Priority Report — April 2019

Welcome to the First Quarter 2019 edition of the Michigan Credit Union League’s Priority Report. In this update, Patty Corkery and I will give our membership an update on our shared accomplishments from 2018 and the important priorities that we’re working on as we work our way through 2019.

As a much welcomed summer approaches in Michigan, we can reflect back on another successful year in 2018. Our focus as the state trade association for 100% of Michigan’s 220 credit unions, has been and continues to be on advocacy results, promoting the credit union difference, providing great information and training resources, helping credit unions with the seemingly never-ending compliance burden, and then in tandem with CUSG, to provide great solutions to help credit unions of all sizes be successful.

Working hand-in-hand with the Credit Union National Association (CUNA), which likewise enjoys 96% affiliation in Michigan, we accomplish a lot together. And results are about more than just numbers or checked off priorities. Where the real difference is made is in the lives of the 5.4 million Michiganders and the approximate 2 million households whose lives breathe easier because of the good works of credit unions.

MCUL is proud and honored to partner with so many dedicated board volunteers, executive staff and hard-working front-line employees who serve communities across Michigan with affordable financial services and responsible lending practices.

Consider some of our milestones from 2018:

• As Congress passed a massive overhaul of the federal tax code, the credit union tax exempt status was kept intact despite vigorous lobbying by the banking industry.
• The first major regulatory relief bill since Dodd/Frank was passed, S. 2155, which gave credit unions much-needed relief on residential and commercial real estate lending requirements.
• With the NCUA, MCUL and CUNA led the charge to encourage the NCUA to merge the temporary stabilization fund with the NCUSIF and to refund as much of that credit union money as possible back to credit unions. That was a real pocketbook issue and together, we made that happen.
• At the state level in Lansing, important legislation dealing with electronic vehicle titling was finally passed and we made great progress on legislation that would require timely disclosure on data breaches by Michigan businesses.
• The MCUL and CUNA awareness campaigns were merged into a campaign themed, “Open your Eyes to a Credit Union”, and your decades of financial support for this campaign continue to make a big difference as credit union membership continues to grow at a pace three times the rate of population growth and more members than ever trust their credit union to look out for their financial well being.
• Numerous innovations were achieved in MCUL’s education offerings and CU Solutions Group continues to bring technology, marketing, HR performance and advisory solutions to credit unions nationally and in Michigan, thus helping credit unions of all sizes be more successful.

And as we report on our achievements together, we realize that the competitive landscape remains very challenging, especially for small asset size credit unions. And so, the MCUL, in partnership with the Michigan Credit Union Foundation, continues to offer education grants and financial assistance to those credit unions that are struggling to find financial success.

We are also working to help credit unions improve the regulatory examination and supervision process by collecting information and communicating with both DIFS and NCUA regarding practices that need to be improved.

And before I turn it to Patty to talk more specifically about our 2019 priority focus, let me recap the financial results for MCUL & Affiliates that are found in this year’s written annual report. The detailed audited financial statements are provided there. But here are a few highlights:

• 2018 was a solid year for the MCUL on a consolidated basis but our net income did take a hit from the effect on MCUL’s investment portfolio stemming from the down market last year.
• Although the MCUL has a combined operating budget of over $9 million to fund the association, less than 6% of that funding comes from member dues. The remaining funding comes from investment returns on the League’s $30 million portfolio of high-grade stocks and bonds, and its 64% ownership interest in a profitable CUSG subsidiary.
• And since the MCUL has substantial member net assets of $73.6 million, the League targets a break even position each year. And that is why our member dues are so low. However, due to the falling stock market in 2018, the effect on both MCUL and CUSG’s equity investments led to a reduction in member net assets of $4.2 million.
• Despite theses challenges, CUSG had strong net after-tax income of $4.8 million and was able to pay dividends to the MCUL and other owners for the 6^th consecutive year.

So, even as we look back with pride on our shared accomplishments and provide accountability on our stewardship of strong financial resources, we realize that our commitment needs to be to the success of Michigan’s credit unions. And our role, the role of an association, is to remove barriers, promote the industry and provide as many helpful resources as possible. We share the success of our industry and we also share a commitment to address the challenges and opportunities ahead.

