Is BM Technologies, Inc. (BMTX) a Smart Investment Choice?

Investment management company Cedar Creek Partners recently released its second quarter 2022 investor letter. A copy of the same can be downloaded here. In the second quarter, the fund declined by 10.2% net of fees and expenses, and year to date the fund was 9.7% down net of fees and expenses. Major indices against which the fund compares its earnings were all down more than 10% in the second quarter. You can check the top 5 holdings of the fund to know its best picks in 2022.

Cedar Creek Partners discussed stocks like BM Technologies, Inc. (NYSE:BMTX) in the second quarter investor letter. Headquartered in Wayne, Pennsylvania, BM Technologies, Inc. (NYSE:BMTX) is a US-based financial technology company. On August 22, 2022, BM Technologies, Inc. (NYSE:BMTX) stock closed at $6.42 per share. One-month return of BM Technologies, Inc. (NYSE:BMTX) was 7.54% and its shares lost 36.87% of their value over the last 52 weeks. BM Technologies, Inc. (NYSE:BMTX) has a market capitalization of $78.574 million.

Here is what Cedar Creek Partners specifically said about BM Technologies, Inc. (NYSE:BMTX):

“In our third quarter 2021 letter we profiled BM Technologies, Inc. (NYSE:BMTX) a fintech company. Almost immediately after we purchased the shares, the price jumped by 40%. We trimmed the position. Soon after the price began declining. To refresh your memory, BMTX was originally part of Customers Bancorp (CUBI). It was sold to Megalith Financial Acquisition Corp., a SPAC. BMTX has developed a fintech banking platform which provides digital banking and disbursement services to consumers and students in the United States. It facilitates deposits and banking products and services between customers and partner banks. The company provides access to a suite of banking products, including checking, savings, personal loans, credit cards, and student refinancing. They are not a traditional bank. It is a white label platform for other companies such as T-Mobile.

Approximately half of BMTX’s revenue is from payments by Customers Bancorp for roughly $2 billion of deposits, and technically a sharing of the net interest margin Customers expected to earn. (It looks like it was a sweetheart deal. The CEO of BMTX, Luvleen Sidhu, is the daughter of the CEO of Customers, Jay Sidhu). Customers essentially has been paying BMTX just over 2.75% for their deposits. Late in 2021 Customers informed BMTX that it would not be continuing the relationship after the end of 2022. In a near zero interest rate environment, BMTX had a problem. They were going to see earnings drop precipitously in 2023 as it was highly unlikely they would receive nearly 3% for deposits. Trailing adjusted EBITDA was $2.40 per share. If they only earned 1% on the deposits, EBITDA would be breakeven or slightly negative.

BMTX’s solution was to purchase a small bank and bring the deposits in house. They agreed to buy First Sound Bank (FSWA) for $25 million. The problem is the level of deposits would far exceed the bank’s capital necessitating a large capital raise, which would significantly dilute shareholders. At best net income would hold steady but the share count would double or possibly triple, meaning earnings per share would decline by 1/2 to 1/3. And that assumes they rapidly built up a lending team and loan portfolio, which does not happen overnight…” (Click here to read more)

BM Technologies, Inc. (NYSE:BMTX) is not on the list of 30 Most Popular Stocks Among Hedge Funds. As per our database, BM Technologies, Inc. (NYSE:BMTX) was held by 4 hedge fund portfolios at the end of the first quarter, which was 4 in the previous quarter.

We discussed BM Technologies, Inc. (NYSE:BMTX) in another article and shared Cedar Creek Partners’ views on the company. You can check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other prominent investors.

Disclosure: None. This article is originally published at Insider Monkey.