Credit Union Exam Solutions Presents With Flying Colors

Speaker: Hey, everyone, this
is Mark Treichel with another

episode of With Flying Colors.

Last month at its April
board meeting of one.

Remember, we've got one
board member Kyle Hauptman.

No news on when his replacement is coming.

I've heard some rumors, but until we
have facts, I won't report it here.

But at the NCUA board meeting in April,
they did several briefings, one of

which was on the NCUA strategic plan.

And this is the twenty twenty-six to
twenty thirty strategic plan, and I'm

going to compare this plan to what
w- the last plan had in it, which was

twenty twenty-two to twenty twenty-six.

I've got a couple slides here I'm
gonna bl- blow through pretty quick

and then a couple other highlights
that I wanna hit relative to this.

But there are substantial changes,
as you would expect, since the twenty

twenty-two came out under the Biden
administration and the twenty twenty-six

came out under the Trump administration.

I'm drinking from my
Believe Sasquatch cup here.

And again, if you're going to believe
what NCUA is saying in this document,

there's a lot of changes that they're
building into the next five years.

All right, and

This next screen, there are 12 plus
three, 15, 19 items that are supposed

to be in the plan according to A 11.

12 of them are fully met, three
of them are partially met, and

four didn't appear in either plan.

And I'm not gonna get into those
because there's some side documents

where these items may have been done,
and really it's not that important.

Because what is there, there's a lot of
meat in the tw- in the first plan, and

there's a lot of meat in the second plan,
and I'm gonna compare those those plans.

And first so what was in the
2022 plan, the five-year plan,

that's not in the 2026 plan.

Number one, there was an
economic outlook sec- section.

There were eight pages of that which
included g- gross domestic product

product- productions projections,
unemployment forecasts, yield-curve

analysis, interest rate outlook, which
is now re- replaced with a very brief

external factor bullets for each goal.

There was a section on credit union
system risks that were detailed near and

long-term risk analysis, interest rate
risk, demographic, fintech competition,

concentration risk, management succession,
which was a big issue for Harper.

And this is now reduced
down to a bullet list.

There was a section on
climate-related financial risk.

There was a dede- designated, dedicated
subsection and explicit strategic

objective, one point four objective one
point four in the 2022 plan, and that's

not mentioned anywhere in the 2026 plan.

Why is that?

Democrats believe in climate
related financial risk.

And the Republicans tend to view
that as something that isn't anything

they should be getting involved with.

That's why it is now absent.

Agency programs narrative, there were
standalone sections on AMAC, supervision,

insurance, consumer financial protection
credit union development, and those are

now folded into objective narrative.

So that appears in different places
but with less less words tied to it.

I gotta move my little thing here.

Small minority low-income credit
unions as a standalone objective.

Goal t- two point two explicitly
named minority depository

institution preservation, CDRLF
grants, and minority CU chartering.

Those are now folded into
broader access framing.

But it's also more of a D initiative
than an R initiative, which is

why it would fall out of the
plan for the next five years.

And again, by the way within a year of
a new president coming in, the agency

is supposed to have their new plan,
the new five-year plan put in place.

So if we roll ahead 2028 we will
have a new president and if it's an

R that R will have a year from that
point in time to issue a new report.

If it's a D they will have a year to
issue a new report, and you can imagine

if it's a D, they'll run faster to
achieve that than if it's an R because

the R will have similar goals and
objectives most likely under the next

Republican if that's what happens in 2028.

But if you pivot to 2028 being a
D, you'll see quicker movement.

And by the way, NCUA was two months
late from the required action timeline.

I'm sure that they got a blessing from
the powers that be in government to not

get it done on time because there's so
much going on in the in the way that the

Trump administration is getting rid of
regulations getting rid of requirements.

I'm sure they really didn't care that
the strategic plan was two months late.

It was more important to them what the
chairman was doing in office as opposed

to what the plan said he would do.

