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Redwood Credit Union

Redwood Credit Union is a formidable financial institution


Redwood Credit Union (Redwood) is perceived as a small financial institution, a credit union, with an immaterial presence in Marin County. A closer look at the data conveys that this common perception is way off. Instead, today Redwood is a rather formidable financial institution within its main local markets (or counties) including Sonoma, Napa, and Mendocino. It also has a rising share of Marin and Lake counties' banking business.

Redwood has grown rapidly since 2015. And, it has grabbed substantial market shares in both deposits and loans from local banks such as Bank of Marin and Westamerica Bank. It has also most probably grabbed market shares from some of the nationwide leading banks such as Bank of America and Wells Fargo. These two behemoths are retreating from the local markets, Redwood operates in, by shrinking their local branch network.

Nowadays, Redwood has 450,000 members (or depositors) and over $8 billion in assets. Given that Redwood is strictly a local financial institution, these respective numbers are surprisingly huge.

Within this essay, I benchmark Redwood's performance with two local bank competitors: Bank of Marin and Westamerica Bank. In terms of overall growth and consistency, Redwood beats its competitors hands down.

When focusing on profitability, Westamerica Bank appears to have a superior profitability. However, this record is highly questionable. That's because Westamerica Bank is progressively morphing from a bank to a bond fund. Indeed, Westamerica Bank is hardly making any loans anymore, and instead it is reinvesting its deposits into corporate bonds and other complex capital markets instruments.

Westamerica Bank strategy of reinvesting its deposits into corporate bonds is scarily similar to the previous savings & loan industry strategy to invest in junk bonds in the 1980s. This risky strategy only accelerated the overall S & L Crisis.


  1. History
  2. Rankings
  3. Redwood has a strong demographic footprint in the North Bay
  4. Redwood dominates local community banks such as Bank of Marin and Westamerica Bank
    1. Loans & Deposits portfolios
    2. Capital
    3. Net Interest Margin
    4. Operating Efficiency
    5. Profitability
    6. Volatility summary
  5. A special situation: Westamerica Bank


Redwood Credit Union was founded in 1950 in Santa Rosa by seven employees of Sonoma County. In 1967, Sonoma County Employee Credit Union (SCECU) opened its first branch in Santa Rosa.

In 1982, SCECU changed its name to Redwood Credit Union (Redwood). That same year, Redwood merged with Santa Rosa Public Employees Credit Union.

Throughout the 1990s, Redwood expanded its membership across multiple counties including Sonoma, Marin, Mendocino, Lake, Napa, San Francisco, Solano, and Contra Costa.

In 2011 it merged with Cal State Central Credit Union.

Redwood opened a branch in Mill Valley in 2016, one in American Canyon in 2018, another in San Francisco in 2019, and another in Lower Lake in 2020. Today it has over $8 billion in assets and 450,000 members. Within some of the counties it serves, it may have become a dominant financial institution.


It is the 37th largest credit union out of 4,700 in the US.

If classified among US banks, it would rank 186th out of 4,612.

Redwood has a strong demographic footprint in the North Bay

Redwood Credit Union has grown rapidly from around 250,000 retail members-depositors in 2015 to 450,000 in 2023.

Next, I allocated the 450,000 depositors across the 7 counties where Redwood operates. And, I did this allocation in proportion to the number of branches in each county. This assumes that each branch has a similar number of depositors.

The table below reveals that a surprisingly high percentage of the population in many counties where Redwood operates has a deposit account with Redwood. In 2023, close to 50% of the population in Mendocino, Napa, and Sonoma had a deposit account with Redwood. This is a surprisingly high percentage.

The graph below shows a rising percentage of counties' population having a deposit account with Redwood.

The facet graph below shows the same information on a disaggregated basis, so you have a better look at each separate county's pattern. When you see an abrupt jump in a given year, it is because Redwood added a branch within the specific county.

Next, I figured Redwood's share of household deposits within the 7 counties. I did this as follows:

  1. I allocated Redwood's total household deposits among the 7 counties in proportion to the number of branches in a county and in proportion to the household income within a county. A county with more branches and a higher median household income would be allocated a greater share of Redwood's overall deposit base and vice versa.
  2. I extracted household deposits at the national level from the Federal Reserve Z.1 Financial Accounts of the United States. And, I estimated the total household deposit base in each county to be proportional to its population (relative to the US) and its median household income. A county with a higher population and a higher median household income would have a higher estimated household deposit base and vice versa.
  3. I divided item 1 (Redwood's household deposits at the county level) by item 2 (total household deposits at the county level). This gives me the percent share of household deposits held by Redwood at the county level.

As shown in the table above, in 2023 Redwood has close to an estimated 15% market share of household deposits in Mendocino, Napa, and Sonoma. We saw earlier that 45% or more of the population in the same counties have a deposit account with Redwood.

In 2023, Redwood's share of actual household deposits measured in $ is about 1/3d Redwood's share of the population (holding deposits with Redwood) in those respective counties. This makes sense when you figure that individuals bank with more than one financial institution.

