BM Technologies, Inc. (NYSE:BMTX) Q2 2022 Earnings Conference Call August 16, 2022 9:00 AM ET
Company Participants
Robert H. Ramsey – CFO
Luvleen Sidhu – Co-Founder, Chairman, and CEO
Conference Call Participants
Christopher Sakai – Singular Research
Michael Grondhahl – Northland Securities
Greg Pendy – Chardan Capital Markets
Bill Dezellem – Tieton Capital
Robert H. Ramsey
Thank you Fred and good morning everyone. And thank you for enjoying us for BM Technologies Second Quarter Earnings Conference Call. Our earnings release and investor presentation were filed this morning and both were posted on the Investor Relations page of the company’s website at ir.bmtxinc.com. Our investor presentation includes important details that we will be walking through on this morning’s webcast, and I encourage everyone to pull up a copy.
Before we begin, we would like to remind you that some of the statements we make today may be considered forward-looking. These forward-looking statements are subject to a number of risks and uncertainties that may cause actual performance results to differ materially from what is currently anticipated. Please note that these forward-looking statements speak only as of the date of this presentation and we undertake no obligation to update these forward-looking statements in light of new information or future events, except to the extent required by applicable securities laws. Please refer to our SEC filings, including our Form 10-K and 10-Q, for a more detailed description of the risk factors that may affect our results. Copies may be obtained from the SEC or by visiting the Investor Relations section of our website. At this time it is my pleasure to turn the call over to Luvleen Sidhu, BM Technologies Chair and CEO.
Luvleen Sidhu
Thank you, Bob. Good morning, everyone. And thank you for joining BM Technologies second quarter and first half of 2022 earnings call. To begin, we are excited to report to you record results in the second quarter and strong performance for the first half of the year. Even in this challenging environment, we are pleased to report Q2 core EBITDA of 5.9 million, up 16% year-over-year and over 15 million and core EBITDA for the first half of 2022. Additionally, our average service deposits increased 29% year-over-year, totaling 2 billion in deposits. Both Bob and I will later provide more details on financials but before that, I would like to briefly discuss more details on our strategy.
As a reminder, BMTX is one of the largest digital banking platforms and Banking-as-a-Service provider in the country today. We pursue a B2B2C strategy which is one of our key differentiators from other newer banking Fintech. Our strategy enables us to acquire bank customers at low cost and at high volumes. To quantify this, we are acquiring customers at less than $10 today, which provides us with a tremendous competitive edge relative to traditional banks and to most challenger banks. Today, we are executing our B2B2C approach in two main verticals. The first being our higher education vertical, where we are dispersing over $12 billion a year in financial aid refunds, while also opening several 100,000 students checking accounts a year with the goal of creating a customer for life. The second vertical is our Banking-as-a-Service business. Banking-as-a-Service has really become a buzzword in recent times, and sometimes means different things to different people. For us, it means enabling non-banks and brands with the technology and infrastructure to embed banking services within their existing ecosystems with the purpose of creating more value for their customers. In return this creates for them new revenue streams, points of differentiation to attract new customers, provides access to more data which can also be used to create more personalized experiences, all of which help build loyalty and increase customer lifetime value.
We have invested well over $60 million in building out our Banking-as-a-Service technology, and are proud to be one of the most competitively positioned Banking-as-a-Service provider in the market today. With our proprietary API driven Banking-as-a-Service platform, and our white label user interface, we give choice to our clients to embed banking within their own ecosystems and control the user experience fully or provide them with a ready to go app that reflects their brand and product positioning. Overall, we are able to help Fintechs and brands launch fully branded financial services products to their customers and to their employees at a fraction of the cost and at a fraction of the time it would take them to roll this out on their own.