All right, next up, diversity, equity,
and inclus- inclusion language.

2022 goal 3.1

centered on diverse workforce
and inclusive environment.

They replaced that by merit-based hiring
in 2026, which is consistent with the

D versus the R slant on the importance
of diversity, equity, and inclusion.

Enterprise risk management section.

There's a, there was a full ERM
section with risk appetite statement,

risk tolerance, portfolio, views,
governance structure, now referenced

only briefly in the annual performance
plan, which was a separate item.

So the annual performance plan, each year
NCUA has to issue an annual performance

plan where they say, "Here's what we're
gonna do relative to our strategic plan."

So it's referenced in the
annual performance p- plan.

I'll probably do a
separate podcast on that.

All right.

Cross-agency collaboration section.

Dedicated section on FSOC, FFIEC, the
FIBIC with narrative explanations.

Now one sentence on, in
the agency over- overview.

I think that's probably a good change.

A little less w- verbiage
on how the agencies will

collaborate, which is a given.

So next up We have what's
in 2026 that's not in 2022.

So what's going on in the world that
wasn't really going on so much in 2022?

That's artificial intelligence, right?

So AI is a standalone strategic
objective in the new plan, objective 1.3

dedicated to AI.

They talk about having a large language
model pilot, an AI steering committee at

NCUA, an AI ro- roadmap with milestones.

2022 mentioned technologies, but
not a standalone AI objective.

Now, a little bit more detail
on what's in the report.

As I mentioned the 2022 plan
mentioned technology in passing.

It was folded into a broader
objective about delivering

improved business processes.

In 2026, AI gets its own objective,
which makes sense because it's taking

all the bandwidth in the market,
all the bandwidth when you are out

there just watching anything, right?

AI gets gets top priority.

So it gets its own objective, and
it comes with actual deliverables.

They're going to depl- deploy
a new data-driven risk model.

They're gonna complete a large
language model pilot program.

They're going to establish an AI
steering committee, as I mentioned, and

refine an AI implementation strategy,
all by the end of December 31st, 2026.

This isn't aspirational language.

These are performance indicators
they'll be held accountable to in

the annual report and the everything
that they do going forward.

So what that means practic- practically
for credit unions is that examiners

are going to start using AI-assisted
tools to scope exam programs

before they ever walk in the door.

The question for you, that you
should be asking, "What does my 5300

data look in the algorithm," right?

'Cause they'll be looking at outliers,
and I've been doing a lot of analysis

of 5300 data to look at my own
outliers for for running my business

and working with my clients or past
clients or just podcasts, right?

But this is going to get a lot
of play over the next year.

Of course, now you've got Hauptman
leaving, a new person potentially

coming in and I think that them hitting
that 2026 deadline for all practical

purposes is going to be a challenge.

But it's a aspirational goal, and I'm
sure that new chairman, when they come

in, are gonna go, "Wow there's a lot
of things I've got to get done here."

And again, when do they come in, right?

Do they come in September?

Do they come in October?

Do they come in, next week?

Time will tell.

So next up, Stablecoin Genius
Act as a performance target.

They're planning on issuing a final
stablecoin regulation by year-end.

First time digital assets appears in
a concrete, measurable deliverable.

So it's the clearest signal of
where Hauptman's head is at.

And when he's out talking,
he talks about stablecoin.

And here it's embedded as a
performance indicator in the annual

performance plan issue to issue final
regulations on permissible stablecoin

activities for all federally insured
credit unions by the end of 2026.

There's also a proposed rule open right
now on the application process that

closed April 13th, and a second rulemaking
on issuer standards coming soon.

For most credit unions, this feels
very distant, but for larger ones

exploring digital payment rails,
this is a regulatory green light

that you've been waiting for.

And NCUA is committing publicly
to get it done this year.

Again, we'll see if
they're able to do that.

Now, NCUA's reorganization is
codified as a strategic objective.

Here's really what's
significant about this.

The reorg is no longer an
internal management decision.

