San Luis Trust CEO says extensive exam routine.

July 16, 2008


San Luis Trust Bank’s (SLTB) chief executive officer believes that an ongoing bank exam is “routine” but insiders suggest the number of examiners is extraordinary.

Brad Lyon, who also serves as president of the San Luis Obispo bank, said this week that at least nine examiners from the Office of Thrift Supervision (OTS) are combing through records at the bank for what he termed “purely statutory reasons.”

“The current examination is not out of the ordinary,” said Lyon. “It’s not pleasant. It’s like a root canal… routine, but not fun. It happens pretty much like clockwork. It’s scheduled.”

Bill Rubery, an OTS spokesperson, said that in a straightforward exam a bank the size of San Luis Trust Bank would require one to five auditors. Examinations are scheduled every 12 to 18 months and take an average of two to three weeks, he added.

The executive said circumstances dictate the number of examiners that might be in the bank at any given time.

“There may be only a nine-man exam,” said Lyon, “but there may be 15 or 16 people [examiners] in the bank at one time in the course of a normal exam. Next week, there may be only six people here.”

Asked if the number of examiners and the time being spent at SLTB was extraordinary, Lyon said, “If someone is trying to suggest problems because of the number of examiners, then they are misguided.”

Lyon said he expects the current examination to last a total of six to seven weeks.

“They should be gone the first week of August,” said Lyon, adding, “Each regulatory agency has its own way of doing things.”

Based in Washington D.C., the OTS is a bureau of the U.S. Department of Treasury and is the primary regulator of federal saving institutions. That includes San Luis Trust Bank.

Following an exam, the OTS can take informal or formal steps to remedy deficiencies its auditors might find. Since SLTB’s inception in 1999, five formal enforcement actions have been filed against the bank.

In 2001, following a lengthy examination, the OTS determined SLTB had engaged in unsafe and unsound acts and practices. The OTS and the bank signed a 15-page agreement in November 2001, attempting to bring the struggling institution back into compliance. A week after that action, the OTS fined Lyon $1,000 for submitting inaccurate financial information.

Then, in 2006, two bank employees received civil fines for their business practices and the OTS demanded the bank enter into another supervisory agreement.

The OTS fined former SLTB director Richard Wells $5,000 for failing to disclose his involvement in a property with a bank customer. Richard’s father, SLTB Senior Vice President Eric Wells, received a fine of $20,000 for “breaching his duty of loyalty to the institution and advancing his own interest and the interest of others with whom he had an ongoing business relationship at the expense of SLTB” and for benefiting from a loan he made in violation of banking laws.

In the wake of a swooning building industry, banks everywhere are facing economic woes, with defaulting loans near the heart of the problem. Lyon said SLTB is no different.

“Every bank has those worries (bad loans),” he said. “We are creatures of the market. But are you asking, does the bank have enough in loan loss reserve? Yes. We presently have $4.5 million in loan loss reserve. And we could put in an initial $4 million more into our loan loss reserve in this calendar year. I’m not saying that we are. But we could.”

That reserve total, he added, “would be huge for a bank our size.”

SLTB has made large loans to troubled county developer Kelly Gearhart.

A one-branch operation, SLTB has $314.5 million in assets and reported earnings of $1.03 million for the first quarter of 2008 — down from $1.08 million for the same period in 2007.



  1. ccn_debate says:

    Member Opinions:
    By: Anonymous on 8/25/08
    Switch to Sesloc.
    By: Anonymous on 7/24/08
    As a retired senior commercial bank executive I find it appalling that E. Wells remains employed by SLTB after being fined $20,000 by their regulator.

    Breach of Duty is a serious matter for a bank officer. Where is the Board of Directors in this matter? Oh I know – out to lunch. Sounds like the Board needs a great deal more independence from management.

