Transcript
Coming up on a brand-new episode of Cornerstone Advisors’ Plugged In, a conversation with a superstar CEO.
If you can see in the background, she’s a book lover like my friend Steve Williams. Loves books, doesn’t hate them. We found that out.
Steve, I’m at my kind of home away from home, but this is where you lock it down on a fairly regular basis, so I feel like it’s only appropriate for you to introduce our guest today.
You want to say hello to April?
April, how are you doing?
For folks over in the credit union industry, they know someone who has seen a remarkable story of growth. But more than just growth, innovation, taking risks, and trying new things.
We have the CEO of Michigan State University Federal Credit Union, April Clobes.
Go Spartans.
Welcome.
Hello. How are you all?
We are going to have some fun.
We are going to have some fun with this episode. I believe. I hope so.
April, to get the right asset size, when you were named CEO, it was about $2.5 billion?
Two and a half billion.
And now knocking on the door of $10 billion, around $8 billion now and growing, with a lot of great things going on.
We want to dig into this growth story, but also kind of a leadership story.
How are you doing so many things at once?
How do you keep your team aligned?
I think any organization, bank, credit union, fintech, would be interested in this.
Yeah.
And if you’re a GonzoBanker Awards reader, you will recognize both the business that April runs and April’s name because we’ve recognized her and the team for some really exceptional things over the last few years.
Two Gonzo Awards, one for strategy this year and one related to a very cool innovation around financial health and behavioral science.
So I encourage you guys to read the Gonzo Awards.
Thanks for that shameless plug right there for Cornerstone.
But you know what? Let’s just dive right in like we always do on Plugged In.
We’ve got five different songs that Steve and I creatively agreed to about 20 seconds before we hopped on with April that we thought would be a wonderful way to juxtapose our business conversation with some pop-culture references.
We talk about a lot of things at Plugged In, but we want to start by focusing on the state of Michigan.
It’s been in the news over the last few days thanks to a different school’s football team that we won’t talk about.
But the state of Michigan ranks 49th in overall population growth since 1990.
So when you think about where people are moving, the state of Michigan doesn’t normally come up in conversation as one, two, or three.
What’s interesting is the credit union April runs has seen an increase in its member base of about 40% over the last five years.
Right.
In a slow-growth state.
That’s pretty impressive.
So if we were to use a song, I think we’ve got to use Irene Cara’s “Flashdance... What a Feeling,” because what a feeling it must be to see that type of number associated with the business you’re running.
Could you talk a little bit about the proverbial secret sauce?
What’s the secret sauce?
People often blame their market.
“I could grow. It’s just my market.”
You took a market and grew substantially more than other credit unions or banks in growth markets.
Well, okay.
One, I have to admit, not only do I love books, but I love music, so I can’t wait for the song unveiling at every moment.
That’s going to be fun for me.
I know that Michigan is a declining-population state.
In fact, a headline that’s been in Crain’s Detroit in the last two days is that U-Haul ranks Michigan 49th among the states for one-way outbound moves.
So we have the second-highest level of outgoing traffic for moving.
A couple of things for us that I think are important.
When I look at our area, our region actually is not shrinking.
We’re centrally located, with a university, the state capital, and a really unique opportunity to attract startup businesses.
We have legacy GM plants in our market that are now attracting suppliers and EV-battery companies.
So we actually see a little bit of growth in our region.
But I think our growth also comes from having a great field of membership where we get a renewing, incoming opportunity every year.
Michigan State admits 9,000 students every year.
That’s 9,000 new people we can attract.
They have new faculty coming in.
Alumni stay with us when they leave the state of Michigan.
Then we also serve Oakland University in the Metro Detroit area, and they have the same experience with new students coming in.
We are their institution.
So we have an opportunity to grow in that capacity.
We’ve also done some unique things to try to capture other segments of the market.
Yeah.
But I think you must be retaining a lot of that university traffic.
Other credit unions or banks, they get the students, then the students leave.
Are you retaining a pretty good amount of those?
Yes.
We track it.
The first year, 95%, of course.
