Credit Union Exam Solutions Presents With Flying Colors

Often credit proposal has a cover page
and a lot of what we've talked about,

that justification should probably be
on the front page so the reader then

knows what the risk rate is, the level
of risk associated with that credit.

A summary of the relationship
that we just talked about is

important to have on the front page.

And another thing that's important
to have on that front page

is any exceptions to policy.

And again, a brief explanation why
it's an acceptable exception to policy.

And what that does, if the cover
page has important information like

that, then the reader, as they review
the cover page, , they're going

to have a good sense for the deal.

the risk associated with the deal, and
if there are those policy exceptions.

You don't want somebody to read something
on page two and say, hey, wait, that's

a policy exception, and then not explain
what it is for another two pages when you

get into the financial section, because
they've just read two pages saying, hey,

what else is wrong with this credit?

Treichel: Hey everyone, this
is Mark with a special Archive

episode of With Flying Colors.

I hope you enjoy.

Do you want to maximize
your success with NCUA?

Join Mark Treichel as he shares with
you the insider's view on passing

your exam with Flying Colors.

The With Flying Colors podcast
is sponsored by Credit Union

Exam Solutions by Mark Treichel.

If you would like to work directly
with the Credit Union Exam Solutions

team and receive support to
optimize NCUA so you save time and

money, visit us at marktreichel.

com.

Hello,

I'm Mark Treichel, and you are listening
to With Flying Colors, the podcast where

I interview subject matter experts to
provide credit union leaders with tips

on how you can achieve success with NCUA
and pass your exam with flying colors.

Today, I'm joined by Vin
Vieten, who previously was on

to talk about credit culture.

Today, Vin and I are going to talk
about financial analysis, credit

proposals, and a philosophical
discussion on global cash flow.

And of course, all three of these
relate to commercial lending

or member business lending.

Vin, before we jump in for people
who are just meeting you for the

first time, could you share a little
bit about who you are and your

career and your experience at NCUA?

Sure.

Good morning, Mark and everyone.

Yeah, I was the senior credit specialist.

At the NCOA for about 11
years, I retired last February.

And prior to that, I had actually worked
for a concrete company as controller

managing the banking relationships.

And then prior to that, I was
a senior loan office in some

community banks in New England.

So I've been able to experience
lending from The lender's point

perspective, the borrower's
perspective, and then as a regulator.

So I've all three of those experiences
were just great to give me, to give

me and confirm my perspective on the
importance of commercial lending and

supporting your borrower's needs.

Very good.

Yeah.

So Vin, you've really, from every angle,
so you have a very unique perspective.

You've applied for business loans
when you were at the concrete company.

You reviewed business loans when you were
at the bank, and then you wrote regulation

and guidance at NCUA as the regulator, so
you really touched it all, which, again,

really provides you with a perspective
that not many people out there have.

So let's jump in.

Let's, uh, let's talk about
financial analysis as it

relates to commercial lending.

And then the floor is yours.

The financial analysis and credit approval
document are really the most, are very

important pieces of commercial lending.

And of course, the financial analysis
allows you to understand the financial

strength and condition of the borrower.

And then the credit approval
documents, the loan request and

support for the credit decision.

And the financial analysis, we did find
there was a many different approaches.

to financial analysis in
the credit union industry.

So when the rule was rewritten
five years ago, we emphasize

the importance of consistent
and accurate financial analysis.

You'll find in the preamble to the
proposed rule, and Mark, you will have

links to these documents, correct?

Yes.

So I will put thing that you think
needs to be put in the show notes.

I can link to the show notes for the show.

So someone wants to go to that link.

They can find it.

There will also be a transcript of our
interview on my website, marktreichel.

com, which will also have the link.

There'll be two, then the two important
links that I'd like people to reference

would be the link to the examiner's
guide regarding financial analysis

and the credit approval document.

And then also.

To two or three pages in the preamble.

To the proposed rule, which was
issued in July of 2015, though

it's a few years back, it's still
the standard that the board, the

NCOA board set as expectations for
financial analysis and risk assessment.