Additionally, a key differentiator of BMTX relative to other Banking-as-a-Service provider is that we manage the entire program end to end, often known as program management. This means we not only provide the technology, but also provide the back office support that is critical to launch and run these programs, including but not limited to banking operations, compliance and risk management, fraud management, and investigations, and customer service support. Once we become a bank, our positioning in the Banking-as-a-Service space will become unparalleled, with the combination of a Banking-as-a-Service technology provider, program manager, and sponsor bank relationship all in one. Once we are fully integrated — once we are fully vertically integrated, we can provide the best experience and perhaps the most competitive pricing in the marketplace today.
Our Banking-as-a-Service vertical is best exemplified today by our partnership with T-Mobile, and with the launch of our checking and savings accounts called T-Mobile Money. We have a great partnership and continue to expand and grow this relationship. Additionally, we are thrilled to share with you that we have moved from term sheet to assigned contracts within new significant Banking-as-a-Service partner. This new best partner has global operations and 10s of millions of U.S. customers. BMTX was awarded this relationship through a competitive RFP process, underscoring the competitiveness of its vast offerings in the marketplace. With the addition of this partner, BMTX has expanded its roster of large, well-known brand name partners. This relationship may become even more valuable if BMTX is able to vertically integrate this new partnership with the addition of a banking charter. To protect this partners launch strategy, we will not identify the partner by name until commercial launch, which is expected to occur in early 2023. In the meantime, we have begun development work with this partner in the second quarter and expect to perform additional work through the remainder of this year.
Lastly, we have a third vertical which is our niche direct to consumer strategy, which is our most nascent vertical. We continue to have high conviction in the market, need and value in executing targeted direct to consumer strategies to underserved affinity groups. This will include continuing to focus on an employee demographic, but also extend beyond that. We plan to execute on this vertical after we become a bank.
So let’s get started. Flipping to Slide 5, I am delighted to report to you record second quarter results and strong performance for the first half of the year. Q2 revenues increased 3% year-over-year to 23 million up from 22.4 million in Q2 2021. Core EBITDA increased 16% to 5.9 million from 5 million in Q2 2021. Core EBITDA margin also increased to 25% in Q2 2022 from 22% in Q2 of 2021. Additionally, first half of 2022 core EBITDA increased 8% to 15.1 million from 14 million in the first half of 2021. And core earnings increased 184% from the year ago period to 1.9 million, or $0.15 per diluted share. First half of 2022 core earnings increased 30% from the year ago period to 6.3 million or $0.50 per diluted share. Lastly, we continue to show strength in new account origination, opening approximately 215,000 new accounts in the first half of 2022.
Moving on to Slide 6, you can see that our average service deposits totaled 2 billion in Q2 2022 and 29% increase compared to Q2 2021. Average new business service deposits increased over 50% to 1.5 billion compared to Q2 2021, which is about a $0.5 billion increase. In our student business, refunds disbursed to students in the first half of 2022 totaled 6.9 billion, an increase of 7% from the first half of 2021 and 800 million of these disbursements were deposited into bank mobile by checking accounts based on the student’s choice to do so. In addition to this, students made organic deposits into these accounts. These are deposits over and above any refund coming into the account from the school. Organic deposits totaled 925 million during the first half of the year indicating strong primary banking behavior.
Moving on to debit card spend, debit card spend was 700 million in Q2 2022, a decrease of 12% compared to the first half of 2021 given the absence of stimulus and perhaps economic factors in the current period. Despite these economic headwinds, our revenue per account growth remains strong, which Bob Ramsey will now talk through on Slide 7.
Robert H. Ramsey
Thank you Luvleen. Quickly, I wanted to touch base before I began on Slide 7 and talk about our progress getting back to timely filing, which is important to us and we’ve gotten a lot of investor questions. Earlier this year we did complete the 2021 restatement which largely reflected certain non-cash compensation expense from our former parent, it had no impact on our cumulative EBITDA, cash or equity. In July, we did engage KPMG as our new auditor and we’re very excited to be partnered with such a prominent firm. Additionally, in the second quarter, we did add a new Director to our Board who has valuable bank and audit committee experience. And today, we will file our first quarter 10-Q which had been delayed. Additionally, we will file our 12b-25 filing for the second quarter 10-Q, which indicates that we expect to file that within the next five business days. And I hope that it’s evident to everyone with us filing this earnings release this morning that we are fairly far along in our process towards that filing and feel good about our ability to file within the five day permitted extension. After we complete that filing our financials will again be current and we do expect to file the third quarter 10-Q on or before the November 14th filing deadline. So fortunately, this process is one that we are coming out the other end of and very soon we will be a timely filer again.
