bob Ramsey (CFO)

I'd be happy to take that one, Mike. Good morning. There's really not anything one-time. We have said that we do have, in our revenues at times, some development-related revenues and that they are lumpy, but they are certainly recurring and are not one-time in nature. I would tell you that in the fourth quarter, there was a little bit of that. It was less than $1 million, but I would not characterize it as one-time. I would point you to the reconciliation that we have that calls out what we consider to be our core EBITDA, and that does exclude what is one-time in nature. There was about $65,000 in merger-related expenses that I would call one-time, but that would be it in the quarter.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

Fair enough. Then, you know, roughly a year ago, you guys had three RFPs, I think. There was a large grocer, a big box retailer, and an international bank. Are those still in the pipeline? Did they fall out? I think you guys had said you thought you were going to get one in 2021. Just an update there would be helpful.

Luvleen Sidhu (Chair and CEO)

Sure. As I said, Mike, we have a very strong pipeline. We don't like to call out individual sort of companies or because these are actually very you know secretive in nature because these brands et cetera work really hard to create differentiation. That being said, you know, we've talked about how the life cycle of closing these tends to be longer in nature, given what strategic priorities and how much emphasis that these larger brands put on this. So it's very much a heavy diligence process. All of those opportunities are still in the pipeline, and we're very optimistic that we will have you know the opportunity to bring some good news to the market soon.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

Got it. Anything to call out in your new business category, sort of marketing that was employed or, you know, anything that keeps pushing that strong growth that you can help us kinda think through?

Luvleen Sidhu (Chair and CEO)

I think in general, we're constantly innovating and enhancing both marketing and our products. There's nothing to call out individually, but sort of the importance of keeping our branding, our positioning, our value proposition fresh, something new to look forward to, our product enhancements. These are all things that the product and marketing team actively work on daily to make sure that we're bringing the best product to market. It's a constant evolution, constant iteration, and constant matter of innovation that we hold very closely and are continuing to pursue.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

Got it. I'll ask one more and then jump back in the queue. In the press release, I think you guys said for 2022 that you'll meet or exceed the consensus estimate for adjusted EBITDA of $30 million. You guys did 28.6 in 2021. Do you guys consider that 28.6 sorta core? And I'm just trying to think through the growth in 2022. Or is the core number really closer to 25 just because some of the development fees and stuff that you had in 2021? And the question is just relation to how to think about the growth.

Bob Ramsey (CFO)

I'll take that one, Mike. You know, I do think we consider the EBITDA that we had in 2021 to be core. We actually call it core EBITDA and strip out anything we consider non-core. The development-related fees are absolutely a core recurring piece of our business, and I would certainly leave that in there. You know, we did have a tailwind from stimulus in the first part of 2021. I think that is still core, and there were mitigating that challenge at times as debit spend in 2020 certainly dropped. But all that is core to our business. We did say, as you say, that we expect to meet or exceed the consensus number.

I think full year numbers may depend on when the First Sound Bank transaction closes, because as we pivot to becoming a bank, I think there will be different metrics that are sort of evaluated. EBITDA tends to be more fintech than bank focused. We feel very good when we look at the consensus numbers that are out there right now that we'll be able to meet or exceed those numbers.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

Okay, thanks.

Luvleen Sidhu (Chair and CEO)

Yeah. And, uh- I just want to emphasize as well that you know, as Bob said, there's you know some uncertainty around the timing. We're still very optimistic in the latter half of this year that you know we will be able to successfully execute on the merger. I do want to emphasize that we do continue to believe strongly that we're building a company for the future that is very sustainable and profitable. We do expect that the merger will be significantly accretive to the combined company's revenue, EBITDA, and earnings trajectory over the next one-three years.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

Got it. I'll hand the call over and just jump back in the queue.

Bob Ramsey (CFO)

Thank you, Mike.

Operator (participant)

Our next question comes from the line of Michael Diana with Maxim Group. Your line's open.

Michael Diana (Managing Director and Senior Research Analyst)

Thank you. Well, Luvleen, could you remind us of the benefits and/or changes in the business model from once you become a bank? Bob, something you just mentioned about metrics changing, can you tell us how your financials are actually gonna look different once you become a bank? Thank you.