By putting it in the strategic
plan as objective 3.2,

NCUA has made its five-year commitment
with performance accountability.

The language is specific.

Consolidate major business units, group
similar roles and responsibilities,

eliminate non-statutory functions,
and shift stakeholder-facing

work to the regional offices.

That last piece, shifting
stakeholder-facing work to the

regions, is the one that should
get credit unions' attention.

It suggests that whatever offices
currently handle outreach, policy

engagement, or member-facing
activities at the headquarters are

going to move back to the regions.

So when I hear this, I think
about field of membership.

I think about bylaws, things that
were done in in access, the access

office cure that will now probably
be pushed back towards the regions.

The reorg plan won't be
finalized until the end of 2026.

Implementation runs through 2027.

The National Treasury's Employees Union
is still impact, i- is still in impact

bargaining, the impact on the workers,
but this is now officially on the record.

Now, I've criticized NCUA for
not making their plans public.

I know that they told their staff at the
end of the year, for example, that ones is

going away and other things are happening.

I think it's not very good
use of the sunshine laws.

And I think they talk about
we gotta negotiate with union.

I think that might be a delay
strategy so Hauptman doesn't

have to take the final action.

He proposed these broad,
sweeping things, but he's gonna

leave that for the next round.

And whether that's one, two,
or three board members, right?

Because there's still the
lawsuit of Harper and Otska.

But, changing regulations that say the
Office of National Exam and Supervision

exi- exists to do A and then having them
do B Is something that if I was a single

board member and it was not really clear
whether or not I could or couldn't act,

it's probably something that I wouldn't
be comfortable finalizing all by myself.

So I think it's wise to wait but
I think it's also creating morale

problems at NCUA because they hear
it's gonna happen, then it doesn't

happen, and it's creating a little
bit of chaos at NCUA in my in my mind.

From what I'm, from what I'm hearing in
credit unions and what I'm hearing in some

conversations that the agency is having.

Next up, real estate footprint reduction.

Reducing costs, eliminating
underutilized space, maximizing

shared federal workspace.

There was no prior plan addressed
for a physical office strategy.

This one, it flew under the
radar when they talked about it,

but it's in the strategic plan.

Aligning the agency's real estate
footprint with mission and workforce

needs by improving utilization, reducing
costs, eliminating underutilized space,

and maximizing shared federal workspace.

We know NCUA sold the
Austin AMAC building.

We know the Alexandria headquarters
lease situation has been discussed.

This language is the strategic cover for
whatever real estate decisions are coming.

For credit unions, it matters
because office footprint decisions

affect where staff are physically
located, which affects examination

of logistics and regional presence.

So the regions, there's a
regional office in in Alexandria.

When I became executive director, the
previous board chair and the board chair

at the time, Debbie Matz, had moved region
two at the time, which was Alexandria,

across the build- across the street.

When I did a reorganization that closed
Albany and closed Atlanta, I also moved

that office back into the regional office.

Now with NCUA not requiring full-time
people full-time, with NCUA doing

more remote work you could say
that maybe they'll end up se-

selling, selling that building.

But from what I see buildings selling in
that area it's probably worth half of what

it was worth maybe five, 10 years ago.

But in any event they do have an
item here on making sure that they

minimize their real estate footprint.

Next up, we have merit-based
hiring plan as a deliverable.

They have the APP indicator number
22, implement the 2026 staffing plan

aligned with the merit hiring plan.

This is direct DOGE and executive
order compliance language dropped into

a credit union regul- into the credit
union regulators' performance plan, NCUA.

What it practically means is that
NCUA is rebuilding its workforce

under a different philosophy than it
operated under for the past decade.

It, it took out- the voluntary plan the
VSP to took out one in five employees,

and it was actually closer to 27%.

The people being hired to replace
them, if they're being replaced,

will be selected under based criteria
tied to mission-critical skills.

For credit unions, that means examiner
examiner listings will look different

over the next two to three years.