With that said, I will begin on Slide 7. So on Slide 7, we talk about the per account metrics that we have in the business and I think what’s most important here is that we did generate 13% year-over-year increase in our revenue per account, which was approximately $49 in the second quarter. You can see the deposits per account and spend per account in each of our businesses and on a consolidated basis. And what you do see here is growth in the deposits per account, and some reduction on a year-over-year basis in the spend per account, which is driven really by the absence of stimulus that we experienced in the year ago period.
Turning to Slide 8, you can see the debit spend in the first half of the year was lower than a year ago and as a reminder, in the first half of 2021 we did have approximately $250 million in stimulus money that came into our accounts. And we didn’t have any of that tailwind this year and that’s a big factor in the trend that you see on a year-over-year basis here. Our average service deposits did increase 29% from the year ago period and the total amount that we dispersed to our college and university partners increased by about 7%.
Slide 9, I won’t walk through in great detail but it gives a five quarter view of our EBITDA as well as a revenue breakout by financial statement line item. And then with that before I pass it back to Luvleen I do just want to emphasize we’re excited in the first half this year, we did have record EBITDA, we did have revenues that grew faster than expenses. We have increased our cash balances as we continue to generate positive cash flow, Luvleen touched on the new BaaS partner that we are really excited about. And very soon our filings will all be timely. With that I will turn it back over to Luvleen to talk about Slide Number 10.
Luvleen Sidhu
Thanks, Bob. So, on Slide 10 I would now like to provide you with a few key accomplishments and highlights for the second quarter. First BMTX averaged 2 billion in deposits and approximately 30% year-over-year increase. Second, our merger with First Sound Bank continues to progress and we continue to expect to close the merger by year end. We remain very excited about becoming a true Fintech bank, and the current macro environment continues to underscore the value that a bank charter brings to our business model. With a charter we are able to have a sustainable, profitable business model into the future by combining our deposit acquisition strategy with an asset generation strategy.
Our low to no cost deposits on the student side of our business coupled with our Banking-as-a-Service infrastructure and partnerships will create immense franchise value as a bank. Additionally, given the changes in the current macro environment, we are considering slowing the growth of deposits on our balance sheet, which will require us to raise significantly less capital and will also have valuation benefits from an EPS standpoint. We are considering brokering off deposits or partnering with additional sponsor banks to accomplish this. We will keep you posted as the process continues to move forward.
Next, we have continued to expand our Banking-as-a-Service business. As shared earlier, we have signed a contract with a new significant Banking-as-a-Service partner and look forward to building this partnership. We also continue to expand the T-Mobile relationship and have a robust roadmap of future delivery we are working on. And we continue to build a strong pipeline of future Banking-as-a-Service opportunity. Lastly, on the Higher Ed side of the business, we are working on transitioning our most modern technology stack, which provides the best user experience to our students once they graduate as an upgraded experience. This will be our API enabled platform, which will also allow us to more easily plug in new products and features, which will help with our customers for life strategy. These developments will take place in 2023.
Additionally, once we become a bank, we expect to add credit products for the unenrolled and graduated students, which will improve retention. We had also signed agreements, as we said before with 10 new colleges and universities year-to-date providing approximately 55,000 additional students access to BankMobile disbursements, and the BankMobile via checking accounts. We have also signed six colleges and universities for our vendor pay offering, which improves the overall stickiness of a college relationship. Slide 11 and 12 I will skip through as I have talked through these before. These slides highlight our tremendous growth opportunities and our vision to continue expanding our digital banking platform to include a full suite of digital banking products and services.
