NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — 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 (“Customers Bank”), a Pennsylvania state-chartered 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, Banking-as-a-Service (“BaaS”), and niche Direct to Consumer (“D2C") Banking businesses. BMTX has four primary revenue sources: interchange and card revenue, servicing fees 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 (“Megalith”) in November 2017 and renamed BM Technologies, Inc. in January 2021 at the time of the merger between Megalith and BankMobile Technologies, Inc. Until January 4, 2021, BankMobile Technologies, Inc. was a wholly-owned subsidiary of Customers Bank, a wholly-owned subsidiary of Customers Bancorp, Inc. (the “Bancorp” or “Customers Bancorp”).
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 Department of Education (“ED”), due to its student disbursements business, and is periodically examined by it. BMTX’s contracts with most of its higher education institutional clients require it to comply with numerous laws and regulations, including, where applicable, regulations promulgated by the ED regarding the handling of student financial aid funds received by institutions on behalf of their students under Title IV of the Higher Education Act of 1965; the Family Educational Rights and Privacy Act of 1995 (“FERPA”); the Electronic Fund Transfer Act and Regulation E; the USA PATRIOT Act and related anti-money laundering requirements; and certain federal rules regarding safeguarding personal information, including rules implementing the privacy provisions of the Gramm-Leach-Bliley Act (“GLBA”). Other products and services offered by BMTX may also be subject to other federal and state laws and regulations.
NOTE 2 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These interim unaudited consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). Any reference 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"). These interim unaudited consolidated 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 interim periods presented.
The preparation of interim unaudited consolidated 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 interim unaudited consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include valuation of deferred tax assets, valuation of private warrants, goodwill, and intangible asset impairment analysis. Actual results could differ from those estimates.
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Balance Sheet Reclassifications
In preparation of the Company’s interim unaudited consolidated financial statements as of and for the three and six months ended June 30, 2022, the Company identified that its reserve for losses resulting from fraud or theft-based transactions that have generally been disputed by BMTX serviced deposit account holders and a related receivable were previously presented on a net basis as a component of Other assets. The Company reviewed this presentation and concluded that these amounts are better presented on a gross basis including the reserve for losses as a component of Accounts payable and accrued liabilities and including the receivable for any billable reimbursements from our Partner Bank as a component of Accounts receivable, net.
In addition, the MasterCard quarterly fee assessment was reclassified from Accounts payable and accrued liabilities to Accounts receivable, net to better present the fee assessment balance.
Finally, the Company identified certain prepaid taxes that were previously included as a component of Other Assets. The Company reviewed this presentation and concluded that these amounts are better presented as a component of Prepaid expenses and other current assets due to their short-term nature.
The effect of these reclassifications has increased Accounts receivable, net by $33 thousand and Accounts payable and accrued liabilities by $86 thousand, decreased Other assets by $439 thousand, and increased Prepaid expenses and other current assets by $320 thousand at December 31, 2021.
Statement of Income (Loss) Reclassifications
In preparation of the Company’s interim unaudited consolidated financial statements as of and for the three and six months ended June 30, 2022, the Company identified certain expenses that were previously included as a component of Customer related supplies and Occupancy that are better presented as a component of Technology, communication, and processing.
In addition, the Company identified card replacement fees reimbursed from a BaaS partner were recognized as a component of Account fees when only the margin of those fees should have been recognized as revenue and the reimbursable expense should have been recognized as a component of Customer related supplies.
The effect of these reclassifications for the three months and six months ended June 30, 2021 decreased revenue from Account fees by $23 thousand and $48 thousand, respectively. The effect of these reclassifications for the three months and six months ended June 30, 2021 decreased revenue from Other revenue by $36 thousand and $85 thousand, respectively. The effect of these reclassifications for the three months and six months ended June 30, 2021 increased expenses from Customer related supplies by $84 thousand and decreased expenses by $14 thousand, respectively. The effect of these reclassifications for the three months and six months ended June 30, 2021 decreased expenses from Technology, communication, and processing by $228 thousand and $161 thousand, respectively. The effect of these reclassifications for the three months and six months ended June 30, 2021 increased expenses from Occupancy by $85 thousand and $42 thousand, respectively. The impact of these adjustments has no effect on Net income (loss) from operations.