Housing Finance Reform and the Safe Banking Act

We are watching the progression of housing reform legislation in Washington and how those changes may impact our industry. Discussions surrounding GSE/Housing Finance Reform continue to pick up speed.

We are also monitoring the affordable housing bill that was recently re-introduced by Senator Elizabeth Warren. The updated version of the bill appears to remove language that would have subjected credit unions to the Community Reinvestment Act (CRA). However, a new provision in the bill appears to increase regulatory burden for credit unions that add underserved areas to their field of membership. With CUNA, we are currently monitoring any and all action around this bill and other housing reform bills. Our goal is to make sure that the interests of smaller lenders like credit unions are protected.

On the topic of cannabis banking, the House Financial Services Committee recently voted in a three-to-one measure to pass the Safe Banking Act, also known as H.R. 1595. If passed into law, the bill would provide credit unions and other financial institutions with a safe harbor to safely serve their members’ related needs in states like Michigan where cannabis usage is legal.

We will be sure to keep you updated on any progress made on these bills.

Cannabis Banking and Data Breach Legislation

Here in Michigan, the state is moving forward with initiatives to regulate and license cannabis providers. Just last month, Governor Whitmer signed an executive order dissolving the Medical Marijuana Licensing Board to be in effect on April 30. This dissolves the board and places medicinal and, eventually, recreational marijuana decisions under the state’s Licensing and Regulatory Affairs department. It is anticipated that the LARA-based Marijuana Regulatory Agency will expedite the licensing approval process. Cannabis banking should not be a partisan or philosophical issue. MCUL and CUNA simply believe that credit unions need a safe harbor against potential federal regulatory overreach in this area.

The political landscape has changed dramatically since the mid-term elections. And here in Michigan, we have a new Governor, Lt. Governor, Secretary of State and Attorney General. We also have four new members of our Congressional delegation and significant shifts in power at all levels of state and federal government. We also have a new DIFS Director Anita Fox and CU Division Director, Denise Schulteiss.

These changes will require an even deeper grassroots advocacy commitment from our credit union community.

Industry representatives, along with Dave and I recently had the chance to sit down with Governor Whitmer and discuss the current state of the industry and how credit unions impact Michigan communities. We covered topics such as data security, cannabis banking, financial literacy and the credit union mission. We found this meeting productive and look forward to building upon our relationship with Governor Whitmer in the future.

As we discussed the epidemic of security breaches with the Governor, data breach legislation bills were voted unanimously out of the House Financial Services Committee. These bills would providesfor a 45-day notification window in which merchants who have experienced a breach would have to provide notification of the breach. In addition, this legislation also provides for a carve-out for small businesses. We are proud to say this is a good step in the right direction and as we look for meaningful solutions to address this important issue.

On the regulatory front, we continue to monitor and weigh in on current and future proposed rulemaking by the NCUA and DIFS. It is always vitally important that we receive input from our industry on these proposed rules so that we can most effectively advocate on your behalf.

Looking forward on advocacy, we encourage you to continue reaching out and participating in advocacy efforts by hosting legislative events to discuss our issues and to promote the credit union difference.  We look forward to continuing our advocacy initiatives in Michigan with our state GAC and Capital Day and back to Washington, D.C. with our Hike the Hill in October.  We hope you will continue to join us. Your engagement in advocacy makes the difference.

Open Your Eyes to a Credit Union^®

Over the past several years, the MCUL team has served up consumer awareness campaigns highlighting the benefits of credit unions to Michigan audiences with continued success. Unlike any other state in the country, CU Link has moved the needle in areas such as trust and consideration.

When CUNA announced the Open Your Eyes to a Credit Union^® campaign, the MCUL saw an opportunity to expand the voice of the campaign and maximize the CUNA/League partnership. Our research shows that state-wide consumers already know they are eligible to join a credit union. However, many consumers perceive that credit unions are not as convenient, tech-savvy or diverse in service offerings as banks. This national-level reinforcement tie will help debunk these myths regardless of geographic borders.

Starting this month, we are investing more than $2.2 million into a 12-month media plan that focuses on overlapping engagement on cable television, radio, mobile devices and social media.