Before moving to Slide 13 I would like to acknowledge that as expected, we officially terminated our relationship with customers bank effective December 31st and we have been working hard to ensure there are no disruptions for our customers. As mentioned before, we do expect to have the First Sound Bank merger completed by that time. That being said even with the expected closing of the merger, we are not planning to bring on all of our deposits on day one. We are considering brokering out deposits or partnering with additional sponsor banks to accomplish this. As mentioned before, this will significantly reduce our need to raise capital to close the bank deal. In preparation for this, we have done a tremendous amount of planning and have several partner bank options available to us and are confident by the end of the year we will have a strong backup plan for our deposits if needed.
Moving on to Slide 13. I would like to end by summarizing our key investment highlights. We continue to have strong financial performance with record second quarter 2022 results. We continue to show expansion in our Banking-as-a-Service business most recently with the addition of a new significant BaaS relationship, expanding our roster of well-known brand name partners. We have solid account growth and our opening over 450,000 accounts on an annualized basis. We’re demonstrating strong customer engagement, our revenue per active account increased 13% year-over-year to approximately $50 in the second quarter. Remember, this is an annualized revenue number that is driven by solid average balances and spend.
We have strong existing partnerships with over 750 university partners, T-Mobile and now our new BaaS partner. We have heavily invested and developed a proprietary Banking-as-a-Service platform, which is API enabled and ready to roll out quickly and integrate with partners easily and also is available in a white label capacity. We have a very attractive valuation which today is at a deep discount relative to both private and public peers. And lastly, we couldn’t be more excited about our future and our growth prospects once our merger is complete and we become a true Fintech bank. Once again, I want to thank our investors and shareholders for their continued support and also to all the BMTX team members who make this journey possible. Thank you. Operator, we would now like to open the line for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]. Our first question is from Chris Sakai with Singular Research. Your line is open.
Christopher Sakai
Hi, good morning. Can you comment on how much development work for the new BaaS partner has already been expensed? And how much you anticipated costing for the year?
Robert H. Ramsey
So I’ll take that one, Chris. So I will tell you, we’re not going to get into sort of what the development work is related to any individual partner. I will tell you that the amount that has been spent to date is not significant. You do see it in our financials as reported. But we’re not going to sort of break it out separate from other.
Christopher Sakai
Can you mention what category bucket this new partner falls into and looking at — are you guys still looking at the same categories?
Luvleen Sidhu
I’ll answer that one. So we will not be commenting on the bucket of our Banking-as-a-Service partner. As we shared before, we have shared as much as we can. We’re so excited about, they’re a global company with 10s of millions of customers in the U.S. And we have provided enough information for the market to really understand that this is a significant partner and we see so much potential here. But out of respect for the privacy and the excitement over the commercial launch, we will not be able to share more. That being said, we have continued to have a strong Banking-as-a-Service pipeline and the opportunities that we see for embedded finance continue to expand exponentially as players begin to even learn what Banking-as-a-Service is. As I have said in my remarks, this has become a buzzword and a buzzword is helpful, because now industries are seeing this opportunity and are knowledgeable about it and are actually coming to us to discuss, to learn, to see how they can incorporate this into their business models. So the areas continue to be — areas such as ecommerce, retailers, grocers, airlines, gaming, but not limited to these opportunities. And also to add to your first question about development work, we’re a Fintech that happens to be a charter. And so being a technology company, we do development work, we try to keep our costs low, we’ve invested over 60 million in our technology over the years already. And so, customizing and developing that cost remains relatively low. And it ended up being margin opportunity for us to serve as development providers to our partners. Thank you.
Christopher Sakai
Okay, thanks. And lastly, in an increasing rate environment how is this affecting your product quality? And what are you seeing in regards to banking rates?
Robert H. Ramsey
I’m sorry, Chris, what was the last part of that, what are we seeing in regards to what…
Christopher Sakai
Banking rates, [Multiple Speakers]?
