Transcript
Coming up, a brand-new episode of Cornerstone Advisors Plugged In with a superstar CEO and, if you can see in the background, a book lover like my friend Steve Williams. Steve loves books. 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? I think folks in the credit union industry know someone who has seen a remarkable story of growth, but more than 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 with this episode.
I believe it. I hope so.
April, to get the asset size right, when you were named CEO, it was about two and a half billion?
Two and a half billion.
And now you’re knocking on the door of 10?
Around eight billion now and growing.
And a lot of great things are going on. We want to dig into the growth story, but also the 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 or fintech would be interested in this.
And if you’re a GonzoBanker Awards reader, you will recognize both the business 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 GonzoBanker Awards, one for strategy this year and one related to a very cool innovation around financial health and behavioral science. I encourage you guys to read the GonzoBanker Awards.
Shameless plug right there for Cornerstone, but let’s 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. We thought they would be a wonderful way to juxtapose our business conversation with some pop culture references.
We talk about a lot of things on 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. The state of Michigan ranks 49th in overall population growth since the 1990s. When you think about where people are moving, Michigan doesn’t normally come up as number one, two or three.
What’s interesting is that the credit union April runs has seen an increase in its member base of about 40% over the last five years in a low-growth state. That’s pretty impressive.
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? People often blame their market and say, “I could grow if it weren’t for my market.” You took a market and grew substantially more than other credit unions or banks in growth markets.
First, I have to admit that 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 Michigan has a declining population. In fact, a headline that’s been in Crain’s Detroit in the last two days was about U-Haul and Michigan ranking 49th among states for one-way traffic out. We’re one of the highest states for outbound movement.
A couple of things are important for us. Our region is actually not shrinking. Where we are centrally located, we have a university, the state capital and a unique opportunity to attract startup businesses. We have legacy GM plants in our market that are now attracting suppliers, EV battery companies and other businesses. We actually see a little bit of growth in our region.
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, and alumni stay with us when they leave the state of Michigan.
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 unique things to try to capture other segments of the market.
You must be retaining a lot of that university traffic. Other credit unions or banks get the students, and then the students leave. Are you retaining a pretty good amount of those people?
Yes. We track it. In the first year, it’s about 95%, which of course makes sense because they’re still going to college. At about five years post-graduation, we’re over 75% to 80%. Ten years out, it gets a little closer to 50% to 60%. When we compare that with the rest of the membership that is not student-focused, the student numbers are still 5% to 10% higher than the average membership.
I do think there’s some marketing involved in that. You’re loyal to your first card. You’re loyal to your first institution, and we get the benefit of being the first place where many people have their adult, grown-up account.
We also have an affiliation. You have a lot of affiliation with where you went to college as an undergrad. Our credit cards have an MSU logo and the Spartan helmet on them. People want to carry that. They want that pride and affiliation, and I think it stays with them, so they stay with us longer.
April mentioned the word marketing, and the trivia I have for you is that April came up through the marketing side of the house. I asked Steve what kind of song we could apply to that, and he had a great one. Song number two, April.
Well, you’ve got to 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 kidding aside, I have a marketing background. I think most people aspire to understand how to position and differentiate their business, and that 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.
Your perspective is really appropriate for a lot of listeners to better understand because the business of banking needs some personality. If you’re able to resonate with a very young crowd, there have to be some hooks that you start to get proud about as a marketer. Can you talk a little bit about those?
Sure. We’re doing a few unique things. My philosophy as a marketer is that when we do engagement, we ask what all the ways are that we can do it.
My favorite example from the last week is a local pizza place that makes very unique pizza. We sponsor the green-and-white pizza, which has pickles on it. If you come to Michigan State, young people know that’s the pizza they’re going to buy because it’s the green-and-white pizza.
It’s named for us, but we don’t simply pay for the naming. We do coupons for members. We sponsor a buy-one-get-one-half-off day. They do pizza-making classes for young people. All of that sits under the sponsorship.
We try to do multilevel engagement at all times. Mass marketing has a role, but we also ask, “How do I get to a one-on-one with our members?”
We’re also spending time in the brand influencer space. We’re doing name, image and likeness work with the MSU women’s basketball team. They do a lot of social media posts for us, engage with us and come to events and programs.
Another thing that’s engaging for young people is being connected to philanthropy and social causes. For our new-student promotion this year, for every student who opened an account, we made a $5 donation to a charity. Everyone who opened an account got to vote on which charity received those funds. We sent a check of 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. As a credit union, we have strong philanthropy and community-giving values, and that resonates with our young people.
April, you talked 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 a brand ambassador. I asked him how they vetted the relationship, and it became a personal one because the CEO had a family relationship with the player’s parents. They felt comfortable with the reputational risk associated with bringing somebody in like that.
How did you think about that with 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 attaching your name and likeness to theirs and theirs to yours.
