Dwayne Naylor is retiring as CEO of Civic Federal Credit Union after service glitches plagued the company’s merger in June and contributed to widening losses.
The Raleigh-based financial institution said today CFO Dave D’Annunzio will succeed Naylor, set to retire Jan. 16. The Wayne County native is leaving Civic after working more than 40 years for credit unions in North Carolina and Virginia.
Civic emerged as an independent $4 billion organization this past summer in its merger with Local Government Federal Credit Union, also based in Raleigh. Early in the combination, about 500,000 calls related to various account issues overwhelmed Civic’s customer-service hotline, with wait times sometimes exceeding three hours. Confused, scared and angry members asked Naylor and his team why they hadn’t received new debit and credit cards in the mail.
Long lines of customers showed up at the 11 offices across North Carolina that Civic had set up in the past two years in anticipation of the merger. Civic originally planned to
operate without branches, but officials adapted after hearing from members.
Meanwhile, thousands of Civic members asked why their credit scores had suddenly declined after the early-June merger date.
Partly due to the chaos, Civic reported its membership count has declined 10%, while posting a $75 million net loss during the first nine months this year. Membership tumbled from 405,040 as of March 31 to 366,134 as of Sept. 30.
The credit union is also dealing with $211 million of loans that were at least 60 days delinquent as of Sept. 30. That is nearly 7% of its total loan pool of $3.09 billion. Delinquent rates of less than 1% are common at most banks and credit unions.
Naylor, 65, joined Local Government in 2009 and played a big role in the creation of Civic, which received its charter in 2017. He’s not going to be around to fulfil his vision for an increasingly profitable, mostly digital institution. Boosting online banking and lending to compete with fast-growing online-oriented enterprises such as Ally Financial, Live Oak Bank and Sofi Financial is an objective, Naylor said in an interview this fall.
In today’s statement, Civic quoted Naylor as saying he looks forward “to supporting a seamless transition and cheering on Civic’s success for many years to come. After a 43-year career serving credit union members, I look forward to completing my PhD dissertation and writing about my research.”
The merger that created the independent Civic separated Local Government from a third Raleigh-based organization, State Employees’ Credit Union. A $50 billion institution, SECU provided back office support and kept track of Local Government members’ account information, in return for an annual fee that has approached $40 million annually in recent years. Under the arrangement, Local Government members could use SECU offices when they needed to do some banking.
Starting several years ago, Naylor and other Local Government leaders concluded that separating from SECU into an independent organization made sense. Saving the SECU fee was a key benefit, overriding the end of member access to its branches. Local Government developed Civic, opening in 2018 as an online-only operation that also makes small business loans, unlike SECU or Local Government.
After years of preparation, accounts of more than 400,000 Local Government members were transferred on June 3, which was called “Civic Day.” Within days, complaints erupted from Local Government members now part of Civic.
What caused the undelivered cards and inaccurate credit scores is in dispute. Naylor and Civic board Chair Aaron Noble say the problems originated with SECU. Noble is a retired human resources director for the city of Burlington.
Civic’s leadership concluded “some things out of our control made it very difficult for our members,” the CEO said.
For starters, the addresses of about 35,000 Local Government members were inaccurate, Naylor said. Those members didn’t receive new Civic debit and credit cards, disrupting their ability to bank. In response, Civic spent more than $1 million overnighting cards to correct addresses, he said.
“We did have problems with some of the data that we got from State Employees’ Credit Union,’’ Noble said. “There were some incorrect addresses, incorrect phone numbers, which led to the improper mailing of credit and debit cards.’’
SECU also provided inaccurate demographic information about some members, Naylor added. In some cases, that impeded efforts to authenticate member identities, which was required to allow folks to start banking with Civic.
Another snafu involved SECU’s inaccurate classifications of 180,000 Local Government loans as paid off, Naylor said. They emerged as new loans at Civic, dinging the credit reports of borrowers.
“It’s not a payoff, but it was reported as a payoff,’’ Naylor said. “When the file came over from State Employees’, it was wrong. It looked like new credit, and as soon as we reported it to the credit bureaus, every credit score dropped overnight. State Employees’ did the last reporting.’’
Once Civic informed the credit rating agencies about the errors, it took them 45 days “to finally clean that up,” he said.
SECU wasn’t aware of the problems identified by Naylor and Noble until Business North Carolina asked questions about them in October, said spokeswoman Sandra Jones.
“At five months post-transition, this is the first we have heard that credit reporting of consumer loans or SECU’s provision of (Local Government) member addresses are
in any way related to Civic’s service issues,’’ Jones said in an email.
“The teams from both organizations worked together on the transition plan, and while SECU offered guidance and recommendations, we respected (Local Government/Civic’s) leadership decisions on how all transition processes would be handled,” Jones said.
Leading up to the transition, SECU gave Local Government/Civic a file containing members’ addresses, she said. Aside from sending debit and credit cards, Civic sent mailings about the merger to members as part of its campaign.
In cases of returned mail, Civic “would have had the opportunity to update their address records based on mail returned to them,’’ Jones said.
In preparation for reporting to the credit bureaus, SECU and Local Government/Civic reviewed the data multiple times, according to Jones. She acknowledged that on June 4, SECU was “notified of an issue’’ related to the submission of the final file a day earlier.
Two days later, she said, SECU “resubmitted the information to the credit bureaus … which corrected any inaccuracies that were contained” in the original submission.
When the transition concluded, Civic “had sole control over their members’ experience and the infrastructure it would use to provide service,” Jones said. “SECU could no longer offer services or service-related support as these accounts were no longer on our systems.”
In the interview this past fall, Naylor cited reasons other than customer service glitches for the decline. Some members don’t want to lose access to SECU’s 275-branch network, despite a desire for more online tools. “I hate to lose any member, but if they believe they’ve got to go in that branch three days a week and they’re in a rural community, then that’s fine,” the CEO said.
