Credit Union Exam Solutions Presents With Flying Colors

Hey everyone, this is Mark Treichel with
another episode of With Flying Colors.

I'm here today with the return
guest of the show of Old

and Lame, Mike Macchiarola.

Mike, how are you doing today?

Doing great.

Glad to hear it.

Interesting times.

We had a little pre chat maybe
we'll talk about some of the

pre chat here on the call.

But, I get your newsletter.

I follow you guys on LinkedIn.

And you had an interesting article, your
newsletter for January that caught my eye

called the 10 themes for the new year.

And I reached out and thought, hey,
let's walk through these on a podcast.

You hadn't been on for a few months.

Wanted to get you back on the show
and Mike for people who might not

have listened to some of your other
shows that I've had you on or are

not familiar with Old and Lane.

Could you give your background and
a little description of what Old and

Lane does for the credit union world?

Thanks for having me on Mark.

Really appreciate it.

Olden Lane is a broker dealer and
a registered investment advisor.

But really what we are is a boutique
investment bank that meets the

needs of credit unions exclusively.

We're unique in that sense
To our knowledge, we're the

only one who has that charge.

We've really cut our teeth or made
our name to the extent that we have

in the subordinated debt market.

We've been in that game since about 2018
or so and have now brought more than 50

clients through that process successfully.

We've raised more than a billion
dollars of approvals and is that

almost that much in, in In actual
dollars all for low income credit

unions, although that rules expanded.

We're yet to see anyone in the industry
other than a like, who raised money.

That's a curious thing.

And increasingly in the most recent
period, we've been in the M and a game.

Our biggest deal to date has been
the Kiesler Jefferson merger that

was announced end of last year.

That's just about finishing up
its regulatory approval process.

And we just announced the beginning of
this year the first full bank purchase.

By a credit union in
the state of California.

That's the front wave transaction
buying Community Valley Bank's assets.

So we're excited about that.

It's taken us some time to get our
team totally aligned with both of those

verticals but we are now full steam ahead
in both business lines and excited to

be servicing the credit union community.

Yeah, just in time because I
think mergers, I think actually

we have that on the list here.

Mergers.

I'm hearing a lot of chatter from
my credit union conversations, both

with clients and non clients and
the stats, I think, show that we'll

get to that here in a few minutes.

Most likely.

You the article newsletter
is laid out greatly.

I'm just going to walk through.

through the specific topics and let me
know what your thoughts are on what the

newsletter said or anything else related
to that because, things change quick.

That was the January newsletter.

Here we are early February and there's a
lot going on in the world in so many ways.

All right.

So the first topic on the
newsletter is hire for longer.

Let's talk about hire for longer and
without going back and reading it.

I'm sure rates have
something to do with this.

Mike, let's chat.

Yes, sir.

So let's paint the historical
picture 1st, right?

So we had a benign interest
rate era for a good decade.

Where we didn't have to concern ourselves
too much with the traditional metrics

that a banker cares the most about
which is what's going in my front door

and what's going out my back door.

With interest rates benign or basically
at zero, close there too the effects

were not felt as broadly as they might
otherwise be when they were around.

What happened is we ended up in
a two and a half year period.

Ending in October of last year, where
the twos and tens were inverted an

inverted yield curve is not a friend of
financial institution because essentially

we typically borrow short and lend
long and an inverted yield curve makes

that not so profitable of an exercise.

That inversion unwound the
end of last year as the.

Rate cutting set in at the Fed.

What's interesting here is that everybody
was optimistic that the rate cutting would

take a lot of the pressure off of the
500 points of rate increases that have

been going on for the last two years.

But what's happened here is since
September of 24, Fed funds rate at

that point was a five and a half.

They cut a hundred basis points and
brought Fed funds to four and a half.

But during that time, the 10 year rate.

Rose in the face of that 3 65 to
basically 4 45 where it is today.

So we've had 100 basis points of cutting
and 100 basis points of interest rate

effects on the 10 year going higher.

That is.

Made it difficult for those who
thought that those cuts would be

beneficial and would take some of
the pain off of the cost of funds.

The average cost of funds in light of
all those moves has continued to rise

in the industry, settling at around
218 in Q4, and just to give you a

ballpark, that's up from a 58 basis
point level industry wide in, in,

The 2 year ago period of Q4 of 2022.

So absorbing more than 150 basis points
of increase on your cost of funds has

obviously put pressure on credit unions.

The fact that the rates have
stayed high here is also going

to have an acute creative, an
acute problem for some, because.

By the estimates of Callahan, about
80 percent of the CDs that are out

in the industry are expected to
roll over by September of this year.

If they roll over and you don't get a
benefit of the repricing because rates

have not moved back in, it's going
to hurt more than many had expected.

So that's why you're seeing pressure that
comes from this interest rate environment.

And it's, it's stressing many credit
unions Very acutely at this point.

Yeah, a lot of variables here, but when
you walk through that, and I put my

old examiner hat on, and I'm thinking
of a credit union that might have some

pressures already on profitability, and
they're having to, having to pay 150 basis

points more, maybe they're making up.

A hundred of that on the loan side.

Maybe not.

And then they're going, okay where
can I cut on my operating expenses?

And the operating expenses, they've
got their data processing contract

locked up for X number of years visas
locked up for X number of years.

They just lost their CFO to the
bigger credit union down the street.

They're looking out at the market.

You've got inflation, which
is impacting salaries.

And you find yourself in this Robin from
Peter to pay Paul to figure out what that

budget is going to be to show that you
can break even or make half of what you

made two years ago, et cetera, et cetera.

So that's that I think
that's probably a challenge.

