Nexity Financial Corp. in Birmingham, Ala., is looking for an investor or buyer after a spike in nonperforming assets fueled a third straight quarterly loss.
Observers said it would be tough to find either, but Greg Lee, the $1.1 billion-asset company's chairman and chief executive officer, said in an interview Thursday that he is sure its correspondent banking business would be appealing.
"Our business is actually very vibrant," Mr. Lee said, citing revenue growth in the investment and cash management services it provides to more than 400 community banks nationwide.
Nexity, which mostly does correspondent banking, has been weighed down by bad commercial real estate loans. Nonperforming assets spiked to 8.58% of total assets at yearend, largely because of participations with banks in areas hard hit by the real estate downturn, including Georgia and Florida.
Nexity reported late Wednesday that it lost $7.2 million in the fourth quarter, compared with a $1.1 million profit the year earlier. It lost $13 million for the full year.
The company said it had hired Tucker Midis & Associates LLC as a financial adviser to assist in raising capital. Nexity also intends to explore the possibility of selling the company or some of its assets.
Mr. Lee said its goal is to get $20 million to $25 million in capital. It has applied for aid from the Treasury Department's Troubled Asset Relief Program, but he said the company is not optimistic about being approved.
Nexity is "walking down many paths at the same time," looking for some relief against mounting losses, Mr. Lee said.
Potential buyers might include a nonbank financial services company, a bankers' bank, or a correspondent bank, he said.
But even if all its options fall through, Mr. Lee said, Nexity is in no danger of failing. It remains well capitalized, with a total risk-based capital ratio of 10.33% at yearend, he said. "We are optimistic, looking forward, about our ability to manage through the current credit cycle. At its core is a strong, vibrant market with a lot of good business ahead."
Nexity is not the only correspondent bank having trouble. The $3 billion-asset Silverton Bank in Atlanta and the $44 million-asset Nebraska Bankers' Bank in Lincoln are among those contending with higher nonperforming assets.
Several also have raised capital from their owner banks in recent months to help weather the economic downturn.
Nexity differs from typical bankers' banks because it accepts deposits, mostly online, and does some lending directly to retail customers.
Still, industry watchers said Nexity is in for a challenge in raising capital, shedding assets, or finding a buyer.
They said that private-equity firms in general remain hesitant to invest in banking companies and that others trying to deleverage their balance sheets have had difficulty getting more than 30 cents on the dollar for their assets.
In addition, Nexity's specialized business model is likely to discourage potential buyers, said Jeffrey E. Adams, a managing director in the Atlanta office of Carson Medlin Co. Most are looking for strong retail customer relationships and a good deposit base, he said, but Nexity's customers are largely other banks. "They are going to be most attractive to someone who has an interest in correspondent banking services. Not that many have that kind of focus," he said.
But Mr. Lee dismissed such skepticism. "Loan participations, cash management and clearing services, and investment advisory services — that business isn't going away," he said.
Nexity, which went public in 2005, also will voluntarily delist its stock from the Nasdaq on Monday and be traded only on the pink sheets. The company chose to delist partly because its sagging stock price was hurting its chances of raising capital, Mr. Lee said.
"We believe it will be easier to attract private equity as a private company," he said. "Virtually all of our primary competitors are private bankers' banks. And they are undergoing the same difficulties as us. It is something of a competitive disadvantage when all your competitors are private and can point to your stock price being so diminished."
Nexity's stock closed at 35 cents Thursday, having lost roughly 98% of its value over the past 52 weeks.
