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Hey

Treichel: everyone.

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

I'm back with Steve Farr and Todd Miller
of, uh, my team here at Credit Union

Exam Solutions and also formerly of NCUA.

Guys, how are you doing today?

miller: Very good.

Very good.

Treichel: Very good.

All right.

We have folks who listen to every episode
and we have folks that listen to episodes

based on what we, what the topic is.

And we might have some
new listeners today.

So if you guys could give a little
bit of your background at NCUA

before you changed teams with me
and started helping credit unions,

what was your, your journey at NCUA?

And let's start with Steve today.

farrar: I welcome everybody.

I always refer to my career
at NCUA was two parts.

First part in the field
with the credit unions.

Second part in the central office
in the division of risk management.

But while in the field, I got to do
just a big variety of, of examinations.

Most of that career was as a problem
case officer and got to be involved

in problem credit unions and their
resolution throughout the country.

Then a second stint, another 15
of my 30 some years in the central

office and division risk management.

I worked on a mini project and one
that'll come into place here was.

I work on the training that was provided
to examiners on problem resolution.

And in that was that we'd hired a
person that taught conflict resolution

specifically, and that training
session was one day for each examiner.

And that was one of the things that
they said was one of the best things.

So examiners are trained to be able to
listen well and to deal with conflict.

And I think that was important,
but so I'll just end it right

there for going into this podcast.

Very good.

And Todd,

miller: so I spent 34 years within CUA,
I can break my career into three parts,

probably the first third from 87 to
2000 or so, I was an examiner problem

case officer in the Western region,
that middle third from 2000 to 2010,

I was a capital market specialist.

Um, dealt with your larger complex
credit unions in the Western region.

And in the last decade of my career,
I was the director of special

actions in the Western region,
supervising problem case officers.

So throughout my career, most of it
was actually spent in larger complex

credit unions or what you at NCOA
would call troubled credit unions.

Treichel: Troubled credit unions.

And that kind of dovetails into,
we talked about problem resolution.

We talked about conflict
resolution, troubled credit unions.

We have experienced with our discussions
with credit unions recently, an uptick

maybe is the right word of NCUA gathering
the board of directors or some subset of

the board of directors and asking to speak
with the credit union's board of directors

without credit union staff present.

And we've seen that an uptick
in that in our conversations.

And I thought it would be a good topic
to walk through the nuances of why

NCUA might ask for that to happen.

So with that open ended statement there,
guys, what let's talk about situations

where a board member, if a board member
is listening or a CEO or staff member

is listening, where they might go here
for the first time from NCUA, they

would like to meet with the board.

Separately from staff being present,

miller: I think we need to break
this into a couple of pieces.

Um, NCOA examiners asking to meet
with just the board chair as part

of an exam or part of their ongoing
supervision is not that uncommon.

And Steve and I, our first boss that we
ever had when we started, he often asked

us, he said, go to lunch with the board
chairman, figure out their points of view.

It's a very different equation
when NCUA has to meet with the full

board without management present.

That's a whole different scenario.

Treichel: Okay.

And so why don't we, and Steve, you
can add something here, but so what

if we're going to break it into.

Board chair versus full board.

We can maybe talk about board chair
first, but Steve, anything before

we jump into that, you want to add?

No, I think that's a good
process for this discussion.

Okay, great.

So scenario NCOA asked to
talk with the board chair.

miller: Steve talked about problem
resolution and conflict resolution.

A lot of times with meeting
with board chairs and.

Like I said, our first boss had us do it
routinely when I was a director of special

actions, I told my PCOs to meet with their
board chairs at least once a quarter.

A lot of that is just opening the doors to
further communication and building trust.

It's not nefarious.

It's here's the board's view.

It's gathering information, but part
of it is just the examiner wants to

meet with the board and open doors
of communication and build trust.

There is usually nothing
nefarious happens quite often.

It probably should happen
more often than it does.

So, in those situations.

I think just as a board chair, take it as
an opportunity to learn a little bit more

about your examiner, what concerns them
and take it as an opportunity to educate

your examiner what you as a board want
from your credit union, what your focus

is, how you focus on serving the members.

