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Montana Credit Union & Bank Commissioner Melanie Hall

WFC 118 | Credit Union

In today's episode, I interview Melanie Hall, Commissioner at the Division of Banking and Financial Institutions, State of Montana. Together, we explore the current state of the banking industry, the economy, the ever-evolving landscape of interest rates, and the role of organizations like NASCUS and CSBS.


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Montana Credit Union & Bank Commissioner Melanie Hall

I’m excited to be here with Melanie Hall. Melanie, how are you doing?

I am doing great.

Melanie, I’m going to give a little bit of your background here for the audience, who may not know you. You are the Commissioner at the Division of Banking and Financial Institutions for the great state of Montana. You also went to Tulane Law School. You’re also involved in a couple of really nice trade organizations, CSBS for banking and NASCUS for state-chartered credit unions. You essentially supervise banks and credit unions for the state of Montana. I’m excited to pick your brain a little bit about what’s going on in the credit union and banking landscape. Anything I missed there in the intro you’d like to add?

I don’t think so. I’ve been doing this job as commissioner for many years. I feel like I have seen a lot of things. We’ve seen some interesting and new things lately. I started in this role in the rollout of Dodd-Frank. I would say 2/3 of our institutions in Montana were under some enforcement action. We’ve had a pretty good few years over the past couple. It’s been a good time to be a bank and/or a credit union. Our office also supervises mortgage brokers, mortgage servicers, and mortgage lenders. Our office, for instance, licenses and supervises loan originators at Rocket Mortgage and we examine Rocket, as well. Montana, actually in 2022, was the lead state in the multi-state examination of Rocket. We get to see a wide swath of the financial services landscape.

I didn’t realize that part of it. In my role at NCUA, I dealt with state regulators all across the country. There were some that had their own separate credit union division, some that had their own separate banking division, and some like yours. Massachusetts is similar to yours. They cover the whole gamut. When you and I got on the video here, you mentioned that there’s cross-fertilization that you have with the way that you structure it between banks, credit unions, and perhaps mortgage companies. Do you want to speak a little bit about how that works, how long you’ve been doing it that way, and the benefits that that provides?

When I started here, we were very siloed. We had bank examiners, credit union examiners, and mortgage examiners. Our mortgage and non-depository team is still largely separate from banks and credit unions, although we do get some assistance from our non-depository people on compliance issues and compliance exams.

For the most part, when it comes to safety and soundness, we have combined our examination teams. We still have a separate Credit Union Bureau Chief to handle issues like the field of membership and mergers. If you are a banker credit union in Montana and it is time for your exam, you are going to see the same group of examiners. The reason we moved to that model is that we really had a situation where we were holding institutions to different standards, and it didn’t make sense. There are around 50 credit unions in Montana in total. Only 9 of those, at the max 10, are state-chartered.

Way back, long before my time, it was much more expensive to be a state-chartered credit union. We have a lot of federally chartered credit unions in Montana. Of the credit unions that are state-chartered, we have over 50% of the credit union assets in Montana. We have a $1 billion credit union and a couple of $300-plus million credit unions. It occurred to us, as we did this, that credit unions are financial institutions as are banks. If an institution is $250 million, we should be applying the same standards in terms of liquidity and interest rate risk management. Capital and net worth work a little differently, but it would be good for our examiners and good for our institutions to be held to the same standards financially.

That makes sense. That triggers a couple of things in my mind. There’s a book I refer to a lot called The Wisdom of Crowds. It was getting that perspective from both sides because something that happens in credit unions before it happens in banks or vice versa. As that happens, your staff sees it. Since they’re available to the team on the credit union side, both can benefit from that.

The other thing, it reminds me of my days at NCUA back in 2013. NCUA started a document called the National Supervision Policy Manual. The reason that came about was because the NCUA board would go to functions, and they’d say, “I was talking to a credit union in California, and I’m in New York. California’s Regional Director said, ‘Do it this way.’” New York was doing it the opposite way or differently. There were some things that were put in place to create requirements that if there were going to be policy changes, they were going to be national. They weren’t going to be regional as much. It gives all the staff the opportunity to look at things and treat them on the same standard as you said.

