Credit Union Exam Solutions Presents With Flying Colors

Treichel: Hey everyone.

This is Mark Treichel with another
episode of With Flying Colors.

Today, I'm with Mike
Macchiarola from Olden Lane.

Mike, how are you doing today?

Mike Mac: Doing pretty well.

Good to be with you, Mark.

Treichel: Yeah.

Good to be with you.

We've had a couple other podcasts
we've done on the NCUA's.

Annual plan and perhaps
a couple other topics.

But today, let's see earlier this
summer or in this summer in August,

you wrote an article with Kevin
Maitleke navigating an opportunity

for an NCOA assisted transaction.

And after taking a look at that,
it intrigued me that I thought

this might be something worthy of
chatting with you on the podcast.

But before we dive into that.

Mike, if you could give a little bit
of your background and what Old and

Lane does for credit unions for people
who may not have heard those previous

podcasts that I made reference to.

Mike Mac: Sure.

All the lane at this point
is about 7 years old.

We originally started because we
thought there was an opportunity where

credit unions were being underserved,
most notably in the capital markets.

The 1st thing we really did was
we focused our attention on what

was at the time called secondary
capital now called subordinated debt.

At the time, I believe it was about 100
million dollars outstanding in that space.

Now it's north of four and a half
billion outstanding and Olden Lane

has done more of those transactions
as advisor than anyone else in

the space by a pretty good margin.

We really believe that credit unions
could use sub debt as a growth tool.

Up until that point, it was really used
for credit unions that were struggling.

It was meant as really triage and
use properly as a growth function.

It could really accelerate what credit
unions were able to do for its members.

So we've been very excited to do
well, north of a billion dollars

of transactions in that space.

We've taken probably 60 credit
unions across the threshold with

the regulatory approval required.

The space has grown by leaps
and bounds, a lot of the

complexity that's in that space.

And some of the newer structures are
thoughts originally of our clients

and or the folks here at Olden Lane.

So we're very proud of that.

In about the last year or so, Mark,
honestly, a lot of our attention has moved

to the M& A space, which we'll get into
some a subset of that today, but the M&

A space is hot as a pistol, whether it
be credit union to credit union merger.

Or the credit union purchase
of banks or bank assets.

That has been something that obviously
in 2024 has been very pronounced.

Whether we were lucky or smart,
we saw a lot of that coming.

We had spent a lot of attention
with white papers and thought

pieces and internal discussions.

Study to get that business up and running.

We now have a full throated business
that can do everything from identifying

and screening targets to working on
the merger binders for the NCOA and

all the regulatory approvals to doing
everything required in the valuation

suite, both credit union to credit
union and credit union to bank.

So we're very proud of that.

We've built our team out and that's
really an exciting feature of what we

can do now and builds out a lot of the
suite of offerings that we have here.

Treichel: No, that's great.

I know every year since I've started
at NCUA, 300 credit unions seem to go

away and it's probably in the 200s now
because once the law of large numbers

or small numbers, now we're down between
what, 4, 500, 4, 600 charters, but

it's just the reality of any business
that there's going to be mergers and

then with what we've gone through here
recently, I think you were smart to.

To see where the puck was going
on this, because I think there's

going to be an intense period here
for a lot of reasons that whether

it's fee income being attacked or.

Low losses going up, et cetera, et cetera.

It's definitely arena.

Where that's going to be increasing
as a percentage of remaining

charters versus decreasing despite.

Efforts to push things in the other
directions, if you will, but so in that

regard, the article that I made reference
to and NCUA assisted transactions, of

course, there's merger where credit union
a wants to merge with credit union B,

and they both have 12 percent capital.

They're both in the same field of
membership, any town USA, and the field

membership fits together perfectly.

That's one variety.

I've never seen

Mike Mac: that one.

Incidentally, that one doesn't
come around a lot of often.

Happy to work on it, though.

Treichel: And we are not here
to talk about those simple ones.

We're going to talk about one that where
NCUA might have to kick some money in.

And so if you could maybe walk through
what you've gleaned from that process,

and as it relates to this article that
you wrote relative to that one particular

transactions or other things that
you're seeing at this arena recently.

Okay.

Mike Mac: Perfect.

Perfect.

The first thing I'd say is we
anticipate that we will see

more of these on the horizon.