Let me pause you right there.

So you're referencing the preamble
to the rule, the preamble often.

Is almost more revealing than
the actual regulation because it

tells you what staff was thinking.

And more importantly, what
the board was thinking.

So it can actually.

provide examples that credit unions
can look to and apply to the regulation

and really understand what was meant by
the words that are in the regulation.

Even though what we're going to reference
is the proposed rule, the language,

that's something that you can look to
to make sure that you're complying with

the intent of what NCUA is thinking and
what the board was thinking at that time.

Yes, exactly.

And the reason why the proposed rule
is acceptable in this case, there's

a two step process is I think most
people are aware of you propose a rule,

there's reaction from the stakeholders.

And then there's a final rule.

The proposed rule that we
issued did not change very

much and not in a material way.

Therefore, Any of the discussion
that you'll find in the proposed rule

generally still applies and was the
intent of the board and the staff.

It's very important, especially
in this case, the proposed rule

will out and in the other sections
of the rule to and it does.

It explains very well what
the board expectations were.

In fact, I always find the proposed
preamble more insightful because the

preamble to the final rule generally
It's just comments from stakeholders

and reaction from the agency, but
the actual specific instructions

and intent are generally better.

And especially in this case,
outlined in the proposed rule,

then that's a great point.

So, if the proposal.

If the final rule is similar to the
proposal, you're going to find more

meat in the proposed preamble in a
situation where there was a material

change that the board made in the
final rule, that preamble might have

a little bit more meat, but I never
really thought of it that way, that

the proposal probably has more meat.

So that's a good thing to.

Yeah, sure.

And again, one of the problems
with preambles are is nobody

knows where to find them.

So we're hoping to make this a little bit
easier for you by establishing a link.

On the website for you to just click on.

You're good at finding them.

And Steve Farr is good at finding them.

And another person who helps me on
topics other than commercial ending,

although actually he helped me on a
commercial ending project that you

and I were working on for a client.

But yeah, it's, they're not the
easiest things to find, but once you

find the tricks of how to do it, they
are out there and we, again, we will

post them in the show notes so that
you can see what Ben's referring to.

So what else on financial
analysis is there?

It should be well organized market.

And that's, and, uh, And a structured
approach that all lenders hopefully

follow now every deal is different.

So you do have to be able to mend it and
as you need to based on the borrower.

But I always found in my financial
analysis, you want to, you're

looking to establish what are
the trends of the business?

Really?

What are the, for all the financial
Strength of the business, but

mostly the trends of the business.

So you're going to need a reasonable
amount of financial performance.

And that means the, how many years
back are you going to take a look

at the financial performance?

The standard is three years
worth of activity plus current

financial information for
that year, the current year.

However, uh, that of course you can
only, if it's only been a business for

two years, you can only get two years
worth, but sometimes you may need more

than that and use your judgment to what's
sufficient, but ultimately you shouldn't

be able to establish the trend that a
business, the financial trends of that

business, you're going to, that's going to
lead to following the financial analysis.

You're going to have a debt
service ability, which is some

type of cashflow analysis.

You can use traditional cashflow.

You can use UCA, which is uniform
credit analysis, two, two different

methods of, and there's other
methods of cashflow, but be careful.

If you, whatever you choose to loo to use,
make sure that you understand what it's.

What the analysis is telling
you, and also that it accurate

accurately represents that borrower's
ability to service the debt.

I know with the UCA cashflow at that does
a good job of establishing some influence

and changes on the balance sheet,
which should not just be listed, but

understood what's causing those changes.

There should be income and expense
trend discussed, and again, balance

sheet changes, like I just mentioned,
and the borrower should have a

satisfactory payment history.

So, when looking at the analysis,
I always, and this is my personal

opinion, Preference how you just make.

I think the important thing
is that it's consistent.

I always looked at the income statement
1st to see what the trend is in revenue.

Then look at the gross profit trends,
expense trend and then net profit.

