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<p>CHATSWORTH, Calif. – Like neighborhood “mom-and-pop” grocery stores that offered only the staples – things such as milk, eggs and bread – and then watched as their customers fled for the convenience of shopping at full-service markets, credit unions that continue to offer only the basics and fail to meet their members’ business needs are likely to see similar defections. That’s the prediction of Grace Mayo, president and chief executive officer of Telesis Community Credit Union, which has successfully moved from offering the “basics” to establishing a leading CUSO for member business services. “It’s like going into a supermarket,” says Mayo by way of comparison. “You need the basics. milk and eggs and bread. But if the grocery store only offered that and didn’t start offering more, what happens to the consumers? They’re going to go and find someplace that has it all.” Rather than allowing that to happen at Telesis, where members were openly asking for business services, the credit union decided to meet those requests by providing new products and services rather than trying to make its consumer products and services fit those requests. “We said we’re going to see this happening more,” Mayo said of the requests for business lending and depository services. “We’re going to see more people going into other areas that the consumer products won’t fit in – and they’re going to be business owners.” Mayo said failing to respond to members’ needs for business services would have hurt the credit union in the long run. “If you don’t start branching out in other product areas to bring in fee income to your bottom line, it’s going to be tougher for us to competitively price those core relationships because others are going to find ways to enhance them,” she said. These days, Telesis ($265 million in assets, 32,000 members) has found its own way to enhance those relationships, notably through the development of its CUSO, Telesis Partnerships, Inc. The CUSO has underwritten more than $250 million in loans and holds, along with its business partners, approximately $200 million in participation loans. Mayo said that while offering member business services might not be for every credit union, it is something that the financial institutions should not only be aware of, but prepared to offer as “market share starts shrinking and competition starts heating up.” “It’s definitely sparking a lot of interest especially with the community credit unions,” she said. “Once we changed our charter from a SEG to community (which occurred about two years ago), it seems almost imperative that you start thinking about offering it, whether it’s just starting out small and only offering a certain loan amount or you engage in joining up immediately with CUSOs like ours so you can offer almost a full package. “It’s something that credit unions need to consider in the future because you can’t just expect that the spreads will maintain the same on the consumer loan products that we offer now,” Mayo added. “For our future lifelines, we need to consider expanding our product venues, otherwise we’re constantly worried about just making auto loans all day long. And unfortunately for mortgages, that’s a long-term product unless you know how to change it into a shorter term loan.” Mayo said offering member business services was simply another way for credit unions to serve their members. She said Telesis members, many of them entrepreneurs and business owners and investors, were delighted to have the credit union handle both their personal and business transactions. “It’s a full relationship now,” Mayo said. “Regardless of whether our member needs a $30,000 business loan or a $3 million business loan, if it’s good for the members, then it’s going to make business sense,” she said. “These business members need a lot of attention,” she added. “That’s what they’re looking for and that’s what they’re starving for. They have not gotten attention through all these (bank) megamergers. The big (banks) really like the larger loans. So a big segment of the entrepreneurs have really just been ignored. So when you start giving them attention, it’s amazing what you get.” But she warned that developing and implementing a business service plan takes time and effort. “It’s not as easy as everyone thinks,” she said. “Just because you say you’re offering member business lending, it doesn’t just happen overnight.” Telesis early on committed itself to serving its business members. Mayo and her executive vice president attended a commercial underwriting course at the University of Louisiana and the credit union then “eased very slowly” into offering small business loans. Word quickly spread and business services began to grow. “One thing led to another and before you know it I started to actually fly around the country looking for other loans because we couldn’t ramp it up fast enough,” Mayo recalled. She noted that Telesis was granted an exemption from the regulation limiting member business loans to 12.25% of assets. Its loans were restricted to 15% of the net worth to one borrower. Telesis subsequently began marketing its business services through its newsletters and began attracting large loan requests. “At that time, being restricted to 15% of net worth, the most we could do on the loans was about $1 million,” Mayo said. “Yet I’d be given requests for real property buildings, such as a professional building or apartment units, that were closer to $2 million. That’s when the participation vehicle came in very well; we were able to now participate out.” As business continued to grow, the credit union developed the Telesis Partnerships, Inc. “The reason we developed the CUSO was because other credit unions wanted to get involved and also wanted to do the full turn-key,” she explained. “So we will go into their area and they will market that they can do business lending and we do the full underwriting and servicing for them using our CUSO staff expertise.” Mayo noted that with the 12.25% restriction, some large credit unions – among them CUs with billions of dollars in assets – find that working and participating with the CUSO makes financial sense. “It doesn’t behoove them to spend that kind of money and expertise and manage these people when you’ve got a cap of 12.25%,” she said. “This is why they join a CUSO. Basically we have an agreement to share, participate and market together in many areas.” The CUSO had dedicated 10 people on the lending side and three on the business depository side. The latter includes sweep accounts and will soon add cash management services. “Regulators would like us to just stay doing the milk and the bread and the eggs only,” she said referring back to her grocery story analogy. “But when you take it down the line, if a retail grocery store had to do the same service in the community they wouldn’t survive. Those are the same concerns I have.” (Telesis Partnerships is on the Web at www.telesispartnerships.com) [email protected]</p>

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