Robert H. Ramsey
So, we have seen, the market begin to move market deposit pricing rates. I think it is expected during the initial movements from the Fed banks as they do really were able to stand tight and lag pricing if they moved it at all. But as the cumulative amount of increases has sort of added up, we have begun to see competitors in the market begin to adjust to positive pricing. And so recognizing that deposit pricing is moving and that that is having an impact on customer driven activity, we did increase some rates in the month of July.
Luvleen Sidhu
Yeah, I would like to add to that. So, as Bob said we did see some runoff with more rate sensitive deposits as we mentioned in our earnings release, and we evaluated our positioning in the market as Bob said and decided to increase our rate in mid-July. And have seen balances stabilized somewhat since that time. But we did say that depending on interest rates our total deposits can fluctuate in future periods. But the important thing is, is that we believe reducing rate sensitive deposits in our portfolio increases our franchise value, and will benefit us as we become a bank. And also, so that’s one side of it rising interest rate environment but we’ve also talked about given this rate change and given the changes in the current macro environment, the other flip side of it is that that’s also positive is that we’re considering slowing the growth of deposits on our balance sheet once we become a bank, which will require us to raise significantly less capital. And we’ll also have valuation benefits from a more attractive EPS standpoint. So we’ve seen the interest rate environment affect us in different ways, some positive, some slightly negative, but even for the negatives it creates immense franchise value over time for us as we have core deposits rather than rate sensitive deposits. Hope that’s helpful.
Christopher Sakai
Yes, okay, great. Thanks for the answer.
Operator
The next question is from Mike Grondhahl with Northland Security. Your line is open.
Michael Grondhahl
Hey, thank you. Hey guys.
Luvleen Sidhu
Hey Mike, good morning.
Michael Grondhahl
Maybe Luvleen this first one is for you maybe. Can you talk a little bit about the 3% revenue growth which I guess I would have expected more but is it the Higher Ed side, is it the new business side, or is it sort of lack of retention of customers, why is revenue growth only running at 3%?
Luvleen Sidhu
I’ll begin and then Bob, if you want to please chime in. And so for us, firstly, this is a challenging environment that we’re operating in. And I think that we’re very proud that despite the headwinds of the macro environment, we have seen growth and significant growth in certain areas. And from a revenue standpoint, when you look back at our revenue, what drives revenue, our deposits, our spend, and then our university business fees. And we talked about already that, one side of the coin of the rising interest rate environment is that you have these rate sensitive deposits. The beauty of our student business is that it is not rate sensitive, which is unheard of. So about 600 million of our deposits on average are in our student business. And no matter what the rate environment is, the cost of deposits doesn’t change. That is true franchise value. So we’re very lucky for that.
In our news business side of the business, a portion of those deposits are more rate sensitive and so the revenue is affected by the fact that there was some run off of these more rate sensitive deposits. But as I said, Mike, that was a conscious decision. We could have changed the rate earlier, we could have changed it higher, but for us, we’re not reaching through. That is not franchise value. And so we’re willing to let some of those run off. And really, and also preparation of becoming a bank where there’s less capital, the less deposits especially if they’re not contributing to franchise value, the less capital that’ll have to be raised, which we’re cognizant is very important to our current investors.
The student business continues to be strong, we see opportunity to strengthen that even further. Account acquisition remains strong, retention remains an opportunity for us, and I think in my remarks, I was very clear about some of the transformational steps that we are taking to help with that engagement retention piece going forward. So I hope that’s helpful.
Robert H. Ramsey
And Mike, let me remind you as well, the first and second quarter this year are tough comps, because the first half of last year we really did have a tailwind from stimulus. We talked about that at the time. We didn’t have any stimulus dollars in the first half of this year and so we’re coming off a real period of strength. And I think that’s part of what you see in the year-over-year change.
