West Bank has agreed to pay a civil penalty of $15,500 assessed by the Federal Deposit Insurance Corp. (FDIC) for allegedly failing to meet minimum capital requirements and having a high level of impaired loans, according to an FDIC notice published last Friday.

The West Des Moines-based bank entered into a memorandum of understanding with the FDIC and the Iowa Division of Banking on April 28, in which West Bank’s board of directors agreed to address concerns identified in a Jan. 25 report of examination issued by the Iowa Division of Banking. According to the consent agreement, the FDIC “determined it had reason to believe that the Bank engaged or participated in violations of law or regulation” cited in the January report.

West Bank, which reported net income of $2.6 million in the quarter that ended June 30 compared with a loss of $22.8 million in the prior year’s quarter, had total impaired loans of $37.6 million in the most recent quarter. The bank’s allowance for loan losses of $21 million represented 2.19 percent of loans outstanding as of June 30, compared with 1.87 percent of loans as of Dec. 31, 2009.

Under the consent agreement, in which West Bank neither admitted or denied the alleged violations, the bank agreed to take actions to strengthen its loan documentation procedures; adopt plans to reduce its exposure to borrowers with more than $1 million in “substandard” or “doubtful” loans; and seek board approval prior to extending further loans to borrowers with impaired loans. The agreement also established a requirement for West Bank to raise its total capital ratio to at least 12 percent and its average assets ratio to at least 8 percent.

On July 22, West Bank received notice from the Federal Reserve Bank of Chicago that it must request prior approval for the declaration or payment of common stock dividends, which must be paid from current earnings, any increase in debt or issuance of trust preferred obligations, or the redemption of company stock.

In its latest quarterly report, West Bank said it had already increased its ratios above those required in the consent agreement. It also said it should be able to comply with the Federal Reserve and consent agreement requirements “without any substantial impact on current or planned operations or material impact on future financial results.”

West Bank officials were unavailable for comment prior to publication of the Business Daily.

In its quarterly report, West Bank officials said they believe the bank will be profitable for the remainder of 2010, but “the amount of the profit, if any, will depend in large part on future loan losses.” The bank’s loan portfolio “continues to present substantially greater than normal risks,” it said in the report, and the bank anticipates its loan portfolio will remain at its current level or possibly decline.