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The Running Man: NexBank’s Inexhaustible Davis Deadman

With a Spartan business plan and the backing of a giant hedge fund, the inexhaustible Davis Deadman has turned NexBank into one of the most profitable banks of its kind in the country.
By Dave Moore |
photography by Billy Surface

Banker Davis Deadman, who’s sitting ramrod straight at the head of a conference-room table on the 22nd floor of the NexBank building in North Dallas, looks flummoxed.

 

The others around the table, it seems, aren’t accepting his contention that running a half-marathon on a few hours’ notice is no big deal.


“It was 13 miles,” Deadman starts. “Anyone …”


And he stops.

CEO SNAPSHOT

Davis Deadman
President and CEO,
NexBank Capital Inc.

Personal History: Born in 1963 in Oregon. Married to Stephanie; children are toddler Olivia Grace; Cali Summer, 11; and 8-year-old Nico Christian.

Education: Bachelor’s degree in finance from Texas A&M; MBA from Southern Methodist University.


Work History: Senior portfolio analyst at Highland Capital Management; investment officer with Mutual Benefit Life from 1993 to 1998, where he handled sales and restructuring of more than $200 million in loans involving apartments, shopping centers, office buildings, and hotels across the Southeast. Before that, worked originating commercial real estate loans for a regional bank and a national credit company.
Other activities: Likes spending time with his family; maintains a strict workout routine.


Distinction: Helped initiate NexBank’s Banking Forward campaign, in which NexBank will donate to the charity of a customers’ choice, if they open a NexBank account of sufficient size.

The 45-year-old NexBank CEO looks to two paunchy, middle-aged men at the table for support, only to get four rolling eyes and two heads shaking “No” in unison.


Welcome to Davis Deadman’s world.


It’s a world where it makes sense to routinely run three or four miles at a time so that it’s possible to run 13 miles on a lark.


It’s one where throwing money in a direction that’s not going to make you a lot more money is imprudent.


And one where the phrase “bankers’ hours” means 12-hour days. At least.

 

Functional Headquarters


Deadman’s hours go something like this: He’s lifting weights or in a sweaty jog by 6:30 a.m.; he’s in the office by 8 a.m. He ferries from meeting to meeting between Highland Capital Management—a high-powered hedge-fund firm where he works as a team leader and senior portfolio manager—and NexBank, where he’s been CEO since investors from Highland bought the bank in 2004.
That usually goes on until 8 p.m. Then he typically hops in his BMW 5 Series sedan and heads home (unless he’s attending a dinner of some kind; hello, hours 13 and 14). Sometimes—maybe every week or three—there’s a multimillion-dollar deal to close. He and his employees stay behind until 10 or 11 p.m. to dot the i’s.


Like Deadman himself, who once rued the day he spent $100 on a pair of pants, NexBank’s corporate headquarters loudly proclaims “functionality.” There’s not a scrap of oak or marble in sight. There’s plenty of fabric-covered, painted metal to go around for the bank’s 47 employees.
Among those occasionally staying late behind one of those plain-Jane desks is John Ory, who once truly kept bankers hours.


Ory was a vice president and loan officer at Heritage Bank in Terrell (pop. 18,952), where, for two years, he would roll into work at 9 a.m. and review loan applications for things like cars. Every other month, someone would come in for a loan to buy livestock. He’d roll out at 5 p.m.
Ory says working at Heritage was a lot like being George Bailey in the old Bailey Building & Loan in the movie It’s a Wonderful Life.


“When it was payday,” he recalls, “you had people cashing their checks to get beer money.”
He enjoyed life in the Lion’s Club, being on the chamber of commerce and in the early stages of running for City Council, but he admits he was bored. He’d just finished his MBA. He was ready for a bigger challenge.


Then, along came some partners from Highland Capital with an offer to buy Heritage. The move set bank employees abuzz. What would come of their jobs? Their benefits?


It wasn’t long before they realized the new owners were moving the bank to Dallas.


Deadman approached most of the employees with invitations to stay on board at NexBank. Ory is one of a handful who accepted. Now he’s a senior vice president and the bank’s chief operating officer.


“I wanted to stretch my brain a little and when I met the new owners of the bank, I was definitely impressed by their intellect—their business savvy and integrity,” Ory says. “Davis Deadman has a charisma about him; you meet him once, and everyone who meets him feels compelled to make him look good—he has that. That’s what drives me every day.”


Deadman is far from physically imposing. He’s lean, he speaks softly and, when he does, he means it. There’s no tubby, backslapping banker anywhere inside him trying to get out.
Ory is sold on Deadman’s quiet leadership—in part because Deadman gave him a chance, though he’d only known him for a short time.


Ory, if it worked out, would act as a go-between between middle-market borrowers and commercial lenders: “Davis said if you get your brain around it, and you’re good at it, this will be your opportunity of a lifetime. If you don’t,  we’ll find something else to do with you,” Ory says.
That “something else” didn’t bode well to Ory, but he took the job anyway. He sold his house in Terrell and moved to Dallas.