Right?
I’m staying, and I’m still going to college.
But by about five years post-graduation, we are over 75% to 80%.
Ten years out, it gets a little closer to 50% to 60%.
But when we track that against the rest of the membership that is not student-focused, the numbers are 5% to 10% higher than the average membership.
So I do think there’s some marketing involved in that.
You’re loyal to your first card.
You’re loyal to your first institution.
We get the benefit of being the first place where they have their adult, grown-up account.
We also have an affiliation.
I know you mentioned maybe there’s another institution to go to college at in the state of Michigan.
But you have a lot of affiliation with where you went to college as an undergrad.
Our credit cards, frankly, have an MSU logo on them.
They have the Spartan helmet on them.
People want to carry that.
They want to have that pride and affiliation.
So I think it stays with them, and they stay with us longer.
Now, April mentioned the word marketing.
The trivia I have for you is April came up through the marketing side of the house.
I asked you what kind of song we could apply to that, and you had a great one.
Song number two, April.
Well, “Take me where the future’s lying,” with “St. Elmo’s Fire.”
We’re taking you way back.
That’s good.
I like the singing.
Can we harmonize next time you do this?
Give me a little warning so we can actually get the duo up and rolling.
I love it so much.
I’m a product of ’80s music, so you can keep it going.
All your kidding aside, you have a marketing background.
I think most people aspire to understand how to position and differentiate your business.
It doesn’t happen because you have a slick green logo on your credit card.
The marketing function itself has been reinvented and continues to be reinvented.
I think your perspective is really appropriate for a lot of listeners to better understand.
The business of banking needs some sexiness.
It needs some flavor and personality.
If you’re able to resonate with a very young crowd, there have got to be some hooks that you start to get proud about as a marketer.
Yeah.
Can you talk a little bit about those?
Sure.
We’re doing a few unique things.
My philosophy as a marketer is, when we do engagement, what are all the ways we can do it?
This is my favorite example from the last week.
We have a local pizza place, and they make very unique pizza.
We are the sponsor of the green-and-white pizza.
What that is, is pickles on pizza.
If you come to Michigan State, that’s the pizza young people are going to buy because it’s the green-and-white pizza.
But it is named for us.
We can just pay for the naming, but we don’t stop there.
We do coupons to members.
We sponsor their buy-one-get-one-half-off day.
They do pizza-making classes for young people.
All of that is under this sponsorship.
So we try to do multi-level engagement at all times.
It’s not just mass marketing.
It’s, how do I get to a one-on-one with our members?
Ways that we’re doing unique marketing, we definitely are spending time in the brand-influencer space.
We’re doing name, image, and likeness with the MSU women’s basketball team.
They do a lot of social-media posts for us.
They engage with us.
They come to events and programs.
The other thing that’s engaging for young people is being really connected to philanthropy and social-support causes.
So what we did this year for our new-student promotions was ask, why would you get an account at the credit union?
For all the students who opened an account, we made a $5 donation to a charity.
Then everyone who opened the account got to participate in a popular vote on which charity we sent those funds to.
We sent a nice check, almost $2,000, to the student food bank.
That’s part of understanding different generations, what they value, and how to speak to values that align together.
As a credit union, of course we have strong philanthropy and community-giving values, and that resonates with our young people for sure.
April, you talk about the NIL stuff.
I’m curious.
I had a conversation with a bank CEO on the East Coast who has a Clemson football player as their brand ambassador.
I asked him how they vetted the relationship, and it essentially became a personal one where the CEO had a family relationship with this player’s parents.
So they felt comfortable with the reputation risk associated with bringing somebody in like this.
How did you think about the Michigan State women’s basketball team for that NIL deal?
There has to be some type of internal control that allows you to feel comfortable saying, “We’re going to put our name and likeness against theirs, and theirs against ours.”
As a marketer in my life, I’ve always hesitated to do what I would call attaching a human to your brand, because humans can make mistakes.
Depending on how significant that is, it can be attached to you.
We’ve all seen those brands.
Hello, Elon.
Right.
So what we worked on were a few things.