That a lot of credit unions are dealing
with out there because of what's going

on with the hire for longer potentially.

Any thoughts on that?

Yeah, you've hit it, you've
hit the nail on the head.

It's the, none of these can
be seen in isolation, right?

So all of them mix
together and you're right.

We're an industry of
gentlemen and gentle ladies.

So we tread lightly on head count.

And so that lever is pulled
reluctantly if it's pulled.

And we saw a big announcement today of a
headcount reduction at a big credit union.

We're going to continue to see those.

Those are done reluctantly.

I will tell you when we start and I don't
want to jump the gun to the MNA discussion

that I'm sure we'll have, but Yeah, I
already jumped at the profitability.

Sorry about that, but yeah.

That's okay.

But when we start to screen for
those MNA client potential Merging

credit unions, if you will.

One of the things we look
for is if they're, if their

liabilities have not yet repriced.

That is, they're inside that 218 and
they're struggling to gain profitability.

It's only going to get worse when
those CDs and share certificates or

their members ask for more rent rate.

And if you can't make it work,
When you're inside the 218 industry

level, it's going to be really hard
when you catch up to peer group.

The other thing is, if your OPEX
is already inside peer group,

and there's not anything left.

You're cutting now into bone, right?

So there are plenty of credit
unions that are suffering.

And honestly, the levers
are not there to pull.

The other thing is there are
some one time levers, right?

We've seen, we've gone through
a couple episodes where we've

seen the sale lease back.

We've seen the sale of Visa B shares.

Those trades are only available once
we've seen the sale of a headquarters

but when you start to pull on those,
you've pulled on your rainy day

fund and, you're now stuck with
some choices that are not great.

And as you and I talked about
in a couple episodes ago.

When you're in that position,
your menu your option set as a

potential target in M& A shrinks.

And so you don't want to get
yourself to the M& A discussion

when you don't have the full
panoply of options in front of you.

You got that right.

Yeah.

And in those one time profit saving
events, NCUA heavily discounts

those and says, that's great.

Now, what have you done for me lately
and what's your core profitability?

So you're spot on on that.

And one of the other levers.

Historically has been tweaking your fee
income, whether, in the old days, you

could say let's, you'd have a credit
union that had a little bit of had to put

together a net worth restoration plan.

They'd say, yeah, let's
raise our NSF fees.

5.

Let's raise our overdraft fees.

5.

We'll put a fee on this.

We'll start charging fees to,
to get out inactive accounts and

that'll help us restore capital.

And so that gets us to topic
two, regulatory pressure on fees.

Yes.

Some good news here.

Couple things.

Number one is you just hit capital.

So capital's at great levels.

The industry strong the net worth ratio
across the industry strong, but we always

caution folks that median net worth
and mean net worth industry wide is of

little relevance to a particular credit
union at a particular moment in time.

So, my father used to always say
there's only one unemployment rate.

It's either zero or a hundred you
either have a job or you don't

it's the same essentially for the
capital level of a credit union.

You really don't care so
much about everyone else You

care about yourself, right?

But the fee pressure
this is good news, right?

So the fee pressure has been coming
for a while it's been coming largely

from the CFPB and it's been, pretty
significant now the NCUA got in on

the act a couple of different ways.

The 1st was that the 5300 reporting
since the beginning of last year for

those above a billion dollar level has
included a breakout of NSF and OD fees.

And then the second way that the NCOA
got involved was their letter to credit

unions, 24 03, which was about unfair and
abusive and deceptive practices and fees.

So it looked as if they were getting
harmonized with the CFPB, which

is, terrific from a regulatory
standpoint, and all of that.

Probably slow thanks to the Trump
administration's approach to CFPB, right?

Last week they appointed
Treasury Secretary Besant

as the acting CFPB director.

Seems to indicate that they are going to
treat it much like they did last time with

Mick Mulvaney essentially put it to sleep.

That should mean that the
regulatory pressure coming

on the fee side should ease.

The other thing that's happened,
obviously, is that we've changed

the chairman at the NCUA.

And my bet is that fees in light
of the political structure and

the change of guard there are
not going to be top of the list.

Now, I don't think it's going to
Way, I think more than ever we've

seen sort of constructive work.

I think credit unions own approach
and own appetite for NSF and OD fees

has changed a little bit here, right?

Yeah.

So I think it will have a
it will have a persistence.

It will be sticky, which is probably good.

But here is where I take a little bit of.

Exception to the NCA.

They did it.

They did a research note that they
released a couple weeks ago, and I

appreciate what they're trying to do.

They're trying to really measure
the sensitivity of fees and

what's going on, but they make.

Vast, sweeping conclusions based
on a very small data set for a very

small universe of credit unions.

And they try to extrapolate
from three quarters of data

what's going on under the hood.

There's no allowance for the fact that
many of those institutions cater to very

different regions, very different Groups.

Some face the underserved in a big
way, some not so much, just based on

geography and historical presence.

And so I think we've gotta hesitate
before we draw massive conclusions

from a very small sa sample of data.

You said that very nicely.

I, I need to go back
and look at that data.

'cause I was chatting with one
of my, one of my team members who

said, Hey, have you looked at that?

I said, I saw the headlines.

And and he had already read it, and he
said what you said, but then went on to

say the economist at NCOA said we can't
draw conclusions of X, Y, and Z on this.

And then the former chairman
Harper went on and drew some

conclusions from some limited data.

Yeah, and he's very
passionate about that topic.

So he highlighted what he could
highlight to help make his point.

The pivot point to the new chairman.

We're recording this on Wednesday,
1st, Wednesday of February.

