On Friday evening the California Department of Financial Institutions placed Telesis Community Credit Union into conservatorship and then appointed the National Credit Union Administration as conservator. We have long known of the troubles at Telesis through evaluation of credit union performance tied to our Credit Union Industry HealthScore calculations. While we typically do not release score data on individual credit unions, we do make public the scores of conserved credit unions.
In the image below you will find the HealthScore trends for Telesis as compared to the broader credit union community. It is quite clear that Telesis took a substantial hit in 2007, a hit from which it has so far failed to recover. It has been in the 10th percentile of the HealthScore distribution for quite some time. Click to enlarge
We have long said that our HealthScore is not a predictor of future performance . Obviously this slide proves that point, but it also proves the value of contingency planning for credit unions – especially those with sustained, above-average performance due in large part to a niche market focus. When you serve a niche market, as did Telesis with its concentration on member business lending, you must be prepared for fluctuations in that market. Much as I hate to agree with the NCUA, understanding “concentration” risks, and mitigating those risks, is an important responsibility for both boards and management teams.
For additional information on the conservatorship:
With final regard to the idea of concentration risk, the challenge for credit unions is not to avoid concentrations, but to properly manage concentrations. Sometimes I think regulators seek to eliminate concentrations when really better risk mitigation and/or contingency planning is what is needed to ensure credit union health and long-term viability.
Given some time, Telesis will not doubt work itself out of the challenges it faces, but the road to sustained health is a long and rocky one.