Use it as an opportunity to open
doors and exchange information about

your credit union and your board.

farrar: Yeah, I think that's
the real key is that regular

dialogue can be extremely helpful.

And unfortunately that regular dialogue
really occurs once the credit union is

dealing with the emergence of problems.

Cause they'll tend to spend more
time with when you get to code three

and stuff that the regular dialogue.

Really start to kick up.

Treichel: And there also could be
a fear, like it's a gotcha moment.

It's examiners are not police officers,
but they are regulators, right?

Examiner is not the IRS, but.

Getting a, getting an envelope from
the IRS, make sure your eyebrows

stand up and getting a call from NCA
saying, Hey, I'd like to talk to you.

They, the volunteer could go, Oh
gosh, did I do something wrong?

Is there something I should I get talking
points from the CEO before I, I call them.

But if it hasn't happened to the board,
it's a new board chair or it's a board

chair where they haven't done that.

It could make them get a little
bit anxious or get a little bit

worried about the fact that it's you.

Is considering having that conversation.

And then I also I'm remembered of
a quote that I sit on here quite a

bit, former insulate board member
who said familiarity breeds consent.

It's it goes back to that communication.

If I know you and how you tick and you
know me and how I tick, if we should

run into problems, like it's someone
who has some issues to deal with, if it

ever gets to that point, we're going to
understand we're going to have a little

bit more trust as one of you mentioned.

So that we can maybe figure
things out that work both for

NCUA and for the credit unit.

Any thoughts on anything I added there?

miller: I think you summed
it up fairly well, Mark.

farrar: Yeah, and occasionally, I know
me, I met with other board members apart

from that, and they usually dealt with it.

There was some specific issue
that I didn't think needed to be

brought up to the entire board.

I know one case that dealt had a
board member that was pretty seriously

delinquent on an agriculture loan
and wanted to just get the sense

of what was going on there, but
and what the other board members

would be thinking about that.

The other ones deal with when
it would find or be informed of

potential conflicts of interest.

I would see when they start using board
member sperms for architecture and other

professional services, that might lead
to the need for a conversation to make

sure that was Complete on the up and up.

Those are examples of when I
would meet with not just the board

chairman, but specific board members.

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Treichel: And in those instances,
making sure on the up and up at the

votes, you know, that the individual
recused himself from the vote,

that they did a competitive bid.

And also, as you were explaining that,
the self here, it was, I pictured you.

Like Peter Falk and Colombo
asking, asking open ended questions

to try and get to the truth.

And they do that.

Oh,

farrar: one more thing.

Just one more thing.

Yep.

No, but I think we're also
interested in as examiners is

the powers within the board.

Some boards are overwhelmed by one
member of the board and it really

helps that the examiner is aware of who
that is and why that situation exists.

And is it creating a problem or not?

Treichel: That's a good,
that's a good point.

We had, when I was at NCA, we
had training an author of a

book called the loudest duck.

And the concept was whoever the loudest
duck is, group of ducks, a gaggle.

What's no gaggles geese.

I don't know what a group of
ducks is, whatever the loudest

duck is, that's who you hear.

Right.

And so you can have these dynamics
of group dynamics of a board or.

Or at NCO executives, where
there's someone who dominates

those conversations, which can
have positive and negative effects.

farrar: And on those one meetings, it's
important when you, it's less of a group,

is, is, if the examiner asks a question,
and it's just you and the examiner, and

you don't know the answer, just admit
that I don't know the answer to that one,

but I can get back to you on that, and
don't ever try to make anything up, but

don't be afraid to admit I don't know.

Thank you.

Treichel: That's great.

Yeah.

Saying you don't know expresses
the confidence that you don't

feel that you maybe you should.

And I would even say
sometimes I should know that.

I think I know that.

But let me double check to make
sure I give you the answer.

And we hadn't mentioned,
uh, supervisory committee.

It's not uncommon or actually probably
is as common or maybe even more common

that they'll reach out to the supervisory
committee and touch base with them.

Anything you want to add on NCWay
talking to the supervisory committee?

miller: That probably happens
on most exams, or yes, most

to happen on most exams.

So supervisory committee
chairs are probably used to

talking to their examiners.

And a lot of that's just logistical
agencies trying to figure out

how active the committee is.

And are they aware of their duties?