Luvleen Sidhu (Chair and CEO)

Hey, Mike. Good morning. Yeah, absolutely. Let me get started, then Ramsey. Sorry, I call him Ramsey. Bob can continue to answer your second part of your question. We are thrilled, excited about becoming a fintech bank. I think that there's so many benefits for us to go in this direction, and it's the best operating model for the business that we're in. Specifically, you know, we are really great at being a gatherer or acquirer of low-cost deposits in high volume. Being able to supplement that with an asset-generating strategy and to be able to deploy those deposits provides the opportunity to not only maintain our economics but expand it into the future, which is a very powerful engine.

Number two, having a more vertically integrated offering for banking as a service, meaning you not only provide the technology, but you also provide the sponsor bank, you could say, or the charter to the program, is a way more compelling offering for a BaaS client that wants to work with you because it now is one platform, one partner, one experience, which adds less friction to an already complicated program and also provides better economics for all. So that's another very tangible benefit. Third is, you know, things that we haven't even talked about yet, which are untapped revenue opportunities as a bank and having the access to the charter to big sponsorship opportunities, et cetera.

We're really being able to support fintechs and other operating models by, you know, enabling payments, lending, debit products, et cetera are revenue opportunities that are really, you know, untapped and now we're opening the door for. Lastly, new products, new services, cross-sell opportunities for our customers, being able to offer them a broader suite of products and services that not only provide greater customer lifetime value, but also that the customer experience is deeper and more expansive. These are all things that we're really looking forward to and find beneficial in our future model of a fintech bank.

Bob Ramsey (CFO)

All right. Thanks, Mike. I know I'll then jump to you had asked how do our financials look different when we become a bank. You know, simply put, I would say that the real one of the real driving reasons to do this transaction is so that we could generate greater revenues and increase the profitability of the business as we look to monetize deposits. Most of our income statement would be the same. What I would tell you is that today we do have a deposit servicing fee revenue item, and that item will go away and will be replaced by net interest income. Today, that deposit servicing fee, if we look at all of 2021, as a % of deposits, came out to be about 2.75%.

It's our expectation that as a bank that net interest margin would be somewhere between 3% and 4%, so we would generate more revenues. Now, it may take a little bit of time to leg into that because in order to generate that margin, we'll have to grow a loan portfolio. We may start off a little bit more heavily concentrated in securities, and we'll build. We think that short-term transition will be more than justified by the greater earnings down the road. I would also call to your attention, and I know you cover banks as well, but as we grow that loan portfolio, there will be a non-cash provision expense to reflect expected losses on that loan portfolio, which is a normal part of a bank income statement.

When all the dust sort of settles, what you will see is greater revenues as we have a wider net interest margin than the servicing fee that we generate today. You will see the addition of some provision expense, and the other items on the income statement would be basically the same.

Michael Diana (Managing Director and Senior Research Analyst)

Okay, great. Thank you, both of you.

Bob Ramsey (CFO)

Thanks, Mike.

Operator (participant)

Our next question comes from the line of Brian Dobson with Chardan Capital Markets. Your line's open.

Bob Ramsey (CFO)

Good morning, Brian.

Brian Dobson (Managing Director and Senior Research analyst)

Yeah. Thanks very much. Good morning. I guess pivoting over to banking as a service, what types of partnerships are you seeking? Or rather, what types of companies do you think would be ideal fits for your service? Are you know, continuing to focus on consumer-branded names?

Luvleen Sidhu (Chair and CEO)

Sure. I'll take this one. So I think that, you know, as you reflect back on 2021, it's Banking as a Service has really become a buzzword, and an embedded finance. I think that it's kinda looking back and remembering that we signed a contract, you know, back in 2016, 2017 with T-Mobile. Now finally, years later, coming to the forefront of how powerful this sort of business model is astounding. We're number one, grateful that we were such a first mover in this space and really had such insight into how powerful this business model can really be for brands and for companies. And sort of number two, it's been so helpful because now it's being socialized, it's being normalized.

