Liberty Savings Bank under federal scrutiny

Regulators order thrift to halt some new loans until it raises capital.

Liberty Savings Bank executives said Monday, Oct. 26, that federal regulators want to make sure the thrift has enough money on hand to cover any losses related to commercial real estate loans.

In an Oct. 19 order, the Office of Thrift Supervision said Liberty Savings, which is based in Dayton, cannot originate new commercial real estate loans or lines of credit secured by commercial real estate until it reduces the size of its current portfolio of commercial real estate loans.

On Monday, Ryan Powell, Liberty’s chief administrative officer, said bank executives have been working on adjusting its commercial real estate loan portfolio for more than a year, and he believes they are close to where regulators want them to be.

Liberty isn’t alone. Federal regulators, fueled by worries about defaults in the commercial real estate sector, have been monitoring lenders’ commercial portfolios during the current downturn.

Timothy Ward, a deputy director for the OTS, said in testimony before the U.S. Congress, that more commercial real estate loans are going delinquent because of more business failures and slimmer profits. And this weakness in commercial real estate likely will affect lenders, particularly smaller ones, he said.

Liberty must submit a plan to increase capital by Nov. 30, according to the OTS.

The OTS order requires Liberty to raise its capital levels by March 31, 2010. The agency has called for Liberty Savings Bank to increase its Tier 1 capital, a key measure of financial strength, to 8 percent. Powell said Monday that Liberty’s capital stands at 7 percent and they can reach the level ordered by the OTS.

“We’ve always operated as a well-capitalized institution,” he said. “But now the rules are changing.

“We’re going to get there, and we’re going to get there quickly.”

Liberty Savings has more than 40 branch offices in Ohio, Colorado, Florida and South Carolina. The bank had assets of $1.38 billion as of Sept. 30.

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