Radnor fintech spun out of Customers Bancorp terminates acquisition of Seattle bank – The Business Journals
Citing a changing macroeconomic environment, Radnor-based fintech company BM Technologies said Friday it has terminated its plan to acquire Seattle-based First Sound Bank.
BM (NYSE: BMTX), formerly known as BankMobile, has been looking for a bank partner since being spun out and turned public by West Reading’s Customers Bancorp last year in a $140 million deal with a special purpose acquisition company, or SPAC. That SPAC was formed by members of the Sidhu family, which created both Customers and BM.
In the deal announced in November 2021 with First Sound (OTC: FSWA), BM would have paid $23 million in cash. The deal had been expected to close in the second half of 2022. The combined company would have been known as BMTX Bank, with First Sound CEO Marty Steele serving as chief operating officer and leading the community banking division.
BM also would have received its own bank charter and eliminated the need to run its back-end banking services through a partner bank, currently Customers. BM said it signed a letter of intent with a new partner bank — which was not named — and would transfer deposits to that bank in the first half of next year.
Since the company doesn’t need capital for the acquisition or balance sheet growth, the BM board also has authorized the repurchase of up to $10 million of shares and warrants.
BM provides banking-as-a-service (BaaS), offering access to checking and savings accounts, personal loans, credit cards and other products and services through technology. It works with consumer brands, including T-Mobile, to help them launch branded checking accounts, and it works with universities to help students create accounts for accepting financial aid credits.
The founder, chair and CEO of BM is Luvleen Sidhu, the daughter of Customers Bancorp founder and Chairman Jay Sidhu and sister of Customers Bank CEO Sam Sidhu.
In a statement, Luvleen Sidhu said that the “prolonged regulatory approval process provided us the opportunity to reflect on our broader strategy to maximize the value of BMTX-serviced deposits in the context of an evolving macro environment. Interest rates and their outlook are materially higher today than last year when the merger was announced.” She said the company is better situated as a fintech with a sponsor bank without the capital needs and credit risk that an “on-balance sheet strategy would entail.”
BM did not name its new sponsor bank, only saying that it is exempt from the Durbin Amendment of the 2010 Dodd-Frank Act, which directs the Federal Reserve Board to regulate debit card interchange fees so that are “reasonable and proportional to the cost incurred by the issuer with respect to the transaction.” Banks that are exempt from Durbin have less than $10 billion in assets, meaning BM has been looking to partner with a community bank rather than a larger one.
BM’s stock closed Friday up 14.2% at $5.87 after news of the First Sound deal’s termination became public and continued to climb in after-hours trading. The volume of trading shot through the roof to almost 253 million shares, compared to around 26 million the previous day and 52 million last Wednesday.
Customers formed BankMobile in 2015 as a no-fee digital banking platform. It has contracts with hundreds of U.S. colleges and universities that use its technology platform to manage their student loan disbursement, as well as the account management and opening for the disbursements business for the student.
The company has grown significantly since April 2019, when T-Mobile (NASDAQ: TMUS) officially began to market its mobile checking account app called T-Mobile Money that it created with BM.
Before spinning it out into the SPAC, Customers tried to spin off BankMobile to Clearwater, Florida-based Flagship Community Bank. It cancelled those plans in 2018, citing issues with the regulatory process and the pending T-Mobile partnership.
The primary reason Customers was looking to sell BankMobile is that the bank was nearing the $10 billion asset threshold that triggers tighter regulatory enforcement from Durbin, specifically reducing the amount of money it could make from interchange fees due to the Durbin amendment.
Customers (NYSE: CUBI) has more than doubled that $10 billion mark in the past few years due its national digital banking expansion, entry into new areas such as cryptocurrency and its major role in the Paycheck Protection Program — which is now among several lenders under investigation by the U.S. Small Business Administration.
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