And what's the extent of their supervision
over the credit union in terms of

internal audit and external auditors?

And so that's an information gathering
one too on the part of the examiner.

It's just a routine check
in with the committee.

It's part of their scope.

It's something that
examiners are expected to do.

Treichel: Yet as yours as I was
framing the question, my recollection

is that is a required call as
opposed to the others that are.

Maybe regionally or supervisory
examiner based type setups with the

board and things, but I think that
reaching the supervisory committee

chair may actually be on the
checklist of things they have to do.

farrar: Yeah, it's like Todd
talked about measuring their

engagement and what they're doing.

The other thing is that one's
always good because a lot of times

supervisory committee is a developmental
committee for potential board members.

So that's never hurts to get that dialogue
going with the potential board members.

Treichel: No, that makes sense.

That makes sense.

All right.

So that kind of, I think we've talked
through talking to one board member and,

or talking to the chair of the board.

Let's pivot to NCOA has asked
to speak to the entire board

or the executive committee, but
we'll focus on the entire board.

NCOA asked.

To speak with the entire board
without credit union staff

present thoughts on that.

miller: Now you're getting into the
realm of not such a common action.

In my 35 years, as I was going through
notes last night, I think I did this

maybe five times as all in my career.

So in 35 years, so it doesn't happen
very often in two of those five times,

it was state regulators that actually
said, board, we want to talk to you

without your management present.

So it, it doesn't happen a lot.

And so when it does happen,
it's an unusual circumstance.

The regulators usually have
concerns of one kind or another.

I would just say in the times I've
done it, different reasons is you

have a dominant CEO, so you're
trying to figure out just where

the board stands because the CEO
has dominated all the conversations

and doesn't really let the board.

Speak to the regulator at all.

Oftentimes, while in another case, it
came down to the board was just totally

misinformed about the credit is risk
position in every way, shape or form.

You can say the CEO or management
team was either intentionally or

unintentionally not keeping the board
informed about the whole risk position

of what was going on in the credit union.

Other instances, we've done
it in those 5 things is.

You have a board that's not
holding management accountable

for doing their job.

And from a board governance
position, hiring the CEO and holding

them accountable is one of the
primary functions of the board.

And so we had a case where
that wasn't happening.

And in one of the cases, it was a pre, in
a way to maybe prevent NCUA from having

to take other administrative actions.

It is to inform the board,
this is what needs to happen.

It wasn't a pleasant conversation.

If you're going to do A or B,
our NCOA is going to take the

next administrative action.

Um, so in my cases, those were the reasons
where I was personally involved in it.

Um, but boards should be aware
it's not a usual practice.

Yeah, and this happens very rarely,
but as we're seeing with our clients.

It's happening more frequently
in today with like Toad 2 credit

unions and wait, that's never
happened in my career in the past.

So there's some other
things potentially going on.

farrar: Yeah.

And I think is that if you're a
chairman and you get that phone call

that Anthony wants to meet without
the management president probably asks

us, are you able to provide me with
a just brief agenda that I can share?

With the other board members so that we
can be, if we need to do any preparation

for that meeting, they may not, they
may say, no, this is item we're going

to, and that kind of would tell you
a lot if they say, I'm hesitant to

provide you a agenda ahead of time.

Keep in mind, you should have a
good idea of what the trajectory

of your credit union is.

And I doubt that you'd be real surprised.

That that was a request that was
made to me without senior management.

I can't overemphasize
Todd's good point about.

The bar, the board is responsible
for holding professional management

accountable for obtaining the results of
which they have put into the strategic

plan and that absolutely needs to happen,

Treichel: which is the kind
of conversation that you'd.

Credit union has complex document
resolutions and maybe not the

code to write that Todd said we're
starting to see some situations

where well cameled credit unions are
asked to have such conversations.

And I don't know if that's a change in
policy at NCUA or as you and I know that

regions do things a little bit different.

There might be a rhythm
to what's going on.

And of course, there's a national
supervision policy manual, but.

Regional directors can
influence how things are done.

ARDs, associate regional directors
of operations, can influence it.

Supervisor examiners, directors of special
actions, can influence how their group

of 10, 15 examiners are handling things.

