Summit Round Table CU Member Survey

Transcription

1 Summit Round Table CU Member Survey

2 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page i Dear Credit Union Leader: You may recall that during SRT meetings over the last few years, CEOs shared anecdotal experiences related to regulatory examinations. Mirroring the previously shared experiences of SRT credit unions, several examination trends among Shapiro credit unions became evident this past summer through a sample survey of Shapiro credit unions. These findings led us to survey all member credit unions. In September 2011, we completed a survey of all credit unions affiliated with the California and Nevada Credit Union Leagues (CCUL/NCUL). Overall, across all asset sizes, 161 (46%) of all member credit unions responded. For Summit Round Table (SRT) credit unions (ranging from $610 million to $5 billion in assets), 27 credit unions participated for a 53% response rate. The purpose of the survey is to help us monitor our members exam experiences with the National Credit Union Administration (NCUA), the California Department of Financial Institutions (DFI), and the Nevada Financial Institutions Division (FID). Some of the common themes from both the SRT specific and comprehensive surveys are: Across all asset sizes, 37% of respondents expressed dissatisfaction and 37% equally expressed satisfaction with the exam process; however, when broken down by asset size, the satisfaction levels vary with the largest and smallest credit unions expressing greater satisfaction: o 42% satisfaction ($1M $45M) o 31% satisfaction ($46M $130M) o 26% satisfaction ($131M $609M) o 48% satisfaction ($610M $ 5B) Among SRT credit unions, with the exception of one credit union that was very dissatisfied, satisfaction levels were pretty evenly distributed across the possibilities of very satisfied (4 CUs), satisfied (6 CUs), neutral (4 CUs), and dissatisfied (6 CUs). Documents of Resolution (DoRs) are the new norm for credit unions of all sizes including SRT credit unions. 14 (67%) of 21 responding SRT credit unions received at least one DOR. Overall, responding SRT credit unions experience with exams and examiners appears to be improving. This trend of is reflected in the consistently neutral ratings of prior challenges. During the exam cycles, SRT credit unions reported widespread problems with examiners citing sound business practices but failing to provide legal authority or specific guidance. There is some improvement in this arena, but some challenges remain with respect to examiners real world business experience and loan portfolio management practices. Thanks to your valuable feedback, we will meet with federal and state examiners to find solutions to the common issues outlined in this report. In addition, during the first quarter of 2012, we will hold a webinar for credit unions to discuss the survey results and the rights of credit unions. Thank you for your input, Diana Dykstra President and CEO California and Nevada Credit Union Leagues

3 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page ii Table of Contents Executive Summary Member Credit Union Regulatory Exam Findings... 1 Purpose... 4 Demographics of Exams & Examiners... 4 Satisfaction Levels... 5 Common Issues... 6 Documents of Resolution, Letters of Understanding, and Cease and Desist Orders Common Problems and Positive Developments with Exams Appendix: Survey Questions Online Resources... 17

