Credit Union Exam Solutions Presents With Flying Colors

Hey everyone.

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

Today I am going to be chatting
mostly about NCAA's recent budget

publication, and it is a staff.

Budget NCUA issues a budget, which
is, I'm gonna use air quotes here.

You can't see me if you're listening
on the podcast, but a staff

budget, which is heavily influenced
by the board and or the chair.

And in this instance,
there only is a chair.

A few years back they pivoted to
calling this a staff budget to to,

for lack of a better word, hide
the fact that the board heavily

influences what number does go public.

It's a misnomer, but they do make
some changes when it goes live.

So I guess you could argue this
is a bit of a staff budget.

I believe that they bake in the
changes before they do it to make it

look more the budget briefing that
they will do probably in October or

November, actually that they listen to
that and then they make some changes.

So it's a little bit of art
and finesse that they use.

But in any event, it's
called a staff budget.

I'm gonna walk through that.

The highlights of that here with you?

It is the.

Lowest budget the agency has had
in FTEs, full-time equivalent

staff in over 20 years.

The proposed budget total is $314
million roughly, which is a 20.

1% decrease from 2025 and a 25%
decrease from what was planned in 2026.

I know that's confusing.

It was confusing when I was at NCOA.

Let's just say it's 20% less than the
budget that they approved in 2025.

Now, the draft clearly lays out
that there are three main drivers,

a 23% reduction to NCA staff.

And by the way, at the last NCA
Board meeting, Kyle Halman said.

I thought he said I listened to it
a few times on the recording, 27%,

and that would make sense in that
the FTEs are cut 23% and then they

have other vacancies that happen.

So I'm intuiting that there's actually
a 23% reduction in the budget of FTEs

that they plan to fill some, and that
there are some vacancies, which gets it

up to a 20 per 27% reduction from their
high of what had been approved last year.

There's a 34% reduction to contracted
services and a 13% reduction

in budget for employee travel.

So interestingly, they're
losing 23% of staff.

Travel budget's only going down
13%, so they're building a little

bit more of a buffer in there.

And it's probably because they were
still coming off of Lowe's tied to

doing less travel under the COVID era.

But they've built in a little
bit of a buff buffer there.

So what does it mean?

Bottom line?

A smaller workforce, fewer contractors,
less travel, and in, in general.

And then the only thing going
up is the capital budget, and

I'll touch on that in a second.

So the main headline is the staffing cuts.

The headline story of the staffing
NCA is cutting 23% from its workforce,

as I mentioned, dropping from about
1,225 employees to 967 as proposed.

The 2026 budget, so that's a
reduction of 288 positions, largely

through the voluntary separation
program required by Trump.

The hiring freeze required by
Trump and attrition of people

leaving that just decided to go
find their happiness elsewhere.

As they say, the budget allows for
up to 23 selective rehires, but

only for the highest need roles, and
only with the chairman's approval.

Now I will caveat that of course if
there's more than a board of one that

approval would require probably the full
board depending, unless they put some

delegations in giving that to the chair.

And of course there is a hiring freeze
right now, and any hiring freeze.

Will take three to six
months just to ramp up.

If you go to USA jobs.gov,

which is where nearly all federal
government, if not all federal

government vacancies are posted, there
are no, no vacancies there for NCUA.

And by the way, the buyouts, I heard
a rumor from good sources that all of

the people at NCUA who had supervisory
level took the buyout in the Office of

Human Resources so that by the end of the
year, all of those folks will be gone.

They'll have people in temporary
promotions, which by the way, when

you freeze staff like this and people
leave and you have roles that you have

to fill, they've also had not just a
hiring freeze, they've had a promotion

freeze permanent promotion freeze.

So they have to put people up if they're
following the rules, they have to put

people up into higher level positions
of no more than 120 days, and then

they'd have to put somebody else in.

So over a year, and we've had the freeze.

Almost a year now, over a year, you'd
have to cycle three people through.

And that's chaotic it.

It's chaotic at NCUA within the
divisions, within the regions, within

the supervisory examiner groups.

And it's chaotic impact if you're
having to deal face-to-face with.

A credit union is chaotic for
you because you might find

out your examiner left then.

Then you end up having a new examiner
and then a supervisory examiner shows

up, or an associate regional director
shows up to the exam and it's somebody

different than who you dealt with
before and it's somebody different

than who you'll deal with tomorrow.

But I digress.

There are in the budget the possibility
of hiring 23 selective rehires to

be determined once the freeze is off
and only approved by the chairman.