And you've alluded to some of
the reasons why, but just to

give you a little backdrop, in
2022, there were six failures.

And those failures cost
the NCAA insurance fund.

9.

8 million.

So a touch under 10 million in
2023, there were three failed

credit unions that cost the fund 1.

2 million.

So that trend line has been good,
but so far this year, there's

going to be more than that.

There's more than that we've seen
in the market or have been working

with clients on, including the one
that you alluded to with Kevin.

But there's a difficult environment
out there as you well know, right?

If you just look at the share insurance.

Financial report, which
comes out every quarter.

And I know you look at it intently more
than 10 percent of our credit unions

are now in a camel three, four or five.

I know that's a number that you watch
in the greater than 500 million asset

class camel fours and fives tripled.

They went from three to nine in the
last report, the last quarter camel

66 credit unions above 500 million.

And when I look at the camels that
are 3, 4, or 5 across the whole

country, almost 20 percent of
credit unions are now a 3, 4, or 5.

That's 879 of that roughly 4, 500 base.

Number 1 is, if the NCOA is
good at tagging these things,

we've got some difficulties.

Ongoing or ahead of us.

We can also look at profitability.

ROA is at 69 basis points
in the last quarter.

If I just took out and normalized
for COVID and took out the dip

that happened when COVID really
struck, that's the lowest it's

been in the industry for a decade.

That's a problem, right?

I know we're a not for profit, but
you need that engine of profitability

to be higher than 69 basis
points as an industry, certainly.

There are 764 credit unions in the
country that have zero or negative ROA.

That's a significant number.

You've got 1, 300 plus credit unions
that aren't earning 25 basis points.

And that's a difficult environment
and it really starts to question

your go forward strategy.

We've all known what the drivers are.

We've got cost of funds that are rising.

We've got, I think we're a little
further along now in the cycle where

we're going to start to care about
asset quality and the delinquencies.

And we've seen that number start
to tick up and continue to tick up.

And that trend line is troubling.

There are good signs, right?

Nim hangs in.

I think we're probably peaked
in the interest rate cycle.

But at the same time, you really
have to have your wits about you to

keep both sides of that balance sheet
moving along and maintain your spread.

So we're going to see folks struggle.

The tech cycle, the regulatory cycle,
the fee compression or fee pressure.

All of those are going to make it
increasingly difficult, and I think it

gets more and more difficult as you're
down in asset level, simply because you

have not picked up the scale to be able
to be nimble enough into those headwinds.

We see a lot of that coming.

Long winded way of saying more NCUA
assisted mergers on the horizon.

Now, why?

What is an NCUA assisted merger?

When a credit union decides.

Or the NCA decides for them that it is
not going to survive as a going concern.

You've got 4 options.

You can voluntarily liquidate.

You can have an involuntary liquidation.

You can have an involuntary
liquidation where you have some

purchase and assumption behind.

Or let's focus in on what
we want to talk about today.

A merger.

The first thing to say is if you get
to a place where you have a merger, do

it sooner rather than later, because
that allows you to have a voluntary

merger, which allows for some bilateral
negotiation, which allows you to protect

the constituencies you should care about.

If you get beyond that point, we are now
in a situation where Assisted land where

the NCA has nudged you or pushed you
and you've got a merger where you don't

control the terms or the negotiation.

So you're already in a place where as
the target or as the merging credit

union, it's going to be uncomfortable.

And frankly, you waited too long.

Treichel: Yeah, I totally
100 percent agree with that.

The verbiage I would use at NCUA
when I was meeting with credit unions

or my staff was meeting with credit
unions was self determination, right?

At some juncture, you're going
to lose that self determination.

And if you're looking for the best fit
culture wise, because culture is very

important in the world we live in.

It's very important in
the credit union industry.

Where's the best fit when you still
have a little bit of capital before you

start, before you go from making 100
basis points to making 50 basis points

to making 25 basis points to losing money
to the capital ratio going down to NCUA.

By the way, you mentioned the
camel codes deterioration.

There's a country western sign.

How can I miss you if you won't go away?

And NCOA does not go away once
you become a Code 5 or a Code 4.

And when you're a Code 3,
they're there every six months.

