DESCRIPTION OF THE BUSINESS AND MERGER TRANSACTION

9 Months Ended

Sep. 30, 2021

Business Description And Reverse Recapitalization [Abstract]

DESCRIPTION OF THE BUSINESS AND MERGER TRANSACTION

DESCRIPTION OF THE BUSINESS AND MERGER TRANSACTION

Description of the Business

BM Technologies, Inc. (“BMT” or “the Company”) 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.

BMT facilitates deposits and banking services between a customer and an FDIC insured partner bank. BMT’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 Workplace Banking businesses. BMT 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 our partner bank, universities, or paid directly by customers.

BMT is a Pennsylvania corporation, incorporated in May 2016, and until January 4, 2021, 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 current 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.

BMT 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 Department of Education, due to our student Disbursements business, and are periodically examined by them. Our contracts with most of our higher education institutional clients require us to comply with numerous laws and regulations, including, where applicable, regulations promulgated by the Department of Education (“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.

Seasonality

BMT’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 BMT serves. 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 one-time 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 has continued through the first nine months of 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 this method of accounting, 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.

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.

As a result of the merger transaction, BankMobile used proceeds from the recapitalization transaction to pay down its outstanding loan of $15.6 million, and received $1.3 million of cash, net of transaction costs, and issued an additional 6,076,946 shares of common stock of the Company.

Out of Period Adjustment

During the course of preparing its unaudited consolidated financial statements for the three and nine months ended September 30, 2021, the Company identified an adjustment totaling $0.8 million related to activity in the prior periods. The adjustment relates primarily to a true up of certain revenue resulting from a change in the invoicing process with one of the Company’s customers and a difference of interpretation of an agreement with them. The error resulted in the Company’s revenue and net income being overstated by $0.4 million for the years prior to 2021, $0.2 million for the three months ended March 31, 2021, and $0.2 million for the three months ended June 30, 2021. As such, the basic EPS and diluted EPS were overstated for each of the first two quarters of 2021. Basic EPS would have decreased by $0.02 and diluted by $0.01 for the three months ended March 31, 2021 because of this adjustment. The impact would have decreased basic EPS and diluted EPS by $0.02 for the three months ended June 30, 2021.

The Company analyzed the potential impact of the error in accordance with the appropriate guidance, from both a qualitative and quantitative perspective, and concluded that the error was not material to any individual interim or annual periods in fiscal years 2019, 2020, the first and second quarters of 2021, or estimated annual period results in fiscal year 2021. Accordingly, during the three months ended September 30, 2021, the Company recorded the $0.8 million as a decrease in interchange and card revenue and a decrease in accounts receivable.