Findings fom Telesis Community’s Material Loss Review

By. Keith Leggett

NCUA’s Office of the Inspector General (IG) released the Material Loss Review (MLR) on the failure of Telesis Community Credit Union with an estimated loss to the National Credit Union Share Insurance Fund of almost $77 million.

The report blames Telesis Community Credit Union’s management and Board for the credit union’s failure and resulting loss to the NCUSIF.

Here are some of the highlights from the report.

A heavy concentration in member business loans, especially commercial real estate loans, led to the credit union’s failure. The MLR notes that Telesis Community Credit Union has an exception to the member business loan (MBL) cap of 12.25 percent of assets and “leveraged this exception to originate a number of large business loans with industry and geographic concentrations in areas vulnerable to economic downturns.” The report notes that examiners believed that Telesis need a capital (net worth) ratio of at lease 15 percent to support the risk due to its heavily concentrated loan portfolio.

The MLR report also found that Telesis Community Credit Union used wholesale funding — borrowings from the Federal Home Loan Bank and Western Corporate FCU and brokered certificate of deposits — to originate its business loans. This resulted in significant borrowing costs. Additionally, the requirement to pledge loans as collateral for its borrowings created pressure to inflate the grading of its loans.

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