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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 also

pass your exam with flying colors.

Today, I'm excited to say that
I'm joined by Vin Vieten to

talk about credit culture.

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 the

experiences you had in that career?

Sure, Mark.

I am a retired senior credit
specialist from the NCUA, I

had worked there for 11 years.

I retired last February, but prior
to that, I was a commercial banker

and senior loan officer through in
New Hampshire for a lot of years.

And then also I had the.

good fortune to work in industry
as a controller to a large

already mixed concrete company.

So through that I've learned an
awful lot about commercial credit,

working with borrowers, working
in good times and bad times.

And so I was a lender.

I was actually a borrower when I
worked for the concrete company.

And I also then was a regulator.

So I like to say I worked on all
three sides of the desk and enjoyed

each of those experiences as it gave
me good perspective in the overall

commercial lending world and process.

Well, then I know that when you and I
have been on the calls with some of my

clients and you've walked through having
been on all three sides, and that's

not something that everybody at NCOA.

Was able to say, and like for me,
for example, I had 33 years at NCOA,

essentially came right out of college
and now out consulting in the world.

I'm working with credit unions and
adding that second leg of experience,

but there's one thing I remember you
saying in some of our discussions when

you were at the, the concrete place.

I remember you, there's this
conversation you had with maybe

the owner where he talked through.

His responsibilities, like to the families
that, that worked at the, at that company.

Would you care to walk through that
example here for our listeners?

Yeah, sure.

I'd love to, because it was, that was
a very special experience because I

was fortunate to work for an individual
who, whose focus was his company, but

his focus was on his company because
he wanted to provide the best product

and service to his customers, and he
wanted to treat his employees fairly.

So it was a great place to
work and get real perspective.

To what the value of what small
business in this case, it was more

closer to a medium sized business
does for not only the community,

their customers and their employees.

So that was really great.

But one day he was at one point
he used to smoke and he was a

very busy guy and to get his
attention, he'd always come into my.

Office.

I didn't smoke.

And he'd say, Hey, Vincent, you need
a cigarette, which meant we were

going out on the porch, which is where
he'd have a cigarette and I could

finally talk to him about all the
things I wanted to talk to him about.

So I was very excited one day.

And as we were out there
and we were watching truck.

Let's go back and forth.

He had 21 locations.

So we were at the main location.

So there were a lot of trucks
going back and forth, pickup

trucks and concrete trucks.

And he looked at me as one of the
trucks went by and he said, Hey,

Vincent, I've got to buy groceries
for 300 families every Friday.

And boy, did that, that hit me.

I understood that.

But when he said it, I thought, wow,
that's even a bigger responsibility

than guaranteeing a loan.

He's made a commitment to these people.

If they perform certain tasks during
the week, he was going to pay them.

And there was never a problem paying them,
but I realized, so what we do is lenders.

Is very important because it
even goes beyond the owner.

It goes down to the employees and
we should have fun doing our job

lending money and enjoy doing it.

But at the same time, realize
how important it is and

how many people it impacts.

So that was that was
just a great experience.

Yeah, it sounds like it and it
stuck with me when you've said that.

And it's as regulators.

And having only served as a regulator,
you often can lose sight of that.

It's what's the regulation say,
how do you button everything up?

And sometimes that by buttoning everything
up, you can eliminate too many risks.

And at the end of that equation,
there are families that need to be

fed and in the middle is the lender.

So it's really, again, you've done
all of those things, which really

brings you a neat perspective.

And, and so I, I'm, I'm lucky to be
able to have you on so that we can

share that here with the audience.

So let's jump in.

But just a quick comment,
Mark, if you don't mind.

And that's what made, I want to
talk about NCOA a little bit.

What, so I had, I had these experiences,
which being an old guy, I got to go

through plenty of good and bad times.

I saw real estate booms and
busts and businesses struggle

and businesses be successful.