Michael Grondhahl
Got it. With the new customer win on the BaaS side, congrats on that, was there any development revenues in 2Q or do you expect any in 3Q related to that, I know at prior times you’ve had some revenue related to development?
Robert H. Ramsey
Yeah, so again, we’re going to really steer away from answering that type of question on a specific customer, but I think we do say in our earnings release that we did begin work under the agreements in the second quarter and there is some impacts there. So there’s a little bit in the consolidated numbers, but we’re not going to say any more detailed than that.
Michael Grondhahl
Okay. Okay. And then several quarters ago, you guys were talking to a large grocer, a big box retailer and an international bank. Are those three still active, was this win one of those?
Luvleen Sidhu
I’ll take that one. So I don’t want it to — as we’re becoming more experts in the Banking-as-a-Service business, we’re realizing that these scaled opportunities are very secretive in nature, and they pride themselves in being confidential and really having strong commercial launches. And so with that in mind, Mike, I would say that our existing pipeline remains strong. Some opportunities come and go but overall, the pipeline and opportunities remain in the categories that I’ve talked about. And some of those that you mentioned, still remain in the pipeline as opportunities going forward.
Michael Grondhahl
Got it. Okay. And then lastly, you’ve talked a little bit on this call about some slowing deposit growth, tweaking some prices, letting some low value deposits run off, and maybe some new partner banks or sponsor banks paying you for deposit. How are you guys thinking about the NIM or kind of replacing that 3% deposit rate, early 2023 and how that NIM whether it’s you generating with loans and deposits or partner sponsor banks paying you for, what’s your latest thinking there?
Robert H. Ramsey
Yeah, sure Mike, I’ll take that one first. I don’t think our view has changed that as a bank with a bank balance sheet with loans offsetting the deposits, that we think a net interest margin between 3% and 4% over time is reasonable and likely near the higher end of that range, given our consumer business mix. Certainly in a rising or high rate environment, we think it could even be at the top or above that potentially depending on the rate environment. So, I think over time that range still applies, and we’d be at the higher end of that for what’s on balance sheet. It will of course, take a little bit of time to grow into that and build out the loan strategy and how quickly that can be done really will depend on when we’re able to close the acquisition, which we still are targeting to close by year-end.
On the off balance sheet side of things, I don’t think we’ll ever an off balance sheet, the same amount that we do on balance sheet, which is really the value and the benefit of pursuing a bank charter. But the flip side of that, which Luvleen has alluded to, is that it’s a much more capital efficient business where you don’t have to hold or have as much capital on balance sheet. And quite frankly, at current share prices and levels, it can be a lot more accretive to earnings per share to earn a little bit less off balance sheet and to raise capital to do more on balance sheet. And then you have the ability to transition that business over time as you generate capital organically. Off balance sheet what we earn on that will be market driven, but again, will be something less than we can earn as a bank with a full net interest margin.
Michael Grondhahl
And can you comment on roughly what is market today, if you had an off balance sheet relationship with a sponsor bank?
Robert H. Ramsey
Yeah, I am not going to comment on what market is today, what I will point you to as Luvleen said, we are evaluating what we are going to do at the end of this year and knowing that there will be opportunity to put some of these deposits with a partner bank were off balance sheet even if we close the acquisition of First Sound Bank or merger with First Sound Bank. And so we are exploring those options. And once we have finalized the deal, we’ll be willing to share some of that information with you. I don’t think it helps our competitive position to set pricing expectations in advance and having something…
Michael Grondhahl
Got it and hey, I do think it’s a good decision to go with a hybrid approach instead of trying to put all those deposits to work in 2023. So good to hear that.
Robert H. Ramsey
Thank you Mike.
Operator
The next question is from Greg Pendy with Chardan. Your line is open.
Greg Pendy
Hi, it is Greg Pendy. Good morning, I am in for Brian Dobson. Can you just remind us, I guess as we look now to the second half, what normalized seasonality is and I appreciate you calling up the stimulus impact into 2Q of last year. But as we look at the compares for 3Q of last year and 4Q of last year, were there any kind of puts or takes stimulus impacts last year that we should be thinking about as we look at the back half? And then what the normal seasonality would be on the back half?