When you're a 2 starting to slip to
be a 3, or you're well capitalized,

but contemplating being adequately
capitalized, and you're sitting down and

doing that long term strategic planning
on what's the long term plan look like,

There's just the reality that many of
those unprofitable credit unions, you

mentioned what's about almost 800 that
are losing money, almost 1300 with

25 basis points or less, they need to
look at that and say, okay, what's in

the best interest of the membership?

What's in the best interest of our staff?

How can we best serve our community?

Our select employee group?

Etc.

Because if you can avoid the
NCWA assistance arena, you do

have that self determination.

Mike Mac: I couldn't have
said it any better, Mark.

And here's the thing that when we counsel
credit unions that are on this knife's

edge, there's so much pride involved.

And I get it.

We all have pride in what we do,
where we work, what our business is.

But I want to explain to folks, and I
oftentimes I just want to, I just want

to tell them we've seen it enough times
that we know and we're not fibbing.

The world has changed.

Things change needs change.

So the world doesn't need a single
seg credit union for the purpose

of a single seg credit union.

There are other places that the
members there can find banking.

Banking services are available.

The nature of banking services has
changed what people demand or want

from in terms of convenience or
price or deposit level is different.

And it's okay if you just can't.

Make it as profitable as you could 5, 10,
15 years ago in a different environment.

And I know there's a lot of
pride, but you really have to

go back to basic fiduciary duty.

And you've got to understand why am I in
this chair as either a manager, a member

of management or a member of a board.

And really, I've got to go back to the
basics and the foundational principle.

And we're going to say, what is
in the best interest of members?

And very often we find ourselves
counseling a credit union that is holding

on for dear life And they say, we started
as a credit union in Northeast State X,

and by gum, we're going to go down and
it's, there's nothing wrong with it.

The world's just moved a
little bit away from you.

And really your job is
to tuck your members in.

And very often I will open up.

I'll say, okay, give me the
credit union near you that you

think's doing well, or give me a
bigger credit union up the block.

And I'll just put the 2 websites
up and I'll say, look at what they

have and look at what you have.

Let's go through the level on
deposits and the level on loans.

Let's go for the convenience of a member.

Let's go for the branch network.

Let's go for the community outreach.

The bigger and or the more sophisticated
slash more efficient is just able

to do more very often and has a
lot more levers they can play.

And that's okay.

And it's sometimes okay to give
up your name or your brand.

And honestly, again, go
back to self determination.

If you make those choices earlier,
you can have something to say about.

How your members are treated, how
your staff is protected, how your

board of directors has a say in the
going forward, how the community

investment that you've made may be
preserved or the legacy or the heritage.

If you supported an event every year,
put a maintenance clause in your merger

agreement and make them keep doing it.

If you have a set of scholarships.

Make the acquiring credit
union that you can bilaterally

negotiate with double that.

And then you've made a negotiation
and you've done it on your terms and

you've preserved something rather
than let this thing go too long.

In which case, as you said, you
don't have enough control in the N.

C.

U.

A.

Is going to dictate.

Treichel: That's a great.

Yeah, I love those examples like
the scholarship fund and Yeah.

Building into your agreements, some
things that give you some of what

you've been able to build and make
sure that legacy of how you're helping

your particular members, as opposed to
how they might choose that you build

some of that into those negotiations,
which is all okay with NCUA.

NCUA is going to ask that and the merger
rules ask that if there's You know,

senior executive staff, or I can't
remember exactly how they phrase it.

Certain staff members,
if there's going to be.

Commitments in that regard that
there needs to be things that

are disclosed to the members.

But as long as that's reasonable,
that's something that, you know, that

the members will support when they
can see all the other things that

they may be getting out of the merger.

Any thoughts on anything
I threw out there.

Mike Mac: No, I think you're right.

I think there's also for another
day, but I think, and this is an

issue that a lot of commentators had.

Chip Filson beats this one up pretty good.

Sometimes in these credit union
mergers, there should be more

consideration paid than there is.

And so the question of a member dividend
shouldn't necessarily be driven by a

somewhat arbitrary rule at the NCOA when
you're above a certain threshold or the

distance between the 2 is at a threshold.

Maybe sometimes a credit union
should be willing to pay.

To unlock the equity or the tradition
or the heritage and to pay for the

inconvenience to the membership of a
name change and account numbers and

all that has to happen on a merger.

