Credit Union Exam Solutions Presents With Flying Colors

Treichel: All right.

Hey everyone.

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

I am joined today by three of my
team members, Todd, Steven Dennis,

gentlemen, how you doing today?

Bauer: Doing well.

Doing good.

Treichel: All right, let's, uh, in case
there's, you know, some new listeners

that have stumbled across the, the
Wonders that are the With Flying Colors

podcast that haven't heard you before.

Uh, let's give you, give your elevator
pitch of your background at, at

N-C-N-C-O-A and or credit unions.

And let's start with, uh, let's
start with Steve this time.

Farrar: All right.

I sum up my career at NCOA and with credit
unions really into three separate parts.

Now, the, the, the first part was
just as a, as an examiner and a

problem case officer, which I did for
probably a little over, uh, 10 years.

And in that worked when the, on
the west coast and most of that

was as a problem case officer.

And in that, uh, dealt with
a lot of resolution of credit

unions through mergers, assisted
mergers and conservatorships.

And all of those types of things.

Then, uh, I followed Mark to the central
office and worked remotely in the

office of examination and insurance and
risk management for, uh, you know, at

least another more than 10 years there.

And that I really enjoyed that job
'cause got involved in so many of the

kinda national issues affecting NCOA.

And, and, uh, my duties were, were,
were, were really great 'cause, uh, one

of my calculations was dealing with how
much should the NCA reserve for credit

union potential failures and losses.

I got involved in the corporate
resolution and then towards the end

of my career I spent a lot of time on
the, uh, risk-based capital regulation,

but really diverse topics and, and,
and a lot of interesting people and

within the industry to work with.

Then, uh, post-retirement, I've spent a
stint as, uh, working in a conservatorship

as a, as a CFO, and then we, we started
with Mark, and then we've been able to.

You know, continue to take what we
learned in all those years at NCA and

help credit unions mainly with the,
their communications with the examiners.

Treichel: It does come about
down to communications a lot.

It seems just like life.

Uh, hey, Todd, you're up next.

Okay,

Miller: well I spent 34 years with NCUA.

It's kind of interesting.

The first six, seven years.

Um, I was actually a parallel path
with Steve as an examiner and a PCO.

We worked for the same se initially,
we worked for the same director of

special actions and then we kind of
detoured Steve moved on to other things.

I stayed in the examiner's core a little
bit longer than him when I had children.

Um, so the first 10 years I was basically
an examiner problem case officer.

The next 10 years of my career, I
spent it as a regional capital market

specialist in the western region.

Kind of one of the more complex regions.

During that I kind of got involved
in some of the corporate stuff too.

Steve and I, I think we wrote
one of the first reports for Mr.

Fri about how much risk those
corporates poses to the agency.

And then you drug me into
Westcorp for my last year.

I call it my last year.

'cause I wasn't allowed to talk to anyone.

I spent a whole year at Westcorp working
for you when you were the agent for

the conservator and then the last 11
years of my career, I was a director of

special actions in the western region.

Supervising problem case officers.

Um, regional capital market specialists.

Some regional lending specialists
unfortunately closed more than a few

credit unions at that last recession.

Also I was involved in a couple
conservatorships that were returned

to the members, so those are
kind of highlights of the career.

It's always nice when you can conserve
a credit union, give it back to

the members, and know that those
credit unions are still there today.

I think I retired for maybe
two, three months When you came

through Billings and said, Hey.

Wanna do something in your spare time.

And so I've been helping you ever since.

That was in 2021, so we're coming
up on four years of that mark.

Treichel: That's crazy.

Yeah.

And Steve and I have
been at it almost five.

And, uh, it's, uh, it, I tell
you what time flies, guys.

And Dennis.

Dennis, the newest Yeah.

Newest team member to, to our group.

But I've actually known you just a
touch longer than, uh, Todd and Steve.

Gotta good.

Provide your background.

Uh, if, if you could,

Bauer: yeah.

Yeah.

I'm, I'm the newbie to Mark Mark's
group here, but I've known Mark

for probably about 38 years.

I, that's the timeframe of
my career with credit unions.

Um, my first six years were
actually with NCUA as an examiner

and a problem case officer.

Very similar.

To, uh, Steve and Todd.

Um, but after six years I decided
I wanted to go on the other side.

So I jumped ship from NCUA and
worked for Ideal Credit Union.

Back then, it was Postal
Credit Union in, um, St.

Paul, Minnesota.

I've worked for them for 32 years.

I just recently retired about a year ago
and in, I think in January I stayed in

contact with Mark throughout the years.

Good friends as well.

Um, and he asked me to jump
on a call here and there.

And so that, that's where I, I got
connected with Mark's group here.

My, my 32 years at the credit union,
uh, we were approximately about a

hundred million in assets basically.

Then through our organic growth
for the next 32 years, we

worked our way up to about a 1.1

billion, um, retired there as the,
um, uh, chief financial officer.

Had a great career, was.

It was fun.

I loved my job throughout the,
throughout my 38 or 32 years.

So, worked in various
aspects of the credit union.

Started as a VP of operations,
but basically grew as the CFO

through that period of time.

Had risk management report to me,
obviously finance, accounting and it, so,

a bunch of different areas that reported
into me throughout that timeframe.

Treichel: Yeah, we've all, we've
all been blessed of, of almost

having 40 years of working in
credit unions one way or another.

And, uh, it was luck that,
uh, that brought me to it, and

probably some of you as well.

But, uh, it's really enjoyable now to.