As a marketer, I’ve always hesitated to attach a human being to your brand because humans can make mistakes. Depending on how significant the relationship is, that mistake becomes attached to you. We’ve all seen examples of that.
We worked through a few things. First, we selected a women’s sport, basketball. We wanted to do something that wasn’t as popular. Everyone wants to get the star quarterback to promote their brand, but those players also become too expensive. Even though we’re a larger institution, I can’t compete with some of the contracts being offered today to very high-level football 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 for women in sports.
In this case, I also had a personal relationship through the years with the women’s basketball coach simply from being at MSU together. I knew how important it would be for her team to have the same access and opportunity as the football team.
We went down that path with the women’s team. First of all, it’s a small team. A football team has more than 100 players, while a basketball team has about 15. We could afford it, we knew the players at a different level, and we created a contract.
We held meetings with the students and walked through, line by line, what the expectations were, when they would or would not get paid, and what kinds of reputational issues would violate and terminate the contract. We spent a lot of time making sure the students understood the relationship and the legal agreement they were entering into with us.
The players have embraced it. They’re really supportive. We were at the women’s game last night, and they come up and give us hugs. Some people who graduated in the last year still text me. They’re playing in other countries and sending me holiday messages. You do form a relationship.
They know me because I go to the meetings, and they know that I know who they are. I think that creates one more level of accountability, probably similar to knowing the family.
It’s cool that you identified an underserved part of the community and were able to step in. I also have to imagine you’ve been patient in letting the program develop over time.
Sometimes we, as consumers and people who love brands, want immediate gratification and the satisfaction of saying, “I put money in, and this is what I got out of it.” Taking the longer view, where you can say you actually have a relationship that’s both personal and professional, lends itself to something far more sustainable. People realize it’s authentic instead of transactional.
In our case, a lot of the players are in their third and fourth years at school, so they know us. They also rely on this relationship and want to make sure they do a good job. We renew every year, and they see the value for themselves after being paid for the year, so they want to be successful too.
Steve, you and I grew up at the wrong time because some of this NIL money is incredible. If you start reading about Big Ten football teams, take Michigan State out of this, but look at Nebraska. They’re buying five-star quarterbacks for a few million dollars and getting their offensive line all tricked out in big pickup trucks.
If I’m a junior, do I make more money as a senior? Are there NIL deals at Cornerstone? How do I get into this?
Sadly, we’re going to have to find some other things to talk about than our sports days.
I want to take one thing, and that is the business model of banking and credit unions. Something I’ve seen firsthand that Michigan State University Federal Credit Union has done is build what’s called a CUSO, essentially a subsidiary called Reseda Group.
As you know, when you hit $10 billion, there’s a little bit of a haircut. Thank you, Dick Durbin. This was another GonzoBanker Award entry, although a loser, not a winner this time.
The idea was, “How do we build a revenue stream to replace revenue we’re going to lose?” April and the team built Reseda Group, which does all kinds of services, including marketing, print and other things, to build noninterest income and sell services to other financial institutions.
April, you haven’t been quiet about Reseda Group. How is it going, selling services and growing a different kind of business than a mortgage loan or checking account?
It definitely is a different business. What I tell everybody is that we segregated and created the holding-company CUSO. All CUSO activities and fintech investments go into that because it is a separate focus from the credit union’s day-to-day business.
I have a great person who I think you’ve recognized, Ben Maxim, who is our chief operating officer. Ben is responsible for what is created out of Reseda.
We have a couple of different arms. We’ve invested in some technology companies as a minority investor. We have either acquired or created software and digital technology that we produce and sell, and Ben is the CEO over Reseda Products.
Then we acquired, as you noted, a printing company and an ad agency. Together, when we look at our financials, the value of that portfolio consolidates to about $6 million a year.
That’s a variety of things coming together: earnings on selling products, earnings from the printing company and ad agency, their external revenue, and the value of services we were already using from them consolidated into our accounting.
We’ve also had an investment or two that benefited us financially from a sale, while others are producing revenue for us every year.
The goal was that within five years, we might be able to replace about a third of the revenue we could lose from the Durbin transition for our debit interchange revenue. That’s almost where we are right now. 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 love the Midwest sensibility April is modeling. She’s very matter-of-fact: “We’ve got a printing company, we’ve got an ad agency.” The delivery makes it sound simple, but these things don’t just happen.
Creating a business that has real reputational value and can deliver takes time and effort. I keep using the word patience. Everyone wants immediate gratification, but to build something durable takes leadership and vision.
You had the song “Safe and Sound” by Capital Cities. There’s a lyric about showing you what you want to see and taking you where you want to be. That’s the proactive nature of getting ahead of the Durbin impact.
Sometimes I feel like we’ve not met our calling. We could have been old-school college DJs up in Michigan. We could have gotten a green pizza sent to us.
Speaking of the student radio station, that is amazing.
Never mind. I guess we don’t have a job opportunity.
