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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission file number 001-38633

BM Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware
82-3410369
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
201 King of Prussia Road, Suite 350
Wayne, Pennsylvania
19087
(Address of Principal Executive Offices)
(Zip Code)
(877) 327-9515
Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock BMTX NYSE American LLC
Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per share. BMTX-WT NYSE American LLC

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes      No   

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes     No   

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company
                
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. Yes No   

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  Yes    No  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes ☐   No  

The aggregate market value of voting stock held by non-affiliates of the Registrant on June 30, 2021, the last day of the registrant’s most recently completed second fiscal quarter, was approximately $152 million. This value is based on the closing price of $12.44 for shares of the Registrant’s Class A common stock as reported by the New York Stock Exchange. Shares of common stock beneficially owned by each executive officer, director, and holder of more than 10% of our common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The registrant had outstanding 12,273,438 shares of common stock, par value $0.0001 per share, as of May 3, 2022.

Specified portions of the registrant’s proxy statement with respect to the registrant’s 2022 Annual Meeting of Stockholders, which is to be filed pursuant to Regulation 14A within 120 days after the end of the registrant’s fiscal year ended December 31, 2021, are incorporated by reference into Part III of this Annual Report on Form 10-K.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report, including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to our ability to consummate any acquisition or other business combination and any other statements that are not statements of current or historical facts. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, those factors summarized in the immediately following section titled “Summary of Principal Risk Factors”, which we encourage you to read.

The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under “Risk Factors” may not be exhaustive.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.

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SUMMARY OF PRINCIPAL RISK FACTORS
References in this report to “the Company,” “BMTX,” “we,” “us,” and “our” refer to Megalith Financial Acquisition Corporation prior to the Closing of the business combination and to BM Technologies, Inc., a Delaware corporation after the Closing of the business combination. References to our “management” or our “management team” refer to our officers and directors.

Below is a summary of the principal risk factors we face. Please read it carefully and refer to the more detailed descriptions of the risk factors in Item 1A, “Risk Factors.”

Risks Related to our Business and Industry
a.Dependence on key individuals;
b.Our limited operating history;
c.Our ability to identify, recruit and retain skilled personnel;
d.Our ability to implement our strategy;
e.Growth of adoption and retention rates;
f.Our ability to manage growth effectively;
g.Assumptions related to our growth strategy;
h.Our partnership and private label agreement with T-Mobile;
i.Our ability to expand our market reach and product portfolio;
j.Our product cycle;
k.Competition;
l.The strength of our brand;
m.The risk of systems or product failures;
n.Demand for banking products and services;
o.Changes in the demand or availability of student loans or financial aid;
p.The effects of COVID and global and general economic conditions;
q.Changes in government financial aid regime;
r.Data breaches, fraud and cybersecurity issues;
s.Infringement of our intellectual property or allegations of infringement by us;
t.Termination of or changes to the MasterCard association registration;
u.Our fees and charges;
v.Outsourcing critical operations;
w.Ability to maintain an effective system of disclosure controls and internal control over financial reporting;
x.Our ability to integrate future acquisitions;
y.Our ability to realize the anticipated benefits of our announced merger with First Sound Bank; and
z.Our ability to consummate the merger with First Sound Bank.

Risks Related to our Common Stock and Warrants
a.Whether an active, liquid trading market for our common stock is sustained;
b.Coverage by securities analysts;
c.Future sales of common stock;
d.Anti-takeover provisions and forum selection clauses under our charter and Delaware law;
e.Our ability to redeem unexpired warrants; and
f.Exercises of warrants increasing the number of shares eligible for future resale and dilution to stockholders.

Regulatory Risks
a.Changes in regulation related to interchange or methods of payments;
b.Regulations related to higher education and disbursements; and
c.Regulation applicable to our Partner Bank, Customers Bank, which is a related party of the Company.

General Risk Factors
a.Adequacy of insurance;
b.The limited experience of our management team in managing a public company; and
c.Capitalized assets could become impaired.
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Part I
ITEM 1. BUSINESS
Overview
We are a financial technology (“fintech”) company that facilitates deposits and banking services between a customer and our Partner Bank, Customers Bank, which is a related party and is a Federal Deposit Insurance Corporation (“FDIC”) insured bank. We provide 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. Our FinTech business model leverages partners’ existing customer bases to achieve high volume, low-cost customer acquisition in our Disbursement, Banking-as-a-Service (“BaaS”), and Workplace Banking businesses.
We are not a bank, do not hold a bank charter, and do not provide banking services. Our Partner Bank is subject to regulation  by  the  Pennsylvania Department of Banking and Securities and the Federal Reserve Bank, and is periodically examined by those regulatory authorities. We are subject to the regulations of the Department of Education (“ED”), due to our Disbursement business, and are periodically examined by them.
BankMobile Technologies, Inc. was incorporated in May 2016 as a wholly-owned subsidiary of Customers Bank. On August 6, 2020, the Company entered into an Agreement and Plan of Merger, by and among Megalith Financial Acquisition Corporation, a special purpose acquisition company, incorporated in Delaware in November 2017, MFAC Merger Sub Inc., a wholly-owned subsidiary of Megalith, BankMobile Technologies, Inc. and Customers Bank, a Pennsylvania state chartered bank and the sole stockholder of BankMobile. On January 4, 2021, BankMobile Technologies, Inc. became an independent company after the completion of a divestiture transaction and was rebranded BM Technologies, Inc.

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 expected to close in the second half of 2022.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.

We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.


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Employees and Human Capital Resources

As of December 31, 2021, we employed approximately 275 full-time employees. None of these employees are covered by a collective bargaining agreement. The Company provides its employees with comprehensive benefits, some of which are provided on a contributory basis, including medical and dental plans, a 401(k) savings plan with a company match component and short-term and long-term disability coverage. Additional benefits offered include paid time off, life insurance and employee assistance. The Company's compensation package is designed to maintain market competitive total rewards programs for all employees in order to attract and retain superior talent.

Available Information

We are required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the U.S. Securities and Exchange Commission (the “SEC”) on a regular basis, and are required to disclose certain material events in a Current Report on Form 8-K. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet website is located at http://www.sec.gov.
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ITEM 1A. RISK FACTORS
You should carefully consider all of the risks described below, together with the other information contained in this report, including the financial statements, before making a decision to invest in our securities. If any of the following risks occur, our business, financial condition or operating results may be materially and adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. In this section, “we,” “us,” and “our,” refers to the consolidated Company.

Risks Related to Our Business and Industry

We will be dependent on key individuals and the loss of one or more of these key individuals could curtail our growth and adversely affect our prospects.

Our success will depend on our ability to retain key individuals and other management personnel. Members of our executive management team, including Luvleen Sidhu, our Chief Executive Officer, Bob Ramsey, our Chief Financial Officer, Warren Taylor, our Chief Customer Officer, Robert Diegel, our Chief Operating Officer, Andrew Crawford, our Chief Commercial Officer, and Jamie Donahue, our Chief Technology Officer, have been integral in building our digital banking platform and developing and growing our disbursement business and BaaS programs. In addition, several members of our executive management team who had been employed by Higher One, Inc. prior to our acquisition of that business, have unique and valuable business experience, relationships and knowledge of the higher education disbursement business. We have entered into employment agreements with Luvleen Sidhu, Warren Taylor, Robert Diegel, Andrew Crawford, and Jamie Donahue, however, the continued service of these individuals cannot be assured, and if we lose the services of any of these individuals, they would be difficult to replace, and our business and development could be materially and adversely affected.

We have a limited history operating as a separate entity and a limited history operating independently of Customers Bank, and our management team has limited experience managing us.

We are a relatively new legal entity and have a limited operating history and limited history operating independently of Customers Bank since our January 2021 divestiture. An integral portion of our business was acquired from Higher One in June 2016, and our business had been operating primarily as a division of Customers Bank, and since September 2017, a wholly-owned subsidiary of Customers Bank. There may be unanticipated risks and expenses that come from no longer operating as a division or wholly-owned subsidiary of a bank, such as increased compliance costs and licensing requirements. In addition, we have a limited history of managing cash, liquidity, financial obligations and resources, and other operational needs independent of Customers Bank. Because of our limited operating history, there are only limited historical results of operations for you to review and consider in evaluating our results of operations, and our prospects. We will be subject to the business risks and uncertainties associated with recently formed entities with limited operating history, including the risk that we will not achieve our strategic plan.

Our success depends in part on our ability to identify, recruit and retain skilled sales, management, and technical personnel.

Our future success depends upon our continued ability to identify, attract, hire, and retain highly qualified personnel, including skilled technical, management, product, technology, and sales and marketing personnel, all of whom are in high demand and are often subject to competing offers. Competition for qualified personnel in the technology industry is intense and there can be no assurance that we will be able to hire or retain a sufficient number of qualified personnel to meet our requirements, or that we will be able to do so at salary, benefit and other compensation costs that are acceptable. A loss of a substantial number of qualified employees, or an inability to attract, retain, and motivate additional highly skilled employees required for the expansion of our business, could have a material adverse effect on our business and growth prospects.

Our business and future success may suffer if we are unable to continue to successfully implement our strategy.

Our future success will depend, in part, on our ability to generate revenues by providing financial transaction services to higher education institutions and their students directly and through our referral partners, including TouchNet, and our ability to implement and grow our BaaS and Workplace businesses, including the growth and implementation of T-Mobile MONEY. The market for these services has only recently developed and our viability and profitability is therefore unproven. Our business will be materially and adversely affected if we are unable to develop and market products and services that achieve and maintain market acceptance.

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Outsourcing disbursement services may not become as widespread in the higher education industry as anticipated, and our products and services may not achieve continued commercial success. In addition, higher education institutional clients could discontinue using our services and return to in-house disbursement and payment solutions. If outsourcing disbursement services does not become widespread, or if institutional clients return to their prior methods of disbursement, our growth prospects, business, financial condition, and results of operations could be materially and adversely affected.

Our strategic growth plan depends, in part, on our ability to enter into new agreements with higher education institutions and new BaaS partners. These contracts can generally be terminated by the client at will and, therefore, there can be no assurance that we will be able to maintain these clients or maintain agreements with clients on terms and conditions acceptable to us. In addition, we may not be able to continue to establish new relationships with higher education institutional clients or new BaaS partners at our historical growth rate or at all. The termination of current client contracts or an inability to continue to attract new clients could have a material adverse effect on our business, financial condition, and results of operations.

Not only are establishing new client relationships and maintaining current ones critical to our business, they are also essential components of our strategy for maximizing student usage of our products and services and attracting new student customers as well as our graduate strategy. A reduction in enrollment, a failure to attract and maintain student customers, as well as any future demographic trends that reduce the number of higher education students, could materially and adversely affect our capability for both revenue and cash generation and, as a result, could have a material adverse effect on our business, financial condition, and results of operations.

Our strategic growth plan relies on our ability to increase customers’ debit card spending and attract them to our new products. If we are unable to increase debit card usage through product education, marketing, promotions, and technological improvements, or if debit card usage drops as a result of trends, market perception, or new or competing products, our growth prospects, financial condition, and results of operations could be materially and adversely affected.

Finally, an integral part of our growth strategy is our ability to expand our disbursements expertise into new markets and product offerings, including BaaS partnerships and credit products. Our management team has limited experience forming BaaS partnerships and running a credit products business. If we are unable to develop lending programs or BaaS programs, if we cannot gain market adoption of the credit products business or BaaS products due to competition, regulatory issues or constraints or otherwise, if large businesses pursue other alternatives to a BaaS partnership, or if the market for BaaS products and services is smaller than anticipated, our earnings and results of operations will be adversely affected and we may not grow at our projected rates.

We may not be able to grow adoption and retention rates.

Our growth strategy and business projections contemplate a significant increase in adoption and retention rates for our products. A significant component of our growth strategy is dependent on our ability to have students of our higher education institution clients, and customers of our BaaS partners, including T-Mobile MONEY customers and employees with our workplace banking partners, select our services and become long-term users of our products. In particular, our growth strategy will depend on our ability to successfully cross-sell our core products and services to students after they leave college as well as growth in product usage from BaaS and workplace banking customers. We may not be successful in implementing this strategy because these students and customers may believe that our products and services are unnecessary or unattractive. In addition to a sensitivity to adoption rates, we are also sensitive to retention rates. As students leave college or customers leave a BaaS partner or change employers, we will face increasing competition from banks and other financial services providers.

Our failure to attract and retain students, employees, and other customers could have a material adverse effect on our prospects, business, financial condition, and results of operations. Our projections and models assume a significant increase in both adoption and retention rates. If these rates do not increase as projected, our growth, revenues and results of operations may not meet our projections.

Failure to manage future growth effectively could have a material adverse effect on our business, financial condition, and results of operations.

The continued rapid expansion and development of our business may place a significant strain upon our management, administrative, operational and financial infrastructure. Our growth strategy contemplates further increasing the number of our higher education institutional clients and student banking customers.
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The rate at which we have been able to establish relationships with our customers in the past, however, may not be indicative of the rate at which we will be able to establish additional customer relationships in the future. Further, our growth contemplates an increase in BaaS business, including significant growth of T-Mobile MONEY, and new initiatives with additional BaaS partners. Our success will depend, in part, upon the ability of our executive officers to manage growth effectively. Our ability to grow will also depend on our ability to successfully hire, train, supervise, and manage new employees, obtain financing for capital needs, expand our systems effectively, allocate human resources optimally, assure regulatory compliance, and address any regulatory issues, maintain clear lines of communication between our operational functions and our finance and accounting functions, and manage the pressures on management, administrative, operational and financial infrastructure. There can be no assurance that we will be able to accurately anticipate and respond to the changing demands we will face as we continue to expand our operations, or that we will be able to manage growth effectively or achieve further growth at all. If our business does not continue to grow, or if we fail to manage any future growth effectively, our business, financial condition, and results of operations could be materially and adversely affected.

Our growth strategy is based on assumptions, which may not be accurate; additionally, macro trends and key partner actions are not fully within our control.

Our growth strategy and business outlook are based on estimates our management believes to be reasonable, but there are many factors that may be outside of management’s control or may be difficult to predict. Some of these uncertainties include:

Our growth strategy is depending on adding additional BaaS partners. The timing, size, and partnership terms are not fully known today and could have a significant impact on our outlook and results of operations. Currently, T-Mobile is our only material BaaS partner.

Our current BaaS business is significantly dependent on our BaaS business with T-Mobile, and T-Mobile’s efforts to market the program and promote growth in accounts. If T-Mobile does not market the product as expected, or if there are changes in the economic relationship with T-Mobile or its investment appetite in the business, it could impact our financial projections and results of operations.

Workplace Banking is a new and relatively unproven strategy; our outlook is based on estimated penetration rates of large employers, benefits market places, and other FinTech companies involved in payment of wages. Those companies may not market the product as effectively as projected or utilize our platform to the extent projected; other unknown factors in this new business, such as the rate of adoption, promotional costs, and costs of signing new partners, may cause results to materially differ from our estimates.

Macro industry trends may impact the amounts of student disbursements or the likelihood that students choose a BankMobile-serviced account. ED regulation, industry competition, the rise of competing low-cost products, or other unknown shifts could impact the growth in the student business. The lasting impact of COVID-19 on the higher education industry is still unknown, but changes in enrollment at our client schools or changes in the amounts disbursed could negatively impact projections and results of operations. Student revenue growth is dependent on our ability to charge the current level of fees, which could be negatively impacted by competition or changes in industry trends. Revenue growth is also dependent on interchange income rates, ATM visits, and other factors that may shift over time.

Interest rates are unknown; higher rates of interest may reduce the relative attractiveness of the deposit products we service for our partner banks. Interest rate changes may reduce the deposit servicing fee that is paid to us by our Partner Bank or that we can charge to future partner banks.

Future bank partnerships will have individually negotiated terms; the economics of those partnerships may differ from the current arrangement. We have a commitment from our Partner Bank through the end of 2022, but we may not be able to secure similar terms after that time.

In November 2021, we announced a bank merger that will enable us to keep deposits on our own Consolidated Balance Sheets; but until the merger closes, we must maintain deposits off-balance sheet with our Partner Bank. Only after the merger closes, can we begin to move these deposits onto our Consolidated Balance Sheets. After we move deposits to our Consolidated Balance Sheets, our servicing fee income will be replaced by net interest income which will be determined by our asset mix, yields, and deposit cost.

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Our partnership with T-Mobile may expose us to additional risks.

In February 2017, we entered into a significant strategic partnership with T-Mobile for the development and roll-out of a mobile banking platform, referred to as T-Mobile MONEY, which was publicly announced in the third quarter of 2018. The T-Mobile MONEY program was extended to the Sprint customers acquired by T-Mobile in August 2020. T-Mobile MONEY represents the most significant BaaS initiative undertaken by us to date. However, T-Mobile MONEY may not be as successful as currently expected for a variety of reasons, including customer adoption of the product, the level of marketing by T-Mobile, general economic conditions, competition and product alternatives and other factors. If T-Mobile MONEY does not reach the anticipated activity levels and deposit balances relating to T-Mobile MONEY customers are lower than expected, it could adversely affect our business, financial condition, and results of operations.

