Credit Union Exam Solutions Presents With Flying Colors

sometimes there were these personality
conflicts and it would be easier for

me as a supervisor to just assign
a different examiner or a different

specialist and make that issue go away.

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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 Todd Miller.

Who's going to talk about examination
appeals up to the regional level.

Todd, before we jump in for folks 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?

Okay.

Thank you, Mark.

I started with NCUA in 1987.

I did retire here in June of 2021.

So had almost 34 years with NCUA.

And during that time, I was an examiner.

a problem case officer, a regional
capital market specialist.

Last 10 years I was the director of
special actions in the western region.

I've went through this appeals
process on more than number of

occasions and even served on NCUA's
supervisory review committee.

So I had 34 years with NCUA, enjoyed
all of it and enjoyed the chance

to talk to you here today and share
some of my experiences with people.

Yeah, Todd.

It's it's great to have
you as part of my team.

I've enjoyed.

Obviously, I enjoyed
working with you at N.

C.

U.

A.

We got to work real closely
together at one of the corporate

conservatorships, and I got to know
you on my West Coast time back when

I was director of special action.

So we can speak to that.

But you've you've.

You have a lot of background in the
field levels, like the capital markets,

like you were saying, and and having
been on the supervisory review panel,

that is a very unique perspective
for credit unions and also from X N.

C.

U.

A.

Or current N.

C.

U.

A.

Your resume and the background of
this is going to be real helpful.

So with that, let's talk about
exam appeals at the regional level.

But before that, why don't we talk
a little bit about what happens

between examiners coming in to start
the exam and, and then how the final

exam report actually gets issued.

This plays a big role in appeals over.

2019 and 2020 NCUA kind of changed
the whole process of how reports

get issued to credit unions.

It used to be the examiner could issue
the report directly to the credit union

on their own at the completion of the
exam and that's no longer the case.

Now before reports get issued, they always
get reviewed by the supervisory examiner.

Depending on the credit union and the
camel rating, that review might extend

all the way up to the division of the
supervision in the regional office and

for large credit unions and those troubled
credit unions with camel fours and stuff,

that report is going to get reviewed by an
associate regional director as well before

it's ever issued to the credit union.

Cardinians no longer see draft reports.

They'll see draft exam findings and doors,
but now when they get a report, it's

a final report and it's been reviewed
and approved at various levels within

the agency before they even see it.

I was around when we made this transition
and NCUA was the only banking regulator

that, that didn't have some higher level
of review, which is, which is one of

the reasons we went in this direction.

A lot of state, uh,
supervisory authorities.

State regulators were doing
it before we started doing it.

And so you're saying you might see
a document resolution on capital

adequacy or something, but you
wouldn't see the supplementary facts.

You wouldn't see the exam overview.

You wouldn't maybe have discussions
about the camel code until it

had gone up to that higher level.

Am I interpreting that right?

That is correct.

In fact, examiners are told not
to discuss camel codes during the

exams any longer because those camel
codes have to get approved by at the

supervisory level or the final reason
review level, whichever that might be

and overviews, you're not going to see
drafts of those supplementary facts.

The EIC may or may not let you see a
draft of that because those are just

kind of additional information to study.

Enhance what they've given you is draft
exam findings and draft doors and need

to understand the doors and findings.

You see, they are drafts.

They might get changed from
your exit conference to, um,

when the final report shows up.

Got it.

And so you used to see a draft report
and now you don't see a draft report.

How does, how does that relate to,
I'm sure we're going to get into how

that relates to the appeal process.

How does that relate to there?

There used to be a requirement where
there was a certain number of days

before a joint conference or an exit
interview that you would have to give.

A draft report.

It was seven days under the old rule.

If you had doors that you needed
to let the party review the report

before you held that joint conference.

And you know, now it kind of depends,
you know, camel ones and camel twos, they

might not even have a joint conference.

They might just get that final
report and it's all done.

If you are going to have a
door, you'll get a final report.

Hopefully that examiner
does give you a few days to.

Dissect that before you
have that joint conference.

A lot of times the joint conference
dates are set and they try and

fit that review process into it.

So your exams over will set our
joint conference out here a month.

And, you know, typically, it just kind
of depends on what level that review is.

If it's just going to
a supervisory examiner.

Are the division, the supervision
or ARD, there's different timeframes

for getting those reviews completed,
but usually everyone will try

and get that process completed in
time for that joint conference.

That is tentatively set
at the end of the exit.

In most cases, got it.

Got it.

All right.

So.

A credit union gets that final report
and it contains its camel ratings.