Credit unions who have contributed to the CU Link campaign will have access to utilize some of our materials for their own advertising programs. Full fair share credit unions will have a broader range of templated advertising collateral available to use plus the added benefit of utilizing up to half of their contribution for marketing purchases through our partners. With access to photography, billboards and our shared resources, such as CUBEtv Studios, we can push the envelope even further. It’s our goal to make consumers understand the more they use credit unions’ products and services, the more they save and benefit.

MCUF

Each April, we celebrate national financial literacy month. As a result, the Michigan Credit Union Foundation (MCUF) assists in several statewide initiatives and Financial Reality Fairs reach thousands of families and hundreds of schools and libraries with the message that credit unions care about improving financial futures. From the Money Smart Kids Read initiative to the High School Personal Finance Challenge, we are encouraging the next generation of credit union members to be fiscally ready for their future.

In addition to these coordinated programs, MCUF also provides grants for individual credit union financial education and community reinvestment initiatives. The foundation aims to provide $100,000 in MCUF funding for grants to help credit unions make an impact, especially in underserved areas this year. And as mentioned earlier, the MCUL and MCUF also make financial hardship education grants available to eligible credit unions.

AC&E and Destination Compliance

Our outstanding education and events team continues to plan and execute great events like the Spring and Fall Leadership Development Conferences, the Fall Executive Summit, and numerous other specific topic events and conferences. They are affordable and local and provide credit unions both large and small with great education options.

And of course at this year’s Annual Convention and Exposition, we will have hosted close to 1,000 credit unon advocates for training, networking and fundraising for CMN hospitals. This year’s AC&E in Detroit will give us a great opportunity to showcase and celebrate all that credit unions do for their members in Michigan.

Finally, on the compliance front, in addition to our existing Destination Compliance hub that provides information resources from MCUL and CUNA, we are excited to be announcing a new compliance product in Michigan in conjunction with Maryland-based AffirmX. The AffirmX product will bring a full-service compliance management service to compliment the self-serve Complysight product already used by over 40 Michigan credit unions.  Complimented by CUSG’s compliance consulting services, the AffirmX partnership will expand the MCUL’s vision for helping credit unions with governance, risk and compliance services.

On behalf of Dave and our whole MCUL team, thanks to our Michigan credit union community for directing and supporting us in our association efforts.

CU Solutions Group

Year after year, MCUL builds on its value proposition of providing high quality association services with very low dues to fund our operations. As I mentioned in my introduction, we’re able to do this, in part, because of the success of CU Solutions Group (CUSG). As a roughly two-thirds owner of CUSG, MCUL has a uniquely low reliance on member dues due to the profitable products and services offered by our national CUSO, in addition to the investment returns from the strong MCUL capital base.

With that in mind, CU Solutions Group closed 2018 on a strong note and we’ve carried that momentum into  2019. Last year, CUSG operating income by 12.5% but the negative performance of the stock market affected CUSG’s equity holdings in the same way that it did with the MCUL. As a result, pre-tax income was off slightly at $6.5 million. But the good news is that after-tax net income was strong at $4.9 million.

We’re proud of CUSG’s financial success and how it allows the MCUL to operate with the lowest member dues in the nation.

As many of you likely know, CUSG underwent several important structural changes that took effect on April 1. First, our 22+ year veteran COO, Drew Egan announced his retirement at the end of this year. Drew has done amazing things for our organization and for me as President and CEO. He will be missed professionally and personally. For the remainder of the year, Drew will continue in an important role as Special Advisor to the President while assisting with the transition.

Because of this important change, and to begin implementing the creation of five new subsidiaries authorized by CUSG’s Board, there are several title changes and subtle adjustments in responsibilities for our senior team. Each of CUSG’s Senior Vice Presidents — Lisa Rizk, David Dean, Aaron Adams, Brandi Stankovic and Tim Bohlman — have changed titles to COO for their respective new subsidiary responsibilities. In the case of Technology Solutions, Marketing Solutions, Advisory Solutions and Performance Solutions, new subsidiary boards have been created comprised of two CUSG board members and the CEO acting as chairman. Lisa Rizk and Brandi Stankovic have dual titles, as Chief Revenue Officer and Chief Strategy Officer of CUSG, respectively.

