BM Technologies - Q4 2022
March 27, 2023
Transcript
Operator (participant)
Good afternoon, everyone, and welcome to the BM Technologies fourth quarter and full year 2022 earnings call. Please note that this event is being recorded. Following management's prepared remarks, we will hold a question and answer session. For those of you joining on the webcast, you can submit your questions online where the management team can see them. At this time, I'd like to turn the conference call over to Brian Pernobo, investor relations for BM Technologies. Please go ahead.
Brian Pernobo (Director of Investor Relations)
Thank you, Operator. Good afternoon, everyone. Thank you for joining us for BM Technologies fourth quarter and full year 2022 earnings call. Our earnings release and investor presentation were filed this afternoon and both are posted on the investor relations page of the company's website at ir.bmtxinc.com.
Our investor presentation includes important details that we will be walking through on this afternoon's webcast, 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 Form 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. At this time, it is my pleasure to turn the call over to Luvleen Sidhu, BM Technologies Chair and CEO.
Luvleen Sidhu (Chair and CEO)
Thank you, Brian. Good afternoon to everyone, and thank you for joining BM Technologies fourth quarter and full year earnings call. Joining me today is our CFO, Jim Dullinger, and our president, Jamie Donahue, who will be available during the Q&A session. In 2022, we generated revenue of $83.6 million and core EBITDA of $14.5 million. In a few minutes, we will discuss full year results in more detail. I wanted to take a moment to address some exciting updates that have taken place since we last spoke. To begin, back in
December, we shared that we would not be moving forward with our previously announced merger with First Sound Bank, and instead would focus on becoming a lean, efficient, and innovative fintech company with a sponsor bank model.
The prolonged regulatory approval process provided us the opportunity to reflect on our broader strategy to maximize the value of BMTX service deposits in the context of an evolving macro environment. With interest rates materially higher today than when the merger was announced, as well as the health of the economy in question, we believe BMTX is better situated as a fintech with a sponsor bank model without the capital needs and credit risk that an on-balance sheet strategy would entail. We continue to believe this is in the best interest of our shareholders.
In addition to the pivot above, we have made several enhancements to the leadership team, which I am very excited to share with you. I am delighted to welcome Raj Singh as my partner and Co-CEO as we position BMTX for our next phase of growth.
Raj has been a valued advisor for nearly three years, assisting us from the start of our journey as an independent public company while he was at Raymond James Investment Banking, serving as vice chairman. More recently, he joined the board of directors and has partnered closely on various business initiatives. His experience with corporate strategy, complex negotiations, mergers and acquisitions, finance and accounting, and capital markets brings both breadth and complementary skill sets to the senior leadership team.
In his new role, Raj's principal responsibilities will be to assist in driving revenue growth and implementing operating efficiencies, resulting in improved EBITDA over the next 3-5 years. His addition builds on recent enhancements to the senior leadership team, including Jamie Donahue's promotion to president and Jim Dullinger's promotion to CFO,
I look forward to working with our executive team as we execute on our plan for long-term shareholder value creation. Let me turn the call over now to Jim to discuss our financial results in more detail. Jim.
Jim Dullinger (CFO)
Thank you, Luvleen. Turning to slide four, the company realized almost $84 million of operating revenue in 2022, compared to $95 million in 2021. The $11 million year-over-year decrease was driven primarily by lower interchange fees, account fees, and other BaaS development fees. Interchange fees totaled $22.3 billion for 2022 as compared to $28.1 million for 2021.
Spend for 2022 was $2.9 billion in total as compared to $3.3 billion in total for 2021. Spend in our higher education vertical was particularly and adversely impacted by the tailing of the prior year's unprecedented stimulus, as well as grant funds provided to higher education institutions during the pandemic. Overall, we see spend in the higher education space normalizing in 2023 to pre-COVID levels.
However, with the company's strategic initiatives in its higher education vertical in 2023, we anticipate growth in this area as we drive higher account activation, retention, and usage. Servicing fees were essentially flat in 2022 as compared to 2021, totaling $44.6 million versus $45.1 million.