It's document of resolution or door items,
examiner findings or EFs or comments that

the credit union might disagree with.

So they might disagree with the camel.

They might disagree with.

The door, uh, they might disagree
with a sentence in supplementary

facts or in the overview.

A lot of times what they
disagree with would be things

that NCUA expects action on.

So that happens, a credit union finds
itself at this fork in the road.

What do they do?

So what would the next steps be?

Relative to an appeal.

Well, I'm going to back up and
just give some hints to let's

try and avoid appeals to be.

I love it.

Yeah, absolutely.

I think there's some things credit
unions can do, and this is the

way it works most of the time.

I mean, appeals are not all that common.

They're fairly rare, but they do
happen with some frequency, but I

think there's a lot of things that a
credit union management team can do to.

Avoid us ever having surprises
in that final exam report.

And that goes to just managing that whole
exam process and communicating effectively

to make sure you don't get surprises.

So, you know, when your exams in
process, make sure you're commuting

openly with that exam staff that
includes the EIC and team members.

This becomes a challenge in NCUA's
virtual world over the last couple years.

And, you know, those examiners
are not sitting there and you're

building the EIC and that exam team,
they're all in different locations.

So, you know, there's challenges
for them to get on the same page.

Sometimes they're not always on the
same page when you have a larger

credit union, a larger exam team,
make sure you have frequent check

ins during that exam with both.

If you're a CEO, make sure
you're talking to your staff.

What are the examiners saying to you?

And then check in with that exam staff,
you know, several times during the exam.

It's probably a good idea just to have
briefings like every week on a two

or three week exam, or even a couple
times a week when the examiners do

give you draft items during that exam.

Take the time to understand any risk
ratings they provide you during the exam.

The credit examiners use those risk
ratings to set that camel code.

You should see proposed doors or
exam findings during the exam,

especially with document resolutions.

Those corrective actions are negotiable.

And do sit down, negotiate with them,
make sure it's a legitimate problem and

make sure you understand the findings.

It's much easier to get all this stuff
resolved during the exam, rather than

get surprised with the final exam report.

So the first step is in
the appeal process is.

Try and make sure we don't
have to use the appeal process.

Let's try and get everything
squared away during the exam to

the greatest extent possible.

And like I said, you have to be very
intentional about that, especially now

in the COVID world where you're not all
in the same room and you have to use

these virtual forms of communications
and you lose that face to face contact.

All great points, Todd.

I'll hit the nail with the hammer on
the try and resolve it during the exam.

That front level contact between
the district examiner and any

specialists that might be there.

If you can resolve it with good
communication is communications, the

key to life and everything, whether
you're whether you're dealing with

negotiating with somebody on a contract,
whether you're dealing with being a

parent to your children, if there's good
communication on both sides, things.

Go better.

And that starts first and
foremost with the examination.

Now, if you, I will say, as an aside,
and maybe we can talk about this a little

later, you know, since since I left N.

C.

U.

A.

And I'm now consulting and
have had some clients that have

been at that fork in the road.

And I think, you know, we're going
to talk about what your options are.

If you feel you do want to appeal.

I used to.

Get approached by credit unions,
like at the governmental affairs

conference, where there might've been
a complaint and they would want to

talk through what their steps would be.

And I would explain that, but oftentimes
the trade associations or the leagues

would come to come to the NCUA board,
or they would come to me as a regional

director and they'd say, Hey, we
have someone who says there's an

examiner in this part of the country.

That's being a little heavy
handed and they're afraid, uh,

for retaliation relative to that.

And the, the policy at NCA
is there is no retaliation.

The policy is that if somebody
appeals it, they have all these

rights that they can pursue.

But the reality is.

Without specifics, it's hard
for NC, NCA to deal with it.

And so that would be
typically the response.

Well, if you don't give me
specifics, there's nothing

that I can really do with it.

Now that I'm on the other side,
assisting credit unions, I, I

realized the weight of that.

What that means to the credit
unions more than I ever did in

my, you know, 34 years at NCOA.

And I've had a couple of clients, I
actually use the phrase go along to

get along and they hit, you know,
so you hit this fork in the road.

The examination says we need to do X.

I don't really think we do because
that's going to create a cost of Y.

And is the risk that they're saying is it
to a certain level really at that level?

But do I go along to get along?

Is this the issue that
I do want to appeal?

Or do I try and improve those
communications at the field level

and have a discussion with the
examiner to try and explain my side,

which is, you know, again, like
you said, do it during the exam.

It's just that the magnitude.