To be able to look at what we
used to do and what's happening

at NCA, et cetera, et cetera.

And in that regard, you know, there's
not a lot with only one board member

and with the Trump administration
saying, you know, we don't want new

regulations and we don't want, uh,
new guidance and things like that.

There, there's not as much coming out
from NCA at this time, but they did come

out with, uh, via their nsu a express.

And by the way, if you don't subscribe
to NSU a Express, you can sign up

an NNC a's website and they'll.

They'll alert you when
new things come out.

Some of it's mundane, like
this person was prohibited.

Uh, some of it's, uh, meaty when they come
out with a new letter or a new regulation.

And what they did recently was
they came out with, uh, a reference

to a, a new webpage called Tips
on starting an exam efficiently.

And it was interesting because, you
know, we have had some conversations

with some credit unions recently.

Where there seemed to
be a lack of efficiency.

And Steve, you mentioned communication
and how important that is.

Uh, but we've seen some signs
that showed us that things might

not have been working optimally.

And it appears that some feedback
has gotten to NCA through, um,

through the reporting back system.

The post exam exam survey.

Yes.

Thank you.

The post exam survey, if you will,
that things could be done better.

So there is this page out there, tips
on starting an exam efficiently that we

thought it'd be good to chat with that.

You know, there we, there's
how we used to do it.

There's how they're saying it
needs to be done now or recently.

There's the things we've seen
client-wise and Dennis from, from

where you sit, there's things you
probably did to prepare for an exam.

But let, I'm just gonna
throw it out there.

Who wants to take first bite on this, uh,
apple of how to start an exam efficiently?

Farrar: Let's go ahead and start
with you because you, you have, uh,

experience on both sides a little
bit and know a little bit more

about merit than, than, than I would

Miller: Well,

I got some training on merit.

I retired right before
they implemented it.

It's somewhat interesting.

You know, I think a lot of what's coming
out of this, it's because of COVID, NCUA

is moving more and more offsite, what
we're seeing with our clients, and they've

expressed it to us that, you know, the,
the pre-exam requests for electronic

documents are growing ever larger.

And in the past, you know, there's been
some guidance laid out to examiners

and EICs, but things have done.

Very informally in some respect.

Their exams have always had a
standardized exam request, but

you've always had specialists.

I know even when I was a capital market
specialist, you know, my list was a

little different than other specialists.

Sometimes I almost always sent them
to the EIC would, sometimes the EIC

would say, Hey, go ahead, send it right
to this person at the credit union.

So there was different.

Protocols being followed by
different people, even though it

was always the EICs responsibility.

And you know, we heard
it from our clients.

They refer to it in this
letter that, you know,

Treichel: got some feedback
coming from D Dennis.

I think your dog might be,
uh, chewing up, uh, something.

Bauer: Yeah, you scratch.

Sorry about that.

I'll put it myself

Treichel: on mute for a second.

We're okay.

Very good.

Uh, Todd, go ahead.

I'm sorry.

Miller: Now I gotta get
back to my train of thought.

So anyways, a lot of credits
are starting to complaint.

Hey, they're getting duplicate requests.

Um, like I said, the specialists
all have separate different little

flavors for what they wanna ask for.

Sometimes those are going directly to
the credit union, not through the EIC.

NCUA has got three different
ways where examiners can, or

credit unions can provide their
information to the examiners.

They can do it through the merit
survey, um, they can do it through

NCUA secure transfer portal.

They can do it through their own.

Facility or secure file transfer portal.

And you know, it's pretty clear this
letter makes it clear to you that it's

so credit union's choice on how they do
that, you know, so two of these tools are

NCOs, credit Union can use their own tool.

It's interesting when you go through the.

Their national supervision policy manual.

You know, some of the things that the
card union have to provide CTR sars,

things with personal information.

They're not supposed to
send those through merit.

They're actually supposed to use
the secure file transfer portal.

Or their own.

So you've got some differing standards
for different types of data, but it's

always the credit union's choice.

And I think you read through, and we
just had a client go through this,

if you use NCUA secure file transfer
portal, um, and we have clients that

like to do it 'cause they can see
what's been downloaded by the examiners.

And this probably came
out in their exam survey.

We've seen this where clients,
they've provided thousands of

documents and the examiners don't
even download and look at all of 'em.

Treichel: And Yeah.

And then they, and then they say,
Hey, you didn't give us this.

And it's like, no, you've
had it for a month.

Miller: Yeah, I'm, I'm gonna defend NCA
on that one a little bit in just a second.

But you have to, if you're a credit
union, you know, read through your

choices, read the instructions.

Um, we just had a client.

That, did things through the
secure transfer file portal and

the examiners couldn't see it.

That can only happen one way, and it's
pretty clear in NCOs instructions how

that can happen and what you shouldn't
do, and maybe our client did it.

I'm gonna defend the examiners and maybe
asking for documents they can't always get

to or don't always get to a little bit.

NCUA, they recently, in February,
they changed their exam schedule.

They made that public.

What they didn't make public
is they changed their NSPM two

for code threes, fours, fives.

Those guys are no longer under 90 days.

They're under one contact between exams.

For three, four fives, that's brand new.

And they put that in the NSPM and
they didn't really make that public.

And I didn't notice it till I was looking
at the NSPM as part of this letter.

So when I was a problem case officer, and
when I was a director of special actions,

you know, you'd lay out, you'd have these
three, four contacts for credit unions.

You have this many
resources for this contact.

It wasn't uncommon for us to ask for
extra things and if we had time to

look through those and roll those
steps over to the next contact.