Brands, companies are realizing what a powerful engine this can be for them, and it's almost like, you know, instead of us educating potential pipelines about the benefits, it's coming to us and saying, "We recognize the benefits. How can you potentially help us execute on this?" I wanted to provide that background and insight so people understand how this business model is evolving and how that evolution is actually helping us. Second, you know, the type of, you know, generically, embedded finance, banking as a service can be powerful in many different business models. I think that, you know, being able to work with larger sort of companies, brands, is better because scale is obviously, you know, doing these programs take a lot of intricacy, a lot of work to support.

The greater the scale to really balance out sort of some of the higher fixed costs of just getting a program started, you get that return on investment much faster. You know, for us, we look at large brands that have access to hopefully millions of potential customers where they already have strong loyalty, strong engagement, and there is a natural sort of use case of financial services that can be embedded. Maybe some sort of transaction is already taking place between the customer and the brand, and embeddedness can be very a seamless customer experience and natural in nature. Those are some of the things that we're looking at. Across the board, I mean, retailers, e-commerce, you know, fintechs, grocers, I mean, so many.

A recurring subscription model, so many different models can really benefit from the banking-as-a-service model. Hopefully, that's helpful.

Brian Dobson (Managing Director and Senior Research analyst)

No, it's very helpful. Thank you. I guess, looking at the big picture, you know, roughly one in five Americans own Bitcoin now. What are your thoughts about servicing that market as it pertains to the future of fintech in your company?

Luvleen Sidhu (Chair and CEO)

Sorry, I coughed and you said that. Did you say Bitcoin?

Brian Dobson (Managing Director and Senior Research analyst)

Yes, I did say Bitcoin. It's

Luvleen Sidhu (Chair and CEO)

Okay.

Brian Dobson (Managing Director and Senior Research analyst)

Ownership is at one in five Americans. What's your thought about servicing that market as it pertains to, you know, fintech-overall in your company?

Luvleen Sidhu (Chair and CEO)

Yep. You know, for us, you know, going back to that one slide we've had in the deck for the last maybe two quarters, where we understand that financial services is kind of moving from an unbundling to a rebundling that's happening over the last 12, 24 months. Which really means the expectation and that the consumer, number one, wants to have more convenience under one umbrella to be able to access all types of financial services products that really enable them to have a strong financial foundation. I think that there is no doubt that, you know, one in five Americans, you know, are owning Bitcoin, for example, now.

As a financial services provider, you kind of have to look at that and be like, "Hey, you know, how can we provide the best, most compelling customer experience to our customers?" If 20% of Americans own this, you know, and they're incorporating this into their financial planning, you know, it's on us to begin to see how we can provide that value and that opportunity to our customer. How we think about it is, it is one of many product features that we are looking at being able to round out our product offering over the next, you know, six to 18 months.

I think that we also have to be mindful of the regulatory environment and as the regulation sort of comes up to speed with the innovation, making sure that we're respectful of that and mindful of that in terms of anything that we would bring to market. Hope that's helpful.

Brian Dobson (Managing Director and Senior Research analyst)

Yeah, no, that's great. Thanks. Just one final housekeeping question. You mentioned the stimulus and look at kind of the core apples to apples growth for the coming year.

Bob Ramsey (CFO)

Yeah. I would say there are gives and takes. We certainly expect to be able to continue to grow revenues. I wouldn't put too much emphasis on that.

Operator (participant)

Next comes from the line of Chris Sakai with Singular Research. Your line's open.

Bob Ramsey (CFO)

Morning, Chris.

Chris Sakai (Equity Research Analyst)

Good morning. Just had a question about the B2C strategy. Does this mean that you're dropping the workplace banking idea or just rebranding it?

Luvleen Sidhu (Chair and CEO)

Yeah, I'll take this. You know, thanks for bringing this up. We did sort of rebrand this vertical, you could say, and it's because we didn't want it to be so limiting in nature. I think it's direct to consumer strategy is pretty saturated, and that people are looking for a more personalized experience relative to what is important to them, what is unique to them. Where I do think or where BMTX thinks that there continues to be an opportunity is in sort of niche markets, certain segments where they are currently still potentially being underserved or can be better served by taking a more nuanced, personalized approach. To your direct question about the, you know, workplace banking and employees will continue to be an angle that we take within this vertical.