So it was, I always appreciated the
opportunity then to finish my career last

11 years at NCOA where I could share a
lot of what I'd learned over time and how

important again, I'm repeating myself,
but how important commercial lending is.

And what we do and how
it impacts other people.

So that was a lot of fun.

Those 11 years I had at, at the agency
working directly with credit unions.

I went out on a lot of exams and then
also using experiences to regulation

that made sense and was appropriate
and also provide other guidance.

So that was a lot of fun.

I was, I always was so thankful.

That I was able to finish
my career by sharing all the

things that I learned over time.

And I was thankful and we were thankful
that you were there and you're being

modest, you did do, you mentioned the
regulation and you had a heavy influence

on the last version of the regulation.

Uh, you also influenced NCUA by training
NCUA staff on commercial landing.

All right.

That's a great background to let
the audience know where you come

from and the journey you've had.

So let's, let's talk a little bit.

about today's topic, which specifically
is commercial credit culture.

And with that, Vin, I'm just
going to, I'm going to ask

you, what is Commercial credit.

That's a great question because I
think if you asked a hundred people,

you'd get a hundred different answers.

It's one of those things to also to,
you know, it when you see it, but

essentially what did credit culture
is your approach to providing credit

to your customers, your members.

I did say customer, didn't I thought
I got rid of that 12 years ago.

But for the members and it's
something that starts and.

Well, what it does is follow your
institution's values and mission

applied through the credit.

And it's going to be how you approach
the credits, what your goals are

with the credits, what your risk
tolerance is, your risk and other.

For word for that is risk appetite, which
is a whole nother discussion, although it

overlaps very much into credit culture.

So it's how you're going to, why you're
providing commercial financing and, and

then really how you're going to do it.

And that's a good definition.

So why does a credit union
have a credit culture?

I think you have a credit culture.

So, You can provide thorough and
consistent credit to your membership and,

and, and consistence really important.

It's if you have people out there,
your people meeting lending staff

that are just lending based on how
they feel about the credit is going

to be a hodgepodge of credit and very
inconsistent service to the membership.

It it's going to outline
your whole philosophy.

And in fact, I was thinking about it.

And a good example I can give you
about credit culture, believe it

or not, NCOA has a credit culture.

They do.

And it's reflected in the new rule
that was put into place in January

of 2017, but where you're going
to understand the credit culture.

Is if you read through the preambles
to the proposed rule that came out in

July of 2015 and the, the final rule,
which was February of 2016, I think,

but the, the preamble outlines what.

NCUA thinks how credit should be provided.

And to say it in a nutshell, would,
would credit, the credit culture at NCUA

is obviously for the credit unions to
provide safe and sound credit, but its

approach should be fulfilling its Its
mission as a credit union of providing

thorough and accurate credit member
service, meaning if you read through the

preamble, the constant theme is you're
providing credit, uh, in a, by being very

thorough and understanding your borrower.

And the reason you do that is so that
you understand the borrower's needs and

what that, that thoroughness requires,
knowing the borrower's business, knowing

the borrower themselves, and also Have a
very good understanding of the financial

condition and trends of the business and
the member that By understanding that

you're going to be providing financing
that's appropriate for the borrower,

meaning it will be within their, it
will be properly structured based on its

purpose and collateral, and it will be
in the ability of the borrower again.

That would then the ability to borrow
be in the repayment ability of the

borrower, and the important word there
is properly structured because that will

obviously be structured appropriately
for the assets securing it and the

needs, not just structured so that
they can make the payments and, and

if they can't make the payments on a
properly structured loan, then obviously

you need to have to take some time.

To explain that to the borrower and
how they should approach maybe future

requests with the credit union.

And in other words, the philosophy
at NCUA is, is good customer

borrower service so that they can
provide appropriate and appropriate

financing to safe and sound lending.

So there's a lot there to unpack.

And I wrote down a couple of the
keywords, but you pointed the listeners

to the preamble and just in general,
I always found reading the preamble On

any regulation, as it shows the intent
of the board, it can almost be more

revealing than actually reading the actual
language of what you can and you can't do.

