By Kent Darr and Joe Gardyasz

Two federally chartered banks that operate branches in Greater Des Moines are working to comply with enforcement actions issued earlier this year by the Office of the Comptroller of the Currency (OCC) that cite “unsafe and unsound banking practices” by the two banks. The enforcement agreement requires the banks to shore up their capital reserves, address bad loans and file three-year capital plans with the OCC, among other steps.

Community State Bank in Ankeny and First National Bank Midwest of Oskaloosa each entered into formal agreements with the OCC in July. Community State Bank operates 10 branches in Greater Des Moines; First National Bank Midwest has branches in West Des Moines and Ankeny.

Paul Swenson, president of First National Bank Midwest, said the problems relate to the concentration of commercial real estate loans by his and other banks in Greater Des Moines. The two banks have filed lawsuits collectively seeking approximately $25 million in defaulted loans made to the defunct Regency homebuilding and land development company and its related entities and to the late Ed Boesen. Swenson said the Boesen and Regency loan defaults are just the most well-known.

“There are going to be a lot more (enforcement actions), I can tell you that,” Swenson said. Beyond these “isolated cases” of bad commercial real estate loans in Greater Des Moines, his bank is “strong and well-capitalized,” he said.

“It’s just kind of a sign of the times right now that there are a lot of difficult situations involving commercial real estate projects that banks need to work through,” Swenson said. “It’s just going to take some time to work through them.”

Mark Degner, Community State Bank’s president and CEO, provided this written statement: “We are diligently resolving the commercial real estate issues and the defaulted Boesen LLC loans, regardless of the OCC enforcement agreement,” Degner said. “This year has been difficult for many banks that supported local commercial real estate development, but upon resolution of the problems CSB experienced in 2008, we expect to return to normal levels of profitability in 2009 and that the enforcement agreement by the OCC (will) be lifted.”

First National Bank Midwest and Community State Bank have filed lawsuits seeking recovery of more than $10 million in defaulted loans against various Boesen limited liability companies and his estate. The banks are seeking a total of $14.6 million on loans to Regency projects in Ankeny and West Des Moines.

At the request of the Boesen estate, a Polk County probate judge has awarded Community State Bank the title to the Midland Building in downtown Des Moines, which was part of a cross-collateralized mortgage for $7.2 million. The mortgage also covered property in Des Moines and West Des Moines. First National Bank Midwest will negotiate a non-judicial foreclosure for the deed to 2141 Grand Ave. – a building being leased by Clear Channel Radio – which was mortgaged by a Boesen limited liability company for $3.5 million. Community State Bank held a cross-collateralized $2.9 million second mortgage on the property.

In addition, both banks had security interests in various Boesen assets. Community State Bank has obtained permission to sell $170,000 in flowers, vases and other property held by flower shops in the Omaha area. First National Bank Midwest has received Boesen’s investment interest in Boesen Schaeffer’s LLC, which was used to buy Panache Inc., owner of Schaeffer’s Bridal.

A hearing is scheduled for Friday on a Community State Bank motion for a default judgment in its lawsuit seeking $8.2 million in principal and interest on two loans totaling $11.3 million to the Regency-based Woodland Reserve project in Ankeny.

And in West Des Moines, 135 lots at the Michael’s Landing project are under receivership as the result of a lawsuit filed by First National Bank Midwest seeking $6.4 million on a $7.65 million to a Regency-based limited liability company.

First National and Community State Bank are among five federally chartered Iowa banks and 78 banks nationwide that have entered into formal enforcement agreements with the OCC so far this year. It’s the highest number of enforcement actions by the OCC in Iowa since 1992, when seven enforcement agreements were reached. The other Iowa banks that have entered into enforcement agreements this year are Community National Bank, Waterloo; First National Bank of Farragut, Shenandoah; and First National Bank of Logan, Logan.

Bank examiners typically will take informal, nonpublic corrective actions with a bank before issuing a formal public enforcement action, said Kevin Mukri, an OCC spokesman in Washington, D.C.

“When you see an enforcement action, it’s usually the bank’s intent to do something about it, and we’re going to see that they do something,” Mukri said.

Updated content: comment from Mark Degner, Community State Bank’s president and CEO