I'd love to see where credit union started
to pay significant or real dividends,

especially when you look at credit unions
that are choosing to merge with banks.

Or do bank deals where they're
paying a multiple of the equity

to shareholders in those banks.

And so they're paying
an awful lot of money.

And in many cases, it would be easier for
them to merge with another credit union.

It's just that there are so many frictions
around the pride and the personal.

And I say all the time, those of us that
are bankers in this space, It's incumbent

upon us, Olden Lane, myself included,
to articulate the value proposition

to a potential merging credit union,
to cutting that deal in this instance,

before the NCUA gets here and makes
you, because it'll be better but also

where it's to your advantage to, to
tuck in your members at an institution

that together may be able to do more
than either could do separately.

Treichel: But as you're walking through
that with the, before NCOA makes you do

it, a thought just came into my mind.

You think you can control that, but
I'll know when it's time, right?

I'll know when NCOA is about to
tell me it's time to go away.

And that's not the
reality of what happens.

Sometimes credit unions go from a code
two to a code four, they go from a

two to a three, they get a letter of
understanding and agreement, whether

it's a new program or just the reality
of the economy in your area, kidding you.

It's like doing the annual
physicals, going to the doctor.

Going to the dentist, getting things done
and doing things when it makes sense.

If you wait and you wait, you defer,
you have all that deferred maintenance

on your, how you're taking care of
your health and you think at some

point in time, you're just going to
be able to pivot and okay, so now

I've gained 25 point pounds, I'm going
to go out and run a marathon, right?

You're just not going to be
able to do that physically.

You're not going to be able
to do that as a credit union.

If you're thinking NCUA will give
me some sort of warning when it's

time for me to potentially merge.

You really need to think it through.

You really need to.

Contemplate it because when N2A gets
aggressive on it, it's too late.

Mike Mac: And listen,
they have a job to do.

They've got 4, 000 folks
that they have to oversee.

They've got a share insurance
fund that they're responsible for.

And the last thing they are
incented to do is wait too long.

And we have this issue, which we've
written about over here, the way the

credit unions are dispersed, there's a
significant number of credit unions that

are below the 50 or a hundred million
dollar watermark, like a large number.

And when you look at that and you
realize, Those guys that are very big

are doing things that are complex that
require more regulatory oversight.

But at the same time, there are
just so many that are small that

also require a visit and an exam.

It's a very difficult recipe for the NCOA.

You start getting this barbell effect
where they've got to really have a whole

different level of scrutiny for the
big guys because they're sophisticated.

And then the little guys,
there's just a lot of them.

And it can get very difficult and unwieldy
both as a regulator and as someone trying

to run either of those institutions.

The other thing is.

The world doesn't work on your time.

You may have the greatest
plan in the world, but things

happen and events change.

We've had some significant natural
disasters for goodness sakes.

They change your business plan immensely.

And in a second.

So you really have to understand
and go through these drills.

It was good to see the NCWA, for
example, go through a succession release.

It forces people to think about a lot
of issues that they could otherwise

get away with not thinking about.

And you need to have that
rigor in your organization.

Frankly, I wrote a comment letter.

I wish they had gone further.

But it's a start, right?

We have to think about all of these things
because the risk at an organization like

this is multifaceted and very complex.

Treichel: Great point.

Yeah, and the succession planning,
I wish they'd done it as guidance.

I hope they'll go as guidance.

I doubt that'll happen with this.

Where the board's taking it.

We also, we wrote our first
comment letter on that.

I'll probably, I haven't really
shared it with anybody, but NCUA.

Mike, I'll send it to you and
I'll probably have a podcast or an

article on that coming out as well.

But the reality is a lot of
those credit unions, tipping

back to what you're saying there.

So we'll evaluate it in four years when
I have, when I'm ready to retire, right?

That's a lot of.

People have in their head is they're
thinking about their self determination

when they want to retire from
the credit union, and they might

not have somebody good in play.

And the 1 thing you might have mentioned
it, but that popped into my head to

as well is with inflation, right?

Everything costs more.

So you to keep your own staff.

You have to increase their pay.

You might even need additional staff, but
the reality is the way your balance sheet

is put together isn't allowing for you to
do that and keep your profitability up.