We have and will in the future create new products in connection with the T-Mobile MONEY offering, many of which will be complex, with possible conditional requirements, options, and variations, along with changes to terms that necessitate additional disclosures or actions to comply with legal and regulatory requirements. The offerings through T-Mobile MONEY may be marketed similar to retail products, with a variety of ancillary offerings, such as rewards programs, further increasing the inherent compliance risk. While we will have final authority on the design of products, some components of the product life cycle may be managed by T-Mobile, such as promotions of the product by T-Mobile. Since we will not have direct control over all aspects of the product life cycle, the relationship involves significant third party relationship management requirements, indicating a significant level of inherent compliance risk.

Demographically, the T-Mobile MONEY product seeks to serve a broader and more diverse population than traditional banking. The BaaS market is very competitive, requiring products, channels, and services to be recalibrated often to remain attractive to potential customers and BaaS partners. As such, the level and maturity of new product approval processes, change management and the robustness of strategic planning must be sophisticated enough to respond to competitive demands with timely and meaningful evaluation of compliance risk.

Our agreements with white-label partners, such as T-Mobile, may expose us to additional compliance risk. For example, employees of the BaaS partner may be incentivized to promote products under a discretionary compensation program to promote financial products to customers, thus increasing exposure to compliance risk. White-label partnerships may also expose us to issues in connection with privacy-related regulations based on the partner receiving certain data regarding the account holders and their use of the program, which may also be used for marketing purposes. Opt-out and notice may be required in connection with these disclosures.

Short message service (“SMS”) text messaging will be used extensively in carrying out service-related communications and possibly marketing-related communications as well. Since express consent is required for service-related communications to wireless subscribers, it will be critical to ensure that the language in disclosures and the account agreement indicate this consent. Moreover, the consumer must have the right to revoke all of these communications to their wireless numbers. Failure to comply with the Telephone Consumer Protection Act of 1991, enforced by the Federal Communications Commission (“FCC”), could result in significant fines to T-Mobile and/or to us.

The private label agreement with respect to T-Mobile MONEY has been renewed for an additional term of three years and may only be renewed for an additional term of two years by T-Mobile; T-Mobile’s failure to renew after the second term could have a material adverse effect on us.

The private label agreement between Customers Bancorp, Inc. and T-Mobile that governs T-Mobile MONEY had an initial term of three years. The term was extended an additional three years to February 2023. The renewal term may be renewed for an additional term of two years at the option of T-Mobile. We will have the option to terminate at each renewal of the agreement. T-Mobile has no obligation to renew the agreement. T-Mobile’s failure to renew the agreement may have a material adverse effect on our business. Further, T-Mobile may renew the agreement on terms that are different or less favorable to us.

To date we have derived our revenue from a limited number of products and markets. Our efforts to expand market reach and product portfolio may not succeed and may reduce revenue growth.

Our BaaS strategy entails facilitating deposits and banking services between a customer and an FDIC insured partner bank. While we offer our digital banking platform and disbursements services to our customers the lending products and services historically offered to non-enrolled students and other customers through our business have been limited. Many competitors offer a more diverse set of products and services to customers and operate in additional markets.
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While we intend to eventually broaden the scope of products offered to customers with our banking partners through our BaaS and mobile banking product offerings, there can be no assurance that these efforts will be successful. Our failure to broaden the scope of the products we offer to potential customers may inhibit the growth of repeat business from customers and harm our operating results of operation. There also can be no guarantee that we will be successful with respect to our expansion through our mobile banking platform with new partners and into new markets where we currently do not operate, which could also inhibit the growth of our business and results of operations.

The length and unpredictability of the sales cycle for signing potential higher education institutional clients and BaaS partners could delay new sales of our products and services, which could materially and adversely affect our business, financial condition, and results of operations.

The sales cycle between our business’ initial contact with potential higher education institutional clients, BaaS partners, and large employers and the signing of a contract with that client, partner or employer can be lengthy, as the individual agreements need to be negotiated and partnerships customized. As a result of this lengthy sales cycle, our ability to forecast accurately the timing of revenues associated with new sales is limited. The sales cycle will vary widely due to significant uncertainties, over which we have little or no control, including:

the individual decision-making processes of each higher education institutional client, BaaS partner or large employer, which typically include extensive and lengthy evaluations and will require spending substantial time, effort and money educating each client and partner about the value of our products and services;

the budgetary constraints and priorities and budget cycle of each higher education institutional client or partner;

the reluctance of higher education staff, BaaS partners or large employers to change or modify existing processes and procedures; and

the amount of customization and negotiation required for any given collaboration.

In addition, there is significant upfront time and expense required to develop relationships and there is no guarantee that a potential client will sign a contract with our business even after substantial time, effort and money has been spent on the potential client. A delay in our ability or a failure to enter into new contracts with potential higher education institutional clients could materially and adversely affect our business, financial condition, and results of operations.

Our operating results may suffer because of substantial and increasing competition in the industries in which we do business.

The market for our products and services is competitive, continually evolving and, in some cases, subject to rapid technological change. Our disbursement services compete against all forms of payment, including paper-based transactions (principally cash and checks), electronic transactions such as wire transfers and Automated Clearing House (“ACH”) payments and other electronic forms of payment, including card-based payment systems. Many competitors, including Blackboard, Heartland Payment Systems and Nelnet, Inc., provide payment software, products and services that compete with those that we and our partner banks offer. In addition, the banking products and services offered on our platform will also compete with banks that focus on the higher education market, including U.S. Bancorp and Wells Fargo & Company. Future competitors may begin to focus on higher education institutions in a manner similar to us. We also face significant competition for our BaaS products and workplace banking services from other BaaS providers and digital consumer banking platforms such as Chime and Green Dot, as well as from traditional consumer banks. Many of our competitors will have substantially greater financial and other resources than we have, may in the future offer a wider range of products and services and may use advertising and marketing strategies that achieve broader brand recognition or acceptance. In addition, competitors may develop new products, services or technologies that render our products, services or technologies obsolete or less marketable. If we are unable to compete effectively against our competitors, our business, financial condition, and results of operations will be materially and adversely affected.

We depend on a strong brand and a failure to maintain and develop that brand in a cost-effective manner may hurt our ability to expand our customer base.

Maintaining and developing the “BankMobile,” “BankMobile’s Student Banking” and “BankMobile’s Disbursements” brands will be critical to expanding and maintaining our base of higher education institution clients, students and other account holders.
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We believe the importance of brand recognition will increase as competition in our market further intensifies. Maintaining and developing our brand will depend largely on our ability to continue to provide high quality products and services at cost effective and competitive prices, as well as after-sale customer service. While we intend to continue investing in our brand, no assurance can be given as to the success of these investments. If we fail to maintain and enhance our brand, incur excessive expenses in this effort or our reputation is otherwise tainted, including by association with the wider financial services industry or because of data security breaches or negative press, we may be unable to maintain loyalty among our existing customers or attract new customers, which could materially and adversely affect our business, financial condition, and results of operations.

We may be liable to customers or lose customers if we provide poor service or if we experience systems or product failures, if any agreements that we maintain with colleges, universities and BaaS partners are terminated or if other performance triggers or other performance conditions are triggered.

We are required to fulfill our contractual obligations with respect to our products and services and our high quality service to meet the expectations of customers. Failure to meet these expectations or fulfill our contractual obligations could cause us to lose customers and bear additional liability.

Because of the large amount of data we collect and manage, hardware failures and errors in our systems could result in data loss or corruption or cause the information that we collect to be incomplete or contain significant inaccuracies. For example, errors in our processing systems could delay disbursements or cause disbursements to be made in the wrong amounts or to the wrong person. Our systems may also experience service interruptions as a result of undetected errors or defects in software, fire, natural disasters, power loss, disruptions in long distance or local telecommunications access, fraud, terrorism, accident or other similar reason, in which case we may experience delays in returning to full service, especially with regard to data centers and customer service call centers. If problems such as these occur, our customers may seek compensation, withhold payments, seek full or partial refunds, terminate their agreements or initiate litigation or other dispute resolution procedures. In addition, we may be subject to claims made by third parties also affected by any of these problems.

In addition, our agreements with colleges, universities, BaaS partners and large employers contain and will contain certain termination rights, performance triggers and other conditions which, if exercised or triggered, may result in penalties and/or early termination of such agreements, which could cause us to be liable to customers or lose customers, thereby materially impacting our operations.

Demand for our banking products and other services may decline if we do not continue to innovate or respond to evolving technological changes.

We operate in a dynamic industry characterized by rapidly evolving technology and frequent product introductions. We rely on proprietary technology to pass on cost savings to customers and make our platform convenient for customers to access. In addition, we may increasingly rely on technological innovation as we introduce new products, expand current products into new markets, and operate a full-service digital banking platform. The process of developing new technologies and products is complex, and if we are unable to successfully innovate and continue to deliver a superior customer experience, customers’ demand for our banking products and other services may decrease and our growth and operations may be harmed.

A change in the availability of student loans or financial aid, as well as budget constraints, could materially and adversely affect our financial performance by reducing demand for our services.

The higher education industry depends heavily upon the ability of students to obtain student loans and financial aid. As part of our contracts with higher education institutional clients that use our disbursements services, students’ financial aid and other refunds are sent to us for disbursement. The fees that we will charge most of our clients will be based on the number of financial aid disbursements made to students. In addition, our relationships with higher education institutional clients will provide us with a market for BankMobile Vibe accounts, from which we anticipate we will derive a significant proportion of our revenues. If the availability of student loans and financial aid were to decrease, the number of enrolled students could decrease and our addressable market for student disbursement services would shrink. Future legislative and executive branch efforts to reduce the U.S. federal budget deficit or worsening economic conditions may require the government to severely curtail its financial aid spending, which could materially and adversely affect our business, financial condition, and results of operations. Changes in the availability and cost of student loans could also affect enrollment, in turn affecting our business, financial condition and results of operations.

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Our business depends on steady enrollment in traditional (on-campus) and non-traditional (online) institutions of higher education. The current COVID situation is creating uncertainty with individuals applying for the benefit of higher education.

The COVID-19 pandemic and associated response has put the higher education industry into a period of unprecedented disruption. Many physical campuses are operating remotely or only partially available. Students are displaced and learning at a distance. There is uncertainty as to whether schools will open their physical campuses in some parts of the country, and for many, the upcoming semester may be postponed or cancelled. It is uncertain how quickly the U.S. education system, the economy and human behavior returns to business-as-usual, if at all. A sustained disruption in the higher education industry could affect the demand for disbursements and the number of higher education accounts and the use of such accounts, which could adversely affect our revenues, financial condition and results of operations.

Global economic and other conditions may adversely affect trends in consumer spending and demand for our products and services, which could materially and adversely affect our business, financial condition, and results of operations.

A decrease in consumer confidence due to the weakening of the global economy, or disruptions to on-campus schooling or consumer spending resulting from the COVID-19 pandemic, may cause decreased spending among our student and graduate customers and may decrease the use of account and card products and services. Increases in college tuition alongside stagnation or reduction in available financial aid may also restrict spending among college students and the size of disbursements, reducing the use of our account and card products and services and the demand for our disbursement services. Weakening economic conditions, such as decreases in consumer spending, increased consumer credit defaults and bankruptcies, inflation and rising unemployment, may also adversely affect the demand for and use of our BaaS products and workplace banking platform and associated products, which could materially and adversely affect our business, financial condition, and results of operations.

Our disbursement business depends in part on the current government financial aid regime that relies on the outsourcing of financial aid disbursements through higher education institutions.

In general, the U.S. federal government distributes financial aid to students through higher education institutions as intermediaries. Following the receipt of financial aid funds and the payment of tuition and other expenses, higher education institutions have typically processed refund disbursements to students by preparing and distributing paper checks. Our disbursements service provides higher education institutional clients with an electronic system for improving the administrative efficiency of this refund disbursement process. If the government, through legislation or regulatory action, restructured the existing financial aid regime in such a way that reduced or eliminated the intermediary role played by higher education financial institutions or limited or regulated the role played by service providers such as us, our business, results of operations and prospects for future growth could be materially and adversely affected.

Breaches of security measures, unauthorized access to or disclosure of data relating to clients, fraudulent activity, and infrastructure failures could materially and adversely affect our reputation or harm our financial condition and results of operations.

We will have access to certain “personally identifiable” information of customers, including student contact information, identification numbers and the amount of credit balances, which customers expect will be maintained confidentially. It is possible that hackers, customers or employees acting unlawfully or contrary to our policies or other individuals, could improperly access our or our vendors’ systems and obtain or disclose data about customers. Further, because customer data may also be collected, stored, or processed by third-party vendors, it is possible that these vendors could intentionally or negligently disclose data about our clients or customers. Data breaches could also occur at our partner banks, higher institution clients, BaaS partners and large employer partners, which could negatively affect our reputation, relationships with end users, and expose us and our clients and customers. Any such breaches or loss of data could negatively affect our business, growth prospects, financial condition, and results of operations.

We will rely to a large extent on sophisticated information technology systems, databases, and infrastructure, and will take reasonable steps to protect them. However, due to their size, complexity, content and integration with or reliance on third-party systems they are potentially vulnerable to breakdown, malicious intrusion, natural disaster and random attack, all of which pose a risk that sensitive data may be exposed to unauthorized persons or to the public. A breach of our information systems could lead to fraudulent activity, including with respect to our cards, such as identity theft, losses on the part of banking customers, additional security costs, negative publicity and damage to our reputation and brand.
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In addition, our customers could be subject to scams that may result in the release of sufficient information concerning the customer or our accounts to allow others unauthorized access to our accounts or our systems (e.g., “phishing” and “smishing”). Claims for compensatory or other damages may be brought against us as a result of a breach of our systems or fraudulent activity. If we are unsuccessful in defending against any resulting claims, we may be forced to pay damages, which could materially and adversely affect our profitability.

In addition, a significant incident of fraud or an increase in fraud levels generally involving our products, such as our cards, could result in reputational damage, which could reduce the use of our products and services. Such incidents of fraud could also lead to regulatory intervention, which could increase our compliance costs. Accordingly, account data breaches and related fraudulent activity could have a material adverse effect on our future growth prospects, business, financial condition, and results of operations.

If we are unable to protect or enforce our intellectual property rights, we may lose a competitive advantage and incur significant expenses.

Our business will depend on certain registered and unregistered intellectual property rights and proprietary information. We will rely on a combination of patent, copyright, trademark, service mark and trade secret laws, as well as nondisclosure agreements and technical measures (such as the password protection and encryption of our data and systems) to protect our technology and intellectual property rights, including our proprietary software. Existing laws will afford only limited protection for our intellectual property rights. Intellectual property rights or registrations granted to us may provide an inadequate competitive advantage or be too narrow to protect our products and services. Similarly, there is no guarantee that our pending applications for intellectual property protection will result in registrations or issued patents or sufficiently protect our rights. The protections outlined above may not be sufficient to prevent unauthorized use, misappropriation or disclosure of our intellectual property or technology and may not prevent competitors from copying, infringing, or misappropriating our products and services. We cannot be certain that others will not independently develop, design around or otherwise acquire equivalent or superior technology or intellectual property rights. If we are unable to adequately protect our intellectual property rights, our business and growth prospects could be materially and adversely affected.

One or more of the issued patents or pending patent applications relating to us may be categorized as so-called “business method” patents. The general validity of software patents and business method patents has been challenged in a number of jurisdictions, including the United States. Our patents may become less valuable or unenforceable if software or business methods are found to be a non-patentable subject matter or if additional requirements are imposed that our patents do not meet.

We also rely on numerous marks, trademarks and service marks, including “BankMobile,” “BankMobile Vibe” and “BankMobile Disbursements.” If the validity of these marks were challenged, our brand may be damaged or we may be required to face considerable expense defending or changing our marks.

We may incorporate open source software into our products. While the terms of many open source software licenses have not been interpreted by U.S. or foreign courts, such licenses could be construed in a manner that imposes conditions or restrictions on our ability to offer our products and services. In such event, we could be required to make the source code for certain of our proprietary software available to third parties, which may include competitors, to seek licenses from third-parties, to re-engineer, or to discontinue the offering of our products or services, or we could become subject to other consequences, any of which could adversely affect our business, revenues and operating expenses.

We may be subject to claims that our services or solutions violate the patents or other intellectual property of others, which would be costly and time-consuming to defend. If our services and solutions are found to infringe the patents or other intellectual property rights of others, we may be required to change our business practices or pay significant costs and monetary penalties.

The services and solutions that we provide may infringe upon the patents or other intellectual property rights of others. The industry in which we operate is characterized by frequent claims of patent or other intellectual property infringement. We cannot be sure that our services and solutions, or the products of others that we use or offer to our clients, do not and will not infringe upon the patents or other intellectual property rights of third parties, and we may have infringement claims asserted against us or our clients. If others claim that we have infringed upon their patents or other intellectual property rights, we could be liable for significant damages and incur significant legal fees and expenses. In addition, we have agreed to indemnify many of our clients against claims that the services and solutions provided by us infringe upon the proprietary rights of others. In some instances, the potential amount of these indemnities may be greater than the revenues received from the client.
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Regardless of merit, any such claims could be time-consuming, result in costly litigation, be resolved on unfavorable terms, damage our reputation or require us to enter into royalty or licensing arrangements. Such results could limit our ability to provide a solution or service to clients and have a material adverse effect on our business, results of operations or financial condition.

Termination of, or changes to, the MasterCard association registration could materially and adversely affect our business, financial condition, and results of operations.

