West Bancorporation Inc. has notified federal regulators that its West Bank subsidiary will record a material charge against future earnings related to possible losses on two loans totaling $12.5 million.

In a filing this morning with the U.S. Securities and Exchange Commission (SEC), the West Des Moines-based bank holding company reported that a business customer apparently had been the victim of a substantial fraud and conversion of all of its assets. Though the loans are not totally impaired, the collateral securing the loans is now believed to have no value, the company said.

West Bank President and CEO Tom Stanberry said he could not comment beyond the SEC filing due to customer confidentiality restrictions. He declined to identify the customer, though the filing indicated that the customer was willing to pledge additional personal assets to secure the loan.

“West Bank is working with its customer to determine the liquidation value of the additional assets,” the bank said in the filing. “The bank’s customer has not made a determination of the recovery, if any, from the broker. Both the company and its owner are cooperating with West Bank.”

Stanberry said it may take several more days before the bank knows the extent of the possible loss, and whether it will need to increase its loan-loss provision. West Bank has placed the two loans into nonaccrual status.

The alleged fraud was committed by a commodity broker, David Stevenson of Swisher, Iowa, who was hired by the bank’s customer to buy and sell inventory and collect accounts receivable in the oil and gas industry, a source familiar with the matter said. Most, if not all, of the company’s converted assets were pledged to West Bank.

Stevenson filed for Chapter 7 bankruptcy protection on Aug. 14 with the U.S. Bankruptcy Court for the Northern District of Iowa in Cedar Rapids. The preliminary filing did not include details about the assets or liabilities reported by Stevenson.

Stanberry said that West Bank has not filed suit against Stevenson because it did not have a business relationship with him.