Its no way is that going away, but we didn't want to limit it because we think that there's actually opportunities beyond an employee angle and just solving for that pain point. Is that helpful?

Chris Sakai (Equity Research Analyst)

Yeah, great. Had a question about the Vendor Pay option. Do you think you can market to all universities or just a subset?

Luvleen Sidhu (Chair and CEO)

No, definitely to all.

Bob Ramsey (CFO)

We're definitely.

Luvleen Sidhu (Chair and CEO)

Go ahead.

Bob Ramsey (CFO)

Yeah.

Luvleen Sidhu (Chair and CEO)

Go ahead.

Bob Ramsey (CFO)

Yeah, we'll definitely be marketing this to all.

Chris Sakai (Equity Research Analyst)

Okay.

Luvleen Sidhu (Chair and CEO)

Yeah. Mm-hmm.

Chris Sakai (Equity Research Analyst)

Oh, can you comment on Q1 2022 enrollment trends? You know, how have they been compared to a year ago?

Bob Ramsey (CFO)

I would tell you that the enrollment numbers are significantly lagged, and it is very difficult to get reliable statistics. You know, even though Q1 is technically over, it's too early to say. I will say that the broader trend, you know, since COVID, is that there was some reduction in overall enrollment. I would expect that as things normalize that would be moving back in the other direction, but it's just too early to have reliable data.

Chris Sakai (Equity Research Analyst)

Okay. Great. Well, thanks.

Luvleen Sidhu (Chair and CEO)

Thank you.

Bob Ramsey (CFO)

Thank you, Chris.

Operator (participant)

Your next question comes from the line of Bill Dezellem with Tieton Capital. Your line's open.

Bob Ramsey (CFO)

Hi, Bill.

Bill Dezellem (President and Chief Investment Officer)

Thank you. Good morning. First question is relative to your comment about the non-enrolled and graduated students. Would you talk more about your strategy there, please?

Luvleen Sidhu (Chair and CEO)

Yeah. I think that this is a really important area that we as a company need to focus on and are committed to focusing on. For us, you know, we have an amazing funnel where we get access to a replenished group and a replenished market every single year of new students coming in. They really see the value of being able to use our account as a low to no fee way for them to get access to their funds and to also be able to segregate their refunds from their other potential primary banking relationships elsewhere.

I think the onus on us is now, hey, we're not just at the front of that funnel, which is, hey, we're a great way for you to get access to your refund, and you have this great bank account that's low to no fee, great money management tools, discounts, et cetera, that are really value additive. I think a lot of these students may be using this account, with the thinking that, "Hey, well, I might have a bank account elsewhere. Well, this is my refund money.

Let me spend and let me save and let me segregate it here." I think that what is so important for us to do, and that is what our focus is going to be in the next sic, 12 months, 18 months, is really building out a very cohesive strategy where it's not just bringing in a strong funnel, but engaging and retaining them. I don't want to downplay the how good we have been, because if you look at the numbers, you look at the spend, you look at the average balances, I mean, we're doing well, but we can do a lot better, which is also exciting because it's so much more opportunity for us. What does that look like?

It is about going back to that digital banking platform and continuing to add more products, more features that are unique, that are value additive, for our students while they're students, and then once they become non-enrolled or graduated, be able to build on credit products, for example, and being able to be there when they need us with those products and services. That is something that we recognize, that we are committed to and have begun the important steps to get that started.

Bill Dezellem (President and Chief Investment Officer)

I'm going to take this one step further. If we're hearing you correctly that you currently do not address or have not been highly successful at retaining the graduated and non-enrolled students, and that's where you see the opportunity, is to have them continue with your account after they've left school. Is that essentially kind of the net of it?

Luvleen Sidhu (Chair and CEO)

What I would like to say is I want to be excited about the future and our opportunity, and I think that we have great opportunity to improve upon engagement and retention. I also simultaneously said that I want to do full recognition of, you know, the account openings that we have, as well as the increase in deposits and average balance and the steady spend that we have seen over the years. Yes, there is room for improvement, which to me is so exciting because as a standalone, this business is already profitable, doing super well. We're growing the college and university relationships substantially. There's so much untapped potential here, and we will continue to focus on how we can drive greater engagement and greater retention, which is all icing on the cake from where we are today.

