Credit Union Exam Solutions Presents With Flying Colors

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

I hope you had a wonderful Memorial
Day weekend and thanked your favorite

veterans in your family or that
you happen to meet during the day.

I.

It's a, an important holiday and it's
good to remind those people how much

we appreciate what they did for us.

Typically, I do a new episode on
Tuesday followed by a evergreen or a

hot topic from a, the past on Thursdays.

But because we finally had a little
bit of good weather, I switched that

and did a evergreen podcast on Tuesday.

And today is Wednesday.

I'm recording a podcast on NCOs insurance
briefing, but most particularly, I'm going

to focus on camels and what they revealed
about camels and why your camel code right

now could be more important than ever.

And I'll get to that at the end.

You should see on the screen here
if you are watching via YouTube.

If you're not watching and you're
on a podcast app or on my website,

I'll describe what we're seeing here.

But NCA retooled their PowerPoint
and you can still download the

PowerPoint, but they turned it into
more of a database from their end.

You have this top line, the percentage
of insured shares by Camel ratings

and it shows code ones and twos.

While they do their presentation,
they can hover over these dots and

tell you more specifics, although
they actually spoke last about camel.

At this meeting they had in a while, which
is surprising from one perspective because

Camel readings actually got better.

You thought they might
have highlighted that.

Particularly since Todd Harper,
former board member relative to his

lawsuit has said the sky is falling
in camel codes are gonna get worse.

So I thought they might have.

Tried to point out that Camel
Codes got better, but it's really

within the line so flat here.

It's hard to see anything other than
the line is flat, and this page doesn't

show, in my opinion, as much as it used
to until they get that Interoperative

version of it out for everybody else.

So hopefully they said that's
what they're gonna do, but

with their cutbacks, who knows?

But the big takeaway here
is the blue Camel codes.

Camel threes declined from the fourth
quarter of 2024 from 715 to 679.

Code fours and fives
declined from 135 to 129.

That six plus 21, 27, 37,
42, a reduction of 42.

Now, some of those are mergers, right?

So it's not a true net reduction from
improvement, although those assets are

improved because they're into a different
bucket of camel codes, which would be

the code one and code two category.

This basket shows you a little bit more.

This is the second.

Slide that they do on Camel codes.

And you can see there actually is one area
where camel codes got worse and that is

over on the left of the screen on code
fours and code fives over $500 million.

So there, last quarter there were
nine complex credit unions, and again,

NCA defines complex credit unions
as credit unions over $500 million.

There were nine credit unions coded
four or five that increased to 11.

And excuse me.

The assets went from 13 billion
to just over 13 billion.

13.2

billion to 15 billion.

So there were two units
that went in at 1.8

billion net, and it's possible that
three went in and one went out.

But in any event, I.

The trend there is negative.

There are WA was an aggressive
stance taken in at least two credit

unions over $500 million, coding
them in a code four and a code five.

Now, historically, code four means you're
gonna be visited by NCUA every 120 days.

Versus a code three, which is 180 days
versus a code one or a two, which gets

you into the regular exam cycle, and
they've provided some relief there,

which by the way is why your camel
code could never be more important.

I.

But again, I'll get into a
little bit more details on that.

The a hundred million to
$500 million category.

There also was a slight
increase in Campbell Code fours.

They went from eight units to nine units.

They went from 1.2

billion to 1.4

billion.

You could argue that
you could look and see.

All things being equal.

If those are the same eight that there
was one that went up, you could go

try and find a $200 million credit
union that might fit that category.

But it's also possible that there
were moving parts in there and

that you can't reverse engineer
by the way, they used to have a.

Four categories.

They had the 500 million and I believe
they had a $10 billion category.

But as Camel Code started ter
deteriorate, they figured out you

could actually reverse engineer that.

So they collapsed.

I.

The biggest category into one category,
which is the 500 million above also

known as complex credit unions.

So the smaller credit unions,
less than a hundred million.

The code fours declined from one
18 to 1 0 9, so a decline of nine,

and they declined by 200 billion.

Excuse me, $200 million in assets.

A little bit of deterioration in two
of the categories on code fours and the

smaller credit unions actually got better.