The priority letter to NCA also
refers to overdrafts and consumer

compliance and things like that.

That was issued by Harper.

Tomorrow, NCA is doing a webinar
on the the priority letter.

Typically, those are
kicked off by the chairman.

So I had a, I'll put a
link in the show notes.

I did a, here's what the, what the
helpmann administration might mean to

credit unions, but one of the things
I posed was, what is he gonna do?

Is he going to skip that meeting?

Is he going to cancel the meeting?

Is he going to go into it and say,
and we're canceling the letter, which

he has the authority to do because
he's the spokesperson for the agency.

So he could cancel those if he wants to,
or is he going to say, we're looking at

it and we're going to have a softer touch
on overdrafts than we implicated there.

And this is where, when I was at NCOA, if
I was there right now I would get calls

from the regional directors saying, Hey,
Mark, the priority letter says we're

supposed to do this and we haven't pulled
the letter and the Trump administration is

saying this and the CFPB is saying this.

My examiners need to know how to
deal with overdrafts on the exam.

And until I could get a commitment
from the board you'd have to, you'd

have to tell them it's in flux.

It's not a good answer while you're in
sending examiners out there because they.

They like clarity and the
credit unions need clarity.

So that stickiness is there because
that's one of the things that leads to

that stickiness too, is they're going to
get unclear guidance from NCOA until NCOA

either says, okay, that's off the table.

Our letter that we wrote last year is
off the table, which again, Hauptmann

can do, or he can put his own, he
put his own priorities out, which

were a big picture priority, but
that letter is still out there saying

they're going to do A, B, and C.

And then they've got.

I'm going down a rabbit hole.

They have an internal internal
instruction that issues what

their scope is for their exams.

Nobody knows what it is, but internally,
and some chairmen's look at that.

Some chairmen's don't Kyle Hoffman.

If you're listening, you should look
at that and see if it's consistent

with what you want the scope to be.

All right.

Yep.

No it's in flux and we'll get to that.

I have a lot.

I keep you, you're going to say, I
will get to that when we get later.

I keep, I have a hard
time keeping these things.

It's like I said, it's a soup.

It all mixes together.

The other thing on, on, on the fees
is we cannot, as an industry, get to

a place where the words non sufficient
funds are overdraft or we just can't.

We have to make allowance for the fact
that this industry reaches different

demographics and different folks
at different parts of the ladder.

And so there are particular credit unions
where we work with the people and I can

assure you, I have the greatest heart
and the greatest tolerance, but they

are in a place where their riskiness
dictates a certain the expectation

that if they just took it away.

They would threaten their business,
their franchise, and then you'd be in

a place where people who need those
financial services and the delivery of

those products and services would be
just, out of luck, and I can't do that.

And a guy who needs to
get a replacement tire.

It could be a used tire, right?

He has to get a used tire for his
truck so he can go out to work so he

can put, food on the family table is
better off getting an NSF fee than going

to the predatory lenders that are out
there and that is a service that we

can't let credit unions get away from.

And the hyper focus in my opinion,
the hyper focus on fees of the

Biden administration Was getting
dangerously close to actually harming

people when it was trying to do good.

I think it could be intellectually lazy
to paint every credit union and every

style in every region with the same
brush, again The data will tell you

some things and you've got to be careful
and you can't Read them too broadly,

but at the same time, you have to have
a heart here somewhere underneath and

make allowance for, customization.

Another non sequitur you reminded
me of a former NCOA Attorney who

retired and at his retirement party.

He said he was a lazy genius I'll take it.

And you know what?

He was right.

I never free.

He's a great guy.

A smart guy.

I enjoyed chatting with
him, but but he nailed it.

He knew it.

If you don't, by the time you're at
the end of your career, hopefully you

can know yourself and he knew himself.

Self assessment.

That's a good self assessment.

All right.

So that's a good pivot to the.

The strained consumer, which is up next.

Let's chat about the strained consumer
and the the impact that's happening on

our soup that we're building here today.

Look, you could stop at any moment in
time and, throw the towel in on the U.

S.

consumer but you'd be
wrong most of the time.

So there always just seems to
be a tolerance for more, right?

I opened the household credit report
from the Federal Reserve and my eyes

bulge out of my head when I see 17.

94 trillion dollars of household debt.

When I look at the California line and I
look at debt encumbrance at 90, 000 per

person and I say what does that mean?

We had a big discussion in the
office the other day about that.

All I know is California is a
good 15, 000 higher than the next.

Illinois.

So congratulations.

But again, at what point do
you truly throw the towel in?

I will caution that when it comes
to credit you go up in an elevator

and you go down in an escalator.

Here we are 11 percent of credit
card balances in the U S or

90 days or more delinquent.

That makes the hair on the back of my neck
stand up, but you know what, here we are.

There's been a significant drop
in a continued drop quarter over

quarter in personal savings rate
where it really expresses itself

for credit unions, the delinquency
lines getting to be a little ugly.

It has been running now, all the way
since quarter 1 of 2022 where it bottomed

out at 42 basis points at the time.

We were ringing the bell here
that there may be a spring effect

in those numbers because all the
moratoria that had been building.

And I think we're seeing it.

I think the chickens are
coming home to roost.

We're at 97 basis points in the most
recent quarter here and it's causing acute

stresses in pockets You're seeing some
of the bigger credit unions that tend

to have commercial real estate exposure
there's some serious issues in a couple

places some of the credit unions who
were Addicted to growth in a certain

sense in the last few periods have gone
out on a binge on the consumer unsecured

where you've seen a lot of stress.

And I think in the auto patch in certain
pockets you're seeing some softness.