Significant Accounting Policies
These interim unaudited consolidated financial statements should be read in conjunction with the 2021 audited consolidated financial statements and related notes of BMTX, which describe BMTX’s significant accounting policies. There have been no material changes to BMTX’s significant accounting policies during the six months ended June 30, 2022. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted from these interim unaudited consolidated financial statements as permitted by U.S. GAAP and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised ASUs 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.
Accounting Pronouncements Issued but Not Yet Adopted
From time to time, new accounting pronouncements are issued by the FASB that are adopted by BMTX as of the required effective dates. The following paragraphs related to new pronouncements should be read in conjunction with Significant Accounting Policies of the notes to the audited consolidated financial statements included in our 2021 Form 10-K. Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on the Company’s consolidated 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 for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted earnings per share 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.
NOTE 3 — ACCOUNTS RECEIVABLE
Accounts receivable, net 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 our BaaS partners, 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 less than $0.1 million at June 30, 2022 and $0.1 million at December 31, 2021.
| | | | | | | | | | | | | | | | | |
| (amounts in thousands) | | Beginning Balance | Additions | Reductions | Ending Balance |
| Allowance for doubtful accounts | | | | | |
| Six months ended June 30, 2022 | | $ | 79 | | $ | 8 | | $ | (51) | | $ | 36 | |
| Twelve months ended December 31, 2021 | | $ | — | | $ | 171 | | $ | (92) | | $ | 79 | |
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 | | June 30,
2022 | | December 31,
2021 |
| Leasehold improvements | | 5 years | | $ | — | | | $ | 28 | |
| Furniture, fixtures and equipment | | 10 years | | 135 | | | 243 | |
| IT equipment | | 3 to 5 years | | 1,133 | | | 1,813 | |
| | | | 1,268 | | | 2,084 | |
| Accumulated depreciation | | | | (827) | | | (1,738) | |
| Total | | | | $ | 441 | | | $ | 346 | |
Depreciation is recorded in Occupancy expense on the unaudited Consolidated Statements of Income (Loss). For the three and six months ended June 30, 2022, BMTX recorded depreciation expense of less than $0.1 million and $0.1 million, respectively. For the three and six months ended June 30, 2021, BMTX recorded depreciation expense of less than $0.1 million and $0.1 million, respectively.
Developed Software
The components of developed software were as follows: | | | | | | | | | | | | | | | | | | | | |
| (amounts in thousands) | | Expected Useful Life | | June 30,
2022 | | December 31,
2021 |
| Higher One Disbursement business developed software | | 10 years | | $ | 27,400 | | | $ | 27,400 | |
| Internally developed software | | 3 to 7 years | | 41,358 | | | 41,683 | |
| Work-in-process | | | | 2,228 | | | 421 | |
| | | | 70,986 | | | 69,504 | |
| Accumulated amortization | | | | (44,989) | | | (40,911) | |
| Total | | | | $ | 25,997 | | | $ | 28,593 | |
Amortization is recorded in Technology, communication and processing expense on the unaudited Consolidated Statements of Income (Loss). BMTX recorded amortization expense of $2.9 million and $5.8 million for the three and six months ended June 30, 2022, respectively. BMTX recorded amortization expense of $2.8 million and $5.6 million for the three and six months ended June 30, 2021, respectively.
NOTE 5 — 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 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 three and six months ended June 30, 2022 and 2021.
Other intangibles, net includes assets subject to amortization that are reviewed for impairment under FASB ASC 360, Property, Plant and Equipment. There was no impairment for Other intangibles, net for the three months ended June 30, 2022 and 2021.
The components of Other intangibles, net as of June 30, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| (amounts in thousands) | | Expected Useful Life | | June 30,
2022 | | December 31,
2021 |
| Customer relationships – universities | | 20 years | | $ | 6,402 | | | $ | 6,402 | |
| Accumulated amortization | | | | (1,813) | | | (1,653) | |
| Total | | | | $ | 4,589 | | | $ | 4,749 | |
Amortization is recorded in Other expense on the unaudited Consolidated Statements of Income (Loss). BMTX recorded amortization expense of $0.1 million and $0.2 million for the three and six months ended June 30, 2022, respectively. BMTX recorded amortization expense of $0.1 million and $0.2 million for the three and six months ended June 30, 2021, respectively.