Also pay and benefits, which normally
account for 82% of the budget

fall by $72 million as a result.

The draft goes on to say this
reduction is driven by, of course,

the 23% reduction in authorized staff.

And my notes just disappeared on me.

And staffing cuts by office is
something I wanted to walk through.

So I looked at the information in their
draft budget and I sorted by office

and and by function the office that
has the highest percentage of change.

From 2025 to 2026 is the office I used
to run the office of the executive

director, which shows a reduction
of 19 staff in 2025 budget down

to 13 staff, so reduction of 32%.

By the way, just five years ago in
the office of the executive director,

I had 1, 2, 3, 4, 5 people in the
office of the executive director.

There might have been a couple that they
actually counted as the office of EEO,

but it's more than doubled since I left.

They've had, they've added.

Two deputy executive directors.

I only had one ex deputy executive
director at this, at the SSP level.

And I'm guessing that they're
going back down to two or

they're going back down to one?

Probably going back down
to two in the proposal.

Although that would be one of the budget
items that, of those aforementioned

items that that the chairman Halman
would have to approve the office

of examination of insurance going
down by 30 positions from 103 to 73.

That's the second biggest
increase just under, 30% at 29%.

And the impact there is National
Exam Program policies and procedures.

Now, since they're not.

They're not implementing a lot of they're
not implementing a lot of regulations.

The Office of Examination
insurance can play rules in that.

So that would, they'll make up
some of the lack of capacity there.

They've been changing their exam
program, for example, and I'll

do a separate podcast on this.

The risk report.

The risk ratings, they're taking
those out and they're doing some other

things and they've changed the exam
cycle which I'll get to a little bit.

But those kind of things, when they think
them through, they would typically rely

on committees of people from the regions
and the Office of examination insurance.

And that gets a little bit harder to
do when you have 30 30% less staff.

But I'm sure that, what it won't
impact is neither of those offices

that have the highest decrease
actually touch credit unions, right?

So they, there's no exam hours that come
out of the, out of those two offices

which is a general theme here of the
bigger bigger cuts, the credit union.

Moving on to the third office, credit
union resource and expansion cure, that's

bylaws, that's field of membership.

Which has a decrease of 20, about 26%
down from 43 to 32, they lost 11 bodies.

So that's gonna slow down.

Those types of reviews that require
approval in the field of membership arena.

And you could expect to see those
slowed down quite substantially since

they're losing over 25% of their staff.

Next up would be the Office of
National Exam and Supervision.

These are these are.

Examiners that do the corporates,
these are examiners that do

over $15 billion in asset size.

That office is shrinking from 76 to 57,
an increase in 19 bodies, or exactly 25%.

So that's going to impact the size of
the exams in the Office of National

Exam and Supervision, and their ability
to respond quickly, their ability to

communicate well during the examination.

That's one of the things we've
seen by the way, in the chaos

that is the NCA restructure right
now is that com communications.

Communications are always the key to
any good exam, but right now it's more

incumbent on credit unions to go the
extra yard because NCUA is moving so

fast just as you are in quite reality.

But they're moving so fast that they're
not communicating as well as we've seen.

Recently now the Office of Chief,
chief Economist that is going

down from 12 bodies to nine, so
that's an exact 25% reduction.

I wouldn't be surprised ultimately
when either in this budget or a budget

that has more than one board member
voting if they rolled the office of the

Chief Economist back into the office
of examination of insurance where

that function was previously housed.

Again and that doesn't
impact the exam program.

As far as the exam hours, et cetera,
and you getting your exams promptly

consumer financial protection
down from 46 to 35 which is 11

bodies, which is just under 24%.

So all of these offices are
having a reduction greater

than the stated 23% reduction.

So the overall reduction is 23%.

E Everyone I've talked about.

So far has a higher than normal
reduction, meaning they were

hit harder by the buyouts.

So what does this mean?

This means they'll be doing less
fair lending exams and less consumer

compliance type initiatives.

And the reality is under a
Republican influenced the board.

You are gonna have less of those anyway,
but you could probably see that continuing

throughout the Trump era, the Office
of Human Resources down about 2020 3.5%

from 47 to 36.

Looks like most of the 11 that took that
were probably supervisor, if my intel is

right there, that's gonna slow hiring.

So once they.

Have the ability to hire again that is
going to be complicated and elongated.

Ch chairman Houtman did say that
if the freeze comes off similarly

to how it came off under Trump 1.0.