Decreased margins resulting from higher interest rates and our prior fixed rate deposit servicing fee structure were substantially offset by higher average deposit balances, which totaled approximately $1.8 billion for 2022 as compared to $1.6 billion for 2021, an increase of 9% year-over-year. With the Fed continuing in aggressive measures to cull inflation, including increasing interest rates, we've allowed certain highly interest rate sensitive deposit amounts to run off in late 2022 and year-to-date 2023.
We anticipate run off to moderate as interest rates begin to peak, with growth resuming in late 2023 and beyond. Account fees were marginally lower for 2022, totaling $9 million versus $10.5 million in 2021, driven by lower total active accounts and lower account activity.
There were approximately 500,000 new account sign-ups in 2022. In our higher education business, new checking account sign-ups improved 11% year-over-year. With our planned strategic focus in 2023, we anticipate growth in number of active accounts and activity. University fees totaled $5.7 million in both 2022 and 2021, with approximately 750 existing college and university campus relationships. 11 new colleges and universities signed on in 2022, providing access for over 60,000 additional students to BankMobile disbursements and Vibe checking account.
We processed over $12.2 billion of financial aid refund disbursements during 2022. $1.5 billion of these higher education disbursements were deposited into BankMobile Vibe accounts. $1.7 billion of additional organic deposits were deposited into Vibe accounts, indicating primary bank behavior. Core EBITDA for 2022 totaled $14.5 million as compared to $29 million for 2021.
The majority of this year-over-year decrease is driven by the $11 million reduction in revenue, with further impact from $3.5 million of increased operating expense in 2022, most of which is related to compensation as we added personnel in preparation for the previously planned bank charter and business combination. These higher compensation expenses have been reduced in 2023 through the Profit Enhancement Plan actions taken during the first quarter.
We ended 2022 with a strong financial position, including an increase of $6.7 million in working capital to $19.1 million from $12.4 million in 2021, with over $21 million of cash and no debt at December 31st, 2022. Turning to slide 5 for some account level performance metrics. Revenue per 90-day active account was $185 for 2022, down approximately 2% from 2021, driven by the reduction in stimulus-fueled spending, but still highly positive on a per account basis. Average deposit per 90-day active account were $4,322 in 2022, an increase of 18% year-over-year.
Average spend per 90-day active account was $6,975 in 2022, a decrease of approximately 5%, driven by the reduced stimulus-fueled spending in the second half of 2022. To further highlight our strong per account metrics and focusing on our BaaS portfolio, Q4 2022 spend for highly active BaaS users, those with both direct deposit and a minimum of five customer-driven transactions per month totaled $17,700, and the average deposit balance totaled $3,200.
This very attractive cohort makes up approximately 20% of active accounts at December 31st, 2022, as compared to 18% in the year-ago period. With that, I return the call to Luvleen to discuss business highlights, strategy, and other exciting updates. Luvleen?
Luvleen Sidhu (Chair and CEO)
Thanks, Jim. As we pivoted our business from becoming a bank to being a lean, efficient, innovative fintech with a sponsor bank model, it was important for us to take steps forward to make this happen. I am thrilled to share with you that we have executed a new deposit servicing agreement with First Carolina Bank for our higher education business.
Second, we have renewed our relationship with our existing and largest BaaS partner, T-Mobile, for another two years. Lastly, we have executed a new deposit servicing agreement with Customers Bank to support the extension of this partnership. We are excited to kick off 2023 with these agreements in place.
The new variable rate pricing structure of these agreements significantly improves our revenue outlook in 2023, and adding a new Durbin exempt partner bank for the higher education business provides a further benefit to interchange revenues. We did receive quite a bit of interest from banks for our higher education portfolio given its scale, lack of interest rate sensitivity, and the mission-driven nature of the student demographic we serve.
However, we chose to work with First Carolina Bank due in large part to its strong regulatory standing, capital liquidity, credit performance, profitability, and respected management team. I would like to go back to the variable rate pricing of these new agreements for a moment.
As Jim mentioned, a drag on our revenue and profitability beginning in the second half of 2022 was the reduction of deposit servicing fees due to the rising rate environment and the fixed rate structure of our prior sponsor bank contract.
Moving to variable rate fee structures is critical for our growth and profitability in a rising interest rate environment, and the new servicing fee agreements will provide us with a margin increase of more than 100 basis points on our average service deposits from the prior fixed-rate servicing fee structure. In addition, the partnership with First Carolina Bank provides us with higher interchange revenues as they are a Durbin-exempt bank and are able to obtain better interchange fee pricing, the effect of which will be passed through to BMTX under the new arrangement.
