BM TECHNOLOGIES, INC.
The purpose of this Management's Discussion and Analysis ("MD&A") is to
facilitate an understanding of significant factors influencing the quarterly
operating results, financial condition, and cash flows of BM Technologies, Inc.
("BMTX"). Additionally, this MD&A conveys our expectations of the potential
impact of known trends, events, or uncertainties that may impact future results.
You should read this discussion in conjunction with our interim unaudited
consolidated financial statements and related notes included in this Quarterly
Report on Form 10-Q and our Annual Report for the year ended December 31, 2021 .
Historical results and percentage relationships are not necessarily indicative
of operating results for future periods. Unless the context otherwise requires,
for purposes of this Management's Discussion and Analysis, references to the
"Company," "we," "us", and "our" refer to the business and operations of BM
Technologies, Inc. ("BMTX") and its subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are neither statements of historical or current fact
nor are they assurances of future performance and generally can be identified by
the use of forward-looking terminology such as "believes", "expects", "may",
"will", "could", "should", "projects", "plans", "goal", "targets", "potential",
"estimates", "pro forma", "seeks", "intends", or "anticipates", or similar
expressions. Forward-looking statements include discussions of strategy,
financial projections (including our statements regarding cash flow projections
and funding of ongoing operations), guidance and estimates (including their
underlying assumptions), statements regarding plans, objectives, expectations,
or consequences of various transactions or events (including the expected
completion date or benefits of the First Sound Bank transaction), and statements
about our future performance, operations, products, and services, and should be
viewed with caution.
Because forward-looking statements relate to the future, they are subject to
known and unknown risks, uncertainties, assumptions, and changes in
circumstances, many of which are beyond our control, and that are difficult to
predict as to timing, extent, likelihood, and degree of occurrence, and that
could cause actual results to differ materially from the results implied or
anticipated by the statements. Important factors that could cause our actual
results and financial condition to differ materially from those indicated in the
forward-looking statements include, but are not limited to the following:
•negative economic and political conditions that adversely affect the general
economy, the job market, consumer confidence, the financial condition of our
borrowers and consumer spending habits, which may affect, among other things,
our revenues and provision for operating losses;
•COVID-19's continuing effects on the economic and business environments in
which we operate;
•strategic, market, operational, liquidity and interest rate risks associated
with our business;
•our concentration of credit risk and any potential deterioration in the
financial quality of our partner bank;
•the risks of expansion into new product markets;
•risks with respect to recent, pending, or potential future mergers or
acquisitions, including our ability to successfully obtain regulatory, and when
required, shareholder approval and thereafter, to complete acquisitions and
successfully integrate or expand businesses and operations that we acquire;
•our ability to attract and retain key employees;
•competition from financial institutions and other financial service providers,
including non-bank financial technology providers, and our ability to attract
customers from other financial institutions;
•losses due to fraudulent and negligent conduct of our customers, third party
service providers, or employees;
•cybersecurity risks and the vulnerability of our network and the systems of
parties with whom we contract, to unauthorized access, computer viruses,
phishing schemes, spam attacks, human error, natural disasters, power loss, and
other security breaches that could adversely affect our business and financial
performance or reputation;
•our reliance on third parties to provide key components of our business
infrastructure and services required to operate our business;
•the risk that we may be required to make substantial expenditures to keep pace
with regulatory initiatives and the rapid technological changes in the financial
services market;
•the availability of and access to capital;
•legislative, regulatory, or accounting changes that may adversely affect us;
•adverse results (including judgments, costs, fines, reputational harm,
inability to obtain necessary approvals, and/or other negative effects) from
current or future litigation, regulatory proceedings, examinations,
investigations, or similar matters, or developments related thereto;
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•failure to maintain an effective system of disclosure controls and internal
control over financial reporting and fully remediate the previously identified
material weaknesses in our internal control over financial reporting;
•any event or development that would cause us to conclude that there was
impairment of any asset, including intangible assets, such as goodwill; and
•other risks and uncertainties disclosed in documents filed or furnished by us
with or to the SEC , any of which could cause actual results to differ materially
from future results expressed, implied, or otherwise anticipated by such
forward-looking statements.
