As for Liberty, executives say the sale will result in a smaller, but more well-heeled company able to focus on its remaining 18 branches in Colorado, Florida and South Carolina.
The company also says it will maintain back-office operations at Liberty Tower in downtown Dayton and Liberty Center in Wilmington.
Its mortgage-servicing and online banking operations will remain in Ohio.
But one banking industry analyst said Liberty is struggling to survive.
In 2009, federal regulators ordered Liberty to raise its capital levels and to submit a plan for doing so to the government. The agency also ordered Liberty to stop originating loans or issuing lines of credit secured by commercial property.
A second order issued by OTS in November called on Liberty to hire an outside consultant to conduct a study of the bank and issue a management plan that must be adopted by the bank’s board and OTS’ regional director.
It also called for the bank to identify three independent directors, revise its contingency funding plan and make annual updates of its business plan.
An OTS spokesman contacted last week declined comment on Liberty Savings.
Liberty — along with other major banks — saw deposits decline in Greene, Miami, Montgomery and Preble counties in 2010 compared with the prior year, according to Federal Deposit Insurance Corp. data.
As of June 30 last year, the bank had $294.9 million in deposits, about 2.84 percent of the market, compared with $400 million in 2009, the FDIC said.
Plans call for Liberty to keep some $51 million of nonperforming loans, including past-due accounts, and $29 million of repossessed houses and cars, according to Bryce Rowe, a banking analyst with Robert W. Baird & Co.
Rowe has said the sale would allow Liberty to generate “some capital to survive. Unfortunately, you have to sell the core franchise to make that happen.”
Jim Powell, chairman and chief executive of Liberty Savings, said about $11.5 million of the $51 million of loans not generating revenue are guaranteed by the Federal Housing Administration. The company will claim reimbursement from the FHA on the guaranteed portion of the nonperforming loans, he said.
Powell said senior executives considered “a number of options” before deciding to sell the Ohio branches and related assets. But he said the proposed transaction with First Financial “allows us to get where we need to be in a reasonable amount of time.”
Powell said the deal will elevate the company’s capital levels well above federal requirements. On March 31, the company reported a Tier One capital ratio of 7 percent. After the sale closes, executives look for that ratio to reach 14 percent.
Mike Van Buskirk, president and chief executive of the Ohio Bankers League, said Liberty’s structure as a closely held business made it difficult for Liberty to raise capital compared with a company able to issue more easily traded stock. However, selling a portion of the business allows Liberty’s senior management to raise money.
“I think the price, under the circumstances, is fair,” he said.
In this case, Van Buskirk said a sale provides the best outcome.
“From a regional perspective, this is about the best solution I can think of,” he said. “You have a good bank that is headquartered in the region, that has a vested interest in the economic and social health of the region, for obvious reasons.”
Under the right circumstances, a post-sale Liberty Savings has a chance to improve its fortunes.
“It’s no slam dunk because they still have to work through their problem loans,” he said. “A lot of it depends on what the economy does. With continued, even if modest growth, they’ll be fine. If we go into a double-dip recession, they’re going to have real challenges.”
First Financial’s executives project the bank will emerge from the deal as the seventh largest bank based on deposit market share in the Dayton metro area, with $430 million in deposits.
Claude Davis, First Financial’s president and chief executive officer, declined to say how discussions between the two companies began.
However, he said First Financial liked the deal because it offers the bank a chance to grow its Dayton operations by gaining more branches and customers.
“The goal was always to become much bigger in Dayton than what we were,” he said. “Unless you have that kind of branch reach, it’s hard to have the brand recognition and the scale to really be relevant in a market. We feel like this really gives us that scale to really make sure everybody in Dayton knows who first financial is and how we can serve them.”
Plans call for the bank to keep most, if not all the branches it acquires, though one or two may overlap, Davis said.
“We go into a transaction like this assuming we’re going to keep them all,” Davis said.
Roger Furrer, market president for First Financial’s Dayton operation, said the bank wants to expand small business lending among Liberty’s clients.
The thrift industry as a whole has continued to improve. In the first quarter, it posted a profit of $1.4 billion, its seventh consecutive quarter in the black, the OTS said in May.
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