    PS: Dan & Karen, you may have the father and son confused. I believe Richard is the father.
    By: Anonymous on 7/19/08
    Vice President Eric Wells, breaches his duty of loyalty on a daily basis to anyone that comes in contact with him. I have known him for 10 years and would never trust him. He even has to cheat at Babe Ruth Baseball for his kids.
    By: Anonymous on 7/19/08
    You are indeed Wise.
    By: Anonymous on 7/19/08
    What Mr. Lyon says is very odd: Equating a bank examination with a root canal procedure, but stating that a root canal is a "routine" procedure.

    Root canals do not happen "like clockwork." Mr. Lyon might want to be a little more precise when using analogies and metaphors, as the one he chose suggests something different than I believe he wished to imply.

    With all that said, I think it would be prudent for us all to give Mr. Lyon and his bank the benefit of the doubt and not jump to any undue conclusions despite his poor choice of words. Root canals are rarely fatal and usually promote future health. We can only hope.

    Actually, a root canal is NOT a routine procedure at all and is only done when there is incontrovertible evidence of serious disease that would continue to get worse if not halted by the rather elaborate and uncomfortable procedure.
    By: Anonymous on 7/18/08
    As the article points out, SLTB is going through a routine examination, not an investigation. Routine? Maybe, maybe not. I’m sure we all know at least one community banker in town. Maybe they could shed some light?
    By: Anonymous on 7/18/08
    I have no doubt that the facts will all come to light in the next few weeks with this site turning out right again. I have advised my contacts not to retain holdings in excess of 100K in this location.
    By: Anonymous on 7/18/08

    I'll take that as a no you can't fine one article that has not been accurate your just hoping this one is. Hope springs eternal.

    (1) 1 Total Votes - 1 up - 0 down
  2. ccn_debate says:

    By: Anonymous on 7/18/08

    Are you being compensated for your devotion to this blog?
    By: Anonymous on 7/18/08
    Name one article in this whole group published by uncoveredSLO that has been proven false or even over stated. None that I can see. So whats the odds that this story is out of line in any way. The only action that has been taken by anyone who has been subject to these articles has been to try and keep a lid on it. Which appears to be the case here.
    By: Anonymous on 7/18/08

    I agree with you wholeheartedly. If for any reason the Triibune or other local news done their job, EFI would have been talked about long time ago. Many of the bleeding inflicted on investors creditors and borrowers could have been less painful. UncoveredSLO done a great service to the public while the traditional publications media either purposly coverd up or just plain incompetent.
    By: Anonymous on 7/18/08
    It's fascinating to always see these critical comments saying that the stories UncoveredSLO reports on are not "news" and therefore should be ignored.

    There is no strict definition of what "news" is. But I would say that if there is something that people would talk about among themselves with concern, around the "watercooler" for instance, then that is usually worth reporting upon in the media.

    Someone can try telling us that this latest bank story is not "news", but I can guarantee that if people got together and learned that a local bank had a bunch of auditors investigating it, it would be a HOT topic of conversation. And it's fair to say that those same people would likely want to hear more details. And that is where UncoveredSLO comes in.

    A local bank being investigated at a time when many banks are expected to fail IS news any reasonable way you look at it.

    The only people I can imagine not wanting more details about this being made public would be people who have something to fear themselves for one reason or another.

    (1) 1 Total Votes - 1 up - 0 down
  3. ccn_debate says:

    By: Anonymous on 7/17/08
    Neil B. That was the point of my writing in. Is my phantom account showing up and to their advantage? Or is it just a computer glitch? Also "To Neil B." SLBT does home equity, not exactly a home loan, but in the ballpark. If the auditor's info is put on this site I would be able to contact them.
    By: Anonymous on 7/17/08
    If the number of examiners is unusual, it may merely be because the times are unusual and the OTS is being more careful. Wall Street banking sector analysts have predicted a rash of bank failures over the next year or two.