Whether that's more or fewer
examiners, more specialized or

more generalist remains to be seen.

I know they're working on that.

The reality is they're gonna have
a smaller footprint and this is

really a de-emphasis of DEI and
an emphasis of hiring the most

talented person for a position.

And you can get into the debate
of of if DEI is good or bad.

I'm not gonna touch that
third rail here today.

But the, there's a definite
pivot away from DEI.

Deregulation quantified as a target.

So this is the one that I think
Hauptman's probably really proud of.

From an accountability standpoint, the
performance indicators say issue at least

30 regulatory actions or policy revisions
that reduce burden by December 31, 2026.

Hauptman said today that they're already
at 29 proposed rules in phase one.

They just came out with one this
week so they must have hit their 30.

They're they're announ- they
announced the tenth round.

And phase one runs through year-end.

That means by the time you add final
rules in the second half of the year,

they'll likely blow past 30 because
they proposed 30 changes already.

But here's the nuance.

A proposed rule counts, a final rule
counts, and a policy revision counts.

So this number is achievable
without necessarily finalizing

anything significant.

Watch the quality, not just the quantity.

Happy to glad is not really a change.

Now, they did make some changes that
made sense, but most of the 30 that are

out there are budget dust, if you will.

Really don't amount to much, but it's a
good banner for Hauptman to be able to

wave saying, "Look at what we've done Mr.

Trump, President Trump."

Chartering automation target.

They indicator number 14, deploy an
automated chartering system with 50%

fewer sections for new charter phase
one applications by December 31, 2026.

Hauptman is big on making it
easier to get a new charter.

They just shut down a new
charter that they conserved.

They chartered it and conserved
it, I think, within two or

three years and liquidated it.

The current chartering process
is notoriously cumbersome, and

NCUA has historically approved
very few de novo applications.

I think it's all good to make things
a little easier to get a charter.

My thoughts are, put a
lot of charters out there.

If they lose a little
bit of money, so be it.

But getting new charters
out there is a good thing.

But really, it's not a panacea
because every industry consolidates.

But I think having a lower burden to
get a new charter out would be a good

thing whether you're a D, whether you're
an R, whether you're an independent.

Supporting programs
bulleted per objectives.

So this is one of the less exciting items
to talk about but it's worth mention if

if you live and breathe strategic plans.

The 2026 plan actually does something
the 2022 plan didn't do as cleanly.

It lists specific programs and initiatives
under each objective that support it.

That's an A111 requirement, and the
2022 plan was somewhat vague on it.

This is an, a narrow respect, this, of
restructuring that was probably driven

by the experts at NCUA who said, "Hey,
we should have done this last time.

Let's put that in here now."

All right, so next slide.

The takeaways for the credit unions.

Number one a reorganization
is a five-year strategic plan.

S- excuse me.

Reorganization is now a
five-year strategic commitment.

Number two, safety and soundness
is the explicit North Star.

It always is.

Number three, AI and examinations
is coming and will be measurable.

Number four NCUA has a deregulation
scoreboard which is a good idea although

most of what was deregulated really
was not much of anything to speak of.

There were a few good things, and
I've got separate podcasts on the

ones I thought warranted it a podcast
on the proposal to change the limit

on participation loans, auto loans.

All right there you have it.

NCUA strategic plan is out there.

And AI is big.

The reorg is big.

Safety and soundness is still
important, although do, although

they're doing it with 27% less staff.

And when you have less staff,
you can spend less time on site.

That could lead to more losses.

That could lead to more
fra- fraud in credit unions.

But in the end, in the short run,
if n- less people are coming to your

credit union, I'm sure most, if every
credit union believes that's a big

win from the reorg, and now it's
built in here to the strategic plan.

All right, that's it.

This is Mark Treichel.

I wanna thank you for watching.

I wanna thank you for listening.

I hope you'll do the same again soon.

Signing off with flying colors.