Show Notes:

As CAMEL codes continue to deteriorate across the industry, credit unions are seeing more examiner findings, documents of resolution, and other informal enforcement actions show up in their exam reports. In this episode, Mark Treichel is joined by former NCUA veterans Steve Farrar and Todd Miller to break down what each of these actions means, how they connect, and what credit union leaders should do when they receive them.

Topics covered in this episode:

The hierarchy of exam report actions — from supplementary facts to regional director letters, and how issues escalate from one level to the next.

What examiners are really telling you with a high volume of findings, and why a long list of minor issues may signal something bigger.

The SMART principle for documents of resolution — Specific, Measurable, Achievable, Results-oriented, and Timely — and where it breaks down in practice.

Why the negotiation process between examiners and credit unions matters, and what happens when that conversation gets shortcut.

The cost problem: when corrective actions require millions of dollars in resources that examiners may not have considered.

What boards should and shouldn't do when asked to approve a DOR at the joint conference.

Corporate governance as NCUA's emerging focal point, and why expectations from larger institutions are creeping down to smaller credit unions.

The critical role of communication — on both sides — in preventing exam report issues from escalating unnecessarily.

Key takeaway: Credit unions that invest in open communication with their examiners, understand the escalation path, and proactively build governance frameworks are far better positioned to manage regulatory expectations — before problems compound.

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NCUA’s proposed rule on fidelity bonds came out October 15, approved by the board on October 13 — the board of one, John Crews. In a very short summary, NCUA proposes to roll back the 2019 procedural mandates in Parts 704 and 713. In this solo episode, Mark walks through what changes, what doesn’t, and what boards should be thinking about before the 60-day comment period closes in mid-December.

The proposal at a glance. Four sections amended: 704.18, 713.2, 713.4, and 713.5. The 2019 procedural mandates on board review, signer rotation, and the sunset of bond forms are rolled back. It’s deregulatory by design. Boards get more flexibility on the process but still owe the credit union adequate coverage for the risk.

How Part 713 got here. 1999: Part 713 created, with the fidelity bond rules moved out of 701.20 and rewritten for clarity. 2005: higher minimum coverage; maximum deductible raised from $200,000 to $1 million for some credit unions. 2019: the process tightened — board review of every application, approval by resolution in the minutes, a rotating non-employee signer, post-liquidation coverage, and a ten-year form sunset. 2021: a technical fix when CAMEL became CAMELS. 2026: rollback proposed.

Why 2019 tightened the process. Losses. Bond issuers rescinded coverage when the person who signed the application already knew about the fraud.

Change one: review, approval, and delegation. The board or a duly authorized individual on the board, supervisory committee, or audit committee reviews and approves the bond. No board resolution is required in the proposed text. Delegation is an option, not a mandate.

Who signs. A board member, or a duly authorized supervisory or audit committee member, who is not an employee. Who cannot sign: the CEO, the manager, or any other employee — the people NCUA sees as most likely to know of a fraud or a pending claim. “Duly authorized” can come from a specific board delegation or by virtue of assigned duties; Mark’s interpretation is that a position description could do it.

Change two: signer rotation goes away. NCUA’s reasoning: a real burden for small credit unions with few non-employee directors to rotate through. The non-employee signer requirement stays, oversight stays with the board, and the annual coverage review is unchanged.

Change three: no more ten-year sunset on bond forms. The Act lets the NCUA Board approve the form of the bond and sets no limit. What stays: NCUA-approved forms only; NCUA can review any form at any time and rescind approval; amended forms and limiting riders still need NCUA approval.

Taking the “should” out of coverage. 713.5(b) — the board should purchase additional coverage as circumstances warrant — is purely advisory and restates existing fiduciary responsibilities. 713.5(c) — increased coverage tied to cash on hand and money in transit — is a two-factor formula NCUA calls prescriptive and ambiguous. Both proposed for removal. Minimum coverage amounts are unchanged. Deductible provisions are renumbered.

Corporate credit unions. Parallel changes: the same delegation option, the ten-year form sunset removal, form approval. A question for comment on whether NCUA should drop the corporate board’s duty to buy coverage above the minimum when necessary. And a one-word fix: “and” becomes “or,” so an amended form or a limiting rider each needs NCUA approval on its own. NCUA says the effect is none.

What doesn’t change. Annual board review. Minimum coverage. Post-liquidation coverage. Approved forms only.