Due in large part to these revenue enhancements, the company expects to return to profitable growth beginning in the second half of 2023. While the new partnership with First Carolina Bank is currently pending regulatory approval, the bank is confident that regulatory approval will occur before the end of the second quarter.
Deposits within our higher education business will transition from Customers Bank to First Carolina Bank once regulatory approval has been obtained. In addition to the banking agreement, as I shared, we were able to renew our existing and largest BaaS partnership through 2025. This extension reflects the high-value offering and our continued leadership in the Banking-as-a-Service space. With the new partner bank agreement signed and our largest existing BaaS partnership extended, our laser focus for the remainder of 2023 is to successfully execute upon the company's strategic plan as outlined on slide seven.
Our execution plan on slide seve
is focused on both growth and operational efficiencies with a focus on overall profitability. Our growth strategy is based on a few key pillars. First is our focus on creating a customer for life in our higher education vertical. The customer-for-life strategy really begins from the moment a customer opens an account with us.
We are focusing our efforts to improve the initial onboarding experience for our customers as well as optimizing communications to be more personalized..We are also introducing behavioral-based incentives and adding a rewards engine in the near term. A second pillar of our growth strategy is a focus on technology enhancements and partnerships. Technology enhancements are prioritized based on strategies to improve adoption and retention. Additionally, we continue to forge and seek partnerships that add value to our existing customers and help build a pipeline of new opportunities.
Our cost reduction strategy is based on our previously announced Profit Enhancement Plan. The Profit Enhancement Plan is expected to deliver roughly $15 million of cost savings in 2023, improving both operating margin and operating cash flow. We are currently on target with our plan and realized approximately $7 million of annualized savings in the first quarter of this year, largely through a workforce reduction completed in January..A large element of the workforce reduction was the release of the capacity developed in 2022 in anticipation of the bank's charter acquisition and business combination.
In addition to right-sizing our workforce for the fintech model, we are also implementing multiple operational improvements to yield additional cost savings going forward. As stated, our execution plan is to ultimately drive improved financial performance. We would like to provide some additional thoughts on this.
We expect core EBITDA results for the first half of 2023 to be in line with the second half of 2022. Significant improvement is expected in the second half of the year once the effect of the new variable rate servicing fees, Durbin exempt interchange fees for our higher education business, and expense savings from the Profit Enhancement Plan begin to be fully realized. Full year 2023, we expect our core EBITDA to be an estimate of about $14 million.
As we continue our execution plan and await regulatory approval for First Carolina Bank, we will provide estimate updates if necessary. We also anticipate generating positive operating cash flow in the second half of 2023, for which we will continuously and strategically evaluate ways to deploy and opportunities to increase shareholder value.
Turning to slide 8, we are also ensuring that the right leadership is in place as we position ourselves for our next phase of growth. As I mentioned earlier, today we announced that Raj Singh, a recent board addition with a successful investment banking career, will join me as co-CEO. His experience brings both breadth and complementary skill sets to the existing senior leadership team, his role will focus on driving revenue growth and implementing operating efficiencies, resulting in improved EBITDA over the next three to five years.
His addition builds on recent enhancements to the senior leadership team, including Jamie Donahue's promotion to President from his previous role as CTO. Jamie comes with deep financial services and technology experience, which serves us well as we focus on being a fintech with a sponsor bank model.
We elected Jim Dellinger, our current chief accounting officer and an experienced public company CFO with 25 years of financial, operational and transformation experience to the chief financial officer role. Running a business in today's complex environment is a challenging and exciting opportunity. I am grateful to have a team of high caliber executives leading this company alongside me as we enter our next phase of growth.
Moving to slide nine. Here we summarize the attractive investment opportunity BMTX presents. In short, there are a handful of key attributes of BMTX that are very important to focus on. We are a dominant player and market leader in our higher education segment. This business has thrived and been core to our overall business for many years. Our 99% customer retention speaks to the value proposition we offer our clients and customers.
We open hundreds of thousands of accounts annually and have a replenishing addressable market with new incoming students each year. Additionally, we have a competitive advantage as there are regulatory intricacies to this business which create high barriers to entry, and we have a unique expertise in this area. We built our company to be centered around risk management with our in-house compliance and risk capabilities that give us a distinct advantage when it comes to BSA/AML, fraud prevention and customer service.
