As the one-year anniversary of the conservatorship of TelesisCommunity Credit Union approaches, credit unions may find there arestill more lessons to learn from the cooperative's collapse.

Larry Middleman, president/CEO of CU Business Group LLC, a Portland, Ore., business services andlending CUSO, shared those lessons during a webinar Thursday onbusiness deposit trends.

“I'm not trying to pick on Telesis.These are just gems of wisdom to learn from,” Middleman told theattendees.

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The NCUA's Office of Inspector General released a reportThursday that outlined a number of reasons why the $318 millionTelesis in Chatsworth, Calif., experienced massive financial woesthat ultimately led to its death.

Among those cited were investing too heavily in member businessloans, failing to properly calculate loan loss allowances,depending too much upon Business Partners LLC, its business lending CUSO, for revenue,and spending too much on operating expenses.

One critical takeaway from Telesis is credit unions shouldn'treach too far, Middleman advised.

“Don't try to reach for volume. The other place is tertiarymarkets. Those are the small towns away from the metro markets,” heexplained. “They will be hit the hardest in an economicdownturn.”

For instance, the area that was impacted the most in Phoenix was“everything around the edges,” Middleman said.

A second lesson is understanding that “high yield is there for areason,” he offered.

“Why would a borrower accept a five-and-a half rate in thisenvironment? Because they have to,” Middleman said. “When I look ata deal coming into a credit union and it's a hard money loan at 8%to 9% – well, how long has that property been around, what are theodds of success?”

A third takeaway from the failure of Telesis is really examining“actual versus projection,” Middleman suggested.

Someone might say “'I'm buying this distressed apartmentbuilding. Rents are down, vacancies are high. Here's my projectionso I want to get a loan,'” Middleman shared in a hypotheticalsituation. “Look, I can create projections in an Excel spreadsheetin 15 minutes. Always treat projections with healthyskepticism.”

The fourth lesson is exercising due diligence in participationloans, Middleman said.

“Look closely at the appraisals. Try to poke holes in it,” henoted.

Finally, credit unions might not want to get caught up in thehype.

“I'm seeing some desperation – 'We have to increase our loantotals or else,'” Middleman said. “I don't know 'what else'is.”

CU Business Group, which currently serves 420 credit unions in44 states and has processed more than $3.5 billion loans since itlaunched 10 years ago, has watched from afar the demise of creditunions such as Telesis, the defunct Eastern Financial Florida Credit Union and the commerciallending problems at $1.4 billion Texans Credit Union in Richardson, Texas.

Middleman ticked off some of the reasons cited by the NCUA's OIGon why Telesis went under: investing too heavily in member businessloans and depending too much upon its business lending CUSO forrevenue.

“It was out of control,” he said. “The lesson learned over thepast five years is don't reach too far.”

The California Department of Financial Institutions placedTelesis in conservatorship on March 23, 2012 and the NCUA was namedthe liquidating agent. Telesis was liquidated on June 1, 2012 andits members, deposits, core facilities and consumer loans wereassumed by the $1.3 billion Premier America Credit Union, also inChatsworth, Calif.