So we would do that occasionally,
you know, if resources are available,

we could look at more stuff.

So sometimes we would ask for more stuff,
then we knew we could get through with

the idea that, hey, if the exam goes
smoothly, we can look at more stuff.

It's less to look at next time we come.

So there is the MCUA side of that.

Now with our clients, I don't think
that's happening in all cases.

I think they're just going overboard
because everything is offsite nowadays.

You're not on site.

There is a fourth way for, examiners
to get stuff from the credit unions,

and that's to use the credit unions
VPN, that requires extra step

through NCUA's help desk or one
stop, I guess what they call it now.

I don't think NCUA really
just encourages that.

I've done it personally in times when
we're like going through an entire

commercial loan portfolio to price it for.

A p and a action or
something of that nature.

There's a whole bunch of rules
the examiners have to follow.

If they get on the credit union's,
VPN, they have to get off of ncua,

and I don't think that happens
very often, that fourth way.

Most of it, it's the secure transfer
portal, or it's the merit surveys are,

it's the credit unions portal and, it
doesn't talk about this in the letter, but

I do know with a lot of state contacts,
a lot of the states have portals and

NCUA will use the state's portals for
documents when the state is in charge.

So there is a.

A couple other ways not
mentioned in this document.

It, it's just interesting nowadays
with the PII, how they have to

formalize all this, before there
was ever even a formal process.

Steve, you and I, we were getting
documents from credit unions

electronically way back in the 1990s.

Before NCA even envisioned it formally,
so it's been going on for a long time.

I just think now as NCA, we
see this with our clients.

There's more and more stuff offsite,
so those electronic lists are getting

longer and longer and obviously there's
issues in the process along the way

that's happened more than once, or
this letter would not have been issued.

Treichel: Exactly right.

Steve, Dennis anything you want
to add to what, anything you'd

like to add or respond to?

I've got a couple things that Yeah.

That, that Todd triggered
that I'll mention, but I'm

gonna let you guys chat first.

Bauer: Yeah.

This, yeah.

So I, um, fresh off of working
at the credit union, so

this is still pretty fresh.

Um, as far as an exam process, we
use, um, NCOA secure file transfer,

um, for uploading our documents.

Well, we're right, and it's a it
becomes a little bit of a challenge for

credit unions to manage the process.

Today we dedicated one individual
sort of as our contact, our VP

of risk management to handle, um,
basically working with the EI.

From NCA.

Um, but where it gets to be a
challenge is just the pure number of

examiners that are involved today,
particularly with all the specialists.

So I think on the last exam we had,
we had like 16 or 17 different exams.

We're a state charter credit union, so
that might be added to the, the total, but

that's a lot of different individuals to.

Be able to manage.

So you gotta have a pretty solid process
in place in order to try to make it

as efficient as you possibly can.

Um, so our approach was to have a single
point of contact on our end, and that's

where everything, everything went through.

So any request went to that,
our VP of risk, and then from

there, um, she distributed those
requests out to the subject matter

experts at the credit union.

And that, that seemed to work pretty good.

Um, where it gets really
challenging is right.

The we, NCA provides the list up
front, generally about four weeks.

We'd like to have it earlier
if possible, but Right.

It just allows us to
spread out that workload.

'cause the, usually the initial
list, there's like a hundred

over a hundred different types of
requests that they're asking for.

So it takes time.

So we, you know, our credit union
folks might be going through another.

Like our year end audit or there's
other things obviously going on.

So the more right upfront that
EIC can scope out that exam

and provide that information as
to what they need, the better.

Right.

That just gives us more time to, to
formulate and put that all together.

But then where it gets to be a challenge.

So for example, I think the last
exam, I think there were well over

a hundred pre-exam items, but then
during the exam, like that two week

period that there wa that we have.

An exam, then there was probably another
60 or 70 items that were requested.

And again, during that process,
we always ask those examiners to

go through at one point of contact
and then we we distribute it out.

So that's where it gets to be a challenge.

And then a lot of times, I think it was
mentioned that the the examiner said,

well, I, we don't have that, but it's,
so then we're wondering, are you actually

looking at what we uploaded to the.

To the portal.

But generally that, that
didn't happen that often.

It was just the, that two week period
where all of a sudden you thought you

provided most of the information, but then
during the exam, then all of a sudden you

get this big request list that is, and
that may be coming from, you know, 13 or

14 different examiners at the same time.

Treichel: Um, and they could, they could,
and they could ask for something similar.

Uh, and then it, like, you get this
version of what they asked for this

version and, and all of them deal
with loan trial balances, but one

of 'em might have one different.

So then you've got someone who's gotta
track all that down and say, did we give

you exactly exactly what you wanted?

Or did we give it to you three times?

Because you added one element and

Bauer: Yep.

Or policies, right?

Everybody puts their policies
together a little bit differently

from credit union to credit union.

And, you know, we provided
them all of our policies and

they're asking for that policy.

Well, we've already provided that it's,
you know, it's in this, in this area.

But overall, you know, our experience
has been, has been, been generally good.

It's just, yeah, that two week period
of time, our VP of risk, I mean, that's

pretty much her, her full-time job during
that period of time is, is just dealing

with you know, the exam, the examiners.

Establishing meetings, right?

There's meetings that need to happen.

So we had this individual make
sure everything was coordinated.

There wasn't any duplicate going on, so we
just had one person I think that works the

best on for us anyway, worked the best.

That one person sort of
quarterback that process for us.

Treichel: You know, we've had
Steve, I'll let you comment uh,

on everything that's been said.