Robert H. Ramsey
Yeah, so I’ll take that. So certainly, as you think about the stimulus lift, the last round of Federal checks that were mailed was, I think it was the end of March, maybe it’s April. Now, I don’t think — it was really the end of the first quarter. And so the stimulus tailwind you saw was definitely concentrated in the first half of last year. I do think that there was some tapering benefit in the back half of the year as balances remained a little bit higher and spend sort of trickled out. But the lion’s share of that benefit really was effective in the first half the year. So I think you’re not going to see the same sort of drop of stimulus tailwind in the back half of this year. I do think that the normal seasonality in the business, which you asked about, keep in mind that only affects the student side of the business, the white label BaaS business is not a seasonal business, or at least not nearly the same degree of seasonality would be what you see in any banking related servicing business.
In the student business, the first quarter is our strongest quarter. And that really is because the entire sort of semester peak falls within that quarter. The second quarter is going to be the weakest because it’s where you’re sort of between those semesters. The third and fourth quarters tend to be in between the first and second, because what you’ve got is a semester peak that sort of straddles the third and fourth quarter. So you get some benefit in both. It does sort of peak around July, August, September timeframe and then it does taper and when you get to the month of December, even though we don’t report monthly numbers, that’s sort of really when you’re at the weakest point of the year, but you do have some of the fall peak benefit in the fourth quarter. So hopefully that helps.
Greg Pendy
That helps a lot. Thanks a lot.
Operator
[Operator Instructions]. The next question is from Bill Dezellem with Tieton Capital. Your line is open.
Bill Dezellem
Thank you. Relative to — good morning, relative to the new Banking-as-a-Service customer would you talk about how integration with the banking charter could add value and maybe not even specifically this customer but just in general how that may be the case, you don’t think — I think we can get our head wrapped around that concept?
Robert H. Ramsey
Luvleen, do you want to start with that one or do you want me to take it?
Luvleen Sidhu
Sure, I think that, we talked about — sorry, there’s a lot of background [Technical Difficulty]. Thank you. So, we talked a little bit about vertically integrating and really being the technology provider, the servicer or program manager, as well as the sponsor bank. That is ideal sort of ecosystem to be the most competitively positioned Banking-as-a-Service provider. And today, in this most current deal where we really stand strong and are delivering is and the technology side, as well as servicing of those accounts in that program, manage capacity. And so development revenues and technology, software as a service revenues are really where the biggest drivers of revenue are in the current deal. As opportunities expand, new opportunities come, existing opportunities develop or evolve as we get a charter being able to acquire those deposits and to be able to then deploy them into assets — asset generation opportunities, really expands the opportunity for us to multiply the profitability of these programs. It’s a multiplier effect to have that charter and to be able to take those deposits, and then deploy them in assets. So I hope that’s helpful that as the evolution of the relationship from a technology and program manager evolves to a sponsor bank relationship, you can see that effect of the deposits and really creating more profitability for these programs.
Bill Dezellem
That makes a lot of sense. Thank you.
Luvleen Sidhu
Thank you.
Operator
We have no further audio questions. I will turn it back over to Mr. Ramsey.
Robert H. Ramsey
Alright, thank you very much. We do have a few questions online from the web and I will run through a handful of these in our final minutes here. We have got a couple that do ask about capital and about what was going to be needed to support the deposits. I think we’ve touched on this a few times so I’ll just sort of reiterate that our view has never been that all of our deposits would come on balance sheet on day one. We always had a plan that some of these deposits were going to be held off balance sheet either through broker networks or with partner banks. Additionally, given some of the shifts in market dynamics, most notably that the value of off balance sheet deposits is higher in a higher rate environment, and that our cost of capital is also higher given where our stock trades today. We are really looking at what can we do to maximize our earnings per share and minimize any potential dilutions. So as we think about the capital needs of the business today, as compared to a year ago, we are looking at it through a different lens. We certainly are very mindful of investor concerns around dilution, and we’re all shareholders here and don’t want to do anything that would be dilutive either.