The customer relationships - universities will be amortized in future periods as follows: | | | | | | | | |
| Remainder of 2022 | | $ | 160 | |
| 2023 | | 320 | |
| 2024 | | 320 | |
| 2025 | | 320 | |
| 2026 | | 320 | |
| After 2026 | | 3,149 | |
| Total | | $ | 4,589 | |
NOTE 6 — LEASES
At June 30, 2022, BMTX leased one office under an operating lease. The lease consists of a 5-year lease term with options to renew the lease or extend the term annually or with mutual agreement. The lease includes 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 agreement does not contain any material residual value guarantees or material restrictive covenants. As BMTX’s operating lease does not provide an implicit rate, BMTX utilized the incremental borrowing rate of Customers Bank, 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 | | June 30,
2022 | | December 31,
2021 |
| Assets: | | | | | | |
| Operating lease ROU assets | | Other assets | | $ | 53 | | | $ | 398 | |
| Liabilities: | | | | | | |
| Operating lease liabilities | | Operating lease liabilities | | $ | 56 | | | $ | 416 | |
Operating lease expenses are recorded in Occupancy on the Consolidated Statements of Income (Loss). BMTX recorded lease expense of $0.4 million and $0.6 million for the three and six months ended June 30, 2022, respectively. BMTX recorded lease expense of $0.2 million and $0.5 million for the three and six months ended June 30, 2021, respectively.
The maturities of non-cancelable operating lease liabilities were as follows at June 30, 2022: | | | | | | | | |
| (amounts in thousands) | | June 30,
2022 |
| Remainder of 2022 | | $ | 56 | |
| Total minimum payments | | 56 | |
| Less: interest | | — | |
| Present value of lease liabilities | | $ | 56 | |
Cash paid pursuant to operating lease liabilities totaled $0.2 million and $0.4 million for the three and six months ended June 30, 2022, respectively. Cash paid pursuant to operating lease liabilities totaled $0.2 million and $0.4 million for the three and six months ended June 30, 2021, respectively. These cash payments are reported as cash flows used in operating activities in the unaudited Consolidated Statements of Cash Flows.
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 June 30, 2022 and as of December 31, 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 unaudited interim consolidated 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 and merger with Megalith as of January 4, 2021. 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 June 30, 2022, there were 12,238,947 shares of common stock issued and outstanding, which includes the 300,000 performance shares discussed below. At December 31, 2021 there were 12,193,378 shares of common stock issued and outstanding.
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.
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 June 30, 2022 and December 31, 2021, there were no shares of preferred stock issued or outstanding.
Performance 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 are met before the seventh anniversary of the closing date of the merger with Megalith. If the vesting criteria are not met prior to the seventh anniversary of the closing date of the merger, the shares will be forfeited and cancelled. The vesting criteria are met when 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 criteria for the performance shares have been met as of June 30, 2022 and no expense has been recognized.
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, is 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 June 30, 2022. 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 three and six months ended June 30, 2022, the share-based compensation expense related to these awards totaled $2.3 million and $4.5 million, respectively. For the three and six months ended June 30, 2021. the share-based compensation expense related to these awards totaled $2.4 million and $4.7 million, respectively.
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, 2021 | 1,283,535 | | | $ | 14.87 | |
| Granted | — | | | $ | — | |
| Vested | — | | | $ | — | |
| Forfeited | (20,000) | | | $ | 14.87 | |
Balance as of June 30, 2022 | 1,263,535 | | | $ | 14.87 | |
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 incurred during the three months ended March 31, 2021 and was recorded as a component of Salaries and employee benefits expense. No such transactions exist for the three and six months ended June 30, 2022.
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.
The aggregate number of shares of common stock that may be issued pursuant to stock awards under the Equity Incentive Plan will not, and currently does not, exceed 10% of the issued and outstanding shares of our common stock. Grants were made under the Equity Incentive Plan for the three and six months ended June 30, 2022 as described within Restricted Stock Units below.