Bill Dezellem (President and Chief Investment Officer)

Thank you, Luvleen. A couple of additional questions tied with T-Mobile. Are they now focusing on growing the mobile money product? It seems as though there's something, it looks like in the numbers something's changing under the covers.

Luvleen Sidhu (Chair and CEO)

I mean, absolutely. They are a public company, and they make it very clear to us every earnings call, and we agree with them. We have to be really respectful of in what granularity we share about their program. This is their program. To be able to generically answer your question, the new business segment is a way to look at, you know, a proxy for the T-Mobile MONEY performance because it is a big portion of that new business vertical. You know, I am proud to say that to be able to grow that new business bucket by approximately $1 billion in deposits over the last year.

In addition to that, you know, that new business segment we talked about, how active transactors, which are those who direct deposit, do at least five transactions a month, are on an annualized basis, spending $17,000 and have over $4,000 in average balances in our account. That is amazing. Amazing primary banking behavior proxy. That is about, I think, 17%-18% of that new business portfolio, which is substantial. I would say in addition to we did talk about and are able to share, the True Name feature rollout in Q1 of this year, the savings account rollout for T-Mobile MONEY in Q1 of this year. I think everything is speaking to the great momentum we have in this program.

Bill Dezellem (President and Chief Investment Officer)

That's a great segue to my last question, which is the T-Mobile savings account. Would you discuss that and when that began and how much traction you're seeing there?

Luvleen Sidhu (Chair and CEO)

Yeah. Again, everything T-Mobile related, we need to answer generically, and I think that is fair out of respect to our partner. The savings account is doing well. I mean, the way that you could think about it is, hey, customers want more than a checking account. We're going back from the unbundling to the rebundling. Customers want more under one umbrella, and the savings account enables that. We're very proud and excited to have been able to roll that out together.

Bill Dezellem (President and Chief Investment Officer)

Thank you.

Bob Ramsey (CFO)

Thank you.

Luvleen Sidhu (Chair and CEO)

Thank you.

Operator (participant)

Your next question.

Luvleen Sidhu (Chair and CEO)

We're getting close to time. I don't know how many more questions we're able to take, but how many more are in the queue? Just wanna be respectful of time.

Operator (participant)

All right. Sure. We have one question and then one follow-up from Mike.

Luvleen Sidhu (Chair and CEO)

Okay.

Operator (participant)

All right. Your next question comes from the line of Bob Evans with Pennington Capital. Your line's open.

Bob Ramsey (CFO)

Good morning, Bob.

Bob Evans (CIO and Fund Manager)

Hi. Good morning. Congrats on a nice quarter and great year.

Bob Ramsey (CFO)

Thank you.

Bob Evans (CIO and Fund Manager)

Can you elaborate a little bit? I know you've said EBITDA accretive on the First Sound acquisition. Can you comment a little bit more? How should we think about capital structure just trying to model it out in terms of share count and everything. I mean, I'm kind of getting, you know, somewhere between 50%-100% more shares. Is that the right way to think about it? How should we think about it in terms of debt versus equity?

Bob Ramsey (CFO)

Yeah. I'll take that one, Bob. Look, I think one of the ways to think about it is we have flexibility in terms of the timing as we onboard deposits and capital we need to raise. We obviously don't have appetite to raise a lot of capital where the stock sits today, and we have the flexibility to delay or defer and bring the deposits on balance sheet at a more gradual pace. That will help us sort of manage the process. Were you gonna say something there? Sorry about that. I felt like I talked-

Bob Evans (CIO and Fund Manager)

Oh, I'm sorry. No, it's all right. No, I'm good. Okay. Thank you. Appreciate it.

Bob Ramsey (CFO)

Sure.

Operator (participant)

All right. We have a follow-up question from Mike Grondahl with Northland Securities. Your line's open.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

Yeah. Hey, Bob and Luvleen, when you talked about the lending strategy after you acquired the bank, can you provide any more color what type of loans you're considering making? Because the 3%, I think, from Customers Bank goes away at the end of the year. And I'm just trying to think through what type of loans can get you greater than a 3% margin.