Farrar: Uh, mine.

I just had one more thing
I was looking at then.

The, the, on the NSPM of the
section on notify credit, union

of exam contact it, it talks about
that at least four week notice.

And I and Dennis, you're pointing
out how important that is.

The other thing they have on, in
the paragraph on that exam staff.

I do not need credit union approval to
schedule an exam, but whenever possible,

the NOA should reach agreement to
minimize disruption to the credit union

and to ensure critical staff members are
available while examiners are on site.

And I, I think the exam, it seems
like the scheduling is, is not

as flexible as it used to be.

And we're, we do hit that in that,
when they're scheduling exam during

some of the holidays, like the
recently, one on the 4th of July.

Certainly you, it could have critical
staff members that have long planned

vacations during that, that period
way before there were no ancy way.

And I think that's something that might
come up and the credit union just needs

to be, you know, upfront in that with,
uh, here's staff that we, that's had

long-term thing and they're critical.

They won't be here.

You know.

Okay.

Let's, let's make arrangements
to do what we can for that.

I'll ask for Todd and Dennis.

Any, you guys, any other
statements on that?

Bauer: Yeah, I think that's important.

You know, I was, I was
talking to our VP of risk.

She, we have our, usually our, we have
our year end audit and our WE NSU exam.

Yeah.

We normally had it at
the same time, year end.

It's sort of always sort of coordinated.

She doesn't take any vacation
from January to the end of March.

She just blocks off her calendar
knowing that, yep, we're gonna

have a year end exam and we're
gonna have a year end audit.

But I think that is hopefully flexibility
on the part of NCOA that yeah, if

there are some key people that are
gonna be gone during that time that

can work with, uh, NSU a to try to
reschedule so that that critical

person can be part of that examination.

Treichel: A couple general
thoughts tied to all the different

things that, that, that hope.

I, I wrote some things down, hopefully,
so I didn't forget where my train

of thought was at, but I had, we
had a client recently that had three

different EICs announced within a
one month period and two different

exam dates, and it went from.

It was originally charted out as X
and it actually was three dates, and

then it was pushed back, and then it
was moved up before it was ever done.

So as you're trying to figure out how
your people are gonna be there, but

NCA and in NCA staff defense, there's
a lot of chaos because you've got

people who have left from the buyout.

You've got people who are going to
be leaving because of the buyout,

and you have the mayhem that
causes to any form of scheduling.

So they're in chaos, which
makes having that gatekeeper.

In total control that much more important
because more than ever, the good

communication is falling on the hands of
the credit union to be communicative or

over communicative because NCUA again,
has resource challenges that, that are

driving a lot of, some of the things
probably driving why this thing had to

be reissued as a webpage, if you will.

And Todd, something you said, uh.

Perked up my ears about
about 120 days contacts.

Uh, how they seem to have
slipped that into the NSP.

They made it public
without making it public.

Makes me wanna go and scour.

You know what else has been changed, but
that reminds me of a quote, uh, that I

used a lot when I was at NCUA, which is
before you take down a fence, you should

understand why that fence was put up.

And the fence was put up to have
30, 90 day contacts for Code Fives,

120 day contacts for Code Fours,
180 day contacts for code threes.

You know, we talked about how
we've all been involved in

credit Union for 40 years.

Well, either around that time
we started or before that time.

Uh, NC a's staffed up so that they
could do follow ups, uh, on credit

unions that were having more challenges.

And the reason links back to what
Steve was talking about, how, you

know, being involved in how you
determine how solvent the insurance

fund is and what the losses are.

It won't happen today and it
won't happen tomorrow, but if code

fives and code fours only need one
contact instead of three or four.

Because they're wanting to comply
with their own internal policies.

And oh, by the way, and I, we halman
two Januarys ago said, Hey, we need to

do better in, in complying with our own
policies on code threes and code fours.

Then they watered that down
so that they could comply.

And I've talked here a lot about how
that's the equivalent of airlines adding

a half hour to their flight times to
show, wow, look, it we're 95% on time now.

So they took that and now they're
saying you only have to have one

contact for a code four, which goes
to the chaos that they're under.

Uh, meaning it becomes that much more
important for the credit union to be

humming on all cylinders because quite
frankly, NCUA has all these challenges.

Any, anything you'd like to add to
that nuance, uh, of this discussion?

Miller: A couple things.

I think, you know, in the case of
like, you know, your VP of risk

management, Dennis, you know, who's
in charge of putting things together.

I think at this point in time, you know,
whoever that person is at the credit

union, when they start uploading things,
they probably need to be over-communicated

of, like you said before the A exam even
starts, before they even get everything

all uploaded, you know, send an email off
to that EIC, Hey, can you see this stuff?

Are you getting this stuff?

'Cause we recently had one where the
union uploaded everything and, you

know, the, the examiner said, Hey, you
uploaded it to a file we can't see.

So it sat there for three, couple weeks,
and the examiners couldn't access it.

They never checked until
the first day of the exam.

And you know, then you got a person
staying up till four in the morning

trying to get caught back up.

So be a little over communicative
if you're the one responsible.

Send that message to the examiners.

Are you getting things?

It's somewhat interesting.

You know, they did away with those
follow up contacts in the late nineties,

early two thousands per a year.

They left it up to supervisors and
regions and as they were short on.

Staff, those follow ups didn't happen and
ended up costing the insurance fund money.

And you can kind of see that maybe
happening again this time around.

Because out of those 20% of people that
left NCOA, a lot of them were there.

