San Luis Trust CEO says extensive exam routine.
July 16, 2008
By DANIEL BLACKBURN and KAREN VELIE
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.