Credit Union Exam Solutions Presents With Flying Colors

The OCC's Risk Report and What It Reveals for Credit Union Exams

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Jul 15, 2025

Explore the hidden risks credit unions face as they navigate the post-COVID landscape. Experts analyze rising commercial credit risks and the impact of student loan repayments on retail credit performance. They delve into concerns over office vacancies and shifting generational borrowing behaviors. Additionally, the discussion highlights emerging threats like fraud and ATM security, emphasizing the need for advanced risk management strategies. Tune in for valuable insights to stay ahead in this evolving financial environment.

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INSIGHT

Commercial Loan Risks Rising

Rising commercial real estate delinquencies are driven by interest rate resets and office vacancies.
Credit unions need to stress test commercial loan portfolios for payment shocks and review concentration limits by property type.

INSIGHT

Challenges with Younger Members

Younger generations heavily use third-party payment apps like Venmo which bypass traditional credit unions.
Capturing these members as depositors and payment users is increasingly challenging for credit unions.

INSIGHT

Interest Rate Risk and Stress Testing

Yield curve normalizing improves margins but interest rate risk stress testing demands are rising.
Examiners require multiple scenario analyses to assess liquidity and interest rate risks amid uncertainty.

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Credit Union Roundtable: Mid-Year Risk Reports - Our Take on What it Means for CUs

Episode Description

In this inaugural Credit Union Roundtable episode, host Mark Treichel is joined by three industry veterans to break down the OCC's Spring 2025 risk report and what it means for credit unions. Steve Farrar, Todd Miller, and Dennis Bauer bring decades of combined NCUA and credit union experience to analyze the top risk concerns facing the industry.

Featured Guests

Steve Farrar - Former NCUA examiner and problem case officer with 30+ years of regulatory experience, including work on the risk-based capital rule and Central Liquidity Facility

Todd Miller - 34-year NCUA veteran, former Director of Special Actions in the Western Region, capital markets specialist

Dennis Bauer - Recently retired CFO of Ideal Credit Union (grew from $100M to $1B+ during his tenure), former NCUA examiner

Key Topics Covered

Commercial Credit Risk (9:00)

Rising delinquencies in commercial real estate
Impact of interest rate resets on variable rate loans
Office building vacancy concerns post-COVID
NCUA's increased focus on annual review processes
New concentration limit requirements by property type

Retail Credit Performance (18:00)

Student loan payment resumption impacts
Generational differences in borrowing behavior
Auto loan portfolio shrinkage trends
Regional economic performance variations

Interest Rate Environment (24:00)

Yield curve normalization effects
CD composition changes (13% to 28% of deposits)
Underwater investment portfolios
Enhanced stress testing requirements from examiners

Operational Risk Challenges (33:00)

Cybersecurity incident response planning
Legacy system conversion risks
Communication strategies during cyber incidents
Cost vs. benefit analysis for security upgrades

Fraud & Payment Systems (39:00)

Elder fraud targeting (timeshare scams example)
ATM jackpotting and skimming schemes
Venmo usage statistics (85% under 40, $342B in Q1 transfers)
Third-party payment system competition

BSA/AML Compliance Burden (45:00)

Staffing challenges for smaller credit unions
Creating collaborative BSA offices
Committee-based approach to compliance

Growth & Competition (46:00)

Slow loan growth trends
Credit unions gaining deposit market share vs. banks
Money supply impacts on deposit availability
Pricing strategy considerations

AI & Technology Adoption (50:00)

Model validation requirements
Third-party vendor risk management
NCUA's AI policy challenges
Competitive advantages vs. compliance risks

Key Takeaways

Commercial Real Estate Monitoring: Credit unions should closely watch their CRE portfolios, especially office properties and loans approaching rate resets
Stress Testing Expansion: Expect more detailed scenario analysis requests from NCUA examiners across interest rate and liquidity risks
Operational Risk Investment: Cybersecurity and system conversion planning require significant ongoing investment and expertise
Generational Shifts: Adapting to younger members' payment preferences and borrowing behaviors is critical for long-term growth
AI Adoption Strategy: Credit unions need to embrace AI while implementing proper model validation and risk management frameworks

Resources Mentioned

OCC Spring 2025 Risk Report (link in show notes)
Credit Union Regulatory Guidance podcast (AI-powered audio summaries)
Attorney General scam awareness resources

Notable Quotes

"A rolling loan gathers no loss" - Professor Willie Stotts reference on commercial loan repricing challenges

"We took the approach that we're gonna have a cyber incident... so we took that approach in developing our incident response plan" - Dennis Bauer on cybersecurity preparation

"If you don't have time to do it right, you don't have time to do it over" - On system conversion planning

Contact Information

Mark Treichel - Host, With Flying Colors Podcast Consulting Services: Available for credit union risk management and regulatory guidance

Next Episode Preview

Stay tuned for more Credit Union Roundtable discussions featuring industry veterans sharing practical insights on regulatory trends and risk management strategies.

This episode provides general information and should not be considered specific regulatory or legal advice. Credit unions should consult with their own advisors and regulatory contacts for guidance on specific situations.