Cause they'll give examples.

Like you say, whatever regulation
you're looking at or thinking about,

whether it's commercial lending,
whether it's the investment regulation,

read the preamble, go online there.

They're easy to find if you type
in the right keywords, but you'll

learn as much about a regulation
in the preamble, as you will in the

actual language of the regulation.

So.

Appropriate for the borrower.

Sometimes borrowers will come
in and be asking for things

that they think they need.

And it sounds like you're saying that,
that when you have a good credit culture,

you, the, the lenders, the commercial
lenders can actually guide them.

Into understanding what makes sense for
them to ask for what might not make sense

and then also having consistency across
across the membership for like type

borrowings by interpreting that, right?

Yes, and I think and I'm speaking
from, of course, these are my thoughts

regarding providing commercial credit.

And in the credit union world
outside of banking with the credit

union mission being to provide
service to their membership.

I think there's an added responsibility
that credit unions be very complete in

their approach in evaluating commercial
credit risk with the focus being on

the best interest of the borrower.

You know, providing credit is
really a value added service.

Some of the requests you get
are pretty straightforward.

It's good company, good cashflow.

They know why they needed to borrow money.

That's great.

Others, they can't afford what they
want to do and you have to make

sometimes a tough decision there,
but take the time to explain it to

them why they may not be able to,
you're not able to approve that loan.

But the real, you really earn your
money when a borrower comes in and

says, look, I got a good company
here, but I don't have any cash.

What's going on?

And you take some time.

To evaluate what's going on with that
business and realize that and help

them identify where there could be
some strain in their financials that

are impacting their cash flow or their
liquidity and take that time and explain

it to him and then structure alone.

That's appropriate.

To help them fix it.

And it's always, I feel, and that's
part of your credit culture, right?

So it's really important that you take
the time, especially in the credit

union world, seeing how we're not.

You're not out there to
satisfy stockholders.

You're out there to satisfy that
person across the desk from you

is asking to borrow some money.

That's a great differentiation.

The member owner sitting across from
you is different than maximizing

the bottom line in a bank.

So, so who's responsible or who
establishes the, the credit unions credit?

It really starts at the top, and there's
a few different ways of looking at this.

In my opinion, again, these are
my opinions that I think it's

very good for institutions to
have that discussion internally.

I'll talk about that in a minute, but
it really starts out at the top with

the board, the board sets the mission
statement for the institution, the values

of the institution, and then it's the
senior management along probably with the

board, uh, senior management of lending.

To then create that credit culture
within, within the institution by sharing

those values of the board and mission
of the board in the credit process.

And I was thinking about this and I never
did this, but I think this would be a fun

exercise for a lot of credit unions is
sometime bring your credit team together,

the commercial credit team together
and sit down to them and say, ask the

question, do we have a credit culture?

And obviously, hopefully
they're going to say yes.

And then ask them, what
is that credit culture?

And then have a discussion around the
credit culture of your institution.

So it's clear, then help make the message
clear on what your, your expectations

are in providing safe and sound and
appropriate credit to your borrower.

Uh, in fact, I'd love to sit on one
of those conversations someday too.

I'm looking back now.

I never did that.

I was a senior lender in two banks
and I never did that with my staff.

And I look back now and wish
that I could, cause it would

have been a great opportunity.

To make sure we're all on the same
page as we went out looking to find

an ad to the commercial portfolio.

But like I said, Mark, it really starts,
there's the values of the institution

and they then they are reflected
into the credit, the credit culture.

Of the institution.

No, that makes sense.

And of course, I don't have the regulation
in front of me, but I'm, I'm pretty

certain that the regulation would
talk about the board need needing to

approve the policies to comply with the
regulation and as part of those policies,

credit culture could be addressed.

In those policies or separately
in procedures, I would imagine.

Yeah.

And it's, it, and just in,
in everyday activity, it's

permeates through, but yeah.

