Credit Union Exam Solutions Presents With Flying Colors

Hey everyone, this is Mark Treichel with
another episode of With Flying Colors.

Welcome to January, I'm
recording this on January 14th.

It may sound a touch bit different because
I don't have my normal microphone with

me, and that's because I traveled to
visit my new granddaughter who was born

a couple days ago, a couple weeks early,
so a little Shift in our plans here,

and accordingly, this is going to be a
different podcast than I thought I was

going to be launching today, but NCUA.

keeps me busy with the things
that they've got going on.

Credit unions there's a
lot of things in the news.

So this is going to be an update on
what's happening at the NQA board

this Thursday, which I will follow
up on after it actually occurs, a

discussion about what's going on.

In Navy in particular, who's getting beat
up by the Senate and what might happen

relative to NCOA's priority letter.

First off Navy is.

Had a CNN article that came out about
their challenges with the denial rates

with minorities and the both sides of
the Senate wrote their own letters.

But the one signed by Sherrod Brown, the
Democratic side that went to HUD and it

went to CFPB basically concludes that as
the regulator with primary responsibility

for enforcing ECOA and the Fair Housing
Act, we ask that you thoroughly review

Navy Federal's mortgage lending practices
and outcome for compliance With all

federal fair housing and fair lending
laws and regulations, Navy Federals

members have made countless sacrifices
in their service to our country.

We must do all we can to ensure
illegal barriers are not placed

on their path to home ownership.

Thank you for your prompt
attention to this issue.

I would expect there's going
to be some hearings on this.

I would expect both those agencies
will go into this large credit union.

Which once they arrive, CFPB in
particular, they stay for quite a while.

And I think there will be
tentacles, ramifications to this.

I also think that, if you've
listened to me historically

here, this is our third season.

I've talked a lot about how Chairman
Todd Harper is a big champion of consumer

compliance, big champion of consumer
rights, and I can only think, this is

my opinion only, that this occurrence
has has put, has, is only going to have

him refocus more resources on this.

I think the government in general is going
to be, the agencies in general are going

to be tasked and asked to put a focus
on this, last year we had Silicon Valley

Bank, we had liquidity issues, etc, etc.

And that became a focus.

There's no doubt this type of news is
going to increase the focus in this arena.

That means more fair lending exams.

If that means at mid year of next year,
they'll add fair lending examiners.

Todd now has his second democratic
vote, which I'll get to here shortly

about what's coming up on their agenda.

So this News, public news about
Navy is going to have an impact.

Obviously when those folks go into Navy,
we won't hear those specifics because

that's confidential, but it's going
to have, it's going to trickle down.

It's going to trickle
down how it trickles down.

We'll remain to be seen, but Chairman
Harper is now positioned to have it

trickle down within the walls of NCA.

Anyway, he sees fit and again,
that's always been one of his one

of his focal points and we're about
to see where he wants to take this.

So that's number one.

Number two, the NCA Board agenda.

Bear with me.

Go to their website.

You gotta click to, by the way,
to get to the NCA Board agenda.

You click.

News you click board meeting agendas
and results and you scroll down to

the current meeting and I scroll
down too far because it's a new year.

And there are 2 items on the agenda.

The 1st item is the N.

C.

U.

A.

S.

2024 to 2026 diversity, equity, inclusion
and accessibility strategic plan.

The second item is NCOA's
2024 annual performance plan.

I'm going to speak more to the
annual performance plan but that

links in my mind to the diversity,
equity, and inclusion strategic plan.

Now, we have a new board member NCOA has
a new board member, Tanya Atsuka actually

came from Sherrod Brown's staff or the
banking committee staff over there.

Imagine that.

So, Sherrod Brown writes a
letter to a large credit union.

And oh, by the way we have a board
member that's brand new that knows

how more than anybody, how the
banking committee works over there.

This is going to be an interesting
year as it relates to that whole topic.

But I digress.

