State and federal regulators ordered Orion Bancorp Inc. of Naples, Fla., to clear troubled loans off its books quickly, improve its workout procedures, and reduce its concentration of loans to real estate developers.

The $2.8 billion-asset Orion entered a written agreement last week with the Federal Reserve Bank of Atlanta and Florida Office of Financial Regulation.

Orion has 10 days to charge off or collect all assets currently classified at a loss. The order also prohibits the privately held company from extending or renewing any credit without board approval for borrowers whose loans have been charged off or classified as substandard. Even with the approval, Orion must show that the extension is needed to protect its total exposure.

Once that is squared away, Orion will focus on strengthening its board's oversight as it examines and revises every step of its loan operations, from underwriting to appraisals, over the next 60 to 90 days.

The agreement with Orion, long one of the industry's top-performing banking companies, illustrates how badly real estate conditions have deteriorated in Florida, particularly in the Naples area. According to the Naples Area Board of Realtors, the July median home price there declined about 30% from a year earlier, to $275,000.

Orion, which for years did not charge off a single loan, reported $7.3 million of chargeoffs for the first six months of this year, according to Federal Deposit Insurance Corp. data. Its past due and nonaccrual loans totaled $10.6 million — 82% of it construction and development loans.

As of June 30, 5.25% of its loans were noncurrent, according to the FDIC, compared with an average of 3.34% for commercial banks in Florida and 1.87% for commercial banks nationwide.

Substantially all of Orion's loans are backed by real estate, and 70% are in construction and development or commercial real estate, according to the FDIC.

The agreement also requires Orion to maintain sufficient capital ratios and liquidity. Within 60 days it must present a report that outlines its volume of adversely classified assets, its asset concentrations, the adequacy of its allowance for loan losses, its anticipated level of retained earnings, and the source and timing of additional funds to fulfill the future capital and loan-loss reserve needs.

Its total risk-based capital ratio as of June 30 was 9.59%. Regulators consider a bank well capitalized if its risk-based ratio is at or above 10%. Orion's Tier 1 risk-based capital ratio was 7.63% — above the well-capitalized level but below industry averages, according to FDIC data.

Calls to Jerry Williams, Orion's chairman, president, and chief executive officer, were not returned by press time.

Regulators have also ordered Orion to improve its appraisal process. Within 90 days it must submit a plan outlining how it intends to separate its credit administration and loan production duties.

It also must outline how it plans strengthen the management of its commercial real estate portfolio, including a strategic plan to reduce its risk, given current market conditions and new tolerance levels for loan type, geography, and other factors.

The loan review procedure must be revised within 90 days; Orion is expected to increase the scope and frequency of the examination, as well as reconsider its grading descriptions.

Additionally, all loans or other assets above $1 million must be put on a plan to improve the chance of repayment.

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