And I'll be the nerd here because
I was involved with writing it.

I don't worry.

Yeah.

You'll find good outlines for your
credit culture to be in, in part

seven 23 three, which is the board's
responsibilities and senior management

talking about the type of lender
and the experience they should have.

And then 723.

4, that's the regulation 723,
commercial MBLs and commercial loans.

And that outlines the procedures and
process because you need to have good

systems as part of a credit culture and
good processes, well defined processes.

Again.

So you bring that consistency,
what it does also.

Is if you've got a good credit
culture, those who are not as

experienced but need to be involved
with evaluating credit risk, meaning

the board and sometimes other senior
management that are not directly.

involved with credit.

If you have those good processes and
consistent processes in place, then they

get trained on how they should start
at least at the level they're involved.

You'll train them in how they can better
understand the risk associated with those

credits that they become involved with.

Sure, sure.

Yes, you mentioned systems and training.

Part of that is the next thing I
wanted to ask you relates to how do

you implement the credit culture?

You're going to start by having
the systems and processes in place.

Uh, you'll also be able to reflect it.

In the training and education you
provide, there should be a lot, there

should always be training and education
involved as the industry changes and

the approaches changes to credit.

I know in my long career, we shifted
from just straightforward debt service

funds available to support debt service
to including important balance sheet

components in our analysis also.

So that was a, that's.

Shifted many years ago when the
beginning of my career, but it was

important to stay trained in that.

But mostly it's like I said earlier
that you know, when you see it and if

there's a good credit culture in your
institution, you're going to have.

A similar approach by your entire staff in
providing that credit to your borrowers.

I'm going to go down a rabbit hole here.

So, you know, when you see it, it's
more of an art than a science is

what jumps into my head with that.

And if I was hearing that maybe as a
credit union, I think sometimes that

dance of knowing when you see it can be
a challenging part of the examination.

Right.

Because NCOA is asking questions and
saying you need X, Y, and Z and the credit

unions looking and saying our credit
culture is this, and then the examiner

refers back to the regulation, which
was black and white words that, that may

or may not mean a few different things,
but can you speak to, to, does what I'm

saying make sense and fit into this?

I guess it probably fits into every aspect
of commercial lending, but the credit

culture piece is what we're talking about.

And so you.

It's an art.

And so how do you regulate an art?

I'll tell you, I think, hopefully the,
the examiners are also familiar with

the preambles and the rule itself.

Great comment.

And I think this is a,
that's a good question, Mark.

I hadn't given it any thought,
but as a, as an answer.

When we wrote the rule, there
was a few of us involved.

We decided to just, and at that
time, instead of just being the MBL

rule, we added commercial lending.

The reason we added commercial
lending is because there's a

standard, there's a standard way
of providing an accepted practices.

For commercial lending.

So if you read through the first
the rule itself, but then you read

through the preambles, you'll see
that there's nothing revolutionary

or revelationary in in that preamble.

It was written for basic standard
accepted commercial lending practice.

So I think if you take the time and
so what's in what the expectations

of the bar of the examiners should.

Be that you're using accepted,
reasonable practices.

In in providing commercial credit
and evaluating commercial risk.

If the examiner is, is not seeing that,
then I think that's room for a discussion

for both you and the examiner, not
immediately acquiesce to the examiner,

but have a thorough discussion about that.

What you're doing makes sense.

And you're properly evaluating the risk
and that by doing, and by your process.

You're providing appropriate
financing for the borrower.

I can't stress that enough.

Appropriate financing for the borrower.

That's really what your job is.

And that means financing that is paid
back within the ability that's structured.

I want to say structured against
properly structured financing.

That's paid back through and within
the financial ability of the borrower.

Now that's good advice.

And again, going back to the art
of it, there's the discussion.

There's the discussion between the
examiner who may or may not be a

commercial lending specialist and
credit unions that do a lot of

loans, a lot of commercial lending.