Restricted Stock Units (“RSUs”)
On September 30, 2021, the Company granted 695,000 RSUs to certain executives split equally between service-based and performance-based awards. 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 to the executive RSU awards granted on September 30, 2021, the Company periodically grants individual awards with service-based vesting. During the six months ended June 30, 2022 and 2021, the Company granted 65,990 and 0 service-based RSU awards under the Equity Incentive Plan, respectively.
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 three and six months ended June 30, 2022, the share-based compensation expense related to RSU awards totaled $0.8 million and $1.4 million, respectively. For the three and six months ended June 30, 2021, the share-based compensation expense related to RSU awards totaled less than $0.1 million and $0.1 million, respectively. Share-based compensation expense is recorded in Salaries and employee benefits in the unaudited Consolidated Statement of Income (Loss).
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, 2021 | 704,600 | | | $ | 8.96 | |
| Granted | 65,990 | | | $ | 8.42 | |
| Vested | (90,075) | | | $ | 9.02 | |
| Forfeited | (12,000) | | | $ | 9.18 | |
Balance as of June 30, 2022 | 668,515 | | | $ | 8.88 | |
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 June 30, 2022, 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 June 30, 2022 and 2021, respectively, there were 22,703,004 and 23,874,667 warrants to purchase our common stock outstanding. The warrant totals for each period-end consist of 17,227,189 and 16,928,889 public warrants and 5,475,815 and 6,945,778 private warrants as of June 30, 2022 and 2021, respectively.
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 with Megalith (January 4, 2026) or earlier upon redemption or liquidation; 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 other original holders.
As of June 30, 2022, 1,600 of the Company’s outstanding public warrants have been exercised and 1,169,903 of the private warrants have been repurchased by the Company from related parties at $1.69 per warrant. In addition, as of June 30, 2022, 300,000 of the private warrants have been reclassified to public warrants based upon a sale of the private warrants by the original holders which resulted in a modification of terms that effect classification as public warrants. There were 100 warrants exercised in the three and six months ended June 30, 2022. During the comparative three and six month period ended June 30, 2021 there were no repurchases, exercises, or reclassifications related to the private or public warrants.
The private warrants and the public warrants are treated differently for accounting purposes, as follows:
Private Warrants
In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity, the private warrants are accounted for as liabilities and are 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 private 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 with Megalith 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 fair value of the private warrants is recognized in our Consolidated Statements of Income (Loss) below operating profit as Gain (loss) on fair value of private warrant liability with a corresponding amount recognized in the Liability for private warrants on our Consolidated Balance Sheets. For the three and six months ended June 30, 2022, we recognized gains of $5.6 million and $8.3 million respectively, related to the revaluation of the private warrants. For the three and six months ended June 30, 2021, we recognized a loss of $3.1 million and a gain $11.9 million, respectively, related to the revaluation of the private warrants.
Balance Sheet Impact: The private warrant liability is presented in the account Liability for private warrants in the long-term liabilities section of our Consolidated Balance Sheets. As noted above, the change in fair value of the underlying private warrants results in a corresponding change in the balance of the warrant liability on our Consolidated Balance Sheets. When warrants are exercised, the fair value of the liability is reclassified to Additional paid-in capital within equity. Cash received for the exercise of warrants is reflected in Cash and cash equivalents with a corresponding offset recorded in Common stock and Additional paid-in capital within 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 noncash adjustment. Cash received for the exercise of warrants is recorded in cash flows from financing activities. Cash paid for the repurchase of warrants is recorded in cash flows from financing activities. During the six months ended June 30, 2022, the Company repurchased private warrants from related parties for cash consideration totaling $2.0 million. No such transactions occurred for the six months ended June 30, 2021.
Shareholders’ Equity Impact: The impact to Additional paid-in-capital as of the opening balance sheet is described above. Exercises of private warrants results in a reduction of the Liability for private warrants on the Consolidated Balance Sheets with a corresponding increase to Common Stock and Additional paid-in-capital.