So, it, But we've seen also some
things in different, in all of the

regions and all of the organizations
that touch credit unions.

So it's, yeah, it's an, it's
a very interesting trend.

And you talk about importance
of responsibility and

accountability with staff.

Ultimately, who NCUA, who the credit
union employs, as long as they're

bondable, is up to the credit union.

It's really important that the credit
union operate in a safe and sound manner.

Who's employed is the
responsibility of the credit union.

And so it can get into a
delicate situation there.

If you're, if they're trying to point
out issues that could go into that arena.

I don't know if we want to talk, go down
the path of this podcast here today, or

that might be a story for another day.

farrar: Oh, I got through one of the
topics I want to bring up is, you know,

one of the questions that you might have
as a board member based on that trajectory

of your credit union and what you know is
going on is, do you feel like you need to

have legal representation at that meeting?

I know it's always a joke that I had.

I used to get called into.

When I was just an examiner and a
PCL that the regional director just

usually wanted to catch up with me.

And I would always ask jokingly,
oh, do I need to bring my lawyer?

And everybody's laughing.

And then one time there was a meeting,
it was like, I don't know, you might

wanna think about it today, but I,
that's important that, that you can

question, you can ask even remember,
you think it would be appropriate

for us to counsel with that one.

And you can ask that,
but it is your decision.

If you need counsel, then it's
really needs to be clear that if

you bring counsel to that meeting.

Who they're representing, because it
would be the question I always ask if

counsel is, do you represent the board?

Are you representing an
individual board member, but

they wouldn't, you wouldn't have.

Somebody that's representing the
CEO, so I think those are issues

that you have to clearly consider.

You guys thoughts on that.

miller: I've asked that question
of attorneys a few times

when they've been present.

I want to circle back to your whole
comment about the board asking the

regulators if they have an agenda and
are willing to share with it, because

the simple fact of the matter is the
regulator, NCOA, state regulator,

they don't ask to meet with the
board unless they have an agenda.

They might not want to
share it in writing, but be

assured, they have an agenda.

So, I think, along with the general
counsel recommendation that Steve

brought up, I think there's a couple of
things that boards need to keep in mind.

When they're asked for this, um, one,
I'd recommend you don't refuse them

refusing to meet with the regulator
is just inviting additional actions or

administrative actions on their part.

And you probably don't want
to go down with that path.

So, if N.

C.

U.

A.

or state regulator asked to meet with
the board with that management present.

As a board, you should
probably agree to do that.

Refusing is probably not in
the credit union's interest.

But in terms of the meeting itself,
like Steve had mentioned earlier, asking

for an agenda ahead of time is good.

Whether they'll give you one
or not is a different thing.

Or they might give you a verbal
one and not a written one.

It is good to perhaps have
your attorney present.

I think as a board, one thing
you have to be very careful about

during these meetings is that
you don't agree to anything.

Go there and listen, have questions back
and forth, but as a board in a pressured

meeting where you might not have a clear
agenda on the part of the regulators,

I think it's important as a board.

You go and listen, and you keep
an open mind, but at that specific

meeting, don't agree to anything
with the regulators at that meeting.

You need a chance to talk that
over with your fellow board

members away from the regulators.

You need a chance to
involve your executives.

You need a chance to potentially involve
your credit unions, councils, so be

careful that you don't agree to anything.

To agree to take any actions, you agree
that a problem exists or something that

they bring up, but don't agree to take
any actions at a meeting of that nature.

Um, you might even consider
asking to record the meeting.

If it's within CUA, um, they generally
have to allow you to do that.

There are certain state regulators
that will not allow you to

record meetings with them.

So that answer to that
question can go either way.

I've been in meetings like this, sometimes
state regulators are present in a state

chartered credit union, and sometimes
it's been just with federal credit unions,

but there are some states out there that
will not allow you to record meetings,

but you might think about asking if you
can record the meeting, take notes, um,

but the big thing is listen attentively,
speak truthfully, if you don't know the

answer to something, like we talked about
earlier with an individual, if you don't

know the answer, tell them you don't
know the answer or just And keep your

mouth closed in this situation, but be
honest with them and anything you do say.

