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Sunday, April 14, 2024

Local Government credit union going all-digital, cutting ties with SECU

Local Government Federal Credit Union has developed into one of the state’s biggest financial institutions with $3.8 billion in assets, while being tied at the hip of the much-larger State Employees’ Credit Union. There are no Local Government branch offices; instead, members use SECU’s 273 branches as needed.

It’s worked well, with Local Government membership soaring more than 35% to about 400,000 since 2016. It had a 1% return on assets and 11.6% return on equity last year, both solid measures for financial institutions.

But over the coming year, the Raleigh-based credit union plans to sever its financial ties with SECU in a shift that means some big changes for its members.

Starting in March 2024, Local Government won’t be directing 25% of its revenues to SECU, or more than $40 million annually. As a result, its members won’t have full-service access to the $50 billion credit union’s branches across North Carolina. Instead, Local Government’s members will transact their business exclusively through digital channels, operating similar to Charlotte-based Ally Financial, a public company that doesn’t have branches.

“We aren’t running from State Employees’,” says CEO Dwayne Naylor. “We are running to our members.”

N.C. state and local government employees were part of the same credit union until 1983, when a new structure was set up after complaints from some N.C. bankers. The new Local Government credit union served city and county employees and had its own management and board, but it didn’t operate branches or have loan officers. Members used SECU’s facilities and worked with its staffers for auto or home loans.

Over the last decade, however, Local Government’s board has discussed a split that would allow for new services and a more notable brand, says Ken Noland, the board chair and town manager of Wilkesboro. That led to the 2019 charter for the new Civic Federal Credit Union, which operates as a digital-only operation and has essentially the same leadership as Local Government.

Civic now has $100 million in assets and about 5,000 members. But its technology infrastructure is capable of growing to as large as $50 billion, Naylor says, providing the structure to allow for the split from SECU.

There’s no financial pressure to change. Local government’s assets have doubled in the last six years. But the credit union’s board thinks change is necessary to stay relevant in a fast-changing market, Noland says. He notes that Wells Fargo has closed all but one of its Wilkes County offices, while Bank of America no longer has a branch there.

While he hopes State Employees’ keeps its two Wilkes offices open, Noland says he’s confident that other town staffers are willing to do their banking business through Local Government’s website instead.

Local Government expects to add about 150 workers to complement its 215 existing staffers with a goal of providing better customer service than ever, Naylor says. They’ll absorb the extra cost with revenue that previously went to State Employees’

“It takes courage and a strategy to run to our members when things are already looking perfect,” he says. “We know we are asking for some behavioral change here.”

The impact on SECU is expected to be minimal because Local Government’s contribution makes up a fraction of its $1.5 billion-plus in annual revenue.

Naylor worked at SECU for 17 years before joining Langley Federal Credit Union in Virginia. He joined Local Government in 2013 and became Civic’s president in 2018. He succeeded longtime Local Government CEO Maurice Smith earlier this year.

Local Government has its annual meeting on March 24 in Raleigh

 

David Mildenberg
David Mildenberg
David Mildenberg is editor of Business North Carolina. Reach him at dmildenberg@businessnc.com.

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