Trends and then look at those influences
on the balance sheet and then did

a discussion on the balance sheet.

So I think it's very important that.

The lending institution has a consistent
approach and logical approach to the

way they approach their credit analysis.

So, Vin, as you're talking, I'm thinking
of some of the conversations we've

had with my clients who have had some
commercial lending and were wanting, The

wanting to improve their processes for
their members and also to satisfy NCUA.

And I'm thinking of a couple of examples
where you talked about when you look

at this financial analysis, like owner
draws or owner influxes of cash into

the business, and I, I remember some
interesting con where owners were

having to put money in and as you
were looking at a particular credit.

what that meant to you.

Do you remember that situation?

Is there any color you can add
to, to, to what I just thought?

Yeah, yes, I will.

But I just thought of something else.

As you said that Mark, it's really what
I went to work at a bank as a senior

lender and the lenders all had different
approaches to, and no structure.

And then we'll talk about that a little
bit more in the credit proposal, but

no structure to their presentation.

Or their approach to financial analysis.

So I would read these write ups and
I'd have to read them two or three

times to get a sense of what the
quality of the financial analysis was.

And usually I had to do my own
financial analysis and the way I

think about it in order to get a sense
whether it was a good deal or not.

And, but what I, what was, what I
learned from that is Boy, you're

really dependent on who your lender
is on whether you get proper financing

or not, because each lender had
their separate approach to analysis.

So if you have a consistent approach,
it's going to do a number of things.

It's going to first make sure that
You're fair to all your borrowers

and they're all being looked at
in a consistent and accurate way.

It's going to help train those individuals
at the financial institution, the credit

union, such as the board and maybe some
of the other senior management who are

involved with commercial lending but
not well versed in commercial lending.

They'll be trained in
how to look at a credit.

So it's important that consistency
and completeness Comprehensive

review is really fair to the
borrower and also to those involved

with making that credit decision.

Yeah, and it's it there's
there was a number of you see

sometimes that the cash flows are.

Are documented, but there was no,
no attention paid to the balance

sheet and the balance sheet had
the leverage had increased over

the year and money went out to the
borrower through a stockholder loan.

So it's important that
you tie the two together.

I like that.

I always like to look at.

The income and expense trends, and then
whatever that cash flow net cash flow

number is, where does it show up in
the balance sheet is it being funded

from receivables reduction inventory
reduction or an increase in debt or is it.

Being funded through the proper
operations of the business.

So there's a lot to think about
when you bring those together.

And do you bring the balance sheet?

The balance sheet is especially
important when there's activity in

the working assets of the business.

Meaning usually a manufacturer,
you're going to see inventory and

receivables change significantly.

And some people are, it's really not that
important when you're looking at rental

real estate because they just collect
rents and there's generally not much.

Balance sheet activity.

But as you said, Mark, again, there should
be some discussion of the balance sheet

and every financial analysis, because
things can be happening on even more

straightforward cashflow businesses like
rental real estate, especially if they

have a receivable, their receivables are
increasing in their more than 30 days,

that means they're not getting paid.

So it's really important that there's.

Some reasonable check to the balance
sheet and then, and any changes to the

balance sheet, if it's within reason
and in line with the income statement.

Got it.

So then I, as you talk through
that, I had two takeaways,

getting the financial analysis.

It's not just a paper exercise.

It, you have to understand what those
documents or financial statements say,

how it flows through and what that means.

Good or bad for the borrower.

And then the other thing is a word
that words that came to mind were

standard operating procedures.

You need some consistency within the
organization so that if I walk into

loan officer A versus loan officer
B, that essentially the results

should be the same because we have
such good procedures and policies

and standard operating procedures.

That the members all get treated the same.

Exactly.

That's exactly it.

And this is, as we've talked
about in the credit culture

discussion, lending, commercial
lending is a value added business.

It needs qualified people.

To evaluate the borrower's ability.

Cause there'd be, there are so
many influences on a business.

The lender needs to be, needs to be well
qualified and capable of understanding

those changes in the business.