And I think the inflation thing.

During the exam, you'd always
want credit unions to have.

Appropriate expense levels if someone
was above average and they were having

challenges, and then you go through the
inflation we've had for 2 or 3 years.

It's like doubling down on the
likelihood of them ever being

able to be profitable again or in
some reasonable period of time.

Mike Mac: Yep, the other thing I
look at, and I did this a few years

ago, I went down to Florida and I was
presenting to a large credit union.

And the issue I had with them
was there was a very large

credit union next to them.

And I started, I did a series
of graphs that showed them.

If you did better than the very
large guy next to you, you're

still losing ground because of the
compounding effect of an asset level

that's already bigger than yours.

And so when you start looking at it
in those terms, and I said, if the

credit union next to you just decided,
they like your CFO because he was

really smart or she was really smart
and just bid him away or bid her away,

you're just going to
keep getting attacked.

Everybody has to understand that
there's risks everywhere and

you've got to play with them.

You've got to just play every day,
as hard as you can, understanding

what they are and moving.

But you've got to adjust
because circumstances change.

They

Treichel: certainly do.

They certainly do.

So any other thoughts relative
to we, we've talked a lot about

pursuing the merger before, while
you still have self-determination

on the NCA assisted arena.

Any, they've got the, what's the name
of their, where you can sign up to

become a ? Oh, the Member registry.

Mike Mac: Member Partner.

Partner Registry,

Treichel: yes.

Thank you.

Yeah, that, that came out when, I think
the first year I was executive director

20 13 20 14, the member registry.

And that was because the NCA Board would.

Would go to these functions, CUNA's,
GAC, and people would say, Hey, the

credit union down the street merged,
and I never had an opportunity.

And what we would always tell
the NCUA board is NCUA is

not involved in most mergers.

They'll approve it on the back end,
but it's credit union A decides

to merge with credit union B.

The package comes in.

Is it safe and sound?

Is the field of membership okay?

Did they do the vote?

Okay, boom.

NCUA approves.

That's how NCUA is involved.

The numbers of them, which will be
going up as you've described where NCUA

is kicking in money or NCUA is saying
you need to merge are much less, but

the NCUA board heard so much about
credit unions complaining, saying

they didn't invite me to dinner and
my board out so that we could merge.

How did I miss that opportunity?

That's what led to the
registry being born.

And I'm sure when you're helping,
when you're helping credit

unions pursue an assisted merger,
that comes into play some.

Mike Mac: Yes.

So the first thing you got to
know, you're exactly right.

It goes back to 2010, which will tell you.

Treichel: Okay.

It goes all

Mike Mac: the way back
in the Debbie Matz era.

The member of the merger partner
registry was established by the NCA.

And I tell folks all the time
that are in the acquiring

side or on the acquiring side.

If you think of yourself as an acquirer
and you'd like to window shop from time

to time, put yourself on that list at the
NCUA and you can go on the website and

you can find it and there's a portal and
you sign your name up and they're going

to take that information and it creates
for them the first batch that they're

going to screen or identify of potential
acquirers when someone gets in trouble.

So let's take, I'm in,
I'm sitting in New Jersey.

So a credit union in New Jersey
hypothetically gets To where they are not

going to make it as a growing concern.

How does this process work?

The NCUA has been in there as
they've probably identified them.

They've probably ratcheted up
their camel's rating over time.

And everybody said, all right, it's time.

So what happens?

The NCUA then says we're going out.

And we're going to go to our registry
and we're going to look who's in

the neighborhood and it's more than
neighborhood now because we have

geography is a little different than
it used to be because of digital.

And so they're going to
say who is in our registry.

That's a potential acquirer and potential
acquirer really has to have 2 criteria.

Number 1, they have to when we
push the 2 together, they have

to survive safety and soundness.

They have the ability to absorb
financially and operationally the

credit union that's being acquired.

And then the second thing is
compatibility of field of membership.

And that second one, depending
on how impaired my hypothetical

credit union is, that second one
kind of has some flexibility.

Because in a, quote, emergency where we're
not adequately capitalized, the NCOA can

just blow through the field of membership
rules and say, public interest dictates.

And so we're going to let this one go,
even though it's not fully compatible

on a field of membership basics.