And the word here is just be careful.

I would, like I said, I'm not going to
call the end of the day or ring the bell.

But the consumer is under stress
and just know that lurks in the

background of everything you're
trying to do as a credit union.

Which is going to segue us right into
the next one which is loan growth.

Yeah, so the challenging
environment for loan growth.

Let's speak to that.

Yeah, here it looks like in the, the
last credit unions are still reporting,

but it looks like we're going to be
right around 5 percent growth of loans

in Q4 which reverses a quarter over
quarter decline that's been in the

market for a while, for about two years.

So I don't know whether that's
an anomalous piece of data.

I don't know if it's yet bottomed
out and we're going to see growth.

I do think we want to look for loan
growth coming off an environment that

was tight on the liquidity side, and
that should be easing where interest

rates have probably bottomed, topped
so that, that effect should be seen.

Bearing off and you're certainly going
to get pro growth posture and less

regulatory posture across a large
swath of industries, which should

encourage typical lending activity
and growth in the broader economy.

I do think, you're going to
see some long growth here.

I think it will take a
little bit time to lag in.

But I definitely am more
bullish on loan growth and that

has knock on effects as well.

I think that will more than anything else.

I think that will wake back
up the sub debt market.

Because as much as people will
complain about interest rate the

absolute level of interest rates is
irrelevant when you've priced in both

sides of the balance sheet and we've
found a new level of normalization.

What's more important in my mind is
do you have true visibility and belief

in your loan growth because if you
can see that and you understand that

you have pricing room then you can.

Project out that you can grow into
a levered balance sheet and an

appropriate amount of sub debt is
probably an order for many institutions

that have been waiting it out.

Yeah.

When I think of that too I'm
wondering, you can't paint

with the broad brush, right?

That's the average.

Where is it happening?

Are there states where it's 2%?

Are there states where it's 10%?

Where are the winners
and losers individually?

But to see the number.

Going in the right direction.

Hopefully that trend will continue.

So the next step we've got, we
talked about profitability, but

profitability has been getting
squeezed general thoughts in addition

to what we might have already said.

Yeah, here it's all of the
stresses we've identified.

It's a little bit of credit deterioration.

It's probably we're feeling the effects
of some lax underwriting standards

some reaching for growth and or yield
some tighter liquidity some underwater

investments that continue to mature or
roll off, but are doing it slowly and

the underwater ness, if you will, is
as high as it's ever been because the

interest rate rip was as fast and as
aggressive as it's ever been We're chewing

through it and we're being constructive.

I'm just worried that, not everyone's
going to get to the other side.

If you look at the absolute level
of return on assets 64 basis points.

But again, there's a pretty
significant variance.

We're doing some work here.

We're not through it yet to understand
both geography where that cuts.

And I think also size matters here and not
as much as you think in the positive way.

Being bigger here can be more dangerous
because they can wear bigger risks and

some of those bigger deteriorations
on credit are being felt at the

more sophisticated, larger shops
that are into more sophisticated

asset classes that are suffering.

So we're doing some work on that.

But overall, yeah.

We need to be more profitable
than 64 basis points.

I know that for some, they say, wait a
minute, it's a non for profit industry.

What are you talking about?

That level doesn't matter,
we have a saying over here.

If it don't make sense,
it don't make dollars.

And you have to make dollars because
you have to continue to squirrel

money away and retain earnings
because that is your war chest.

That's what allows you
to fight for a rainy day.

That's what allows you to build capital.

And if you're not growing that.

Capital and that retained
earnings line fast enough.

You're out running that rainy day fund,
that cushion, that risk absorbing capital.

And it's not good again, though.

Capital levels are pretty significantly
high, historically high for the industry.

Good as an overall measure but not quite
there for every credit union, if you will.

Now, a great point.

I don't think I have it based
on what you just said there.

What we said previously,
nothing for me to add on that.

I guess maybe other than 1 thing I always
used to like to do is and something I want

to do when I see the December data is how
many losers and winners were there, right?

So the average is 64 basis points.

You're saying the smaller ones
might have some flexibility.

That normally would be normally you'd
see the better profit at the bigger

ones as opposed to the smaller one.

I always like to have the context
of the 4400 credit unions.

What's the number that lost money?

Because they're definitely
on into his radar.

That is 1 of their risk reports.

The lose the loser report.

So it's big this quarter.

It's we were parsing
through that the other day.

It's significant.

It's a significant list.

It's not a short list this quarter.

Yeah, there was some
pretty big impairments.

Some big numbers, some big write
downs from some prominent folks.

Yeah.

Yeah.

And that if you're going to
have a loss, you might as

well have a little bit bigger.

I, my advice always with credit
unions, when I was at the

supervisory level or lower was,
make rip the bandaid off, right?

Don't cherry pick and go, gosh,
we're only losing 20 basis

points this year and then lose.

30 basis points the next year and then
30 basis points the next year, right?

If you got, if you've got allowance
to deal with, if you've got some

other bad decision to write off,
reposition yourself get to the bottom,

the first go round and NCOA will.

We'll view that better than you
being on a one time loser, two time

loser, three time loser report.

So it's a little late for that advice
because everybody's filed their December.

But next year, keep that
in mind, listeners, if you

find yourself in that boat.

So consolidation, increased
consolidation we touched on a little bit.

I know you're seeing it.

I know I'm seeing it.

You talked about it in, in the newsletter
general thoughts on consolidation as

we sit here today, early February.

Yeah, I'm in 2024.

Big year.

The credit union for bank style
transaction is out there in spades.

Last year was a record setting year.

22 of those.