And that's the value added piece.

I always felt, and I think it should
be explained to borrowers once a year.

Hopefully you're visiting your borrowers
at least once a year that borrower.

For free, really their interest
payment gets a financial expert to do

a thorough review of their business.

And that's really a very important
service you can offer to your

members and your borrowers

and to follow up.

It's really important then that if
there are problems in your analysis.

Or you will recognize some problems with
the business in your analysis to share

those observations with the borrower.

And obviously that's going to be much,
and said in a polite and respectful

way, but help that borrower understand
where there's some areas in their

business and financial performance
that they should be addressing.

And again, like I said, so once
a year that borrower will get

a a financial review of their
business by a financial expert.

I think that's a pretty
good value added service.

That's great, Vin.

Very well said.

And you reminded me of, so back when I was
an examiner and a problem case officer,

I did get a little bit of expertise
on member business lending, at least

on par for what we knew of back then.

And one of the things I used to do
When I went in to do a commercial loan

review, other than getting a sample
of loans to look at, I would get it.

I would ask them to show me a
handful of loans that they had

denied, which was telling it.

You can see something on a denial.

And in some instances.

When I asked that question, they'd
only approved loans that also gave

me some Intel potentially as I was
doing the exam relative to the risk.

Great discussion on financial analysis.

Anything else on this before we jump
into credible you brought up denials.

And I think that's another great
area where you can provide this.

Expertise to that member.

Hopefully they are a member or they're
going to become a member to explain

to them, I was used to explain my
denials to the bar for two reasons.

The first make sure I didn't miss
anything and give them an opportunity

to react to the reasons for the denial,
but also to help educate them on how

they should position their business to
be in a, to be in a better position.

To borrow from at that time I was
working at a bank and the same

would apply for credit unions.

I think you're doing them a real
service if you take the time, not

just send a declination letter,
but if they're important to you

and they're already members of your
credit union, take time to explain.

Why you made your decision and
what you would need to see in order

to approve a loan in the future.

Got it.

Got it.

All right.

So let's jump into
credit proposals, right?

What would you like to share
relative to credit proposal?

It's very similar comments.

Make sure it's well
organized and consistent.

Again, if you go to the guide and the
examiner's guidance, which you'll be able

to click on, it does a real good job of.

Explaining how important a standard
logical format is again, for what we

had talked about earlier to make sure
there's a consistent view in your, and

your credit culture or approving credit
and your approach to credit, but when

it's well organized, I think let's just
talk about some of the important things.

That should be included in the
proposal and again, there's a

sequence outlined in the guidance.

I think it makes sense.

Obviously, I was involved with writing
it and it's the way I used to approach

the organization of my proposals.

But these are things that are
important to have in your.

credit proposal that doesn't have
to follow this specific order.

But I think if you see
the order it makes sense.

And the first section should discuss who
the borrower is, explain the ownership

structure, the type of business it
is, the number of employees, what they

do to produce revenue, products and
services offered, who their customers

are, how long they've been in business,
are there any concentrations of sales

with the limited number of customers.

Customers

that they had.

Are they dependent on
just a few suppliers?

These are all things that are not all
these need to be explained in the right

of the things you should be thinking
about when you're evaluating the

credit, who the principles are managed.

Discuss management's abilities and
structure discussion of the industry

they're in and the repayment ability and
of the borrow along with and it's real.

Thank you.

Important here.

The next thing that the guidance asked
for is the relationship between the

entities, and that's really important.

And the very important when we discuss
philosophically, uh, global cashflow.

So it's important to understand who the
principals are and any entities they

own and how the, all these entities
inter inter relate to each other.

And how do you get that information?

That's visiting the borrower
and spending some time.

Walking through their facilities
and their operation and

getting to know them over time.

No, I think.

Marco, that's fine.

So when you were at the bank

in your time at the bank, serving
as a loan officer, what was the long

term relationship that you had with
some of the borrowers at that bank?

There was 10 year relationships.