I never realized that almost every
discussion that NCUA has with the credit

union, they have to weigh in that manner.

Is this something that I agree with?

Is this something that
I disagree with 10%?

Or is this something I just
disagree with 80 percent that

I really want to push back?

And that takes a lot of time
and energy in the credit unions.

And quite frankly, until I was helping
credit unions understand the exam

process and helping them through their
examinations, I didn't fully realize.

The magnitude of that you haven't any
thoughts or comments on that statement.

I do I have a couple 1st, like,
when you get an exam report, and

I'll do this myself, someone will
send me an email or I'll get an

appraisal and there's something in it.

I don't like, I think the 1st thing
you do is just kind of set that

down and digest it for a night and
then kind of reread it the next day.

When I was a supervisor, I would always.

Have my staff give doors to me, and
one of the things I would look at is

this going to cost more money than it's
worth, and I think have to weigh that

cost benefit of appealing things appeals
take a lot of time and time costs, a

lot of money and is it worth appealing.

Or is it just easier to spend
a little bit of money and and

do what the examiner says?

Sometimes it's worth it to address
something in an inexpensive

way rather than appeal it.

I do think it's always worth a
conversation with the examiner, even if

you're not going to file a formal appeal.

And kind of let them know your
thought process and make sure

you understand what they wrote.

But yes, I mean, sometimes you may
think that examiner's wrong and they

may have an exam finding, which is
correctable in normal course of business.

You don't think you need to do anything.

Sometimes if it's just a small policy or
procedural change, it's easier just to.

Write that into a policy or
procedure rather than appeal

that examiner's determination.

At the end of the day, the
examiners are trying to help you.

It's not malicious on
their part or anything.

But yeah, sometimes it's better to not
appeal if it's Not going to cost you a

lot to address the issue or, you know,
if you don't agree necessarily with a

CAMEL rating, but that doesn't affect
your employee performance goals, or

it doesn't affect your credit rating
with the FHLB or any external parties.

Sometimes it might not be worth appealing
that item in a formal process all

the way up to the regional director.

I do think it's worth.

I do think it's worth a conversation
with the examiner though, and

you may just stop at that point.

Got it.

Yeah.

So indeed, we both agree that sometimes it
makes sense to go along to get along and

you said they're there with good intent.

The credit union is
there with good intent.

So try and resolve it is always step one.

So there are going to be some situation
where the credit union does do its

best to manage the examination process.

And they've negotiated, they've used
all their meet and deal skills with

the examiner, and the report still
contains a surprise or something

that they materially disagree with.

What would they do next?

Well, when a cardian gets this exam, that
first 2 pages, there's a whole 6 point

bullet section that says levels of appeal.

Well, 1st thing is read through that
and understand those levels of appeal.

There's timeframes in there for formal
appeals to the regional director.

Make sure you adhere to those
timeframes, the appeal process.

It always starts with the examiner,
then the supervisory examiner,

then the regional director.

I think, depending on the item, you know,
sometimes you might want to actually bring

in the supervisory examiner right away.

Do.

Consider how much documentation you need.

If you're going to choose to appeal,
it's going to take some documentation

because you're going to have to prove your
point that the examiner made a mistake.

They missed something.

And let's just be honest.

The examiners do make mistakes
and, you know, they send you an

exam request list and you give
them 10, 000 pages or whatever.

Two thousand pages of documents, sometimes
the piece of it isn't read by a team

member and it just gets overlooked
and it results in a finding or door

that is not necessary, but you're
going to have to gather up all that

information to prove your point and.

You do need to consider that with the
appeals is how much documentation do you

need to prevail and you're going to have
to prove your point and it can be done.

Nowadays, it's hard with this
whole report approval process

for an examiner or supervisor to.

Getting a report changed.

So sometimes you're often going to end
up at that supervisor or D levels, which

is a more formal appeal in writing.

And like I said, you do have to make
sure you file those within 30 days

and provide enough documentation to
demonstrate that report was an error or

the examiner's conclusions were incorrect.

Sometimes you're going to have to
provide more information than you even

gave the examiner during the exam.

But you have to prove somewhere that
the examiners made an error and conclude

and their conclusions are an error.

In fact, that said, it can be done.

Um, I spent a lot of time as a supervisor.

I had a few exams appealed.

And of course, I talked to
a lot of other supervisors.

It's not uncommon when it's writing
appeals at the regional director

level that they will prevail.

In part with changes to CAMEL ratings
or they'll see corrective actions

softened or removed from the report.

So don't be scared to do it.