I think again, like I said, we
started, we kicked off the year

with one big one in California.

There are more that are in play.

Certainly.

And we're seeing a lot of those banks
quietly shop credit unions are good

buyers certain jurisdictions they're not
because the legislatures have seen fit

through a lot of twisting of arms from
the bank lobby to, to make a rule or to

have folklore that basically says credit
unions buying banks is no, no good.

But that's a small select
few states for the most part.

This is still open for business.

The N.

C.

U.

A.

Has been supportive.

Those bank transactions are
fairly dilutive to capital.

And so you have to keep your capital
level in, in the in the screen when

you're on the radar, when you're doing
those not only your PCA net worth,

but also your risk based capital
understanding the effects of those

transactions on intangible assets
and goodwill and what you can carry.

But we're going to see more of them.

I think what we haven't yet seen as much
of that I think we're going to see a

lot of is bank deals is branch deals.

Here we've got a few at Olden Lane.

We've got a few more on the table here.

I like the branch deal as a
solution at the margin for some

credit unions that want to validate
or optimize their geography.

Sometimes you end up with a stray branch,
a distance away, and it honestly is

better parked in some other credit union.

And so you may want to swap out
of those members and into it can

also enhance your financial ratios.

It can be seen as a way to go back
to core and protect the hub as

opposed to a hub plus satellites.

So we're seeing a lot of folks
rationalize what they've got, and if

it makes sense, they will part with
a branch to another credit union.

Two reasons why I see consolidation
continuing one is anecdotally the

amount of time in my day that's spent
to that issue is just off the charts.

So when my phone rings chances are
it's going to be on that subject.

And the 2nd thing is when
you look at this industry.

And, I started down this road about a
year ago on this particular statistic

and chairman Harper picked it up.

So I was either flattered or annoyed.

I think I was probably more flattered.

But if you break out the industry.

Very crudely, and these levels are
arbitrary, but in the 10 billion

Q3 numbers because everybody's not
report, but in Q3 in the 10 billion

or more club for assets, 21 credit
units in the billion to 10 billion

asset club, 425 credit units.

Below a billion, 4200 credit
unions, so 90 percent of this

industry is below a billion.

Now, I don't, a billion is not a magic
number, we can do it down to 250, down

to 100, wherever you want to slice it.

But we've got a lot of credit unions that
are below a level where many folks would

think it's optimal to run systems that
are accountable to members in terms of,

What they want best in class on, mobile
platform and solutions and payments

and cyber security and compliance.

There is a lot to do.

It has a lot of costs.

That cost is in what you pay your
vendors and your solution providers.

It's also in what you pay your employees.

It's also in the strength, quality,
and frequency of your footprint.

And those are just big costs that
honestly, it favors bigger players.

So I just think the consolidation
is going to continue.

The other thing that's there is age.

We have an aging population of C suites.

We have an aging population
of board members.

I don't know if this is a secret or
not, but the 25 to 35 year old set,

they're not big into volunteering on
the boards of financial institutions.

They want, they like their free
time and they want to be paid.

So I don't know how long we're
going to push that model.

It's going to continue to be strained.

No, you're right the
boards are getting older.

The staffs are getting older.

On consolidation, the
branch at the branch.

Spin off, I think is good to from
the perspective of if you're.

You're having exam challenges and your
net worth is you're in a situation

where you might have to put a net
worth restoration plan together.

And the only solution is shrinking
by reducing your rates or shrinking

by cutting staff that you might need
is 1 way to do it for a year or 2.

But you get so lean that it
can cause it can buy you time.

But the spinoff where you're purging
off a whole area that might be break

even and maybe making a profit on the
sale of it and quickly getting a little

bit smaller footprint, I can see where
that might make more sense long term

for some credit unions, I'm glad to
hear that you're seeing some of that.

And I think you're right.

That will be seeing more
of that you touched on.

Cyber and the general regulatory
burden that I think it makes it small,

the harder and harder it's going to
get for the smaller institutions.

And again, pick a number on what you
want to define a small technology.

So technology having to deal with
the technology side of it, and then.

The buzzword last year in this work
year is artificial intelligence.

What's your take on the technology and
artificial intelligence game and how

that impacts credit unions these days?

A couple things here.

First thing I would say is the cost
of admissions going up every day

the technology that you have to have
the expectation that your member

has about the level of service you
can provide is just getting higher.

You need a best in class
platform for online banking.

You need, payments that are, very
quick very reliable very easy to use.

So you need convenience.

You need reduction and frictions.

Then you want to play offense.

The best credit unions
are playing offense.

They're taking AI or solutions
like it, and they're using it

for predictive results, right?

They're trying to predict or improve
Certain processes, whether it be

underwriting or account opening and
understand what their customers are doing.

They're also using it to target
marketing campaigns to cross sell if

you're not doing any and all of that.

You're not in the top
quartile of credit union.

You also need it.

For defense we need cyber.

That's perfect.

We can't have an attack or have,
any data breached and we need data

to have integrity and to be as
robust as we can because we want

to refine that data and understand
it and use it in a predictive way.

We also want to take processes
and optimize them and

make them more efficient.

And that's typically some of that
repetitive work is going to robotics.

Yeah.

And here again, we have
some tensions, right?

We have the gentleman, gentle
ladiness of our industry.

We have folks that we respect to
do jobs, but we also have a cycle

of technology or innovation that
can replace some of those jobs.

So we've got to do it smartly for the
good of the institution, and we've got

to do it with a heart, but we've got
to be moving to a posture that allows

us to do the things we do better.

quicker, faster, more reliable, perfect,
and then figure out what's next.