Most experienced people too.

The people that were probably
best able to manage, uh.

A flexible schedule and had the most
experience in, in reading those risk

reports and understanding warning signs.

So it will be interesting to see
how this plays out over time.

Treichel: It will it won't end well.

And then they'll go through a hiring
increase because there'll be a change

in administrations, there'll be losses
and the IG will do reports and Congress

will look at them and Treasury will
say, you need to do X, Y, and z.

That's the one thing is you
always know there'll be change.

The pendulum will swing, it's
swinging in this direction right now.

It will swing back and there
will, at some juncture, there'll

be losses where they'll go, wow.

We went in here.

We normally would've
gone in here three times.

We went in here once we went there for
40 hours and we didn't catch the problem.

Uh, um.

Yeah.

So, uh, you know, the history
will repeat itself here for sure.

Miller: Well, with the offsite
exams too, everything is siloed.

You know, a lot of times, you know,
I remember when we do exams on site,

people will be talking, I might
be a capital markets over here.

And, you know, you get someone else
in the room, it's like, you know, you

realize that's a problem and you know,
now they're not having those little joint

communications or you're not having those
discussions in the room so that experience

doesn't transfer when you've got.

Everyone working offsite.

So I think that will be
somewhat interesting.

I often wonder, you know, the industry
doesn't know it, and we don't see

this, but each year when NCA issues
their supervision priorities, they

issue that minimum exam scope document.

That's never been public.

I haven't seen one since I retired.

But you know, they're reducing these
timeframes, they're reducing the need

for follow-ups, and it just makes you
wonder, okay, what in that minimum

exam scope document has changed too.

Farrar: Yeah.

Oh yeah, go ahead Todd.

Bauer: You, you were mentioning,
you know, offsite and then there's,

now there seems to be specialists.

So like back in the day when I was
an exam, there weren't specialists.

We were all generalists.

So it seems like when you're introducing
that offsite um, that offsite

exam and then all the specialists,
that's just, that just complicates.

The communication process for the
credit union, because all of a

sudden you might have a individual
that's working on multiple things.

I can sort of, you know, see
Yep, all this information's here.

Then you got the specialist
working on one area and another.

And it might be, there might be
some crossover, but then they're

asking for the same thing.

So it just seems, it, it seems that, and
I understand why there are specialists,

but that seems to have, have maybe
created a little bit more work on the

part of the credit union to make sure.

Then, right.

You're providing information to two
people rather than one or whatever.

So that's what I have
observed over the years.

Well,

Miller: maybe Mark will cut this out.

I'll just kind of throw my
little 2 cents, you know.

So you started out with, I'm

Treichel: not gonna cut it out.

I'm gonna lean in,

Miller: start it out with, you know, the.

Information security people.

Then you had capital market specialists.

There was a couple in the region.

At one time, you had like one regional
lending specialist in each region.

Now I don't know how many
regional lending specialists are.

You can't keep track of 'em.

There's so many of 'em.

Um.

And then you've got, now I think BSA
people and compliance specialists too.

I can't even keep track of all of them.

It's very difficult for EICs to
monitor all these specialists.

'cause all the specialists are
higher grades than the EICs.

Most of the time.

And I'll be honest, some of
these specialists, they're

like little primadonnas.

They don't like to follow instructions.

They all want to do things their own way.

It creates a huge challenge for
the EICs to manage all of that.

And you know, I don't know.

I suspect with the 20% of the
staff that left NCUA, a lot of

them probably were specialists.

And maybe they will rebalance this
because I think they just got to the

point where there was too many, especially
lending specialist you know, you

should expect a principal examiner to.

Do most of it, especially
the loan reviews.

Um, but yeah, the number of
specialists creates challenges.

It's hard for EICs and ESS to
manage them because, like I

said, they are higher pay grades.

EICs are expected to listen to 'em,
other than when the specialists get

carried away than the EICs are not
supposed to listen to 'em, you know, and

it creates lots of back and forth with
the specialist supervisors and the ses.

It's just a dynamic that is somewhat
interesting in and hard to manage.

And like I said, there's a lot of
'em out there and in my experience,

a lot of those specialists.

Are somewhat prima don is they want
to do things their way and some of

them can be somewhat difficult to
guide and direct and it's a real

challenge for EIC CS a grade 12 having
to reign in a grade 14 specialist

who wants to do things their way.

Treichel: And it can be a grade 14
that says this should be in a document

resolution, or this should be an examiner
finding, and then they move on to the

next exam and the examiner in charge.

In theory isn't as, as educated
or no, isn't a specialist,

isn't the higher graded.

And you can get into the, to
the whole dynamics of what

will be in that final report.

And then obviously it goes to
the supervisory examiner who can

be that first level of arbiter.

Uh, so there, there are, there the.

The specialist system creates
opportunities, and if left unchecked,

it can create some challenges.

And then if you think about Todd, you
touched on, you know, maybe they're

gonna kinda rethink what's going on,
and I do believe they're in a, in

a big mode of, of reinventing NCUA.

I I've heard that from good sources.

I've heard that.

They're not necessarily as inclusive
as you might think they should

be on how they're doing that.

So I'm curious to see you know,
what does come out relative to that?

And I'm thinking about you know,
originally having come from

Minnesota the Minnesota Twins are
in a, in a rough season right now.

Uh, and I, you know,
we're recording a podcast.

I listen to sports podcast.

And there the twins at the deadline traded
10 of their 26 major league players.

They traded their five
best relief pitchers.

They traded their starting shortstop
by eating part of his contract.

