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In March 2021, Colorado Partner Credit Union announced that Sundie Seefried, its 20-year CEO would step away to lead a new cannabis banking company called Safe Harbor Financial.

Safe Harbor was a CUSO formed through the combination of the credit union’s cannabis banking arm and its division that licenses those services to other financial institutions.

At December 2021 year-end, Partner Colorado reported $575 million assets, six branches, serving 36,000 members. Its CUSO investment, presumably all Safe Harbor, was valued at $8.2 million up from $3.8 million the prior year. These valuations were achieved with a reported total cash outlay of only $750,000.

In February 2022 there was a new transaction announced: Safe Harbor CUSO’s cannabis industry-focused financial services would be acquired by Northern Lights Acquisition Corp, a special purpose acquisition company (SPAC).

A special purpose acquisition company is a “blank check” shell corporation designed to take companies public without going through the traditional IPO process.

A $185 million purchase valuation

The terms according to one news report were that Northern Lights will pay $70 million in cash and $115 million in stock. Sundie Seefried – who created Safe Harbor – will be the CEO of the new public company.

The full February 14, 2022 press release projected the equity market value of the post-sale closing company to be $327 million.

In an interview the CEO Seefried described Safe Harbor’s competitive advantages in managing the financials for businesses conducting legal marijuana transactions:

“The amount of work necessary to manage that BSA risk is expensive,” Seefried said in July. “And the resources are demanding, in terms of the monetary system that you have to purchase.

“We did cannabis and we did it thoroughly,” she added. “We think we have the compliance program to a good state of stability here.”

The only financial information I could find about the Safe Harbor CUSO was the following: the company had almost 600 accounts across 20 states and $4 billion in transactions in 2021. It would appear to be a fee-intensive business model in return for its compliance expertise and financial transaction management.

What does this example mean for credit unions?

Credit union sale of all or partial ownership of a CUSO business is not a new event. Several major examples include the sale of CUSO Financial Services (CFS) a broker-dealer, with minority credit union ownership, sold to Atria Wealth Services in 2017.

Prime Alliance Solutions was a significant national CUSO offering first mortgage services to an estimated 1,900 credit unions. It was developed by BECU, the majority owner with a limited number of other credit owners and Mortgage Cadence. The CUSO venture was sold to Accenture in a private sale in 2013.

Another industry CUSO model that is a frequent target for acquisition is data processing. The largest credit union-owned processor USERS was sold to Fiserv in the 1980s. A number of other regional DP firms have also been acquired by private companies.

What make the Safe Harbor-SPAC transaction unique is that the business will now be publicly traded.

At this time several aspects of the transaction seem noteworthy.

1. The Safe Harbor sale is unique in that the stock will now be publicly owned. In the past, some credit unions converted to stock banks such as HarborOne, but this is the first CUSO to be traded on a public stock exchange.
2. The creation and development of this unique financial intermediary is a tribute to the CEO who has worked on this business model since 2015. Her biography says she has served in the credit union industry since 1983 and became CEO at Partner Colorado in 2001. She holds a Bachelor in Business Management from the University of Maryland and an MBA in Finance from Regis University.
3. If the CUSO is indeed wholly-owned, the transaction should produce a windfall for Partner Colorado and its members. In the FAQ on the Safe Harbor website, this relationship is described as: “Yes! Your accounts are held at Partner Colorado Credit Union and will be insured through the NCUA Share Insurance Fund.” This would indicate an ongoing business relationship.

Wall Street is discovering Main Street co-ops

My biggest takeaway is that this is another example of Wall Street firms discovering credit unions as a source of new business. In addition to this public listing, brokers, hedge funds and investment advisors are actively soliciting credit union purchases of banks, placing subordinated debt financing to enhance capital ratios, and increasingly bringing wholesale financing and other funding opportunities to the industry such as fintech startups.

The need for transparency

One purpose in writing about these events is so they can be fully and openly talked about. At the moment most of the investment banking activities are private with limited or no public disclosure.

For example, two credit unions closed on subordinated debt capital with identical structures in December 2021. But the rates paid by the two credit unions appear to be significantly different. Both are sound institutions but even they must rely on what their brokers and advisors privately tell them about the market which may not be indicative of other options.

The second reason is so that member-owners, whose funds are used, will know how they benefit from these transactions. Rarely have credit unions discussed these transactions with members.

The annual meeting’s business report and election of directors would seem to be an ideal moment to explain the financial impact and member payback on these investments. I have yet to hear of this being done.

A payday for members?

Hopefully, the members will be the big winners in Safe Harbor’s public offering. The history of this effort was that it was all done with the credit union’s resources.

Partner Colorado valued its CUSO investment on the 5300 reports for December 2021 at $8.3 million while reporting a total cash investment of only $755,000. With a SPAC cash and stock purchase of $175 million, will the members be in for a big payday?