We do see that, particularly on issues like BSA. If we’re starting to see challenges on the BSA front or internal audit, I will tell you right now internal audit is a pretty significant issue at banks and credit unions in Montana. A lot of that is due to staffing. Staffing pressures and challenges affect all of our institutions. They borrow and steal from one another. Montana is a very large state. It’s the fourth largest in the country. I always say I like to remind people that we have a million people and over 3 million cows. It’s geographically big, and that leads to challenges around finding experienced and qualified people in small rural communities to do things like compliance, audit, BSA and IT.

We think that it’s important to help make sure whether you’re a $250 million bank or a $250 million credit union, you have the same vulnerabilities around things like IT, audit, fraud, and governance issues. We want to make sure that our bank examiners and credit union examiners are all the same people so that they’re sharing challenges, policies, new products, and services that they’re seeing.

We have the old saying of, “We’re the government and we’re here to help.” We are public servants. We work for the state, pay assessments and licensing fees, and pay all of our salaries. We are here to satisfy the triple mandate that most states have. That is to ensure economic opportunity for Montanans to protect consumers and to make sure that Montanans have access to a diverse array of financial service providers.

I try to keep that in mind and make sure that we are a partner with our regulated financial institutions. We do everything in our power to make sure that they’re successful because it makes our jobs easier. Over time, it makes the lives of Montanans better to have access to solid financial service providers. I will also do a quick plug here for our regulator association groups, NASCUS and CSBS. Those allow us to do what you were talking about at NCUA.

That is, come together and talk about things other states are beginning to see that we may or may not be seeing yet in Montana. Often, things I say start in the Sand States. Right now, there’s a lot of discussion with our Federal regulators and other states around pressures in CRE, particularly in office space, maybe due to the fact that most of us are working somewhat from home these days.

We value NASCUS, CSBS, and our other regulator industry groups, which we’re a member of a number because of all of the different types of industries that we supervise here. Also, the value that they provide to us in terms of letting us see a broader perspective than I would see if all I ever did was sit in Montana and supervise Montana institutions.

I always enjoyed going to NASCUS meetings, whether it was my regional meeting as a Regional Director, where I met with all the states that I had, or the national meetings where you’d have breakout sessions. I can remember Boli Cuoli, the life insurance product, when that was something that was getting introduced. The state regulators had seen it all before anybody at NCUA had because it started in banks. Thus the name Boli, and then it moved over to credit unions. There was a working group that got put together where the state regulators were helping educate NCUA. There’s a big summit that may be coming up that NASCUS has. Is there anything relative to that that you want to highlight?

It’s at the end of August 2023, and it is in Nashville, Tennessee. Although I am the Commissioner from Montana, I will mention that I grew up in Mississippi and spent time every year in the mountains in Tennessee, Gatlinburg, Nashville, Knoxville, Pigeon Forge area. My mom, despite the fact that we lived a mile from the beach, hated sand and loved mountains. We went to Tennessee every year. Nashville is one of the cities, post-pandemic time, that has the largest growth in population that has fun things to do, amazing food, hot chicken sandwiches, and great music. It’s going to be an awesome conference from a local perspective.

The NASCUS summit is also a great place to have an opportunity to bring credit union regulators, credit union executives, credit union vendors, and people from NCUA all together to talk about the issues that are pertinent to credit unions. I will mention one of those because you talked about Boli. State regulators were also on top of that from the bank side because all the people who were mortgage brokers who decided that that wasn’t a good career for them post-Dodd-Frank and Safe Act became Boli salesmen. I’m a little worried that they’re all selling either participation or sub-debt to our financial institutions.

That is a topic that I hope is a subject of conversation at the summit because we’re seeing some interesting decisions around sub-debt and additional capital. For credit unions, it is always a hot topic. I imagine the summit is going to be very interesting, given the liquidity challenges and some of those issues that we have going on in the financial services world. It’ll be great.

The summit will be very interesting this year, given the liquidity challenges and some of the issues that we have going on in the financial services world right now.

You’re right. It’s going to be a great agenda, great people attending, great topics and, as you said, a great location. I’m not going to be able to make it this time, but I always enjoyed it when I did participate as part of NCUA. It was always very thought-provoking. If you haven’t been to Nashville and you haven’t been to this summit, I highly encourage it.

It is going to be a great event.

You talked about the growth that’s happening in Nashville and Tennessee. I’ve got a couple of folks who help me in Montana and tell me that Montana is growing. You talk about office space and people working remotely. There may be a rush of people from Washington, Oregon, and California who go, “I’m remote now. Let’s go live in Montana.” Have you seen those types of patterns in Montana? How is that impacting credit union growth and the state?

