Credit Union Exam Solutions Presents With Flying Colors

Speaker: Hey everyone, this
is Mark TriCal with another

episode of With Flying Colors.

Last Thursday, the NCA Board, also
known as Kyle Halman Chairman, held

a board meeting and they talked
about a few different topics and

they had one item on the agenda.

The item on the agenda was a briefing
of the on the insurance fund, and

I'll talk a little bit about that
because if you've listened for a while.

You realize that the insurance
fund briefing is the only time

NCA gives any type of snapshot on
camel codes and or camel's codes.

I call 'em camel 'cause that's what
they were when they first instituted it.

Of course, they added the s for
sensitivity, but the camel codes, and

I'll jump to that right now because
there wasn't a whole lot of information.

Essentially code fours and code
fives as a percentage of insured

shares went down slightly.

And there was a corresponding
increase in code threes.

The percentage of insured shares that
are in code threes, fours, and fives

is just under 10%, which they took as a
show that the insurance fund was strong

and healthy, which makes sense, but a
slight improvement in fives and fours.

A slight worsening in threes,
but that's because the fours and

fives moved into the three basket.

So really a little bit of treading water.

I think what we're going to see moving
forward is Camel Codes will get better.

One of the reasons Camel Codes will
be getting better is that Kyle Halman

in passing made reference to the fact
that 27% of NCOA staff two seven took

the buyout and that those people are
not being a able to be re replaced.

They made a plea if you will, to the
Trump administration that whenever the.

Hiring is turned back on, that they be
notified th 90 days ahead of time, which

I would be shocked if that happened.

But the reason he wanted had a public
request relative to that was that

you can't just turn the spigot on
and that NCUA and other agencies,

once they hear that the hiring freeze
is off, they're going to have to.

Get the announcements out, go out and
say which jobs do we need to fill?

Et cetera, et cetera.

And then go to usa jobs.gov,

which will be overwhelmed all at one time
with all the agencies coming to them.

It would be great if they had a
little lead time relative to that.

He did point out that in the first
Trump administration, if the timeline

for the freeze remains the same.

That, that would be June of next
year that they might be able to start

hiring again, which was interesting.

My guess is that they'll
keep the freeze in longer.

They talked, he talked a little
bit or alluded to the fact

that NCOA cannot make final.

Promotions, they can put
people in acting roles.

And I'm seeing that in my
conversations with credit unions,

that is creating some chaos because
there's a lot of moving pieces.

And when there are moving pieces at NCUA,
you get people unwilling or unable to make

big decisions, which can complicate exams.

Now, I've said here previously, and
this is me going on a ramble on the

impact of the chaos of this 27% NCUA is.

I, and I believe we'll be being a little
bit more friendly on the Camel codes

because they just don't have the staff
to do the Code Threes and the Code Fours.

They've changed their policies on
Code Fours and code threes on when

they need to go in, and they're going
to, be, I think, a little bit more

reasonable in many instances on Camel
Codes just because they can't do what.

What NCUA off the books calls a
wake up call code three or code

four to get somebody's attention.

They'll still do some of those, but
they'll be more inclined to upgrade

quicker and downgrade less quickly just
'cause they just don't have the resources.

To do all that comp those contacts
yeah, that code three would require

or they'll code you a three and then
they just won't show up because for

the follow up exam, because they've
changed their policies, which all in

all is a net win for credit unions in
the short term and in the long term.

Could cause some impact
to the insurance fund.

But time will tell as to
how that all plays out.

I'm sure there were things NCOA could
cut, and I'm sure this is a well received

reprieve in the credit union industry
to have less examiners show up less

frequently, because then you can go about
the business of serving your members.

Other things that were talked about was
that there will be no NCA board meeting

in October because they will be inward
focused, was the words that were used.

They will be inward focused.

I think that's because they're
putting their budget together.

I think that's because they're
deciding what they're gonna put

in their five year strategic plan,
which they made reference to.

He also made reference to the last
NCA board meeting to have an action.

By one board member was 2005 and
Joanne Johnson, and that a final

rule on Fidelity bond is, was put
in place by Chairman Joanne Johnson,

and that rule is still on the books.

He didn't say, I'm here and I can act,
but he implied in my opinion, saying, Hey.

The last time there was one board
member, there was a regulation, the

regulation was a final approval by
Joanne Johnson and I think implying

that he has the ability to act going
forward, he did say their budget will be

coming out soon, as soon as this week.

When that comes out, I'll do
a podcast on it, most likely.

I'm curious about this one, just
because when you reduce the budget, 27%.

That creates some opportunities
to reposition reduce expenses.

He did say that last year there was a
slight increase in the operating fee,

not one that anyone would even notice.

But that this year, if you took the
average that you could potentially

see about a $9,000 reduction in the
average cost of the average exam.

And of course, nobody is exactly
average, but it's more material.

And that's because 27% of their staff took
the buyouts, the 27% that could take the

buyouts were the people who'd been on.

30, 35 years at least 25 to take the
buyout for, I believe it's 25 unless

they did some special program to
take the buyout for early retirement.

So those are the higher paid
people that have been there for

a long time because salaries are
like a snowball going downhill.

The longer you've been there, the,
if you're at one grade, your pay

is gonna be higher, so there's
a substantial saving there.

