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Speaker: Hey everyone, this
is Mark Trico with another

episode of With Flying Colors.

It is June, we finally made it to June.

I don't know about you, but
this year seems to be flying by.

It's going to be a short couple
of topics I want to talk about.

I've recently had a board presentation.

I've got another board planning
session I'm doing on Friday.

And in preparation for that, I've
been looking at some of the things

that I look at quite frequently.

One of which are the camel codes and
the continued deterioration of camel

codes, particularly code threes, which
if you listen to the special podcast

I did, which was the Audio of the NCWA
board meeting where there were only

two board members because chairman
Harper is out for back surgery.

Todd, if you're listening, I hope
that all that recovery is going well.

Back pain is no fun for anybody.

And again, hope Godspeed and hope you'll
get back on your feet soon, but I digress.

The board meeting basically was
just the share insurance fund

briefing and they talked about camel
codes, which again, deteriorated.

Now there wasn't as much banter
or language relative to what that

might mean for the insurance fund,
et cetera, et cetera, because

Chairman Todd Harper is the one who
usually drives those points home.

And since he wasn't there, it was led by
Vice Chair Kyle Hauptman and board member

at large, Tanya Otska, and they agreed.

Didn't go into the level of detail that
Todd typically does, but the stats are the

stats and the deterioration is as follows.

It's in large credit unions, typically,
basically, if you look at their charts,

they show that the total number of credit
unions that are in Code 3 and Code 4.

In totality basically hasn't changed
much, but it's the big credit

unions that are getting downgraded
and the code threes over 500

million went up by 15 billion this.

Last quarter.

And I want to say that's about
the ninth or 10th quarter in a row

that the number has gotten worse.

Another way that they splice and dice it.

And again, the only place that they
make public data available is in

the aggregate and it is quarterly
at these quarterly budget briefings.

Now, last time they met, they talked
about how camel code 3 of insured

shares had tripled In 2023, that
number went up again and is now at 8.

61 percent of total shares are in
code three credit unions and from the

low point that they're showing from
your end data, the low point was 2.

33 percent in December of 2021,
which is an increase of about what?

I want to say 370%.

The numbers keep going the wrong way.

I believe they will continue to go the
other direction based on my conversations

I'm having with credit unions.

NCOA is very aggressive.

Now, earlier I said that the total number
of credit unions is about the same.

What I'm seeing is that small credit
unions have been treated a little

rougher on camel and defining small as
basically anything under 500 million.

There are more of those but that number
has been constant through all this.

What we're really seeing is that the
larger credit unions NCOA is prescribing

to the don't let any good crisis go to
waste and they are finding some issues.

Reacting over overreacting or one of
those two things to what they're seeing

in credit unions looking back and then
looking forward on some of the books

of business that they're running into.

But they are being very aggressive
on camel codes, very aggressive on

document resolutions, very aggressive
on examiner findings, and some letter

of understandings that we've been seeing
in our conversations that are broader

than what they would normally be.

I'll just put it at that.

Usually and we're going to
have some discussions on this.

Usually letters of understandings
are more of a rifle approach

than a shotgun approach.

But I think the massive turnover and
staff at NCUA has led them to maybe

lose their way a little bit on, on how.

Credit unions pivot from
documented resolutions to letter

of understandings and agreement.

But again, there'll be more coming
out on that in detail down the road.

But why do I think that this
number will continue to get worse?

So I went back and historically
was looking at wanted to go back

to the great recession, which again
as a reminder was in 2008 and 2009.

In 2008 and 2009, the shares that
were in code threes were at 11,

just over 11%, and close to 14%.

So 2008, 11%, 2009, close to 14%.

The recession was over in 2010,
but it peaked there at 18.26%.

In 2011 the first quarter, it went
down from the 18 to six to the, to 18,

even in January to just under 17 in
February and to 17 and a half in March.

So that's still double of
where it's at right now.

So that's the context of why I
think it will continue to get worse.

