TIME TO RETOOL?

• Author: Mildenberg, David

Shifting strategy at N.C. State Employees' Credit Union raises debate over balancing members' needs. Whose interests deserve priority?

Chris Ayer joined the North Carolina State Employees' Credit Union in Raleigh as a software coder in 1988 after working for a Roanoke, Virginia, bank. His initial salary was about the same as his wife's paycheck as a Wake County school teacher.

Ayer eventually became the credit union's chief technology officer. But he says he didn't realize why his job really mattered until receiving a call in 1999 from a member who wanted to know his account balance.

Credit union policy blocked IT staffers from sharing customer information, so Ayer mentioned other options. The guy wasn't impressed, so Ayer urged him to walk into a local branch and talk with a teller.

I'm a quadriplegic, so that's not an option, the member responded.

That's when SECU's culture of putting members first really hit him, Ayer recalls. If that meant driving to the member's home and delivering the information personally, that's what you did.

Seventeen people started SECU with $437 in 1937, when the U.S. was mired in depression. Today, it has $54 billion in assets and is the second-largest U.S. credit union. It has nearly 8,000 employees in 100 counties and 2.7 million members, or more than one in five North Carolinians.

No one disputes the credit union's remarkable achievements. Now, though, how it operates is being challenged by insiders who say some of its distinctive policies need updating in a fast-changing sector. Like most change, it's causing sparks, in this case from critics who say SECU is straying from its core mission.

SECU has never lost money in 85 years, booking a net gain of more than $ 1 billion over the last two fiscal years. It holds much more capital than required. Credit unions don't have shareholders and are considered not-for-profit.

Three North Carolina megabanks--Bank of America, BB&T (now Truist), and First Union (renamed Wachovia, then Wells Fargo)--grew through hundreds of acquisitions, mostly out of state, engineered by aggressive CEOs. The dealmaking worked great, until it didn't: Wachovia, BofA and BB&T received government bailouts after the late-2000s housing depression. Each bank repaid the money.

SECU stuck to internal growth, a unique consumer lending strategy and a culture that motivated good customer service.

The credit union's inflection point is sparked by its unpaid, volunteer board of veteran state government leaders and Chief Executive Officer Jim Hayes, a veteran industry regulator hired in 2021. During his 18 months on the job, Hayes has reorganized SECU's senior leadership and is directing some fundamental changes rejected for decades by his predecessors.

A key thrust: The credit union should grow by lowering rates on loans to members with strong credit ratings, while also remaining highly focused on those with modest incomes. Four of five SECU members are not state employees, but rather family members or in private-sector jobs. About 16% of members' total debt is with SECU, down from 26% five years ago.

Another new plan: SECU wants to make business loans to members with needs such as expanding their office space. While many N.C. peers issue such loans, SECU has not.

Hayes notes that he regularly hears from advisory board members and branch workers about customer demand for small business credit. It's particularly critical in rural areas that have been increasingly abandoned by N.C. banks, he says. SECU, with 273 offices in 100 counties, is the sole financial center in several N.C. small towns.

The shift has received limited notice because it's occurring gradually and credit union leaders downplay the significance. SECU eschews publicity and media advertising. Its marketing mostly involves more than $20 million in annual philanthropy from its affiliated foundation, which is funded by $l-a-month fees paid by members.

SECU is undergoing a "pivot" more than a transformation, Hayes says during an interview at the company's downtown Raleigh headquarters. (In subsequent discussions, two board members rejected the term "pivot" as overstating what's happening.)

Hayes compares the credit union's potential challenge with a famous collapsed video-rental chain.

"We need to be paying attention, so we don't become irrelevant and frankly, the next Blockbuster that refused to ever budge on their direction, and became irrelevant and went away," Hayes says. "We're about wanting to serve our members for another 85 years."

Board chair Chris Ayers--who is not related to Chris Ayer --says, "this is more about evolving our products and services to meet the evolving needs of our members, who are more diverse than ever before." He is the executive director of the N.C. Utilities Commissions Public Staff.

What's happening at SECU is much more than an evolution of products and services, says Chip Filson, a credit-union regulator and consultant who has tracked the N.C. enterprise for many years.

"The fundamental premise of State Employees' has been that there is a need for institutions that are not-for-profit that focus on serving those who are less advantaged, and that's become even more...