So it's a tall order.

And again, one of the
things I worry about.

I do the board meetings.

I go around the circuit and
I, talk to our board about X,

Y, or Z or strategic planning.

And I probably shouldn't do this.

I'm probably get myself in trouble,
but I go to some of these credit unions

and I say, okay I just looked at your
last presentation and it's all about

what we're going to do in technology.

I said, who on the board
has a technology background?

Raise your hand.

And.

Okay.

It's it's invariably zero.

And the other thing is we will
pound the table and talk about

how the lifetime value of a 25
year old is significant to us.

And we've got to turn over our member set.

We've got as much as we respect
the people who are with us at 75.

They're not taking out loans anymore.

And, they are very
predictable and very stable.

We've got to find 25 year old customers
who can come with us for a lifetime.

But we don't have any rep.

Presentation of 2530 year olds on
the board and I would argue they

know as much whether they know it
formally or have as much experience.

They know things that, your
average folks by age don't know.

And I would encourage all of
these boards to at least have

1 member who's in that set.

Because I work with them all day over
a year, and I'm amazed at what these

guys can do the folks we work with on
our team what they can do with data,

what they can understand, what they
understand about social media and the

way it interfaces it's staggering.

And you're drinking from a fire
hose to try to keep up with them.

Yeah, you know that
reminds me of a book title.

I quote a lot the wisdom of crowds.

And if your crowd is a bunch of, it's
nothing but 75 year olds or, 775 year

olds and 260 year olds, you're going
to reach different decisions that

might be optimal for the future and
the members that are going to make

need, need loans et cetera, et cetera.

So that's great advice.

I think it's probably the biggest
challenge facing the industry

right now is capturing the youth
market and being relevant for those

folks, five, 10, 15 years from now.

So we've talked a little bit about,
the election and the got a couple

more here before we wrap this up.

But the Trump effect and we were talking
a little bit before we got on that.

Maybe even the Trump effect that
you wrote the article on 10 days

ago might be a little bit different
than the Trump effect today.

But the Trump effect.

Let's talk about the impact of that
on credit unions as you see it.

I would say very crudely at 20, 000 feet,
two things to emphasize number one is

philosophically politically, whether you
agree with it or not, we should pivot to a

pro growth, lower regulatory environment.

I think it's going to take a little
time to get there practically, but it's

clear that's where he wants to be right.

So he is going to encourage growth.

He's going to encourage less regulation.

Okay, getting there.

I think is more interesting to look at.

So if you look at what we've already
seen out of the new administration,

we've seen a hiring freeze and
we've seen a return to work order.

Those are the 2 that I'm
focused on for a 2nd here.

The hiring freeze.

I get what you're trying to do.

You're trying to, shrink the size of
government or stop it from growing.

The return to work.

I get what you're trying to do too.

You're saying how long can
we run this covert thing out?

And this has been a luxury that
honestly, we don't need from

a medical standpoint anymore.

I get it too philosophically.

The issue is and this as well
as I do the folks at these

regulatory agencies don't yeah.

Exactly live there anymore.

And so a return to work order is
not as simple as I just turn back on

my monthly card and get back on the
transit system and go back to work.

A lot of folks have moved out of the area
and I believe some of the more senior

folks are going to take this plus the
offer of a buyout and say, I'll take it.

I'm just not going to return to work.

It's not You know, the lifestyle,
the expectation I want at this

point, and therefore you're going
to see a brain drain at the top.

We can argue about how big that's going
to be, but I think it's going to be

significant enough that it matters.

Bring behind that the hiring freeze.

You're not going to be able to replace
those people from a body count standpoint.

Either way, you're not able to replace
it from a knowledge standpoint.

So you're going to have a vacuum.

And what worries me about the
vacuum is some of the things

that we're trying to do.

At an Alden Lane, for example, are
they're not the everyday thing, right?

So when a when an institution regulatory
institution like the NCUA shrinks like

that, they're going to play defense.

They're going to do the things
that are absolutely necessary.

They're going to do the things that
they have to do for their day job.

So exams will continue.

They're not going to let
people off the hook on that.

And so a lot of the time that is spent on
the things at the margin that, that we try

to do here whether it be an application
to issue subordinated debt or a merger

application those can go to the back of
the line the back of the queue at the

agency and tend to get less attention.

Now, maybe.

We just enter a regulatory environment
and a change of guard that says,

all right, just wave them through.

I wouldn't suggest that because I think
the agency does a good job of being

gatekeeper on a lot of these things.

And frankly, we try to keep up
with what their expectations are.

But I do think you'll see a backlog.

We already saw it.

Some of the bank deals we've been
working on have just been slowed.

The FDIC has not gotten to
visit on their normal pace.

And so I worry about operational
tempo at the agency and how that's

going to affect credit unions,
especially in a dynamic environment

where you've got to be more nimble
and quicker with your decision making.

So that is 1 thing.

We have a pro growth posture.

We may have a frustrating implementation.

The other thing in the soup at the N.

C.

U.

A.

is the changing of the guard.

We spoke of earlier Harper out, help
men in as chairman help men in his

chairman with 2 Dems on the board.

You tend to get a deadline.

Situation, you also have help in taking
orders probably, more than usual from the

main house down the road in Pennsylvania
Avenue and trying to implement those

into a difficult political slash
personnel environment it's going to

be, I think it's going to be tough.

It's gonna be choppy
here for a little bit.

No, it's very astute.

I agree with everything you said.

And when the hiring freeze first
came out, I chatted with somebody

at NCUA through the grapevine who
said, yeah, we just met on this.

Exams come first.