The graphs below showing Redwood's share of household deposits look very much like the earlier graphs showing Redwood's share of the population having a deposit account with Redwood. The main difference is the scale of the respective Y-axes. The earlier graph focusing on the share of the population has a Y-axis that goes up to 50%. The graphs below have a Y-axis that goes up to 15%.

The graphs above confirm that Redwood has grabbed market shares of household deposits within the counties it operates. And, it must have grabbed such market shares not only from locally headquartered banks (Bank of Marin, Westamerica Bank) but also from the leading banks in the country (JPM Chase, Bank of America, Wells Fargo). Indeed, the leading banks are shrinking their bank network within the North Bay. This is especially true of Wells Fargo and Bank of America.

Redwood dominates local community banks such as Bank of Marin and Westamerica Bank.

Loans & Deposits portfolios

As shown in the tables and graphs below:

The above trends confirm that since 2015, Redwood must have grabbed substantial market shares from both Bank of Marin and Westamerica Bank within both local deposits and loans markets.


When focusing on capital strength, all three institutions are well capitalized with an Equity/Assets ratio typically around 11.0%. However, notice that Redwood's capital base is much more stable. Indeed, the volatility of Redwood's capital base level is much lower with a standard deviation of only 0.6% vs 1.0% for Bank of Marin and 1.4% for Westamerica Bank.

Net Interest Margin

The three institutions have similar net interest margins (as defined) around 3.00%. However, notice again how Redwood is the steadier performer by achieving the lowest net interest margin volatility. Indeed, Redwood's net interest margin standard deviation is 0.38% vs 0.41% for the Bank of Marin and 0.61% for Westamerica Bank.

Operating Efficiency

The three institutions have very different efficiency ratios (Non-interest expense/(Net interest income + non-interest income)). The lower the efficiency ratio the more efficient the institution.

Redwood has a lower efficiency ratio than the Bank of Marin because it is more efficient. Sounds redundant, but it is a plain fact.

Westamerica has the lowest efficiency ratio because it is essentially turning into a bond fund instead of a traditional bank lending operation. Buying bonds is associated with much lower operating costs than underwriting loans. More on this topic later in this essay. As we will soon review, Westamerica Bank's superior operating efficiency has a questionable foundation.

When it comes to consistency, again Redwood is still the most consistent performer with a more stable efficiency ratio (lower volatility).


As the main measure of profitability, I focus on the pre-tax return on equity (ROE). This is because Redwood, as a credit union, does not pay corporate income taxes. Meanwhile, the two banks do pay such taxes. To even the field, I compare their respective profitability on a pre-tax basis.

Westamerica Bank is the more profitable of the three for reasons that have nothing to do with its banking operations.

Focusing on consistency, Redwood again is by far the most consistent of the three institutions with a much lower volatility in its pre-tax ROE.

The table above focusing on financial performance metrics consistency (or volatility) confirms how much more consistent Redwood is vs its two banking counterparts.

A special situation: Westamerica Bank

Westamerica Bank is a very unusual community bank as it does very little lending. While Redwood and the Bank of Marin re-lend the majority of their deposits with Loans/Deposits ratios that average 84.4% and 73.7%, respectively; Westamerica Bank re-lends only a very small percentage of their deposits. And, this percentage is rapidly declining over time. Indeed, their Loans/Deposits ratio has declined from 33.1% in 2015 to only 15.1% in 2023. If this current trend continues this ratio could approach 0% within a decade.

Instead of directly underwriting and booking loans on its balance sheet, Westamerica Bank buys an increasing amount of corporate bonds. See the credit profile of their bond portfolio at yearend 2023 and 2022 within the table below (sourced directly from their 2023 annual report).

As shown above, 42% of the $2.6 billion Westamerica's corporate bonds are rated BBB. This is the lowest "investment grade" bond rating, just a notch above "high yield", commonly referred to as junk bonds.

Just as astonishing, 31% of Westamerica's corporate bonds are international ones (invested in Canada, Japan, and Europe). This would be fine for a mutual fund focused on international bonds managed by investment managers and experts within this specialized field... but Westamerica?!

In addition to corporate bonds, Westamerica Bank also buys material amounts of collateralized loan obligations (CLOs), municipal bonds, mortgage-backed securities (MBS), and US Treasuries.

Westamerica Bank's rapidly rising bond portfolio and equally rapidly shrinking loan portfolio is a highly unusual community bank strategy.

I am surprised that this bank does not breach the Community Reinvestment Act which mandates that banks reinvest their deposit base by lending back and investing in its local community instead of investing in unrelated domestic and international corporate bonds and other complex capital markets instruments (CLOs, MBS, etc.).

These CRA considerations question the legitimacy of Westamerica Bank's superior profitability record. One would think that the purpose of a local community bank is to reinvest its deposits within the local community instead of arbitraging federally insured deposits (associated with below-market interest rates) with higher-yielding capital markets instruments such as corporate bonds, CLOs, and MBS.



S&L crisis, Bank of Marin, Westamerica Bank, Redwood Credit Union