The student checking account debit cards issued in connection with our disbursement business and the consumer checking account debit cards issued in connection with BaaS programs and workplace programs are subject to MasterCard association rules that could subject us to a variety of fines or penalties that may be levied by MasterCard for acts or omissions by us or businesses that work with us. The termination of the card association registration held by us or any changes in card association or other network rules or standards, including interpretation and implementation of existing rules or standards, that increase the cost of doing business or limit our ability to provide products and services and could materially and adversely affect our business, financial condition, and results of operations.

The fees that we will generate are subject to competitive pressures and are subject to change, which may materially and adversely affect our revenue and profitability.

We will generate revenue from, among other sources, agreements with our Partner Bank to share the banking services fees charged to our account holders, interchange fees related to purchases made through our debit cards, deposit servicing fees from our Partner Bank, and fees charged to our higher education institution clients. In an increasingly price-conscious and competitive market, it is possible that to maintain our competitive position with higher education institutions, BaaS partners, and large employers, we may have to decrease the fees charged for our services. Similarly, in order to maintain our competitive position with our Partner Bank, we may need to reduce deposit servicing fees we charge. In order to maintain our competitive position with account holders, we and our Partner Bank may need to reduce banking service fees charged to account holders.

MasterCard could reduce the interchange rates, which it unilaterally sets and adjusts from time to time, which would negatively affect the interchange revenue that we share with our partner banks. In addition, account holders may modify their spending habits and increase their use of automated clearing house (“ACH”) relative to their use of debit cards, as ACH payments are generally free, which could reduce the interchange fees remitted to us. If our fees are reduced as described above, our business, results of operations and prospects for future growth could be materially and adversely affected.

We have a Deposit Processing Services Agreement in place with our current Partner Bank. The Deposit Processing Services Agreement will expire on December 31, 2022, and will automatically renew for an additional three year term unless either party elects not to renew. Our Partner Bank has indicated that it will not renew the current Deposit Processing Services Agreement under existing terms. We are considering multiple strategic alternatives in the event the Deposit Processing Services Agreement is not renewed including internalizing services upon the merger with FSB, partnering with other banks, utilizing a brokered deposit model, or entering into discussions with our current Partner Bank about a new Deposit Processing Services Agreement after December 31, 2022 at then current market rates and conditions. If we are unable to merge with FSB before the Deposit Processing Services Agreement expires, and are unable to pursue our alternative strategies on favorable terms, or at all, it could materially affect our revenues, results of operations, and financial condition. In addition, upon an expiration of the Deposit Processing Services Agreement, if we have not completed our merger with FSB, the amount of interchange revenues we may earn will be dependent on entering into agreements with qualifying partner banks. Our partner banks are subject to extensive regulation as banks, which could limit or restrict our activities.

We outsource critical operations, which will expose us to risks related to our third-party vendors.

We have entered into contracts with third-party vendors to provide critical services, technology and software in our operations. These outsourcing partners include, among others: FIS, which provides back-end account and transaction data processing as well as web and application hosting services in secure data centers; MasterCard, which provides the payment network for our cards, as well as for certain other transactions; and Ubiquity Global Services, which provides customer care services.


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Accordingly, we depend, in part, on the services, technology and software of these and other third-party service providers. In the event that these service providers fail to maintain adequate levels of support, do not provide high quality service, discontinue their lines of business, terminate our contractual arrangements or cease or reduce operations, we may be required to pursue new third-party relationships, which could materially disrupt our operations and could divert management’s time and resources. We may also be unable to establish comparable new third-party relationships on as favorable terms or at all, which could materially and adversely affect our business, financial condition, and results of operations.

Even if we are able to obtain replacement technology, software or services there may be a disruption or delay in our ability to operate our business or to provide products and services, and the replacement technology, software or services might be more expensive than those we have currently. The process of transitioning services and data from one provider to another can be complicated, time consuming and may lead to significant disruptions in our business. In addition, any failure by third-party service providers to maintain adequate internal controls could negatively affect our internal control over financial reporting, which could impact the preparation and quality of our financial statements.

Failure to maintain an effective system of disclosure controls and internal control over financial reporting could affect our ability to produce timely and accurate financial statements or comply with applicable laws and regulations.

As a public company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act. The Company is an emerging growth company and may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies.” As an emerging growth company, the Company is not subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting. Management is required to make an annual assessment of internal controls over financial reporting pursuant to Section 404(a). This assessment needs to include disclosure of any material weaknesses identified by management in internal control over financial reporting.

As described in Part II, Item 9A — Controls and Procedures, management has identified material weaknesses in the Company's internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

The Company has developed a remediation plan to address the identified material weaknesses. If the Company’s remediation efforts are insufficient or if additional material weaknesses in internal control over financial reporting are discovered or occur in the future, the Company's consolidated financial statements may contain material misstatements and it could be required to revise or restate its financial results, which could materially and adversely affect the Company’s business, results of operations and financial condition, restrict its ability to access the capital markets, require it to expend significant resources to correct the material weaknesses, subject it to fines, penalties or judgments, harm its reputation or otherwise cause a decline in investor confidence.

Any inability to successfully integrate our recent or future mergers and acquisitions could have a material adverse effect on us.

Mergers and acquisitions typically require integration of the acquired companies’ sales and marketing, operating, manufacturing, distribution, finance and administrative functions, as well as exposure to different legal and regulatory regimes in jurisdictions in which we have not previously operated. We may not be able to integrate successfully any business we acquire into our existing business, or may not be able to do so in a timely, efficient and cost-effective manner. Our inability to complete the integration of new businesses in a timely and orderly manner could increase costs and lower profits. Factors affecting the successful integration of acquired businesses include, but are not limited to, the following:

• our inability to manage acquired businesses or control integration costs and other costs relating to mergers and
acquisitions;

• diverting the attention of our management and that of the acquired business;

• merging or linking different accounting and financial reporting systems and systems of internal controls;

• merging computer, technology and other information networks and systems;

• assimilating personnel, human resources and other administrative departments and potentially contrasting
corporate cultures;
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• failure to retain existing key personnel of the acquired businesses and recruit qualified new employees at new
locations;

• disrupting our relationship with, or loss of, key customers or suppliers;

• incurring or guaranteeing additional indebtedness;

• interfering with, or loss of momentum in, our ongoing business or that of the acquired company; and

• delays or cost-overruns in the integration process.

Any of these acquisition or other integration-related issues could divert management’s attention and resources from our day-to-day operations, cause significant disruption to our businesses, and lead to substantial additional costs. Our inability to realize the anticipated benefits of a merger or acquisition or to successfully integrate acquired companies as well as other transaction-related issues could have a material adverse effect on our businesses, financial condition, and results of operations.

In addition, possible future mergers, acquisitions, or dispositions may trigger a review by the U.S. Department of Justice, the Federal Deposit Insurance Corporation, and/or the State Attorneys General under their respective regulatory authority, focusing on the effects on competition, including the size or structure of the relevant markets and the pro-competitive benefits of the transaction. Any delay, prohibition or modification required by regulatory authorities could adversely affect the terms of a proposed merger or acquisition or could require us to modify or abandon an otherwise attractive acquisition opportunity.

We face a number of risks relating to our announced plans to merge with First Sound Bank.

On November 14, 2021, we entered into the Agreement and Plan of Reorganization and Merger with FSB, a Washington state-chartered bank. The completion of the merger will be subject to a number of conditions, including receipt of all necessary regulatory approvals, shareholder approvals from both FSB and BM Technologies shareholders, and other customary closing conditions. Certain of the conditions will not be within our control, and we cannot guarantee that we will be able to complete the merger as anticipated, or at all.

Our performance after consummating the FSB merger will depend, in part, on our ability to successfully and efficiently integrate FSB with our business in a cost-effective manner that does not significantly disrupt our consolidated operations. Additionally, our ability to execute on our plan will require additional capital which we may be unable to raise on favorable terms. There can be no assurance that we will be able to maintain and grow our business and operations during, and following, the integration. Integrating and coordinating certain aspects of the operations, products, and personnel of FSB involve complex operational and personnel-related challenges. This process has been and will continue to be time-consuming and expensive, may disrupt our business, and may not result in the full benefits expected from the merger. The potential difficulties, and resulting costs and delays, include:

• difficulties attracting and retaining key personnel;

• loss of customers and inability to attract new customers;

• issues in integrating information technology, services, communications, regulatory compliance and other systems;

• incompatibility of logistics, marketing, administration and other systems and processes;

• merging corporate and administrative infrastructures; and

• unforeseen and unexpected liabilities related to the merger.

Additionally, the continued integration of our operations, products and personnel may place a significant burden on management and other internal resources. The diversion of management’s attention, and any difficulties encountered in the transition and integration process, could harm our business, financial condition, and results of operations.

After the combination with FSB, we will be subject to additional regulation as a federally insured depository institution and state chartered bank. We may face additional compliance costs and burden of being in a highly-regulated industry. Finally, we may not receive the benefits of being a chartered bank in the time or scale that we anticipate, which could affect our prospects and results of operations.


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The failure to consummate the merger with First Sound Bank could have a material adverse effect on our business.

In November 2021, we entered into an agreement to combine our business with FSB. The business combination is expected to be consummated prior to December 31, 2022. The business combination is a part of our broader strategic plan to become a fully integrated fintech driven bank and will allow us to internalize the deposit taking function and eliminate our dependence on our Partner Bank. If we fail to consummate the merger, we may have to renegotiate our business arrangements with our Partner Bank, including our Deposit Processing Services Agreement (which our Partner Bank has the right to terminate as early as December 31, 2022), or with another partner bank, and renegotiate certain business arrangements with certain of our other business partners. We cannot guarantee those agreements or arrangements will be renegotiated on similar or better terms or, alternatively, will be replaced by agreements or arrangements with new business partners on similar or better terms. As a result, the failure to consummate the merger transaction with FSB could have a material adverse effect on our business going forward.

Risks Related to our Common Stock and Warrants

An active, liquid trading market for our common stock may not be sustained.

We cannot predict the extent to which investor interest in our company will lead to the further development of a trading market on NYSE American or otherwise in the future or how active and liquid that market may become. If an active and liquid trading market is not sustained, you may have difficulty selling any of our common stock. Among other things, in the absence of a liquid public trading market:

you may not be able to liquidate your investment in shares of common stock;

you may not be able to resell your shares of common stock at or above the price attributed to them in the business combination;

the market price of shares of common stock may experience significant price volatility; and

there may be less efficiency in carrying out your purchase and sale orders.

If securities analysts publish negative evaluations of our common stock or if we lose analysts resulting in loss of research coverage or their evaluations of our stock are downgraded, the price of our common stock could decline.

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We currently have limited research coverage by industry and financial analysts. However, the few analysts that provide coverage of us could stop and the trading price of our stock could be negatively affected. If one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our common stock could decline. If one or more of these analysts cease to cover our common stock, we could lose visibility in the market for our stock, which in turn could cause our common stock price to decline.

Substantial future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price.

Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares. Certain shares of our common stock are freely tradable without restriction under the Securities Act, except for any shares of our common stock that may be held or acquired by our directors, executive officers, and other affiliates, as that term is defined in the Securities Act, which are restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. Certain of our stockholders and members of our management have rights, subject to certain conditions, to require us to file registration statements covering shares of our common stock or to include shares in registration statements that we may file for ourselves or other stockholders. Any such sales, including sales of a substantial number of shares or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. We may also issue shares of our common stock or securities convertible into our common stock from time to time in connection with financings, acquisitions, investments, or otherwise. Any such issuance could result in ownership dilution to you as a stockholder and cause the trading price of our common stock to decline.

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Provisions in our charter and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our common stock and could entrench management.

Our amended and restated certificate of incorporation and bylaws contain provisions to limit the ability of others to acquire control of the Company or cause us to engage in change-of-control transactions, including, among other things:

provisions that authorize our board of directors, without action by our stockholders, to authorize by resolution the issuance of shares of preferred stock and to establish the number of shares to be included in such series, along with the preferential rights determined by our board of directors;

provided that, our board of directors may also, subject to the rights of the holders of preferred stock, authorize shares of preferred stock to be increased or decreased by the approval of the board of directors and the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock of the corporation;

provisions that impose advance notice requirements, minimum shareholding periods and ownership thresholds, and other requirements and limitations on the ability of stockholders to propose matters for consideration at stockholder meetings; and

a staggered board whereby our directors are divided into three classes, with each class subject to retirement and reelection once every three years on a rotating basis.

These provisions could have the effect of depriving stockholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our business in a tender offer or similar transaction. With our staggered board of directors, at least two annual meetings of stockholders will generally be required in order to effect a change in a majority of our directors. Our staggered board of directors can discourage proxy contests for the election of directors and purchases of substantial blocks of our shares by making it more difficult for a potential acquirer to gain control of our board of directors in a relatively short period of time.

Our amended and restated certificate of incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

Our amended and restated certificate of incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation.

This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.

We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.

We will have the ability to redeem outstanding warrants (excluding any placement warrants held by our Sponsor or its permitted transferees) at any time after they become exercisable and prior to their expiration, at $0.01 per warrant, provided that the last reported sales price (or the closing bid price of our common stock in the event the shares of our common stock are not traded on any specific trading day) of our common stock equals or exceeds $24.00 per share for any 20 trading days within a 30 trading-day period ending on the third business day prior to the date we send proper notice of such redemption, provided that on the date it gives notice of redemption and during the entire period thereafter until the time it redeems the warrants, we have an effective registration statement under the Securities Act covering the shares of our common stock issuable upon exercise of the warrants and a current prospectus relating to them is available.
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If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force a warrant holder: (i) to exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, will be substantially less than the market value of your warrants.

Our Warrants could increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

As of December 31, 2021 there were warrants outstanding to purchase an aggregate of 23,873,167 shares of our common stock. These warrants consist of 16,928,889 warrants originally included in the units issued in Megalith’s initial public offering and 6,945,778 private placement warrants less the public warrants exercised during the current year. Each warrant entitles its holder to purchase one share of our common stock at an exercise price of $11.50 per share and will generally expire at 5:00 p.m., New York time, on January 4, 2026 or earlier upon redemption of our common stock. To the extent warrants are exercised, additional shares of our common stock will be issued, which will result in dilution to our then existing stockholders and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could depress the market price of our common stock.

Regulatory Risks

A change in regulations related to interchange or methods of payments could materially and adversely affect our financial performance.

Future federal, state or network regulations could be changed in a way that could negatively affect our business. Additionally, with the advent of creative money movement systems that bypass card networks, a large future proportionate share of “spend” could leverage a less income producing method. In turn, these events could significantly reduce our interchange income from which we currently expect to derive a significant proportion of our revenues, which could adversely affect our financial condition and results of operations.

We are subject to various regulations related to higher education and disbursements.

Third-Party Servicer

Because we provide services to some higher education institutions that involve handling federal student financial aid funds, we are considered a “third-party servicer” under Title IV of the Higher Education Act of 1965, which governs the administration of federal student financial aid programs. Those regulations require a third-party servicer annually to submit a compliance audit conducted by outside independent auditors that cover the servicer’s Title IV activities. Each year we are required to submit a “Compliance Attestation Examination of the Title IV Student Financial Assistance Programs” audit to the ED, which includes a report by an independent audit firm. This yearly compliance audit submission to ED provides comfort to our higher education institution clients that we are in compliance with applicable third-party servicer regulations. We also provide and will provide this compliance audit report to clients upon request to help them fulfill their compliance audit obligations as Title IV participating institutions.

Under ED’s regulations, a third-party servicer that contracts with a Title IV institution acts in the nature of a fiduciary in the administration of Title IV programs. Among other requirements, the regulations provide that a third-party servicer is jointly and severally liable with its client institution for any liability to ED arising out of the servicer’s violation of Title IV or its implementing regulations, which could subject us to material fines related to acts or omissions of entities beyond our control. ED is also empowered to limit, suspend or terminate the violating servicer’s eligibility to act as a third-party servicer and to impose significant civil penalties on the violating servicer. We may enter into “Tier 1” arrangements with educational institutions, which are subject to more stringent regulations than certain other “Tier 2” or “non-covered” arrangements.

Additionally, on behalf of our higher education institution clients, we are required to comply with ED’s cash management regulations regarding payment of financial aid credit balances to students and providing bank accounts to students that may be used for receiving such payments. In the event ED concludes that we have violated Title IV or its implementing regulations and should be subject to one or more sanctions, our business and results of operations could be materially and adversely affected. There is limited enforcement and interpretive history of Title IV regulations.

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Final rules relating to Title IV Cash Management were published in the Federal Register on October 30, 2015. The Final Rules include, among others, provisions related to (i) restrictions on the ability of higher education institutions and third-party servicers like us to market financial products to students including sending unsolicited debit cards to students, (ii) prohibitions on the assessment of certain types of account fees on student account holders, and (iii) requirements related to ATM access for student account holders that became effective as of July 1, 2016.

These regulations also require institutions to: offer students additional choices regarding how to receive their student aid funds (including prohibiting an institution from requiring students to open an account into which their credit balances must be deposited); provide a list of account options from which a student may choose to receive credit balance funds electronically, where each option is presented in a neutral manner and the student’s preexisting bank account is listed as the first and most prominent option with no account preselected; ensure electronic payments made to a student’s preexisting account are initiated in a manner as timely as, and no more onerous than, payments made to an account with the institution); include additional restrictions on the institution’s use of personally identifiable information; require that the terms of the contractual arrangements between institutions and schools be publicly disclosed; and require that schools establish and evaluate the contractual arrangements with institutions in light of the best financial interests of students. These regulations increase our compliance costs and could negatively affect our results of operations.

