Nonstop Jerry - On the road with the CEO of Orion Bank.

I'm not trying to beat a dead bank here; but, I came across an article profiling Jerry Williams in the peak of the craziness in the real estate market - 2006. The happenings of the last week really put this "success" in perspective. It is titled Nonstop Jerry - On the road with the CEO of Orion Bank. If you like irony the whole article is worth a read; but, it is pretty long so here are some good parts. Emphasis Added.

From 2001 to 2005, Orion posted compound annual growth rates of 34 percent for earnings per share, 38 percent for net income and 27 percent for asset growth. With many loans concentrated in Florida real estate development, Orion's return on equity has hovered around 25 percent annually for the past five years.

Ok... break neck growth in an overheated market is always bad. Is it?

"It's a phenomenal thing," Kirkman tells the half-dozen senior managers about Orion's home equity loan production. "The loans never stop." Beaming, the managers have been reporting year-to-date production goals at 100, 150 and 250 percent.

Referring to an 'under-performing'  competitor:

"Are you kidding me?" Williams asks in mocking disbelief. All hat and no cattle, he surmises. Somebody needs to look into this deception, he mutters. The SEC, bank regulators, the media who bought it hook, line and sinker. Somebody. "People can say whatever they like. That's why we like the numbers, because the numbers don't lie," Williams tells the group.

Orion closed $1.15 billion in loans in 2005. Of that, $915 million was in commercial real estate, much of it construction loans... ..."We're making about $1 million a week," he says.

They lost about $1.5M a day in Q3 2009.

Williams pulls his BMW into an immaculate, cavernous hangar far from the hustle and bustle of commercial flight operations at the Naples airport. He walks about 50 feet and climbs aboard Orion's $6 million Piaggio Avanti P180, tethered to a powerful generator on the tarmac. Minutes later, the racy Italian twin turbo-prop climbs effortlessly to 10,000 feet, cruising at 300 mph toward Sarasota.

Keep an eye out for that in the FDIC auction!

A quick stop at Orion's downtown office (more hugs) before the pair meets with Harvey Kaltsas, an acupuncture physician who is developing the Kanaya condo tower in downtown Sarasota. Before dealing with Orion, Kaltsas had been turned down for a loan by some of the largest banks in town.
"The guys at Wachovia told me, 'Go see Rich Hopper at Orion. He's the most creative banker in town,'" Kaltsas says.

One lesson learned "creativity" and finance do not mix!

"Twenty-eight years as independent is rare," he says. He has no plans to sell Orion to the highest bidder-and there are plenty of bidders. "I get about five calls a week," he admits. "They want it all."

Maybe he should have taken those calls!

A classic example of FUMU Finance! I'll leave Jerry alone now...

Orion Bank - Management's master plan!

Orion Bank is based in South West Florida and specialized in commercial construction loans. If you know this area it already sounds bad; right? Well, it was! When management didn't want to own up it got ugly and resulted in one of the quickest "death spiral" bank failures of the year. Let's recap:

Orion bank was"adequately capitalized" (6% tier 1 leverage ratio) as of 6/30 with only $8M in losses over the 1st 2 quarters of the year.

When the 9/30 call report was released and indicated that the bank was "critically under capitalized" (0.47% tier 1 leverage ratio) and had lost $75M. (The loss is actually more like $136M because it was inclusive of $61M gain related to deferred tax assets that are not included in tier 1 capital)

It looks like the usually too friendly state bank regulators of Florida finally shut down the extend and pretend game being played by Orion.

But wait! Management had a plan! The following excerpts are taken from the 11/9/09 Prompt Corrective Action Order issued to Orion by The Federal Reserve:

Management goal - reduce classified assets:

In order to improve its management, the Bank must dismiss Jerry Williams (“Williams”), its current chief executive officer, president, and chairman of its board of directors, from office and as a member of the board of directors, based on the following:
(a)    Prior to June 2009, the Bank reached its legal lending limit under Florida law with respect to the aggregate loans outstanding to a borrower and his related interests. In June 2009, Williams permitted the Bank to make loans of an additional approximately $60 million to straw borrowers who were related interests of the borrower referred to above in continuing violation of the Florida legal lending limit statute (the “June 2009 loans”);
(b)    the June 2009 loans referred to above, which were made to enable the borrowers to purchase certain low quality assets from the Bank, were underwritten in an unsafe and unsound manner. The loans were made without adequate analysis of the borrowers’ creditworthiness, capacity for repayment, and valuation of collateral offered in support of the loans. Further, the loans were structured in a manner to make it appear that the Bank was reducing its level of classified assets;

 Management goal - raise equity capital:

the Bank needed additional capital as of June 30, 2009, to avoid being less than well-capitalized. Williams had knowledge that $15 million of loan proceeds from the June 2009 loans referred to above were to be used to purchase common and preferred stock issued by Orion Bancorp, Inc., Naples, Florida (“Bancorp”), the parent holding company for the Bank, and Williams took steps to ensure that the $15 million was promptly used to purchase the holding company stock;
(d)    in early July 2009, in response to inquiries from the Federal Reserve Bank of Atlanta (the “Reserve Bank”), Williams stated orally and in writing that the $15 million in capital referred to above was raised “without any financing” provided by the Bank. This statement was false because Williams had information available to him to demonstrate that the Bank intended that the loan proceeds be used as the source of the stock purchase;

Wow! What a plan! Make more "unsafe and unsound" loans to a borrower with a very large exposure to the institution so they can purchase classified assets from the bank and provide additional equity capital! This would improve the banks position on paper; but, obviously not in reality.  Sound like more extend and pretend to me! The summary from the PCA:

(e)    as a result of the actions set forth in (a) through (d), above, the Bank, with Williams’ active participation, filed materially inaccurate regulatory reports, made false statements to the Federal Reserve, has suffered additional loan losses, and has failed to comply with provisions of an outstanding Written Agreement designed to require that the Bank properly address its asset quality problems. These actions show that the management of the Bank would be improved without Williams’ service as a senior executive officer or director of the Bank.

Sounds like an understatement to me! I would think that (a) through (d), above, warrant not only termination but criminal prosecution!

An interesting 9 bagger for the FDIC

Firday's 9 bank failures represent the largest number of closings in one week during the current banking crisis. However, all 9 banks were owned by FBOP a multi-bank holding company and all were purchased by US Bancorp.

Below is the updated under capitalized bank list with new failures in orange, and prior weeks failures in red.

Note that only 4 of the 9 banks that failed this week were under capitalized. This has to do with the fact that bank holding company (FBOP) was under capitalized. The Federal Deposit Insurance Act contains provisions that all bank subsidiaries of a multibank holding company are financially responsible for the costs of resolving the failure of any of the other subsidiaries.

Credit Philip van Doorn of The Street.com

The FDIC has been busy afterall!

Over the last 2 weeks there was only 1 bank failure. Well below the average over the last several months. Knowing that there are over 482 troubled banks, I for one was wondering what they heck they have been up to. Well now we know... they were preparing for the 7 bank failures today!

Check out the following list of banks that are considered under capitalized by regulatory standards. Capital ratios are a great predictor of bank failure. Failed banks are highlighted in red, with the failure date in the last column.

Data from SNL financial via The Street. Here is another great Troubled Bank List.

Apple releases cool new stuff!

Apple released a whole bunch of cool new tech today. I am personally most excited about the new 27" iMac:

Check out what Gizmodo has to say about the Mighty Mouse and New MacBook ! And all the Deals you can now get on old Apple Stuff!