UPST 10Q

UPST filed its 10Q today. Some highlights:

“In the six months ended June 30, 2020 and 2021, Cross River Bank originated approximately 79% and 60%, respectively, of the Transaction Volume, Number of Loans. CRB also accounts for a large portion of our revenues. In the six months ended June 30, 2020 and 2021, fees received from CRB accounted for 70% and 62%, respectively, of our total revenue.”
[“concentration risk” on CRB has reduced somewhat]

“In the six months ended June 30, 2021, one of our other bank partners originated approximately 32% of the Transaction Volume, Number of Loans. In the six months ended June 30, 2021, the fees received from this bank partner accounted for 23% of our total revenue.”
[This partner is like Finwise Bank, which is akin to what CRB does. Both Finwise and CRB sell most of their originated loans back to UPST to be then sold to institutional investors]

“For each of the six months ended June 30, 2020 and 2021, 49% of loan originations were derived from traffic from Credit Karma.”
[Reliance on Credit Karma doesn’t appear to be increasing like it had been in prior quarter]

“The total consideration the Company provided for Prodigy was approximately $89.0 million”
[Good price for acquisition deal by UPST?]

Also, to clarify from my other post: https://discussion.fool.com/those-are-kind-words-saul-and-i-also…

"This means if Upstart has 100 bank partners, they might average $1B a month in personal loan originations which may generate $70 million in fee revenue per month = $210 million fee revenue per quarter…

As Saul pointed out to me, UPST already has $185 million in fee revenue already with only 25 current bank partners.

I should have been more clear in the post, my $210 million quarterly revenue estimation would only take into account fee revenues from loans transacted with the typical bank partners which excludes Cross River Bank and Finwise (these are the two main banks that prefer to sell back most of their loans to the currently 150 institutional investors demand side of things in the broader capital market).

The typical bank partner aims to keep most of their originated loans on their own balance sheet (in theory in the long term, this would be most beneficial to both UPST and consumers as cost of capital is <1% for bank vs institutional investor which = lower rates for consumer = more volume = more fee revenue for UPST)

That being said, the video by Jeff Keltner was recorded in March, so I bet the risk appetite from the typical bank should increase over time to prefer more than $10-15 million a month in personal loans as they become more comfortable with the success of Upstart’s turnkey solution. And especially as macro outlook wise, bank deposits have grown and they have too much cash to know what to do with.

Also, we can calculate how much was kept by bank partners vs sold to institutions currently.

Per 10Q filing today:
$3.414B for the first 6 months of 2021 was spent by UPST to purchase orignated loans that banks didn’t want to keep, and these were all sold immediately to institutional investors on the broader capital market. (UPST does not hold any loans on its balance sheet, except loans for trialing purposes for testing their algorithms)

But there were a total of $1.729B + $2.795B in loans originated in total through UPST’s platform/all bank partners for the first 6 months of 2021.

1.729 + 2.795 - 3.414 = roughly 1.11B were kept on bank partners’ balance sheets so far in 2021
Divided by 6 months = $185M kept per month on average for their 25 current partners = $7.4M originations kept per bank per month

The size of banks’ assets and risk appetite of course are wildly variable, as we know from the Keltner interview with Customers’ Bank CEO ($12B assets) they were originating >100M per month with them alone, although Customers does sell some of their originated loans to institutions just like finwise/CRB.

I believe larger partners like the recent onboarded Associated Bank ($34B in assets ) will be doing far more than the $1M-15M per month range for small banks.

So, $210M revenue per quarter for 100 bank partners is likely conservative, becacuse if UPST snags many very large bank partners in the future, this will absolutely balloon the fee revenue estimate higher

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