So the annual performance
plan is on the docket.

Yeah.

1 things if you again, if you listen to
me, 1 thing I'll do is a word search.

So I looked at the 2023 annual performance
plan, which was approved a year ago.

And I looked at some key words and I
looked up climate, I looked up diversity,

minority inclusion I looked up safe,
sound, consumers and compliance.

So those key words are words
that that are prevalent at

some level in the 2023 report.

The word of those that's there the most
is consumer, which is there 60 times.

Second most is sound, which is 35 safe,
26 times compliance, 21 times, and

then diversity, minority, and inclusion
individually, those words, inclusion, nine

times minority, eight times diversity,
seven times and climate only five times.

So that was issued with a.

I'm anticipating some shift in how
many words, and words have meaning,

how much of the paper, how much of the
PDF is focused on particular areas.

So here's my predictions on what
will happen in the annual report

on the usage of these words.

I think three of the words will, or
the word categories will likely go up.

I think climate change is going to have
a bigger impact on the presence, because

from what I heard, there was efforts to
kind of keep that minimalized in 2023.

And I believe Chairman Harper will
have more discussion on climate

change, whether it goes from 5 to 10
words, 5 to 15 words, or only 5 to 7

words, or it's just the paragraphs.

There's more talking about it there
and with some measurable things

that they're trying to achieve.

And in those regards, there's
other agencies out there that

have put some templates out and,
we can anticipate if we looked at

those what those details might be.

But climate change, I
believe, is going to go up.

I think diversity, minority,
and inclusion will go up again.

Why?

Because the Democratic side.

Of politicians tends to push this
more than the Republican side.

So seven, eight, nine words.

Will that double to 14, 16 and 18?

I don't know, but I'm expecting
a bigger footprint on that topic

in the annual report, excuse me,
in the annual performance plan

next next category safe and sound.

I don't, I think that's going
to probably tread water.

Going to be about the
same consumers at 60.

Maybe up a little bit about the
same, but I'm expecting compliance

to go up from 21 to some number
closer to what safety and soundness.

Now, again, if you've listened to my
other podcast Chairman Harper believes

that those 2 topics can go hand in hand.

I'm more of the, yes, consumer compliance
can lead to safety and soundness issues.

But they are two distinct disciplines.

They are two distinct
types of people at NCUA.

They're two distinct types of
people in credit unions, though.

Yes, there can be some overlap, but I
think there will be more emphasis on

consumer compliance at NCUA this year
than last, and in 2025 more than 2024.

Why?

Because The budget was approved by
two Republicans and one Democrat.

And when we get to the mid year
in July and we get to November or

December, when they approve the next
budget, I think there will just be a

continued emphasis here, and that's
going to have a footprint on what

you need to do at your credit unions.

All right, so the other item I wanted
to mention is last year, and typically

every year, this is the week that NCUA
comes up with their annual supervisory

priority letter to credit unions, my
favorite credit union letter of the year,

because it says you, it says what they're
going to be looking at when they come in.

Now, In the past, I've talked about
how if everything's a priority,

nothing's a priority, but sometimes
they've had 13 priorities.

They've gotten wise recently and reduced
that to six, although it wasn't really

six because they had other considerations
at the bottom that they threw in.

So it raised it up to seven or eight.

But it was a leaner, more focused
letter last year, which was good

because there are real issues out
there that needed to be addressed.

So, as a reminder, last year, the
priorities, 2023, in order, were interest

rate risk number one, liquidity risk
number two, credit risk number three,

fraud number four, cybersecurity number
five, consumer financial protection number

six, albeit it had the most number of
words donated to it or assigned to it.

I'll say consumer.

Financial protection was six that
was really number one of words.

So it's placement was out of
order as far as how much how

much bandwidth NCOA gave to it.

Now, the other considerations are
succession planning and climate change.

And again, succession planning,
I predict that that rule will

be coming out at some juncture.