Bob Ramsey (CFO)

Yeah. I'd be happy to take that one, Mike. I will tell you that we are planning out very thoughtfully in a way that we anticipate having a diversified loan portfolio that's not overly concentrated in any one asset class. We certainly are gonna begin with First Sound Bank's sort of core competencies. They are a commercial bank, and they have got a commercial loan portfolio, and they've got some ability to grow the amount of originations they're doing as part of a larger institution that has a higher legal lending limit. Some of it will be the natural expansion in their own business, just meaning that they'll have to participate less out and that they could do more if they have the balance sheet capacity today, which we will post-transaction close.

Additionally, we're looking at ways to augment that, and a big piece of the sort of new loan strategies will be consumer lending. We will look at ways that we can grow consumer lending in, again, a diversified manner. We're looking at having some unsecured consumer lending, some potentially home improvement type consumer lending, other types, credit card consumer lending. We have some other secured. There's gonna be a number of ways we will approach consumer lending, but that is gonna be one of the tools that helps us bring that blended loan yield up. We are also looking to add resi mortgage and home equity. I mean, it is a diversified portfolio approach.

On the whole, when we look at the banking industry, if you take out kind of the big four banks, the banking industry does have net interest margins that are exceeding 3%. As interest rates rise, the expectation is that bank margins will expand as well. Certainly with us being an entirely deposit-funded balance sheet, we expect to have a low cost of funds, and we'll be able to yield it into a loan mix that probably is a little bit above average because of that consumer weight. When you put that all together, we expect to have a net interest margin that'll blend out between 3%-4%, arguably to the higher end of that range as we are able to deploy the consumer lending strategy.

We may not start there, but we expect that we can get the net interest margin in time closer to 4%. The servicing fee that we earn today is approximately 2.75%. There's a fair amount of lift, if you will, as we go from a 2.75 yield on deposits today to generating something that is between 3% and 4% and closer to 4%.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

Got it. I guess I thought your deposit servicing fee was 3%. Is it 2.75% now? Did I miss that?

Bob Ramsey (CFO)

The fee is 3% gross, but there are a couple adjustments that run through that line, and so we come out to about a 2.75% net. I think if you look at our income statement and just divide by our average deposits, you can, you know, pretty easily calculate it.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

Got it. Lastly, the previous caller asked it a little bit, but it just seems like you're buying the bank in the second half of the year. You're gonna need some capital for that. You know, whether it's six months or a 2.5 year Transition, you know, to bring $2 billion and by then it might be $3 billion of deposits, it just seems like. You know, how do you want investors to think about the capital needs over the next, call it two years?

Bob Ramsey (CFO)

Yeah. We are committed to bringing on sufficient capital to support those deposit balances. Now, as you say, the deposits on day one, you know, we don't have to bring them all over. We can bring them all over. We have enough cash on the balance sheet to pay for the transaction close price, right? The cost for First Sound Bank is $23 million, and we've got over $25 million in cash on the balance sheet today. We will continue to generate cash and capital at the retained earnings from now until the time of close. Once we close the transaction, we do wanna bring a significant amount of those deposits onto our balance sheet, and we'll evaluate raising additional capital to support those deposits. That is a piece of what we plan to do.

We believe that the incremental earnings and the return on the capital that we get will support and justify that need for capital and that capital raise. We're committed to earning a reasonable return on that incremental capital.

Mike Grondahl (Head of Equity Research and Senior Research Analyst)

Got it. Thank you.

Bob Ramsey (CFO)

Thanks, Mike. I think that does take us to the top of the hour, and Mike looks like he was the last questioner we had in queue. I know we did additionally have a few questions online, but I do think that we have answered most of those. I will certainly tell people if you do have follow-up questions or wanna dig into anything in greater detail. I'm certainly accessible and would be happy to take follow-up questions, you know, offline.

Luvleen Sidhu (Chair and CEO)

Great. Well, thank you so much for joining today, and we really appreciate your continued support and interest in BM Technologies. I hope you all have a wonderful weekend. Thank you.

Bob Ramsey (CFO)

Thank you, everyone.

Operator (participant)

Thank you. That concludes today's conference. Thank you all for joining. You may now disconnect.