4 Executive Summary This report summarizes feedback from 27 credit unions in the $610M $5B asset range, representing a 53% response rate among Summit Round Table (SRT) credit unions. Of the 27 responding SRT credit unions, 9 are federallychartered while 18 are state chartered. Exams & Examiners 56% (15 CUs) had the same examiner as in prior years, 44% (12 CUs) had a new but seasoned examiner, and 0% had a new examiner who was new to the job. Notably: The average exam lasted 19 days while the shortest exam was 8 days long and the longest exam was 60 days long. With the exception of one credit union that was very dissatisfied, satisfaction levels were pretty evenly distributed across the possibilities of very satisfied (4 CUs), satisfied (6 CUs), neutral (4 CUs), and dissatisfied (6 CUs). Seven credit unions did not indicate their satisfaction level. In the context of net worth levels and on a scale of 1 5, the greatest satisfaction level (4.0) was indicated by credit unions with net worth of % while the lowest satisfaction level (2.8) was expressed by credit unions with net worth of %. Credit unions with less than 7% and 7 8.9% expressed satisfaction levels of (3.5) and (3.7), respectively. Overall, responding SRT credit unions experience with exams and examiners appears to be improving in comparison to 2009 and 2010 exams. This trend of is reflected in the consistently neutral ratings of prior challenges shared by SRT credit unions. For example, on scale of 1 5 (with 1 being no problem, 3 being neutral, and 5 being severe problem ), the following areas were rated , equating to ratings of better than neutral or, at worst, neutral : o Contradictory guidance (2.0) o Management decisions being written up as DORs (2.5) o Regulator predisposed to harsher CAMEL rating (2.6) o Intensified credit risk monitoring (2.8) o Loan workout policy rewrites required (2.8) o Excessive review of loans (2.9) o Everything elevates to DORs (2.9) SRT credit unions were also fairly neutral when asked to indicate their agreement or disagreement with several statements on a scale of 1 5 (with 1 being disagree strongly, 3 being neutral, and 5 being agree strongly ): o Exam staff turnover/rotation required an inordinate amount of CU time (2.5) o CU was not given sufficient time to respond to exam directives (2.5) o Exam staff did NOT seem well prepared (2.8) o Exam staff required inappropriate or unnecessary remedies (2.8) o Exam staff offered helpful advice (2.9) o Listened well & carefully considered alternative approaches (3.0) o Allowed ample management preview to minimize BOD review of resolved findings (3.2) o Exam staff seemed well trained (3.3) o Focused too much on sound business practices (3.3) Indeed, with 1 being disagree strongly and 3 being neutral, responding SRT credit unions indicated relatively strong or some disagreement with the following statements: o Exam staff seemed more interested in merging the CU than examining (1.4) o Exam staff did NOT treat officials at the CU fairly or respectfully (2.1) o Exam staff, central office, & regional office provided inconsistent feedback (2.3)

5 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page 2 Sound Business Practices: Some Improvement, But Challenges Remain Previously, in the exam cycles, SRT credit unions reported widespread problems with examiners citing sound business practices but failing to provide legal authority or specific guidance to remedy cited situations. There is some improvement in this arena, but some challenges remain: Failure to cite legal authority remains a problem for 8 (36%) SRT credit unions, while 7 (32%) credit unions indicated neutrality while another 7 (32%) indicated this was not a problem at all or somewhat not a problem: Degree to Which Examiners Failed to Cite Legal Authority 1 Severe Problem 0 CUs (0%) 2 Problem 8 CUs (36%) 3 Neutral 7 CUs (32%) 4 Somewhat Not a Problem 1 CU (5%) 5 No Problem 6 CUs (27%) Though several open ended comments indicated that SBPs are no longer problematic or are less problematic than before, an equal number of comments cited specific shortcomings in examiners with regard to realworld business experience and loan portfolio management practices especially regarding member business loans, participations, and credit collections personnel reporting relationships: o o o o o o Criticisms are based on theoretical opinion rather than technical reality a classic ivory tower mentality with no real life knowledge. Difficult because management does not want to be perceived as uncooperative when examiner perspectives are off base and out of touch with reality. Examiners lack business experience and business sense; their stated beliefs expose their lack of understanding, thus undermining examiners credibility. Guidance regarding Member Business Loans, particularly participations is vague and not particularly helpful. Negative view of participation loans even though examiners said credit union was monitoring participations appropriately. Requiring VP of Collections to report to someone other than SVP/Chief Lending Officer despite CU research showing that most large asset size credit unions have VP of Collections reporting directly to the senior lending officer to mitigate against simply growing without concern for credit quality and to create greater accountability for the entire lending process. Examiners continue to believe certain actions are necessary for good loan portfolio management when frankly their beliefs instead show their lack of understanding. DORs, LUAs, & CDOs Documents of Resolution (DORs) continue to be quite common among SRT credit unions, being issued to 14 (67%) of the 21 respondents to this question. Letters of Understanding (LUAs) were issued to 2 (10%) responding credit unions. No Cease and Desist Orders (CDOs) were issued to responding credit unions. Finally, 5 (24%) of credit unions were not presented with a DOR, LUA, or CDO. On average, responding credit unions were given days to respond to a DOR or LUA. Of 22 responding SRT credit unions, 20 (91%) indicated that allotted time was sufficient to consider options before accepting or signing the DOR or LUA while 2 (9%) of respondents indicated that time allotted was not sufficient.