Um, but in the big scheme of
things, this is not the meeting

to make agreements with them.

farrar: That's a really good point
because we actually recently did deal

with a credit union where the board
and the examiner had met together

and agreed on doing something.

And the examiner thought the board was
going to tell senior management about it.

And everyone thought
NCOA was going to fire.

Nobody told senior management what
had been agreed to in that meeting.

And it was weeks later and everybody
starts asking me, I was like,

Following up on those, recapping those
meetings is something that usually should

be done if the NCOA doesn't do it, you
should do it as your organization that,

uh, that's always important that here's
what we understand in our conclusions.

Of our meeting.

That's a great

Treichel: point.

Yeah, as Todd was walking
through that exact situation,

I'm not making commitments.

If you don't have the people there's
there, there may be unintended

consequences and insulation.

A should not expect you to
make decisions like that.

And B, there may be unintended
consequences that both the people

at and the board might not be
aware of if they were to take.

Some sort of action similar to the,
the situation you're referring to.

And then the taping concept,
that's something it's ways.

Vice chairman Kyle Helton talks about it.

And so in board meetings and actually in
their closed section of their exam report,

they have to check a box that says whether
or not the meeting was tape recorded.

And so NCUA current regime is
pushing people to do that so

that they've got a good record.

And the reality is
anything that NCUA says.

In a meeting with the board, they should
be comfortable that there be record of

40 years ago, that might not have been
the case, but today in the world we're

living in, that is indeed the case.

So very good.

What else, what else we
got on this topic guys?

Anything you could think of?

I

farrar: think at times you may get
emotional that occurs in some of

these meetings and it's okay to
disagree with the examiner, but you

have to do it in a respectful way.

And you may have to just say, we
need that, we need a break right

now, but if you can feel like
you're triggered and might not be

in the best of shape to continue the
conversation right at that minute.

So it's just all of that good listening
and the conflict resolution type skills.

Treichel: As my mom said, you got
two ears and one mouth for a reason.

Go into those meetings,
planning on listening and

not using your mouth so much.

miller: These speaks about
emotional stuff in the, in the

big scheme of thing of my career.

It never bothered me when boards got
emotional, especially if you were giving

them news that was unexpected to them,
or they perhaps didn't want to hear.

I found quite often if they got emotional,
it was helpful in the long run because.

They would go back later and they would
rethink their whole position and go

over everything that they were told.

And quite often it was a
catalyst to moving forward.

Treichel: Yeah, the seven stages of
grief, you gave them maybe some bad

news about something that they weren't
aware of and they're going to, they're

going to have some emotions there.

Yeah, this is an interesting topic, guys.

Again, we're seeing it more frequently.

Todd, on the front end, you had mentioned
you saw it less than five times.

And I'm recalling three in
particular, and two of those three

were actually state exams where
they called them into the office and

said, you're coming to the office.

And you can leave your staff at home
and states tend to be a little bit

more aggressive in that maneuver.

At least they did back when you
and I and Steve were at SUA.

miller: We expect out of my five, it
was commissioners twice, once on the

Canadian border and once the state on
the Mexican border, so extreme North and

South, and in those cases, both times the
commissioners, the highest level at the

state, they went to the credit union, but.

It was pretty clear that state
commissioner was in charge of the

meeting and they had very specific
reasons for meeting with those credit

unions without their management present.

Treichel: Same in my, in
the one I was involved with.

Very good.

It's happening more frequently.

If it happens, consider having your
attorney present, consider tape

recording, listen more than committing
to actions if it should happen.

And any last thoughts again,
before we wrap up here, guys.

miller: I'm just going to
reemphasize Steve's point, ask

them if they have an agenda.

Yeah.

And examiners,

farrar: examiners are people and
they're usually after the best

interest of your institution.

So just keep that in mind.

Great point.

Great point.

Treichel: As always, this is fun.

It's fun chatting with you
guys about these topics.

I think we all probably sparked
a synapse in our brain of a story

that we hadn't thought of for
a while, which makes us smile.

And I appreciate your
time, Steve and Todd.

miller: Have a great day, Mark.

Treichel: You too.

And the listeners, I want
to thank you for listening.

As always, I hope you'll
listen again soon.

This is Mark Treichelt.

Signing off with Flying Colors.

katie: Thank you for joining us on
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