And then prior to that, they
had already been with the bank.

So they stayed there.

They recognized.

The value, hopefully they recognize that
value you add as an experienced lender and

how important that is to their business.

And they don't always shop for the
lower straight, but any business will is

probably loyalties up to 50 basis points.

After that, it's going, you're
competing against price.

Sure.

And, but I think it's very important that
they trust you and know that you care

about their business and take the time to
make the recommendations and structure to

their loans that's in their best interest.

No, that makes sense.

That makes sense.

Yeah.

And another section on the, I did
not see this a lot in credit unions,

but I did see it in, I worked for
a number of banks in the crazy

nineties, but in most of the banks.

Credit proposals.

They had a section listing
all direct and related debt.

And as the COA restricts the total
relationship of associated members

to 15 percent or any one relationship
to not exceed 15 percent of the.

Credit unions net worth.

So instead of others calculate that, I
believe it's up to the lender to list

that so that the approving bodies, whether
that's senior manager or the credit

committee or the board sees the total
relationship and understands the total

level of risk associated with that borrow.

So it's a regulatory
requirement under seven 23.

Point 4C.

Therefore, it makes sense to list
that either on the front page of the

credit proposal or a separate schedule.

But that should be very clear what the
total relationship is and considered

as part of the credit approval.

So I don't, I believe it's a
requirement for a credit proposal.

And like I said, often you don't see that.

Summary of the relationship
on the credit proposal.

Got it.

And so, yeah, so NCOA would like to
see that because it shows that the

thought process went in and that you
are aware of the materiality as it

relates to the member and also to the
balance sheet of the credit union.

Sure.

And the board should care because it
could be a violation of a reg that's.

Serious, as we know, it's not a safety and
well, safety and soundness is important,

but it's a direct regulatory requirement.

Therefore, it should be confirmed on.

With each approval that
it's within the regulation

makes sense.

So I pulled up the link that you provided
me that we're going to put in the show

notes and as I'm looking at it, I see.

A reference to the document
assigning an appropriate risk rating.

Is that some, is risk rating something
that you want to talk to relative

to credit proposals, or is that
a few podcasts in and of itself?

I think that's a future podcast,
but again, that's important that the

risk rating be signed as part of the
credit proposal and also justified.

So it should require that it's rated.

Four and for the following reasons, it
doesn't have to be long, but it has to

be clear why it's being rated at that
level, and I'm glad you brought that up.

Mark, you often credit proposal has a
cover page and a lot of what we've talked

about, that justification should probably
be on the front page so the reader then

knows what the risk rate is, the level
of risk associated with that credit.

A summary of the relationship
that we just talked about is

important to have on the front page.

And another thing that's important
to have on that front page

is any exceptions to policy.

And again, a brief explanation why
it's an acceptable exception to policy.

And what that does, if the cover
page has important information like

that, then the reader, as they review
the cover page, , they're going

to have a good sense for the deal.

the risk associated with the deal, and
if there are those policy exceptions.

You don't want somebody to read something
on page two and say, hey, wait, that's

a policy exception, and then not explain
what it is for another two pages when you

get into the financial section, because
they've just read two pages saying, hey,

what else is wrong with this credit?

Lay out all those issues on
that front page with a summary

justification, I think, sets the
reader up to better understand that

credit as they read through it.

Yeah, that makes good sense.

I wrote down exceptions to policy.

I think that might be
something we can expand on.

At a later date as well, again,
there's a lot of nuances to commercial

lending and in a podcast like this,
we can't go into every piece of it.

But I think we're going to be
digging down over time, taking

on some of the individually.

So very good.

Go ahead.

Yeah, right.

Mark, we can't get into
everything on a podcast, but if

we've got the right references.

That the listeners can click it into.

I think that would be helpful.

You got it.

And at the end, too, I'll give my
contact information where they can reach

out if they have particular questions
on some of these things as well.

So very good.

So let's segue.

And have a philosophical
discussion on global cash flow.

Right.

What is it and what is it
and why is it important?