6 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page 3 Positive Developments with Exams For some not all SRT credit unions, East Coast examiners in the most recent cycle are more experienced, more transparent, and more aware of their own lack of familiarity with the environment in California. One out of state examiner seemed overwhelmed, initially, but worked with management to find solutions and was supportive in the end. For some not all credit unions, improved receptivity to negotiating final exam document. Improved communication skills of examiners again, for some, not all credit unions. One credit union strengthened its processes around loan modifications. Notable Special Concerns NCUA and DFI seem to still be using a template in examining credit unions without proper consideration to the financial strength of a credit union. The exam process for a credit union with negative earnings and net worth below 7% should be different from that of a credit union with positive earnings and net worth over 10%. Some joint exam teams seem to be working off of a checklist and are not open to dialogue on some issues. Lack of coordination between NCUA and DFI. Separate and conflicting reports issued to the same credit union. Apparent railroading of DFI by NCUA. NCUA calling the shots with DFI having little to say about regulation of NCUSIF insured credit unions. Reversal of findings from previous set of examiners. One credit union changed practices based on previous exam findings. The most recent examiners directed the credit union to return to its original processes and practices, which was a large waste of time and resources. Directives unnecessarily restrict sound management in credit granting, loan modifications, and interest rate risk parameters. Examiners assume a double dip recession. As credit unions rebound from The Great Recession, there is now a need in the exam process to enable credit unions to grow member loans and serve members. Follow Up Steps for CCUL/NCUL Over the next few months, we will take the following steps on behalf of our members to find a solution to the common issues outlined in this report. Hold a webinar for credit unions to review and discuss overall survey findings. Share findings with NCUA board, NCUA regional directors, DFI, and possibly FID. Report regulator response back to credit unions. Ascertain migration of California and Nevada credit unions back to NCUA Region V. For problem examiners, identify accountability process and identify appeals process that assures nonretaliation against affected credit union.

7 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page SRT Member CU ($610M - $5B) Regulatory Exam Findings Conducted September 13 27, 2011 Purpose The following report represents feedback from 27 member credit unions, representing 53 percent of the Leagues credit union membership in California and Nevada in the $610M $5B asset range (Summit Round Table [SRT] credit unions). This feedback confirms whether perceived trends are valid and can be generalized across different asset sizes and will be used to advocate on behalf of member credit unions to improve federal and state exam processes. Statement of Findings 1. Was your last exam Federal or State or Federal and State combined? (27 Responses) Type of Regulatory Exam $610M $5B Federal Only 9 State Only 0 Federal & State 18 TOTAL Was your Examiner new, seasoned, or the same one you have had before? (27 Responses) Type of Regulatory Exam $610M $5B (27 CUs) New Examiner, but Seasoned 44% ( 12 CUs ) Federal 5 State 0 Fed & State 7 New Examiner & New to the Job 0% ( 0 CUs ) Federal 0 State 0 Fed & State 0 Same Examiner as Prior Years 56% ( 15 CUs ) Federal 4 State 0 Fed & State 11

8 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page 5 3. How many days did your most recent exam last? (22 Responses) $610M $5B (22 CUs) Average exam: 19 days Shortest exam : 8 days Longest exam: 60 days # of Days of Most Recent Exam: Federal Exam State Exam Fed & State Total # of CUs 1 5 days days days days days days days What is your credit union s Net Worth Ratio? (27 Responses) Net Worth Ratio Number of CUs Avg # of Exam Days Level of Satisfaction 1-Very Dissatisfied 5-Very Satisfied Examiner New / Same Examiner Under 7% days % days % days % Greater than 14% * including one credit union at 60 days 3 30 days* days NR Indicate how satisfied you were with your most recent examination: (21 Responses) Credit Union Satisfaction Level with Examination $610M $5B Very Satisfied 4 Satisfied 6 Neutral 4 Dissatisfied 6 Very Dissatisfied 1

9 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page 6 6. Indicate the level of challenges you ve experienced with regulators with the following statement: Challenges with Regulators (22 23 CU Responses) 1 = NO PROBLEM 3 = NEUTRAL 5 = SEVERE PROBLEM Average Everything elevates to DORs % (7) 9% (2) 13% 39% (9) 9% (2) Management decisions are being written up as DORs % (7) 17% (4) 26% 26% 0% (0) Regulator predisposed to harsher CAMEL rating % (9) 5% (1) 23% 14% 18% (4) Contradictory guidance between Opinion Auditor and/or Regulator(s) % (11) 14% 27% 9% (2) 0% (0) Intensified credit risk monitoring % 14% 14% 41% (9) 5% (1) Loan workout policy rewrites required % 14% 18% (4) 36% (8) 5% (1) Excessive review of loans % 13% 22% 22% 17% (4)

