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1/16 $CRSS has benefited greatly from the issuance of PPP 2 loans to sole-proprietors and small businesses in the US. The treasury has enlisted the help of banks ( $JPM, $WFC, etc) and CDFIs (such as $CRSS) to disburse these (99% forgivable) loans to the recipients.
50-100% ROI
50-100% ROI
2/16 The Small Biz Administration (SBA) compensates $CRSS $2,500 for every PPP loan successfully issued out to the recipients. The SBA reported that as of 18/04, CPF, a subsidiary of $CRSS, has managed to issue out 360K loans since the end of March.
3/16 Simple math tells us that they have received 360k * 2.5k = $900M in fees since the start of the program. $CRSS works together with BlueAcorn platform to generate leads. There& #39;re very few marketing costs incurred because, well, who doesn& #39;t like free $$$?
4/16 Management commented that & #39;whether you use a 30% cut or a 50% cut, the number is colossal relative to our typical annual earnings& #39;. I believe the true share is probably around 40%. $CRSS stands to gain 40%*900M= $360M of the pie. Plenty of NOL to shelter them from taxes.
5/16 How can a small CDFI like $CRSS with only $51.2M of book value (1Q 21) be able to handle $6.2B worth of PPP loans? The fed is providing a PPP Liquidity Facility with a cost of borrowing of 0.35% to eligible partners. The loans are then issued out at a 1% rate to recipients.
6/16 The spread of 1% - 0.35% = 0.65% ($40M on $6.2B) is the NIM $CRSS receives from these loans. But given that most of these PPP loans are forgivable, we probably shouldn& #39;t take this into consideration.
7/16 How true are the numbers from SBA? Both small banks - $CUBI and $NBN have talked about the huge incremental windfall they received from the PPP program, where the fees amounted to 2-3x their annual net income. They also mentioned that the split they received is approx 50%.
8/16 Amongst the top 15 PPP lenders, $CRSS is ranked 3rd, with the 2nd lowest average loan size of $17.4k. On 5 Mar, Biden admin made it easier for gig workers to apply for PPP loans. It& #39;s definitely not a coincidence that the surge in loans issued by $CRSS happened v soon after.
9/16 $CRSS is the only bank partner BlueAcorn has. BlueAcorn partnered with 2 organizations to funnel up to 1M realtors to the platform. There are ~50M gig workers, ~1.5M rideshare drivers, and >10M independent contractors. It is not surprising if the loan growth continues.
10/16 But it didn& #39;t. $CRSS issued 360k by 11 Apr but remained flat for the subsequent week. Forums have indicated that the BlueAcorn app was facing issues due to bottleneck - Docusign/ processing. Some approved applications might have been withdrawn & #39;voluntarily& #39;..
11/16 as they opted to apply somewhere else instead. Chime started rejecting all PPP deposits because they aren& #39;t for business and many BlueAcorn users have Chime bank accounts. A large scale loan clawback is unlikely due to PR reasons. Loan growth should resume after fixing.
12/16 Valuation. At $53, m/c $335M. Core biz value approx $63M. Implies $272M for the benefits from the PPP program. A 40% split indicates that $CRSS has received $360M so far, with a strong likelihood of further loan growth. You are paying $53 for min $70 of value today.
13/16 Basically, even if $CRSS stops issuing out more PPP loans forever, you are still paying a discount for the business. Finally, a net-net that is not burning cash or a fraud!
A special dividend may do the trick post 2Q 21 earnings release.
Note: 6M shares outstanding.
A special dividend may do the trick post 2Q 21 earnings release.
Note: 6M shares outstanding.
14/16 Risks. Highly illiquid. Huge uncertainty - no one really knows what the details are (what if the split is only 10%? for eg.). Large scale clawback of loans. Capital allocation - What does the management intend to do with the windfall? Value trap?