As for other important duty transfers, another new subsidiary has been created called LifeStep Solutions LLC. CUSG believes strategic technology investors will ge sought to invest in this LLC with focused product strategies that improve credit union members’ mobile experience. CUSG’s future vision of LifeStep Solutions goes beyond the LifeSteps Wallet product to include additional products to help credit unions compete with neo-banks and challenger banks.

Finally, Wendy Vadnais has been promoted to Chief Financial Officer. She’s been serving as Vice President of Finance and Administration and has earned this promotion with her sharp financial skills, strong work ethic and wonderful leadership qualities.

While there are several important changes to corporate structure and reporting, the public face of CUSG remains unchanged. We still serve the credit union industry though our four core areas of expertise and do so under the CU Solutions Group brand. These adjustments simply enable new outside investment opportunities, greater financial discipline and opportunities for leadership development within our organization.

Technology Solutions: NestReady and CULedger

Our Technology Solutions team has expanded its strategic partnerships with companies who have much to offer credit unions and their members though innovative technologies. Our new reseller agreement with real estate tech company NestReady gives CUSG exclusive rights to their homebuying experience solutions for the credit union industry, allowing us to integrate it into the credit union mortgage lending process.

Another promising partnership is with CULedger, who will be investing in CUSG’s fintech subsidiary, LifeStep Solutions, LLC and our mobile banking+ product, LifeSteps Wallet. On our part, CUSG is excited to promote CULedger’s MyCUID, the first global digital identity ecosystem for credit unions that will give members a lifetime portable digital identity. Both of these collaborations serve our mission to deliver creative technology that help credit unions compete in a world of ‘next generation’ banking.

Marketing Solutions: Sprint Credit Union Member Cash Rewards

In our Marketing Solutions division, the Sprint Credit Union Member Cash Rewards program continues to grow participating member deposits. Sprint cash rewards have been deposited into more than 3,900 credit unions—that’s over 70% of all CUs nationwide. To facilitate continued program growth, we’ve improved our program support with a new pre-registration process and a “pre-notification VIP pass” so members can register before ever entering a Sprint store.

Speaking of members saving money, the Marketing Solutions division worked to ensure our Save to Win prize-linked savings program had a strong first quarter, welcoming more than a dozen new credit unions to the program—including the first programs in Virginia and California. We also continue to see good growth in the Gas Station TV program across the country and in Michigan.

Performance Solutions: Governease and Planning Pro

We also saw this level of expansion across our Performance Solutions division. Core products Performance Pro and Compease brought in considerable higher sales. CUSG also continues to offer these great products in non-credit union sectors with large restaurants, universities and hospitals using the products across the country.

We’re also excited about our new investment in Canada-based CU Training. Moving forward, plans are in place for integration with Performance Pro, as well as selling this great product nationally to credit unions.

In Q1 of this year, we saw the launch of Governease and Planning Pro. A successful pre-launch sales period saw nearly 20 sales between the two products. These solutions will help credit unions with improved board governance policies and strategic plan tracking.

Strategic Advisory Solutions: AffirmX

And finally, moving on to Strategic Advisory Solutions, our risk management and leadership experts have already secured close to 30 speaking engagements and sessions on a variety of critical leadership topics. This engagement with a growing number of credit union boards and executives is mirrored by our expanding nationwide partnerships who are actively promoting our expertise and services in the field. Our advisors take a product-led consulting strategy to credit unions that is both unique and effective. Because they don’t just consult and teach, they can also leave behind tools that help credit unions with planning, governance, compliance and HR management.

A big announcement for this division in the first quarter was the acquisition of the majority ownership of credit union sector rights to AffirmX’s patented risk management tools and services. This will give us the ability to deliver an even more robust suite of governance, risk and compliance (GRC) solutions to credit unions of all sizes across the nation.

So, as you can see, both MCUL and CUSG are working with our partners to deliver top-notch association services and great tools and advisory services that help credit unions of all sizes be more effective.

We share a mission that we’re passionate about. That is, to help credit unions serve, grow and remain strong so that together, we can make an impact on lives.

We thank our fabulous credit union community for your support and engagement. We value the direction and support that you give us. We’re fortunate to have a dedicated board of directors for both MCUL and CUSG led by Chairs Karen Church and Pete Dzuris respectively.

Thank you for letting us be a part of your success.