10 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page 7 7. Indicate your level of agreement with the following statements regarding your most recent examination: Most Recent Examination (22 23 CU Responses) 1 = DISAGREE STRONGLY 3 = NEUTRAL 5 = AGREE STRONGLY Average Exam staff seemed well trained 3.3 5% (1) 23% 23% 41% (9) 9% (2) Exam staff did NOT seem well prepared % 23% 32% (7) 32% (7) 0% (0) Exam staff offered helpful advice 2.9 9% (2) 27% 27% 36% (8) 0% (0) Exam staff focused too much on "best practices" or sound business practices" rather than legal and regulatory requirements 3.3 5% (1) 23% 23% 36% (8) 14% Exam staff turnover/rotation required an inordinate amount of time to get them "up to speed" % 27% 27% 23% 0% (0)

11 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page 8 Exam staff seemed more interested in merging the CU than examining % (17) 14% 0% (0) 9% (2) 0% (0) 7. Indicate your level of agreement with the following statements regarding your most recent exam (cont d): Most Recent Examination (22 23 CU Responses) 1 = DISAGREE STRONGLY 3 = NEUTRAL 5 = AGREE STRONGLY Average Exam staff did NOT treat officials at the CU fairly or respectfully % (12) 5% (1) 23% 14% 5% (1) Exam staff listened well and carefully considered alternative approaches to problems suggested by CU senior management 3.0 9% (2) 39% (9) 22% 9% (2) 22% Exam staff required inappropriate or unnecessary remedies % 30% (7) 30% (7) 13% 13% CU was not given sufficient time to respond to examiner directives (excluding DoR or LUA, which are covered below) % 18% (4) 41% (9) 18% (4) 0% (0)

12 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page 9 Exam staff allowed ample time for mgmt to review their findings, helping to ensure resolved issues are not brought before the Board % 22% 17% (4) 30% (7) 17% (4) Exam staff, central office, and regional office provided inconsistent feedback % (7) 14% 45% (10) 9% (2) 0% (0) 8. Indicate the extent to which your credit union experienced problems with examiners failing to cite legal authority for directives during your most recent examination. (22 Responses) Levels of Satisfaction State Examiner $610M $ 5B Federal Examiner $610M $ 5B Federal & State Examiners $610M $ 5B CU Count % 1 Severe Problem Problem Neutral Somewhat not a Problem No Problem % (0) 36% (8) 32% (7) 5% (1) 27%

13 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page Indicate whether your credit union experienced problems with examiners citing (unsafe) sound business practices (SBPs) but failing to give specific guidance for the credit union to remedy the situation during your most recent examination. SRT CUs (Asset Size: $610M $5B) (13 Response) None. The biggest problem is lack of business experience and business sense. But we had no issues in working with them to the conclusion we felt was desired. We offered the business approach; they offered very little but agreed with our solutions. This is less of a problem with new Problem Case Officer, but had been a significant concern. Our recent concerns center around arbitrary DFI mandates with NO factual basis or regulatory documentation. In 2009, we experienced substantial scrutiny on the part of the NCUA Examiners. Every finding was raised to a DOR level (and most were even included in an LUA) without a justifiable risk to support it. Examples of "unsafe business practices" cited without specific guidance included findings related to loan portfolio profitability analysis and the "profitability requirement" (which showed up again in 2010). Guidance regarding Member Business Loans, particularly participations is vague and not particularly helpful. Especially when discussing policy requirements, or perceived violations of our own policy. Negative view of participation loans even though they said we were monitoring them appropriately.

