Customers Bancorp in Pennsylvania divesting BankMobile
Customers Bancorp in Wyomissing, Pa., is revisiting the divestiture of its digital bank.
The company said Thursday that it had agreed to sell BankMobile Technologies to Megalith Financial Acquisition, which will change its name to BM Technologies. The divestiture is expected to close in the fourth quarter.
BM Technologies would offer products and services to other banks and business partners. All of the fintech’s deposits and loans would remain at Customers.
Customers said in a presentation for the transaction that it is selling BankMobile because the unit does not fit its core commercial banking focus.
Customers “has made recent strategic decisions to focus on its largest commercial lending line of business,” the company said. “From a regulatory and business focus point of view," Customers "wishes to be a business-oriented community bank.”
Customers will receive about $87 million, consisting of cash and stock in BM Technologies, along with $10 million in value tied to a new technology license for the fintech.
Part of the purchase price includes $40 million in outstanding debt owed to Customers that BM Technologies plans to pay off “as soon as possible.”
“We are thrilled to partner with [Megalith] to become a public company,” Luvleen Sidhu, BankMobile’s CEO, said in a press release. “In an era when digital banking continues to expand, we look forward to building our business over the coming years and taking advantage of all strategic opportunities.”
Megalith, a blank-check company formed in November 2017 to buy financial services and fintech companies, said it has binding commitments for a $20 million common stock private placement tied to the transaction.
Jay Sidhu, Customers' chairman and CEO, is Megalith's executive chairman. Sam Sidhu, Customers' head of corporate development, is a former Megalith CEO and serves on its board.
Raj Date, a former deputy director of the Consumer Financial Protection Bureau, is a Megalith director.
Jay Sidhu is also a managing member for MFA Investor Holdings, which owns all of Megalith's Class B shares and a fifth of all outstanding stock, according to Megalith's most recent proxy statement.
Customers and Megalith said they appointed special committees of independent directors to review the deal before recommending that each board approve it.
Customers, which will become BM Technologies’ largest investor with a 46.7% stake, plans to gradually reduce its ownership in the new company after a standard lockup period ends.
Customers tried to spin BankMobile off in 2018, but a complex transaction with Flagship Community Bank Clearwater, Fla., fell through because of regulatory complications.
A big issue at that time was Customers’ inability to qualify for the small debit card issuer exemption under the Durbin amendment. Without that, Customers would have still been subject to caps on interchange fees even if it completed a spinoff.
So Customers announced in January 2019 that it would keep BankMobile in the fold for at least two years as it evaluated ways to qualify for the exemption. The company also looked at ways to stay below $10 billion in assets to delay the fee cap.
Customers has blown past the $10 billion asset threshold in recent months, largely driven by its participation in the Paycheck Protection Program. Customers had $17.9 billion in assets on June 30, including $5.2 billion in PPP loans.
It is unclear if the company would try to shrink again when the PPP loans roll off.
Customers expects to bring in $100 million in revenue from PPP fees in coming quarters.
BankMobile, formed in 2015, provides banking services colleges and universities, reaching roughly a third of students. It also has a white-label partnership with T-Mobile.
Earlier this week, BankMobile announced a partnership with Google to offer digital checking accounts next year. It is one of six banks that will use Google Pay's existing infrastructure as the front-end customer interface.