Orion's Fallen Star

On the evening of Oct. 5, 2005, hundreds of executives gathered at the Naples Grande Hotel to hear Jerry Williams speak.

Williams, the chairman, chief executive officer and president of Orion Bank, was basking in the glory of being named to the Collier County Business Leadership Hall of Fame by Junior Achievement. It was a crowning achievement for a Collier County outsider who had moved his bank's headquarters to Naples from the Florida Keys only three years earlier.

In his acceptance speech at the $250-a-plate event, Williams urged the youngsters in attendance to take risks early in life because they'd have too much to lose later.

Williams had done just that in 1987, when he and three investors took over a tiny bank in the Florida Keys when he was just 27 years old. Williams had turned down a promising career at a large regional bank, choosing instead to take the helm of First National Bank of the Florida Keys and control his destiny.

Twenty years later, in 2007, that little bank had been renamed Orion and its assets reached $2.6 billion in branches that stretched from Sarasota to Naples and West Palm Beach. It was a hugely profitable bank that rode the construction and development boom in South Florida and its performance vaulted it among the top banks in the country.

Williams routinely hopped on his private plane to meet with developers and builders up and down the coast. He was relentless in his pursuit of business, politically well-connected and a generous contributor to causes championed by those with whom he curried favor.

Accolades rained down as the bank grew.

Williams was elected chairman of the Florida Bankers Association in 2006 and vice chairman of the Federal Home Loan Bank of Atlanta in 2007. American Banker magazine, the influential trade publication, named Williams Community Banker of the Year in 2006 at a ceremony at the Pierre Hotel in New York City. The Business Review named him Banker of the Year in 2003.

But it appears Williams failed to take his own advice, risking it all in a real estate lending boom that ended with state regulators shutting down Orion Bank on Friday, Nov. 13, and selling the deposits and most of the assets to IberiaBank of Lafayette, La. With $2.7 billion in assets, Orion was the second-largest bank headquartered on the Gulf Coast between Tampa Bay and Naples.

In a desperate attempt to raise capital and save the bank this summer, federal regulators allege that Williams and the bank loaned money to undisclosed “straw borrowers” who then turned around and used some of that money to buy Orion Bancorp stock (Orion Bancorp is the parent company of Orion Bank, its only subsidiary).

As a result, the Federal Reserve demanded Williams' immediate firing on Nov. 9, five days before the Florida Office of Financial Regulation shut down Orion and appointed the Federal Deposit Insurance Corp. as receiver.

Orion's finances had deteriorated sharply in late summer as its customers in construction, development and commercial real estate started to default in greater numbers. In the quarter ending Sept. 30, Orion reported $84 million in net losses after being forced to set aside $123 million in provisions for loan losses. Despite its much-publicized efforts to pursue delinquent borrowers in court, Orion never recovered much money.

In fact, Orion's finances had deteriorated so much that the FDIC accepted a 1.5% discount from IberiaBank for Orion's $2.1 billion in deposits. The insurance fund also agreed to cover most of the losses on about $1.9 billion in Orion loans sold to IberiaBank.

Neither Williams nor any of the Orion directors could be reached. The directors were Earl Holland of Fort Myers; James Torok of Sarasota; Alan Pratt of Vero Beach; and James Aultman of Marathon.

First signs of trouble
The first signs of trouble at Orion came in 2007 as Florida's real estate market started falling in earnest. Orion, a leading lender to developers, builders and owners of commercial real estate, reported $6 million in net losses that year.

But it doesn't appear that Williams was concerned about the bank's future at the time. Orion paid out $28 million in cash dividends to its shareholders in 2007, more than three times what it had paid out in 2006, according to the FDIC. Williams was the largest shareholder.

In an interview with the Review in September 2008, Williams touted the bank's healthy capital ratios and privately seethed about the pressure from what he perceived as overzealous regulators. “We print capital every day,” he quipped.

Williams, a tall Texan with a self-acknowledged hot-temper, controlled most of the stock of Orion and emphasized that fact frequently with visitors and customers. Having a single authority over loan decisions allowed Williams to make on-the-spot loan decisions and not have to bow before a loan committee.

By the summer of 2009, delinquent borrowers pushed problem loans at Orion to 11% of total loans, nearly double the amount from the same time in 2008. To account for those delinquent loans, Orion had to set aside reserves that took away from the bottom line. As of June 30, Orion had posted net operating losses of $11.6 million for the year to date.

While it's impossible to determine the quality of Orion's loans without reviewing the loan documents, it's safe to say that the real estate downturn was the main cause of Orion's collapse. As of June 30, 93% of Orion's $1.9 billion in loans were tied to real estate. Of those, $732 million were in construction and development and $526 million were in commercial real estate — both of which have been hammered in the recession.

Orion aggressively pursued delinquent borrowers in court, but it wasn't successful in recovering much money. In fact, Orion didn't recover any money for the quarter ending June 30 and just $88,000 in the quarter ending Sept. 30.

Regulators took an increasingly tougher stance on problem loans at Orion and they issued a “cease and desist” order on Sept. 18. Such an order is the harshest form of enforcement and noncompliance usually ends with the closure of the bank.

It's likely regulators forced Orion to reclassify bad loans, because Orion set aside $123 million for loan losses in the quarter ending Sept. 30. That provision led to a third-quarter net loss of nearly $84 million.

Straw borrowers
With losses piling up, Williams was forced to raise capital or face collapse. But by then it was likely too late, as rival banks sought capital of their own and investors were spooked by the collapse of other banks.

According to the Federal Reserve, Williams permitted Orion to illegally lend $60 million to “straw borrowers” in June. The borrowers used this money to borrow undisclosed “low quality” assets from the bank and also used $15 million to buy common and preferred stock in Orion Bancorp.

In response to queries from the Federal Reserve, Williams denied the money had been used to buy stock in the bank. But regulators say Williams knew that the loan proceeds would be used for such a purpose, though they didn't spell out the details.

Regulators accused Williams of filing inaccurate financial reports, making false statements to the Federal Reserve and asked that the board dismiss Williams from the bank board, along with all senior executive positions at Orion.

AT A GLANCE

IOrion Bancorp
Headquarters: Naples
Branches: 23
Total assets: $2.7 billion
Total deposits: $2.1 billion
Chief executive officer: Jerry Williams
Directors: Jerry Williams (chairman of the board), Naples; Earl Holland, Fort Myers; James Torok, Sarasota; Alan Pratt, Vero Beach; James Aultman, Marathon
Sources: Federal Deposit Insurance Corp.; Florida Department of State Division of Corporations

BY THE NUMBERS

Top Five Gulf Coast Banks
Orion Bank was the second-largest bank headquartered on the Gulf Coast from Tampa to Naples when state regulators shut it down on Nov. 13. Minus Orion, here are the top five Gulf Coast-based banks ranked by assets as of June 30.
Rank Bank City Total assets
1 Raymond James Bank St. Petersburg $8.4 billion
2 IronStone Bank Fort Myers $2.7 billion
3 TIB Bank Naples $1.7 billion
4 Synovus Bank St. Petersburg $1.5 billion
5 Florida Community Bank Immokalee $946 million
Source: Federal Deposit Insurance Corp.

To view a timeline of Orion Bank, download it here. OrionTimeline.pdf