Nexity Financial Corp. of Birmingham, Ala., has mapped out an ambitious expansion plan in its quest to become a multibillion-asset company.
The $834 million-asset Nexity is primarily a correspondent bank, with offices in Atlanta, Birmingham, Dallas, Myrtle Beach, S.C., and Winston-Salem, N.C. Its chairman and chief executive, Greg Lee, said it plans to open one in Florida this year and additional offices in the Middle Atlantic and Midwest "within the next year or two."
"I foresee us being in high-growth mode for several years out," he said.
Nexity's chief rivals are bankers' banks, a handful of which are also expanding outside of their traditional markets. But Mr. Lee said that it has the resources to expand more quickly because it is publicly traded and therefore has access to the capital markets. Traditional bankers' banks are owned almost exclusively by other banks.
Mr. Lee was a senior vice president at Bankers Bank in Atlanta before leaving to forming Nexity in 1999. His biggest frustration at the Bankers Bank, he said, was that employees could not be shareholders. He founded Nexity with a goal of changing the correspondent banking model.
Nexity is like bankers' banks in that it focuses mainly on buying and selling loan participations, offering fixed-income investment services and funds management to its nearly 200 community bank clients.
It has done nearly $3 billion in participations this year. Mr. Lee said it usually teams up with its clients on commercial real estate loans and that its "bread-and-butter" customer has $250 million of assets.
But Nexity differs from other bankers' banks in that it can accept deposits from the general public and does so mainly online. Traditional bankers' banks can accept deposits only from other banks.
"Funding the bank with money markets, CDs, and checking accounts allows us to earn a higher net interest margin than a bankers' bank does," Mr. Lee said.
According to statistics from the Federal Deposit Insurance Corp., at the end of the second quarter the average net interest margin for the 21 bankers' banks was 2.95%. Nexity's was 3.29%.
Over the past five years the company's performance has been mixed. In 2001 it reported a loss of $1.3 million. In 2004, it had a net income of $5.4 million and in 2005 it earned $4.5 million.
Nexity attributed the decline in 2005 to increases in noninterest expenses and higher income taxes.
In the second quarter the company's net income was up 16% from a year earlier, to $1.6 million. For the first six months of the year its net income was up 26% from a year earlier, to $2.9 million.
Jason Werner, an analyst with Howe Barnes Hoefer Arnett Inc. in Chicago, said being publicly traded gives Nexity an advantage over most other bankers' banks. Because its executives are also shareholders, he said, "they have some motivation to go out and provide more responsive, better services."
Of course, there are already bankers' banks in the markets Nexity is eyeing for expansion, not to mention regional and big community banks eager to offer correspondent services.
But Mr. Werner said there is plenty of business to go around. "The demand for correspondent banking is growing," he said.
"There has been so much de novo activity over the last few years, caused to a large extent by mergers and acquisitions."
