If I were a shareholder of Bank of the Ozarks (NASDAQ:OZRK), I would want to know why one of its highest ranking executives, second only to CEO George Gleason, resigned on July 27. The departure caused the bank's stock to drop 12% in a single day and has yet to be explained by the bank.
I'm talking about Dan Thomas, who served in three critical capacities at Bank of the Ozarks. He was its chief lending officer, vice chairman of its board of directors, and president of its real estate specialties group, or RESG, which is responsible for most of the bank's growth since 2012.
Thomas was the second-highest paid executive at the bank. In 2015, he was paid $4.1 million, ranking in the 98th percentile among similarly situated executives in Bank of the Ozarks' peer group. The following year, he earned $4.7 million, ranking "above the 90th percentile," according to the bank's latest proxy statement.
Yet, despite his leadership roles and resplendent compensation, Thomas rarely (if ever) engaged with the media, analysts, or investors. He wasn't on the bank's quarterly conference calls. He didn't meet with stock analysts. And, as far as I can tell, he rarely, if ever, did media interviews.
This is unusual. Bank of the Ozarks doesn't keep its other executives under a similar quarantine. On its latest conference call, four of its executives offered lengthy, substantive remarks about Bank of the Ozarks' performance in the third quarter. Indeed, most banks go out of their way to connect executives with analysts and members of the media -- I get emails every day from banks and fintech companies offering to line up interviews with their executives.
Making all of this even more unusual was the timing of Thomas' resignation. It happened three weeks after the bank stopped submitting regulatory filings to the Securities & Exchange Commission, which is where analysts and investors learn about publicly traded companies like Bank of the Ozarks. I've talked to analysts with decades' of experience, and none of them had ever heard of a bank doing this before -- though, to a point Gleason made in an email to me, there is a very small number of banks that similarly don't file with the SEC.
Two weeks before Thomas' resignation, moreover, he sold 56,000 shares of the bank's stock for $2.6 million. It amounted to a third of his stake in the bank. Had he waited to sell the shares until after resigning, Thomas would have earned about $300,000 less from the sale, as a result of the 12% drop.
It's possible that Thomas was forced to resign, which is what I've been told by an employee of the bank. This could mean that he sold his shares on July 14 without knowledge of his imminent departure two weeks later. But it's not unreasonable to conclude that Thomas had read the tea leaves sooner, given that his first large stock sale was in May, when he offloaded almost $1 million worth of Bank of the Ozarks stock.
It also seems relevant that Gleason heaped praise on Thomas earlier in the year. "RESG, under the expert leadership of Dan Thomas, continued to be the primary driver of our loan growth in the quarter just ended, as it has been in most quarters and recent years," said Gleason on a conference call in January. Gleason went on to laud the ostensibly conservative underwriting philosophy of RESG under Thomas. "Dan started this team for us 14 years ago. Its priorities have always been first, on asset quality; second, on profitability; and third, on growth," said Gleason.
The claim that Bank of the Ozarks is conservative is peculiar for two reasons. First, because the bank's RESG unit, which, again, is responsible for most of its growth, focuses on the riskiest of the riskiest type of lending -- out of market construction and development loans. The size and concentration of its portfolio would make a banker with any sense of prudence blush.
The second reason is that RESG has grown so fast over the past few years that it's hard to understand how growth wasn't its primary objective. Growth like this in banking is inherently suspect. "If it's growing like a weed, it probably is one," posits a well-known axiom in the bank industry. You can see this in the chart below, which compares the growth patterns of the three biggest banks in Arkansas.
Further thickening the plot is the fact that Gleason, who has been CEO of Bank of the Ozarks since buying a controlling interest in it as a 25-year-old attorney in 1979, announced a few months ago that he would be dedicating 75% of his time to running RESG, a single unit of the bank. He handed off six of his direct reports earlier this year and will now, presumably, spend most of his time at RESG's office in Dallas, Texas -- about 300 miles from Bank of the Ozarks' headquarters in Little Rock, Arkansas.
Yet again, this is highly unusual. I've studied banks for years and have never heard of a bank CEO who has done this. When positions down the chain of command come open, a CEO fills them with someone else. That's what CEOs do. In no instance that I'm aware of has a CEO effectively demoted himself in this way.
I could go on about the peculiarities of Thomas' tenure, abrupt resignation, and Bank of the Ozarks' strategy of throwing caution to the wind after Thomas became the bank's chief lending officer in 2012 -- but I trust you get the point. In short, if I were an investor in this bank, I'd really want to know what caused him to leave. I believe the answer to that question could completely change how analysts and investors view this stock.