It came off in June of the second
year, which would be June of next year.

And he was proposing that and hopefully
the administration is listening, that

if they plan to take the freeze off in
June, that they allow and alert people of

that in March so that they can use those
three month ramp up to get positions out

to get resumes in, et cetera, et cetera.

Because if it's turned off.

It turned on in June and you
don't find out until June.

That takes until September of next year.

Looking at that another way, if.

If Trump takes the freeze off at the
same time, and quite frankly under

this administration, round two, I
don't even think they'll take it off

then, but this is just a hypothetical.

If you were to take it off at the same
time in June and you roll that forward

to September that's a year from now
and you're gonna have more attrition.

So things are gonna get
harder and harder at NCU.

To get things done.

And I know no one's crying about that,
and I'll get to that a lesser footprint.

Generally people in the credit union
industry are cheering for that, and

they're not concerned about that.

General counsel, office of general
counsel down from 57 to 44 or

reduction of 13, just under 23%.

And of course that's the, everybody in
that office, other than a few people who.

Support the attorneys
and the general counsel.

But since they're doing less regulations
right now that's how, where some of

that bandwidth would be taken up.

Chief financial officer down from 40 to
31, a reduction of just under 23%, 22.5

external affairs and
communication down from 20 to 16.

Wow.

That thing that, that, that office
has grown and grown since I left.

Which is interesting, but down from
20 to 16, that's a 20% reduction.

They're losing one out of every five.

The office of Minority and women
inclusion down from 10 to eight.

So they're down two bodies to the 20%.

And by the way, I mentioned earlier
the office of the executive director

back when I was there, there
were some positions that reported

to the office of the executive
director that now report to Amie.

I think.

The office of the executive director has
actually grown more than I was saying

since I departed some five years ago.

Regional and regional offices, so the
regions and regional offices, so this

will be the eastern region, the southern
region, and the western region had

staff of 725 in the budget for 2025.

In the budget for 2026, they
have 589, so that's a big number.

They're down 136 bodies, but that's 18.8%.

Which is 5%, four and a half percent
less than the overall average.

So the regions have been hit less
than elsewhere, which is a good thing

as far as getting exams done because
there's mission, which is the exams,

and there's mission support, which is
the central offices mission would be the

regions in the office of National Exam.

Supervision, and you could argue some
of the Office of Consumer and Financial

Protection, but there's less of an impact.

Less than one in five people
from the regions are gone.

However, it's hit the regions pretty hard.

The Western region lost all of
their their level two executives.

They lost a lot of supervisors.

They lost a lot of directors
of special actions.

The eastern region kept more executives
and lost a little bit more examiners, and

I know they're doing triage and helping
each other across regional lines, but.

One in five bodies that were
approved in the budget are gone.

And that's going to impact your
ability to get exams done timely.

They will show up less and they're,
they've elongated their exam cycle.

Billion dollar credit unions used
to need to be touched every year.

Now, if you're well run and have
no management changes, it could

extend to 16 months to, and even
up to 20 months in some instances.

That's a value to you in
that you're seeing them less.

But I'll get into why at some
junctures that will challenge

be, create some challenges.

And then the last office is the office
of the Inspector General, which had

the least amount of change from 27 to
24, reduction of three and down 11%.

So again, the steepest cuts were
in the office of the executive

director, examination and cure.

And the regions fortunately from the
perspective of the regions had a lesser

decrease of 136 bodies or 18 point.

8%.

Now, from a historic context, this is the
smallest workforce at NCUA in 20 years.

And that was 2003.

That was the year I became a regional
director in the Albany region after

having been the deputy executive
director for three years prior to that.

So I was involved in the budget that
was that small back at that juncture.

And for context, and this is one of the
arguments that the trade Associations,

associations make when they come in
and say, nsu a, your budget's too high.

In 2003, the agency was in
charge of 600 billion in assets.

Today, that number is
four times the size, 2.3

trillion.

So there's more dollars.

They're inflationary dollars,
but there's more dollars.

The industry's bigger,
but there's less units.

There were 9,000 and.

500 units, roughly 20 in
2003, and today there's 4,700.

So almost yeah, less than half.

So yeah, less than half.

A half of 9,500 would be 4,750.

And since.

Since those 22 years have passed,
there's half the numbers, but

four times the assets and the
complexity is what drives NCA budget.

The trades come in and say,
Hey, you should have less people

'cause this, the units went away.

