SECU’s protege credit union decides to go it alone

A roughly 40-year partnership between State Employees’ Credit Union and Local Government Federal Credit Union, both in Raleigh, North Carolina, may be nearing an end.

The $3.7 billion-asset LGFCU is exploring steps for becoming independent of the neighboring $53 billion-asset SECU. The codependence began in 1981, when the North Carolina Supreme Court, ruling on a joint appeal from both the North Carolina Savings and Loan League and the North Carolina Bankers Association, chose to overturn the North Carolina Credit Union Commission’s 1978 decision that allowed SECU to serve local government employees.

This led local government leaders to band together and launch what would eventually become  LGFCU in 1983, said Maurice R. Smith, who according to his LinkedIn profile has been CEO of the credit union since 1999.

“This arrangement is a remarkable illustration of the collaborative nature of credit unions … Working together to benefit our mutual memberships has been positive for both credit unions [and] today, LGFCU has grown to nearly 400,000 members and $3.7 billion in total assets,” Smith said.

Through the partnership between the two, SECU allowed LGFCU members to use the larger credit union’s branch network, contact center and core, while also offering some of SECU’s own financial services to LGFCU members. SECU also helped LGFCU reach communities of local government staffers.

But the collaboration was not expected to last forever. 

“These discussions are an acknowledgment of decades of hard work by both organizations to better serve the interests of unique fields of membership … I’m excited that LGFCU has the opportunity to control its own destiny,” said Jim Hayes, chief executive of SECU.

According to Smith, board members of LGFCU have been contemplating various degrees of independence since 1984.

“From the beginning, the board thought it prudent to imagine an evolving and changing industry … [Since then] there are fewer credit unions and banks than in the past, new competitors come from a variety of directions,” and consumers increasingly seek out financial service experiences that rival other merchants in their daily lives, Smith said.

Credit unions have seen increased competition from both banks and financial technology firms in recent years, and this pressure has led smaller institutions to merge with one another or be sold

Even against these difficulties, credit unions have seen growth in areas such as membership, auto lending and talent acquisition. And for those fighting to stay operational for the underserved communities they represent, mentorships from larger players can be a valuable resource.

The potential departure from SECU could pose significant risks to LGFCU’s operations overall, according to Tony DeSanctis, senior director with the Scottsdale, Arizona-based advisory firm Cornerstone Advisors.

“In terms of the risks, it really comes down to the impact on the branch footprint, potential impacts on [the quality of] technology investments that may not be as robust because of the difference in scale,” as well as how much of SECU’s infrastructure the credit union was using, DeSanctis said.

But the influx of fintech offerings in the marketplace has proven that a financial institution does not need to rely solely on its branches for growth, DeSanctis said.

“Being a $3 billion or $4 billion asset institution, the economics of building your own digital presence and infrastructure become much more feasible … [LGFCU] can potentially replicate or replace the value that SECU has historically brought with other digital solutions, branch realignments and things like that ” DeSanctis said.

LGFCU expects to maintain its hyper-local focus after it becomes independent. 

“True governance for any organization, whether it be a bank or a florist, is to maintain eye contact with your stakeholders … When we study the failures of institutions, it is usually because they stop focusing on their customers,” Smith said. “LGFCU is dogmatic about the ideal of being a member-driven organization [and] our work begins and ends with the membership.”

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