14 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page 11 Requiring that our VP of Collections report to someone other than our SVP/Chief Lending Officer. Our research showed that most large asset size credit unions have the VP of Collections reporting directly to the senior lending officer of the credit union so as to mitigate against simply growing loans only without concern for the credit quality of the loan. By having both underwriting of loans and collections of those loans reporting to the Chief Lending Officer there is greater accountability for the entire lending operations. The joint exam team did not agree with our position on this but yet could only cite it as being a SBP which we did not find to be the case in other credit unions as well. We also experienced several SBP's being cited and overused in regards to Internal Audit and Internal Control issues. Directives making lending very difficult certainly not competitive. We had seasoned and reasoned examination staff from both agencies. We also did not have a lot of problems beyond the economy. Examiners did not cite any new SBPs the last exam, but we are still trying to comply with previous DOR items. We did not agree with most SBPs, which are used essentially as new regulations at the whim of examiners. They have never run a complex company, let alone a credit union, and their incompetence is evident. In interest rate risk areas only. We never heard the term SBPs, but they crucified us on loan portfolio diversification, long term asset ratio (but they insisted on using an incorrect ratio), ALM, and liquidity. They talked in circles, particularly one examiner who was introduced to us as knowing more about ALM than we'll ever know (and we don't think he did). His criticisms bordered on theoretical opinion rather than technical reality. Not a problem except one examiner's finding requiring us to obtain property valuations for our commercial real estate loans. We do not yet have a written draft exam report, so these responses are based on oral communications while they were on site. However, the examiners continue to believe certain actions are necessary for good loan portfolio management when frankly their beliefs instead show their lack of understanding. This makes it difficult for management since you don't want them to perceive you as uncooperative or lacking knowledge, yet their perspectives are off base and out of touch with reality. I have clearly observed the classic ivory tower mentality with no real life knowledge during the recent exam. This has been much more prevalent at the federal level. The state exam team is significantly more reasonable in most instances. 10. As a result of your most recent exam, or separately, was the credit union presented with a Document of Resolution (DoR), Letter of Understanding and Agreement (LUA), or a Cease and Desist Order (CDO)? (21 Responses) Credit Union was presented with a # of CUs % of CUs Document of Resolution (DoR) 14 67% Letter of Understanding & Agreement (LUA) 2 10% Cease & Desist Order (CDO) 0 0% None of these documents 5 24%

15 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page How many days was the credit union given to respond to the examiner's directives or to a DoR/LUA/CDO before having to accept it? (27 Responses) Net Worth Ratio Number of CUs Avg # of Exam Days Avg Days Given to Respond to DoR/LUA/CDO Federal New Same Examiner State New Same Examiner Fed & State New Same Examiner Under 7% 4 16 days 27 days % 8 19 days 27 days % days 30 days** % 3 30 days* NA 1 2 > 14% 1 8 days 30 days 1 *including one credit union at 60 days **excluding one credit union at 90 days 12. Was the amount of time given sufficient to consider options before accepting or signing the DoR/LUA/CDO? (22 Responses) Time was sufficient to consider options before accepting or signing the DoR/LUA/CDO: Number of CUs Percentage of CUs YES Time was sufficient 20 91% NO Time was not sufficient 2 9% 13. How much time elapsed between your exit interview and receipt of your final exam document? (22 Responses)

16 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page 13 Net Worth Ratio Number of CUs Avg # of Exam Days Time between Exit Interview & Receipt of Final Exam Document Federal New Same Examiner State New Same Examiner Fed & State New Same Examiner Under 7% 4 16 days 22 days % 8 19 days 51 days % days 28 days % 3 30 days* 45 days 1 2 > 14% 1 8 days 30 days 1 *including one credit union at 60 days 14. What was the outcome of the presentation of the document? (18 Responses) Outcome of the Presentation Document Number of CUs Percentage We signed as presented 13 72% We signed after it was modified 5 28% We are still negotiating with the examiner We are at an impasse and seeking legal counsel The examiner withdrew the document What other problems, if any did you experience during your most recent exam? SRT CUs (Asset Size: $610M $5B) (12 Responses) The previous exam process was disjointed with NCUA and DFI issuing separate reports with duplicate findings and DORs in many instances. This created confusion and uncertainty with inconsistent language and meaning. The process was not helpful and created conflict. A couple isolated findings related to the filing of SARs (BSA) triggered an "onsite" follow up NCUA review two months later, which, in our opinion, was a waste of Credit Union and NCUA resources. In addition, the requirements to "be profitable" and "continue to send monthly reports to the examiner" were presented again as DORs (just like in 2009). The NCUA and State DFI seem to still being using a template in examining credit unions without proper consideration to the financial strength of the credit union. An exam process and report for a credit union with negative earnings and net capital ratio below 7% should be different than the one experienced by a credit union with positive earnings and a net capital ratio in the double digits and above 10%. Oftentimes, we felt like during the exam we were being treated like a credit union that was under PCA guidelines when we had over 10% net capital and positive ROA.

