A New Credit Union For A Membership’s Needs

LGFCU is creating a spinoff credit union to serve growing business services and mobile banking demands within its existing field of membership.

 
 

Top-Level Takeaways

  • LGFCU has chartered Civic FCU to fund business loans and offer new digital platforms.
  • Civic FCU will pay a fee to use LGFCU services and space.

Maurice Smith, CEO of Local Government FCU ($1.9B, Raleigh, NC), is taking a popular strategy exercise to the next level. After considering what a credit union would look like if they could build it from scratch, LGFCU’s board and executive management decided to turn the concept into a reality.

CU QUICK FACTS

LGFCU
Data as of 12.31.17

HQ: Raleigh, NC
ASSETS: $1.9B
MEMBERS: 321,118
BRANCHES: 0
12-MO SHARE GROWTH: 8.3%
12-MO LOAN GROWTH: 18.1%
ROA: 0.48%

LGFCU serves local governments and their employees throughout the Tarheel State. It has grown in 35 years to nearly $2 billion in assets and more than 320,000 members using the infrastructure of massive State Employees’ Credit Union ($37.3B, Raleigh, NC).

Now, it’s LGFCU’s turn to pay it forward. Smith will also head Civic FCU, a cooperative that earned its credit union charter in December 2017. Civic also will serve North Carolina’s local governments and their employees, but the newcomer is addressing two very specific areas: business loans and mobile access.

The origin of the new credit union lies with fire trucks. They’re expensive, and member groups need financing for them. Additionally, the credit union’s digital-first retail delivery system is meant to appeal to digital natives and serve North Carolinians who live in banking deserts and other underserved areas across the state.

 

 

 

Civic FCU has a TIP charter and an estimated potential membership of 238,000. It plans a soft launch in fourth quarter 2018 with a hard launch to follow in the first quarter of 2019.

Here, Smith explains the genesis of Civic FCU.

How long have you been working on this idea? Who will manage Civic?

Maurice Smith: This is a group effort that’s grown from an idea our board and senior management team began working on five or six years ago. The LGFCU management team will operate Civic. We’re guided by a board of directors that includes current board members and newcomers.

Why are you doing this?

MS: This is a natural continuation of our partnership with SECU, which itself is a wonderful illustration of the cooperative spirit of credit unions.

Maurice Smith, CEO, Local Government FCU, Civic FCU

Civic is about forming complementary alliances with our field of membership. That includes being able to provide loans for fire trucks, ambulances, public utility vehicles in ways that LGFCU can’t under our 1983 charter. We also need to experiment with ways of serving local governments that are acting as points of sale.

Another focus is the individual businesses many of our members own. Then there’s providing better digital banking options than we can offer now. That includes looking at how to provide a remote video experience.

Ultimately, we’re responding to member demands for commercial services that fit their needs for adaptive, affordable products and mobile technology that serves the varied needs of different occupations and lifestyles.

What is involved in getting Civic up and running? What infrastructure are you creating?

MS: We began with getting the charter from the NCUA, who, by the way, has been helpful through the process. They understood what we wanted to do and helped us to do it.

But the charter is just the beginning. Now, we’re defining the products and services we’ll be offering, installing systems, readying processes, and pulling together procedures.

We’re using shared staff at our Raleigh operations centers and will hire specific Civic employees if and when we need to. Civic pays an operating fee to LGFCU, and if we want to buy core or marketing services for Civic, LGFCU can provide those for additional fees for the labor and other resources.

Will LGFCU and Civic be competitors?

MS: Not really. This is a symbiotic relationship. As one of my colleagues put it, we don’t envision a scenario in the future where LGFCU would fail and Civic would succeed, or the other way around. We envision an ecosystem where both credit unions would serve local governments and their employees.

We’re under no illusion that every LGFCU member will want to be a member of Civic FCU. I look at my own family. My mother likes going to her branch every Friday, showing the tellers her grandchildren pictures, and catching up with her friends there. Civic is not going to appeal to her. It’s not going to replace the ability to go into a branch.

My daughter, meanwhile, doesn’t want to talk to a human being. She wants to do it all on mobile. And third-shift hospital nurses who can’t get to a branch whether they want to or not — Civic will appeal to people like them, too.

I’ve sat around the bar with colleagues at conferences from time to time where we dreamed about what we would do if we were inventing a financial institution from scratch. Now we’re finding out.

Maurice Smith, CEO, LGFCU, Civic FCU

What’s it like starting a credit union from scratch?

MS: I’ve sat around the bar with colleagues at conferences from time to time where we dreamed about what we would do if we were inventing a financial institution from scratch. Now we’re finding out.

One thing about being novices at back-office and front-line development is that we get to ask all the dumb questions. We’re not going at this with any assumptions about the way things have always been done. We’re approaching this with fresh eyes, and I think this is going to open up some opportunities for us.

We also have the luxury of allowing Civic to be as innovative as it needs to be because LGFCU will continue to operate in a traditional way.

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Why is Civic focusing on MBL?

MS: North Carolina has 546 municipalities and 100 counties, approximately 1,400 fire departments, plus public hospitals, airport authorities, libraries, all the sorts of things that make a community work.

LGFCU was created to serve those employees, using SECU as our provider of physical and technology infrastructure. We began dipping our toes into MBLs about 10 years ago by making fire truck loans, but our members demand and expect more.

For example, we’ll make a fire truck loan and then the firemen come to us and want help with their roofing, plumbing, and landscape businesses. Large banks are not interested in helping them, but we are. It was no longer acceptable to keep ignoring these members and putting them off.

It’s also worth mentioning that LGFCU has the low-income credit union designation, and thus no MBL cap, but that could change. Civic was created for making business loans. The absence of a cap is baked into our charter.

What does the existence of Civic mean for SECU and LGFCU, both large, established credit unions?

MS: SECU is philosophically not aligned with commercial services, and it has been immensely successful. I have no criticism of its strategy. In fact, I began my credit union career as a SECU loan officer in 1979 and stayed there until I joined LGFCU [as executive vice president in 1992]. We’re tied to SECU at the hip, and our missions will continue to be aligned.

Meanwhile, we could have tried to build a proper commercial services portfolio by reinventing LGFCU, but we felt that would not be fair or even reasonable. The best direction was to build a new institution. So, here we are.

This interview has been edited and condensed.

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March 12, 2018


Comments

 
 
 
  • This seems like a clever way to get around the MBL cap. You create essentially a subsidiary credit union and make sure that its membership meets the requirements for a low-income designation statistically (50%+1 of members - which won't be hard for a new small credit union) and then use it as a vehicle to extend business loans to your membership. I like it.
    Sam Brownell
     
     
     
  • Thanks for taking the time to comment, Sam.
    Marc Rapport