Tonganoxie ? The Federal Reserve Bank of Kansas City, Mo., has signed an agreement with Tonganoxie Bankshares Inc., which owns First State Bank and Trust, in an effort to maintain the bank’s financial soundness.

Through the agreement, the Federal Reserve requires approval of First State Bank and Trust before paying out dividends, as well as debt and stock redemptions.

The agreement, released this week, was signed March 8. It requires that the local bank should not declare or pay any dividends without approval from the Reserve Bank. First State Bank and Trust also should not directly or indirectly take dividends or payments that represent a reduction in capital without the Federal Reserve’s approval.

Jilinda White, executive vice president for First State Bank, said “They’re not doing anything in the agreement we’re not already doing.”

First State Bank has two locations in both Lawrence and Tonganoxie, as well as branches in Perry, Basehor and Kansas City, Kan.

The group also has a branch in Clearwater, near Wichita, but sale of that branch will be final next week, White said.

First State’s assets are nearly $300 million and would decrease to $250 million with the sale of the Clearwater branch to Emprise Bank.

Other stipulations of the agreement include not incurring, increasing or guaranteeing any debt without the Federal Reserve Bank’s consent, nor purchasing or redeeming any shares or stocks without the Reserve’s written consent.

In December, First State entered into a consent order with the Federal Deposit Insurance Corp. and the Kansas Office of the State Bank Commissioner. The latest agreement is aimed at ensuring the bank complies with the previous agreement.

At the end of 2010, First State had $8.44 million in problem loans, just more than 4 percent of its $206 million in total loans. In 2010, the bank lost $4.7 million, which compares to $291,000 in 2009. Still, the bank has $22.5 million in equity capital and a $6.8 million provision for loan losses. White likened the provisional money to a savings account the bank has against potential losses, such as loan that can’t be repaid.