Our partner banks are subject to extensive regulation as a bank, which could limit or restrict our activities.

Banking is a highly regulated industry and our partner banks are subject to examination, supervision, and comprehensive regulation by various regulatory agencies. As a service provider, we will be required to comply with many of these regulations on behalf of our partner banks, which will be costly and restrict certain of our activities, including loans and interest rates charged and interest rates paid on deposits.

The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of these changes on our partner banks, and our own business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks, our cost of compliance could adversely affect our ability to operate profitably.

The Dodd-Frank Act Wall Street Reform and Consumer Protection Act, enacted in July 2010, which we refer to as the Dodd-Frank Act, instituted major changes to the banking and financial institutions regulatory regimes in light of the recent performance of and government intervention in the financial services sector. The “Durbin Amendment” of the Dodd-Frank Act limits the amount of interchange fees chargeable by a bank with over $10 billion in assets. Additional legislation and regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could significantly affect our revenues, business and operations in substantial and unpredictable ways.

Further, regulators have significant discretion and power to prevent or remedy unsafe or unsound practices or violations of laws by banks in the performance of their supervisory and enforcement duties. The exercise of this regulatory discretion and power could have a negative impact on our partner banks, and by extension, a negative impact on us. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputational damage, which could have a material adverse effect on our partner banks and on our own business, financial condition, and results of operations. Our Partner Bank is now over $10 billion in assets and is subject to the Durbin Amendment, which could have an adverse effect on our business. Pursuant to the Deposit Processing Services Agreement between us and our Partner Bank, it will reimburse us for a portion of the interchange fee lost as a result of being subject to the Durbin Amendment. However, we may not be able to find another banking partner that is not subject to the Durbin Amendment in the future or at all, or on terms that are attractive to us, and having a banking partner that is subject to the Durbin Amendment could reduce interchange revenue and negatively affect our prospects and results of operations.


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General Risk Factors

Our ability to limit our liabilities by contract or through insurance may be ineffective or insufficient to cover future liabilities.

We will attempt to limit, by contract, our liability for damages arising from negligence, errors, mistakes or security breaches. Contractual limitations on liability, however, may not be enforceable or may otherwise not provide sufficient protection to us from liability for damages. We will maintain liability insurance coverage, including coverage for errors and omissions. It is possible, however, that claims could exceed the amount of applicable insurance coverage, if any, or that this coverage may not continue to be available on acceptable terms or in sufficient amounts. Even if these claims do not result in liability to us, investigating and defending against them could be expensive and time consuming and could divert management’s attention away from our operations. In addition, negative publicity caused by these events may delay market acceptance of our products and services, any of which could materially and adversely affect our reputation and business.

Family Educational Rights and Privacy Act (“FERPA”) and Gramm-Leach-Bliley Act (“GLBA”)

Our higher education institution clients are subject to the Family Educational Rights and Privacy Act of 1995 (“FERPA”), which provides, with certain exceptions, that an educational institution that receives any federal funding under a program administered by ED may not have a policy or practice of disclosing education records or “personally identifiable information” from education records, other than directory information, to third parties without the student’s or parent’s written consent. Our higher education institution clients disclose to us certain non-directory information concerning their students, including contact information, student identification numbers and the amount of students’ credit balances. We believe that our higher education institution clients are and will be able to disclose this information without the students’ or their parents’ consent pursuant to one or more exceptions under FERPA. However, if ED asserts that we do not fall into one of these exceptions or if future changes to legislation or regulations require student consent before our higher education institution clients can disclose this information, a sizable number of students may cease using our products and services, which could materially and adversely affect our business, financial condition, and results of operations.

Additionally, as we are indirectly subject to FERPA, we cannot permit the transfer of any personally identifiable information to another party other than in a manner in which a higher education institution may disclose it. In the event that we re-disclose student information in violation of this requirement, FERPA requires our clients to suspend our access to any such information for a period of five years. Any such suspension could have a material adverse effect on our business, financial condition, and results of operations.

We also are and will be subject to certain other federal rules regarding safeguarding personal information, including rules implementing the privacy provisions of the Gramm-Leach-Bliley Act of 1999, or GLBA State Laws. We may also become subject to similar state laws and regulations, including those that restrict higher education institutions from disclosing certain personally identifiable information of students. State attorneys general and other enforcement agencies may monitor our compliance with state and federal laws and regulations that affect our business, including those pertaining to higher education and banking, and conduct investigations of our business that are time consuming and expensive and could result in fines and penalties that have a material adverse effect on our business, financial condition, and results of operations.

Additionally, individual state legislatures may propose and enact new laws that will restrict or otherwise affect our ability to offer our products and services, which could have a material adverse effect on our business, financial condition, and results of operations.

In addition, regulations related to higher education change frequently, and new or additional regulations in the future may increase compliance costs, limit our business and prospects and adversely affect our results of operations.

Compliance with the various complex laws and regulations is costly and time consuming, and failure to comply could have a material adverse effect on our business. Additionally, increased regulatory requirements on our businesses may increase costs, which could materially and adversely affect our business, financial condition, and results of operations. If we do not devote sufficient resources to additional compliance personnel and systems commensurate with our anticipated growth, we could be subject to fines, regulatory scrutiny or adverse public reception to our products and services.


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Our management team has limited experience in managing a public company and the business and financing activities of an organization of our size, which could impair our ability to comply with legal and regulatory requirements.

Our management team has had limited public company management experience or responsibilities, and has limited experience managing a business and related financing activities of our size. This could impair our ability to comply with various legal and regulatory requirements, such as public company compliance and filing required reports and other required information on a timely basis. It may be expensive to develop, implement and maintain programs and policies in an effective and timely manner that adequately respond to increased legal, regulatory compliance and reporting obligations imposed by such laws and regulations, and we may not have the resources to do so. Any failure to comply with such laws and regulations could lead to the imposition of fines and penalties and further result in the deterioration of our business.

We capitalize certain development costs related to internal software development; this capitalized asset could become impaired if there are changes in our business model that impact the expected use of that software.

At December 31, 2021, our net carrying value of developed software was $28.6 million, which made up a significant portion of our consolidated assets. This amount reflects the capitalized cost, net of accumulated amortization, of software that we developed internally as well as the remaining value of the acquired Higher One Disbursement business developed software. Changes in technology, our internal processes, or our business strategies or those of our partners could impact our ability to realize the value of our developed software, which could result in a write-down of the asset.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our corporate headquarters, which occupies approximately 7,326 square feet, houses our executive and administrative operations under an operating lease that expires on September 29, 2022 and is located at 201 King of Prussia Road, Suite 350, Wayne, PA. We also lease approximately 23,000 square feet of office space located at 115 Munson Street, New Haven, CT, that expires on June 30, 2022. In addition, we have the rights to utilize other office space under the Transition Services Agreement with our Partner Bank which expires March 31, 2022. We believe that our facilities are sufficient to meet our current needs and that suitable additional space will be available as and when needed.
ITEM 3. LEGAL PROCEEDINGS

We are involved in legal and administrative proceedings and litigation arising in the ordinary course of business. We believe that the potential liability, if any, in excess of amounts already accrued from all proceedings, claims and litigation will not have a material effect on our financial position, cash flows or results of operations when resolved in a future period.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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Part II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock and warrants are each traded on the NYSE American Market under the symbols “BMTX,” “BMTX-WT,” respectively.
Holders
On May 3, 2022, there were 720 holders of record of our common stock and 17 holders of record of our warrants.
Securities Authorized for Issuance Under Equity Compensation Plans
As of December 31, 2021 the Company had registered 1,720,037 total shares of common stock under the 2020 Equity Incentive Plan (1,220,037 shares) and the 2021 Employee Stock Purchase Plan (500,000 shares).
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer
As of December 31, 2021, the Company has reacquired 14,500 forfeited shares of its common stock due to failure of the recipients to satisfy the required vesting conditions.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the related notes included in Item 8 “Consolidated Financial Statements and Supplementary Data” of this Form 10-K.
FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K 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.



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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 our Partner Bank, Customers Bank, which is a related party and a Federal 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 Disbursement, BaaS, and Workplace Banking businesses.

BMTX has four primary revenue sources: interchange and card revenue, servicing fees from our 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 by the Company’s Partner Bank, universities, or paid directly by customers. The Company is actively working on its pipeline of prospective new BaaS customers to offer a suite of financial services products.

BMTX is a Delaware corporation, originally incorporated as Megalith Financial Acquisition Corp in November, 2017 and renamed BM Technologies, Inc. in January 2021 at the time of the merger between Megalith Financial Acquisition Corp and BankMobile Technologies, Inc. Until January 4, 2021, BankMobile Technologies, Inc. was a wholly-owned subsidiary of Customers Bank (“Customers Bank”). Customers Bank is a Pennsylvania state-chartered bank and a wholly-owned subsidiary of Customers Bancorp, Inc. (the “Bancorp” or “Customers Bancorp”), a bank holding company. Customers Bank is our Partner Bank. Our Partner Bank holds the FDIC insured deposits that we source and service and is the issuing bank on our debit cards. Our Partner Bank pays us a deposit servicing fee for the deposits generated and passes through interchange income earned from debit transactions. Deposit servicing fees and interchange income are our largest revenue sources.

BMTX is not a bank, does not hold a bank charter, and it does not provide banking services, and as a result we are not subject to direct banking regulation, except as a service provider to our Partner Bank. We are also subject to the regulations of the ED, due to our student Disbursements business, and are periodically examined by them. Our contracts with most of our higher education institutional clients requires us 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; 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 GLBA. Other products and services offered by us 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 relationship between the deposits level and the typical cycles of student disbursements from higher education institutions. 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 14, 2021, we entered into the Agreement and Plan of Reorganization and Merger with FSB, a Washington state-chartered bank.
Merger with Megalith Financial Acquisition Corporation

On January 4, 2021, BankMobile Technologies, Inc. (“BankMobile”), Megalith Financial Acquisition Corp. (“Megalith”), and MFAC Merger Sub Inc., consummated the transaction contemplated by the merger agreement entered into on August 6, 2020. In connection with the closing of the merger, Megalith Financial Acquisition Corp. changed its name to BM Technologies, Inc. (the “Company”). Effective January 6, 2021, the Company’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 with U.S. generally accepted accounting principles (“U.S. GAAP”). Under this method of accounting, Megalith was treated as the “acquired” 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. Prior periods presented for comparative purposes represent the balances and activity of BankMobile Technologies, Inc. (other than shares which were retroactively restated in connection with the merger).

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COVID-19

In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World 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 in the 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.

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. On March 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 the Higher Education Emergency Relief Fund (“HEERF”). This stimulus resulted in increased serviced deposit balances, debit card spend, and revenues, a trend that continued into early 2021. However, we have seen the growth rate slow in recent periods 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 our Partner 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
We have adopted various accounting policies that govern the application of U.S. GAAP and that are consistent with general practices within the fintech industry in the preparation of these financial statements. Our significant accounting policies are described in Note 2 - Basis of Presentation and Significant Accounting Policies in the Notes to the Consolidated Financial Statements herein.


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Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets. We consider these accounting policies to be critical accounting policies. The judgments and assumptions used are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Due to the nature of the judgments and assumptions management makes, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of our assets.

The critical accounting policies that are both important to the portrayal of our financial condition and results of operations and require complex, subjective judgments are the accounting policies for the following: share-based compensation, provision for operating losses, income taxes, goodwill and other intangibles, developed software, and accounting for public and private warrants.

Share-Based Compensation Expense

The Company uses share-based compensation, including stock, restricted stock units and performance stock units, to provide long-term performance incentives for its employees and directors. Share-based compensation is recognized on a straight-line basis over the requisite service period of the award based on their grant-date fair value for time-based awards. Compensation related to performance-based awards are recognized over the period the performance obligation is expected to be satisfied. Forfeitures are recognized as they occur. Share-based compensation expense is included in Salaries and employee benefits. In addition, the holders of restricted shares may elect to surrender a portion of their shares on the vesting date to cover their income tax obligations.

Provision for Operating Losses

The provision for operating losses represents our payments for losses resulting from fraud or theft-based transactions that have generally been disputed by our serviced deposit account holders and Regulation E card claim losses incurred by us, as well as estimated liability for such losses where such disputes have not been resolved as of the end of the reporting period. Fraud or theft-based related losses are recognized when realized or incurred. Reg E claims made up a vast majority of the losses. The remaining fraud or theft-based losses are mostly Check Fraud and ACH/Wire Fraud.

The main source of Reg E losses is card holder claims of unauthorized use of their debit card. Drivers include, but are not limited to transaction purchase volume, in person vs. online, macroeconomic conditions, changes in customer behavior, and regulatory changes. A customer has 60 days to dispute a charge. BMTX may decline the claim within 10 days or advance the funds to the account holder if the investigation is still pending. BMTX may continue to investigate transactions for 35 more days, before making its final decision. At conclusion of the investigation, the advance is reversed or is made permanent. BMTX’s loss includes closed disputes where the customer is entitled to keep the funds advanced, an expected loss on actual disputes that are pending investigation, which is based on historical experience, as well as an estimate of disputes not yet disputed. The estimated liability for disputes not yet disputed is created by applying historical rates of transactions disputed after the reporting period end date and applying that rate to actual debit card volume in the period. This estimate of future disputes is then adjusted for our estimate of the amount disputed that we expect to result in a loss, which is estimated based on our historical experience. Our estimation process is subject to risks and uncertainties, including that future performance may be different from our historical experience. Accordingly, our actual loss experience may not match expectations.

Fraud or theft-based related losses are recognized when realized or incurred. Drivers include, but are not limited to efforts by organized or unorganized fraudsters to target an account, customer complicity, customer lack of proper password safeguarding or other preventative measures, onboarding approval procedures, changes in account funds availability, in person vs. online transactions, macroeconomic conditions, changes in customer behavior, and regulatory changes.

Income Taxes

BMTX accounts for income taxes under the liability method of accounting for income taxes. The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. BMTX determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.


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A tax position is recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the term upon examination includes resolution of the related appeals or litigation process. A tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment.

In assessing the realizability of federal or state deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and prudent, feasible and permissible as well as available tax planning strategies in making this assessment.

Goodwill and Other Intangibles

Goodwill represents the excess of the purchase price over the identifiable net assets of businesses acquired through business combinations accounted for under the acquisition method. Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. Intangible assets that have finite lives, such as university relationships, are subject to impairment testing. Intangible assets are amortized on a straight-line basis over twenty years.

Goodwill is reviewed for impairment annually as of October 31 and between annual tests when events and circumstances indicate that impairment may have occurred. The goodwill impairment charge represents the amount by which the reporting unit’s carrying amount exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. BMTX applies a qualitative assessment to determine if the one-step quantitative impairment test is necessary.

Other intangibles subject to amortization are reviewed for impairment under FASB ASC 360, Property, Plant and Equipment, which requires that a long-lived asset or asset group be tested for recoverability whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

As part of its qualitative assessment, BMTX reviews regional and national trends in current and expected economic conditions, examining indicators such as GDP growth, interest rates and unemployment rates. BMTX also considers its own historical performance (through BankMobile), expectations of future performance, indicative deal values, and other trends specific to its industry.

Developed Software

Developed software includes internally developed software and developed software acquired in the Higher One Disbursement business acquisition. Internally developed software and related capitalized work-in-process costs relate to the development of digital banking platforms to connect BaaS banking customers to partner banks.

BMTX capitalizes certain internal and external costs incurred to develop internal-use software during the application development stage. BMTX also capitalizes the cost of specified upgrades and enhancements to internal-use software that result in additional functionality. Once a development project is substantially complete and the software is ready for its intended use, BMTX begins amortizing these costs on a straight-line basis over the internal-use software’s estimated useful life, which range from three to seven years.

The Higher One Disbursement business developed software is related to the Disbursement business services to colleges and universities and delivering services to students. The Higher One Disbursement business developed software was recorded at the amount determined by a third-party valuation expert and was estimated based on expected revenue attributable to the software utilizing a discounted cash flow methodology, giving consideration to potential obsolescence. The estimated useful life of the Higher One Disbursement business developed software is 10 years.


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The Company reviews the carrying value of developed software for impairment by measuring the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. If the Company determines that the carrying amount is impaired, the asset is written down to fair value. Fair value is determined based on discounted cash flows or management’s estimates, depending on the nature of the assets.

Public & Private Warrants

The Company has Public and Private Warrants outstanding as a result of the merger transaction which occurred on January 4, 2021. Each whole warrant entitles the registered holder to purchase one whole share of common stock at a price of $11.50 a share. The warrants expire January 4, 2026, or earlier upon redemption or liquidation and the Company has redemption rights if our common stock trades above $24.00 for 20 out of 30 days. The Private Warrants are identical to the Public Warrants except that the Private Warrants are non-redeemable and exercisable on a cashless basis so long as they are held by the sponsor and certain others.

The Private Warrants and the Public Warrants are treated differently for accounting purposes. In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity, the Private Warrants are accounted for as liabilities and will be marked-to-market each reporting period with the change recognized in earnings. In general, under the mark-to-market accounting model, as the Company’s stock price increases, the warrant liability increases, and the Company recognizes additional expense in its Consolidated Statements of Income (Loss) – the opposite when the stock price declines. Accordingly, the periodic revaluation of the Private Warrants could result in significant volatility in our reported earnings. The amounts recognized are a mark-to-market accounting determination and are non-cash.