So the thing you said is exactly what
they communicated to their executives.

Right out of the gate and they
communicated that to their

examiners when they offer buyouts.

Historically, the only thing that
happens is people either feel like

they won the lottery or they ignore it.

Because they are about to retire
and they go, wow, look at, I get

X amount of dollars and I was
going to retire in six months.

Those folks, it's heck yeah.

Where do I sign up for it?

Nobody else leaves other than the
people who are going, gosh, those are

some good people that are leaving.

We have the fi hiring freeze on.

I'm already the go-to guy in this
division or go-to GAL in this division.

And guess what?

The top performers, the pressure on
them goes up and the top performers

are the ones who have options to leave
and might be able to call, might be

able to pivot to another industry.

They can't really pivot to another
government agency right now.

But I think you'll see opportunities
where some folks will be going out

into the credit union land, perhaps,
or going out and consulting et

cetera because they have options.

And so then you get, and
you layer on top of that.

There hadn't been a real economic issue.

We talk about rates having been low.

It was easy to make money.

Everybody was doing things
and the exams got easy.

The jobs got easy and then rates
went up 500 basis points and you've

got examiners dealing with things
that they hadn't seen before, right?

And they've maybe seen it now for
six months, but you, that corporate

knowledge you lose by chasing away.

Some of these people is going to have
ramifications on every federal agency.

It'll have ramifications on into and
again, step stepping aside of whether

or not government's too big and this
needs to happen or not, there will be

these ramifications on the hiring freeze.

Just out of curiosity the other
morning, I, I went to USA jobs.

gov because that's where agencies.

Put their their jobs.

And I thought I'm going to go
see if anybody was dumb enough

to leave up job announcements.

And I checked seven or eight
agencies, including NCOA and no,

none of the, in the big agencies,
none, no job vacancies came up.

So that's where you'd probably get
called over by Pennsylvania Avenue

saying, Hey, there's a hiring freeze on.

Why do you have these announcements
up, when they turn that spigot on, it's

I'll have clients where NCUA, they do
commercial loans wrong and NCUA will say,

you need to cease commercial lending.

It's you're increasing the risk of the
insurance fund saying I need to cease.

We need to come up with some sort
of pocket of things that you think

I'm doing okay for whatever reason.

So that don't make me say we don't
make these loans anymore because I'll

never be able to turn the spigot on.

When you turn that spigot off and
say you're doing no hiring, gearing

it back up, let's say it's three
months before the freeze comes off.

Who knows?

It might be four years.

Let's say it's one year.

Whatever it is, whatever carve outs they
make, turning those spigots back on,

getting those announcements back out.

So that you can full, you have to
have it out for a certain number of

days and you have to get it in and
you have to review it and you got

you have less people to review it.

Oh, by the way, on top of the fact
that are people gonna want to come and

apply with all the angst that's there.

So it's creating some serious angst
and mayhem At all of the agency, some

more without naming names that are in
the press, but some more than others.

But yes, it's a good time
to be a consultant thinking

about how this is impacting N.

C.

U.

A.

as opposed to being over there.

Because I know there's a lot of.

Anxiety as they're trying to do what the
administration wants, they're trying to

meet their mission and they're trying
to carefully, take care of the employees

that help them achieve that mission
and some of these, just like it's hard

to be profitable in this soup that
we're talking about, all those things

and these challenges are the agencies,
including NCOA are facing right now.

Of clicks and mortars.

I love that headline
of clicks and mortars.

So let's talk about about
what that that topic and what

that means for credit unions.

I think it's trying to find the optimal
balance between high tech and high touch.

So it's what is the right presence
from a branch standpoint versus

from a digital standpoint.

And this is going to vary by credit union.

It's going to vary by your history, your
culture your, the makeup of your members.

It's going to vary by geography and how
people bank but banking has changed.

And if you don't see it or
understand it all you have to do

is take my mother as an example.

She used to not.

Dust the computer because she
was afraid it would do something.

And when COVID came, she had no choice
but to access her account on the computer

or the iPod and she figured it out.

And she's now a deft mobile banker.

And it's funny at the very first
quarterly report of JP Morgan when

COVID set in, Jamie Diamond said, when
we look back on this, it will have

done what I couldn't do with a team
of technicians over a 10 year period.

It will have forced people in a
certain age group to change their

habit and access accounts online.

And that's a blessing in many ways
because it allows us to do things without

the physical presence and the cost of
that physical presence, but we have

to be careful because that physical
presence still matters to some and

again, it's going to vary by what style
of business you have and who you serve.

It also has a billboard effect.

It also has some knock
on community effects.

If you think of your branches more
than just a place where people

deposit checks and wait in line.

A lot of branch.

A lot of the credit unions that are
progressive are turning their branches

into financial education centers.

I can think of certain clients we have
who are very deep into that into that

mission and understand it as both a
community center and a financial resource.

I will say there's a couple of things
from a socioeconomic standpoint.

Some of the surveys talk about how
the interaction of people is at an

all time low across all cohorts, all
swaths, all socioeconomic statuses.

And I think credit unions, particularly
community credit unions, can play

a role here that's more broad than
what they sometimes see their vision

as I, before I got on this podcast I
was gonna, I was gonna joke with you.

I just saw that the average American
speaks 3, 000 fewer words today

in a day than two decades ago.

And that is because, they blame
social media and they blame

texting as a communications medium.

Now I'm solving that problem by
going on a podcast binge with you.

I just want to remain as,
as loquacious as ever.

But credit unions can fill that gap.

In communities, and there are
credit unions who are doing

some interesting things.

Rick Weber out on the West Coast at
at Oceanair, which is the old CBC.