So now the NCAA has identified a
pool of potential applicants to

be the acquiring credit union.

So they go out to those folks and
they say, Hey, ABC credit union,

there's someone in your neighborhood
that we think would be interesting.

They'll give you a rough
ballpark to say it's a hundred

million dollar credit union.

They've come on some tough times,
ran into a regular Tory hip cup.

We think it'd be a decent fit.

You want to take a look.

If you want to take a look, the price
of admission is an NDA with the NCUA.

So if you sign that NCUA NDA, you're
now under the hood and they're

going to put you into a data room.

In that data room, you get what's
called the bidder's package.

You get a summary.

20 page 30 page slide deck from
the kind of laying out the story.

Who's the credit union?

What do they have for real estate?

How many branches?

Why did they fall in a ditch?

What's the issue?

How big are they?

They'll give you some basics on the
loan pool and the deposit pool and

then there's more in the data room.

You'll probably get all
the material contracts.

You'll probably get the
loan tape and deposit tape.

You'll probably get a summary of
investments, which includes QSIPs.

You'll get a summary of real estate.

You'll probably get a summary,
at least an org chart, probably

a summary of the staff.

It's you're now in a diligence process,
and your diligence process begins with the

question that says, do I buy this thing?

Do I bid on this thing or not?

That's a fundamental question.

And honestly, you're doing it most
likely against some time pressure.

Depending on the alarm of the fire,
is it a 1 alarm fire or a 5 line fire?

You may have.

A minute, or you may have a
little bit more than that to

decide what your bid looks like.

And there's a lot of ways or a
couple of ways to structure a bid.

And there's some things you
should think about here.

The first and foremost thing that I
would say, even in a small deal, and

this is me talking my book, so put
every disclaimer you want around it,

please.

If I could put one thing through
the head of a credit union out

there that wants to bid, please.

Hire someone to help you.

There's more than meets the eye here.

No disrespect to any
credit union in this space.

I know you can read a balance sheet
probably as well, or anybody that I work

with here, we do this all day, every day.

We've seen more of these than you have.

We know where the bodies are buried.

We can read these things and we
understand and can bring experts

in, including sometimes we would
have to go out to someone like Mark

and get his expert opinion on how
something works or what's going on.

And the magnitude of the issue at
the credit union, because in most

of these cases, there's an issue.

It can be as simple as, Hey, we're
just not profitable for a while.

And we don't really have a business
model that works anymore, too.

We've got some version of fraud out
and out fraud or a situation that

smells like fraud, and we don't even
have enough information to decide.

So what the professional that
you work with can help you with.

Is dialing up the magnitude of
that risk and understanding the

magnitude of that risk is fundamental
to any bid you're going to make.

Treichel: That's very well said and
I, they can be plain vanilla, but

if NCUA is involved, there's usually
some weird issues, whether it's the

contracts, whether it's fraud, whether
it's if there is fraud, and that's on

the deposit side, what does that mean?

If it's fraud and it's on the
loan side, what does that mean?

And then, of course, there's the
clean merger where you acquire

everything, or there's the purchase
and assumption where you say okay.

I'm willing to bid, but I only want these
assets and I only want these liabilities.

By the way, I want I want, is it
going to be an emergency merger?

Will the field of membership work?

Does it all fit, et cetera, et cetera.

So those are great points.

If you're looking at one where N2A
is involved, having someone who's

been through the ringer before, as
opposed to it being your first rodeo

is really good advice, and one other
thing that popped into my head is we're

talking about the merger registry.

So when I was a regional director back
in the day, and I had one of these

that I needed to shop, I would go,
the way it would work is, I discuss it

with my director of special actions.

They'd be meeting with
the credit union's board.

They would be looking to see who
was interested on the registry.

Maybe they'd be kicking the can and making
some other phone calls, but essentially

on that safety and soundness side, they
would be looking at, okay, when you add

a plus B, where does the capital land?

And there would be some natural cutoff.

I don't want.

You don't want to create a bigger problem.

You don't want, you don't
want to pick 8%, right?

Capitalize.

Someone's well capitalized.

If you add them all together and
it's more complicated now with

how the merger accounting works,
and then they overlay that with.

Okay, they're interested in
potentially buying someone.

But what is their camel code, right?