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. The public warrants are not marked-to-market each reporting period, thus there is no impact to earnings. Exercises of the public warrants are recorded as cash is received and are recorded in Cash and cash equivalents with a corresponding offset recorded in Common stock and Additional paid-in-capital within equity. Cash proceeds from public warrant exercises totaled less than $0.1 million and zero, respectively, during the six months ended June 30, 2022 and 2021.
NOTE 10 — REVENUES
Revenues
BMTX recognizes operating revenue in accordance with FASB ASC 606, Revenue from Contracts with Customers.
The following table presents BMTX’s revenues disaggregated by nature of the revenue stream and the pattern or timing of revenue recognition for the three and six months ended June 30, 2022 and 2021. The Company has one reportable segment and all revenues are earned in the U.S.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (amounts in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues: | | | | | | | | |
| Revenue recognized at point in time: | | | | | | | | |
| Interchange and card revenue | | $ | 5,315 | | | $ | 6,757 | | | $ | 11,958 | | | $ | 15,001 | |
| Servicing fees from Partner Bank | | 13,295 | | | 10,579 | | | 27,487 | | | 19,951 | |
| Account fees | | 2,207 | | | 2,618 | | | 4,762 | | | 5,279 | |
| University fees - disbursement activity | | 281 | | | 268 | | | 757 | | | 539 | |
| Other | | 745 | | | 1,119 | | | 799 | | | 3,720 | |
| Total revenue recognized at point in time | | 21,843 | | | 21,341 | | | 45,763 | | | 44,490 | |
| Revenue recognized over time: | | | | | | | | |
| University fees - subscriptions | | 1,165 | | | 1,063 | | | 2,292 | | | 2,116 | |
| Total revenue recognized over time | | 1,165 | | | 1,063 | | | 2,292 | | | 2,116 | |
| Total revenues | | $ | 23,008 | | | $ | 22,404 | | | $ | 48,055 | | | $ | 46,606 | |
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 based upon the expected timing of revenue recognition.
The deferred revenue balances were as follows:
| | | | | | | | | | | | | | |
| (amounts in thousands) | | June 30,
2022 | | December 31,
2021 |
| Deferred revenue (current and non-current) | | $ | 15,387 | | | $ | 15,577 | |
During the six months ended June 30, 2022, the Company recognized revenue of approximately $15.0 million included in deferred revenue at the beginning of the period. During the six months ended June 30, 2021, the Company recognized revenue of approximately $10.5 million included in deferred revenue at the beginning of the period.
Unbilled receivables
The Company had $1.1 million of unbilled receivables, or amounts recognized as revenue for which invoices have not yet been issued, as of June 30, 2022, and $2.1 million as of December 31, 2021. Unbilled receivables are reported in Accounts receivable, net on the Consolidated Balance Sheets.
NOTE 11 — INCOME TAXES
The Company’s effective tax rate was 17.2% and 23.5% for the three and six months ended June 30, 2022, respectively. The Company’s effective tax rate was (40.6)% and 21.5% for the three and six months ended June 30, 2021, respectively. The effective tax rate differs from the Company’s marginal tax rate of 27.4% due to the non-taxable fair value adjustments related to the non-compensatory private warrant liability being recorded through earnings, offset by the tax associated with the estimated annual increase of the valuation allowance established against deferred tax assets.
The deferred tax asset at June 30, 2022 and 2021 was $30.4 million and $26.4 million, respectively. These balances consisted mainly of Section 197 intangibles. These Section 197 intangibles resulted from a step-up in tax basis of the assets acquired from BankMobile Technologies, Inc., which for GAAP purposes, were not recorded at fair value.
A full valuation allowance has been recorded against the deferred tax asset balance for all periods presented. The Company has no net operating loss or other carryforward deferred tax assets. A valuation allowance is recognized when it is more likely than not that all, or a portion of, the deferred tax asset will be realized based on the weight of the available positive and negative evidence. Management determined the verifiable negative evidence from the three years of cumulative losses outweighs any available positive evidence as of June 30, 2022, but will continue to evaluate this determination each quarterly period going forward.
