CEO To Rainmaker
CEO To Rainmaker
Episode # 79- Commercial Banking, A CEO's Perspective With Ivo Tjan
Embark on an inspiring journey with Ivo Tjan, the visionary CEO behind Commerce West Bank, as he recounts his ascent from an eager 18-year-old with banking dreams to founding his very own financial institution before his 28th birthday. Ivo's remarkable tale is a beacon for the entrepreneurial flame, illuminating how regional banks like his are crucial in offering bespoke banking services and personal attention to the backbone of America's economy—small and mid-sized businesses. In a marketplace where larger banks may fall short, Evo and I dissect how these smaller, agile players are not just competing, but thriving by fostering deep-rooted relationships and crafting financial solutions that resonate with the unique needs of each enterprise.
Navigating the convoluted waters of interest rates and political tides, our conversation takes a deeper look at the strategies that fortify banks with solid financial underpinnings in times of economic unpredictability. We contemplate the influence a presidential election could wield on the regulatory landscape and the subsequent ripple effects on the banking sector. Additionally, we delve into the compelling blend of art and science in financial assessments, particularly where artificial intelligence intersects with business banking. This episode is an ode to the symbiotic nature of banking and business relationships, showcasing the irreplaceable value of a profound understanding between a bank and its business clients, much like the alliance Commerce West Bank champions for growth and success.
ITjan@cwbk.com
CEO2rainmkr.com
You know, small businesses CEOs need regional commercial banks to be healthy because they are a key source of affordable capital and other business related services. All things being equal, a regional bank which is kind of like loosely defined one to 10 billion in assets usually can provide better customer service than the mega banks which are a wash in bureaucracy. My guest today is Evo Tijan, who is the CEO of one of the most respected regional banks in Southern California Commerce West Bank. Commerce West is a billion dollar bank and headquartered in Irvine, and I'm really thankful to Evo for carving out the time. But before we get into the gist of the program, I'd like to kind of summarize a little brief highlights of his bio, if you would. Mr Tijan founded a bank in 2001. Now normally people become presidents at banks that exist, but actually funding the bank that's very entrepreneurial. I'll be sure to ask him that question.
Speaker 1:Prior to founding Commerce Bank, evo was a banking executive with El Dorado Bank, home Savings and Great Western Bank. He was recognized as one of the most influential business leaders. On Orange County's top 500 list, vivid Magazine recognized him as one of the top Asian American entrepreneurs. He was a former member of the board of the American Bankers Association Government Relations Committee. And he is a proud graduate of Cal State, fullerton, who is a Bachelor of Science in Business, so let's bring him on, evo. Welcome, hi Gene. So, evo, how did you get started in banking?
Speaker 2:Well, first, thank you for having me here. I really appreciate it. How did I start banking? So I was 18 years old. I came home and I think my conversation with my father was that I wanted to be a banker, really that young. I was young and he didn't like the idea. He just thought I should go to college for four or five years, get a student loan if I needed to, and then come home and then tell what he was thinking.
Speaker 2:So to not disobey him, I actually went to work during the day, went to school at night. So I moved up through different banks. I think I started with household finance first. I think they got acquired by First Interstate and the First Interstate got acquired by Wells. But from there I went to Great Western Bank, then Great Western Bank, Home Savings America, home Savings America to El Dorado Bank and at El Dorado I decided at that time all these banks got merged and acquired I was fairly young as a vice president, senior vice president and so forth, so I moved up really quick in the corporate rankings. But I was 27 years old when I got approved to be the CEO of Commerce West Bank in 2001 by the regulatory agencies.
Speaker 1:Wow, that's phenomenal. So at that time, Eva, what did you see in your industry? That was an unmet need that inspired you to say you know what? I'm going to start my own bank. Yeah, Somebody's missing something here.
Speaker 2:So I thought at the time that the most underserved market was the small and small middle market clients. Right, okay, I thought if you got a mortgage loan, there's a lot of different mortgage lenders. It's kind of a cookie cutter product. If you wanted a whole equity line, if you wanted a free checking account, all those products were available. But if you were a billion dollar company or a $500 million company or a $200 million company sometimes, but more than that three to 500, you'd go in the middle market corporate banking and they would give you all these special treatments. I thought it was always that $5 million to 100, mostly we focus on this $5 million to $100 million. We have some of the larger, some of the smaller, but $500 million revenue companies. These were the business owners that drove America. That's 80% of the business is approximately in the US.
Speaker 1:Sure.
Speaker 2:We're all going to the retail branches and getting the same services that they were giving to retail or consumer clients. So we thought that was the most underserved market. So our focus was focus on the small and what we call small middle market, that $500 million revenue company. In traditional businesses like manufacturers, wholesalers, distributors, service companies, professionals don't do a lot of retail. We don't do restaurants, bars and all that. So our idea was to focus on traditional businesses and businesses between $500 million. That was, gene, I think, the most underserved market in banking.