NCA argues, it gets harder and harder
because of third parties being involved,

because of, because of the cybersecurity,
because of new things that credit unions

are doing, because of the ever changing
world, of being a financial institution.

And both sides are right.

You should lose some bodies when there's
less units, but you should always try

to be on the cutting edge of having the
best exam force that you can't have.

So you can protect the fund, right?

So that's the natural tension
of opposites that we have here.

So NCA is now preparing to supervise,
as I said, bigger more sophisticated

systems and that impacts that impacts
how many hours they spend on an

exam today versus 24 years ago, 20.

22 years ago, excuse me when credit
unions were smaller and less and doing

less and were less complex, contracted
services are being cut by 34%.

But it does indicate that
the agency will be acquiring

specific expertise or services.

Often it's the only and
the best way to do it.

There's this whole concept of what's
inherently governmental and what's

not inherently in governmental.

I remember writing some some letters to
OMB relative to that back in the day.

But there's things that have to be
done by the government and there's

things they can contract out, and
sometimes it makes more sense and it's

cheaper and wiser to do it that way.

But they are also cutting
the contracted services.

There is an item on technology
that they're looking at.

The capital budget on
technology is arises to 18.1

million and 10 million of that is reserved
for reorganization and tech investments.

Now, knowing Larry fao, the
current executive director,

that's the slush fund of, okay,
there's a lot of dust in the air.

We're gonna need some money to
fix some things to figure out

where where we wanna put things.

Once we're allowed to put things in
certain places, once we're allowed to do

things by the Trump administration and to
quote, the budget funds will be allocated

for projects and investments that
increase productivity and effectiveness

and to implement administrative.

Administration priorities, including
improvements to the customer experience.

I'll believe all that when I see
it, but there are some monies that

they need to try and figure out how
to do things smarter and that they

will do the fact that it's gonna
lead to a better customer experience.

Time will tell on that.

So also NCOA talks about needing to
refresh their laptops, which they do

every three to five years enhancement
to their exam program merit for 2.9

million.

Consumer access customer relations
management software, million dollars

IT infrastructure and security refresh.

Some humdrum things that you know
that you want them to spend money

on because you want them to have
good systems in place to do their

exams and keep those systems safe.

Also, a quote on the reorganization,
the $10 million flexible pool.

The proposed budget includes 10 million
for capital projects that will support

NSU a's forthcoming reorganization, and
invest in technologies that increase

productivity and effectiveness and to
implement administration priorities.

Including improvements to
the customer experience.

I've mentioned all that previously as the
NCA finalizes, its plans, the chairman

will approve allocation of this funding.

They establish that they have that money.

And then here my point is that
the chairman will approve those.

And of course if they have a full
board, they'll have to reconfigure

that unless again, they've delegated
it to the chairman in the act of one

member, one member voting on the budget.

The examination schedules I mentioned
the examination schedules have changed.

And there's a quote here.

These changes allow regional directors
and the ones director to allocate

examination and supervision resources
to where they are most needed.

The draft 2026 budget assumes that
examination timeframes will continue

on the schedule approved in 2025,
resulting in increased cost efficiencies

for the exam program while ensuring
effective supervision over credit unions.

Generally speaking, in the short
term, they will ensure as the

supervision over credit unions with
less, they will do less with more.

They've, they're cutting in
things that they can cut.

And let's say there's a 20% cut in
hours and 75% of that they can easily

accommodate by by, eliminating some
steps that they've put in place over

time because you tend to layer things on.

There will be 25% of situations, 25%
of our 10% of our pick a number where

they should have spent time somewhere.

And that will lead to a credit
union loss that they might

have otherwise picked up on.

And again, the losses when one of those
hits, it'll be interesting to see how

the current board responds to that, how
the inspector general responds to that.

But in the short term.

Sue will have to do less with more.

They'll have to do more offsite and
in general as I mentioned earlier,

nobody in the industry or very few
people in the industry are saying,

wow, I wish NCA had more staff.

So this is viewed from the credit
union perspective, generally

speaking, as a positive.

And in the short term,
it will be positive.

You'll see NCA less frequently.

Which will allow you to take your
resources and spend them on your

credit union and your members.

There will be some challenges.

'cause when NCA shows up less frequently
and then they take out their pencils

in their binoculars and take a look
at everything, they're gonna find some

things and that instead of finding
something over a 12 month period and an

18 month period, so that's an increase
in time of one point of 150%, right?

So you're gonna see the next
time they do come in, you'll

see more examiner findings.

Or more things that might have popped up.