NOTE 12 — EARNINGS (LOSS) PER SHARE
The following are the components and results of operations and earnings (loss) per common share calculations for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (amounts in thousands, except per share data) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net income (loss) available to common shareholders - used in calculating basic EPS | | $ | 4,362 | | | $ | (4,790) | | | $ | 8,326 | | | $ | 11,269 | |
Adjustment for private warrant liability1 | | — | | | — | | | — | | | 11,947 | |
| Net income (loss) - used in calculating diluted EPS | | $ | 4,362 | | | $ | (4,790) | | | $ | 8,326 | | | $ | (678) | |
| | | | | | | | |
| Weighted-average common shares outstanding – basic | | 11,944 | | 11,900 | | 11,947 | | 11,800 |
| Weighted-average common shares outstanding – diluted | | 12,600 | | 11,900 | | 12,585 | | 13,791 |
| | | | | | | | |
| Net income (loss) per common share - basic | | $ | 0.37 | | | $ | (0.40) | | | $ | 0.70 | | | $ | 0.96 | |
| Net income (loss) per common share - diluted | | $ | 0.35 | | | $ | (0.40) | | | $ | 0.66 | | | $ | (0.05) | |
1 Diluted earnings per share for the six months ended June 30, 2021 is calculated based on adjusted net loss of $0.7 million due to the elimination of the revaluation gain on the private warrant liability.
The following table presents the reconciliation from basic to diluted weighted average shares outstanding used in the calculation of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (amounts in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Weighted average shares used in computing net income (loss) per common share, basic | | 11,944 | | | 11,900 | | | 11,947 | | | 11,800 | |
| Add: | | | | | | | | |
| Public warrants | | — | | | — | | | — | | | 1,412 | |
| Private warrants | | — | | | — | | | — | | | 579 | |
| Time-based RSUs | | 656 | | | — | | | 638 | | | — | |
| Weighted average shares used in computing net income (loss) per common share, diluted | | 12,600 | | | 11,900 | | | 12,585 | | | 13,791 | |
For basic earnings per share, the performance shares are subject to forfeiture and they are considered share-indexed instruments and not outstanding shares until they are vested. During the three and six months ended June 30, 2022 and 2021, the vesting criteria has not been met and they are not included.
For the three and six months ending June 30, 2022, our performance 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 shares and the average stock price for the period was below the strike price for the warrants. The performance shares are only considered in the calculation for diluted earnings per share if they are dilutive in nature. The performance shares are only dilutive when the average share price is greater than the strike price and when positive net income is reported. During the three and six months ended June 30, 2022, the average share price was below the strike price and these shares were not included in the diluted earnings per share calculations. For the three and six months ended June 30, 2022, 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 June 30, 2022.
For the six months ending June 30, 2021, our public warrants and private warrants were included in the computation of diluted weighted average shares outstanding as the average stock price for the period was above the strike price for the warrants. For the three months ending June 30, 2021, our public warrants and private warrants were not included as the net loss for the period would make their inclusion anti-dilutive in nature. For the three and six months ended June 30, 2021, there were no RSUs issued and outstanding.
The following table presents the potentially dilutive shares that were excluded from the computation of diluted net income (loss) per share of common stock:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (amounts in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Performance shares | | 300 | | | 300 | | | 300 | | | 300 | |
| Public warrants | | 17,227 | | | 16,929 | | | 17,227 | | | — | |
| Private warrants | | 5,476 | | | 6,946 | | | 5,476 | | | — | |
| Performance based and market-condition RSUs | | 348 | | | — | | | 348 | | | — | |
| Total | | 23,351 | | | 24,175 | | | 23,351 | | | 300 | |
NOTE 13 — DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
BMTX uses fair value measurements to determine and 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 also 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 value of BMTX’s financial instruments as of June 30, 2022 and December 31, 2021:
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.
