By Ray Birch
SANTA ROSA, Calif.—The CEO of one small credit union is urging leaders of similar-size operations to not raise the white flag and merge out, but instead focus on a niche in which they can grow.
That’s what $97-million North Bay CU here has done for years, and in doing so it has quickly grown from $58-million in assets in 2019. It has also set up a platform for the credit union to appear much larger than it actually is, as North Bay embarks on an effort to serve cannabis businesses nationwide.
“You’ve got to find a niche,” said North Bay CEO Chris Call. “We're in a market that is dominated by a $7-billion dollar credit union, and the second-largest credit union is $700 million. Those are two big players in our entire area. When people here mention a credit union they automatically think of those two, not the small little 100-million-dollar North Bay. So, years ago we knew we had to carve out our own little niche that is separate from those other credit unions. And, by the way, we're also competing against all the commercial banks and the national banks, as well as the local mutual banks. The competitive field is pretty intense and we are all offering, essentially, the same basic products.”
The Same Old Story
North Bay’s situation is just another chapter in the story book of challengesi facing small credit unions for much of the past decade. As CUToday.info regularly reports, data from multiple sources contiue to show big credit unions are accounting for nearly all of of the industry’s growth, while small credit unions are losing members and face declining financial performance.
Indeed, the most recent CUNA Mutual Trends Report showed credit unions under $100 million in assets have lost members for the last two year.
Call said he recognizes that providing banking services to cannabis companies is not a step a small credit union can easily take, but he also suggested there are other niches that can be a potential focus, such as the underserved.
“It certainly requires somewhat of a leap of courage and faith,” said Call about serving the cannabis trade, and whose credit union, as CUToday.info has reported, has ramped up the number of staff in its compliance department to serve legal marijuana companies. “If you take this road, you have to be prepared to take on new challenges. But it's definitely a viable strategy to pursue.”
Expanding its Focus
Serving the cannabis industry, however, has given the formerly tiny credit union the financial strength to expand its focus into other niches. Now, North Bay has set its sights on the underserved market.
Chris Call
“We have been very successful serving the cannabis business and we are moving now to begin focusing on the underserved Hispanic market here,” explained Call. “The ITIN (Individual Taxpayer Identification Number) business, we call it. We believe this is another niche our credit union can carve out and serve well. But again, we believe a small credit union should focus on very specific business markets.”
Actually, too much growth—in this case, deposits from cannabis businesses—have became a hindrance for North Bay as it looks to continue its expansion. The credit union had at one point set an aggressive goal of becoming a $500-million CU within the next eight-10 years. But Call explained too many cannabis business deposits lowered the CU’s capital ratio to a level at which the organization was not comfortable.
North Bay reported net worth of 10.23% as of March 30, with net income of $265,000.
Deposits Move Off Balance Sheet
“We just could not generate capital fast enough to allow for our asset growth,” said Call. “So, what we have done is create a separate company, which is a subsidiary of North Bay, to manage our cannabis deposits. Those deposits are no longer directly on the credit union’s balance sheet. It's a subsidiary entity of the credit union and it rolls into our consolidated financial statement. We farm out the deposits via an online platform to a host of participating financial institutions that are seeking deposits. But these deposits can be brought back into our members’ operating accounts as needed with a click of a button.”
Called Higher Growth, LLC., the 20-employee subsidiary was originally a CUSO of North Bay, explained Call.
“We received state regulatory approval to remove the CUSO designation that requires us to only serve credit unions,” explained Call. “Now we can market our cannabis banking services to any cannabis business across the country.”
Call believes the emphasis on digital banking is an asset to small credit unions, not a problem. He said with consumers moving away from branch banking, the small credit union can appear to consumers just as large as the big players, and extend their markets, as well.
A Crypto Opportunity
“That is what we are doing with Higher Growth,” said Call. “This part of our business is completely virtual, and we can serve cannabis businesses from New York to California—all across the U.S. We’ll just add staff as this business grows.”
Call added that North Bay is also considering expanding to serve the cryptocurrency community.
“I think this interest in crypto will open up a whole new set of opportunities for us,” Call said.