I know there’s a question in here that talks about Fintech citing decline in deposits due to tax season and did that play any role in our deposit trends? I will tell you that in the month of April, we did see right around the tax filing deadline, some outflows which were to the IRS and clearly weren’t directly related to tax filing. I will tell you that that overall was a short lived phenomenon and I don’t think it’s something that really is probably very apparent in the numbers. But when we look at it at a much more granular level, we did see some deposits that flew — that moved to pay taxes in the month of April.
As I looked through here, there is a question about whether customer deposits all have full FDIC insurance today with our current partner bank. Some other Fintechs have had some mishaps it says here. Yes, all of our customer deposits are insured today with our partner bank up to the full FDIC limit. And we certainly understand how important FDIC insurance is in the future, either as a bank or as we work through additional partner banks, we will continue to ensure that we are able to offer our customers full FDIC insurance.
There is a question here that talks about will we be expanding into small business after the First Sound Bank merger. After the First Sound Bank merger, we’re really excited about being able to offer additional products and services, particularly on the lending side. First Sound Bank already is a very strong community bank with good small business and commercial lending. I think that’s part of what we really like about that franchise is the high quality loan portfolio, the strength of the management team, their existing relationships. This is going to be an opportunity that we seek to expand on the good business that they have already. And given their size and their legal lending limits, they are limited and do have to participate out some of the small business commercial lending that they do. And as part of a larger institution, they wouldn’t run into the same camps quickly and so there’s a natural ability for them to expand this business. And as we have looked at sort of plans together as one institution, we are looking to augment their commercial lending team as well and build that business out. So it’s definitely an area that we are excited about and see opportunity for growth.
There are a couple of questions here about balance partnerships. One of them ask why we couldn’t sort of roll out 7 to 10 a year if the infrastructure was in place. I think what I would say there is that that really has not been our model. We have been really focused on big, meaningful, significant brands and quite frankly, 10 a year at the size we’re looking at I just don’t think it’s a realistic expectation. I think we do continue to still believe and expect that we can add one significant Banking-as-a-Service partner every 12 to 18 months.
And then last question I’ll take is there are a couple questions here that pertain to capital and are we — what are we — how are we thinking about the warrants and do we have any plans for a share buyback? The first piece there in terms of a share buyback with our stock trading where it is I would love to be in the market and buying back stock as we are headed into the bank merger which we do think is the right business decision. The last thing we would want to do here is buy back stock and then find that we needed more capital later. And so we’re just not at a strategic position or I think buybacks makes sense. But we definitely consider the share price attractive and if we weren’t looking into potentially needing capital in the future, I think we would be more open to a share buyback situation.
In terms of the warrants, it’s very much the same. We’re continually looking at what can we do to clean up and reduce any potential dilution from the warrants. We are mindful of how valuable capital is to us as well. And I think for that reason, it’s tough at any scale to justify going out and spending a lot of capital to clean up warrants. But we do continue to look at hey, are there opportunities to affect a tender or otherwise would have reduced that dilution pretty significantly without depleting capital. So it’s an area we continue to look at and are looking for opportunistic ways that we may be able to do something there.
That sort of sums up the Q&A that we had online, sorry to do that lightning round, but I know we’re about out of time. But with that, I’ll be happy to turn it back over to Luvleen to handle any closing remarks.
Luvleen Sidhu
Thanks, Bob. You know, as I mentioned before, we couldn’t be more excited than where we are today. I think we’re at the precipice of such exciting opportunities around becoming a Fintech bank, expanding our Banking-as-a-Service opportunities, being able to really invest in transform our student business, from not just an acquisition engine, but really creating a customer for life. So we’re very grateful to have your support along this journey and look forward to touching base next quarter. Thank you.
Operator
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.
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