It’s been tremendous and frustrating at times. I have a wonderful human who works in my office and gets married. She and her partner are looking to buy their first home here in Helena, where the majority of people are state employees or Federal employees, and average salaries are not high. The average starting home price is right around $400,000.

Montana has challenges around getting resources and materials for building, despite the fact that we have tons of forests, timber, and the rest of the materials associated with building a home. It’s expensive to get things here. We can’t build enough housing fast enough. I know that’s a problem across the country, but in more rural communities, it’s challenging.

We have had a tremendous uptick in people coming to live the good life that we have here in Montana. There were probably a number of Montanans who were hoping for a harsh winter in 2023, so maybe some of them would go back to where they came from. It is leading to membership growth at our credit unions, asset growth at our credit unions, increased demands for the type of services, and more digital access for people that have moved here from other places that are more accustomed to.

For a long time, I have always been surprised at how many brick-and-mortar buildings our banks and credit unions are still putting up. We are still a brick-and-mortar community here in Montana. With the influx of population and the people who are moving here to do remote work and who are used to having digital access to everything, I think that there’s going to continue to be increased heightened demand for those digital services.

WFC 118 | Credit Union
Credit Union: With the influx of population and the people who are moving here to do remote work, who are used to having digital ACC access to everything, there will be increased heightened demand for those digital services.

Montana has also received a major grant from the Federal government to help with broadband because there are still a lot of places in Montana where internet access is a real challenge. If you live in a town here of 200 people, which is not unusual, and someone has to bring the internet to you 30 miles from the nearest hub, that’s an expensive proposition. Looking at how we can do the satellite and different options are going to be part of the financial services landscape.

As branches do close, we’re going to have to bring people up to speed with digital banking services. Montana traditionally had a very aged population. Digital banking is not their preferred method of banking. They like to go into their bank, talk to the tellers, and find out what’s going on in town. We’ve got a ways to go on that front, but our banks and credit unions are meeting that challenge head-on now.

Particularly with the older members, the relationship between their favorite teller, stopping in, seeing them, and asking how their kids and their grandkids are. It’s a very small town-ish. Montana has, as you said, you know better than me, a lot of small towns. One of my friends lives in Montana. We were talking about where he went to college. At that moment, I can’t remember where it was.

He was talking about the same college and the starter homes there were $500,000 or $550,000. It was landlocked because it was in a valley amongst all the mountains. There’s not a whole lot, even though it’s big, a lot of it is unbuildable and beautiful, which is nice because it’s going to stay unbuildable and beautiful. However, it creates some challenges for where you build the next place if you need to grow.

Absolutely. Nobody wants to build on the other side of a mountain pass because we have winter for eleven months out of the year, from what I can tell. For a Mississippi girl who moved to Montana, it feels like winter lasts forever here. I would be willing to bet a couple of paychecks that your friend went to college in Bozeman, Montana at Montana State University.

That’s what it is. It was Bozeman.

Bozeman has a ridiculously challenging housing market because it’s a beautiful place. It’s got a great downtown and college atmosphere. It’s similar to Missoula but a little more Western. It has a little more of that feel that people are looking for in a mountain community. It’s like a large veil in some ways with a college in it. You can get a 1,200-square-foot house for about $550,000.

Rates are high, too. That makes up for it. Speaking of rates being high, we went through historic events from the pandemic to a lot of money being put into the system to, “What do I do with that money?” “It looks like it’s going to stay. I’ll put it into loans or investments.” The Fed decided to get inflation under control and raise rates 500 basis points in the shortest time in history. At the same time, Montana has some growth because you got people coming there. How is that all played out there in Montana? You mentioned liquidity and things like that. Any thoughts on all those words I just threw out there?

The good news for Montana is that our bankers and credit union executives are generally, as a population, conservative, very risk averse, and tremendous balance sheet managers. We absolutely have some significant pressures on our balance sheets. Money is moving out faster than anybody anticipated because of rate competition from mutual funds, non-depository companies, and other investment opportunities. Money is moving and moving quickly. We still have significant loan demand because, like you said, we’ve had this population growth and business growth.

WFC 118 | Credit Union
Credit Union: Money is moving out faster than anybody anticipated because of the rate competition from mutual funds, from non-depository companies, and from other investment opportunities.