We caution readers that the foregoing list of factors is not exclusive, is not
necessarily in order of importance, and readers should not place undue reliance
on forward-looking statements. Additional factors that may cause actual results
to differ materially from those contemplated by any forward-looking statements
may also be found in our 2021 10-K (including the "Risk Factor" section of that
report), Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed
with the SEC and available at the SEC's website at http://www.sec.gov. We do not
intend to and, except as required by law, hereby disclaim any obligation to
update or revise any forward-looking statement contained in this Quarterly
Report on Form 10-Q, which speaks only as of the date of its filing with the
SEC , whether as a result of new information, future events, or otherwise.
BUSINESS OVERVIEW
BM Technologies, Inc. ("BMTX" or "the Company") (formerly known as BankMobile) 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. BMTX facilitates deposits and banking services between a customer and ourPartner Bank , Customers Bank, ("Customers Bank "), aPennsylvania state-chartered bank, which is a related party and is aFederal Deposit Insurance Corporation ("FDIC") insured bank. BMTX'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 niche Direct to Consumer ("D2C") Banking businesses. BMTX has four primary revenue sources: interchange and card revenue, servicing fees fromBMTX's Partner Bank , account fees, and university fees. The majority of revenues are driven by customer activity (deposits, spend, transactions, etc.) and may be paid or passed through byBMTX's Partner Bank , universities, or paid directly by customers. BMTX is aDelaware corporation, originally incorporated asMegalith Financial Acquisition Corp ("Megalith") inNovember 2017 and renamedBM Technologies, Inc. inJanuary 2021 at the time of the merger betweenMegalith and BankMobile Technologies, Inc. UntilJanuary 4, 2021 ,BankMobile Technologies, Inc. was a wholly-owned subsidiary of Customers Bank, a wholly-owned subsidiary of Customers Bancorp, Inc. (the "Bancorp" or "Customers Bancorp ").
BMTX is not a bank, does not hold a bank charter, and does not provide banking services, and as a result it is not subject to direct banking regulation, except as a service provider to ourPartner Bank . BMTX is also subject to the regulations of theDepartment of Education ("ED"), due to its student disbursements business, and is periodically examined by it. BMTX's contracts with most of its higher education institution clients require it to comply with numerous laws and regulations, including, where applicable, regulations promulgated by the ED regarding the handling of student financial aid funds received by institutions on behalf of their students under Title IV of the Higher Education Act of 1965; the Family Educational Rights and Privacy Act of 1995 ("FERPA"); the Electronic Fund Transfer Act and Regulation E; theUSA PATRIOT Act and related anti-money laundering requirements; and certain federal rules regarding safeguarding personal information, including rules implementing the privacy provisions of the Gramm-Leach-Bliley Act ("GLBA"). Other products and services offered by BMTX may also be subject to other federal and state laws and regulations. BMTX'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. 24 -------------------------------------------------------------------------------- OnNovember 15, 2021 , the Company announced the signing of a definitive agreement to merge with First Sound Bank ("FSB"), aSeattle, Washington -based community business bank. BMTX will pay up to$7.22 in cash for each share of FSB common stock, or approximately$23 million in aggregate consideration, subject to certain closing conditions and adjustments as outlined in the definitive agreement. The combined company, expected to be namedBMTX Bank , will be a fintech-based bank focused on serving customers digitally nationwide, supported by its community banking division that is expected to continue serving the greaterSeattle market. Although an application was submitted to approve the merger, we now plan to resubmit that application in order to respond to questions posed by regulators. No action will be taken by regulators until the application is resubmitted. We are currently targeting the resubmission of the application within the next 60 days. In addition to regulatory approvals, the transaction remains subject to other customary closing conditions and is now targeted to close in the first half of 2023. Closing afterDecember 31, 2022 will require an amendment to extend the termination date of the agreement. Although we currently believe that all parties intend to proceed with the transaction, and discussions are underway to extend the termination date, it has not been extended at this time and no assurances can be given whether, or for how long, the termination date will be extended. During the quarter endedJune 30, 2022 , the Company achieved a key milestone with the execution of agreements to provide technology to a new BaaS partner. This new BaaS partner has global operations and tens of millions ofU.S. customers. BMTX was awarded this relationship through a competitive RFP process, underscoring the competitiveness of our BaaS offering in the marketplace. With the addition of this new partner, the Company will have expanded its roster of large well-known brand-name partners. This relationship may become even more valuable if the Company is able to vertically integrate this new partnership with the addition of a banking charter. To protect this partner's launch strategy, the Company will not identify the partner by name until commercial launch, which is expected to occur in early 2023, but the Company began development work with this partner during the quarter endedJune 30, 2022 , continued development work during the quarter endedSeptember 30, 2022 , and expects to complete additional development work through the remainder of 2022. Although this partnership could be of significant future benefit to the Company, there can be no assurances that this relationship will be expanded to other products or services, including those that would be possible with the potential addition of a bank charter.