17 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page 14 As credit unions rebound from the Great Recession in which most credit unions lost money there is now a need in the exam process to not be as strict so as to thwart credit union's ability to grow member loans and serve its members. Examiner was disrespectful to management cut us off during discussion, completely forgot about some discussions, included items in the examination that were never discussed with management and surprised us with component CAMEL ratings downgrades with little or no written rationale. We felt there was no need for us to sign an LUA as the DOR sufficiently detailed the items at issue. Directives unnecessarily restricting sound management in credit granting, loan modifications, and interest rate risk parameters. Examiners assume a double dip recession. We did not have any problems. Two of the field examiners offered business advice, but the lead examiners did not place their observations in the examination document. Capital markets 'specialist' only lack of communication skill. All other examiners and central office staff were good to work with. We had a bad experience last year. The NCUA came in and exiled us. They conducted an exit conference attended by both Board and management. In the exit conference they presented us with about 7 exam findings, none of which were serious. In fact we corrected all but one of the items while NCUA was in the field and the other item was well along towards completion. When the NCUA came for the exit meeting they had turned all 7 items into the more serious DOR. We felt that the change was arbitrary and unsupported by the examination field work and contrary to the findings of our CPA and a host of other third parties that examined CU during the same period that the exam covered. CU hires third parties to exam our BSA risk, our information technology risk; our interest rate risk and we have a full time internal audit function that reviews our internal controls. All of these examination results contradicted the raising of the findings to DOR level. But we have more fundamental concerns about the NCUA examination; o We have found examiners lack the technical, accounting and auditing skills necessary to do their job. That conclusion comes our internal staff who are qualified to make such an assessment. o We have conducted numerous due diligence on troubled credit unions. We regularly find in our due diligence that NCUA missed significant compliance short comings; that the NCUA 5300 data is materially misstated and that NCUA failed on repeated occasions to follow up with prompt and corrective action when serious problems were discovered by examiners. o We have found on repeated occasions that credit unions under NCUA control continue unsafe and unsound business practices. o We believe that the examination process is flawed. The process is not grounded in generally accepted auditing standards. While we agree that an examination differs from an audit in that it is not designed to render an opinion on the financial statements, NCUA relies on the integrity of the NCUA 5300 data and therefore the examination must test and evaluation the system of internal control to determine whether or not the examiners can rely on the call report data. In summary we believe that NCUA's examination process should be improved and that examiners should be better trained and that in our case the examination findings were valid but were arbitrarily escalated for some unknown reasons without justification. We believe that in all of the findings we have ever had

18 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page 15 from NCUA that they were right. We think that many of those who complain about NCUA miss the important problems about the examination process flaws and instead argue about the findings. That in our opinion is not right. We believe the findings are right in most cases. We find that the problem when findings are noted is that there is no prompt and corrective follow up. The lack of follow up has been well documented by the NCUA Inspector General and is evidenced in many of the recent failed credit union post mortem reviews by the Inspector General. As noted above we also find that the NCUA 5300 data, especially with regard to the allowance for loan losses and other impaired assets such as repossessed vehicles, is often wrong. I would raise the concern that NCUA is now the weakest regulator and like the OTS is subject to the same fate as OTS. The Treasury Blue Print has, in my opinion, a high probability of being enacted. DFI Examiner in Charge was not highly adept at being an In Charge Examiner and did not provide adequate guidance to new DFI Staff Members. DFI Examiner did not present results to the Board instead deferring to the NCUA Examiner to do the presentation. They appeared to be working off a checklist and not open to dialog on some issues. Lack of coordination between DFI and NCUA. NCUA was on a mission and appeared to railroad the DFI. Tone of examiners and their issues was almost extreme, yet end result was favorable to us. Did we really have to go through that? NCUA examiners were from Maryland. Anything in CA is therefore bad. They have no clue about our real estate market. The examiners reversed several items from the last set of examiners. We were doing things correctly then changed based on March audit. Then in the July audit examiners wanted us to go back to our original process. Very frustrating and significant time wasted. They also made several significant mistakes while they were here that caused confusion and more wasted time! 16. What positive developments or helpful outcomes did you experience during your most recent exam? SRT CUs (Asset Size: $610M $5B) (13 Responses) The NCUA examiner was experienced but new to our area. He recognized this was not the East Coast where he came from, and truly tried to understand this new area. Neither NCUA nor DFI attempted to force their solutions upon us. Our LUA was lifted after this exam. Our examiner seemed overwhelmed and was very concerned about the environment in CA. However, he worked with management to find solutions and in the end seemed to be supportive and on our side. It took considerable effort on the CEO's part by spending daily time with the examiner over the course of 5 weeks to build this comfort level. By far the most positive development has been the assignment of a new PCO by the NCUA. She is professional, well trained, communicates well and is a pleasure to work with. This move has been VERY positive for our credit union!