And so they've got 38% new staff.

Coming up from their AA club, who we know
some of 'em are, and by the way, they

traded all these guys, but only one of
the people they got was ready to come to

the major leagues theoretically right now.

So they're taking nine guys
from the minor leagues, moving

them up to the big leagues.

One of those guys was named player
of the, of the week last week.

Another guy's 31 years old.

He's he can play all
the infield positions.

He hit his first home run.

Two days ago, and it's creating
these opportunities for these folks

from the lower levels to come up.

And that's what's gonna happen at NCUA.

You know, there's a lot of talent leaving.

They're gonna have some hiccups in
the road because there's gonna be some

corporate knowledge that was left,
but they were also married to some

old ways of doing things, because
that's how we've always done it.

So that, you know, it's gonna be
kind of two steps forward, one

step back, in my opinion, at NCA.

But there will be, you know, stars and
superstars and new leaders from every

level of NCUA people who, who may have
only been there a couple years, who are

now being tasked with doing more things.

And they're gonna grow,
they're gonna make mistakes.

You need to have the freedom
to make some mistakes.

But when that pendulum does swing,
maybe they'll get, uh, a little bit

better control under some things.

And maybe that will be a little bit
better control under the specialist.

But something good will
come out of all this chaos.

It always does.

There'll be some losses that will
come out of this, this, uh, newly

revealed change to their exam cycle.

But yeah.

Interesting times for sure.

Miller: You, Steve, myself, we
were hired as a rebuilding thing,

uh, right after NCA lost a third
of their staff under Callahan.

So, exactly, exactly.

I mean, and you get a chance, I mean.

It like Steve and I just months
outta training, we were in charge

of code four credit unions.

They don't let you know.

People do that for three or four years
now, you know, and we did it right away.

You learn a lot when you're forced to and
some of that will go on again at NCUA.

Like I said, it will be
interesting, you know, NSU A

doesn't release regional org charts.

It'd be nice to see one before
all the retirements and then see

like next one on January one, you
know where all the people are.

It would be interesting thing to compare.

None of that stuff is ever public,
so we won't get a chance to do it,

or it's historically never been
public, but it would certainly

be interesting to see how they.

Play out this reorganization because they
lost a lot of executives and supervisor.

Oh, well, some regions lost a lot
of supervisors, some regions didn't.

You know, so it's different in each
region too, the way the impact is.

And you know, the NSPM was set up,
so all the regions are run uniformly.

And now the way they have to triage
this, it's gonna have to be some

slight variations amongst the regions,
you know, unless they make people

move around, because the people that
left are different in each region.

Treichel: No, it's, you know, and you're
reminding me and Dennis you'll might

have some thoughts to, to this when
we started when I came on and I got

outta training, I think I had four or
five months on, we had a new SE group.

Dennis had been on three, four months
more than me, and he was the second in,

in seniority in our group of 10 examiners.

I was third, and then there
were a bunch, you know, so.

It was one guy, Leon Hendrick, who
had been forced to move under the

Callahan administration from Denver
to DC and he said, no, I'll take a

principal examiner job in South Dakota.

Uh, he trained Dennis and he essentially
was the trainer and the leader of all

of us young folks coming up, dealing
with code fours and code fives far

sooner than the policies allowed.

And, uh, we learned a lot.

We learned a lot quick.

It was like, uh, drinking
from a fire hose at times.

But that's what's happening right
now at NCA with these changes.

It'll be happening this year.

It'll be happening next year.

And they'll, um, they'll come away
stronger in some ways, but there

will be some hiccups, which gets
back to it's incumbent upon the

credit unions to communicate well
with NCOA while they're in this,

um, being reborn like the Phoenix.

Bauer: So I got a question
from you guys' perspective from

at the starting of the exam.

So there's the EIC and you mentioned
generally the EIC is probably gonna

be, what, a, I don't know, 11 or a 12?

Yep.

12 and then, right.

So then you've got specialists that
are fourteens, grade fourteens.

Do they do they coordinate before
they exam anything or do does the

examiner in charge simply send
out the can list of, here's the.

Here's the a hundred items
that we normally request.

It's not necessarily fine tuned.

Um, and then when the specialists show up,
they then request their own information.

Is that generally how it.

The specialists

Miller: are supposed to send it to their
s or to the examiners ahead of time.

So here's kind of how
it worked in our region.

You know, the, the ESS would go
out to the specialist supervisors.

It's like, okay, I need a
capital market specialist.

I need a couple lending specialists.

Those used to be called DSAs.

I think now they're creating
new specialist supervisors

and different titles.

They would make that assignment.

In the Western region.

Each of the specialists, they had
a request list that they created.

So like the capital market
specialist had a uniform one.

It was in our regional instructions,
so the EIC could just pull that out,

ask the capital market specialist.

Anything you need to add to this one?

Same with the regional
lending specialists.

I think the information securities
officers, they may, they had a

couple different ones, but that's
incumbent on the specialists to get

that list to, um, that EIC well ahead
of time, depending on the region.

Some of these specialists,
their schedules were filled out.

6, 7, 9 months, a whole year in advance.

As a supervisor, I typically
only kept it at three months.

'cause I wanted spaces if problem
cases came up and I didn't wanna

have to go to an SE and say,
oh, you lost your specialist.

I'd just rather delay for two or three
months before I'd assigned them one.

So there is little differences on how
supervisors handle it, but in all cases,

the EIC should have the specialist
request list long before they send

their thing to you and they should be.

Putting that in.

