Digital bank goes for $175 million, or four times revenue

Register now

Customers Bancorp in Wyomissing, Pa., once touted its BankMobile digital banking unit as the future, but on Wednesday it became part of somebody else’s future.

Citing looming burdens posed by the Durbin amendment, the $9.4 billion-asset Customers said it has agreed to sell BankMobile to Flagship Community Bank in Clearwater, Fla.

Flagship will pay $175 million for BankMobile, which has approximately 1.7 million checking accounts and $500 million in noninterest-checking deposits on its books, Customers said. The 11-year-old Flagship plans to raise at least $260 million from a stock sale to finance the deal.

The sale price appears to be a boost from initial estimates which placed BankMobile’s value in the $100 million to $150 million range.

BankMobile generated revenue totaling $40 million in 2016, according to Customers’ fourth-quarter results. Debit card fees generated most of the unit’s income, according to Chairman and CEO Jay Sidhu.

“Due to Durbin Amendment restrictions on debit card interchange fees, Customers believes it will be unable to profitably operate BankMobile once consolidated assets exceed $10 billion,” Sidhu said in a press release.

Enacted as part of the Dodd-Frank Act, the Durbin amendment caps interchange fees at 44 cents for banks with assets of $10 billion or more. The regulation poses no immediate threat to Flagship, which has just two branches and assets of about $113 million.

Frank Burke, Flagship’s chairman and CEO, said in the press release that the deal offers his company the opportunity “to meaningfully expand our digital banking footprint beyond our Florida markets.”

“We look forward to welcoming BankMobile's team of over 220 staff members to Flagship, so we can continue to provide BankMobile's customers with the products and services they have come to expect,” Burke added.

The transaction is expected to close before the end of the third quarter. Flagship would continue to run its community bank business, but its primary emphasis would shift to digital banking. Plans also call for it to change its name to BankMobile and appoint Jay Sidhu the chairman. He would continue in his current role with Customers, too. His daugther, Luvleen Sidhu, would retain her roles as BankMobile’s president and chief strategy officer.

Customers launched BankMobile in January 2015, aiming the service at college-age students and young professionals. BankMobile recently hit a snag when it was forced to postpone the relaunch of its BankMobile app; issues with a third-party vendor reportedly caused the delay.

As part of the sale agreement, Customers agreed to a noncompetition clause that prohibits it from developing a mobile banking subsidiary similar to BankMobile for five years.

For reprint and licensing requests for this article, click here.
Technology Digital banking M&A