Obviously you and the way we say it and in
the rule is to see if there are any other

influences on the borrower, the guarantor
that could influence the, the bar, the.

Entity that you're lending to it's so much
can happen the interrelationship between

companies is very important and you need
to know what the stresses are on the

guarantor, because obviously, if they've
got other operations that are stressed.

They may need the help from your
borrower and that could have

eventually impact the borrower.

So overall, you need to know the
overall risk associated with that

credit and other entities related
entities could be some of those risks.

So how deep do you go really depends
on the complexity and the level of

risk associated with the transaction.

If you have a large loan and
there other businesses similar and

there's movement between those.

Companies, you need to
analyze each company.

And there's, like I said, philosophically,
there's many different approaches.

Me personally, when I was
analyzing loans, I always wanted

to know those related entities.

I didn't want to just take K1 information.

I wanted to know exactly how
well they were operating.

I generally at the very least asked for
tax returns for those related entities.

Entities and then also
get a debt schedule.

So instead of just seeing distributions
and profit, did an actual cashflow

analysis, see how much, if those
businesses were under stress or not.

And then once all that analysis is
done, you have to, and again, this is

up to the institution, find some way to.

Bring it all together so you can
have a reliable evaluation of the

global cash flow and global coverage.

So let me give you an example.

So you've got a member, let's say
new member, they come in, they apply,

they want to buy a rental a home
for rental, and they have 15 other

rental properties in the same city.

And this is the first they're
new to the credit union.

This is the first time they've come to see
you and they might have these 15 rental

companies all set up in their own LLCs.

I know a lot of times people will do that.

So they come in, they
apply for the one loan.

They say it's a hundred thousand dollars
and I'm going to put 30 percent down and

it should cashflow and you're looking
at it saying that's great, but in that

scenario, what's the, but what would
it, you're putting your loan officer hat

back on, what would you expect to see?

From where you sit, and then
obviously as it relates to the

NQA regulation on member business.

You're going to have a guarantor most
likely, hopefully, because although

it's not specifically required, it's
implied that each loan be guaranteed.

So you're going to need to know what
those influences are on the guarantor that

could impact, like I said earlier, that
could add some stress to their operations.

Are there other businesses that they have?

that are not as successful
as your borrower.

And then can those, those, the needs of
those other businesses, uh, will guarantor

need to take that from your borrower.

So you got to be careful that
you understand the relationship

between all the borrowers and then,
then properly structure the loan.

Uh, to protect your borrower and I'm
not saying that you don't do business

with a borrower whose guarantor has
some other stresses, but if there are

other stresses in the global tell you
this, you may want to structure your

loan a little differently and add some
covenants to restrict disbursements

and distribution from your borrower.

So that's one reason for global cash
flow, so you can properly structure

your borrower to protect them.

And other reasons are obviously,
is this borrower a house of cards?

And if it's a house of cards, you
may not, even though not to borrow

so much, the overall relationship
is that a house of card included.

Including the guarantor, you may want
to limit or not get involved because the

rest of the operation is very stressed.

Yeah.

I think that's the essence
of the global cashflow.

This particular deal may cashflow, but
if other businesses that are owned by

that borrower are not positively cash
flowing, what happens to the entirety

of it, which is the global cashflow.

And getting back to the
philosophical part of this market.

So there's a lot of
articles on global cashflow.

And I ask.

People to go out and research
it themselves, but ultimately.

It shouldn't be done for
the sake of the NCOA.

Nothing ever should be done
for the sake of the NCOA.

It should be done to evaluate the
risk that you're taking on your

credit union's balance sheet.

And that's what should drive
the extent of the analysis.

However, can't ignore the reg.

because it's a regulation
and you have to follow those

specific things the reg requires.

But what I always used to tell credit
unions and when I used to speak, I'd

tell them I first always do a thorough
risk assessment of the borrower

and the borrower's relationships.

Make your decision based on
that, then check the reg.

To see if you've complied.

And I think if you've done your
job and you're complete, right,

compliance will not be an issue.