Bauer: I just don't, yeah, I don't think
that's, I don't think that's happening.

'cause I just looked at my the VP
of risk sent me the most recent exam

information she provided, and I just
looked at the request list and so

I was looking Okay, what kind of it
information did they request upfront?

There was only one item and had
to do with the disaster recovery.

So I'm assuming that there was a
specialist that, that and then that

those requests came in after they
showed up during the exam, so, right.

So that.

So that in and of itself creates
a lot of inefficiency for, for the

crediting because there's a lot of
information it is gonna provide.

And if you don't know, it's
probably can be predictable

as to what's gonna be asked.

But it'd be great that a little bit
more coordination upfront with that

EIC and the specialist to try to get as
much of that information in advance of

the exam as possible rather than just.

All of a sudden they show up
and we need this, and this.

So then that, that, and then that, right.

That creates, that, those 70, 80 other
items that I was talking about that

just fills up that two week period.

And that's all, you know,
that's all that's going on.

Is communication.

Then between the subject matter
expert are quarterback in charge,

our, our individual, our VP of risk,
and then the potential examiner.

So

Miller: information security
one is, is somewhat different.

They have.

They have different exam scopes,
they use a different exam cycle,

so it's a two or three year cycle.

So the information securities officers,
their requests are gonna change from

year to year because they have a cycle
of different scopes that they follow.

And then what you find with them,
even more so than the regional

lending specialists, is there's a
wide variation in their skill sets

of the information securities office.

So some of 'em have a.

Really deep background in payment systems.

So they tend to wait, you know, that
information security towards payment

systems where others are, you know, got
a deeper background within their network

security and things of that nature.

And that flavors their request
list a little bit and they

play to their strengths.

And then, like I said, they do have.

Rotating exam or they used to
have a rotating exam scope for

the information specialists.

So this year you get this form filled out.

This year it's this exam scope, a
different kind of scope that they use.

So, you know, there's more
variability with the information

systems officers than there others.

And then of course the compliance
exams change, but those are

usually telegraphed with the.

Supervision priorities.

As I usually tell the whole industry,
this is where our focus on compliance is

gonna be, but even then, the examiners
have a little bit of flexibility

to follow up on prior issues.

Yeah, the lending stuff, there's not
really a lot of reason for those lendings

specialists request list to be varied
from year to year the way they are.

And certainly with the.

Regional capital market specialists.

Those shouldn't change very much.

Like I said, in the Western region, we had
a standard one that all the capital market

specialists use the same request list.

Um, the states really wanted that.

The state supervisors, they get
frustrated when NCUA specialists

provide different lists, though in our
region, in the western region with a

lot of the states, we had agreed upon
specialist lists that were given to

the state supervisors ahead of time.

So if the state supervisors know
we're getting capital market

specialists, we have this list.

If they're getting a regional lending
specialist, we have this list.

But I don't know how other regions
and other supervisors handle that.

I assume they had similar
things, but don't hold me to it.

And I retired in 2021, so I don't
really know if that same stuff

is going on today in 20 20, 25.

Treichel: Very good.

Very good.

Well, guys, any last thoughts on this,
uh, topic before we wrap for the day?

Bauer: There's so much here.

I just have one other thing
I thought I Go for it.

Yeah, so there is a, right there
the survey questions in that they

were provided in this document here.

And I'm just curious again
how this really plays out.

'cause I don't, I never
really saw this play out.

And the question was, examiners
reviewed the annual audit, internal

audit function, and the supervisory
committee activities and indicated.

I would assume to the credit
union, the extent to which they

relied on these in arriving at
any exam or nation conclusions.

So I ne I mean, I, I know that went,
I know that's being probably done, but

I never heard that being communicated
back to me as the credit union.

I'm just curious, is that actually
being done or, or not out there?

It should be.

I think it would be great if
that actually was being done.

Um, I'm just curious if it is.

Miller: It depends what's in
that minimum scope document.

You know, at the state of the
time when I retired, examiners

were required to go look at those
supervisory committee internal

work papers from your external CPA.

Um, they had a catchall.

If I, I've looked at this CPA's
work, you know, the last five times.

Okay, I can skip it here and there.

But in theory, they were supposed
to look at that and have that

conversation with their, you
know, supervisory committee chair.

Generally.

Okay.

Would they say you did a good job
with that external audit or not?

No.

Usually it would just be an
exception type thing where they

might say something to use A CFO
if they found exceptions with that.

Yeah, yeah.

They were supposed to be looking
at 'em all along for years.

Bauer: Yep.

But I, it'd be interesting too, you
know, other internal audit functions or

risk assessments that credit unions do.

I mean, we, we had a huge amount
of internal audit work that we did.

A lot of risk assessments.

A lot of them dealt with you
know, cybersecurity and security.

I mean, I was curious how much, uh,
examiner might rely on some of that

information or review that information
to maybe, maybe better scope or

scope up or scope down the exam.

The exam process.

Miller: I think it's
a time resource thing.

Dennis, like I said before, NCA, we'd ask
for things and you know, even my staff,

we'd ask for a little bit more 'cause
it's like, what are we gonna dig into?

You know, some credit unions, you
might go to the internal audit.

Go through minutes, look at reports they
had, have a five minute conversation with

them on their scoping other places, and
I did this with newer people that when

I was training people, I'd make them dig
deeper into that whole internal audit and

risk management process just for learning.

And sharpening their own
saws, what is going on here?

But it becomes a time and resource thing.

And now here with NCUA losing 20%
of their staff, you might have the

initial reaction, they should spend
more time with internal audit.