In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity, for accounting purposes the Public Warrants are treated as equity instruments. Accordingly, the Public Warrants are not marked-to-market each reporting period, thus there is no impact to earnings. Any future exercises of the Public Warrants will be recorded as cash received and recorded in Cash and cash equivalents, with a corresponding offset to Additional paid-in capital in equity.

NEW ACCOUNTING PRONOUNCEMENTS
The FASB has issued accounting standards that have not yet become effective and that may impact BMTX’s 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 Consolidated Financial Statements, including the accompanying notes. The following summarized tables set forth our operating results for the twelve months ended December 31, 2021 and December 31, 2020:
Twelve Months Ended
December 31,
%
Change
2021 2020
(dollars in thousands, except per share data) (As Restated) Change
Operating revenues $ 94,987  $ 66,437  $ 28,550  43  %
Operating expenses 89,321  77,233  12,088  16  %
Income (loss) from operations 5,666  (10,796) 16,462  NM
Gain on fair value of private warrant liability 17,225  —  17,225  100  %
Interest expense (96) (1,395) 1,299  (93) %
Income (loss) before income tax expense     22,795  (12,191) 34,986  NM
Income tax expense 5,752  23  5,729  NM
Net income (loss) $ 17,043  $ (12,214) $ 29,257  NM
Net Income (loss) per share - basic $ 1.44  $ (1.99) $ 3.43  NM
Net Income (loss) per share - diluted $ 1.43  $ (1.99) $ 3.42  NM
NM refers to changes greater than 150%.
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For the twelve months ended December 31, 2021, we had substantially higher operating profitability as compared to the twelve months ended December 31, 2020. The increase was almost entirely due to additional revenues which increased 43% as compared to the prior year as compared to operating expenses which increased by only 16% resulting in improved operating profitability. The increase in revenue is primarily driven by an increase in Servicing fees from Partner Bank which increased $22.6 million as compared to the prior period. In addition to increased income from operations, we experienced a year to date gain on the fair value of the private warrant liability and decreased interest expense. The resulting increased profitability for the period drove an increase in income tax expense for the period. The increased profitability as compared to the prior period was reflected in our Basic and Diluted Earnings Per Share amounts which increased to $1.44 and $1.43 for the twelve months ended December 31, 2021, respectively as compared to $(1.99) for both Basic and Diluted Earnings Per Share for the twelve months ended December 31, 2020. The reasons for these movements in revenue and expenses are discussed in further detail below.
Operating Revenues
Twelve Months Ended
December 31,
%
Change
2021 2020
(dollars in thousands) (As Restated) Change
Revenues:
Interchange and card revenue $ 28,078  $ 25,864  $ 2,214  %
Servicing fees from Partner Bank 45,105  22,465  22,640  101  %
Account fees 10,668  11,308  (640) (6) %
University fees 5,693  5,320  373  %
Other revenue 5,443  1,480  3,963  NM
     Total operating revenues $ 94,987  $ 66,437  $ 28,550  43  %
NM refers to changes greater than 150%.

For the twelve months ended December 31, 2021, total revenues increased $28.6 million, or 43% as compared to the twelve months ended December 31, 2020. This increase is primarily attributable to a $22.6 million increase in Servicing fees from our Partner Bank, driven by an increase in average serviced deposits period over period from $0.8 billion to $1.6 billion. The Company expects continued growth in average serviced deposits in the future. In addition, we had a $4.0 million increase in Other revenue, due to higher banking-as-a-service project revenues, and a $2.2 million increase in Interchange and card revenue due to an increase in total spend as compared to the prior period. These increases in revenue were partially offset by a decrease in Account fees of $0.6 million. The decrease in Account fees of $0.6 million is primarily driven by reduced fees in our Higher Education business.
Operating Expenses
Twelve Months Ended
December 31,
%
Change
(dollars in thousands) 2021 2020 Change
Technology, communication, and processing $ 28,973  $ 27,404  $ 1,569  %
Salaries and employee benefits 38,036  26,076  11,960  46  %
Professional services 10,395  9,304  1,091  12  %
Provision for operating losses 5,419  5,170  249  %
Occupancy 1,197  1,428  (231) (16) %
Customer related supplies 2,214  3,236  (1,022) (32) %
Advertising and promotion 654  941  (287) (30) %
Merger and acquisition related expenses 65  739  (674) (91) %
Other expense 2,368  2,935  (567) (19) %
   Total operating expenses $ 89,321  $ 77,233  $ 12,088  16  %


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For the twelve months ended December 31, 2021, operating expenses increased $12.1 million, or 16% as compared to the twelve months ended December 31, 2020. This increase is primarily attributable to a $12.0 million increase in Salaries and employee benefits, a $1.6 million increase in Technology, communication, and processing, and a $1.1 million increase in Professional services. The increase in Salaries and employee benefits included $9.5 million for the January 4th, 2021 share-based compensation award and $0.8 million for the accelerated vesting of restricted stock units and stock options previously granted by our former parent to certain of the Company’s employees in connection with the divestiture of the Company, and $1.0 million for executive restricted share units granted during 2021. The increase in Technology, communication, and processing expense year-over-year reflects an increase in stand-alone technology and cloud computing costs, as well as lower partner reimbursements of certain technology costs in 2021. These increases were partially offset by a $1.0 million decrease in Customer related supplies, a $0.7 million decrease in Merger and acquisition related expenses, and a $0.6 million decrease in Other expense.

Income Tax Expense
The Company’s effective tax rate was 25.2% for the twelve months ended December 31, 2021. The effective tax rate differs from the Company’s federal statutory rate of 21.0% due to the non-taxable fair value adjustments related to the non-compensatory private warrant liability being recorded through earnings as well as tax expense related to the estimated annual increase of the valuation allowance established against deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
We currently finance our operations through cash flows provided by operating activities. We had a substantial increase in cash from operating activities in the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020. We had $25.7 million of Cash and cash equivalents as of December 31, 2021.
We intend to fund our ongoing operating activities with our existing cash and expected cash flows from operations; we believe these sources of liquidity will be adequate for at least the next twelve months. 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:
Twelve Months Ended
December 31,
%
Change
2021 2020
(dollars in thousands) (As Restated) Change
Net cash provided by operating activities $ 27,543  $ 16,038  $ 11,505  72  %
Net cash used in investing activities (733) (4,020) 3,287  (82) %
Net cash used in financing activities (4,095) (17,615) 13,520  (77) %
Net increase (decrease) in cash and cash equivalents $ 22,715  $ (5,597) $ 28,312  NM
NM refers to changes greater than 150%.
Cash Flows Provided by Operating Activities
Cash provided by operating activities was $27.5 million in the twelve months ended December 31, 2021 compared to cash provided of $16.0 million in the twelve months ended December 31, 2020, an increase of $11.5 million. The increase was driven primarily by the increase in Income (loss) from operations for the twelve months ended December 31, 2021 as compared to the prior year.

Cash Flows Used in Investing Activities
Cash used in investing activities decreased $3.3 million in the twelve months ended December 31, 2021 as compared to the twelve months ended December 31, 2020, primarily due to reduced capitalization of development costs related to internal use software as compared to the prior year.

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Cash Flows Used in Financing Activities
Cash used in financing activities decreased $13.5 million as compared to the prior year. The $4.1 million used in financing activities for the twelve months ended December 31, 2021 reflects the repayment of $21.0 million of debt substantially offset by $16.9 million of net cash proceeds from the recapitalization transaction. For the twelve months ended December 31, 2020, $19.0 million was recorded for repayments on borrowings that were partially offset by $1.4 million in capital contributions from the Company’s Partner Bank.
CONTRACTUAL OBLIGATIONS
During the twelve months ended December 31, 2021, BMTX repaid its debt outstanding. Note 7 - Borrowings from Partner Bank in the Notes to the Consolidated Financial Statements herein provides additional information. There were no other material changes in our contractual obligations during the twelve months ended December 31, 2021.

A summary of the Company’s outstanding contractual obligations as of December 31, 2021 is as follows:
Payments Due by Period
(dollars in thousands) Within
1 year
1 to 3
years
More than
3 years
Total Amounts
Committed
Operating leases $ 418  $ —  $ —  $ 418 
$ 418  $ —  $ —  $ 418 
Off-Balance Sheet Arrangements
As of December 31, 2021, we did not have any off-balance sheet arrangements.
ITEM 7A. QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Credit Risk

We are exposed to economic risks in the normal course of business primarily such as concentration of credit risk. Potential concentration of credit risk consists primarily of accounts receivable from our Partner Bank, BaaS partners, MasterCard, and higher education institution clients. Historically, we have not experienced any material losses related to these balances and believe that there is minimal risk of expected future losses. However, there can be no assurance that there will not be losses on these balances.

At December 31, 2021 and December 31, 2020, our Partner Bank accounted for 61% and 31% (As Restated) of our total Accounts receivable, net, respectively. At December 31, 2021 and December 31, 2020, a BaaS partner accounted for 13% and 46% (As Restated) of our total Accounts receivable, net, respectively. MasterCard accounted for 17% (As Restated) of our total Accounts receivable, net at both December 31, 2021 and December 31, 2020.

Financial instruments that potentially subject the Company to credit risk consist principally of cash held in the Company's operating account. Cash is maintained in accounts with our Partner Bank, which, at times may exceed the FDIC coverage of $250,000. At December 31, 2021, the Company has not experienced losses on these cash accounts and management believes, based upon the quality of the our Partner Bank, that the credit risk with regard to these deposits is not significant.

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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
BM Technologies, Inc.
Wayne, Pennsylvania

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of BM Technologies, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Restatement to Correct 2020 Misstatement

As discussed in Notes 2 and 16 to the consolidated financial statements, the 2020 financial statements have been restated to correct a misstatement.

Customer Concentration

As disclosed in Note 2 – Customer and Vendor Concentrations and Note 14 – Relationship with our Partner Bank, to the consolidated financial statements for the twelve months ended December 31, 2021 and 2020, the Company’s Partner Bank accounted for 87% and 86% of its Total operating revenues, respectively, through a Deposit Servicing Agreement. See Note 15 - Subsequent Events for the recent statement that the Company’s Partner Bank will not renew the Deposit Servicing Agreement when it expires on December 31, 2022. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP
We have served as the Company's auditor since 2018.
Philadelphia, Pennsylvania
May 10, 2022
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BM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share data)
December 31,
2021
December 31,
2020
(As Restated)
ASSETS
Cash and cash equivalents $ 25,704  $ 2,989 
Accounts receivable, net allowance for doubtful accounts of $79 and zero at December 31, 2021 and December 31, 2020, respectively.
9,161  10,033 
Prepaid expenses and other current assets 1,779  2,348 
Total current assets 36,644  15,370 
Premises and equipment, net 346  401 
Developed software, net 28,593  39,657 
Goodwill 5,259  5,259 
Other intangibles, net 4,749  5,070 
Other assets 837  853 
Total assets $ 76,428  $ 66,610 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities $ 7,033  $ 7,521 
Taxes payable 1,807  — 
Borrowings from Partner Bank —  21,000 
Current portion of operating lease liabilities 416  701 
Deferred revenue, current 15,387  10,588 
Total current liabilities 24,643  39,810 
Non-current liabilities:
Operating lease liabilities —  430 
Deferred revenue, non-current 190  2,101 
Liability for private warrants 13,614  — 
Total liabilities $ 38,447  $ 42,341 
Commitments and contingencies (Note 8)
Shareholders’ equity:
Preferred stock: Par value $0.0001 per share; 10,000,000 authorized, none issued or outstanding at both December 31, 2021 and December 31, 2020.
$ —  $ — 
Common stock: Par value $0.0001 per share; 1 billion shares authorized; 12,193,378 shares issued and outstanding at December 31, 2021; 6,123,432 shares issued and outstanding at December 31, 2020.
Additional paid-in capital 60,686  64,017 
Accumulated deficit (22,706) (39,749)
   Total shareholders’ equity $ 37,981  $ 24,269 
   Total liabilities and shareholders’ equity $ 76,428  $ 66,610 
See accompanying notes to the consolidated financial statements.
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BM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(amounts in thousands, except per share data)
Twelve Months Ended
December 31,
2021 2020
(As Restated)
Operating revenues:
Interchange and card revenue $ 28,078  $ 25,864 
Servicing fees from Partner Bank 45,105  22,465 
Account fees 10,668  11,308 
University fees 5,693  5,320 
Other revenue 5,443  1,480 
   Total operating revenues 94,987  66,437 
Operating expenses:
Technology, communication, and processing 28,973  27,404 
Salaries and employee benefits 38,036  26,076 
Professional services 10,395  9,304 
Provision for operating losses 5,419  5,170 
Occupancy 1,197  1,428 
Customer related supplies 2,214  3,236 
Advertising and promotion 654  941 
Merger and acquisition related expenses 65  739 
Other expense 2,368  2,935 
   Total operating expenses 89,321  77,233 
Income (loss) from operations 5,666  (10,796)
Non-operating income and expense:
Gain on fair value of private warrant liability 17,225  — 
Interest expense (96) (1,395)
Income (loss) before income tax expense 22,795  (12,191)
Income tax expense 5,752  23 
   Net income (loss) $ 17,043  $ (12,214)
Weighted average number of shares outstanding - basic 11,851  6,123 
Weighted average number of shares outstanding - diluted 11,939  6,123 
Net Income (loss) per share - basic $ 1.44  $ (1.99)
Net Income (loss) per share - diluted $ 1.43  $ (1.99)
See accompanying notes to the consolidated financial statements.
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BM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Twelve Months Ended Months Ended December 31, 2021 and 2020
(amounts in thousands, except share data)

Common Stock
Shares of
Common
Stock
Outstanding
Common
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Balance at December 31, 2019(1)
6,123,432  $ 1  $ 62,164  $ (27,535) $ 34,630 
Net loss (As Restated) —  —  —  (12,214) (12,214)
Capital contribution from Partner Bank —  —  1,385  —  1,385 
Share-based compensation expense —  —  468  —  468 
Balance at December 31, 2020 (As Restated) 6,123,432  $ 1  $ 64,017  $ (39,749) $ 24,269 
Net income —  —  —  17,043  17,043 
Valuation of private warrants —  —  (30,839) —  (30,839)
Recapitalization transaction 4,759,911  —  16,148  —  16,148 
Issuance of common stock as compensation 1,308,535  —  9,518  —  9,518 
Issuance of common stock upon exercise of warrants 1,500  —  17  —  17 
Share-based compensation expense —  —  1,825  —  1,825 
Balance at December 31, 2021 12,193,378  $ 1  $ 60,686  $ (22,706) $ 37,981 
1As previously reported and retroactively adjusted in connection with the merger.

See accompanying notes to the consolidated financial statements.
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BM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Twelve Months Ended
December 31,
2021 2020
(As Restated)
Cash Flows from Operating Activities:
Net income (loss) $ 17,043  $ (12,214)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of premises and equipment 193  310 
Amortization of developed software 11,444  11,047 
Amortization of other intangible assets 321  664 
Amortization of leased assets 820  1,253 
Impairment of software assets 215  3,721 
Share-based compensation expense 11,343  468 
Gain on fair value of private warrant liability (17,225) — 
Changes in operating assets and liabilities:
Accounts receivable, net 872  1,306 
Prepaid expenses and other current assets 569  6,456 
Other assets (804) 372 
Accounts payable and accrued liabilities (1,228) (3,572)
Taxes payable 1,807  — 
Operating lease liabilities (715) (1,406)
Deferred revenue 2,888  10,751 
Other liabilities —  (3,118)
Net Cash Provided by Operating Activities 27,543  16,038 
Cash Flows from Investing Activities:
Purchase or development of internal use software (595) (3,947)
Purchases of premises and equipment (138) (73)
Net Cash Used in Investing Activities (733) (4,020)
Cash Flows from Financing Activities:
Repayments of borrowings from Partner Bank (21,000) (19,000)
Capital contribution from Partner Bank —  1,385 
Proceeds from Recapitalization transaction 16,888  — 
Proceeds from exercise of warrants 17  — 
Net Cash Used in Financing Activities (4,095) (17,615)
Net Increase (Decrease) in Cash and Cash Equivalents 22,715  (5,597)
Cash and Cash Equivalents – Beginning 2,989  8,586 
Cash and Cash Equivalents – Ending $ 25,704  $ 2,989 
Supplementary Cash Flow Information:
Income taxes paid, net of refunds $ 4,224  $ — 
Interest paid $ 178  $ — 
Noncash Operating, Investing and Financing Activities:
Shares issued to settle Megalith accounts payable in connection with Recapitalization transaction $ 740  $ — 
Share-based compensation expense recorded as capital contribution from Partner Bank $ —  $ 468 
See accompanying notes to the consolidated financial statements.
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BM TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF THE BUSINESS AND MERGER TRANSACTION
Description of the Business

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 our Partner Bank, Customers Bank, which is a related party and is a Federal 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, BaaS, and Workplace Banking businesses. BMTX has four primary revenue sources: interchange and card revenue, servicing fees from BMTX’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 by BMTX’s Partner Bank, universities, or paid directly by customers.

