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Federal Reserve Bank Examination Report
Liberty Capital Bank | Examination Period: FY 2020-2024
1. Executive Summary
Overall Summary:
Liberty Capital Bank has shown consistent growth across core financial and operational metrics from 2020 through 2024. The bank remains well-capitalized, profitable, and maintains adequate liquidity buffers. However, rising interest rate risk exposure, and concentration in certain loan sectors, require further attention.
Liberty Capital Bank has shown consistent growth across core financial and operational metrics from 2020 through 2024. The bank remains well-capitalized, profitable, and maintains adequate liquidity buffers. However, rising interest rate risk exposure, and concentration in certain loan sectors, require further attention.
2. Key Supervisory Metrics (FY 2020–2024)
A. Balance Sheet & Capital
| Metric | 2020 | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|---|
| Total Assets (Bn USD) | 125.3 | 138.7 | 147.2 | 153.8 | 162.5 |
| Total Deposits (Bn USD) | 90.0 | 110.4 | 118.9 | 124.5 | 131.2 |
| CET1 Ratio (%) | 11.2 | 11.6 | 12.0 | 12.5 | 12.9 |
| Tier 1 Leverage Ratio (%) | 8.5 | 8.7 | 8.9 | 9.1 | 9.3 |
B. Profitability & Efficiency
| Metric | 2020 | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|---|
| Return on Assets (ROA) (%) | 0.98 | 1.05 | 1.12 | 1.18 | 1.25 |
| Return on Equity (ROE) (%) | 9.4 | 10.1 | 10.8 | 11.3 | 12.0 |
| Net Interest Margin (NIM) (%) | 2.65 | 2.72 | 2.80 | 2.88 | 2.95 |
| Cost-to-Income Ratio (%) | 62 | 60 | 58 | 57 | 55 |
C. Asset Quality
| Metric | 2020 | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|---|
| NPL / Total Loans (%) | 1.20 | 1.10 | 1.05 | 0.98 | 0.90 |
| Net Charge-Off Rate (%) | 0.45 | 0.42 | 0.38 | 0.35 | 0.32 |
| ALLL / Total Loans (%) | 1.54 | 1.35 | 1.23 | 1.10 | 1.00 |
D. Liquidity & Market Risk
| Metric | 2020 | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|---|
| Liquidity Coverage Ratio (LCR) (%) | 120 | 125 | 130 | 135 | 140 |
| NSFR (%) | 105 | 108 | 112 | 115 | 118 |
| AFS Securities Unrealized Losses ($M) | -210 | -190 | -160 | -130 | -95 |
| Duration (AFS Securities, yrs) | 4.1 | 3.9 | 3.7 | 3.6 | 3.4 |
3. Matter Requiring Attention (MRA)
MRA #2025-01: Interest Rate Risk Management in the Banking Book (IRRBB)
Description:
While capital and liquidity are strong, the bank's exposure to longer-duration assets and declining unrealized losses on available-for-sale (AFS) securities signal elevated interest rate risk. Current governance and stress testing practices around IRRBB do not fully capture shock scenarios involving faster Fed tightening cycles, nor do they incorporate early redemption behavior for retail deposits.
Regulatory Concern:
Failure to adequately model and mitigate IRRBB could expose the institution to material OCI losses, reduced Tier 1 capital, and liquidity strain under stressed market conditions.
Risk Rating: Moderate to Elevated4. 4M Risk Mitigation Plan (Monitoring / Measurement / Mitigation / Metrics)
Risk: Interest Rate Risk in the Banking Book
| Monitoring | Daily reporting on AFS portfolio duration, OCI changes, and IR gap movements. |
| Measurement | Expand IRRBB scenarios to include ±300bps instantaneous shocks and early withdrawal assumptions on 15% of core deposits. |
| Mitigation | Gradual rotation of fixed-rate assets into floating-rate. Implement hedging (e.g., swaps) on $2B of duration-heavy securities. |
| Metrics | Report: • Economic Value Sensitivity (EVS) ≤ -5% of Tier 1 • OCI impact cap: -$150M quarterly • Modified Duration ≤ 3.2 years average for AFS book |
Target Compliance Date: December 31, 2025
Board Oversight: Quarterly reporting to the ALCO and Risk Committee
5. Examiner Comments
- Management has shown strong profitability discipline, particularly in reducing the efficiency ratio over time.
- Credit risk management appears solid, with stable NPL and charge-off rates even through economic volatility.
- Operational risk and cyber exposure are low and improving, but enhanced third-party risk reviews are encouraged post-2024.
- The MRA outlined above must be addressed within the next exam cycle to avoid potential supervisory action.