19 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page 16 With the change of examiners between 2009 and 2010, we noticed a major shift in the approach taken by the 2010 Lead Examiner, who presented herself as a "partner," truly looking after the best interest of the Credit Union, the industry, and the NCUA. Although we did not agree on everything, it was quite refreshing to deal with a reasonable examiner, who had good intentions. Exams are always helpful in directing executive management to address areas of the business that might not get attention due to competing priorities. None unprofessional process this year Both regulators were well versed, supportive and helpful in their recommendations. They were also open to changes and negotiating solutions. Clearly, the examiners are calculating risks and strategic plan sustainability from an income perspective. They are concerned about rate risk and the prospective competitiveness of credit unions as the economy shifts and recovers. Our experience, which admittedly was much better than most, was constructive and professional. Exam lead and office staff appreciated our progress and allowed us to do our jobs. We only had issue with one of the exam team. We were able to negotiate the final document. They listened carefully and changed some of their comments and concerns. I also believe that DFI is a good example of how a regulator can regulate both banks and credit unions. Firewalls do work! I also believe that separating NCUA and NCUSIF would be better. The lack of transparency on the NCUA budget and overhead transfer rate is only one problem with the current arrangement. NCUA has superseded the dual chartering system. NCUA is calling the shots and DFI has little to say about regulation of NCUSIF insured credit unions. We strengthened our processes around loan modifications. APPENDIX Survey Questions 1. Was your last exam Federal or State, or Federal and State combined? Was your Examiner new, seasoned, or the same one you have had before? How many days did your most recent exam last? What is your credit union s Net Worth Ratio? Indicate how satisfied you were with your most recent examination Level of challenges you ve experienced with regulators with the following statement Level of agreement with the following statements regarding your most recent examination... 7

20 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page Indicate the extent to which your credit union experienced problems with examiners failing to cite legal authority for directives during your most recent examination Indicate whether your credit union experienced problems with examiners citing (unsafe) sound business practices (SBPs) but failing to give specific guidance for the credit union to remedy the situation during your most recent examination As a result of your most recent exam, or separately, was the credit union presented with a Document of Resolution (DoR), Letter of Understanding and Agreement (LUA), or a Cease and Desist Order (CDO)? How many days was the credit union given to respond to the examiner's directives or to a DoR/LUA/CDO before having to accept it? Was the amount of time given sufficient to consider options before accepting or signing the DoR/LUA/CDO? How much time elapsed between your exit interview and receipt of your final exam document? What was the outcome of the presentation of the document? What other problems, if any did you experience during your most recent exam? What positive developments or helpful outcomes did you experience... during your most recent exam?... 15

21 2011 SRT Member CU ($610M - $5B) Regulatory Exam Feedback Page 18 ONLINE RESOURCES ( CU Exam Bill of Rights CU Guide: Issues and Examinations NCUA Exam Appeals Article Exam Admin Actions Guide NCUA 10 Exam Scope Areas TDR Policies TDR Delinquency Worksheet (Excel) Comprehensive Exam Feedback Shapiro Exam Feedback Mid size CU Exam Feedback SRT CU Exam Feedback Nevada CU Exam Feedback