BMTX is a Delaware corporation, originally incorporated as Megalith Financial Acquisition Corp in November 2017 and renamed BM Technologies, Inc. in January 2021 at the time of the merger between Megalith Financial Acquisition Corp and BankMobile Technologies, Inc. Until January 4, 2021, BankMobile Technologies, Inc. was a wholly-owned subsidiary of Customers Bank (“Customers Bank”), a Pennsylvania state-chartered bank and a wholly-owned subsidiary of Customers Bancorp, Inc. (the “Bancorp” or “Customers Bancorp”). Customers Bank is BMTX’s Partner Bank.

BMTX’s Partner Bank holds the FDIC insured deposits that BMTX sources and services and is the issuing bank on BMTX’s debit cards. BMTX’s Partner Bank pays the Company a deposit servicing fee for the deposits generated and passes through interchange income earned from debit transactions.

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 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; 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.
Seasonality

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.

Impact of COVID-19 & CARES Act

In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World 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 in the 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.


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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. On March 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 the Higher Education Emergency Relief Fund (“HEERF”). This stimulus resulted in increased serviced deposit balances, debit card spend, and revenues, a trend that continued into early 2021. However, we have seen the growth rate slow in recent periods compared to the accelerated growth rate we experienced during early 2021.

Merger with Megalith Financial Acquisition Corporation

On January 4, 2021, BankMobile Technologies, Inc. (“BankMobile”), Megalith Financial Acquisition Corp. (“Megalith”), and MFAC Merger Sub Inc., consummated the transaction contemplated by the merger agreement entered into on August 6, 2020, as amended. In connection with the closing of the merger, Megalith changed its name to BM Technologies, Inc. Effective January 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 with U.S. generally accepted accounting principles (“U.S. GAAP”). Under U.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. Prior periods presented for comparative purposes represent the balances and activity of BM Technologies, Inc. (other than shares which were retroactively restated in connection with the merger).
The following table provides a summary of the significant sources and uses of cash related to the closing of the merger transaction:
(amounts in thousands)
Cash at Megalith $ 27,669 
Cash from PIPE (private investment in public entity) investors 20,003 
Total sources of cash 47,672 
Cash paid to underwriters and other transaction costs (3,987)
Cash paid to Customers Bank as consideration (23,125)
Cash from recapitalization transaction (A) 20,560 
Cash used to pay down BMTX debt (8,834)
Cash received by BMTX and used to pay down debt (6,738)
Total cash used to pay down outstanding debt (B) (15,572)
Net cash received by BMTX from the reverse recapitalization transaction through March 31, 2021 (A+B) 4,988 
90 day merger true-up, cash paid by BMTX in May 2021 (3,672)
Final cash received by BMTX from the reverse recapitalization transaction through December 31, 2021 $ 1,316 

The following table provides a reconciliation of the common shares related to the merger:

Shares held by legacy BankMobile shareholders - December 31, 2020 6,123,432 
Shares related to the recapitalization transaction - January 4, 2021 6,076,946 
   Total shares issued and outstanding - January 4, 2021 12,200,378 


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BankMobile was determined to be the accounting acquirer based on the following predominant factors:

Customers Bank stockholders had the largest portion of voting rights in the post-combination company;
The board of directors and senior management of the post-combination company are primarily composed of individuals associated with BankMobile;
BankMobile was the larger entity based on historical operating activity, assets, revenues and employees at the time of the closing of the merger;
The ongoing operating activities of the post-combination company comprise those of BankMobile; and
BankMobile paid a premium in the exchange of equity interests.
NOTE 2 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation

These consolidated financial statements have been prepared in conformity with U.S. GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification "ASC" and Accounting Standards Update "ASU" of the Financial Accounting Standards Board "FASB".

Consolidation Policy

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Segment Reporting

The Company conducts its operations through a single operating segment and, therefore, one reportable segment. Operating segments are revenue-generating components of a company for which separate financial information is internally produced for regular use by the Chief Operating Decision Maker (“CODM”) to allocate resources and assess the performance of the business. Our CODM, Luvleen Sidhu, our CEO, uses a variety of measures to assess the performance of the business; however, detailed profitability information of the nature that could be used to allocate resources and assess the performance of the business are managed and reviewed for the Company as a whole.

Customer and Vendor Concentrations

At December 31, 2021 and December 31, 2020, our Partner Bank accounted for 61% and 31% (As Restated) of our total Accounts receivable, net, respectively. At December 31, 2021 and December 31, 2020, a BaaS partner accounted for 13% and 46% (As Restated) of our total Accounts receivable, net, respectively. MasterCard accounted for 17% (As Restated) of our total Accounts receivable, net at both December 31, 2021 and December 31, 2020.

For the twelve months ended December 31, 2021 and 2020, our Partner Bank, through a Deposit Processing Services Agreement, accounted for 87% and 86% of our Total operating revenues, respectively. See Note 14 – Relationship with our Partner Bank for additional information. Certain of these revenues are paid directly by MasterCard or individual account holders to the Company. On April 27, 2022, our Partner Bank indicated in a public filing that it will not renew the current Deposit Processing Services Agreement with the Company when it expires on December 31, 2022. See Note 15 - Subsequent Events for additional information.

For the twelve months ended December 31, 2021 and 2020, there is one vendor that accounted for 12% and 18% of our Total operating expenses, respectively.

Use of Estimates

These financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of BMTX for the periods presented. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include valuation of deferred tax assets, valuation of the private warrants, goodwill, and intangible asset impairment analysis. Actual results could differ from those estimates.
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Prior Period Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. $2.4 million of expense for mailing and shipping costs that was previously included in Other expense is now included in Customer related supplies. In addition, $0.5 million of share-based compensation was previously disclosed as a component of Capital contribution from Customers Bank on the Consolidated Statements of Shareholders’ Equity, but is now disclosed as a separate financial statement line item entitled Share-based compensation expense.

Significant Accounting Policies

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use the extended transition period under the JOBS Act.

Business Combinations

Business combinations are accounted for by applying the acquisition method in accordance with FASB ASC 805, Business Combinations. Under the acquisition method, identifiable assets acquired and liabilities assumed are measured at their fair values as of the date of acquisition, and are recognized separately from goodwill. Results of operations of the acquired entity are included in the statement of income from the date of acquisition. BMTX recognizes goodwill when the acquisition price exceeds the estimated fair value of the net assets acquired.

Cash and Cash Equivalents

Our cash is maintained at our Partner Bank, with a large majority of our cash balances at December 31, 2021 exceeding the Federal Deposit Insurance Corporation (“FDIC”)’s $250,000 insured limit per account. We have not experienced losses on cash balances exceeding the federally insured limits, but there can be no assurance that we will not experience such losses in the future.

Accounts Receivable

Accounts receivable primarily relate to billings for deposit processing services provided to our Partner Bank in addition to reimbursements to be received from a BaaS partner, as described in collaborative arrangements below, MasterCard incentive income, and uncollected university subscription and disbursement services fees. These amounts are recorded at face amounts less an allowance for doubtful accounts. Management evaluates accounts receivable and establishes the allowance for doubtful accounts based on historical experience, analysis of past due accounts and other current available information. Accounts receivable deemed to be uncollectible are individually identified and are charged-off against the allowance for doubtful accounts.

Premises and Equipment

Premises and equipment are recorded at cost less accumulated depreciation. Depreciation is charged to operations on a straight-line basis over the estimated useful lives of the assets or, in the case of leasehold improvements, the lease period, if shorter. Upon disposal or retirement of property and equipment, cost and related accumulated depreciation are removed from the accounts. Gains and losses from dispositions are credited or charged to operations. Expenditures for ordinary maintenance and repairs are charged to expense. Additions or betterments to property and equipment are capitalized at cost.

Developed Software

Developed software includes internally developed software and developed software acquired in the Higher One Disbursement business acquisition. Internally developed software and related capitalized work-in-process costs relate to the development of digital banking platforms to connect BaaS banking customers to partner banks.

BMTX capitalizes certain internal and external costs incurred to develop internal-use software during the application development stage. BMTX also capitalizes the cost of specified upgrades and enhancements to internal-use software that result in additional functionality. Once a development project is substantially complete and the software is ready for its intended use, BMTX begins amortizing these costs on a straight-line basis over the internal-use software’s estimated useful life, which range from three to seven years.

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The Higher One Disbursement business developed software is related to the Disbursement business services to colleges and universities and delivering services to students. The Higher One Disbursement business developed software was recorded at the amount determined by a third-party valuation expert and was estimated based on expected revenue attributable to the software utilizing a discounted cash flow methodology, giving consideration to potential obsolescence. The estimated useful life of the Higher One Disbursement business developed software is 10 years.

The Company reviews the carrying value of developed software for impairment by measuring the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. If the Company determines that the carrying amount is impaired, the asset is written down to fair value. Fair value is determined based on discounted cash flows or management’s estimates, depending on the nature of the assets. There was $0.2 million and $3.7 million of impairment recognized for the twelve months ended December 31, 2021 and 2020, respectively.

Goodwill and Other Intangibles

Goodwill represents the excess of the purchase price over the identifiable net assets of businesses acquired through business combinations accounted for under the acquisition method. Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. Intangible assets that have finite lives, such as university relationships, are subject to impairment testing. Intangible assets are amortized on a straight-line basis over a period of twenty years.

Goodwill is reviewed for impairment annually as of October 31 and between annual tests when events and circumstances indicate that impairment may have occurred. The goodwill impairment charge represents the amount by which the reporting unit’s carrying amount exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. BMTX applies a qualitative assessment to determine if the one-step quantitative impairment test is necessary.

Other intangibles subject to amortization are reviewed for impairment under FASB ASC 360, Property, Plant and Equipment, which requires that a long-lived asset or asset group be tested for recoverability whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

As part of its qualitative assessment, BMTX reviewed regional and national trends in current and expected economic conditions, examining indicators such as GDP growth, interest rates and unemployment rates. BMTX also considered its own historical performance (through BankMobile), expectations of future performance, indicative deal values, and other trends specific to its industry. Based on its qualitative assessment, BMTX determined that there was no evidence of impairment of the balance of goodwill and other intangible assets. As of December 31, 2021 and 2020, Goodwill was $5.3 million and Other intangibles, net was $4.7 million and $5.1 million, respectively.

Leases

BMTX enters into lease agreements primarily for the use of office space, all of which are classified as operating leases. At lease commencement date, BMTX recognizes right-of-use (“ROU”) assets and lease liabilities measured at the present value of lease payments over the lease term. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease expense for rental payments are recognized on a straight-line basis over the lease term and are included in Occupancy expense. In addition to rent, BMTX pays taxes and maintenance expenses, including an annual increase in operating expenses over the initial year’s expenses under certain leases as variable lease payments.

Deferred Revenue

Deferred revenue consists of payments received from customers, most significantly from our Partner Bank, prior to the performance of services. Deferred revenue is recognized over the service period on a straight-line basis or when the contractual performance obligation has been satisfied. The Company classifies deferred revenue on the Consolidated Balance Sheets in Deferred revenue, current and Deferred revenue, non-current.


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Public & Private Warrants

The Company has Public and Private Warrants outstanding as a result of the merger transaction which occurred on January 4, 2021. Each warrant entitles the registered holder to purchase one whole share of common stock at a price of $11.50 a share. The warrants expire January 4, 2026, or earlier upon redemption or liquidation and the Company has redemption rights if our common stock trades above $24.00 for 20 out of 30 days. The Private Warrants are identical to the Public Warrants except that the Private Warrants are non-redeemable and exercisable on a cashless basis so long as they are held by the sponsor and certain others. The Private Warrants and the Public Warrants are treated differently for accounting purposes.

In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity, the Private Warrants are accounted for as liabilities and will be marked-to-market each reporting period with the change recognized in earnings. In general, under the mark-to-market accounting model, as the Company’s stock price increases, the warrant liability increases, and the Company recognizes additional expense in its Consolidated Statements of Income (Loss) – the opposite when the stock price declines. Accordingly, the periodic revaluation of the Private Warrants could result in significant volatility in our reported earnings. For the twelve months ended December 31, 2021, the Company recognized a gain of $17.2 million. The amounts recognized are a mark-to-market accounting determination and are non-cash.

In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity, the Public Warrants are treated as equity instruments. Accordingly, the Public Warrants are not marked-to-market each reporting period, thus there is no impact to earnings. Any future exercises of the Public Warrants will be recorded as cash received and recorded in Cash and cash equivalents, with a corresponding offset to Additional paid-in capital in equity.

Income Taxes

BMTX accounts for income taxes under the liability method of accounting for income taxes. The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. BMTX determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

A tax position is recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the term upon examination includes resolution of the related appeals or litigation process. A tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment.

In assessing the realizability of federal or state deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and prudent, feasible and permissible as well as available tax planning strategies in making this assessment.

Loss Contingencies

In the ordinary course of business, the Company is regularly subject to various claims, suits, regulatory inquiries and investigations. The Company records a liability for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable, and the loss can be reasonably estimated. Management has also identified certain other legal matters where they believe an unfavorable outcome is not probable and, therefore, no reserve is established. Although management currently believes that resolving claims against the Company, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the Company’s business, financial position, results of operations, or cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on the liquidity, results of operations, or financial condition of the Company.
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Revenue Recognition

BMTX’s revenues from interchange and card revenue, servicing fees from Partner Bank, account fees, and university fees are within the scope of FASB ASC 606, Revenue from Contracts with Customers. The Company recognizes revenue in accordance with ASC 606 when the performance obligations related to the transfer of services under the terms of a contract are satisfied. Some obligations are satisfied at a point in time while others are satisfied over a period of time. Revenue is recognized as the amount of consideration to which the Company expects to be entitled to in exchange for transferring services to a customer. The Company’s customer contracts do not contain terms that require significant judgment to determine the variability impacting the transaction price. A performance obligation is deemed satisfied when the control over services is transferred to the customer. Control is transferred to a customer either at a point in time or over time. To determine when control is transferred at a point in time, the Company considers indicators, including but not limited to the right to payment, transfer of significant risk and rewards of ownership, and acceptance by the customer. When control is transferred over a period of time, the output method is used to measure progress for the transfer. The measure of progress used to assess completion of the performance obligation is based on time over the period of service. We assess our revenue arrangements against specific criteria in order to determine if we are acting as principal or agent. The Company determined that it is the agent in contracts for interchange and card revenue, and presents these revenues net of related expenses under ASC 606.

Interchange and card revenue

Interchange fees are earned whenever debit cards serviced by BMTX are processed through card payment networks. Interchange fees are recognized concurrent with the processing of the card transaction. Card revenue includes foreign ATM fees and MasterCard incentive income. ATM fees are recognized when the fee is deducted from the serviced account; MasterCard incentive income is primarily tied to debit spend volume and is recognized concurrent with spend.

Servicing fees from Partner Bank

BMTX sources and services deposit accounts for our Partner Bank and in exchange is paid servicing fees. Servicing fees and terms are established by individually negotiated contractual agreements. A fixed rate is applied to the daily average deposit balances. In all periods, servicing fees are recognized monthly based on average daily balances.

Account fees

BMTX earns account fees on BMTX serviced deposit accounts for transaction-based, account maintenance services. Account maintenance fees, which relate primarily to monthly maintenance fees for BMTX serviced accounts that do not meet minimum deposit balance requirements, are earned on a monthly basis representing the period over which BMTX satisfies its performance obligation. Transaction-based fees, which include services such as wire transfer fees, card replacement, and cash deposit via Green Dot network fees, are recognized at the time the transaction is executed. Service charges on deposit accounts are withdrawn from the depositor’s account balance.

University fees

BMTX earns university fees from higher education clients in exchange for financial aid and other student refund disbursement services provided. BMTX facilitates the distribution of financial aid and other refunds to students, while simultaneously enhancing the ability of the higher education institutions to comply with the federal regulations applicable to financial aid transactions. For these services, higher education institution clients are charged an annual subscription fee and/or per-transaction fee (e.g., check issuance, new card, card replacement fees) for certain transactions. The annual subscription fee is recognized ratably over the period of service using the output method and the transaction fees are recognized when the transaction is completed. BMTX typically enters into long-term (generally three or five-year initial term) contracts with higher education institutions to provide these refund management disbursement services.

Advertising and Promotion

Advertising and promotion costs are expensed as incurred.


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Collaborative Arrangements

In the normal course of business, BMTX may enter into collaborative arrangements primarily to develop and commercialize banking products to its partners’ customers. Collaborative arrangements are contractual agreements with third parties that involve a joint operating activity where both BMTX and the collaborating BaaS partner are active participants in the activity and are exposed to the significant risks and rewards of the activity. Collaborative activities typically include research and development, technology, product development, marketing, and day-to-day operations of the banking product. These agreements create contractual rights and do not represent an entity in which we have an equity interest. BMTX accounts for its rights and obligations under the specific requirements of the contracts. These arrangements often require the sharing of revenue and expense. BMTX’s expenses incurred pursuant to these arrangements are reported net of any payments due to or amounts due from BMTX’s BaaS partners, which are recognized at the time the BaaS partner becomes obligated to pay.

For the twelve months ended December 31, 2021 and 2020, BMTX recognized proceeds of $15.7 million and $19.7 million (As Restated), respectively, from collaborative arrangements. These proceeds include $5.3 million and $3.5 million (As Restated), respectively, in revenues, primarily recorded in Other revenue and Interchange and card revenue on the Consolidated Statements of Income (Loss) and $10.4 million and $16.2 million (As Restated), respectively, in expense reimbursements, primarily recorded in Salaries and employee benefits and Professional services on the Consolidated Statements of Income (Loss).