You could have been on the 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?
Michigan State University Federal Credit Union also launched two digital bank brands in the last year, Collegiate and AlumniFi. These are designed to be partners to colleges and provide digital banking to students and alumni.
Do you have some background music? I think it has to be from “Animal House,” right?
I think that’s appropriate.
I’m going to try not to quote movie lines right now. I love this. You’ve got these two digital brands. Take us out three to five years. What does success look like in your mind for those two entities?
They’re a little less independent from each other than we intended. I see them now working together.
Collegiate was created because we obviously serve Michigan State, and we serve another brand and trade name called Oakland University. We run OU Credit Union out of that.
Other schools with smaller enrollment sizes wanted to partner with us, and the economics and efficiency of creating 10 small brands and having employees answer the phone with 10 different brand names didn’t seem sustainable.
We thought we’d come up with Collegiate, which can be customized for a university. That way, we can still buy a large number of debit cards for Collegiate instead of ordering 50 for each college. That’s where Collegiate came from.
As we really started working, we were originally going to promote alumni differently. Then universities said, “Once I graduate, I don’t want to be in Collegiate. I want the alumni product.”
So now we pair them together as the solution based on where you are at that point in life. You’re either in college with Collegiate, or you’re out of college and AlumniFi is for you.
We have one signed institution right now, and we have four others in contract stages. In three to five years, I’d like to have about 15 universities on that brand. Given their enrollment size, that would probably be 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 those people because having MSU in our name can be somewhat prohibitive depending on where you went to university. This gives us an opportunity to appeal to people who went to any university but 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 new delivery channels and opportunities to engage in creative ways without competing with the main brand or business.
Now I’m bringing up banks and credit unions, so we probably have to clear our throats. We don’t dance around things at Plugged In, so I like to put a little “Bad Blood” on because, baby, now we’ve got some bad blood. Taylor Swift’s “Bad Blood,” because we know it’s not always an easy conversation. Banks and credit unions aren’t always simpatico when it comes to certain topics.
We’re starting to notice that some credit unions are acquiring banks, and I think my research is correct that your credit union has acquired a few. Steve and I wanted to talk a little about credit unions buying banks, the business case you see, and what banks acknowledge when they get into a conversation with you.
What did you see in the value, and why are banks selling to you? It obviously wasn’t “bad blood” when the bank said, “We will gladly sell to you.” Tell us what that exchange looks like.
A couple of things. My philosophy on the “bad blood” concept is that it often comes from advocacy groups and how they approach it. When you talk to individuals at banks and individuals at credit unions, I don’t think there’s as much bad blood as is hyped.
A community bank is very similar to a credit union. They’re smaller, they have a community-service focus, and they’re competing against the big five banks just like we are. 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 may not keep those branches or those employees, and the business can become mostly deposit gathering.
The appeal for credit unions is that, as an industry, we weren’t as large as the banking industry and don’t have as many branches. This is a way credit unions can grow into communities with an established brand footprint, locations, staff and a customer base that can become members.
It’s important that there’s alignment. Community banks are looking to make sure their community continues to be served, their branches continue to exist and their employees have jobs. That sounds a lot like a credit union merger to me.
The difference is that there’s generally no conversation about board seats and very little conversation about executives because they are usually shareholders and aren’t looking to stay. Then you’re really looking at receiving the assets of the institution, the customer base that becomes our members, and their employees.
Some of the more challenging merger conversations are off the table, and that’s been nice for us.
I also think there simply aren’t as many credit unions to partner with. I’m not a fan of knocking on doors and asking, “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, so it’s a different experience.
One bank owner said, “I’ve made enough money. What I care about now is my community and my employees.” I think this is going to be interesting as an option, especially for privately held family banks and what they want to do with an asset when they feel like, “I’ve got enough money at this point.”
It’s a great point because we know banks aren’t really bought, they’re sold. That’s one of those adages that makes its rounds at banking conferences. There are privately held, family-owned institutions that need a dance partner, and they’re not necessarily going to attract a regional or larger community bank.
Finding a way to continue to serve their communities creates some really interesting conversations that will probably continue to take place.
On the bank side, there’s a lot of pent-up demand for acquisitions to be announced. We think some things are percolating right under the surface, so we’ll probably be talking about smart banks getting opportunistic.
To close with music, I see these family-owned banks a little like Springsteen and Sting selling music rights. They may want to monetize this asset while capital gains are where they are. There’s always that fear of what happens if the capital gains tax rate doubles.
Bruce Springsteen may sing against the man, but he also reduces his taxes through music sales, and I think some of that is 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 some music references. I promised five, Steve just gave a bonus sixth, so everyone listening should consider yourself lucky. Six songs, one great conversation.
He’s Steve Williams, I’m Al Dominick, and we really appreciate everyone being plugged in with Cornerstone Advisors on this very special episode. Thanks, April. Great to see you.
Thank you both.
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