Merger with
OnJanuary 4, 2021 ,BankMobile Technologies, Inc. ("BankMobile"), Megalith, andMFAC Merger Sub Inc. , consummated the transaction contemplated by the merger agreement entered into onAugust 6, 2020 , as amended. In connection with the closing of the merger, Megalith changed its name toBM Technologies, Inc. EffectiveJanuary 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 withU.S. generally accepted accounting principles ("U.S. GAAP"). UnderU.S. GAAP, 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.
As a result of the merger transaction, BankMobile used proceeds from the
recapitalization transaction to pay down its
COVID-19
InMarch 2020 , the outbreak of COVID-19 was recognized as a pandemic by theWorld 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 inthe United States and globally, including the markets that BMTX serves. In response to the pandemic, we enabled nearly all our employees to work remotely and limited business travel. We are a "Remote First" company and most of our employees have no assigned work location or regular in-office work requirement. 25 -------------------------------------------------------------------------------- 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. OnMarch 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 cash payments to taxpayers, increased unemployment benefits, and to support higher education through theHigher Education Emergency Relief Fund ("HEERF"). This stimulus resulted in increased serviced deposit balances, debit card spend, and revenues, a trend that continued into 2021; however, growth has slowed in 2022 as compared to the accelerated growth rate we experienced during early 2021. BUSINESS MEASUREMENTS
We believe that the following business measurements are important performance indicators for our business:
•Debit card POS spend (higher education and new business). Spend represents the dollar amount that our customers spend on their debit cards through a signature or PIN network. Spend is a key performance indicator, as the Company earns a small percentage of every dollar spent as interchange income and spend is the primary driver of our card revenues. •Serviced deposits (ending and average; higher education and new business). Serviced deposits represent the dollar amount of deposits that are in customer accounts serviced by our Company. Our deposit servicing fee is based on a contractual arrangement with ourPartner Bank and the average balance of serviced deposits is the primary driver of our deposit servicing fees. Average deposits have the strongest correlation to current period serviced deposits, but ending deposits provide information at a point in time and serve as the starting point for the following period. •Higher education retention. Retention is a key measure of our value proposition with higher education customers. We measure retention in terms of Signed Student Enrollments ("SSEs"), which represents the number of students enrolled at higher education institutions. Retention is calculated by subtracting lost SSEs from starting SSEs and taking that amount as a percentage of the starting SSEs. •Higher education financial aid refund disbursement. Represents the dollar amount of all funds that we process for a college or university partner, whether it is distributed by ACH, check, or into a BankMobile Vibe account. This is a measure of the business we process for our higher education partners in exchange for their subscription and other fees, as well as a measure of the potential that we have the opportunity to capture into our serviced accounts. •Higher education organic deposits. Organic deposits represent the dollar total of all deposits made into a higher education BankMobile Vibe account except for funds processed through a college or university partner. Because this includes funds that the account holder adds to the account and excludes the funds processed through the higher education institution, it is viewed as a strong indicator of traction with the customer.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For information regarding our critical accounting policies and estimates, please refer to our Annual Report on 10-K for the fiscal year endedDecember 31, 2021 . There have been no material changes to the critical accounting policies and estimates previously disclosed in that report.
NEW ACCOUNTING PRONOUNCEMENTS
The FASB has issued accounting standards that have not yet become effective and that may impact BMTX's interim unaudited consolidated financial statements or its disclosures in future periods. Note 2 - Basis of Presentation and Significant Accounting Policies provides information regarding those accounting standards. RESULTS OF OPERATIONS
The following discussion of our results of operations should be read in conjunction with our interim unaudited consolidated financial statements, including the accompanying notes.
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The following summarized tables set forth our operating results for the three
and nine months ended
Three Months Ended
September 30, %
(dollars in thousands, except per share data) 2022 2021 Change Change
Operating revenues $ 19,858 $ 22,841 $ (2,983) (13) %
Operating expenses 24,138 20,592 3,546 17 %
Income (loss) from operations (4,280) 2,249 (6,529) NM
Gain (loss) on fair value of private warrant
liability (1,369) 6,042 (7,411) (123) %
Interest expense - - - - %
Income (loss) before income tax expense (benefit) (5,649) 8,291 (13,940) NM
Income tax expense (benefit) (729) 1,167 (1,896) NM
Net income (loss) $ (4,920) $ 7,124 $ (12,044) NM
Basic earnings (loss) per share $ (0.41) $ 0.60 $ (1.01) NM
Diluted earnings (loss) per share $ (0.41) $ 0.60 $ (1.01) NM
NM refers to changes greater than 150%.