But he also talked about the fact
that they haven't reaped those

benefits yet because that'll be
2026 budget that will play out.

They seemed seemed a little focused
on how that's gonna all play out.

The staff budget will be coming out
and as soon as this week when that

comes out, I'll take a look at it.

They talked, they used to do two slides on
camel codes, and I would get on LinkedIn

and circle some numbers and point out,
what the changes were relative to them.

They've changed from
a PowerPoint to a, an.

Interactive tool that they indicate
has more information on it, on its face

without going on and clicking on it.

I will take them at their word that
there's more information there,

but what they present is less.

So the public presentation about what
they say about the camel codes is less,

not materially, but it is less because.

There used to be the two slides
that showed number, and then there

was a slide that showed shares and
it broken into certain buckets.

Now maybe that's all there, maybe
it's even more granular now.

I haven't had the time to go out and
play with their tool a little bit.

I will do that and I'll likely record
a podcast while I'm doing it to show

my take on whether or not there's
better or worse information there.

They did ask the acting CFO CFO Melissa.

What was triggering the
losses in credit unions?

There were four credit unions that
had failed at a cost of $17 million

to the insurance fund, which is not
that material in light of things.

They are an insurance company.

Remember, there will
be losses on occasion.

She talked about risk management
high operating expenses.

Corporate governments and operating losses
that were contributing to the losses that

were happening to the insurance fund.

The percentage of assets that had
been lost relative to those four was

consistent with what the norm is.

So there was nothing really
out of character there.

But the fact that this budget is
gonna be coming out it might reveal a

little bit about what they're doing.

Are they going to do
less fair lending exams?

Probably which positions will
they be filling in an acting role,

which divisions will get smaller.

I've talked here about how they.

They may wanna do some reorganizations,
collapse some offices into other groups.

Like the ethics office was rolled
out of General Counsel, like The

Economist was rolled out of ENI.

There's a previous full podcast on that.

And at this juncture, I'm not
gonna get into the what ifs.

We'll just see what staff proposes.

And by, by the way, staff
proposal is a bit of a wink

and a quotation mark the board.

Historically has been quite involved
in that budget and it just becomes

a little bit of gamesmanship.

Recently they've made some changes
more changes and in my opinion, it's

likely we'll put this in and we know
we'll knock it out later and that'll

show that we're listening now.

That's just my take.

I believe there's a little
bit of that goes on.

Now, ultimately does one board
member have the ability to vote?

You can argue that he does, you
can argue that he doesn't Todd

Harper and Tanya Osco would say
they don't have the ability to act.

There's a delegation that says
they can act on essential items.

Would a budget be essential?

It probably would be in general, right?

How could it not be?

But they have a two year budget, they
could rely on their other budget and

then just control the cur, control
the purse strings relative to it.

So I'm mostly curious about what
actions might be taken at the.

Meetings coming forward, assuming or
presuming that there's no board member

added, either the other ones come back
on or someone replaces those who are

taken off it'll be very interesting to
see what they determine to be essential,

what they decide they can act on.

And again, if nobody challenges it,
it doesn't matter because if no one

challenges it and they take the action,
then the action is the action, right?

It would take an action
challenged by somebody.

That you didn't have the authority to
do this 'cause you didn't have a quorum

and you were only one board member.

And I just don't I don't
see that playing out.

'cause in the grand scheme of thing, who's
gonna, who's gonna contest a lower budget?

Who's gonna contest regulations
possibly going away because that's

more likely under a Republican LED
board that regulations will go away.

In particular since.

Donald Trump administration
wants regulations to go away.

They've put clamps on the
independent agency saying, you

can't do this without contacting us.

There shouldn't be a lot
coming forward in that regard.

There was also a message pivoting.

There was a message that went
out to CEOs that saying that

the NCA exams will not have.

The risk ratings that go along with them.

And if you're a CEO, you saw that, I'll
probably do a separate podcast on that.

I've talked about doing that
with Todd Miller and my team.

We just have had so many other calls
and things going on that I haven't

sat down and walked through that, but
they've stopped doing that risk rating,

which will make the report shorter.

It frees up some time for the examiners.

Again, going back to the fact
that they reduced staff by 27%.

So that was pretty much it.

They.

Staff is down, that's gonna
create some challenges for 'em.

It's gonna create some opportunities
that you're not gonna be bothered

quite as much by the exam process.

Of course, if there's something
real prominent that in your

exam that comes up they're still
gonna probably dealing with it.

You'll still be seeing doors examiner
findings and camel downgrades.

They'll just be a little
bit more judicious about

throwing that weight around.

All right I've got some other
exciting podcasts coming up.

I wanted to give you a
quick update on what I.

What I heard in listening to the board
meeting and when the budget comes out

here shortly, I'll do a deep dive on
that and do a podcast on what it might

mean for credit unions based on what
they say in the staff proposed budget.

As always, I wanna
thank you for listening.

We've got some exciting e episodes
and guests coming up soon that

typically will drop every Tuesday.

Not so much over the summer, but I'm back
on my Tuesday drop of a podcast rhythm

here, and I appreciate you listening.

As always, I hope you
will listen again soon.

This is Mark TriCal signing
off with flying colors.