First, we selected women’s basketball.
One, we wanted to do maybe something that isn’t as popular.
Everyone wants to get the star quarterback to promote their brand.
Therefore, those players also become too expensive.
Even though we’re a larger institution, I can’t compete with some of the contracts that are being offered today for really high-level football players or basketball players.
When we first started this, very few people were focused on women athletes.
So that became an area where we could make a difference and also provide parity and equity to women in sports.
In this case, I had a personal relationship through the years, just being at MSU together, with the women’s basketball coach.
I knew how important it would be for her team to have the same access and opportunity as the football team.
So we went down the path with the women’s team.
First of all, it’s a small team.
A football team is a hundred-and-some players.
Basketball teams are 15.
So, A, we could afford it.
B, we knew the players on a different level.
C, we did a contract and meetings with the students, and we walked through line by line what the expectations were, when they would or would not get paid, and what would happen if they did anything reputationally that would violate the contract.
Then it would be terminated.
A lot of it was making sure the students really understood the relationship and the legal relationship they were entering into with us.
But the players have embraced it.
They’re really supportive.
We were at the women’s game last night.
They come up and give us hugs.
Some people have graduated in the last year and still text me.
They’re playing in other countries and sending me holiday messages.
You do form a relationship.
It’s all things in life.
They know me.
I go to the meetings.
So they know that I know who they are.
I think it’s one more level of accountability, probably like knowing the family.
Well, it’s cool that you say that.
I love that you identified an underserved part of the community and were able to step in.
But I also have to imagine you’ve been patient to see that program really develop over time.
I think sometimes we as consumers, as people who love brands, want the immediate gratification and the satisfaction of saying, “I put some money in, and this is what I get out of it.”
Taking the longer view, where you can say, “I actually have a relationship that’s both personal and professional,” lends itself to something far more sustainable.
People will realize it’s authentic as opposed to transactional.
Right.
In our case, a lot of the players are in their third and fourth year at school.
They know us.
They also rely on this relationship.
They want to make sure that they do a good job.
We renew every year with them, and they see the value for themselves after being paid for the year.
So they want to be successful also.
Yeah.
Now, Steve, you and I grew up at the wrong time because some of this NIL money, if you start reading about Big Ten football teams, take Michigan State out of this, but Nebraska, they’re buying quarterbacks that are five stars for a few million.
They’re getting their offensive line all tricked out in big pickup trucks.
NFL now.
If I’m a junior, I make more money as a senior.
Are there NIL deals at Cornerstone?
How do I get into this?
Okay.
Well, sadly, we’re going to have to find some other things to talk about than sports.
I want to take one, and that is the business model of banking and credit unions.
I want to note something that I’ve seen firsthand that Michigan State University FCU has done.
That is build what’s called a CUSO, a subsidiary essentially, called the Reseda Group.
As you know, when you hit $10 billion, there’s a little bit of a haircut called “Thank you, Dick Durbin.”
Another Gonzo Award loser, not winner, this time.
But the idea was, how do we build a revenue stream to replace what we’re going to lose?
April and her team built something called Reseda Group.
It does all kinds of services, marketing, print, and other things, to build non-interest income and sell services to other financial institutions.
One thing I’ll give you, April, is it’s been pretty loud out there.
You haven’t been quiet with Reseda Group.
How is it going selling services and growing a different kind of business than a mortgage loan or a checking account?
Yeah.
It definitely is a different business.
What I tell everybody is we segregated and created the holding-company CUSO.
All CUSO activities and fintech investments go into that because it is a separate focus from your credit union day-to-day.
I have a great human that I think you’ve recognized, Ben Maxim, as well.
He’s our chief operating officer.
Ben is responsible for what is created out of Reseda.
We have a couple different arms of Reseda.
One is we’ve invested in some technology and we’re a minority investor.
Then we have either acquired or created software and digital technology that we produce and sell.
That’s what Ben is the COO over, Reseda products.
Then we have acquired, as you noted, a printing company and an ad agency.
Together, when we look at our financials, the value of that portfolio consolidates out to be about $6 million a year.