For the three months endedSeptember 30, 2022 , net income decreased$12.0 million , which included a$7.4 million decrease in the gain (loss) on fair value of the private warrant liability as compared to the three months endedSeptember 30, 2021 . Income (loss) from operations for the three months endedSeptember 30, 2022 decreased$6.5 million as compared to the three months endedSeptember 30, 2021 . Operating revenues decreased by$3.0 million or 13% and operating expenses increased by$3.5 million or 17%. Changes in quarterly operating revenues and expenses are discussed in greater detail below. Basic and diluted earnings (loss) per share, which decreased to$(0.41) , are both driven by the impact of the total net loss in the current year on the earnings (loss) per share calculations. Nine Months Ended September 30, % (dollars in thousands, except per share data) 2022 2021 Change Change Operating revenues$ 67,913 $ 69,444 $ (1,531) (2) % Operating expenses 69,600 64,682 4,918 8 % Income (loss) from operations (1,687) 4,762 (6,449) (135) % Gain on fair value of private warrant liability 6,916 17,989 (11,073) (62) % Interest expense - (96) 96 (100) % Income before income tax expense 5,229 22,655 (17,426) (77) % Income tax expense 1,823 4,262 (2,439) (57) % Net income$ 3,406 $ 18,393 $ (14,987) (81) % Basic earnings per share$ 0.29 $ 1.55 $ (1.26) (81) % Diluted earnings per share$ 0.28 $ 0.03 $ 0.25 NM
NM refers to changes greater than 150%.
For the nine months endedSeptember 30, 2022 , net income decreased$15.0 million , which included a$11.1 million decrease in the gain on fair value of the private warrant liability as compared to the nine months endedSeptember 30, 2021 . Income (loss) from operations for the nine months endedSeptember 30, 2022 decreased$6.4 million as compared to the nine months endedSeptember 30, 2021 . Operating revenues decreased by$1.5 million or 2% and operating expenses increased by$4.9 million or 8%. Changes in year to date operating revenues and expenses are discussed in greater detail below. 27 -------------------------------------------------------------------------------- Basic and diluted earnings per share, which decreased and increased to$0.29 and$0.28 , respectively, are both driven primarily by the impact of the private warrant adjustments on the earnings per share calculations. During the nine months endedSeptember 30, 2022 , the average common stock share price was below the warrant strike price, and as a result, the warrants are not considered dilutive. During the nine months endedSeptember 30, 2021 , the average common stock share price was greater than the warrant strike price resulting in the warrants being considered dilutive. Operating Revenues Three Months Ended September 30, % (dollars in thousands) 2022 2021 Change Change Revenues: Interchange and card revenue$ 5,325 $ 6,529 $ (1,204) (18) % Servicing fees from Partner Bank 10,163 11,823 (1,660) (14) % Account fees 2,110 2,569 (459) (18) % University fees 1,357 1,474 (117) (8) % Other revenue 903 446 457 102 % Total operating revenues$ 19,858 $ 22,841 $
(2,983) (13) %
Total revenues decreased$3.0 million , or 13%, in the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . This decrease is primarily attributable to a$1.7 million or 14% decrease in Servicing fees fromPartner Bank , a$1.2 million or 18% decrease in Interchange and card revenue which was primarily driven by a 15% reduction in spend volume in the Higher Education business, a$0.5 million , or 18%, decrease in Account fees, and a$0.1 million , or 8%, decrease in University fees. The decrease in Servicing fees fromPartner Bank is due to a 5% decrease in average serviced deposit balances;$1.6 billion for the three months endedSeptember 30, 2022 as compared to$1.7 billion for the three months endedSeptember 30, 2021 ; and an approximate$1.0 million increase in interest paid to serviced deposit account holders for the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . These decreases were partially offset by a$0.5 million , or 102%, increase in Other revenue due to an increase in development projects for our BaaS partners which vary based on project status, contracts, and milestones. Nine Months Ended September 30, % (dollars in thousands) 2022 2021 Change Change Revenues:
Interchange and card revenue
18 %
Account fees 6,872 7,847 (975) (12) %
University fees 4,406 4,129 277 7 %
Other revenue 1,702 4,164 (2,462) (59) %
Total operating revenues $ 67,913 $ 69,444 $ (1,531) (2) %