 

‘Capital’ Connections


“We’re a bank that be–haves like an investment firm,” Ory said. “It’s a completely different model.”


If NexBank acts like an investment house, it’s because it was started by partners at one of the highest-powered investment firms in the country. Highland Capital Management’s assets were reported to have reached $38 billion in September.


A 2007 filing with the Securities and Exchange Commission identifies Highland Capital co-founder James Dondero as the majority owner of NexBank. Dondero also serves as chairman of NexBank’s board of directors, according to a filing with the Texas Secretary of State. The state lists fellow Highland Capital co-founder Mark Okada as a director on NexBank’s board.


Deadman said that some of the partners at Highland Capital—which experts say is known for an aggressive, sharp-witted leadership that tries to operates below the radar—bought Heritage Bank because it was a good investment.


The concept was to go after high net-worth customers and make profitable real-estate-related loans while keeping overhead low.


Part of the strategy was to move Deadman, who joined Highland Capital in 1998 as its commercial real estate lending ace, to oversee NexBank.


Like employees at Highland Capital, NexBank workers get a catered lunch every day (“You save a 30-minute round trip,” Deadman says). Unlike Highland Capital, NexBank doesn’t fly its employees to places like Nevada for retreats. Every now and then, Deadman will order everyone to knock off at 4:30 for a happy hour. Or to race go-karts at SpeedZone in Dallas. Such breaks are necessary, Deadman says.


“It blows up if you don’t have fun,” he says.

 

Avoiding Expensive ‘Sticks’


NexBank’s business model was, in part, shaped by the cost of real estate.


The bank has just two physical locations: one in Plano, the second on the ground floor of the NexBank building at 13455 Noel Road, next to the Galleria shopping center.


The scarcity of branches flies directly against the traditional Wachovia/Bank of America model, where the number of retail-style storefronts is meant to drive deposits. BofA, for example, reported having more than 6,100 branches and $589 billion in assets, as of September 2008.


“We [at Highland Capital] are looking at each other … and thinking, ‘I never go to a branch,’ ” Deadman says. “How do they justify four to five million dollars on the dirt and the sticks and bricks, and the drags, initially, to get to profitability, on a branch?”


Mike Rossi, NexBank’s chief financial officer, shakes his head and injects: “They’re probably upside down in 100 percent of those real estate investments?”


Deadman affirms with an “Uh huh.”


The pair compare the rapid expansion of bank branches with the glut of Starbucks coffeehouses that are expected to lead to the layoff of 12,000 employees and the closure of 600 stores.


Instead, NexBank launched a web site for online banking and reimburses accountholders up to $20 a month for their automatic teller machine use. NexBank doesn’t have a large network of ATMs.
NexBank customers who need to deposit checks can use “remote deposit” machines provided by NexBank. As of August, about 40 such machines were in operation, at a cost of less than $1,000 per device.


NexBank also serves as an agent for some of Highland Capital’s acquisitions, according to SEC filings.


To help generate loans and deposits and promote itself, NexBank advertises some of the commercial deals the bank has recently financed and its CD rates (which it claims are higher than market average). NexBank also promotes itself by paying to be the lead sponsor of the White Rock Marathon (Deadman decided he’d run the White Rock half-marathon the night before the December 2007 event).


The bank is also pushing for new accounts by offering donations to charities of a customer’s choice, if the customer opens a NexBank account with a deposit of between $75,000 and $150,000. Donations range from $2,500 to $4,500, depending on the size of deposit.


“If you think about it, many people who give to charities have liquidity,” Deadman said. “They have a [higher] net worth.”


That’s the kind of customer NexBank is gunning for.


It certainly doesn’t hurt that some of Highland Capital’s partners infused NexBank with $24 million when they launched the institution in 2004.


So far, their experiment seems to be working out.


The bank’s assets have grown from $51 million in 2004 to $620 million as of June 2008, according to the bank’s unaudited figures. Net monthly profits increased in the same period from $34,000 to $669,000, according to NexBank figures.


As of last year, NexBank was the 26th largest bank in North Texas, based on deposits, according to the Dallas Business Journal’s Book of Lists. But in its peer group, among banks with assets ranging from $300 million to $1 billion, NexBank ranked second in the nation in terms of net income per branch, according to a D CEO analysis of June 30 federal data.


“I think all banks will be like us” someday, says Tennessee Commerce Bank CEO Art Helf, whose Franklin, Tenn.-based bank also operates with a minimum number of branches and is also experiencing fast growth. “I don’t think they need a bank on every corner.”


What will take the place of these Wachovia and BofA branches?


“They’ll all become fast-food outlets,” Helf says with a laugh.

 

Staying In The Rolodex


It’s not like NexBank hasn’t been hit by the slumping real estate market. Some loans have gone south, CFO Rossi concedes. A federal snapshot indicates that on June 30, NexBank reported about $11.8 million in late loan and lease payments.


“Thus far this year, we’ve had a few loans we’ve had to work out,” Rossi said. “You try to keep them on your balance sheet as short a time as possible.”