That’s a variety of all of that coming together.
Earnings on selling products.
Earnings from the printing and the ad agency, from their revenue, but also from our usage.
We were already using them, so consolidating that in the accounting.
Then we’ve had an investment or two that has benefited us financially from one sale and others that are producing revenue for us every year.
The goal was within five years that we may be able to replace about a third, which is almost where we are right now, of the revenue we might lose from the Durbin transition for our debit-interchange revenue.
We’re projecting about a $17 million loss in revenue based on today.
So $5 million to $8 million would be really helpful when that happens.
I just love the Midwest sensibility that April’s modeling right now.
You’re just very matter-of-fact.
“Oh, we’ve got a printing agency. We’ve got an ad agency.”
I love the delivery because these things don’t just happen.
Creating a business that has real reputational value and can also deliver, it takes time and effort.
Again, I use that word patience.
Everyone wants immediate gratification.
But to build something that is durable, it takes leadership and it takes a vision.
You had the song “Safe and Sound” by Capital Cities.
There’s a lyric that says, “I can show you what you want to see and take you where you want to be. I can lift you up.”
That’s the proactive nature of getting ahead of the Durbin Act before you hit it.
Sometimes I feel like we have not met our calling.
We could have been old-school college DJs up in Michigan.
We could have gotten maybe a green pizza sent to us.
Speaking of the student radio station here, it is amazing.
Never mind.
I guess we don’t have a job opportunity.
You could have been on the studio student radio station.
I used to love it.
If we’re talking college, let’s just bring it.
Let’s talk college.
Which one would you like to think of?
Well, as you know, Michigan State Credit Union also launched two digital banks in the last year, AlumniFi and Collegiate.
These are digital banks designed to be partners to colleges and, obviously, to provide digital banking to alumni.
So you have a great song here.
Do you have some background music?
I think it has to be from Animal House.
The theme from Animal House, right?
I think that’s appropriate.
What is it?
“Fat, drunk, and stupid is no way to go through life.”
I’m going to try not to quote movie lines right now.
I love this so much.
I am going to ask, you’ve got these two digital brands.
Take us out maybe three to five years.
What does success look like in your mind for those two independent entities?
They are a little less independent from each other than we intended.
I see them now working together.
What we have is Collegiate.
That was created because we obviously serve Michigan State.
Then we serve another brand and trade name called Oakland University, and we run OU Credit Union out of that.
It came from other schools at a smaller enrollment size wanting to partner with us.
Just the economics and efficiency of creating 10 small brands and having the employees answer the phone with 10 different brand names didn’t seem like a sustainable model.
So we thought, we’ll come up with Collegiate, which can then be customized.
It can be Collegiate at Alma College, Collegiate at another university, things along that line.
Then we could still buy a mass amount of debit cards for Collegiate and not 50 per college.
That’s where Collegiate came from.
But then, as we really started working, we were going to just promote alumni differently.
Now the universities are like, “But once I graduate, I don’t want to be in Collegiate. I want AlumniFi.”
So now we kind of pair them together as, this is your solution based on where you are at a point in time in life.
You’re either in college, Collegiate.
You’re out of college, here’s AlumniFi for you.
We have one signed institution right now, which is Alma College.
Then we have four others in contract stages right now.
In the three- to five-year horizon, I’d like to have about 15 universities on that brand.
With their enrollment size, probably about 10,000 total members.
It’s not going to be significant in terms of competing with our main brand and institution.
But I can see where we wouldn’t have been able to attract people because MSU in our name is somewhat prohibitive based on maybe where you went to university.
This gives us an opportunity to appeal to anyone.
You could have gone to any university and still like what we offer.
It’s interesting listening to April.
It reminds me of a conversation we had with Kevin Blair, the CEO of Synovus, a few months ago on this show, talking about why they started Maast, which is Money-as-a-Service as an acronym.
Same basic idea.
Not to compete with the main brand or the main business, but to explore new delivery channels and new opportunities and engage in ways that are creative.