Second, we continue to invest in our BaaS business through our collaboration with Helix and the renewal and expansion of our largest and existing BaaS partnership, where we recently added new features over the last year, including savings accounts, True Name, P2P capabilities, and our perks engine.
Third, our new variable rate deposit servicing agreement with Customers Bank and our new agreement with Durbin-exempt First Carolina Bank will position us to benefit from the higher interest rate environment as well as higher interchange fees and restore our profitability. Fourth, finally, we remain financially strong, debt-free and generated positive operating cash flow in 2022.
We believe through the strategies we are executing and management team additions, we are well positioned to achieve the growth in margins that will create significant value in the coming years. We are amongst the largest and most established fintech companies in terms of scale, customers and deposits. We have strong and positive brand recognition across millions of current and former customers and account holders. Our business is more than just a simple mobile app or web interface.
We have significant and well-established partnerships in place and differentiate ourselves with our in-house back office support that enables us to provide the banking services, customer support and ease of use that today's customers want. Thank you for your time today and for your interest in BM Technologies. I will return the call to the operator for your questions.
Operator (participant)
Thank you. We will now take questions, audio questions and move forward with web questions after that. If you would like to ask an audio question today, press star followed by the number one on your telephone keypad. Your first question today will come from the line of Mike Grondahl with Northland Securities. Your line is now open.
Luvleen Sidhu (Chair and CEO)
Hey, Mike.
Mike Grondahl (Senior Research Analyst)
Hey, guys. Good afternoon. The first question for me is really, can you help us think about deposits both at T-Mobile and higher ed just over the course of 2023? I know you've been intentionally running them down, but, like, what's embedded in the $14 million of EBITDA in the second half of the year, kinda as it relates to a deposit level?
Luvleen Sidhu (Chair and CEO)
Sure. I'll take that first and then Jim, if you want to add anything.
Mike Grondahl (Senior Research Analyst)
Sure.
Luvleen Sidhu (Chair and CEO)
You know, as we said, we did allow for a runoff of deposits last year. That was really a combination of a balancing act between, you know, us not wanting to have extremely rate sensitive deposits, which we didn't see had a lot of franchise value, with also the constraints we had with the fixed rate agreement. You know, that continued on in the first quarter of this year. We continued to see some declines in that portfolio. I'd have to say that it's definitely at a less accelerated rate than we saw last year. It's becoming more stable. As we're seeing sort of the Fed moves and the rate increases potentially slow down or peak out, I think that's going to help us as well.
Now with our new variable rate pricing that really starts in the second quarter, we also have the flexibility if we do want to be more competitive on rate that we didn't have before. All said and done, I think that overall we continue to see declines in the first quarter, and may, you know, continue to some degree for the first half of the year.
While we believe the second half of the year it is not turning from stabilization to slight sort of decline to growth once again. I think year-over-year, Mike, you can kind of expect at a high level, no guarantees, but we're kind of expecting that where we ended the year this year is probably where you're going to see us end next year.
Mike Grondahl (Senior Research Analyst)
Got it. Year end 23 similar to year end 22.
Luvleen Sidhu (Chair and CEO)
That's what we believe at this time. Yep.
Mike Grondahl (Senior Research Analyst)
How should we think about the transition of the deposits to First Carolina Bank? If you get approval, and I'm just gonna say late June approval, do those move quickly to First Carolina Bank? Is there sort of a rolling, you know, the deposits get pushed over there on a rolling basis?
Luvleen Sidhu (Chair and CEO)
That's a good question. With First Carolina Bank, you know, we've been working, obviously, Mike, since last year on this. There's a lot of thoughtfulness and preparation that's taking place, and we've done this very carefully, prudently, and thoughtfully with First Carolina Bank. Our expectations are, you know, first to get through the regulatory approval process.
You know, the bank does feel confident that by the end of the second quarter, we would be in good shape on that front. In terms of operationally moving over the deposits, as I said, we've been working very diligently, thoughtfully over the last few months. We anticipate and expect that once we get that approval, we'll be able to move quickly the deposits over, and it won't be in batches.
We expect to move it all over at once.
