Markesan State Bank draws special scrutiny from regulators over farm loans

Markesan State Bank has drawn special scrutiny by regulators as some of its farm loans have run into trouble.

The Federal Reserve Bank of Chicago and Wisconsin Department of Financial Institutions disclosed Tuesday they have a written agreement with the bank that calls on it to improve its lending practices and financial condition, among other steps.

Markesan State Bank lost $87,000 through the first six months of 2017, compared with a profit of $344,000 in the first half of 2016, records from the Federal Deposit Insurance Corp. show. More than a fifth of its loan portfolio was classified as "noncurrent" as of June 30, and the bank's capital levels have shrunk as it has dealt with loan losses.

Debra R. Lins, a longtime banker and financial institutions consultant who is interim chief executive at Markesan State Bank, said the bank already is taking steps to comply with the regulatory agreement.

She said the majority of troubled loans have been "very large ag credits."

Lins said Markesan State Bank, which is located in Green Lake County, serves farming communities, so its loan portfolio has been focused on ag lending.

"We just need to enhance our oversight of the lending side of the bank and tighten up the credit culture," Lins said.

The agreement with regulators orders the bank to come up with written plans and policies to strengthen credit risk management practices, such as limiting concentrations of loans and using underwriting standards that require documented analysis of a borrower's repayment sources.

"Everybody at the bank is committed to doing what it takes to bring the bank — a 126-year-old bank — back to the profitable levels it has had in the past," Lins said.

The regulatory agreement was issued Sept. 8, but disclosed publicly on Tuesday.