They're typically going to have some
specialists that are involved who

have higher levels of training, which
can raise bar of the conversation.

But.

And then you've got the credit union
in the middle, and then you've got the

member and oftentimes, again, going
back to that art, it's a, it's a, it's

about the quality of the questions,
the quality of the policies, the

quality of understanding, and then
having a good dialogue with NCUA and

not being afraid to say, Hey, where
does the regulation require that?

Why, where is it that.

It says that's an acceptable,
reasonable practice because we

believe our practice is acceptable.

And so the credit union should
confidently believe that they can push

back, but they also, with respect,
should respect the knowledge, skills,

and abilities of the examiners.

There have been times, you know, where
we've had clients that kind of wanted

you or I to be part of that conversation
just to make sure that what was being

communicated As a necessity is really a
necessity, sometimes credit unions, right?

Sometimes the examiners, but having a good
dialogue and good communication is how it

works well towards getting a good exam.

And it works well toward being able
to serve your members as best you can.

Right, and I'm glad you brought
that up, Mark, because it reminds

me of my early days within where
I was out on a lot of exams.

And it was interesting as we
were talking to different credit

unions about different issues.

I constantly get the question,
where does it say that?

And I'm thinking, what?

I don't understand that question.

What do you mean?

Where does it say that?

And we all have to get away from that,
including the examiners that we're not

going to, there's no point to document.

What we were talking about is
evaluating commercial risk.

So it's not a matter, it's not a,
It's have you properly evaluated that

risk and each deal is going to be
different and the approach from each

lender can be a little bit different.

In fact, one of the things that should
be allowed in credit culture is if you've

got well trained and well experienced
and competent lenders, they should have

some freedom to use their judgment.

If they do use their judgment, they
should properly document in the credit

proposal, why they're, maybe it's an
exception to policy or for whatever

reason that this is a judgment issue,
not so much supported by straight facts

and finances and that's the thing, but
getting back to, so weird as it says

that it doesn't say it anywhere, but a
good experienced commercial lender knows.

Whether the commercial risk has been
properly analyzed and and I think that's

As we do talk to credit unions now,
and it is a lot of fun to be Again,

working with the institutions directly,
I think it's important to get that

as if you're being challenged by the
examiner, be able to support what you've

done always be able as I last night, I
got asked by somebody and I said, just

be able to support what you've done.

That's the important thing, which is
saying is reasonable, but an examiner

following the paint by numbers.

Is not going to be comfortable with that.

So be able to support that you
appropriately understood the risk and

did sufficient evaluation of that risk.

So I was going to ask you about
how do you reflect it in policy?

I think we talked a little bit about that.

Is there anything you want to add to
what we've already said about credit

culture and reflecting that in policy?

Yeah, I think Again, the, the, the
regulation itself explains pretty much

what you should have in policy, which,
you know, and that was a good news

again, too, when we did issue that
rule, there wasn't any objection to the

preamble or to the rule text itself.

For the most part, we made very
slight changes, just fine tune some

things when we issued the final rule.

So what that says is, Overall, I
think the industry agrees that as the

regulations written, it makes sense.

And then they should frame their policy
around, around, I think what's in the

regulation, which again is overall
just accepted commercial loan practice.

And if they have some unique
situations, then or borrowers or

industries that they service to be
specific in their policy to that.

But I think overall the policy itself.

will reflect the credit culture, what
your approach should be to evaluating the

credit and how you evaluate that credit.

So almost every word of the policy is
part of the culture you're creating.

It is.

Yes, I think so.

Okay.

Got it.

Tell me about, uh, credit culture
relative to a credit proposal.

If there's anything you'd
like to add relative to that.

Well, the credit proposals
should again, that's enough.

There should be consistency
in the credit proposal.

So hopefully the proposal
itself will reflect again,

getting back to what I believe.

And again, this is me.

What I believe should be part of the
culture of a credit union should be

consistent, but at the same time,
document the full understanding.