Mike Grondahl (Senior Research Analyst)
Got it. Got it. Okay. And then one more. The $15 million of cost saves from your PEP plan. I mean, do you want us to think about that as the $92 million of operating expenses in 2022 are basically dropping $15 million to $77 million in 2023? Or? If that's the case, or if not, where are the savings coming from? Is it primarily salary and benefits and then tech and then professional services? If you could kinda, one, help us understand year-over-year change, and then two, just sort of the buckets.
Jim Dullinger (CFO)
Yeah, Mike, it's Jim. Excellent question. Thank you. The PEP is expected to contribute to 2023 about $15 million of savings. That $15 million is principally coming from three buckets. Bucket number one, which I'll call people costs, is gonna translate into about $9 million of cost savings in 2023. The principal lever for that savings was already completed in the first quarter of 2023.
Obviously, the savings will extend through the full year, as we mentioned a moment ago, we did complete the RIF in January. That's the biggest individual basket. The second basket, which is in the range of $5 million, is coming from savings from service contracts, software licensing, and SaaS contracts. That's our second biggest bucket.
The last individual lever that we have is a combination from improved experience, loss experience on our service deposit accounts, as well as reductions in other discretionary spend. All in, that will contribute to about $15 million of actual savings in 2023 or approximately $18 million of savings on an annualized basis.
Mike Grondahl (Senior Research Analyst)
Got it. That's helpful. Maybe just the last question from me. The previous deposit service agreement, you know, it was a 3% rate. Is there a kind of a back of the envelope to think of the new deal with First Carolina and with Customers Bank? Like, is there a shortcut that we can think about it on the outside?
Luvleen Sidhu (Chair and CEO)
I'll take it first. You know, what we've said, Mike, is what we're kind of standing by, where for competitive reasons, we're not gonna provide the actual pricing. But we're very pleased to be able to share that it is variable rate pricing, and given the rising rate environment and it will continue to be, you know, elevated for some time now. That is very helpful to us. What we've shared and the only quantification we've provided is that you can expect it to be in excess of 100 basis points from that fixed rate agreement that you referenced earlier.
Mike Grondahl (Senior Research Analyst)
Got it. Okay. Hey, thank you.
Luvleen Sidhu (Chair and CEO)
Thanks, Mike.
Operator (participant)
Your next question comes from the line of Brian Dobson with Chardan. Your line is now open.
Luvleen Sidhu (Chair and CEO)
Hey, Brian.
Greg Pendy (Managing Director and Senior Analyst)
Hi, it's Greg Pendy in for Brian Dobson. Just can you remind us just on the student business, there's just a lot of it seems to be changing day by day, what their decisions are gonna be. I think the interest payments are poised to pick up. Is there any potential disruptions to your business on the student front, with some of the changes that might be taking place?
Luvleen Sidhu (Chair and CEO)
Greg, sorry, I didn't fully understand which specific changes you're referring to, but just in general.
Greg Pendy (Managing Director and Senior Analyst)
Well, Yeah.
Luvleen Sidhu (Chair and CEO)
Yeah.
Greg Pendy (Managing Director and Senior Analyst)
There's the student loan forgiveness plan, and then in addition, I believe interest payments, poised to pick back up.
Luvleen Sidhu (Chair and CEO)
Got it. For loan forgiveness, you know, that actually, you know, helps our business because, you know, students are just more confident to be able to take loans out. You kind of see that volume increase of anything. That really doesn't have, you know, it's a neutral to positive impact on our business. As long as they're continuing to get loans and going to school, that's helpful to our business. The far disbursement number that you may have seen year-over-year did decline. The reason for that is, though, it's more about that stimulus.
As part of the stimulus in 2021, schools were also given something called CARES Grants and to really help higher education students, institutions navigate that pandemic time. Far disbursements have gone down a bit.
Other than that, as it relates to sort of the political, sort of, you know, environment that you're referring to as it relates to student loans, that's actually neutral to positive.
Jim Dullinger (CFO)
Okay. That's helpful. Thanks a lot.
Luvleen Sidhu (Chair and CEO)
Thank you.
Operator (participant)
Your next question comes from the line of Bill Dezellem with Tieton Capital. Your line is now open.
Bill Dezellem (Founder, President, and Chief Investment Officer)
Thank you.