Total revenues decreased$1.5 million , or 2%, in the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . This decrease is primarily attributable a$4.2 million , or 20%, decrease in Interchange and card revenue driven primarily by lower spend volume as well as a$1.0 million , or 12%, decrease in Account fees, and a$2.5 million decrease in Other revenue due to a reduction in development projects for our BaaS partners which vary based on project status, contracts, and milestones. These decreases were partially offset by a$5.9 million , or 18%, increase in Servicing fees fromPartner Bank . The increase is primarily due to an increase in average serviced deposit balances for the period which increased approximately 24% to$1.9 billion for the nine months endedSeptember 30, 2022 as compared to$1.5 billion for the nine months endedSeptember 30, 2021 . 28 --------------------------------------------------------------------------------
Operating Expenses
Three Months Ended
September 30, %
(dollars in thousands) 2022 2021 Change Change
Technology, communication, and processing $ 7,731 $ 5,082 $ 2,649 52 %
Salaries and employee benefits 10,773 9,137 1,636 18 %
Professional services 2,454 3,496 (1,042) (30) %
Provision for operating losses 1,564 1,067 497 47 %
Occupancy 160 192 (32) (17) %
Customer related supplies 225 828 (603) (73) %
Advertising and promotion 242 176 66 38 %
Merger and acquisition related - - - 100 %
Other expense 989 614 375 61 %
Total operating expenses $ 24,138 $ 20,592 $ 3,546 17 %
For the three months ended September 30, 2022 , operating expenses increased $3.5
million , or 17%, as compared to the three months ended September 30, 2021 . The
increase is primarily attributable to a $2.6 million increase in Technology,
communication, and processing, a $1.6 million increase in Salaries and employee
benefits, a $0.5 million increase in Provision for operating losses, and a
$0.4 million increase in Other expense. These increases were partially offset by
a $1.0 million decrease in Professional services and a $0.6 million decrease in
Customer related supplies.
The increase in Technology, communication, and processing is related to the
negotiation of a service agreement with a service provider during the prior
year, which included retroactive pricing benefits and a one-time credit reducing
the quarterly expense in the three month period ended September 30, 2021 as
compared to September 30, 2022 by approximately $2.5 million . The increase in
Salaries and employee benefits is driven by an increase in average headcount,
annual merit raises, and the vesting of equity awards granted in September 2021 .
The increase in Provision for operating losses is driven by adverse losses
experienced in the serviced deposit accounts. The increase in Other expense is
driven primarily by increased insurance expenses and employee travel expenses as
compared to the prior year. The decrease in Professional services is driven by
reduced audit, consulting, and other professional services spend and
internalization of previously outsourced personnel in the current year. The
decrease in Customer related supplies is driven by reduced consumption of
customer related supplies and vendor credits provided and utilized in the
current year under the new service agreement negotiated in the prior year.
Nine Months Ended
September 30, %
(dollars in thousands) 2022 2021 Change Change
Technology, communication, and processing $ 21,944 $ 21,903 $ 41 - %
Salaries and employee benefits 30,656 27,253 3,403 12 %
Professional services 7,225 7,359 (134) (2) %
Provision for operating losses 5,006 3,797 1,209 32 %
Occupancy 875 866 9 1 %
Customer related supplies 676 1,475 (799) (54) %
Advertising and promotion 461 492 (31) (6) %
Merger and acquisition related 290 - 290 100 %
Other expense 2,467 1,537 930 61 %
Total operating expenses $ 69,600 $ 64,682 $ 4,918 8 %
For the nine months ended September 30, 2022 , operating expenses increased
$4.9 million , or 8%, as compared to the nine months ended September 30, 2021 .
The increase is primarily attributable to a $3.4 million increase in Salaries
and employee benefits, a $1.2 million increase in Provision for operating
losses, and a $0.9 million increase in Other expense. These increases were
partially offset by a $0.8 million decrease in Customer related supplies.
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The increase in Salaries and employee benefits is driven by an increase in
average headcount, annual merit raises, and the vesting of equity awards granted
in September 2021 . The increase in Provision for operating losses is driven by
adverse losses experienced in serviced deposit accounts. The increase in Other
expense is driven primarily by increased insurance expenses, employee travel
expenses, and the timing of certain taxes and fees as compared to the prior
year. The decrease in Customer related supplies is driven by reduced consumption
of customer related supplies and vendor credits provided and utilized in the
current year under the new service agreement negotiated in the prior year.