    It'd be interesting to know whether Richer Than I Ought To Be's phantom account is showing up in the bank's aggregate assets in any way. One would hope examiners would catch things like this, but recalling how auditing firms failed to catch Enron, Worldcom, etc., one shouldn't assume they would.
    By: Anonymous on 7/17/08
    It’s amusing to try and comprehend why people don’t look more into the facts. Why are we so one minded to assume the worst about everybody? Banking is a regulated industry and unlike EFI and other unregulated lenders, all Banks must report their performances quarterly, which reports are public at That makes one huge difference between Bank’s and hard money lenders; accountability. I checked into myself. Nine people, I counted, certainly doesn’t drop ones jaw when you look at what any type of audit consists of. Why don’t you write about every company in this town that has an audit? Does that signify failure and doom to every one of them? Where’s the news in this?
    By: Anonymous on 7/17/08
    The number of examiners and the time estimated to complete the udit is a comparative 66% "overkill" for a bank of this size. When one considers the historic findings reported from previous inspections it is still an approximate 66% "overkill". Something is wrong. Go ahead and deny deny deny and attack the messenger (as usual). In two months the facts will be known and some of you will learn to heed the warnings that are handed to you.
    By: Anonymous on 7/17/08
    How dare the Bank not give you that $30,000 you so deserve. Honestly, you could prove it right? After all, it was right there on your computer screen. Right there in front of your own eyes. Then again, I'm sure you argued that point to the Bank. I’m sure when the Bank couldn’t find your phantom CD they just dropped the issue. That’s what any good company with a real problem would do. How long did you argue your hallucination? Or better yet, maybe it is true! After all, it was on the Internet!

    It’s good to know there are honest, upstanding citizens in our community like yourself. Willing to exploit others, bank or no bank, so you can feel better about you. Since you are all about you, here’s a little fact about yourself: You’re a real winner. Look, over there, purple elephants and a UFO . . .

    (0) 0 Total Votes - 0 up - 0 down
  4. ccn_debate says:

    By: Anonymous on 7/16/08
    I have a couple of accounts at SLTB. I also have CD's there. When I pull up my accounts on the internet, I have an "extra" CD worth going on $30,000. Naturally, I asked to close that account and get the money from it. They say, "what account?" It's been there about 3 years now.
    It's making good money, if I can ever get my hands on it….
    By: Anonymous on 7/16/08
    Why do you start your article by saying "but insiders suggest the number of examiners is extraordinary.
    Don't yu know by now that we want hard facts and names? Rumors only serve to diminish your credibility.
    It a little like "Chucky" Schumer hinting at rumors about AndyMAC bank…now it's in trouble.
    Rumors suck!
    By: Anonymous on 7/16/08
    Is it common for banks to have this many regulatory actions?
    By: Anonymous on 7/16/08
    I love how uncoveredslo tries so hard to make no-stories look like big problems. All Banks are have exams by regulators. The love this comment, "During the past 20 years, SLTB stands alone as the only county bank that has been the recipient of OTS formal enforcement actions." – it fails to mention that none of the other local community banks are regulated by the OTS so it would have been impossible for any other's to have had formal OTS enforcements. Make a little effort on these stories.
    By: Anonymous on 7/16/08
    A Tribune article said San Luis Trust does not do mortgage loans, though they provide loans to developers.
    By: Anonymous on 7/16/08
    In other news, the Office of Language Supervision is sending examiners to the offices of UncoveredSLO to look into this week's assault on Her Majesty's English:

    "In the wake of a swooning building industry, banks everywhere are facing economic woes, with defaulting loans near the heart of the problem. Lyon said SLTB is no different."

    And it'd be interesting to know what part of SLTB's loan book is in trouble. Did you ask the bank about this? Is it construction loans? Mortgages? Other business or consumer lending? With IndyMac dead from mortgage losses and terrifying doubts about Fannie Mae and Freddie Mac, the nature of SLTB's potential loan losses seems like a central question. It'd also help one understand how the crash is playing out locally.
    By: Anonymous on 7/16/08
    Is this really news? A bank gets examined. My business get an audit every year by multiple agencies. No big deal, just be compliant. Come on uncoverslo, you can do better than this. Please do not turn into the National Inquirer of the central coast

    (1) 1 Total Votes - 1 up - 0 down

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