Luvleen Sidhu (Chair and CEO)
Hey, Bill.
Bill Dezellem (Founder, President, and Chief Investment Officer)
Good afternoon. A couple of questions. First of all, what led to the 11% increase in the higher ed checking accounts in 2022?
Luvleen Sidhu (Chair and CEO)
Bill, we're constantly looking at, you know, incremental sort of improvements or progress as it relates to customer for life strategy, which we spoke about and have been speaking about. I wouldn't say it's one thing that led to it. It's really a myriad of small little tweaks that we make constantly to really improve, you know, our marketing, our communication, the user experience, etc, all of which we're continuing to do and double downing on this year. I would just say it's a myriad of various different tweaks and optimizations that we've done.
Bill Dezellem (Founder, President, and Chief Investment Officer)
Luvleen, those tweaks and optimizations, do they tend to fall under the customer for life bucket or which I really think of almost as post school or do they tend to more fall under the category of improving the student's experience while in school?
Luvleen Sidhu (Chair and CEO)
Well, the 11% increase in signups, that's actually once they're in school and they're getting their refund. It's really hitting on that more, Bill, than, post-students once they're unenrolled.
Bill Dezellem (Founder, President, and Chief Investment Officer)
Great. Thank you. The interchange fee income relative to Customers, given that they are not, or Durbin exempt, should we interpret that to mean that it will be a smaller level of fee income, or are they somehow supplementing that fee income?
Luvleen Sidhu (Chair and CEO)
Customers Bank, our agreement with them, which we amended at the end of last year, it was very explicit in that they would no longer be making us whole on Durbin.
Bill Dezellem (Founder, President, and Chief Investment Officer)
Okay. Thank you. Lastly, do Helix and First Carolina work together? If not, how did you actually find First Carolina? You mentioned you had lots of interest and you'd been interacting with them for some time, but maybe a bit more detail behind how that engagement began.
Luvleen Sidhu (Chair and CEO)
Sure. Helix does not work with First Carolina Bank. We found First Carolina Bank through just relationships because, you know, being in this industry now for eight, nine years, I've had an opportunity to really be able to talk to many bank CEOs. It was really just through relationships and through connections that we were able to really find First Carolina, which I'm really excited to be partnering with.
Bill Dezellem (Founder, President, and Chief Investment Officer)
Great. Thank you.
Luvleen Sidhu (Chair and CEO)
Thanks.
Operator (participant)
Your next question comes from the line of Michael Diana with Maxim. Your line is now open.
Luvleen Sidhu (Chair and CEO)
Hey, Mike.
Michael Diana (Managing Director and Senior Research Analyst)
Hey, Luvleen. Thank you. I just wanted to make sure I understood your core EBITDA guidance. You say the guidance for first half is in line with the second half of 2022, which was actually slightly negative. Is that right?
Jim Dullinger (CFO)
Yeah. I think the best way to think about it is for first half of 2023 is it's gonna be in line with second half, which to your point is close to breakeven. Once we have the full effect of the new agreements as well as the Profit Enhancement Plan, we expect strong performance in the second half of 2023, which will lead us to that $14 million estimate of core EBITDA for the full year.
Michael Diana (Managing Director and Senior Research Analyst)
All right. Okay. The run rate in the second half is $28 million, basically.
Jim Dullinger (CFO)
The full year is $14 million of core EBITDA. I don't know if I answered your question.
Michael Diana (Managing Director and Senior Research Analyst)
Yeah, it's.
Luvleen Sidhu (Chair and CEO)
Sorry, Mike. I think we're gonna avoid getting too specific here. We just in sort of trying to help our investors as much as possible wrap their hands around this. This was something that we wanted to put out there. Really the way that we're thinking about it, we've been clear already that, you know, deposits did continue to decline yet at a slower rate in the first, you know, first quarter of this year. Really with the new agreements in place and the new pricing, April 1st, that's gonna be helpful to us, which is variable rate pricing. Then the other sort of uncertain unknown on timing is the full shift to First Carolina Bank, which affects our Durbin interchange.
There's just a lot of moving parts and right now, you know, our best guess is about $14 million-
Michael Diana (Managing Director and Senior Research Analyst)
Yeah
Luvleen Sidhu (Chair and CEO)
for the year.