Share-Based Compensation Expense

The Company uses share-based compensation, including stock, restricted stock units and performance stock units, to provide long-term performance incentives for its employees and directors. Share-based compensation is recognized on a straight-line basis over the requisite service period of the award based on their grant-date fair value for time-based awards. Compensation related to performance-based awards are recognized over the period the performance obligation is expected to be satisfied. Forfeitures are recognized as they occur. Share-based compensation expense is included in Salaries and employee benefits. In addition, the holders of restricted shares may elect to surrender a portion of their shares on the vesting date to cover their income tax obligations.

Provision for Operating Losses

The provision for operating losses represents BMTX’s payments for losses resulting from fraud or theft-based transactions that have generally been disputed by BMTX serviced deposit account holders, as well as an estimated cost for disputes that have not been resolved as of the end of the reporting period. The estimate is based on historical rates of loss on such transactions. The estimated exposure was $0.1 million and $0.4 million at December 31, 2021 and 2020 respectively; the changes period over period are presented within Provision for Operating Losses on the Consolidated Statements of Income (Loss).

Merger and Acquisition Related Expenses

In 2021, BMTX announced the signing of a definitive agreement to merge with First Sound Bank, a Seattle, Washington-based community business bank. The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close in 2022. In connection with the merger, BMTX incurred $0.1 million in merger and acquisition expenses. In 2020, BMTX and Customers Bank entered into an Agreement and Plan of Merger with Megalith Financial Acquisition Corp. BMTX incurred $0.7 million in merger and acquisition expenses in 2020 related to the merger agreement with Megalith Financial Acquisition Corp. All merger related costs are included within Merger and acquisition related expenses on the Consolidated Statements of Income (Loss).

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.” The ASU is expected to reduce cost and complexity related to the accounting for income taxes by eliminating the need for an organization to analyze whether certain exceptions apply in a given period and improving financial statement preparers’ application of certain income tax-related guidance. This ASU is part of the FASB’s simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted the standard on January 1, 2021. The adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.


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Accounting Standards Issued but Not Yet Adopted

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by BMTX as of the required effective dates. Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet adopted, will not have a material impact on its financial statements taken as a whole.

ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This ASU is effective as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact that ASU 2020-04 may have on its consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity.

This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.

As a smaller reporting company, ASU 2020-06 is effective for BMTX for fiscal years beginning after December 15, 2023. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.

Correction of Errors in Previously Issued Consolidated Financial Statements

In connection with the preparation of its consolidated financial statements for the twelve months ended December 31, 2021, the Company determined that its previously issued consolidated financial statements for the periods ended December 31, 2020, and March 31, June 30, and September 30, 2021 contained errors in the application of U.S. generally accepted accounting principles as summarized below.

Application of FASB ASC 718 Stock Compensation

The non-cash share-based compensation expense related to grants of BMTX common stock by its former parent, Customers Bank, to employees of the Company in connection with the January 4, 2021 divestiture of the Company, with a grant date fair value of $19.6 million, was incorrectly excluded from the Company’s stand-alone financial statements and should be recorded straight-line over the two-year post-grant vesting period ending January 3, 2023, net of any forfeitures. In addition, and also in connection with the January 4, 2021 divestiture of the Company, Customers Bank accelerated the vesting for existing restricted stock units and stock options previously granted to certain employees of the Company. The share-based compensation expense, net of forfeitures, associated with the accelerated vesting totaling $0.8 million was also incorrectly excluded from the Company’s stand-alone financial statements and should be recorded on the divestiture date.

Application of FASB ASC 210-20-45 and FASB ASC 606-10-45 for Presentation of Contract Liabilities, Receivables, and Payables

The Company incorrectly presented certain contract liabilities, accounts receivable, and accounts payable positions with our Partner Bank, which is a related party, and for which gross presentation is required as net Payable to Partner Bank on the Company’s Consolidated Balance Sheets for the periods ended December 31, 2020, and March 31, June 30, and September 30, 2021. These related party balances should be separately presented as Accounts receivable, net, Deferred revenue, current, and Accounts payable and accrued liabilities on the Company’s Consolidated Balance Sheets.


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Restatement

In accordance with Staff Accounting Bulletin ("SAB") No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated these misstatements, and based on an analysis of quantitative and qualitative factors, determined that the impact of these misstatements was material to its reporting periods ended December 31, 2020, and March 31, June 30, and September 30, 2021.

Accordingly, the Company has restated its consolidated financial statements for the twelve months ended December 31, 2020 and interim reporting periods for the three-months ended March 31, 2021, three- and six-months ended June 30, 2021, and three- and nine- months ended September 30, 2021, respectively, and has included that restated financial information within this annual report.

Out of Period Adjustments

In light of the above errors, and based upon a review of the corrected and uncorrected out of period adjustments for 2021, the Company determined that it would be appropriate to record certain out of period adjustments in the correct period of entry in the Company’s consolidated financial statements, one of which was originally recorded and disclosed in the quarter ended September 30, 2021, both between the annual periods ending December 31, 2021 and 2020, as well as between the 2021 interim periods.

These adjustments impacted Interchange and card revenues, Technology, processing, and communication expense, and the related impact to Income tax expense on the Company’s Consolidated Statements of Income (Loss) with a net adjustment to previously reported net income (loss) of $(0.4) million, $0.3 million, $(0.3) million, and $0.5 million for the twelve months ended December 31, 2020 and interim reporting periods for the three-months ended March 31, 2021, six-months ended June 30, 2021, and nine-months ended September 30, 2021, respectively.

See Note 16 - Restatement of Previously Reported Consolidated Financial Statements for restatement of the Company's previously reported consolidated financial statements that were impacted by these misstatements.
NOTE 3 — ACCOUNTS RECEIVABLE
Accounts receivable primarily relate to billings for deposit processing services to our Partner Bank, MasterCard incentive income, uncollected university subscription and disbursement services fees, and receivables from a BaaS partner, and are recorded at face amounts less an allowance for doubtful accounts. Management evaluates accounts receivable and establishes the allowance for doubtful accounts based on historical experience, analysis of past due accounts and other current available information.

Accounts receivable deemed to be uncollectible are individually identified and are charged-off against the allowance for doubtful accounts. The allowance for doubtful accounts was $0.1 million at December 31, 2021 and zero at December 31, 2020.

(amounts in thousands) Beginning Balance Additions Reductions Ending Balance
Allowance for doubtful accounts
2021 $ —  $ 171  $ (92) $ 79 
2020 $ —  $ 26  $ (26) $ — 


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NOTE 4 — PREMISES AND EQUIPMENT AND DEVELOPED SOFTWARE

Premises and equipment

The components of premises and equipment were as follows:
(amounts in thousands) Expected Useful Life December 31,
2021
December 31,
2020
Leasehold improvements 5 years $ 28  $ 28 
Furniture, fixtures and equipment 10 years 243  243 
IT equipment
3 to 5 years
1,813  1,675 
2,084  1,946 
Accumulated depreciation (1,738) (1,545)
Total $ 346  $ 401 
Depreciation is recorded in Occupancy on the Consolidated Statements of Income (Loss). For the twelve months ended December 31, 2021 and 2020, BMTX recorded depreciation expense of $0.2 million and $0.3 million, respectively.
Developed software
The components of developed software were as follows:
(amounts in thousands) Expected Useful Life December 31,
2021
December 31,
2020
Higher One Disbursement business developed software 10 years $ 27,400  $ 27,400 
Internally developed software
3 to 7 years
41,683  40,104 
Work-in-process 421  1,620 
69,504  69,124 
Accumulated amortization (40,911) (29,467)
Total $ 28,593  $ 39,657 
Amortization expense is reported in Technology, communication and processing on the Consolidated Statements of Income (Loss). For the twelve months ended December 31, 2021 and 2020, BMTX recorded amortization expense of $11.4 million and $11.0 million, respectively. There was $0.2 million and $3.7 million of impairment recognized for the twelve months ended December 31, 2021 and 2020, respectively.

NOTE 5 — GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of the purchase price over the identifiable net assets of the businesses acquired through business combinations accounted for under the acquisition method. Other intangibles, net represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. We have one intangible asset which is being amortized on a straight-line basis over twenty years.

Goodwill is reviewed for impairment annually as of October 31 and between annual tests when events and circumstances indicate that impairment may have occurred. There was no goodwill impairment for the twelve months ended December 31, 2021 and 2020.

Other intangibles, net includes assets subject to amortization are reviewed for impairment under FASB ASC 360, Property, Plant and Equipment. There was no impairment for Other intangibles, net for the twelve months ended December 31, 2021 and 2020.


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The components of Other intangibles, net as of December 31, 2021 and 2020 were as follows:
(amounts in thousands) Expected Useful Life December 31,
2021
December 31,
2020
Customer relationships – universities 20 years $ 6,402  $ 6,402 
Accumulated amortization (1,653) (1,332)
Total $ 4,749  $ 5,070 
Other intangibles, net amortization expense is reported in Other expense on the Consolidated Statements of Income (Loss). For the twelve months ended December 31, 2021 and 2020, BMTX recorded amortization expense of $0.3 million and $0.7 million, respectively.
The university customer relationships will be amortized in future periods as follows:
2022 $ 320 
2023 320 
2024 320 
2025 320 
2026 320 
After 2026 3,149 
Total $ 4,749 
NOTE 6 — LEASES
At December 31, 2021, BMTX leased two offices under operating leases. The leases consist of 5-year lease terms with options to renew the leases or extend the term annually or with mutual agreement. The leases include variable lease payments that are based on an index or rate, such as an annual increase in operating expenses over the initial lease year’s expenses. Variable lease payments are not included in the lease liability or right-of-use (“ROU”) asset and are recognized in the period in which the obligations for those payments are incurred. BMTX’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. As BMTX’s operating leases do not provide an implicit rate, BMTX utilized the incremental borrowing rate of its former parent based on the information available at either the adoption of FASB ASC 842, Leases or the commencement date of the lease, whichever was later, when determining the present value of lease payments.

The following table summarizes operating lease ROU assets and operating lease liabilities and their corresponding classification on the Company’s Consolidated Balance Sheets:
(amounts in thousands) Classification December 31,
2021
December 31,
2020
Assets:
Operating lease ROU assets Other assets $ 398  $ 1,218 
Liabilities:
Operating lease liabilities Operating lease liabilities $ 416  $ 1,131 

Operating lease expenses are reported in Occupancy on the Consolidated Statements of Income (Loss). For the twelve months ended December 31, 2021 and 2020, BMTX recorded lease expenses related to operating leases of $1.0 million and $0.9 million, respectively.

The maturities of non-cancelable operating lease liabilities were as follows at December 31, 2021:
(amounts in thousands) December 31,
2021
2022 $ 418 
Total minimum payments 418 
Less: interest (2)
Present value of lease liabilities $ 416 
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For the twelve months ended December 31, 2021 and 2020, BMTX paid $0.7 million and $1.4 million (As Restated) in cash pursuant to its operating lease liabilities. These cash payments were reported as cash flows used in operating activities in the Consolidated Statements of Cash Flows.
The following table summarizes the weighted average remaining lease term and discount rate for BMTX’s operating leases at December 31, 2021 and 2020:
December 31,
2021
December 31,
2020
Weighted average remaining lease term (years)
Operating leases 0.6 years 1.6 years
Weighted average discount rate
Operating leases 1.0  % 1.4  %

NOTE 7 — BORROWINGS FROM PARTNER BANK
In 2021, BMTX had a $10.0 million line of credit with our Partner Bank, which is a related party of the Company. The amount that may be borrowed was subject to a borrowing base limit based on a percentage of BMTX’s accounts receivable balance. The $10.0 million line of credit carried an interest rate equal to one-month LIBOR plus 375 bps. LIBOR means the One Month London Inter-Bank Offered Rate as published in the Money Section of the Wall Street Journal on the last U.S. business day of the month, but in no event shall the LIBOR rate used for the line of credit be less than 50 basis points. Interest was paid monthly in arrears with the principal due in its entirety at the maturity date per the original arrangement. Borrowed funds could have been repaid at any time without penalty. The line of credit was originally scheduled to mature on January 4, 2022. On November 30, 2021, BMTX and our Partner Bank agreed to terminate the line of credit. There was zero balance outstanding under the line of credit as of December 31, 2021. As of December 31, 2020, there was $21.0 million outstanding under a previous $50.0 million line of credit from the Company’s Partner Bank, which was terminated as part of the Company’s divestiture on January 4, 2021.

NOTE 8 — COMMITMENTS AND CONTINGENCIES
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the financial statements that are not currently accrued for. However, in light of the uncertainties inherent in these matters, it is possible that the ultimate resolution may have a material adverse effect on BMTX’s results of operations for a particular period, and future changes in circumstances or additional information could result in accruals or resolution in excess of established accruals, which could adversely affect BMTX’s results of operations, potentially materially.

NOTE 9 — SHAREHOLDERS’ EQUITY AND PRIVATE WARRANT LIABILITY

The Consolidated Statements of Changes in Shareholders’ Equity reflect the reverse recapitalization as of January 4, 2021, as discussed in Note 1 - Description of the Business and Merger Transaction. Since BMTX was determined to be the accounting acquirer in the transaction, all periods prior to the consummation of the transaction reflect the balances and activity of BMTX (other than shares which were retroactively restated in connection with the transaction).

Common Stock

The Company is authorized to issue 1,000,000,000 shares of common stock, par value $0.0001 per share. At December 31, 2021, there were 12,193,378 shares of common stock issued and outstanding, which includes the 300,000 performance based shares discussed below. At December 31, 2020, there were 6,123,432 shares of common stock issued and outstanding as retroactively restated in conjunction with the merger.


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Each holder of common stock is entitled to one vote for each share of common stock held of record by such holder on all matters on which stockholders generally are entitled to vote. The holders of common stock do not have cumulative voting rights in the election of directors. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all stockholders present in person or represented by proxy, voting together as a single class.

During the twelve months ended December 31, 2021, the Company awarded 1,000 shares of common stock to each of its directors, for a total of 6,000 shares with a share-based compensation expense of $53 thousand.

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, par value $0.0001 per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At December 31, 2021 and 2020, there were no shares of preferred stock issued or outstanding.

Performance Based Shares

The Company has 300,000 common shares, par value $0.0001 per share, issued and outstanding that contain a restrictive legend, subject to release only if the vesting criteria occurs before the seventh anniversary of the closing date of the merger. If the vesting criteria has not occurred prior to the seventh anniversary of the closing date of the merger, the shares will be forfeited and cancelled. The vesting criteria means either (1) the volume weighted average price of the Company’s common stock on the principal exchange on which such securities are then listed or quoted shall have been at or above $15.00 for twenty (20) trading days (which need not be consecutive) over a thirty (30) trading day period; or (ii) the Company sells shares of its capital stock in a secondary offering for at least $15.00 per share, in each case subject to equitable adjustment for share splits, share dividends, reorganizations, combinations, recapitalizations and similar transactions affecting the shares of the Company’s common stock after the merger, and possible reduction for certain dividends granted to the Company’s common stock, or (2) the Company undergoes certain change in control or sales transactions. None of the vesting conditions for the performance shares were met during the twelve months ended December 31, 2021.

Dividend Policy

We have not paid any cash dividends on our common stock to date and have no present intention to pay cash dividends in the future. The payment of cash dividends by the Company in the future will be dependent upon the Company’s revenues and earnings, capital requirements and general financial condition. The payment of any dividends will be within the discretion of the board of directors of the Company.

January 4, 2021 Share-Based Compensation Award

In connection with its January 4, 2021 divestiture of the Company, Customers Bank, the Company’s former parent, granted 1,317,035 of the merger consideration shares of the Company it received to certain employees and executives of the Company. The share-based compensation award is subject to vesting conditions, including a required service condition from award recipients through January 3, 2023. The grant date fair value of the award, totaling $19.6 million, will be recorded as share-based compensation expense in the Company’s Consolidated Statements of Income (Loss) on a straight-line basis over the two year post-grant vesting period, net of any actual forfeitures. The shares awarded are restricted until fully vested, and none of the shares issued under this award are vested at December 31, 2021. In addition, the holders of restricted shares may elect to surrender a portion of their shares on the vesting date to cover their income tax obligations.

For the twelve months ended December 31, 2021, the share-based compensation expense related to these awards totaled $9.5 million. In addition, and in connection with the January 4, 2021 divestiture of the Company, Customers Bank accelerated the vesting for existing restricted stock units and stock options previously granted to certain employees of the Company. The share-based compensation expense, net of forfeitures, associated with the accelerated vesting totaling $0.8 million was included in the Company’s stand-alone financial statements as a component of Salaries and employee benefits.


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The change in unvested shares under the January 4, 2021 Share-Based Compensation Award is shown below:
Number of Awards Weighted-Average Grant-Date Fair Value Per Award
Balance as of December 31, 2020
  $  
Granted 1,317,035  $ 14.87 
Vested —  $ — 
Forfeited (33,500) $ 14.87 
Balance as of December 31, 2021
1,283,535  $ 14.87 

Equity Incentive Plan

Our 2020 Equity Incentive Plan (the “Equity Incentive Plan”) provides for the grant of incentive stock options, or ISOs, nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, and other forms of equity compensation, or collectively, stock awards, all of which may be granted to employees, including officers, non-employee directors, and consultants of both the Company and its affiliates. Additionally, the Equity Incentive Plan provides for the grant of performance cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, including officers, and to non-employee directors and consultants.