So what happened in code threes during
the quarter the previous quarter, there

were 69 complex credit unions, over
$500 million, and that decreased to 64.

So four of those five,
five of those shifted.

However, a couple of those
probably shifted to the, to.

A couple of those were probably
the credit unions that shifted

from a code four or code five.

'cause you can go from a two to a four.

It happens, you can go from a two
to a five, but the most logical.

Pivot would be from going
from a three to a four.

So I'm guessing that two of these
went the wrong direction and went

to the code fours and code fives
and three of them actually improved.

And there was roughly, let's
see, $12 billion, $11.3

billion in insured shares improvement
in that category right here now in

the a hundred million to $500 million
category, if you fall into that.

There was a slight deterioration,
a slight meaning an increase of 1

92 credit union code threes last
quarter, 93 this quarter, and about

a hundred million dollars increase.

So again, you could theoretically reverse
engineer, but who has the time to do that,

particularly since it's a small unit?

Alright, code three is under a
hundred million dollars, 10.3

billion in assets previous
quarter and this quarter, 9.5

billion.

So that's an improvement of
800 million and an improvement

of from 554 units to 522.

That's 32.

It looks like NCUA.

Is getting nicer in the small
credit unions on camel codes.

Could that be related to the fact
that they had some we just wanna

watch 'em so we can go back in.

Maybe the regional directors warned
them saying, Hey, I don't need you.

Being on the small credit unions,
let's be a little bit nicer.

And on the big credit unions where our
risk are we'll keep the game the same.

Who knows?

But that's what the you could.

Paint that narrative.

I'm not sure that narrative
is exactly correct.

Getting back to why your camel
code is more important than ever,

if you've listened to any of my
recent podcasts or read anything

in the press recently about NCUA in
response to the Trump initiatives to.

Decreased federal agencies sizes.

We know that NCUA is going
to shrink by about 25%.

We know that NCUA is
under a hiring freeze.

We know that they're losing a
lot of really talented people.

We know that they only have one
board member Republican Kyle Halman

serving as chair, and we know
that they're going to be pressed

to get their things done on time.

They previously had.

Problems getting their camel threes
and fours done on time this year.

They allowed some relief to that early
on in January before Trump came in.

President Trump that is, and
they elongated their cycle,

allowing billion dollar plus
credit unions to participate in.

The longer exam cycle.

Previously, if you were over
a billion dollars, you had

to have a calendar exam done.

Every year, they changed those rules so
that if you are a code one and code two

with stable management, stable meaning
you've been there for a while, I.

That you could have that elongated.

They did that, in my opinion,
like the airlines do their thing

to, when they added 30 minutes
to every flight, they wanted to

make sure that they were on time.

I think that's what NCA did.

But then under the proverbial Mike Tyson
quote, they were punched in the face

and told that they needed to shrink.

So they've since tweaked that even
further allowing a longer cycle for.

For every type of credit union, even
the ones credit unions now can have a

little bit more time based on what they
said at the board meeting last week.

Which gets me back to if you're a
code one and you're a code two and

you're in good shape, NCUA is gonna
be scrambling to get things done.

They don't have time to focus on, on, on.

Bank purchases, they don't have
time to focus on things that are

not examination related, and they
don't have time, in my opinion.

Once all these people start leaving
and you have people that are

leaving at the end of the year,
you have people that already left.

But NCA is a little bit in, in
a shocked triage type statement.

Type condition right now.

And because of that, if you're
a good credit union, a code

one or code two, you're gonna
get ignored a little bit more.

And if you know what you're doing and
legitimately are code one and code

two and 99% of you pick a number, 98%
actually should be coded at two that

are a one that are coded at one or two.

You're gonna get a lot of leeway and
that NCOA is just not gonna show up.

They're not gonna have time for you.

However, if you are a code three or
a code four or a code five, you will.

Get most of the same level of attention.

However, they're not gonna have
all the resources that they need.

They're losing a lot of
regional lending specialists.

They're losing a lot of
information specialists.

They're losing a lot of pcos.

They're losing a lot of
supervisory examiners.