What boards should be thinking about. Nothing changes until a final rule. If you delegate, put it in writing. Keep the signer truly independent. Without the formula, your analysis carries the weight. Weigh in if you have a view — corporates especially.

Comments are due mid-December. NCUA contact: Damon Frank, Office of General Counsel, 703-518-6540.

| WFC Classic: Facing the Challenges of a CAMEL Code 4

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The NCUA Office of Inspector General (OIG) did four limited reviews of credit unions that failed: Teamsters Local 92 Federal Credit Union in Canton, Ohio; Team Financial Federal Credit Union in Houston, Texas; North Bay Credit Union in Santa Rosa, California; and Copper and Glass Federal Credit Union in Glassport, Pennsylvania. They are OIG Reports 26-06, 26-07, 26-08 and 26-10.

Three ended in assisted mergers. Copper and Glass went to conservatorship and liquidation. The losses to the National Credit Union Share Insurance Fund (NCUSIF) totaled $8.62 million, and 83 percent of that came from the two big ones, North Bay and Copper and Glass. None of the four hit the statutory material loss threshold, which is why the OIG did a limited review. Jackson Area will be different — that one they’re going to have to do.

I downloaded all four reports and pulled out ten failure themes, scored as central finding, indicator, or not raised. The scoring is my take on their words. Four themes were central in every report: unreliable books or no reconciliation, weak internal controls and segregation of duties, thin or inexperienced staff, and board and audit oversight gaps. The basics broke everywhere, and the exotic broke once.

In this episode:

• Why NCUA has zero tolerance for accounting issues — and why it does an exam, not an audit

• What fewer exam visits mean for a well-run credit union, and for the insurance fund

• Two-person staffs, relatives on staff, and a teller cited for insider transactions who was promoted to manager with sole access

• Eight years on a fictitious fidelity bond at Team Financial

• How each problem surfaced: a regular exam, a call to the OIG fraud hotline, a joint exam with the state — and 60 months at Copper and Glass

• North Bay’s complexity pattern: a fintech subsidiary, a cannabis CUSO, a core conversion, and commercial loans over statutory limits

• If you’re acquiring a failed credit union, why I’d usually take it as a liquidation rather than a merger

• What the OIG memos don’t tell us, including the CAMELS path

• Eight questions to ask your board this quarter

OIG reports are on the NCUA website under About Us: https://ncua.gov/about/inspector-general

Mark Treichel spent 33 years at NCUA, eight as Executive Director, and now helps credit unions work through NCUA exams, Documents of Resolution (DORs), and enforcement matters at Credit Union Exam Solutions (CUES). www.marktreichel.com

WFC Classic: So You Are A CAMELS 3 - Now What?

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NCUA’s second-quarter 2026 CAMELS data is out. There’s been no NCUSIF (National Credit Union Share Insurance Fund) briefing yet — that typically comes in September or October — but the CAMELS counts and the June financial data are on NCUA’s website. In this solo episode, Mark Treichel walks through what the numbers show and what they might mean for your credit union.

The headline: an industry bifurcating, pulling apart at both ends. CAMELS Code 1s are at 21.3%, the highest share going back to 2016 in the data Mark tracks. Code 3s are down to 14.5%, the lowest in ten years. Code 4s are up seven to 100 while the industry shrinks, and seven credit unions have negative net worth — up from three at the end of 2025 and zero at the end of 2022.

In this episode:

• Why Code 3s keep falling: NCUA’s resources, friendlier coding, and fewer “warning shot” and “CYA” Code 3s — all before the FFIEC (Federal Financial Institutions Examination Council) CAMELS proposal takes effect

• The industry count: 4,211 credit unions, down from 4,450 at year-end 2024 and 5,844 ten years ago; merger attrition of roughly 140–150 a year

• 83% of credit unions are Code 1 or 2 (up from 82.7%); 2.5% are Code 4 or 5 (up from 2.4%)

• The eight-quarter view: Code 3s from 718 in the third quarter of 2024 to 611; Code 4s from 138, down to 93, and back to 100

• Six Code 5s — four under $50 million, one between $50 and $100 million, one over $1 billion — and why a falling Code 5 count typically means liquidations or mergers

• The Jackson Area resolution: Five Star assumed the shares and members, and the assets stayed with the insurance fund

• Capital: aggregate net worth ratio of 11.4%; 30 credit unions below 6% (seven negative, one at 0–2%, five at 2–4%, 17 at 4–6%); a refresher on the prompt corrective action (PCA) tiers