Of what the borrower is, what they
do, what the loan purpose is, why

it's structured, however, it's
structured to purchase a fixed asset.

That's pretty straightforward.

But if you're providing lines of
credit and other types of financing,

some kind of cash advance, you should
explain why you want to do that.

And then of course the financial.

Analysis itself should be thorough
enough so that you do understand that

the bar, the, the, the understand the
trends of the borrow and also that

the bar, this is appropriate for what
the borrow's financial capability is.

Got it.

Got it.

That makes sense.

One more specific question about
credit culture, how would you describe

credit approach and credit actions
as it relates to credit culture?

Credit culture is the approach, isn't it?

I think that's why you're
providing the credit and how

you're providing the credit.

And so then actions would be
really, to me, credit actions.

Are the approvals and declinations.

And also then you would obviously,
there's probably another discussion

is if you have a troubled credit,
how you're going to approach that.

Okay.

No, that makes sense.

And then just a quick comment
about troubled credit.

That's again, where you earn
your money, that there's a lot of

reasons why credits deteriorate
and the borrowers have problems.

And again, in a member
service focused industry.

I think that requires special attention
also to scan that and do that balancing

act for the needs of the borrower.

But also in the end, it's the safety
and soundness of your institution

that from everything else.

Got it.

Got it.

All right.

I've been, as we've, as you and I
have had some conversations with some

of my clients, I really enjoyed the
conversations, the credit union got value.

You know, I learned a little bit more
about commercial lending that then it's

been a while since I actually flipped
loans back when I was a problem case

officer, but I've always enjoyed that
part of, of what credit unions do.

And our discussions with clients and
some of my other folks that assist

me was really what got me thinking
that I, I would want to do this

podcast because I think there's.

There's inside baseball, if you will,
that we can share with the credit union

community that will help credit unions.

And by helping the credit unions,
it in turn will help NCOA.

And in this particular interest
in instant more than others, it

actually helps the members as it
relates to the loans that they, I,

I always enjoyed commercial lending.

I wanted, I wanted the other
career I would have had, had

I not chose, Lending money.

I don't know if I chose
it, but it had happened.

It chose you.

Would have been a guidance counselor
and a football coach because your

influence on people and helping them.

I think commercial lending is
as good an alternative or the

next best alternative to that.

Because if you do the
business, if you do it right.

You're working with, again, a business
that has an impact on so much of the

local economy, the employees, the
customers and everybody else that

it's take it, do the job as more as a
consultant, as opposed to an authority.

And I think it'll be a lot of
fun for everybody and you'll

find that you're providing good
sound financing to businesses.

I said, so Vin, this was great.

I want to thank you for
being my guest today.

I'm going to talk through a couple
other things that when you and I started

talking about having you on the show
here, you've put together some other

topics that we're going to have coming.

And I'm going to touch on those
real quick for the listener.

So we're going to have a
topic on credit proposal.

We're going to have a topic on
underwriting, a topic on regular.

Regulatory resources, a topic
on credit risk rating systems.

And this isn't one that you
put on here, but it's 1.

I want to have is a global cash flow
because I know that a lot about that.

I know credit unions get a
lot of questions about that.

And then so 2 other things
for the listeners here.

I listened to a lot of different
podcasts and one of them that I

like quite a bit answers follow
up questions to previous podcasts.

That's something I'm
hoping to be able to do.

So if there's anything that was raised
in today's podcast that you have a

follow up question on, I'm going to
give you an email address where you can

send that to me and then we can address
those as add ons to future podcasts.

So that's, , that's number
one and then number two.

To the listeners, if you'd like to talk
to me about how VIN and I can assist you

in your credit union, you can reach out
to me at CU Exam solutions@marktrico.com.

That's the LE you know CU for Credit
Union CU Exam solutions@marktrico.com.

Or you can reach me via my website,
which is www.marktrical.com.

Alright 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

your favorite podcast app to hear future
episodes where subject matter experts

of all varieties will 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 at marktreichel.

com.