You have supervisory examiners on the
West Coast in particular do doing double

duty, so they're gonna be stretched.

They're gonna be stressed.

And because of that, when you're
negotiating with them as a code three,

code four, or code five, they might they
will, they possibly could be a little less

willing to be friendly because they're
pissed off that their friends left.

They're pissed off that they
have to do all the work.

They're frustrated because they
have more put on their plate a as

whether they decided to stay and
were eligible or whether they were.

Six months short of being eligible for
retirement or six months short of being

eligible for the early retirement.

There are folks there I know who
wanted to leave, but they fell short.

And they even mentioned in their
board meeting that there were

people who applied to leave that
didn't meet the requirements.

If you're in good shape and
you're a code one and code two,

you want to keep it that way.

So NCUA.

While they're having all this
turmoil it doesn't bother you.

And if you're a code three, code four,
code five, it's gonna be extra important

that you communicate with them well.

Extra important that you get the
information to them that they ask.

Put it in a format that
makes it easy for them.

Try and make their job as efficient
as possible so that they see.

That you are a good code three that
might be moving to a code two but

getting their attention is going
to be substantially more difficult.

I will tell you that.

Sadly, in a lot of my clients, in
a lot of my conversations, I hear

conversations like the specialist
was there for only a week.

And they didn't look at what we provided.

And then when we asked them to
look at it, they were already gone.

And when they looked at it, they said,
Hey, I don't have time to look at it.

'cause I'm three jobs on from now.

That's only gonna get worse.

Making your communication
efforts while they are there.

Extremely critical.

So have a good communication
plan when they come in.

Have a good communication plan as
far as corralling the conversations

that happen in your credit union.

And we have different
podcasts that talk about that.

I'm gonna hit one more topic here for the
day before I go enjoy the sun outside.

And that is this.

At the end of the board meeting
I was very curious what Kyle

Helpmann might say or not say.

And I'm reminded a little bit of a Van
Morrison song with a, with the line in it.

What's the sound of one hand clapping?

There's one board member.

They have stated publicly via a leaked
email from the executive director that

the board member can act on anything.

He's not yet acted on anything public.

He's done two briefings.

Briefings are not actions.

They established under the Dennis
dollar era when I was the deputy

executive director and Dennis
Dollar was the chair, the only board

member that you could do briefings.

They put in place a delegation of
authority saying back then to resolve

that saying or to address that, saying
that the NCUA board, if there's only

one, could take essential actions.

They've publicly said that one,
if there's only one board member,

one board member equals a quorum.

Todd Harper, Tony, Tanya Ska in
their lawsuits have indicated

that they believe otherwise.

Ultimately, this may be decided in court,
and there are some things that came

out from the Supreme Court indicating
that Trump does have broader authority

to fire at some other agencies that
possibly could impact the cases that

Harper and Ska believe that they have.

We're gonna have to watch that closely.

But in any event, what wasn't said.

Was remain calm.

I have the ability to take
the actions that I need.

They did not reiterate it at the table.

Why they could have just thought it
wasn't appropriate, or they don't wanna

touch that third rail because I don't
believe that they really believe that

a board of one can change regulations,
that a board of one can approve a budget.

The good thing is NCUA back when I was
there, we put in place a two year budget.

So there is a budget for 2026.

They just need to and those purse
strings can be controlled by a one one

board member and the executive director.

And the reality is, I don't think that
they think they can actually take those

other actions and that there could
be lawsuits that would challenge it.

However, the plus is republicans tend to
want less regulation, therefore credit

unions will likely not sue if actions are
taken, although some consumer group might.

So we're gonna have to watch.

For what happens there.

I'm curious what happens there.

And with that I will have
one additional podcast.

Most likely.

I teed it up last week about what
the future state of NCUA will be.

I've got some thoughts on how they
may collapse some of the organizations

with NCUA to be more efficient.

Alright, that's it.

I appreciate you listening as always.

I hope you'll listen again soon.

We're on YouTube, we're on
your favorite podcast app.

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Or better yet share the podcast link with
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of your friends in other credit unions.

I, again, appreciate you
listening, and this is Mark TriCal

signing off with flying colors.