• Getting on NCUA’s merger registry, and using NCUA or Callahan’s data to find potential partners

• Earnings: net interest margin 3.49% (bottomed at 2.57% in 2022), loan yields 6.1%, cost of funds 1.71% (peak 1.93% at end of 2024), ROA (return on average assets) 91 basis points, up from 63 at the end of 2024; provision expense 55 basis points vs. a 0.40–0.48 pre-pandemic range

• Asset quality: delinquency 96 basis points (peak 103 at end of 2025); charge-offs 78 basis points, trailing four quarters $13.4 billion vs. $13.2 billion the year before

• Participation loans: delinquency 1.11%, highest in the data set and more than double the 54 basis points at end of 2022; balances $88 billion, up from $72 billion at end of 2023

• Indirect lending: 88 basis points, off its 102 peak at end of 2024

• Liquidity: share mix of money markets 18%, regular shares 28%, certificates 29%, all other 25.46%; certificates up from 18.4% in 2016; net long-term assets just under 35%; share growth 5.2% vs. loan growth 4.9%

• CAMELS by asset size: 4.5% of credit unions under $50 million are Code 4 or 5, versus none over $10 billion; Code 3s run 22% under $50 million and 4% over $10 billion

• Where the pendulum goes from here

• Four things to take to your boardroom

For a deeper look at the June financials, see the companion episode with Todd Miller and Steve Farrar of Credit Union Exam Solutions. [Link to companion episode]

Questions about your exam? Find Mark on LinkedIn or at info@marktreichel.com.

What really happens when your credit union gets coded a CAMEL 4?

Mark Treichel brings back Steve Farrar and Todd Miller — two former NCUA executives with 60+ years of combined experience — to give you the unvarnished truth about life as a Code 4 credit union.

They cover the examination burden (expect your PCO 12-20 weeks per year), the administrative record NCUA starts building from day one, how the Fed, FHLB, and Fannie Mae all learn your status, what your board needs to understand about accountability and resources, and why getting assigned to Special Actions might actually be a good thing.

If your credit union is facing trouble — or you want to understand what trouble looks like before it arrives — don't miss this one.

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Mark Treichel recorded this episode after presenting to a credit union supervisory committee on the 5300 and the call report — why it matters to NCUA, and why it should matter to you. The first half is the risk view from NCUA’s side of the table. The second half is what the rules actually ask of the supervisory committee.

NCUA collects and analyzes call report information to assess a credit union’s financial condition and evaluate existing and potential risks to the National Credit Union Share Insurance Fund. Its risk-focused exam program relies heavily on the accuracy of that data, and inaccurate information impairs an examiner’s ability to properly identify and assess risk. With the agency down 27% of staff, good data is what lets NCUA decide where to send people.

Mark’s read on direction — stated as his opinion — is data-driven supervision. The proposed strategic plan commits to more closely integrating advanced analytics and enhanced decision-making support tools into examination scoping, scheduling, and CAMELS rating processes, under strategic objective 1.3. The 2024 annual report says that by analyzing much of a credit union’s financial and operational condition remotely, it may be possible to reduce the frequency and scope of on-site examinations. He traces the virtual exam idea back to Mark McWatters’ time on the board and Larry Fazio’s budget work at Examination and Insurance, and notes a rumor — he emphasizes that it is a rumor — that NCUA may be redoing MERIT or adding functions to it.

Then the six reasons the 5300 carries weight: it is NCUA’s primary lens between exams, it sets your capital classification and prompt corrective action, it is a legal filing an officer declares true and correct, it is a public document anyone can pull, it drives the 1% NCUSIF deposit and the equity ratio that decides whether NCUA charges a premium, and it works as a proxy for whether your internal controls function.

The supervisory committee half turns on one word. The rule’s verb is ensure, not prepare. Management prepares the call report; the committee ensures the credit union meets measurement and filing requirements and that reports are promptly prepared and accurate. The committee owns the auditor relationship, and total assets on the year-end call report determine which annual audit the credit union must obtain. Mark walks through internal audit as the committee’s engine, where the committee adds value versus what belongs to management, NCUA’s recommended practices from the Examiner’s Guide — noting that a guide is not a regulation — and closes with five questions a committee can put to management every quarter.

NCUA uses your call report to scope exams, time them, and feed your rating — and with the agency down 27% of staff, that data carries more weight than it used to. Mark Treichel covers the six reasons the 5300 matters, what the supervisory committee rule actually requires (ensure, not prepare), and five questions to put to management every quarter.