The decision wasn't sparked by the abrupt resignation in July of that unit's leader, Dan Thomas. Instead, Gleason said he had been planning to focus on RESG for a while.
Gleason to focus on RESG
"The reason I allocated in that time to RESG is we expect that business to double over the next three and a half to four years," said Gleason at the Barclays global financial services conference in September. "We expect to redouble that business again over the seven to eight to nine[-year] period of time."
That's fast growth -- especially in an industry where rapid organic growth is generally looked down upon.
"If it's growing like a weed, it probably is one," former Wells Fargo CEO Richard Kovacevich is reputed to have said.
"It is one of the oldest adages in our business that the lender that grows fast is the lender with future losses," said veteran financial services investor and former investment banker Christopher Flowers, according to The Wall Street Journal.
What is RESG?
RESG is a unit at Bank of the Ozarks that makes large and complex commercial real estate loans. It began in 2003 and had been overseen until July by Thomas, who also served as the bank's chief lending officer and vice chairman of the board prior to his resignation.
The unit is based 300 miles away in Dallas, Texas, and accounts for half of total loans on Bank of the Ozarks' balance sheet.
RESG has been particularly active of late, fueling the bank's explosive growth. Over the past five years, it has delved deep into the financing of large construction and development projects in major metropolitan areas across the country.
In 2012, Bank of the Ozarks' largest geographic exposure was to its home state of Arkansas, as one would expect. A mere five years later, Arkansas ranks behind New York, Florida, Georgia, and Texas.
RESG also accounts for the vast majority (93%) of the $11.9 billion in unfunded lending commitments that don't sit on Bank of the Ozarks' balance sheet, but must nevertheless be funded by the bank over the next few years. That's six times more off-balance sheet exposure than the average bank, after adjusting for size, according to uniform bank performance reports from the FFIEC.
And the fact that the commercial real estate market seems to be softening hasn't deterred Gleason's commitment to growing RESG.
"I think our total RESG originations last year were somewhere around $8.2 billion to $8.3 billion in closings," said Gleason at the same conference. "[T]his year we're expecting that number to be higher... perhaps even as high as approaching $10 billion in originations this year."
With expectations like that, it makes sense that Gleason wants to keep a close eye on RESG.