Liability for Private Warrants
The fair value of the private warrants was estimated using a modified version of the binomial lattice model incorporating the Cox-Ross-Rubenstein methodology at June 30, 2022 and a modified version of the Black-Scholes option pricing model for European calls at December 31, 2021. We assumed a term for the private warrants equal to the contractual term from the date of the merger with Megalith and then discounted the resulting value to the valuation date. Among the key inputs and assumptions used in the pricing formula at June 30, 2022 were the following: a term of 3.5 years; volatility of 34%; a dividend yield of zero; an underlying stock price of $5.89; a risk free interest rate of 2.97%; and a closing price of the public warrants of $0.48 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 value of BMTX’s financial instruments at June 30, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements at June 30, 2022 |
| (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 | | $ | 32,484 | | | $ | 32,484 | | | $ | 32,484 | | | $ | — | | | $ | — | |
| Accounts receivable, net | | 7,081 | | | 7,081 | | | 7,081 | | | — | | | — | |
| Liabilities: | | | | | | | | | | |
| Liability for private warrants | | $ | 2,628 | | | $ | 2,628 | | | $ | — | | | $ | — | | | $ | 2,628 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 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 | | 9,194 | | | 9,194 | | | 9,194 | | | — | | | — | |
| Liabilities: | | | | | | | | | | |
| Liability for private warrants | | $ | 13,614 | | | $ | 13,614 | | | $ | — | | $ | — | | | $ | 13,614 | |
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.
Cash management
All of the Company’s cash and cash equivalents are on deposit with our Partner Bank.
Debt financing
As disclosed in Note 7- Borrowings from Partner Bank, our Partner Bank previously provided the Company with lines of credit, all of which have been terminated as of December 31, 2021.
Servicing fees and interchange income from Partner Bank
On January 4, 2021, we entered into a Deposit Processing Services Agreement (the “Deposit Servicing Agreement”) with our Partner Bank, which provided that our Partner Bank would establish and maintain deposit accounts and other banking services in connection with customized products and services offered by us, and we would provide certain other related services in connection with the accounts.
On June 29, 2022, the Company received written notice that Customers Bank did not intend to renew the Deposit Servicing Agreement with the Company. The 180-day notice was given in accordance with the terms of the Deposit Servicing Agreement, as a result of which, the Deposit Servicing Agreement will terminate effective December 31, 2022. Customers Bank previously indicated in a public filing on April 27, 2022 that it did not intend to renew the Deposit Servicing Agreement. The formal notification was consistent with management’s expectations; and as discussed in the Company’s Annual Report on Form 10-K, dated December 31, 2021, and filed on May 10, 2022, the Company is considering multiple strategic alternatives including internalizing services upon closing of the previously announced merger with First Sound Bank or negotiating a new deposit servicing agreement with new potential bank partners or with our existing bank partner after December 31, 2022 at then current market rates and conditions.
Our Partner Bank retains any and all revenue generated from the funds held in the deposit accounts, and in exchange, pays us a 3% servicing fee based on average monthly deposit balances, subject to certain contractual adjustments, and a monthly interchange fee equal to all debit card interchange revenues on the demand deposit accounts, plus the difference between Durbin exempt and Durbin regulated interchange revenue.
Transition Services Agreement
On January 4, 2021, we entered into a Transition Services Agreement with our Partner Bank, pursuant to which each party agreed for a period of up to twelve months to provide certain transition services listed therein to the other party. A limited number of these transition services were subsequently extended through March 31, 2022. In consideration for the services, we paid our Partner Bank a service fee of $12,500 per month, plus any expenses associated with the services.
The Transition Services Agreement included a provision for providing the Company with assistance in the establishment and administration of a 401(k) plan for the benefit of Company employees. Effective April 9, 2021, the Customers Bank 401(k) plan became a multi-employer plan, as defined by the U.S. Department of Labor in accordance with the Employee Retirement Income Security Act of 1974, covering both the full-time employees of Customers Bank and the Company. The Company provides a matching contribution equal to 50% of the first 6% of the contributions made by its eligible participating employees. The Company’s employer contributions to the 401(k) plan for the benefit of its employees for the three months ended June 30, 2022 and 2021 were $0.2 million, and $0.2 million, respectively. For the six months ended June 30, 2022 and 2021, the Company’s employer contributions totaled $0.4 million and $0.4 million, respectively. These contributions are recorded in Salaries and employee benefits in the Consolidated Statements of Income (Loss).
