Borrower, Lender Travails Visit Chambers Bank Family

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Johnny Chambers sounds weary, a feeling no doubt shared by other Arkansas banking executives battling through tough times.

"Banking used to be fun," said Chambers, CEO of Chambers Bancshares Inc. "You could help people and help them build things, and everyone made money. Now, you're just wanting to see if you can get out of some of these traps you're in."

Northwest Arkansas is home to a fair share of can't-miss real estate projects that morphed into lending traps for Chambers and other bankers. Adding to the strain of working through troubled loans is dealing with the financial fallout on the borrowing side.

Members of the Chambers family are contending with lawsuits, foreclosures and bankruptcy actions in connection with delinquent loans and failed real estate projects in northwest Arkansas and elsewhere.

Two of Chambers' daughters, their husbands and a nephew are engaged in courtroom fights over financially stressed developments.

Sons-in-law Brandon Barber, CEO of The Barber Group, and Seth Kaffka are on the firing line in connection with several projects, most notably the Legacy Building in downtown Fayetteville.

Foreclosure actions in connection with projects launched by The Barber Group, where Kaffka is president, are at $25 million and climbing this year.

Barber's and Kaffka's wives, Keri Chambers Barber and Laura Chambers Kaffka, also are part of the embattled condominium project, which moved into bankruptcy court to stave off a foreclosure sale.

John Russell Meeks, Chambers' nephew and loan officer at Chambers Bank of North Arkansas, is ensnared in a $2.7 million foreclosure suit along with Brandon Barber, Seth Kaffka and others on a 40-acre project in Johnson (Washington County).

How is his extended family faring during these travails?

"I'll let them speak for themselves," Chambers said from his headquarters at Danville (Yell County). "Anybody in real estate up there is dealing with some problems. Some are much worse than others."

Seth Kaffka and Meeks couldn't be reached for comment.

"I just think I'm better off not commenting at this time," Brandon Barber said.

Direct exposure to family borrowing problems appears to be minimal for Chambers Bank in Danville and Chambers Bank of North Arkansas in Fayetteville, where a third son-in-law, Justin Salter, is president.

Earnings Drop

Like other northwest Arkansas lenders, the Chambers banks are enduring bruised earnings. Net income at the Fayetteville bank fell from $1.9 million during the first six months of 2007 to $932,000 for the same period this year.

Profits at the Danville bank dropped from $6.9 million for January-June 2007 to $4.1 million during the first six months of 2008, the most recent reporting period available.

"We've taken very few properties back, but we've worked with a lot of people and have suffered with them in the losses," Chambers said. "We try to work with them during the bad times, just like we did during the good times to take care of these folks the best we can. About 95 percent of our concerns are in the Fayetteville market."

Despite lending setbacks, the Chambers banks are holding their own in the market. That doesn't surprise Randy Dennis, a Little Rock bank consultant. He said Chambers has an established reputation for running profitable, well-funded banks.

"His banks are successful, and he likes to operate them with capital that is far above and beyond regulatory requirements," said Dennis, president of DD&F Consulting Group.

The strong equity position and past profitability of the banks has given Chambers the luxury of declaring some hefty dividends, even in the face of the recent market slowdown.

Chambers Bancshares dividends have totaled more than $53 million since 2002. This year alone, the holding company declared cash dividends of $11 million for the first quarter and $1 million for the second quarter. Dividends totaled $6.7 million in 2007.

Chambers said much of the workout efforts are focused on the overbuilt residential market, primarily Benton County.

"The absorption rate is a little lower than we would like, and it's going to be another year before it really turns around," he said. "I don't want to say doom and gloom, but it still has a ways to go to improve."

Chambers said tightened loan policies are the stance of the hour as the real estate markets seek equilibrium in northwest Arkansas.

"We're not out there aggressively making loans," he said. "It was unbelievable how fast things were moving. It was just so good you couldn't make a mistake.

"We've somewhat retreated from the market because of nerves. We've always had over 10 percent capital. My dad had that rule back when he handed me the hammer in 1988."

Total assets of Danville State Bank stood at $10 million when Johnny Chambers joined as an assistant vice president in the early 1970s. Known as Chambers Bank today, the operation reflected the merged operations of several other banks.

Among these are Bank of Amity (Clark County), where a controlling interest was acquired for $3 million on March 18, 1993, and Scott County Bank in Waldron, a new bank charter that Johnny Chambers pioneered in 1986.

The Family Business

Johnny Chambers' family entered the banking business in 1930 when his namesake grandfather converted the Bank of Belleville into Danville State Bank and moved the business into the former home of Yell County Bank, a casualty of the Great Depression.

Chambers entered the northwest Arkansas market during the late 1990s with investments in the Bank of Elkins (Washington County) and Community Bank of North Arkansas in Fayetteville.

The two lenders later merged to become today's Chambers Bank of North Arkansas. Chambers is in the process of merging the Fayetteville operations under the charter of the flagship bank in Danville.

Chambers led an unsuccessful play in 2004 to acquire controlling interest in First Community Bank of Crawford County in Van Buren. However, regulators ruled the stealth effort violated prohibitions for buying a newly chartered bank.

In the end, the Federal Insurance Deposit Corp. collected $432,000 in fines from Chambers and his associates: Jacob Perryman "Perry" Mikles III of Booneville, Everett Emmett "J.R." Young Jr., Rick Leon Millsap, CEO of Petit Jean Poultry in Danville, and Danville businessmen Thomas Roy Akin and Bobby W. Stephens.