Michael Diana (Managing Director and Senior Research Analyst)
Okay, great. Thank you very much.
Luvleen Sidhu (Chair and CEO)
Thank you.
Operator (participant)
This concludes our audio questions for today. I will now turn the call over to Brian to take questions from the web.
Brian Pernobo (Director of Investor Relations)
Thank you, operator. From the webcast, our first question is why are T-Mobile deposits being left at Customers Bank?
Luvleen Sidhu (Chair and CEO)
I'll take that. You know, another way to ask it is, you know, why didn't those deposits go with First Carolina Bank? Our focus right now, our highest priority was to find the right sponsor bank for our higher education portfolio. You know, for us, our higher education portfolio is really multiples of annualized spend relative to our T-Mobile portfolio. You know, really protecting our interchange revenues is the highest priority. You know, really taking care of that portfolio was number one. Number two is as it relates to First Carolina and the decision not to take on both portfolios is really because of twofold. One is balance sheet capacity.
For most banks that are under 10 billion, bringing on $1 billion in deposits at one time is difficult and it requires extra capital. It's just, you know, a accelerated sort of growth that is really just a little bit unnatural. Number two is it's always been our strategy. We've been stating it, we're being consistent, that we want diversification. We want multiple sponsor banks. This is really an opportunity for us to find the best fit. It's not just the best fit for us, it's the best fit for T-Mobile. We're taking our time, yet are very conscious that we wanna find the right partner as quickly as possible.
Obviously, you know, our aim and goal is that we'd find that well in advance of, you know, the end of that you know, the I wouldn't say the end 'cause we would expect to renew at that time, but the current agreement, which ends in 2025.
Brian Pernobo (Director of Investor Relations)
Okay.
Luvleen Sidhu (Chair and CEO)
Okay.
Brian Pernobo (Director of Investor Relations)
Our next question, how will deposits develop in 2023, and what are you doing against the decline?
Luvleen Sidhu (Chair and CEO)
I think we kinda talked about that already.
Jim Dullinger (CFO)
Yeah, I think it's what we articulated earlier is, we look at the deposit base now as a period of stabilization. We expect them to be stabilized by the end of the first half, then resumption to growth in the second half, with end of 2023 being in line with where we were end of 2022.
Luvleen Sidhu (Chair and CEO)
Next question.
Brian Pernobo (Director of Investor Relations)
When will you start to buy back shares and/or warrants?
Luvleen Sidhu (Chair and CEO)
Yeah. We've been getting this question a lot. I think number one is I wanna reiterate that the company does feel that our, you know, our shares are undervalued. And that's why we were excited to put out that press release that talked about the board authorizing us to be able to move on this. The reason why we haven't moved on it is a couple fold.
Most importantly, we are in a blackout period. We have been since essentially we made that announcement and will continue to be as Q1 is creeping up right now. Before we know it, we'll be back on a phone call with each other.
Secondly, you know, in the second half of the year, as we've been talking about, we expect to generate positive free cash flow, and we will be evaluating our strategic options, including this at that time. Our commitment is to always look for ways that we're gonna continue to increase shareholder value in whatever makes sense to do that. Next question.
Brian Pernobo (Director of Investor Relations)
Great. How is the current banking environment impacting the BaaS pipeline?
Luvleen Sidhu (Chair and CEO)
I think that BaaS pipeline, as we've talked about many times, you know, it's a long haul until conversion, you have many cycles of conversations with a BaaS partner. I haven't seen anything that says anyone is willing or walking away from this. I think that, you know, this is just, you know, a blip in sort of the life cycle of these sales. You know, it hasn't really affected it, is what I'd say. Any large brand, any large company is carefully watching this and seeing how it plays out. The good thing is that we have very strong sponsor bank relationships in place.
Customers Bank is extremely strong bank partner of ours with exceptional levels of liquidity, capital, strong credit performance. We're proud to be their partner. I feel the same way about First Carolina. I think that Brian, if that's okay, we've spent a lot of time with Q&A today. I hope you guys felt that we shared a lot during our commentary as well. I wanna thank you everyone for your continued support of our company. I think we're at a very exciting inflection point. I look forward to speaking with you next quarter. Thank you.
Operator (participant)
This concludes today's conference call. Thank you for attending. You may now disconnect.