In his first job out of East Carolina University in 1983, Dwayne Naylor pedaled high-interest loans for a finance company in Raleigh. That job lasted just five months, when he jumped at the opportunity to become a loan officer in Goldsboro at State Employees’ Credit Union.
It launched Naylor’s 42-year career in the credit union industry at organizations in North Carolina, Virginia and then back in the Tar Heel state. It was also the year that SECU leaders helped form Local Government Federal Credit Union, spurred by a legal fight with North Carolina bankers. The move came after the N.C. Supreme Court required SECU to expel about 9,000 members who, despite working for local government, were deemed not qualified for SECU membership.
The credit union, aided by trade associations promoting counties and cities, side-stepped the controversy by creating Local Government with a federal charter. SECU agreed to provide many support services, including use of its ATMs and branches, in return for a fee of 25% of Local Government’s gross income. Those fees now total nearly $40 million annually. In addition to an independent board, Local Government initially had one employee.
With little fanfare, it became one of the state’s most successful financial startups. Assets grew from $217 million in 1999 to $4.1 billion last year, making it the state’s fourth-biggest credit union. CEO Maurice Smith led the institution for most of its history, until Naylor succeeded him in 2023. Some of the growth resulted from consolidations of local credit unions made up of city and county workers across the state.
Smith had hired Naylor to rejoin Local Government as chief operating officer in 2013, helping oversee a staff that now tops 200. While it didn’t have its own branches, Local Government set its own deposit and loan rates and offered some products distinct from SECU, which became the second-largest U.S. credit union because of its low costs, competitive rates and massive branch network.
Naylor, 64, played a key role as Local Government started the affiliated Civic Federal Credit Union as a digital-only institution in 2018. With liberalized rules over who can join credit unions, Civic’s goal was to attract tech-savvy customers who were less likely to visit bank branches,
Five years later, he took charge of both organizations. With backing from a nine-member board of directors, he helped institute a new strategy that ends Local Government’s tight relationship with SECU and eliminates the Local Government brand in favor of the Civic moniker.
The Big Shift
June 3 marks Civic Day, the official switch for about 408,000 Local Government members to Civic. The latter institution has about 8,000 members, which Naylor says is a foundation to instruct the transition team responsible for regulatory, back office, digital and other procedures.
The account and loan numbers for members transferring to Civic won’t change. Online account user names will stay the same; however, passwords must be reset.
Civic members do not automatically qualify for SECU membership with the exception of county health and human services employees.
The change has been building for more than a decade, starting in 2014 when Civic began building core computer operating systems. After deploying its full-service digital platform in 2019, it made its first loan: $500,000 for fire equipment.
“This is about 12 years of pushing buttons,’’ Naylor said in an interview last month before speaking in Wrightsville Beach to the American Public Works Association. Overall, Civic leaders have shared transition plans in almost 100 presentations to employees of local governments, fire districts and other organizations eligible for Civic memberships. The credit union is also emailing transition guides and flipcharts to members, posting information on Facebook and YouTube and taking questions from members, who want to understand how they are affected by the changes.
In the most visible change, Civic members will no longer receive account information at SECU’s 275 branches or other channels. They will instead rely on online and telephone service, along with an 11-branch system that Civic developed over the past two years.
Civic has also struck agreements with numerous other credit unions that will enable members to bank in about 130 branches aside from Civic outlets. Those stretch from Wilmington to Murphy and put virtually all members within 30 miles of a branch, officials say.
“We believe in the power of the cooperative model,’’ Naylor told Civic’s annual meeting in March. Pep talks by executives reviewing 2024’s accomplishments led up to a party at the organization’s Raleigh headquarters where members danced and donned colorful hats, fluffy boas and bright-rimmed glasses.
Naylor, who described himself as “a little bit disco,’’ during his college years, is approaching this month’s transition with enthusiasm. However, it’s tempered with possible technology and service hiccups and a guarantee of confusion for some members, according to the CEO.
“It’s just so complicated with the multiple credit unions,” he said. “It’s a disruptive transformation. Members need to trust that we’re giving them more options, not less.”
For Civic, the transition away from the SECU connection represents a balancing act reflecting the increasingly digital demands of its members. More than eight in 10 members are choosing non-branch transactions, spurring Civic to introduce new services, Naylor says.
Civic is offering Zelle payments, online loan applications with expedited approval, digital cashier’s checks and wire transfers and virtual notary services. Digitally aggregating accounts allows members to make transactions between institutions.
To attract deposits, Civic has also been offering some unusually high deposit rates. In early May, Civic was paying 5.05% interest for an 18-month CD. That compares with 4.3% at SECU and 3.8% at Ally Financial.
To boost convenience, members who want to make cash deposits can do so at Walmart, Food Lion and retailers where cashiers will handle the transactions. Civic will cover fees for the deposits, as well as the first $20 members spend monthly on ATM surcharges.