Initially, the aggregate number of shares of common stock that may be issued pursuant to stock awards under the Equity Incentive Plan will not exceed 10% of the issued and outstanding shares of our common stock. Grants were made under the Equity Incentive Plan for the twelve months ended December 31, 2021 as described within Restricted Stock Units below. There were no grants made under the Equity Incentive Plan during the twelve months ended December 31, 2020.

Restricted Stock Units (“RSUs”)

On September 30, 2021, the Company granted 695,000 RSUs to certain executives. The RSUs granted to these executives will vest over three to five years upon achievement of certain service-based, performance-based, and market conditions. The vesting commencement date was January 4, 2021. We recognize the compensation cost starting from the grant date in accordance with ASC 718-10-55-108. In addition, the Company granted 12,600 RSUs to other non-executive employees during the twelve months ended December 31, 2021. Each of these RSUs have a three year vesting period. None of the RSUs were vested at December 31, 2021.

For service-based RSUs, we recognize the share-based compensation cost on a straight-line basis over the required vesting period. For performance-based RSUs with milestones, each quarter we determine whether it is probable that we will achieve each operational milestone and if so, the period when we expect to achieve that operational milestone. When we first determine that achievement of an operational milestone is probable, we allocate the full share-based compensation expense over the period between the grant date and the expected vesting condition achievement date and recognize a catch-up expense for the periods from the grant date through the period in which the operational milestone is deemed probable. This is re-assessed at the end of each reporting period. For performance-based RSUs with a market condition, we used a Monte Carlo simulation to determine the fair value of the RSUs on the grant date, and recognize the share-based compensation expense over the derived service period.

For the twelve months ended December 31, 2021, the share-based compensation expense related to these RSU awards totaled $1.0 million.

The change in unvested RSUs awarded is shown below:
Number of RSUs Weighted-Average Grant-Date Fair Value Per RSU
Balance as of December 31, 2020
  $  
Granted 707,600  $ 8.96 
Vested —  $ — 
Forfeited (3,000) $ 9.44 
Balance as of December 31, 2021
704,600  $ 8.96 


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Employee Stock Purchase Plan (“ESPP”)

The Company has an ESPP (the “BM Technologies Inc. 2021 Employee Stock Purchase Plan”) which has an effective date of May 1, 2021. The purpose of the plan is to provide eligible employees with an incentive to advance the interests of the Company and its Subsidiaries, by affording them an opportunity to purchase stock of the Company at a favorable price. As of December 31, 2021, there are no shares purchased on behalf of employees under the ESPP, as the program has not yet been made available for employee participation.

Warrants

At December 31, 2021, there were 23,873,167 warrants to purchase our common stock outstanding, consisting of 16,927,389 Public Warrants and 6,945,778 Private Warrants. Each whole warrant entitles the registered holder to purchase one whole share of common stock at a price of $11.50 per share. The warrants will expire five years after the completion of the merger (January 4, 2026) or earlier upon redemption or liquidation and the Company has redemption rights if our common stock trades above $24.00 for 20 out of 30 days. The Private Warrants are identical to the Public Warrants except that the Private Warrants are non-redeemable and exercisable on a cashless basis so long as they are held by the sponsor and certain others. As of December 31, 2021, none of the Company’s outstanding Private Warrants have been exercised and 1,500 of the Company’s Public Warrants have been exercised.

The Private Warrants and the Public Warrants are accounted for differently under U.S. GAAP, as follows:

Private Warrants

In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity, the Private Warrants are accounted for as liabilities and will be marked-to-market each reporting period with the change in fair value recognized in earnings. In general, under the mark-to-market accounting model, as our stock price increases, the warrant liability increases, and we recognize additional expense in our Consolidated Statements of Income (Loss) – with the opposite when our stock price declines. Accordingly, the periodic revaluation of the Private Warrants could result in significant volatility in our reported earnings.

Opening Balance Sheet Impact: As of the date of our merger on January 4, 2021, the $30.8 million fair value of the Private Warrants was recorded as a warrant liability on our Consolidated Balance Sheets in Liability for private warrants with a corresponding offset to Additional paid-in capital within equity. The fair value of the Private Warrants was estimated using a modified version of the Black-Scholes option pricing formula. We assumed a term for the Private Warrants equal to the contractual term from the merger date and then discounted the resulting value to the valuation date. Among the key inputs and assumptions used in the pricing formula at January 4, 2021: a term of 5.0 years; volatility of 20%; a dividend yield of zero; an underlying stock price of $14.76; a risk free interest rate of 0.38%; and a closing price of the Public Warrants of $2.50 per share.

Income Statement Impact: Subsequent to the close of the merger, any change in the fair value of the Private Warrants is recognized in our Consolidated Statements of Income (Loss) below operating profit as “Gain on fair value of private warrant liability” with a corresponding amount recognized in the liability account on our Consolidated Balance Sheets. The Private Warrant liability is presented in the account Liability for private warrants in the long-term liabilities section of our Consolidated Balance Sheets. During the twelve months ended December 31, 2021, we recorded a net non-cash gain of $17.2 million on the revaluation of the Private Warrants.

Balance Sheet Impact: As noted above, the change in the balance of the warrant liability on our Consolidated Balance Sheets is due to the change in fair value of the underlying Private Warrants. When warrants are exercised, the fair value of the liability will be reclassified to Additional paid-in capital within equity. The cash received for the exercise of warrants is reflected in Cash and cash equivalents, and the corresponding offset is also in Additional paid-in capital in equity.

Cash Flow Impact: The impact of the change in fair value of the Private Warrants has no impact on our cash flows as it is a non-cash adjustment. The cash received for any future exercise of warrants will be recorded in cash flows from financing activities.

Shareholders’ Equity Impact: The impact to Additional paid-in capital as of the opening balance sheet date is described above. Any future exercises of the Private Warrants will result in a reduction of the Private Warrant liability on the Consolidated Balance Sheets with a corresponding increase to Additional paid-in capital.

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Public Warrants

In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity, the Public Warrants are treated as equity instruments under U.S. GAAP. Accordingly, the Public Warrants are not marked-to-market each reporting period, thus there is no impact to quarterly earnings. Any future exercises of the Public Warrants will be recorded as cash received and recorded in Cash and cash equivalents, with a corresponding offset to Additional paid-in capital in equity.

NOTE 10 — REVENUES

Revenues

As described in Note 2 - Basis of Presentation and Significant Accounting Policies, BMTX recognizes operating revenue in accordance with FASB ASC 606, Revenue from Contracts with Customers.

The following tables present BMTX’s revenues disaggregated by nature of the revenue stream and the pattern or timing of revenue recognition for the twelve months ended December 31, 2021 and 2020. The Company has one reportable segment and all revenues are earned in the U.S.
Twelve Months Ended
December 31,
2021 2020
(amounts in thousands) (As Restated)
Revenues:
Revenue recognized at point in time:
Interchange and card revenue $ 28,078  $ 25,864 
Servicing fees from Partner Bank 45,105  22,465 
Account fees 10,668  11,308 
University fees - disbursement activity 1,401  1,240 
Other revenue 5,443  1,480 
   Total revenue recognized at point in time 90,695  62,357 
Revenue recognized over time:
University fees - subscriptions 4,292  4,080 
   Total revenue recognized over time 4,292  4,080 
Total revenues $ 94,987  $ 66,437 

Deferred Revenue

Deferred revenue consists of payments received from customers, most significantly from our Partner Bank, prior to the performance of services. Deferred revenue is recognized over the service period on a straight-line basis or when the contractual performance obligation has been satisfied. The Company classifies deferred revenue on the Consolidated Balance Sheets in Deferred revenue, current and Deferred revenue, non-current.

The deferred revenue balances were as follows:
December 31,
2021 2020
(amounts in thousands) (As Restated)
Deferred revenue, beginning of period $ 12,689  $ 1,938 
Deferred revenue, end of period $ 15,577  $ 12,689 

During the twelve months ended December 31, 2021, the Company recognized revenue of approximately $12.5 million included in deferred revenue at the beginning of the period. During the twelve months ended December 31, 2020, the Company recognized revenue of approximately $0.8 million included in deferred revenue at the beginning of the period.


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Unbilled Receivables

The Company had $2.1 million of unbilled receivables, or amounts recognized as revenue for which invoices have not yet been issued, as of December 31, 2021, and zero as of December 31, 2020. Unbilled receivables are reported in Accounts receivable, net on the Consolidated Balance Sheets.

NOTE 11 — INCOME TAXES

The components of income tax expense (benefit) were as follows:
Twelve Months Ended
December 31,
2021 2020
(amounts in thousands) (As Restated)
Current expense
      Federal $ 3,945  $ — 
      State 1,807  23 
Total current expense $ 5,752  $ 23 
Deferred expense (benefit)
      Federal $ (1,676) $ (3,047)
      State (1,130) (835)
      Change in valuation allowance 2,806  3,882 
Total deferred expense (benefit) $   $  
Total income tax expense $ 5,752  $ 23 

Effective tax rates differ from the federal statutory rate of 21% due to the following:
Twelve months ended December 31,
2021 2020
(As Restated)
(amounts in thousands) Amount % of pretax income Amount % of pretax income
 Federal income tax at statutory rate $ 4,788  21.00  % $ (2,560) 21.00  %
 State taxes, net of federal benefit 216  1.83  % (580) 4.75  %
 Change in fair value of warrant liabilities (3,617) (15.87) % —  —  %
 Change in valuation allowance 2,806  11.43  % 3,882  (31.84) %
 Nondeductible compensation 1,532  5.97  % —  —  %
 Tax credits —  —  % (873) 7.16  %
 Other 27  0.88  % 154  (1.26) %
Total $ 5,752  25.24  % $ 23  (0.19) %

At December 31, 2021 and 2020, the Company had no ASC 740-10 unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. The Company recognizes interest and penalties on unrecognized tax benefits in Other expense.


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Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the carry back period. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, management considered the scheduled reversal of the deferred tax liabilities, the level of historical income, and the projected future taxable income over the periods in which the temporary difference comprising the deferred tax assets will be deductible. Based on its assessment, management determined that a full valuation allowance is necessary at December 31, 2021 and 2020. The deferred tax asset for the basis difference in the acquired assets and corresponding valuation allowance was recorded through equity.

There are zero loss or credit carryforwards as of December 31, 2021. As of December 31, 2020, the Company had $55.6 million of federal net operating loss carryforwards, $28.1 million of state net operating loss carryforwards, and $2.7 million of research and development (R&D) credit carryforwards. The merger was treated as a taxable asset acquisition under applicable tax law; as such, the net operating losses and credit carryforwards, including the recorded deferred taxes associated with these tax attributes, were not available to the Company after the merger. The deferred tax attributes as of December 31, 2020 are presented on a separate company return basis, while the Company was a subsidiary of another consolidated group.

Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax reporting and financial statement purposes, principally because certain items are recognized in different periods for financial reporting and tax return purposes.

The following represents the Company's deferred tax assets and liabilities as of December 31, 2021 and 2020:

December 31, 2021 December 31, 2020
(amounts in thousands) (As Restated)
Deferred tax assets:
 Net operating losses and credit carryforwards $ —  $ 16,431 
 Deferred income 788  1,226 
 Section 197 Intangibles 27,581  1,226 
 Operating lease liability —  296 
 Equity based compensation 1,521  — 
 Accrued bonuses 125  — 
 Other 24  143 
 Less: Valuation Allowance (29,662) (13,689)
 Total deferred tax assets $ 377  $ 5,633 
 Deferred tax liabilities
 Depreciation (377) (5,243)
 Operating lease ROU asset —  (318)
 Other —  (72)
 Total deferred tax liabilities $ (377) $ (5,633)
 Net deferred tax asset (liability) $   $  

The Company is subject to income tax examinations by federal, state, and local taxing authorities for tax periods ended after December 31, 2017.
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NOTE 12 — EARNINGS (LOSS) PER SHARE
The following are the components and results of earnings (loss) per common share calculations for the periods presented:
Twelve Months Ended
December 31,
2021 2020
(amounts in thousands, except per share data) (As Restated)
Net income (loss) available to common shareholders - used in calculating basic EPS $ 17,043  $ (12,214)
Adjustment for private warrant liability —  — 
Net income (loss) - used in calculating diluted EPS $ 17,043  $ (12,214)
Weighted-average common shares outstanding – basic 11,851 6,123
Weighted-average common shares outstanding – diluted 11,939 6,123
Net income (loss) per share - basic
$ 1.44  $ (1.99)
Net income (loss) per share - diluted $ 1.43  $ (1.99)

The following table represents the reconciliation from basic to diluted weighted-average shares outstanding used in the calculation of basic and diluted earnings per share:
Twelve Months Ended
December 31,
(amounts in thousands) 2021 2020
Weighted average shares used in computing net income per share of common stock, basic 11,851  6,123 
Add:
Time-based RSUs 88  — 
Weighted average shares used in computing net income per share of common stock, diluted 11,939  6,123 

For the twelve months ended December 31, 2021, our performance based shares, Public Warrants and Private Warrants were excluded from the computation of diluted weighted average shares outstanding as the necessary conditions had not been achieved for the performance based shares and the average stock price for the period was below the strike price for the warrants. For the twelve months ended December 31, 2021, our performance based and market condition RSUs were also excluded because the vesting is contingent upon the satisfaction of certain conditions which had not been achieved as of December 31, 2021. There were no warrants, performance based shares, or RSUs outstanding as of December 31, 2020.

The following table presents the potentially dilutive shares that were excluded from the computation of diluted net income per share of common stock:
Twelve Months Ended
December 31,
(amounts in thousands) 2021 2020
Performance based shares outstanding 300  — 
Public Warrants 6,946  — 
Private Warrants 16,927  — 
Performance based and market-condition RSUs 348  — 
Total 24,521  — 


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NOTE 13 — DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
BMTX uses fair value measurements to disclose the fair value of its financial instruments. FASB’s ASC 825, Financial Instruments, requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. For fair value disclosure purposes, BMTX utilized the fair value measurement criteria under FASB ASC 820, Fair Value Measurements (“ASC 820”).

In accordance with ASC 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for BMTX’s financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, focusing on an exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

The fair value guidance establishes a fair value hierarchy and describes the following three levels used to classify fair value measurements:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The following methods and assumptions were used to estimate the fair values of BMTX’s financial instruments as of December 31, 2021 and 2020:
Cash and cash equivalents
Cash and cash equivalents reported on the Consolidated Balance Sheets consists of non-interest bearing demand deposits, for which carrying value approximates fair value.
Accounts receivable, net
The carrying amount of accounts receivable approximates fair value because of the short-term nature of these items.
Borrowings from Partner Bank
In 2019, BMTX entered into a non-negotiable demand promissory note and line of credit agreement with our Partner Bank to borrow up to $50.0 million with interest set at a floating annual rate equal to 12-month LIBOR plus 204 basis points. The balance outstanding as of December 31, 2021 and 2020 were zero and $21.0 million, respectively, with all lines of credit terminated with our Partner Bank as of December 31, 2021.

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The carrying amount of the borrowings from Partner Bank approximates its fair value due to its floating interest rate and short-term nature. The borrowing from Partner Bank is classified as a Level 2 fair value based upon the lowest level of input that is significant to the fair value measurement.
Liability for Private Warrants

The fair value of the Private Warrants was estimated using a modified version of the Black-Scholes option pricing model for European calls. We assumed a term for the Private Warrants equal to the contractual term from the merger date and then discounted the resulting value to the valuation date. Among the key inputs and assumptions used in the pricing model at December 31, 2021 were the following: a term of 4 years; volatility of 35%; a dividend yield of zero; an underlying stock price of $9.21; a risk free interest rate of 1.11%; and a closing price of the Public Warrants of $1.87 per share. The warrant liability is classified as a Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.

The estimated fair values of BMTX’s financial instruments at December 31, 2021 and December 31, 2020 were as follows:
Fair Value Measurements at December 31, 2021
(amounts in thousands) Carrying Amount Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents $ 25,704  $ 25,704  $ 25,704  $ —  $ — 
Accounts receivable, net 9,161  9,161  9,161  —  — 
Liabilities:
Liability for private warrants(1)
$ 13,614  $ 13,614  $ —  $ —  $ 13,614 
(1) The initial fair value of the warrants was $30.8 million on January 4, 2021, the merger date. The $17.2 million change in fair value during the twelve months ended December 31, 2021 was reported in Gain on fair value of private warrant liability on the Consolidated Statements of Income (Loss).
Fair Value Measurements at December 31, 2020
(amounts in thousands) Carrying Amount
(As Restated)
Estimated Fair Value
(As Restated)
Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents $ 2,989  $ 2,989  $ 2,989  $ —  $ — 
Accounts receivable, net 10,033  10,033  10,033  —  — 
Liabilities:
Borrowings from Partner Bank $ 21,000  $ 21,000  $ —  $ 21,000  $ — 
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NOTE 14 — RELATIONSHIP WITH OUR PARTNER BANK

The Company has several relationships with our Partner Bank, Customers Bank, which is a related party of the Company. These relationships are described below. See Note 2 – Basis