I think the reality is, is
they're gonna spend less time

with internal audit because you
know you need to get that loan.

What's going on with credit risk?

What's going on with interest
rate risk and liquidity risk?

I mean, credit risk is always
gonna be their biggest one.

They can't really leave that unattended.

That causes most of
the losses to the fund.

Fraud creeps in there from time to time.

But in general, most of the credit
unions that NCUA suffers a loss on.

It's because of credit risk,
you know, and high credit risk.

It creates liquidity risk problems.

So while you might think, Dennis, it's
like examiners could be more efficient if

they spent more time with internal audit.

I think with the shortages and staff,
the reality is, is they're gonna

spend less time with internal audit.

Treichel: That's an, yeah, that's a,
that whole topic is quite interesting.

And, and you know, the,
the check a checklist type

approach encourages compliance.

'cause if the question's here,
and I have to say it, I have, I,

theoretically I have to do it.

And if I have to have that conversation
part of why that's in there is to

raise the bar internally at NCA.

Going back to what Todd said about.

There was a focus on making sure that
they did look at it, and internally

you build that and then you ask in the
survey that it is being done, and then

they can kind of measure over time.

In 20 21, 90 9% of people
said, yes, it was done.

Then it goes to 98, 96, 94.

They can kind of see internally there's
a trend that maybe that's an issue,

hopefully that there could be some.

Some of that behind all this, but
it's a point well taken that, that's

a great resource for NCA to rely on.

But will they be able to now
with everything that's going on,

Bauer: but, but now with the
survey, there'll be a little bit

more visibility onto whether or
not those questions or if that's

actually communicated to the credit.

Either they are or they aren't.

I think the examiner then needs to state
that upfront at some point during the

exam that it wasn't done or it was done.

Yeah,

Miller: I don't know.

This is, you know, NCA, they sent
the surveys out to third parties.

You know, they used to come
internally into the office.

I'd be on details, man.

I'd pick up our regions box and go through
those surveys myself, 'cause they were

in a room, this is where they went.

Someone compiled them once every.

Three months or six months and sent
the results out to the regions, but

it was actual NCUA people were looking
at 'em, you know, now they've hired

a third party to collate that, and
will you get the same flavor and

will they learn the same amount?

Looking through those surveys.

I mean, I'd learned a lot.

I'd be on detail in e and I and I'd pick
up, like I said, I'd pick up the stack

of our regions that hadn't been compiled
yet, and I'd flip through them and

I'd look at the questions and comments
and you know, you're losing that now

that they're moving that whole survey
process to an external third party.

You know, it might be more independent,
but you know, if you're not seeing the

actual documents, will you learn as much?

And I.

Don't know the answer to that question.

I suppose it depends on the
quality of that third party.

Um, but I mean, NCA, not
a couple frauds that way.

We fired a couple examiners that
were making up exam reports.

I, I know one

Treichel: of 'em be referring exam

Miller: survey and it's like,
wait, we didn't have any

Treichel: exam.

I, I wasn't new examiner training
with one of those guys back in 1986.

And you just, you just reminded
me of the conspiracy theory.

That the NBA had that when the New York
Knicks won the lottery and got to pick

Patrick Ewing, that it was an inside
job because they wanted the New York

team to be good, and then they decided
to go external and have, a CPA firm CP

along with all the, the bouncing balls.

So, it's external which create, which
makes it more independent, but it

creates, it creates other issues.

Okay?

So I got to do an NBA lottery draft
reference, uh, Minnesota twins

trading 38% of , their team members
to create new opportunities for

the youth in the twins farm system.

Bauer: Yeah,

Treichel: this is my favorite
podcast in a while, guys.

Bauer: They did it to save money
so they could sell the twins.

Heck, I thought we have this one

Miller: done in 20 minutes and

Treichel: here we're, I thought so too.

A whole hour.

I thought so De and, and Dennis, I
don't know if you saw it, but the poll

ads have decided they're not selling.

That came out today.

Bauer: Oh, did, oh, no, that's not good.

Oh, no.

Treichel: Oh no.

Exactly.

Exactly.

But hey, well, let's, you know,
we got the Vikings, we got hope

with a new, a new quarterback.

All is good in, uh, in Minnesota.

Uh, sports, the POLADs are keeping the
team, uh, they got young guys playing

and the Vikings are gonna go 17 and oh,

Bauer: that's what we say every year.

Every year?

Treichel: Yeah, every year.

We're the sealers fan
who lives in Minnesota.

All right.

What else guys?

Anything else?

Miller: Here's a blast from the past.

My notes are on these.

Remember the old NI guess I can't
get It shows the old NCA route slips.

I love those.

I still have a couple paths
of 'em and I still use 'em.

Yep.

For scrap paper and notes, my note for
this is on an NCA Ralph slip number 1502.

Revise.

March, 1987.

Treichel: You don't have any of the
Golden Rod exam overviews left, do you?

No,

Miller: I do not.

I only did like two exams
on those when I started.

You started

Treichel: afterwards then.

I didn't know what Golden Rod
was until I came to work at NCUA.

I realized it was a color.

All right, guys.

You still

Miller: did time reports
with those When I started.

And you mailed them out, remember?

Treichel: Oh yeah.

Yep.

Yeah, you had to make
sure stuff added up then.

'cause it wasn't a
formula in a spreadsheet.

All right guys.

Thank you for your time.

Listeners.

I wanna thank you for listening
and or watching as always.

Appreciate that.

, This Mark Trekel signing
off with flying colors.