Danville-based Chambers Bank came under a cease and desist order issued by the Federal Deposit Insurance Corp. in December, but made public today (Jan. 27). The bank joins the ranks of 10 other financial institutions in Northwest Arkansas facing heightened regulatory scrutiny in recent years.
Chambers Bank reported $462,000 in net earnings during the first nine months of 2011. The full year report is due next month.
Like many other banks across the country, Chambers continues to face major loan losses related to plummeting real estate values. The bulk of Chambers’ losses were felt in 2010 when the bank reported annual losses of $17.8 million, according to the FDIC call reports.
The bank has consented, without admitting or denying any charges of unsafe or unsound banking practices or violations of law, weaknesses in earnings and liquidity, and insufficient management and board oversight, to the issuance of the cease and desist order,” stated in the order. (Link here for a PDF of the 19-page order.)
“We fought it pretty hard, but we did consent to the order and know we have more work to do in cleaning up our problem real estate loans, most of which are in Northwest Arkansas,” said John Ed Chambers III, board chairman. “We have been fairly aggressive in identifying our problems and will continue to write them off as needed.”
Chambers said the bank lost about $5.5 million in 2011, all of which were related to charge-offs in the fourth quarter.
“We think 2012 will be better, are somewhat encouraged about slight improvements in the Northwest Arkansas economy,” he said.
The order requires Chambers Bank to re-evaluate its management team and seek federal approval before new hiring may occur. Bank officials were also told to clean up their delinquent loan portfolio and charge-off the old debt immediately. By Feb. 21, the bank will also need to submit a plan for reducing its overall non-performing loans which totaled $7 million that were 90 days past due and $16.5 million in 30-89-day delinquencies.
The bank is prohibited for lending to borrowers who already have delinquent loans, and must also submit a plan to broaden the concentration of loans away from real estate. The bank reported 79% of its loans were related to real estate at the end of September.
Banking analyst John Dominick said it’s not unusual to see a high concentration of real estate loans in this area.
“Most of the community banks in Northwest Arkansas make more real estate-related loans because that is where the demand is,” said Dominick, who is a banking professor at the University of Arkansas and a director at Signature Bank in Fayetteville.
Lastly, the order requires Chambers Bank to maintain higher minimum levels of equity capital, which acts as the safety net to buffer future losses. As of Sept. 30, Chambers Bank was in compliance with those new higher capital ratios. Chambers reported having $83.9 million in equity capital, this includes $19.8 million in TARP proceeds the bank received from the Treasury Department in 2009. Losses have drawn down Chambers Bank capital in the past two years from a high $96.5 million at the end of 2009.
“I have known this banking family for many years. They built a highly successful operation and experienced unbelievable growth relative to the small market in which they began. I am confident they have the necessary management to work through this situation,” Dominick said.
Chambers consolidated its two charters in August of 2008 combining its Northwest Arkansas market with Danville, for reporting purposes. Chambers operates 20 Arkansas branches — including five in Northwest Arkansas and four located in the Fort Smith region.
Other banks operating under FDIC consent orders include:
Decatur State Bank
First Federal Bank
First State of Lonoke
Parkway Bank - order removed in 2011