We need services for the people who have moved here and expect the level of services they had in their large city in Arizona but now live in a small community in Montana and want that same level of infrastructure both private and public services. We’ve got a lot of pressure there, but I do think that Montana institutions are primed to get through this time because they have a customer base that is very loyal to them, generally speaking. People here like to bank with their local banks. Although money is leaving faster than we would’ve imagined, our institutions are going to be okay. Their repricing is pretty quick. A number of our institutions have significant ag portfolios. Those typically have short-term abilities to reprice.

I always think that all things financial services are just a matter of time. How long things last? We can get through this, and banks and credit unions can find a way to make money,

regardless of the interest rate, as long as they’re projecting it correctly. At the end of the day, they’ll be okay. I do have some concerns about some of the ag borrowers as commodity prices are improving but input costs are also pretty high. When you start talking about ag loans and operating loans, where the rates are going to be 10%+, that begins to put some real pressure on margins for a number of borrowers and how we do that.

Another thing that we are seeing at both banks and credit unions to come back to the housing issue is people who started building a home a few years ago, and it has taken a while due to challenges in getting materials. Post-pandemic are now getting to the end of the process and the house is far more expensive than they thought it would be, both due to those input costs but really due to rates. What their payment is going to be had, in some cases, almost doubled. We are seeing where people have built homes that they can no longer afford.

We have great banks and credit unions that are trying to work with people in order to help them survive this from a timing perspective. We’re bringing that onto the balance sheet and not doing these with the intent of reselling to the secondary market at this time. You’ve got some balance sheet risk there with the hope that these rates come down over the next few years and they’re able to be moved to the secondary market in a timeframe that doesn’t put too much pressure on earnings.

I can’t imagine building a home. I guess a construction alone, having to get converted into a conventional 30-year when the rates have gone through the roof like this. The timing is everything and sometimes it’s the only thing.

Even if your input cost didn’t change at all or you were building a $500,000 house and you thought you were going to be able to lock in at 3.5%, now you’re looking at 6.5% to 7%, that’s a very different payment.

That’s a second job at night to pay for the interest. I’m very curious to see how that plays out across the country with all the challenges the Fed has with raising rates to control inflation and what that did to the balance sheets of banks and what it did to the affordability of housing and all that. It’s interesting times but challenging times to be at the Fed, be in a credit union or a bank right now, or building your home and looking for financing.

Absolutely. That’s one thing I can say. Before this job, I’m a lawyer by trade. When I started as the Commissioner, I wasn’t sure if it was going to be exciting enough. I was a litigation attorney and that’s a day game. Every day, there’s some deadline, pressure, or whatever. I wasn’t sure if financial services regulation was going to be exciting enough or fun enough. Quite frankly, it’s been quite the ride over the years and very enjoyable and satisfying from a career perspective.

I’ll also make the pitch that if anybody is tuning into this and wants to be a bank examiner or credit union examiner, come on over. We would love to talk to you, whether in Montana or the state that you’re in. Almost every state in this country is looking for examiners right now. It’s a job that you can start right out of college. We do the training. If you’ve got a finance or an accounting background, we take you. We pay for the training. It’s an interesting career if you’re into financial services.

I can second that comment. As a 33 years at NCUA, I started as an examiner and I learned an awful lot. I met a lot of interesting people across the country and the pendulum swings.

You have times when the economy is doing well, and then you learn certain things because of that. You have times when the pendulum goes the other direction. You can have some intense times where you learn a lot in a short period of time, but it’s a great career. On top of that, it’s very important, whether it’s a bank or a credit union, you’re providing crucial required services to everybody in the US. I totally agree with that.

Something that state commissioners take to heart is that we have a relationship with our regulated entities. I know every CEO in this state. At Banker Credit Union, I try my very best to see them all at least annually, if not more often. We have a wonderful trade association for credit unions, for instance, Montana’s credit unions. I try to get to their events and meet with credit unions there or meet with them during the exam process.

Ultimately, during the good times, you need to form those relationships and be their trusted partner. Sometimes, as you suggest, it goes in the other direction. You have to have some hard conversations. You have to sit down and say, “We think you’re doing a lot of great work for your community and for your members, but when it comes to your BSA program, we got to do better.”

Ultimately, during the good times, you need to form those relationships and make those your trusted partnerships.