So always focus on, do I really
understand this bar or do I really know

what's going on with the guarantor?

What do I need to do to understand
the guarantor's relationships and the

relationship and the risks associated
with that relationship, that's what

should be driving you not to comply
with, or making the examiner happy.

Do it for your own because it's
ultimately on issues with an exam.

The real issue, is this a
risky transaction and is it

too risky for us to find it?

Sure.

Is it good for the credit union?

Is it good for the borrower?

And then it isn't always should be
secondary or even last on that list.

If you want to comply with the regulation,
but you're not serving NCUA, you're

serving them and it is, it gets calm.

It gets very complicated,
global, how far you should go.

This is not the forum to decide.

What's appropriate and what's not it's
really just to discuss what you should

be thinking about for a an operating
company that has a separate real estate

holding company and maybe the guarantor
has a couple of rental properties.

Those are pretty easy to bring together.

It's when you get into those large real
estate transactions where there's multiple

entities and those are the hard ones to
decide how deep do I go and the answer

is deep enough to fully understand the
risk associated with your transaction.

So the, so it sounds like a legal answer.

So the answer is, it depends on
the, the, the full body of work.

Sometimes you've got a good bar
you've done business with for years.

They summarize their whole operation and
send you cash flows and other information.

If you're going to accept
something like that, I do.

Recommend that maybe a test a few of
them just so you can say this is reliable

information and because we know the
borrower obviously and they've always

performed as agreed and also did some
additional due diligence and we checked

a few of them and they were accurate.

So we're going to.

Assume that the rest of this
information is accurate.

It all, again, it depends
on your relationship, the

complexity of the relationship.

Think about it and make sure that when
you step back, that you're comfortable,

that you've covered and fully understand
the risk associated with the transaction.

Got it.

Got it.

So then before we wrap up, I want
to push back on one thing you said.

What may have caught some attention
and you said that guarantees are

implied the regulation doesn't
indicate that they're required.

So, I believe in the old days,
you could actually ask for waivers

relative to that, but it was my
understanding under the new rule that.

It's nice to have, but not
a need and defining need as

the regulation required it.

There are situations and the
regulation does allow for

there not to be a guarantee.

Am I correct in what I just said?

Yes, but if the way it's written, and
I don't have it in front of me right

now, Mark, but essentially what it
says is if you do not get a guarantee,

then you need to document the reasons.

Why it's the reasons that offset
the risk of not having a guarantee.

So it says if you do not get a
guarantee, so that implies you should

start by getting the guarantee.

But if you do not get the guarantee,
then you've got to have good reason.

They all need to be documented
in the credit proposal.

Said another way default should be.

Yes, we are going to get.

Guarantees and on occasion we
won't and when we don't we'll have

a really good reason and we will
document that as opposed to default

is we don't get guarantees and on
occasion, we will get guaranteed.

Yeah, and it was interesting
because the reaction was.

That all you don't need
guarantees anymore.

Oh, yes, you do.

But if you don't get one, we don't
have to go through a waiver process.

Essentially you document in your
credit proposal, what you would

have, had you been requesting
that waiver for the guarantee.

So there's gotta be good reasons.

Obviously the borrower has got a strong
balance sheet, got good cashflow.

I've been in business for a
while, all that kind of stuff.

And those are the types of reasons
you need to waive the guarantee.

But one reason you can't waive is one.

Reason that's not appropriate is because
the competition doesn't want one.

Okay.

Great.

Excellent.

We don't want you going over
the cliff for the rhythm.

Makes sense.

So then let's wrap this up.

This was great.

I want to thank you for being
my guest today, everybody.

That's it for today.

I'm Mark Trekel, and I hope
you join me again next time.

Thank you for joining us on this
episode of With Flying Colors.

Subscribe on your favorite podcast
app to hear future episodes or subject

matter experts of all varieties.

We'll provide tips on how to
achieve success with NCUA.

If you would like to learn more
about how we assist credit unions,

check out our services@marktrico.com.