As a reminder, it only applies to
federal credit unions, the proposed rule.

And that proposed rule didn't get
a second vote because Chairman

Harper didn't have a second vote.

The other board members wanted to treat it
as guidance, which is how I would do it.

But, you know, there's
different ways to do it.

And I'm expecting that will
hit the end to a board agenda.

Now that Chairman Harper has
a second democratic vote.

All right.

So that was 2023.

What do I think is going
to happen for 2024?

Of those that I mentioned, I think
fraud potentially could follow

up, they bring that up every two
or three years, but that's one

that is a an occasional priority.

They have some priorities
that are always there.

Consumer compliance is always there.

Cyber security is always there.

So here's my prediction of the order
in which these items will be listed

in the letter to credit unions.

Going out on a limb, I think
consumer financial protection

is going to be number one.

I think credit risk will be number
two and or some focus on commercial

credit risk in particular.

I think we're seeing trends in the
economy, trends in examinations and

trends in credit unions, where NCUA has
a bit more concern about commercial loans

than other types of loans right now.

So number one, consumer
financial protection.

Number two, credit.

Which might be also defined
separately as commercial loans.

Number three, interest rate risk.

So it falls from number
one to number three.

That could be really anywhere in here
because it's still a big issue in exams.

It's still a big issue in credit unions.

Liquidity, I think, is going to
fall to four from number two.

Cybersecurity.

Hey, I got that.

I got one of them staying
in the same place.

So cybersecurity was fifth.

I have that staying fifth.

I think succession planning is
going to move from the other

into the actual priorities.

And I think that will be number six.

And if it's not number six, it's because
climate change might be number six.

So, those are my thoughts
relative to that.

Now, one that wasn't mentioned at all
last year, which we're seeing talked

about a lot at credit unions and by NCUA.

Is concentration risk, that's an
occasional priority that shows up.

So I'm going to predict there
will be eight priorities and

concentration risk will be added.

And in summary, climate goes
from other to an actual priority.

Succession planning becomes a priority
and fraud falls off the letter this year.

That's my take on NCUA's
letter to credit unions.

I'm expecting it'll come out this week.

And once it comes out, I'm going
to have a, my third annual.

Discussion of that letter, the words
that are there because again, words

have meaning and I'll have my, some
of my team members on it with me.

Historically, I've had Steve Farr and
Todd Miller, and I'm looking forward to

having a call with them to discuss that.

Now, lastly I've got this list in
my book of things I'm planning to

do for the podcasts so that when
I get the idea, I don't lose it.

I track it here in my little notebook.

So, Here's some topics I've got on
the radar for with flying colors

who reviews your exam and what
that means is a separate podcast.

It'll be coming down the road.

But the true cost of a camel
downgrade another podcast, a

separate 1 on emergency mergers and
potentially expanding into mergers.

What is an emergency merger?

What it means to have an emergency merger?

Why?

It's a good thing.

Why?

They're not that frequent,
et cetera, et cetera.

Organizational reviews.

That's a trend in NCOA where
document resolutions require

organizational reviews.

I'm going to talk about what that
means for the credit union that

gets that document resolution.

A separate podcast on letters of
understanding and agreements, a

separate podcast on cease and desist
orders a topic where I will be

interviewing a board member at a credit
union about succession planning for

board members, getting and training
board members, et cetera, et cetera.

A podcast on how to avoid getting
a document resolution and yeah,

that's my list as of today.

So all of those still have yet to
be recorded, but you can expect

to see most or all of them in the
quarter to come or thereabouts.

All right.

That's it.

I'm going to go.

Hold my baby granddaughter
for the second time.

I now have two granddaughters
had two daughters.

So this is exciting news
here for the Treichel family.

And I'm wishing you and yours a
great Martin Luther King holiday.

That's it.

, thank you for listening.

I hope you'll listen again soon.

Mark Treichel, signing
off with Flying Colors.