You know, I was with NCA in 31 for
31 years and I'm going to be honest.

I didn't really see any instances where
examiners retaliated against credit

unions because of an exam appeal.

I'm not going to deny sometimes
there's just personality conflicts.

One examiner and one specific person
in a credit union just don't get along.

And that leads to issues, but
I wouldn't be scared to appeal.

If this is the material thing,
that's going to cost you money.

And the examiners have it,
don't be scared to appeal.

Cardians have pretty good success at
the regional director level of proving

their case, and it's just because honest
mistakes throughout the exam process.

We're all human and examiners sometimes
make mistakes and miss things.

All great points.

So you talked about supervisory
examiner right away.

I'm assuming So once it's finalized,
you end up getting where the examiner

has less control about doing something.

But let's say it was, we think
you need to add these 10 things

tied to your investment policy.

You disagree with the examiner, and then
the examiner doesn't change or they change

a little bit, but you're still unhappy.

You're saying Get that supervisory
examiner involved before it

goes on up to the higher levels.

Let's deal with that one first.

Yes, always start with the supervisory
examiner for the smaller cardians.

A lot of times they can alter
report just on their own.

If you go above the supervisory examiner.

Well, the regions process is they're
going to go back to the supervisory

examiner and start there anyway.

So it's always best to start
with that supervisory examiner.

You know, while they may have read the
report and okayed it, a lot of times

they're minimally involved in the
exam, so they might not know all the

background to the exam and everything.

So it's always a good place to start
with that supervisory examiner.

The appeal levels, that's
kind of way it lays it out.

That's the agency's expectation is you
will start with that supervisory examiner.

And it's always the best place to start.

And just in a general view, we
always talk about cardigans having

relationships with their examiners.

Well, it's good for them to have
working relationships with those

supervisory examiners as well.

Absolutely.

Excellent.

Excellent point.

So I'm curious.

I'm interested to hear your thought
on this next question, which is

similar, but slightly different.

And so you were a capital
market specialist.

You're also a supervisor.

The exam happens.

You've got the principal examiner
who's in charge of issuing the report.

You've got a capital markets specialist.

And you got a commercial loan
specialist that come in the

exam goes on the teams there.

And well, this is I'm almost saying
this in a, in a forum where we're into

a used to be on site, but let's say
it's virtual or, you know, whichever.

And.

You're interacting with the
capital market specialist.

They do their work.

They come up with something that's
a proposed document resolution.

They give it to the principal examiner
and the capital market specialist

has a lot of other responsibilities
out of the other exams and they go on

their way to their next assignment.

And I have given the advice
to some of my clients that.

You want to have a really good
communication with those specialists

are there and you want to be able
to talk to them while they're there

while they're assigned to you.

Because what I've seen happen in some
instances is that higher ranking,

higher graded, higher paid specialist.

does work, gives it to the principal
examiner who's responsible, and

then the principal examiner has
to carry the water, if you will,

of the other experts, and then you
start asking questions about that.

Yet, it's not the expertise
that they particularly have.

While they might have capital
markets background, they relied

on this other specialist.

So, Annie, you agree, you agree with
my, my, my precept that Talk to the

people while they're there, because
if the specialists move on, it can

get a little bit harder to negotiate.

Yes, I do agree with that.

And if you get involved with an appeal
and it involves like a regional lending

specialist that was on the exam or a
capital market specialist, I don't think

it's out of bounds to, as you're talking
to the supervisory examiner, say, Hey, can

we get the specialists on the phone too?

Um, Sometimes what happens, this happens
infrequently, but it does happen where

a specialist, whether it's a information
systems officer, security officer, or

a capital market specialist or regional
lending specialist, they'll do an

extensive write up and they will write
findings that are detailed and Through

the editing process, the EIC edits them,
you know, thinking that they're making it

easier to read, but it tends to sometimes
change the context of what they wrote.

So you do see issues like that come
up occasionally where as reports

get edited, what the specialists.

Man is not what ends up in that report.

So sometimes that does occur.

Uh, but when you have complex questions
about something a specialist did,

I think it's fine to ask the EIC
supervisory examiner, Hey, can we get

the specialist on the phone after the
exam and talk through this, certainly

talk to them extensively during the exam.

But if there's something you're unclear
about when you get that final report,

don't be scared to ask them to get on a
phone call and say, explain this to me.

Great advice.

Great advice.

The third item that you referenced
that I want to highlight a little bit

is the fact that sometimes they're
just our personality conflicts, right?

Everybody doesn't get
along with everybody.

