The number of unprofitable Iowa banks continued to shrink in the quarter that ended June 30, but the need to shed bad loans continued to be a drag on earnings, according to data from the Federal Deposit Insurance Corp.

Earnings have improved on average, according to the data, but not to the 1 percent level that regulators and analysts consider a benchmark for healthy banks.

Of the four banks with $1 billion or more in assets that are chartered in Greater Des Moines, just West Bank surpassed the 1 percent mark, reporting a return on assets of 1.41 percent after reporting a 0.91 percent return in the year-ago quarter. The bank reported net income of $8.9 million as of June 30, compared with $7.3 million on June 30, 2010.

The bank’s holding company, West Bancorporation, announced June 29 that it had redeemed $36 million in preferred stock purchased by the U.S. Treasury Department in December 2008 as part of the government’s efforts to restore confidence in the banking system. Since that time, West Bancorporation has paid $4.49 million in dividend payments to the government.

What the money meant to West Bancorporation was the ability to maintain capital levels while erasing millions of dollars in loans that were not paying interest to the bank, meaning they were a drag on income.

On the other hand, Liberty Bank, which is under a regulator’s orders to raise capital levels and meet other performance standards, reported earnings on assets of -1.76 percent, according to the FDIC.

Liberty Bank reported a loss of slightly more than $9 million for the quarter, with the drag of non-performing loans reflected in that loss. The bank charged off $18 million in loans and also reported that it held the titles to $25.7 million in real estate that it has acquired through foreclosures.

The impact of loans that tanked during the real estate collapse can not be overemphasized, said Tom Schnurr, president and CEO of Stark Bank Group Group Ltd., the holding company of First American Bank, which is headquartered in Fort Dodge and has branches in Greater Des Moines.

“We’re going after accounts very aggressively. … This is just an ongoing battle,” he said. “There’s no burying our head in the sand or kicking the can down the road,” Schnurr said.

First American Bank, with assets of $1.4 billion, reported a second-quarter loss of $20.6 million, with more than $19 million in charge-offs.

Jim Schipper, superintendent of the Iowa Division of Banking, said that Iowa banks are healthy and that issues with bad loans are slowly being resolved.

“I can tell you they are improving so far as the problem loans; there’s a lot of liquidity. Return on assets is still shy of 1 percent, but the big drain on earnings has been the provisions for loan losses,” he said. “I think they will be slowing down going forward.”

The quarterly reports also show that loans, both as a percentage of deposits and in hard dollars, declined in the last quarter.

“We need to get to a point where we feel comfortable in lending,” said John Sorensen, president and CEO of the Iowa Bankers Association. “The best way you can make money as a bank is to loan money to customers.”

Click here to view A look at Greater Des Moines billion-dallar banks