He's put his branches into the
Department of Motor Vehicles,

or he's got Department of Motor
Vehicles services in his branches.

He's also put branches in Dunkin Donuts,
or Dunkin Donuts in his branches.

I know that Matt McCombs at Vibrant
out in Moline in the Quad Cities area,

he's turned a lot of his branches
essentially into coffeehouses.

They're fully functioning restaurants
and he's building a sense of

community and he's going about deposit
gathering in a very different way.

He's created an affinity card and
folks get rewarded for carrying

balances and that reward is affected
in the price of their lunch.

Those are different approaches.

They may not all win.

They may not all make total sense to
every credit union, but it's great

to see folks that are innovating and
understanding that the branch and the

digital and that optimal mix across their
membership is really what it's about.

Yeah, boy, that's a lot of powerful
things you said there, but that 3000

words less a day that has ramifications.

And if you can help people create a
sense of community, like those examples

that you grave, gabe, that's fabulous.

And you talk about your
mom, I have the same thing.

I help her with her taxes.

I help her with her investment account.

And she very proud that she's
never, put her credit card into the

ethosphere out there anyway, anywhere.

And when I help her with their taxes
every year I'll tell her I need her

social security number and she'll forget
that I did it the last year and she'll

say, okay, I'm going to give you the
first three numbers and I'll call you and

hang up and I'll give you the next two.

And then I'll give you the next four.

And then at the end of the third
call at Mike, I always say to

her, I said, okay, just to make
sure I got that let me repeat it.

And she goes, no, my mom, the same way.

Interesting, she's had some issues
with things in the mail checks.

And so she's, we're learning together.

The threshold for wiring money is a
lower number now when she does things

because, avoiding checks, avoiding,
just changing kind of the way you bank.

For a whole host of reasons and it's
unique to each person, credit unions

provide an incredible service in that
they're able to tailor the, their

solution to the needs of the customer.

Whether it's a small business or a
person or, a sophisticated person or

less sophisticated person, and honestly
that's what at the end of the day is

so rewarding about what, I do an awful
lot of visiting the credit unions, I

go to see, Folks all over the country.

I love spending time in the lobby, just
observing, just watching what's going

on, seeing how people bank, understanding
what they're doing differently and

what solutions work and don't work.

It's fascinating.

Yeah.

Yeah.

And my mom still has her account.

My dad worked for the telephone company.

He's since passed, but she has her account
there and she had to go do business there.

And she's talked to the
same teller for 25 years.

And that's the credit, that's the
credit union way which is really cool.

Lastly, we've talked
about aging leadership.

We've talked about aging at a
couple different top, a couple

of the other nine points.

First, anything else to add on aging
leadership that we haven't hit here yet?

No, one of the themes we, we talk about.

Here, because it's not said enough
honestly, is NCUA was on this, right?

They did a succession rule last year.

We can argue again at the margin.

I, we did a comment letter here
that's accessible on our website.

I thought they didn't go far enough.

I would have loved that they
pressured it a little harder.

I also think sometimes regulatory agencies
are immune to how much things cost.

They did it in sub debt when they
forced people to go get a lawyer.

And didn't have a de minimis exception.

So you've got small credit unions
raising small amounts of money and paying

fees to lawyers that are unnecessary.

And, they did it in succession planning
when they insisted on a certain format

and a certain, certain credit unions.

Can't hire people to do that.

And if they do, it's more cost
and or you're going to get

something that's boilerplate and
it doesn't really answer the needs.

But for the most part, it's an
issue that has to be confronted.

We have to be straight up about it
because, C suites plus boards are getting

older and we've got to figure out how to
capture younger folks into this market.

I will say, We work with
an incredible number of.

Newer C suite people who are
extraordinarily talented, who come from

less traditional background, different,
they didn't grow up credit union, right?

Some have now come from the banking space.

Some have come from the consulting space.

Some of the CFOs that we see are
very adept at reading balance

sheets and understanding the levers
at a credit union very quickly.

And are progressive in their thinking.

And that is very welcome development.

Because we're, we're going to get
there with experimentation, smartly

done and with, pushing the envelope
where it makes sense because doing

things the same way tomorrow that we
did them yesterday, because we did them

that way, it just doesn't fly anymore.

It's the most exciting time to do things.

We talked about AI.

What some of the guys in my office
are doing with AI is unbelievable.

You gotta be careful and ultimately you
need a person that's responsible, but this

is the most exciting time to do business.

It's the most exciting time
to have clients and customers.

And it's extraordinarily rewarding
if you come to work and you

work hard at it every day.

And, for Olden Lane and its clients, it's
a gift to have what we have here and to

continue to be able to do this every day.

Perfect.

Said.

That's a good wrap.

If someone has listened to this and
they want to reach out and chat with

you and your team about this podcast,
any topic we've talked about, or the

things that Olden Lane is offering
for credit unions that you summarize

on the front end, what's the best
way for someone to reach you, Mike?

I'm on LinkedIn.

Pretty active.

Olden Lane has a has a page as well.

We have a website.

It's www.oldenlane.com.

And we've got a box on there that
says, contact, or, we'll send an info

to a whole group of us over here.

And we'd love to speak to any
credit union, large or small,

about any of these issues.

We just think we're part of the
mission trying to help and we'll do

anything we can to help credit unions
do the right thing by their members.

You got it.

I've seen it in action.

That's a fact.

Thanks so much for your time today, Mike.

Really appreciate it, Mark.

Thanks a lot.

Got it.

And listeners, I want to thank
you as always for listening.

Mark Treichel signing
off with Flying Colors.