Southport Bank announced Friday it is entering a voluntary agreement with federal regulators, pledging to improve its financial condition.

Jerry Schwallier, president and chief executive officer of Kenosha-based Southport, said the bank has formally entered into an agreement with the Federal Deposit Insurance Corporation and has already completed a number of the actions specified in the agreement. The FDIC named Southport Friday as one of 40 banks under new “cease and desist” orders mandating changes in bank operations.

Southport has been working with the FDIC since March 2009 when a routine examination by bank regulators showed the bank to be in a weak financial position, according to the bank.

“If you look back at the history of the bank, the bank started in 1997 and it has some pretty good growth through the good years,” Schwallier said. “And much of that growth was through real estate.”

Southport’s assets were heavily concentrated in real estate loans, and when the real estate market collapsed and foreclosures began to skyrocket nationally, the bank began to suffer losses and many of its loans began to go bad. In the second quarter of 2008, the bank posted a $2.6 million loss; by September 2008 the bank reported a loss of $6.8 million.

In the FDIC’s Cease and Desist order released Friday, regulators said they “had reason to believe that the bank had engaged in unsafe or unsound banking practices.” The order states that the bank has waived rights to a hearing on the charges and entered into a consent agreement without admitting or denying the charges.

The 18-page order calls on the bank to “cease and desist” practices including “operating with management whose policies and practices are detrimental to the bank and jeopardize the safety of its deposits” and “operating with a board of directors that failed to provide adequate supervision.”

The order calls on the bank to improve its Tier 1 capital levels, to adopt a plan to reduce the bank’s “substandard” or “doubtful” loans over $750,000, improve the bank’s collateral position, and improve lending practices and reduce delinquent loans.

An FDIC administrator will oversee the bank’s progress.

In Southport’s most recent financial statements reported by the FDIC, the bank reported a net loss of $1.37 million. At the same time, the percentage of non-current loans has worsened, from 4.09 percent in September 2008 to 7.2 percent this September.

Schwallier said the bank’s board of directors began taking action to improve the bank’s financial situation in 2008. He said the board made changes in the staff, reduced the size of the board of directors, and created a “loss mitigation department” to work on problem loans and loan monitoring.

The bank also closed ComCor Mortgage, a Waukesha-based wholesale mortgage company. Southport had purchased ComCor in 2004.

Among the staffing changes was the departure of former CEO and bank founder Karl Ostby, who announced in January 2009 that he was leaving the bank. Schwallier was named president and CEO in June.

Schwallier said the board has raised additional capital, put profits back into loan-loss reserves, and said the bank is continuing to raise additional capital through the offering of shares of common stock to existing shareholders.

“We are pleased about the progress made to date and are excited about the future possibilities for Southport Bank,” said Alan Schaefer, Southport’s chairman, in a formal statement.

The agreement differs from action the FDIC took earlier this year against Racine-based Bank of Elmwood. In that case, the FDIC issued a “prompt corrective measures directive” against the Bank of Elmwood in July. When the bank failed to meet deadlines for improving its financial position, the FDIC shut down the bank in October.