You might be a camel code 1 when
you put your name on the list

and you might be a camel code 3
when the opportunity comes up.

So the 1st phase would be special
actions taking a look at it.

The 2nd phase would be.

Okay, someone's a code 2, but they
got a 3 in management, or they got a

3 in earnings, or someone's a code 3.

Could those still stay on the list?

Yes, but then you get the supervisory
examiner who, whose examiners

coded that credit union a 3.

Again, we're talking the surviving credit
unions, not the merging credit unions.

Might they still be interested in?

And the more, the less pool NCUA
has, the more flexible that they

tend to be with who can take them on.

And what's the definition
of unsafe and unsound?

Because sometimes you would, I would
have conversations with the supervisory

examiner at NCUA and they were frustrated
for whatever reason, but the world that

they were living in and what they were
aware of, Merging in a 100 million credit

union into a 300 billion credit union
where they were upset about one thing

that happened at an exam shouldn't stop
that, that from being considered in, in my

mind, and that's how I would approach it.

So I would sometimes have to push my staff
to not be too risk averse in what the

definition of safe and sound is, but the
reality is you have 14 percent capital.

You're, you've got a better shot at it
than if you've got 7 percent capital.

So a good capital ratio that you've
been, whether you're building it through

subordinated debt or natural earnings,
or a combination of the two being

positioned as the surviving credit union,
well on capital was, is a big positive.

And in addition to those time pressures
you talked about, sometimes you only

have a minute and that's because NCUA.

By they, they either someone gets down
to 4 percent capital because of fraud.

For example, they're either going
to have to merge it within 90 days.

I believe it is under prompt
corrective action, or they're

going to have to conserve it.

Guess what?

They don't want to have to conserve it.

They'd rather tie it up in a pretty bow,
pay you a little bit of money, as opposed

to going to the NCUA board and explaining
in excruciating detail, how they missed

that merger or how they missed that fraud.

Getting it to go away.

Conservatorships their goal is
to avoid those that if they can

spend a little bit of the insurance
fund money, that's reasonable.

They'll do that.

So that's how that timeline.

The

Mike Mac: interesting thing is it would
be really fun to see it from the side.

You saw it from because the N.

C.

U.

A.

S.

Charged with finding the lowest
cost alternative, and it's not

all that, it's not as simple as it
sounds because it's multifaceted,

because it may, as you alluded to,
it may cost you in the long run.

If you tuck this into someone
who said, I'll bid in a merger.

I don't need any dollars from
the NCUA, and I'll take it on.

If that turns into a problem
two years from now where that

credit union is impaired, it
may be a bigger hit on the fund.

As opposed to how do I weigh that against
someone who says, I'll take it on.

I'll even take it on in a merger, but
you got to pay me 2Million dollars out

of the share insurance fund, or you've
got to terminate my core contract

that costs 750 and breakage it just.

It's not always apples to apples.

There's a temporal part of it.

There's a risk part of it over time.

There are a couple of absolutes, right?

Absolute number one, it is very clear
that from the NCOA standpoint, they

prefer a, an acquiring credit union
to take a merger because in a merger

versus a purchase and assumption or
PNA in the merger, the acquiring credit

union stands up and says, I take all.

Of the assets and liabilities of the
emerging credit union, all of their

history, any liability, known or unknown.

Now, that takes a lot to do.

And again, not something I would suggest
a credit union does without its advisors

helping him because there's a lot of risk.

You may see there's a lot of risk.

You maybe have to be prepared for that.

You may not have.

I'm not privy to that information
yet, because it's not in the data room

where you can't get enough information.

It reminds me of the first
day I started as a trader on

Wall Street, I got a lecture.

The lecture was, you need to get
comfortable making decisions on

incomplete and imperfect information.

If you can't get there, you're
not a trader, and that's okay.

Here is one of those places.

In this event, if you're an acquiring
credit union and you're bidding, you

need to get some level of comfort.

Around making a bid with terms
on imperfect information.

Some credit unions are very comfortable.

Now, what you can do is you can mitigate
that risk by learning as much as you

can and studying what you've been given.

But if you go the merger route, there
will always be some, what Rumsfeld

called unknown unknowns, right?

We just don't know what they
are, where they'll come from.

And we have to be comfortable
that we're big enough, strong

enough, resilient enough.

