New City Bank, Known for Loans to Churches, Found Insolvent, Closed by State
New City Bank, the small Orange-based institution that forged a name for itself by making loans to churches, was found to be insolvent and closed Friday by the State Banking Department.
An estimated $20.3 million in deposits and $10.6 million worth of assets were sold to a newly chartered national association, Colonial Bank in Orange, according to the Federal Deposit Insurance Corp., which the state agency appointed as receiver of New City.
All deposits in the 2,240 accounts will continue to be insured up to the standard $100,000 per account by the FDIC, and the new bank will open Monday for business as usual, an FDIC spokesman said.
Colonial will operate out of New City’s branches in Orange and Anaheim for at least 30 days before consolidating its operation in a Santa Ana building near Tustin Avenue, said Gerry Findley, a Brea financial institutions consultant who helped to put the deal together.
First Bank in County to Fail
New City is the second bank in California to be closed this year and the first in Orange County. It is also the 11th Orange County bank since 1982 to be seized by regulators.
New City also is the fourth financial institution in the county to be seized by regulators this year. The other three were savings and loan associations: North America S&L;, South Bay S&L; and Perpetual Savings Bank, which was seized on Wednesday.
Founded by a group of self-described “born-again” Christians, New City gained early attention with its policy of making loans for church construction--an area most banks avoid.
But its loans to commercial borrowers are what got it in trouble. New City--named after the “new city of Jerusalem”--lost $3.5 million last year and ended the year with just $699,000 in capital and reserves for future loan losses.
In a Feb. 6 filing with the Securities and Exchange Commission, the bank confirmed that it had been operating under the close supervision of state and federal regulators for several months.
The SEC filing said a Garden Grove minister, Young Ook Kim, had agreed to pump at least $3.5 million of new capital into the bank in exchange for 88.4% of the common stock of New City Bancorp, the bank’s holding company.
Insufficient Data on Kim
The deal fell through, though, after the Federal Reserve Bank of San Francisco returned Kim’s application earlier this month because it contained insufficient information about his financial backing. A naturalized U.S. citizen, Kim was getting his money from family members in Korea. But federal and state banking regulations restrict foreign ownership of banks and require that the names of all major owners be publicly available.
Kim has never been available for comment.
The owners of Colonial are Raymond Benford and David Whiting, both of whom are principals in California Mortgage Service in Santa Ana, a company currently handling $2 billion worth of mortgages, Findley said.
The two men had been working toward opening a new bank for the last three years, but regulators were urging them to take over a failing bank, he said.
In a complicated arrangement, Benfield and Whiting will capitalize Colonial with $2.355 million in cash and will have a bank with $20.9 million in assets.