Now I’m bringing up banks and credit unions, so we probably have to clear our throats and think about Time’s Woman of the Year.
We don’t dance around things at Plugged In.
Right.
I like to dance around things when I put a little “Bad Blood” on because, “Baby, now we got bad blood.”
We did Taylor Swift’s “Bad Blood” because we know it’s not always an easy conversation.
Banks and credit unions aren’t always sympatico when it comes to certain conversations.
But we’re starting to notice that some credit unions are acquiring banks.
I think my math and research is correct in thinking that your credit union has acquired a few.
So Steve and I wanted to talk a little bit about credit unions buying banks, the business case that you see, and conversely, the ones that banks acknowledge when they get into a conversation with you.
Yeah.
What did you see in the value, and what’s the bank selling to you?
Obviously, it wasn’t bad blood when the bank said, “We will gladly sell to you.”
Tell us about what the exchange looks like.
Well, a couple of things.
My philosophy on the bad-blood concept is that it’s often an advocacy-group approach.
When you talk to individuals at banks and individuals at credit unions, I don’t think we have as much bad blood when we have a conversation as is hyped.
A community bank is very similar to a credit union.
They’re smaller.
They have a community-service focus.
They’re competing against the big five banks just like we are.
I think when they’re looking for merger partners, they have a couple of options.
If they choose a larger banking institution, what generally happens?
If they merge into Chase, Chase doesn’t need another two branches in that town.
They just won’t have those branches.
They won’t need their employees.
They’re just going to be deposit gathering.
I think the appeal for credit unions is that, as an industry, we weren’t as large as the banking industry.
We don’t have as many branches.
This is a way credit unions can grow into communities with an established brand, footprint, locations, staff, and membership.
So I think it’s important that there’s alignment.
The community banks are looking to make sure that their community continues to be served, their branches exist, and their employees have a job.
Sounds just like a credit union merger to me.
The only differences are, generally there’s no conversation about board seats.
There’s very little conversation about executives because they usually are shareholders and they’re not looking to stay either.
So then you’re really looking at, we’re receiving the assets of the institution and their customer base to become our members and their employees.
Some of the maybe more challenging conversations in mergers are kind of off the table.
That’s been nice for us.
Then I think there just aren’t as many credit unions to partner with.
I am not a fan of knocking on doors and asking people, “Would you like us to merge you in because you may be more challenged at your size?”
I don’t like to do that.
I want to see the industry survive and thrive.
But banks are asking to be purchased.
It’s a whole different experience.
One bank owner said, “I’ve made enough money. What I care about now is community and my employees.”
So I do think this is going to be interesting to see as an option, especially for privately held family banks and what they want to do with the asset when they feel like, “I’ve got enough money at this point.”
It’s a great point because we know banks aren’t bought.
They’re really sold.
This is one of those adages that makes its rounds at many banking conferences.
That idea that there are some privately held, family-owned organizations and institutions that need a dance partner.
They’re not going to attract, leave Chase out of it, they’re not going to attract a regional or even a larger community bank.
So finding a way to continue to serve their communities, I think there are some really interesting conversations that are probably going to continue to take place.
We know on the bank side there’s a lot of pent-up demand to see acquisitions start to be announced.
We think there are some things percolating right under the surface.
We’ll probably be talking about smarter banks getting opportunistic in that sense.
To close with music, I kind of see these family-owned banks like Springsteen and Sting’s music rights.
They may want to monetize this asset while the capital-gains rates are where they are.
There’s always that fear of, what if you double the capital-gains tax rate?
Bruce Springsteen may sing against the man, but he also reduces his taxes through music sales.
I think that’s going on in the family banking business too.
We did warn April when she accepted this invitation to join us on Plugged In that we were going to give her a little music reference.
I promised five.
Steve just gave a bonus six.
So everyone who’s listening, consider yourself lucky.
Six songs, one great conversation.
He’s Steve Williams.
I’m Al Dominick.
We really appreciate everyone getting Plugged In with Cornerstone Advisors on this very special episode.
Thanks, April.
Great to see you.
Thank you both.
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