But NexBank didn’t take part in the subprime boondoggle that’s vexing many banks, he says. Deadman and the others at NexBank simply couldn’t give loans away that cheaply, and didn’t want to.


As a result, NexBank has cash to lend—albeit not cheaply—to those willing to pay the freight.
Longtime Dallas developer Gene Phillips says the credit crunch has shrunk the number of lenders at the ready in his Rolodex. NexBank will still fund his ventures, so he still calls them.


“I don’t know the inner workings of the bank” as far as who makes the decisions for loans, Phillips said. “I know … [Deadman] really understands real estate.”


One of the most-recent high-profile deals involved NexBank loaning a group advised by Phillips $26 million to buy the Stanford Corporate Centre and the Telos Fitness Center off the North Dallas Tollway.


For several nights before the property’s closing, a handful of NexBank employees stayed past 10 o’clock to complete paperwork.


While NexBank COO Ory wasn’t involved in that closing, he’s worked past 10 on others.


“I get here at 5 a.m. and leave at 7 p.m.,” he says. “That’s my day. Last week, I was here till 10. I think everybody here has a passion for what they do. The 12-14 hour days don’t seem like 12-14 days. No way can I work an 8-hour day” again.


Deadman inspires that devotion, Ory says.


Phillips just knows that when NexBank gets his business, he doesn’t need to worry when it comes to closings.

 

High Altitude, High RPM


Davis Deadman’s first car was a 1965 Plymouth sedan. Don’t ask him what model it was because he can’t remember (some describe him as operating at 20,000 feet—understanding the big picture but not sweating the details). He earned the $400 to buy the Plymouth by bellhopping at a hotel his father managed.


His family hopscotched across the United States while his dad moved through the Sheraton chain, managing its hotels, before landing in Richardson 39 years ago. His mother has been in Dallas real estate for more than two decades.


There’s no telling when Davis Deadman will leave the bank/real-estate treadmill, but he knows his pace isn’t sustainable over the long haul.


His three children will see more of their dad someday. But for now, Deadman insists that running and lifting weights allows him to continue to operate at the RPM he does.


“It resets your brain, the sweat cleans out the toxic stuff,” Deadman says. “It kind of flushes it out … it keeps the brain nimble.”


The RPM that NexBank has been running at may not be sustainable either, maintains Frank W. Anderson, a senior lecturer at the University of Texas at Dallas and a former investment analyst for regional banks.


Anderson says federal snapshots indicate that the bank’s capital isn’t keeping pace with its skyrocketing assets. At the current rate, unless the bank backs off on lending or receives an infusion of capital, it could draw red flags from regulators, he contends.


The reason is simple: If there’s insufficient capital to cover losses from underperforming assets, the bank won’t be able to pay its bills.


But Anderson says that the involvement from Highland Capital’s founders will likely prevent that from happening.


“If the owners have got deep pockets, regulators can sleep better, knowing that they can infuse the bank with capital when needed,” Anderson says. “It’s my understanding that Highland Capital is the largest hedge fund in Dallas. They’re strong enough to not only weather storms, but to take advantage of some dislocations.”


One way to increase capital would be to open more branches, Anderson says.


It seems Deadman is already entertaining that possibility, but on his own, Spartan, terms. “Maybe when Bank of America is on its back, or Wachovia, and they want to punt 20 or 30 branches in Dallas, you know, for a one-point premium, we’ll do that,” Deadman says. “That’s a cheap price.”

 

 

 

NexBank Capital Inc. Board of Directors
 

Chairman:
James Dondero, co-founder and president of Highland Capital Management LP. Dondero is also majority owner of NexBank, according to a 2007 SEC filing. Highland Capital manages $38 billion in senior secured loans, structured products, high yield bonds, and mezzanine debt. The firm employs more than 260.

 

Directors:
Davis Deadman, president and CEO of NexBank, as well as a team leader and senior portfolio manager at Highland Capital.


Switzer Deason was a director of Heritage Bancshares from 2001 until it was purchased by some of Highland Capital’s partners in 2004. Deason has served as president of Crux Financial Services Inc. in Belton, Texas, president of First National Bank Texas in Killeen, and as chairman of First State Bank in Bryan. The Houston Business Journal reported in 2007 that Deason was appointed president of Oasis Bank in Houston. He has since left the bank.


Mark Okada is a co-founder and chief investment officer of Highland Capital. Okada oversees Highland’s investment activities, and has more than 20 years of experience in the leveraged finance market.


Jon D. Patterson was named executive vice president and chief financial officer for Heritage Bank in 2002. When partners at Highland Capital purchased Terrell-based Heritage Bank for $12.4 million, Patterson landed on NexBank’s board. Has 30-plus years of banking experience.


Todd Travers is a partner, senior portfolio manager, and head of structured products at Highland Capital. He is also CEO of Highland Financial Partners, an externally managed company whose primary strategy is sponsoring structured finance entities. From 1994 to 1998, Travers managed a portion of Highland’s leveraged loan and high-yield debt portfolios. Before he arrived at Highland Capital, Travers was a finance manager at American Airlines.

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