State Regulators Looking for Buyer for New City Bank

Government regulators are actively seeking a purchaser for financially troubled New City Bank in Orange, apparently convinced that a proposed private purchase of the bank by a Garden Grove minister has fallen through.

Several sources in the banking community confirmed Tuesday that the state Department of Banking has prepared a so-called bid package on New City and is asking healthy banks to consider taking over the one-branch operation.

And a spokesman for the Federal Reserve Bank of San Francisco said an application by Garden Grove minister Young Ook Kim to assume control of New City’s holding company was returned to Kim’s attorney earlier this month. The application--which has not been resubmitted--did not contain sufficient information about Kim’s financial backing, the spokesman said.

New City, according to reports filed with the state, had $26.7 million in assets as of Dec. 31, but lost $3.5 million in 1986.

Regulators last year ordered the bank to increase its capital to assets ratio--a key measure of a bank’s financial health--to at least 7% as of Jan. 27, 1987. The bank ended 1986 with a ratio of 2.7%. In a recent filing with the Securities and Exchange Commission, the bank said its ratio remained unchanged at the year-end level.

In its year-end financial report, the bank said it wrote off $2.99 million in bad loans and that its total capital, including $610,000 set aside as a reserve against future loan losses, was $699,000.

Federal deposit insurance regulations require at least $1.6 million in capital for a bank with $26 million in asset.

Officials of the bank could not be reached for comment Tuesday.

In its Feb. 6 SEC filing that spelled out New City’s financial woes, the bank confirmed that it has been operating under the close supervision of state and federal regulators for several months.

The filing said that a single investor, Young Ook Kim, had agreed to pump at least $3.5 million in new capital into the bank in exchange for 88.4% of the common stock of its holding company, New City Bancorp.

Kim has never been reached for comment.

State banking officials could not be reached Tuesday for comment on the status of Kim’s application to purchase control of New City Bank.

But industry sources who asked to remain anonymous said it was clear from the regulators’ action in soliciting bidders that the deal has collapsed.

One knowledgeable source said Kim has never completed the financial disclosure form required by state banking officials.

In his change-of-control application with the Federal Reserve Bank--which regulates bank holding companies--Kim said the money for his purchase of the bulk of New City Bancorp would come from a cash gift from his family members in Korea.

The Federal Reserve Bank spokesman had said last month that although Kim is a naturalized U.S. citizen, the source of his funds could create problems.

Federal and state banking regulations restrict foreign ownership of banks and require that the names of all major owners be publicly available.

In one recent case, regulators ruled that an investor who purchased a local bank with borrowed funds could not be considered the bank’s sole owner and required that the businessmen who loaned the money all be identified as major owners of the institution.

When the government actively seeks a buyer for a troubled bank, a package of documents summarizing the bank’s financial condition and listing its assets and major known liabilities is prepared. The package then is circulated to healthy banks known to be interested in making acquisitions.

Although the original investors in a troubled bank often lose their investment when the bank is sold, depositors and loan customers are rarely affected.

Since 1982, government regulators have forced the sale of nine banks in Orange County. In addition, one institution, Heritage Bank in Anaheim, was closed and liquidated when a buyer could not be found.