The capital pressure at Nexity Financial Corp. is mounting, but its top executive says the Birmingham, Ala., company is close to raising what it needs.
The $1.2 billion-asset Nexity said in February that it was looking for a buyer or investor. In March regulators issued a cease-and-desist order requiring its bank unit to increase its capital ratios over the usual minimums by June 30.
Greg Lee, Nexity's chairman and chief executive, said in an interview Friday that it initiated a capital-raising effort about two weeks ago and expects to bring in $25 million to $35 million in the next 90 days. Nexity needs about $10 million to comply with the order, he said.
"We are confident in our ability to raise capital," Lee said, and he expects Nexity to return to profitability by the first quarter of next year.
Nexity operates as a correspondent bank, but it accepts deposits, mostly online, and it does some lending directly to retail customers. (It is not and never has been a bankers' bank.)
Industry watchers said that despite a capital thaw for healthy, traditional banking companies, Nexity would likely have a hard time if it tried to sell stock, in part because it is so specialized.
"They don't have a host of logical investors or buyers as, say, a traditional bank, because they have a unique business model," said Jeffrey E. Adams, a managing director at Carson Medlin Co.
According to Foresight Analytics LLC, as of March 31, Nexity's bank had enough of a reserve to cover 18% of its nonperforming assets, compared with the national average of 73.9%.
Lee said his company's provisioning is adequate. Nexity has been proactive in identifying problems, he said, and comparing its provisioning levels to those of other banks is not valid. "We definitely do a full, complete scrubbing of our portfolio on a constant basis," and because it operates like a bankers' bank on the asset side, Nexity sees firsthand what others are provisioning.
"We deal with 400 community banks. Many of those we are intimately familiar with, and the provisioning required varies greatly from bank to bank," he said. "It is impossible to say that this bank, because it is this size and in this region, should have X reserve. … Every bank portfolio is unique."