Other
On January 4, 2021, the Company entered into a Software License Agreement with our Partner Bank which provides it with a non-exclusive, non-transferable, royalty-free license to utilize our mobile banking technology for a period up to 10 years. The Software License Agreement is cancellable by our Partner Bank at any time, without notice, and without penalty, and for any reason or no reason at all. To date, our Partner Bank has not utilized the Company’s mobile banking technology and zero consideration has been paid or recognized under the Software License Agreement.
On January 4, 2021, the Company entered into a Non-Competition and Non-Solicitation Agreement with our Partner Bank providing that our Partner Bank will not, for a period of 4 years after the closing of the divestiture, directly or indirectly engage in the Company’s business in the territory (both as defined in the Non-Competition Agreement), except for white label digital banking services with previously identified parties and passive investments of no more than 2% of a class of equity interests of a competitor that is publicly traded. Our Partner also agreed not to directly or indirectly hire or solicit any employees of the Company.
On November 29, 2021, the Company entered into an agreement with our Partner Bank which terminated the $10.0 million letter of credit and gave the Company the right to any shares that were forfeited as part of the January 4, 2021 Share-Based Compensation Award. During the three and six months ended June 30, 2022, respectively, 7,000 and 20,000 forfeited shares were reacquired by the Company from our Partner Bank.
Both the President and Executive Chairman of the Board of our Partner Bank are immediate family members of the Company’s CEO and together with their spouses own less than 5.0% of the Company’s outstanding common stock at June 30, 2022.
On March 1, 2022, the Company reached an agreement, with settlement on March 11, 2022, to reacquire 1,169,963 private warrants at a price of $1.69 per warrant, or a total cost of $2.0 million, from Ms. Sherry Sidhu and Mr. Samvir Sidhu, who are immediate family members of our CEO. The transaction price was established based on the range of market prices during the repurchase conversations and was approved by the Company’s Audit Committee.
On April 20, 2022, the Company entered into a Special Limited Agency Agreement with our Partner Bank that provides for marketing assistance from the Company for originating consumer installment loans funded by Customers Bank. In consideration for this marketing assistance, the Company receives certain fees specified within the Special Limited Agency Agreement which are recorded as a component of Other Revenue within the Consolidated Statements of Income (Loss). As of June 30, 2022, there has not been any revenue recognized from this agreement.
Positions with our Partner Bank are presented on our Consolidated Balance Sheets in Accounts receivable, net, Deferred revenue, current, and Accounts payable and accrued liabilities. The Accounts receivable balances related to our Partner Bank as of June 30, 2022 and December 31, 2021 were $3.0 million and $5.5 million, respectively. The Deferred revenue balances related to our Partner Bank as of June 30, 2022 and December 31, 2021 were $13.0 million and $12.7 million, respectively. The Accounts payable and accrued liabilities balances related to our Partner Bank as of June 30, 2022 and December 31, 2021 were $0.7 million and $0.4 million, respectively.
The Company recognized $20.5 million and $43.6 million in revenues from our Partner Bank for the three and six months ended June 30, 2022, respectively. Of these amounts, $6.9 million and $14.0 million are paid directly by MasterCard or individual account holders to the Company for the three and six months ended June 30, 2022, respectively. The Company recognized $19.5 million and $39.3 million in revenues from our Partner Bank for the three and six months ended June 30, 2021, respectively. Of these amounts, $7.9 million and $16.8 million are paid directly by MasterCard or individual account holders to the Company for the three and six months ended June 30, 2021, respectively. These amounts are included in the Consolidated Statements of Income (Loss).
The Company recognized zero and less than $0.1 million of expenses from our Partner Bank for the three and six months ended June 30, 2022, respectively. The Company recognized $0.1 million and $0.2 million of expenses from our Partner Bank for the three and six months ended June 30, 2021, respectively. These amounts are included in the Consolidated Statements of Income (Loss).
NOTE 15 — SUBSEQUENT EVENTS
The Company has evaluated events subsequent to the balance sheet date and prior to the filing of this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2022, and has determined that no events have occurred that would require adjustment to our interim unaudited consolidated financial statements and related notes.