And it might it's not gonna be that direct
correlation, but the next time they come

in, there will be some bumps in the road.

And next time they come in,
you'll see different people.

Probably 20% of you will and that
will create some new relationships.

And there's all, there's a lot
of good people at NCA and as I've

said, in many of these podcasts,
they will rise to the occasion.

But in the short term, it's very
positive for credit unions 'cause

you'll see them less in the longer term.

When, if a big insurance fund loss
hits because of this, and it can be

pinpointed to the fact that it, hey,
this, it had, this, had this code three

been gone into, we would've avoided
a loss of x millions of dollars, or

there's this many credit unions that
happened to, or the economy shifted.

And because of that, instead of
the normal two or three losses in

a year, we had 10 or 15 or 20 that
cost the insurance fund money.

That's when a board is gonna
go, Hey, we need to pivot here.

We need to start doing more.

We need to hire more.

Or the inspector general will
drive the agency to do that or

recommend that the agency do that.

But again, in the short term
there are a lot of positives.

Four credit unions seeing NCUA
less frequently, and of course

will Halman vote on this?

That depends.

If the general counsel says that a
budget is essential, you can argue that

a bud a budget is essential, right?

You need one.

You could also argue they have a
two year budget that was already

approved and that he could just con
control the purse strings on that.

But that would get into.

Them having to take an action by the
board to reduce the operating fee.

So any way you cut it, I think the
more I think about this, you get back

to Helpmann having to vote at least
on the operating fee and probably on

a budget because he's going to want
to and because a budget is essential.

Now this goes to the whole lawsuit
of Harper Anoka suing the Trump

administration and saying that we
need to get back in there because

the agency can't vote and can't
act, which is all part of their.

Discussion on why, setting aside that
they say legally he couldn't have done it.

They're saying we need more board members
in there so that the board can act.

And there was an action on that
recently that I'll close with here.

And this goes to America's Credit Union's
October 1st, oral arguments suspended

in the NCA Board members lawsuit.

Which states oral arguments are suspended
in the challenges by dismissed NCA

Board members, Harper and Otsuka.

On Tuesday, the DC Circuit Court
of Appeals ordered to hold the

lawsuit pending the US Supreme Court
Review of Trump versus Slaughter.

The slaughter case involved
a Federal trade commission.

Commission Commissioner.

Say that again.

The slaughter case involves a Federal
Trade Commission commissioner,

also dismissed by President Trump
and will address the question of

whether a federal court may prevent a
person's removal from public office.

The US Supreme Court plans to hear
oral arguments in slaughter during

the December argument session with
a decis decision likely by June.

2026.

Harper and Ska were dismissed in
April, filing a lawsuit seeking

reinstatement shortly after the
government filed its latest brief

September 12th with Harper and SKAs
reply due October 3rd, and the government

replied due to them October 17th.

America's credit unions continues
to firmly believe an independent

NCA with a bipartisan three member
board is essential to the effective

oversight of the credit union industry.

I would agree with that, but.

Harper and Ska since this came out, we're
saying, Hey, we would like to, I, I don't

know what the legal term is, but when
the Supreme Court considers Trump versus

slaughter, we think there's some things
that are different between our case and

that we should be, have an audience with
the Supreme Court when that happens.

And again, here they're saying it's in
December with a decision likely by June.

What does that mean?

We have another nine months of not knowing
if Harper Noka are gonna be coming back.

And you're getting into two
years with them being gone.

And again, I've said here with the way the
Supreme Court is set up as far as who's

sitting on it, how many conservatives
there are versus liberals, judges.

That is, I believe that that
they're not going to be reinstated.

And so until June of next year.

Will Halman be the sole
board member or will?

There was a rumor Halman was
going elsewhere to another

agency one that somehow crypto
related that was it the CFTC?

All these acronyms.

I can't remember which one he was
allegedly going to, but if he was gonna

go, they'd have to put it one board member
in here through the Senate, et cetera,

get it confirmed dominated and confirmed.

Or will they put will they try and
put people in place of Harper Noka?

Before this is decided.

Anyway lot of unknowns, lot of chaos,
lot of havoc because of all this.

But it did get you a smaller
budget and a smaller footprint.

And there'll be some pros and
cons of that as I've discussed.

And I will follow this up when
NCUA does their budget briefing

to see what changed there.

And I will follow it up if and when they
do a final budget sometime in December.

All right.

That's it.

I really appreciate you listening.

As always, I hope you
will listen again soon.

This is Mark Kel signing
off with flying colors.