For Local Government members who borrowed against their salaries, Civic is replacing those with installment loans over several months, leaving them with some money — rather than none from their paychecks, Naylor says. The switch “helps members manage their money better rather than being caught in that cycle,” he says.
Combined, the steps “empower our members to build wealth and give them back some of their precious time,” Civic said in its strategic business plan last year.
Covering ATM fees is an expense Civic is paying for members. That expense will be offset by savings from no longer paying $40 million a year to SECU, Naylor says.
“We’re building this whole infrastructure,” says Naylor, explaining that the costs have led to temporary deficits. Local Government, which has been profitable since its inception, reported a combined net loss of $16.9 million in 2023-24. It lost another $5.2 million in the first two months this year.
The losses were expected, he says, and reflect “the cost of becoming independent from SECU this June and building our systems and staff. We’ll become more and more efficient, and then will flourish on the other side.”
Civic didn’t go overboard spending on its new branches, he notes. It bought an old Hardee’s restaurant in Hickory for $700,000, while it paid $500,000 for a building in Ahoskie. In Greensboro, it opened in a strip center storefront, down from a finance company, the type of business for which Naylor worked fresh out of college more than 40 years ago.
A Mother’s Job
Back then, helping consumers manage their finances was less of a focus for Naylor, who graduated from East Carolina University with a degree in urban and regional planning in 1982. With the economy mired in recession, he veered from his training and took a job lending money at interest rates exceeding 30% in some cases.
Naylor moved along after a few months, joining SECU, where he spent the next 17 years learning “how to focus on members and take care of them,” he says. “That matched what my parents taught me, which is to treat everyone as an individual with full respect.”
Naylor’s mother worked for Wayne County’s school system and belonged to SECU. While banking in the Goldsboro branch, she learned about an opening for a loan officer, leading to Naylor nabbing the job.
From SECU, he joined Local Government in 2000, serving as executive vice president before leaving in 2005 for the same position at Langley Federal Credit Union in Hampton Roads, Virginia. In 2013, he returned to Local Government.
As far back as 2010, credit union executives realized that the reliance on SECU wouldn’t last forever. Also, the National Credit Union Administration, the government agency overseeing member accounts at credit unions nationwide, expressed concerns about the relationship, Naylor says.
A policy change by SECU in 2014 to halt lending to local fire departments also spurred the push toward independence. At that time, Local Government had about $60 million in loans outstanding to fire departments. Unlike most large credit unions, SECU doesn’t make business loans, instead focusing on consumer lending. It had made an exception for fire trucks and related equipment.
“If we stopped offering those accounts, we would have to tell them to go somewhere else,” Naylor says.
Now, Civic believes it can distinguish itself with a mostly digital operation enhanced with a modest branch network for members who want some personal contact. As an example of a successful competitor, he points to San Francisco-based Sofi, a digital banking company that added 800,000 new customers and had a 33% increase in revenue in its most recent quarter.
“SoFi is just tearing the financial services industry up,’’ Naylor says. The publicly traded company had revenue of $2.6 billion last year.
Civic members have about $3.2 billion in loans outstanding, but also borrowed about $15 billion elsewhere, Naylor says. “Most of the lending was taking place somewhere else.”
His job is to get a chunk of that money back into Civic accounts. ■
Never Ending Battle
Credit unions are increasingly adding services to diversify their income streams, which at times puts them in more direct competition with traditional banks. That inevitably leads to debate on the nonprofit status of credit unions, which bankers consider an unfair competitive advantage for the industry.
In North Carolina, two organizations representing credit unions and banks are sparring over legislation which would rewrite state law governing how the member-owned institutions operate.
Following up on a bill initially filed in 2023, the Carolinas Credit Union League is pitching the legislation as a way to restore financial services to economically distressed communities vacated by traditional banks. It’s seeking looser requirements for people to join credit unions, creating opportunities for expansion into underserved “banking deserts” and serving people living at or below the poverty line, according to Dan Schline, the league’s president.
The bill rekindled opposition from the North Carolina Bankers Association. Although short-titled “Credit Union Update,” the association’s CEO Peter Gwaltney says the legislation “completely changes the purpose of what a credit union is designed to do, which is to serve people of modest means who share a common bond.”
If enacted, the bill would “benefit those credit unions that want to operate like full-service banks, without paying corporate income taxes and franchise taxes like banks, or being subject to the similar examination and supervisory standards to banks,” Gwaltney says.
The bankers also dispute the notion of “banking deserts,” noting that banks will invest wherever potential opportunity exists.
Civic CEO Dwayne Naylor says that Civic’s business model is “putting a branch in the pockets” of Civic’s members, even those who live in areas lacking branches. “Even if they don’t have Wi-Fi, they can just pick up the phone and call us,’’ he says.
“We just have to stop and think that in 2025, who are we to tell members that they have to come to a branch — the 40 hours we decide to work — sign a pad, go sit in the lobby and wait for help?” he says. “The banking deserts do not exist in the model that we’re creating.” ■