And I have my thoughts on kind of
what I had seen as during my arc of

my career relative to that, but there
are times when someone's appeal.

Might include, you know, I think
our camel rating was wrong.

I think this document
resolution was unfair.

Here's the a hundred pages that support
why I think that document resolution.

And Oh, by the way, this personality
conflict is such that we would

like a different examiner.

What had you seen that?

It's come up a few times in my career.

So yeah, give me your thoughts on that.

I'm going to give you my own personal
opinion and the way I dealt with that as

a supervisor, this might not specifically
be official agency policy, but it's

the way I would choose to deal with it.

And I don't think it's dissimilar to.

What other supervisors may do as well.

First, we're going to look at the
factual situations regarding the report.

If you're a Camel 1 credit union
with no troubles, you're going

to, as a supervisor, look at that
differently than if this is a Camel

4 credit union, close to failing.

But I'll look at that
whole background situation.

And, and I was.

Typically involved in joint
conferences and exit meetings.

So I had a feel and I will just say that,
Hey, sometimes as a supervisor, I'm just

going to say, Hey, the grading was wrong.

This was they're, they're, they're raising
a complaint about an examiner because

they don't want to deal with their issue.

And then I might not have changed.

That person.

But those get very, very case specific.

I think it does happen.

I would look at them as impartially
as I could, knowing that, hey,

occasionally there are personality
conflicts and to the extent resources

are available, you reassign someone.

But I also would look at
it on a rare occasion that.

Maybe you're complaining about the
examiner, but you're going to get

the same outcome with another 1.

and I'm not going to reassign that
person because they already have

extensive knowledge about your
organization and what's occurring.

And that more happened more
often in troubled credit unions,

typically well run credit union.

There was personality conflicts.

I would quite often just
assign someone else.

And make that issue go away.

That's how I dealt with it personally.

I don't necessarily know that
that's agency policy, but I think

a lot of other supervisors would
look at it in the same framework.

Let's go look at this fact pattern here.

And if it truly is just a
conflict in personalities, well,

NCVA has got lots of employees.

They can assign someone else.

Great, great answer.

I agree with 100 percent of what you said.

There were times when I was a
regional director where those requests

were made that I would actually
have to make a decision on it.

And there were other times, like
you said, where it was mitigated

along the way, where it never even
got to me as a regional director.

But the supervisory examiner,
the director of special action

said, let's just change this up.

Let's get a different set of eyes.

It's NCUA rotates examiners
after a certain amount of time.

There is a good, there's value in having
them there more than one year, but there's

also the complacency and the challenges
that you can get if they stay there too

long, and then when you weave in the
potential of the personality challenges,

they're not common, but they, when you're
doing, when you have 5, 000 credit unions

and you're doing exams in two thirds of
them every year, they're going to happen.

So great advice, Todd.

Now, so we've talked about appeals.

Up to the regional director level,
there'll be future podcasts where we'll

talk about what can happen beyond that.

You've been involved in that.

I've got another person joining my team.

That's going to talk on a future
podcast relative to that whole topic.

So Todd, those appeals
get a lot more costly too.

Yeah.

A lot more costly.

Yes, indeed.

So any last thoughts
from you before I wrap?

No, I don't think so.

I, I, I am going to reiterate, you know,
the best way to deal with an appeal is

to avoid it during the exam process.

Communication.

You mentioned it earlier is
kind of at the heart of this.

If you're communicating openly,
honestly, with your examiners during

that exam process, we shouldn't
have surprises and things shouldn't

go to the appeal process at all.

Unfortunately, we're all human mistakes
get made and appeals do occur, but.

If you feel strongly about it,
that the examiner is wrong,

don't be scared to appeal.

If it's a material issue, it's fine.

Very good.

Yep.

Great.

Todd, this was great.

I want to thank you for
being my guest today.

In closing now, something Todd said,
or something I said may have triggered

a question or a specific example that.

As you're listening to this
relative to your credit union, you

might have a follow up question.

If you have a follow up question,
send it to me and I'll, I'll tell

you how you can get that to me.

But one of the features I want to do
with this podcast is allow for follow

up questions that can be dealt with
in future editions of a podcast.

Also, If you'd like to talk to me
about how Todd and I could assist

you in your credit union, you can
reach me at my email, which is

cuexamsolutionsatmarktreichel.

com or via my website,
which is wwwmarktreichel.

com.

Okay, folks, that's it for today.

I'm Mark Treichel, and I hope you join me
again next time for With Flying Colors.

Thank you for joining us on this episode
of with flying colors, subscribe on

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