RELATIONSHIP WITH OUR PARTNER BANK

3 Months Ended

Mar. 31, 2022

Related Party Transactions [Abstract]

RELATIONSHIP WITH OUR PARTNER BANK

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 does not intend to renew the Deposit Servicing Agreement. See Note 15 - Subsequent Events for additional information.

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.

Included within the Transition Services Agreement is a provision for administering the Company’s 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 March 31, 2022 and 2021 were $0.2 million, and $0.2 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 line 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 months ended March 31, 2022, 13,000 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 March 31, 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.

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 March 31, 2022 and December 31, 2021 were $5.9 million and $5.5 million, respectively. The Deferred revenue balances related to our Partner Bank as of March 31, 2022 and December 31, 2021 were $13.8 million and $12.7 million, respectively. The Accounts payable and accrued liabilities balances related to our Partner Bank as of March 31, 2022 and December 31, 2021 were $0.5 million and $0.4 million, respectively.

The Company recognized $23.0 million and $19.8 million in revenues from our Partner Bank for the three months ended March 31, 2022 and 2021, respectively. Of these amounts, $7.1 million and $9.0 million are paid directly by MasterCard or individual account holders to the Company for the three months ended March 31, 2022 and 2021, respectively. The Company recognized less than $0.1 million and $0.1 million of expenses from our Partner Bank for the three months ended March 31, 2022 and 2021, respectively. These amounts are included in the Consolidated Statements of Income (Loss).