Income Tax Expense
The Company's effective tax rate was 12.9% and 14.1% for the three months endedSeptember 30, 2022 and 2021, respectively. The Company's effective tax rate was 34.9% and 18.8% for the nine months endedSeptember 30, 2022 and 2021, respectively. The effective tax rate differs from the Company's marginal tax rate of 27.3% due to the non-taxable fair value adjustments related to the non-compensatory private warrant liability being recorded through earnings, offset by changes to the valuation allowance established against deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Our Cash and cash equivalents consist of non-interest bearing, highly-liquid demand deposits. We had$26.4 million of Cash and cash equivalents atSeptember 30, 2022 as compared to$25.7 million of Cash and cash equivalents atDecember 31, 2021 . We currently finance our operations through cash flows provided by operating activities. We continue to project positive operating cash flows for the 2022 fiscal year and we intend to fund our ongoing operating activities with our existing cash and expected cash flows from operations. However, should additional liquidity be necessary, the Company could consider equity or debt financing, but there are no assurances that additional capital would be available or on terms that are acceptable to us. ASC 205-40, Presentation of Financial Statements - Going Concern, requires management to assess an entity's ability to continue as a going concern within one year of the date the financial statements are issued. In each reporting period, including interim periods, an entity is required to assess conditions known and reasonably knowable as of the financial statement issuance date to determine whether it is probable an entity will not meet its financial obligations within one year from the financial statement issuance date. Management has performed this required assessment as ofNovember 15, 2022 including consideration of the effect of the First Amendment to Deposit Processing Services Agreement (the "DPSA Amendment") entered into between the Company and Customers Bank onNovember 8, 2022 , see Note 15 - Subsequent Events for additional information, and believes there is sufficient funds available to support its ongoing business operations and continue as a going concern for at least the next 12 months with projected liquidity of not less than$5 million even with the anticipated termination of the DPSA Amendment not later thanJune 30, 2023 . Management's assessment is subject to known and unknown risks, uncertainties, assumptions, and changes in circumstances, many of which are beyond our control including the impact of the macroeconomic environment, and that are difficult to predict as to timing, extent, likelihood, and degree of occurrence, and that could cause actual results to differ from estimates and forecasts, potentially materially. Continued increases in interest rates by theFederal Reserve Bank will cause management to consider raising interest rates on certain of its serviced deposit accounts thereby reducing yields on such deposits, negatively impacting projected profitability and cash flow. The Company is actively evaluating multiple strategic alternatives to theDPSA Amendment including internalizing services upon closing of the previously announced merger with First Sound Bank or negotiating a new deposit servicing agreement with new potential bank partners. Failure to timely execute upon one or more of these strategic alternatives prior to the second quarter of 2023 could cast substantial doubt upon the Company's ability to meet its financial obligations thereafter without additional liquidity and capital resources. 30 --------------------------------------------------------------------------------
The table below summarizes our cash flows for the periods indicated:
Nine Months Ended
September 30, %
(dollars in thousands) 2022 2021 Change Change
Net cash provided by operating activities $ 7,450 $ 22,082 $ (14,632) (66) %
Net cash used in investing activities (4,519) (552) (3,967) NM
Net cash used in financing activities (2,202) (4,112) 1,910 (46) %
Net increase in cash and cash equivalents $ 729 $ 17,418 NM refers to changes greater than 150%.
Cash flows provided by operating activities
Cash provided by operating activities was$7.5 million in the nine months endedSeptember 30, 2022 which is a$14.6 million decrease as compared to the nine months endedSeptember 30 , 2021.The decrease in net cash provided by operating activities is driven primarily by$8.2 million reduced sources of cash from Deferred Revenue,$4.8 million increased use of cash for Prepaid expenses and other assets, and$2.9 million increased use of cash for Taxes payable. Cash flows used in investing activities Cash used in investing activities increased$4.0 million in the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 , primarily due to increased capitalization of development costs related to internal use software. Cash flows used in financing activities Cash used in financing activities decreased$1.9 million as compared to the nine months endedSeptember 30, 2021 , primarily due to the private warrant repurchase transaction during the current period versus the recapitalization transaction and payoff of borrowings in the prior period. 31
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