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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're very few marketing costs incurred because, well, who doesn't like free $$$?
4/16 Management commented that 'whether you use a 30% cut or a 50% cut, the number is colossal relative to our typical annual earnings'. 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'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'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'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 'voluntarily'..
11/16 as they opted to apply somewhere else instead. Chime started rejecting all PPP deposits because they aren'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?
15/16 Insiders own 77%, never sold a single share. IR assured that capital will be used to maximize shareholder value. Alignment of interest is there. Highly recommend interested investors to learn more about the management team's background and $CRSS origin story.