If you are a trusted partner with them, if you know them, if they know you, and they know that you’re a direct, transparent communicator, then you can have those conversations. They don’t have to be some tragedy in the life of a CEO. They can be a, “You’ve reached a certain size. You’re in a certain market. We need more. We need better, and I trust you to get that done.”

You and your examiners can share things, not trademark secrets, but best practices and different things and that familiarity. There was a former NCUA board member who once said, “Familiarity breeds consent.” Breaking down those barriers and knowing somebody allows there a better conversation. That’s an advantage, quite maybe, for a state versus Federal. The advantage is there is a handful and you are devoted to Montana. Because of that, you get to know them a little bit better than the regional director that’s three states over.

It is an advantage. I will tell you that my deputy, when I first started here, and he was here with me for eight years, used to always say that he felt like that was the biggest benefit of the state charter. When you were a state charter, you got two regulators. To some people, that sounds like a nightmare. More regulators do not sound good to a lot of people. He made the point, and I truly believe it, that if you have two regulators, they push and pull on each other and hold each other accountable.

Our working relationship with the NCUA is as important to us as it would be to a federally chartered credit union that only has the NCUA. We try to make sure that exams and processes are consistent and we hold everyone to the same standards. If we or the NCUA is overreacting, there’s a check and balance there in terms of what’s a big deal, what’s not a big deal, and what’s the appropriate regulatory response. Whether it’s working with the NCUA, our office, of course, also works with the Fed, the FDIC, and the CFBB. It’s a partnership there that you don’t get if you have a single regulator. I know a lot of people would choose one, but I do think there is some benefit to that balance.

A really good summary of one of the benefits of being state charter is getting that extra regulator.

I had a conversation with a client the where they’re going, “Why do I want to have two?” In the same token, there is this check and balance that if NCUA wants to do something, you can say, “In Montana and other states, this might make more sense here, and we’ve tried it this way.” Again, back to the wisdom of crowds, it provides a different perspective because of where you sit. It does create a system of checks and balances.

I consider it to be our job to bring the local perspective and what’s going on in the community that might be impacting things. You may not see or may not realize that this is right on the edge of an Indian reservation and there’s something going on there that might be impactful. I consider it to be NCUA’s job to say, “Something we’re seeing across the country is that in credit unions of this size, we’re beginning to see lapses or this particular product sold to them that we don’t think makes sense for credit unions or their members.” If we work together on that, and they bring a more national perspective, and we bring a more local perspective, I think that we will provide better regulation and feedback.

I love the relationship with our Federal regulators. There are states that sometimes put up the arm bar. They want to be independent. We do mostly independent exams on the credit union side. Anytime the NCUA, the FDIC, or somebody wants to come join in an exam, we’re happy to have them. This is a shared responsibility. The more voices at the table, as you said, a little bit of crowd goes a long way in terms of providing good feedback and perspective.

That’s a great perspective and a great way to look at it. I can tell that you must have amazing relationships with those Federal regulators by the way you approach things. Melanie, has there been any question that I didn’t ask you that I should have asked you here?

I don’t think so, but I will once again say that I really appreciate the work that you’re doing to spread knowledge in the credit union space, talk about current issues, and engage with the industry side and the regulatory side. At the end of the day, I do believe that regulators and institutions have the same ultimate goal on the credit union side of providing good, valuable services in a way that protects consumers and provides access to capital and small-dollar credit. There is the same desired outcome for both the industry and regulators.

Regulators and institutions have the same ultimate goal, and certainly on the credit union side, of providing good, valuable services in a way that protects consumers and provides access to capital.

I was at dinner with a kid and her friend, and she told a joke. She said, “Did you hear that the music group One Direction broke up?” I was like, “No.” She’s like, “They’re going in different directions.” I was like, “That’s pretty cute.” I would say, to follow on her joke, that as long as we’re all moving in the same direction, we’ll end up in the same place, and that’s a good outcome. When those paths divide, things get a little squirrelly.

That’s a great place to wrap it up. I love live music. To end a joke about a band, I love it. Melanie, it’s been great getting to know you better. I’m really glad you had the opportunity to spend some time with me, and we’re able to share your wisdom with my audience. Thanks so much.

Thanks, Mark. Take care.

You take care. Readers, I want to thank you for tuning in. This is Mark Treichel signing off.


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