There are delinquency trends that show
that I think losses will or lesser income

will be out there during this period.

And I think because of that, we're
going to see throughout the remainder

of this year and probably into 2025
and being aggressive on camel codes.

And when they're aggressive
on camel codes, that leads to

longer reports that leads them to
coming to see you twice a year.

If you're a code 3 instead.

Instead of once a year or less, if
you're a code one or a code two.

And again, they are reacting in some
instances they are overreacting.

That's just my opinion, but it's going
to get worse before it gets better.

And my prediction is this will
continue it until let's just say

another year, probably the rest of
this year, maybe half of next year.

And then of course, there's the election
that comes up at the end of the year.

And what that may mean for NCUA's board,
which is probably nothing because of

other than a change of chairman, if
the president's changed, because the

terms are pretty long right now for
the two Democratic board members.

So if Biden's reelected and its status
quo, if Trump or somebody else is elected

the the Republic wouldn't become a
chair and they can control the agenda,

but they still wouldn't have the votes,
which was the position Todd Harper

chairman, Todd Harper found himself in
at the beginning of his chairmanship.

So a couple other things vice chairman
vice chairman Helpman spoke at the

board meeting about share overdrafts
and what he views as NCOAs overreach

on the Data gathering and the fact that
is going to negatively impact mergers,

negatively impact small credit unions,
negatively impact the underserved.

Crystal clear that the board is divided
on political political sides here with

the Republicans thinking it's overreach
and the Democrats full steam ahead on

any fee is a junk fee, in my opinion.

Now, as somebody pointed out to me.

Chairman Todd Harper has not
specifically used the words junk fee,

although he's been very aggressive.

And I've documented that in my past
podcasts on measuring this data,

pointing it out, following the lead of
the Biden administration, following the

lead of the CFPB and attacking fees to
the point of calling a concentration

of fee income, a concentration risk.

So expect that Pressure to
continue and it'll be interesting

to see what happens in the budget
later this year in that regard.

Now, in regards to board meetings, so
Chairman Todd Harper missed the last

board meeting because of his back
surgery and they've canceled June.

So they canceled March.

They canceled June.

There's no meeting in August.

They're going to be building
up towards a budget.

Todd's chairman Harper's first budget
having a second democratic vote.

So hopefully if all, if he heals
up they'll have board meetings.

In September, October, November,
December, they'll have a budget briefing.

They'll have a budget.

They'll have an annual plan, perhaps
a change to their strategic plan.

Now that they've got the votes to Change
that in the way that they would like.

Although I predicted once before
that I think NCUA will be going

to a quarterly board meeting.

And that's how FDIC does it.

And the fact that they've canceled
it twice this year, I think they're

getting the public used to it.

And they canceled March.

They canceled June.

That's the third and sixth month.

If you'd roll that forward,
that would be they wouldn't have

one in September and December.

I don't think that will work
with that rhythm because of the

challenges of getting the budget
done at the end of the year.

So I'm not exactly sure what they're year.

Their timelines might be for if
they were to go to a quarterly board

meeting, but here's what I'll predict.

If they do that, they'll have one in
April, they'll have one in July where

they can talk about where they're
at budget wise at mid year, they'll

have one in October where they'll
have their budget briefing, and

then they'll have one in December.

So my prediction, 2025, NCUA goes
to a quarterly board meeting,

one in April, one in July, one
in October, and one in December.

All right that's all
I've got for you today.

I appreciate you listening.

We've got a lot of exciting topics
coming up that my team and I will be

recording starting later this week
on document resolutions, letter of

understanding, cease and desist.

Corporate governance, you name it.

The hot topics that we're seeing in
our conversations or hearing in our

conversations with credit unions,
we're going to be hitting them

here over the remainder of 2024.

As always, I want to
thank you for listening.

I hope you'll listen again soon.

Mark Treichel signing
off with flying colors.

Speaker 2: Thank you for joining us
on this episode of with flying colors,

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