City National Bank in Newark, the only black-owned bank in New Jersey, closed Nov. 1 after federal officials said it was losing money quickly due to unsafe or unsound practices.
The failed bank reopened that same day as Industrial Bank, a Washington D.C.-based black-owned bank. Customers continued using their accounts and cards with no interruptions, a bank associate said.
The Office of Comptroller of Currency acted after the bank “experienced substantial dissipation of assets and earnings due to unsafe or unsound practices,” according to a press release. It also cited the bank’s failure to submit a capital restoration plan acceptable to the office.
Federal officials appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver for the seven-branch bank, according to a statement. There was no notice of the impending closure.
It’s the fourth bank to fail nationally this year and first to close in New Jersey since January 2017, when Harvest Community Bank in Pennsville was shuttered.
Industrial Bank’s acquisition comes at a time that both minority and community banks are declining, according to FDIC data.
In 2001, there were 48 black-owned banks, compared to 2018′s 23 banks.
City National Bank was taken over by Preston Pinkett III in 2012, who rebranded it as an institution focused on those who had been chronically underserved by banks, urban and minority communities, and the small businesses in the area.
In a July 2012 Star-Ledger article, Pinkett emphasized that without City National, these institutions could fail. Because other banks have little incentive to fill the void, people could fall into traps with payday lenders whose high fees and interest rates take money from those who need it, he said.
“These are not long-term sustainable ways to provide financial services to people who have few choices,” he told the Star-Ledger.
Pinkett could not be reached for comment for this report.
Industrial Bank President and CEO B. Doyle Mitchell said in a statement the acquisition is “more of a partnership” of two banks who share common values and commitment to community service. Industrial Bank is now one of the largest black-owned bank in the country, a spokesperson said.
The loss of a community bank can negatively affect some of the “culture and connection between folks in the neighborhood” said Lynier Richardson, assistant professor at Rutgers Business School in Newark and executive director for the Center for Urban Entrepreneurship and Economic Development.
But he stressed that “community banks… need to catch up to the current business model to survive.”
Technology contributed to the decline in community and minority banks, Richardson said. Banks with low assets can have a hard time competing with money center banks that offer easy ways to take out money, have flashy infrastructures and find new ways to generate revenue. But customers will miss out on time and personal advice at a level only local banks can offer, he added.
He compared it to being nostalgic about Blockbuster, which has long been replaced by Netflix and other streaming services. While those employees had personal connections with their customers, it wasn’t a viable model as new innovations came about, Richardson noted.
“Just as much as I want to have a relationship with my banker, I also want to just deposit my check with my iPhone,” Richardson said. “That’s innovation, that’s transformation, that’s progress. But again, some of it is just about community pride.”
Gov. Phil Murphy on Wednesday announced the he will take steps to open a state-run public bank, which he argues would support community and minority banks. But critics and some in the banking community worry it would compete with these smaller institutions, and invite political corruption into the banking system.
The Department of Banking and Insurance did not comment on whether the bank closure was a reflection of how the state’s economy is performing. The FDIC said there’s an average of five bank failures each year even in non-crisis times.
“The overall health of the banking system today remains strong,” the FDIC said, citing their data. “There have only been three years since 1933 without a single bank failure,” the statement continued.
No banks closed in 2018.
As of Sept. 30, the bank had about $120.6 million in total assets and $111.2 million in total deposits, which Industrial Bank will purchase, officials said. The closure will also cost about $2.5 million to the Deposit Insurance Fund that protects deposits. This was the least costly resolution, according to the statement.
While the FDIC and federal Office of Currency Control would not comment on the bank failure beyond the press release, City National Bank had faced several enforcement actions from the feds.
On Feb. 12, 2018, under a consent order by the OCC, the bank was directed to maintain a compliance committee, develop a strategic two-year plan for growth and overhaul some policies and procedures. Another directive was issued in Nov. 1, 2018 and was terminated June 26.
On June 26, the bank received another corrective action directive from the OCC, detailing new compliances.
All legal documents were terminated when the bank closed. Officials would not say if it was directly tied to the closure.
A Department of Banking and Insurance spokeswoman said the bank was not regulated by the state and therefore not examined by the department. All the actions were made by federal officials and customer protections were “in accordance with FDIC’s rules,” the spokeswoman said.