And we've studied enough
that we don't expect a risk.

That's too big for us to handle.

Treichel: I, I've back in the day when
I was on the West coast as a director

of special actions, I can remember one
particular situation where the credit

union wanted to merge with credit union
a, I already knew I had at least one

cost free merger bid in from credit union
B, which they didn't want to go with.

They'd already invited a in who
was helping them manage the place.

And the, before they put their bid
in, they were smart enough to call

me and say, can I ask for something?

I want to do a P and a
is just one contract.

I don't want it.

It might have been the data processing
and the way I framed it up to them

was is yes, they want their self
determination is they want to go with you.

But if I get any other bid that
is cost free and is a merger who

will take that you will lose.

And the guy was like, got it.

So he just put, within an hour, I was
sending him some smoke signals, if

you will, that careful, you're going
to lose this and NCOA can do that.

Sometimes you can make those calls
and say, okay, yeah, there might be a

little bit of wiggle room around here.

And then also, making imperfect decisions,
it reminds me of the book Blink, which is

how you make a decision in the blink of
an eye, and it's really not in the blink

of an eye, it's that journey, it's that
journey of life that you've taken through

all the things you've seen and done, so
you start weighing it in your head, in

your brain, and you fill in some of the
gaps of the information based on your

past history, which actually goes back
to Get people involved in the process,

whoever it is, whether it's Olden Lane
or some other consultant that works on

these things is fill up those gaps so
you can make the best decision for you.

But there are experts out there
that have seen more than this.

So that can, instead of having
75 percent perfect information,

you can take it up to 80, 80%.

85, 95 percent perfect information.

Mike Mac: In these instances,
my first call is you.

And what am I doing?

It's exactly what I'm doing, right?

I'm saying Mark has been in that chair.

Mark has seen this 35 times.

And this is, this may not be exactly
something he saw, but it's going to rhyme.

Treichel: And

Mike Mac: the insight I can glean from,
you say, Yeah, you probably got a million

or two to play with before the NCA
gets, or, hey, there's another, they're

telling you there's another bidder
outside of you and you're either going

to get this straight up merger with no
cost or you're not, we could be wrong.

I'll bet on your advice in that
space or older lean plus you

understanding a situation versus a
credit union that's going down at

somewhat blind in the first time.

Treichel: Sure.

And an example of that is if you
ask for X dollars plus one, it's

the NCUA board that decides it.

If you ask for an X dollars minus
two, it's the office of examination

of insurance and or there's levels
that it's just the regional director.

And of course, the more hands
that touch it in NCUA, the more

potentially complicated it can get.

So yeah, we

Mike Mac: call those off ramps.

You try to have a business
with fewer off ramps.

Treichel: Yeah, exactly.

Exactly.

Very good.

This is, this has been fun.

A lot of information here.

Mike, if there was one question about
mergers or assisted mergers that I

should have asked you that I didn't,
what would, what might that be?

Mike Mac: I don't know.

I think you've done a great job.

I think we've gotten through
sort of everything I thought

we needed to say on this call.

Again, if I could say really two points,
one is don't get yourself to the place

where the NCOA is dictating terms
because your option set is closing.

And you owe it to your membership,
your staff, your management team

your legacy of your institution, its
brand and its community not to get

there, honestly, because if you're
going to go out, it's okay, we all

have pride again, but it's okay.

Do it on your terms.

Do it in a negotiated setting
where you can protect some of

those things you care about.

And again, there are professionals
here who can help whether you're

in that unassisted setting or
you're early and you understand it.

And if you don't know where you are on
that continuum, we're here to help too.

We can, again, we've seen folks
in every version of it, waited too

long, aren't there yet, have other
options and we can help and assist

in, in any way that's reasonable.

We're happy to do it.

Treichel: That's fantastic.

And if so, if someone's listening and
they want to reach out to you, what's

the best way for them to get in touch?

Mike Mac: www.

oldenlean.

com.

Excellent.

Treichel: All right, Mike,
appreciate your time today.

Mike Mac: Awesome.

Thanks, Mark.

And listeners, I want

Treichel: to, yeah.

And listeners, I want to
thank you for listening.

I hope you'll listen again soon.

This is Mark Treichel signing
off with Flying Colors.