An Indiana thrift has stopped making commercial loans and has promised to boost its capital as part of an agreement with the Office of Thrift Supervision.

In documents filed last week with the Securities and Exchange Commission, Fidelity Federal Bancorp of Evansville admitted no wrongdoing but acknowledged that it is operating under a supervisory agreement.

The order stems from an examination of the $200 million-asset thrift company last year.

The OTS criticized Fidelity Federal's loan to the developer of a low- income housing project and determined that the company needed to better protect itself should the project fail, according to Fidelity Federal's October proxy statement.

In response, Fidelity Federal added $3.6 million to its loan-loss reserves, committed $6.8 million as a letter of credit valuation provision, and wrote down $1.5 million of its investments in affordable-housing projects.

The proxy said the OTS had warned Fidelity Federal in August that its thrift subsidiary, United Fidelity Bank, was undercapitalized, considering its asset quality.

United Fidelity's tangible capital at June 30 was $11.9 million, or 6.31% of the company's tangible assets. Though that exceeds normal regulatory requirements, the OTS can order a thrift with high-risk assets to maintain capital levels significantly higher than the minimum.

Fidelity Federal must submit a plan to boost capital levels and decrease its concentration of high-risk assets. The thrift also agreed not to resume commercial lending.

The proxy statement said the company's board voted last year to focus on traditional mortgages and consumer loans and to stop investing in affordable-housing projects.

OTS officials and executives from Fidelity Federal refused to comment on the agreement.

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