Speaker 1:No consumer lending.
Speaker 2:No, we don't really do a lot of consumer lending.
Speaker 1:Okay, okay.
Speaker 2:Fairly. You can find the credit to term loans, equipment loans, working capital loans, and then the other half is commercial real estate.
Speaker 1:All right. So, as a corollary to that question and answer, what advice would you give my listeners that are thinking about a new bank and more capital?
Speaker 2:Yeah, so I think you hit it on as one of the. I'll give you three points. Number one is about the ability to get service right. I think it's very difficult today I grew up through the large banks it's very difficult to get that personalized service that you're looking for or to get someone that can solve your problems or issues. It's like calling these are master cards. Sometimes, when you get on the phone, you're like God, this, I have fraud, but it takes so long to get it processed.
Speaker 1:Sure, so that is that.
Speaker 2:The second thing is we customize and tailor make your products and services. You can't get that in the large or even sometimes a smaller regional bank, but we customize and tailor make. So if you wanted a money market account with eight tiers, that happens to be your lucky number, gene we create a money market account with eight tiers and eight different rates and eight different APY. So we spend a lot more time on the customization, tailor making of the loans, the covenants, the structure. So my analogy that I sometimes use is I'm giving you a tailor made suit, gene, and you tell me, evo, I don't want a tailor made suit. I said, no, I'm going to make you one. So I make you one and you try it on.
Speaker 2:You're like you know what it does fit better, it actually doesn't feel baggy, the material, the colors, and then you tell me, Evo, I want to pay for it. Well, the key with commerce less is we give you a tailor made suit, but it's the same price as you would buy it for Macy's. So we have that kind of efficiency ratio to be able to give you the product and a tailor made weight, but price is better or the same that you would get at JP Morgan Chase, bfa, wells Fargo. Third last reason, it's really our ability to drive the digital banking side of it. So our online and mobile banking services, wherever you're in California or if you're in multiple states, allow you to do transactions that you can't get in other banks. For example, our default for our remote deposit on your phone is $100,000 a check and it goes all the way up to $1 million. So it really frees you up if you're an owner of a business and bank with us, or you happen to be the business itself. Most banks are stuck at what?
Speaker 1:$1,000, $2,000 as a check Sure sure.
Speaker 2:You do $100,000 as a default and it goes all the way up to $10 million depending on who you are and what clients we have. So those three things on the internet mobile banking, on the personalized service and on the customization of the products and services I think make us unique.
Speaker 1:Okay, so you live within the parameters of the federal bank examiners in terms of how a prudent bank should be managed, but within that you can do, as you mentioned customization, which I think is sorely needed because, in essence, most of the mega banks are commoditized. I mean, they're all the same. They're all the same.
Speaker 2:They standardize everything. You have a standard rate sheet, FICO-driven product and all that.
Speaker 1:I think at Commerce.
Speaker 2:West. Our approach is different. Right, we take into consideration not only character, but we take into consideration how to customize loan. So when you think about a privately held business, this is why it's so important it's the most underserved market. A privately held business is not a public company. You know that.
Speaker 1:A public company.
Speaker 2:they look the same, they file 10Ks, 10Qs, their financial disclosure, everything the same. But when you're a privately held company, my example is, they sort of take on the personality of the owner.
Speaker 2:So the example is they might want a whole more inventory because that's the owner's personality and some might want to just use just in time. So the ratios and the numbers and the financials look different. But we customize it for that individual that says, hey, I like the whole inventory, we're okay with that. We just need to figure out how to customize a line of credit or a building loan or a working capital loan or an FBA loan. Same thing with the client that says I want to use just in time. I don't believe in holding inventory If I hold really little inventory, we'll customize a line of credit, working capital loan for that individual. So that's where Commerce West I believe Commerce West Bank could be unique is we want to tailor make it to that individual client.
Speaker 1:Well, I think that's certainly needed. So let me flip to a tangent, Evo. How did you run your bank pre-COVID, during COVID, post-COVID, or was it all the same? Was there any impact?
Speaker 2:Obviously, covid had an impact on everyone, so we were fortunate. Let me go pre-COVID, so pre-COVID. Approximately 10 years before COVID occurred, I sat down with the board and I said look, I think I was at an airport, gene, and I looked at some individuals that are in their 50s picking up iPads and iPhones.
Speaker 2:And I noticed their newspapers and all of that. That was my aha moment, where I said a majority of our clients are in their 40s, 50s and 60s Guess what? And so the situation has started now with the iPhone and the iPad. That business owners will feel comfortable going on their online and their computer. So we started shutting down seven or eight or nine of our locations at that time, over the last 10 years.
Speaker 1:Because you didn't need the brick and mortar. We didn't need it.
Speaker 2:We thought let's reinvest that money back into the online banking platform and the mobile banking app to compete against the Wells, the B of A's, the JPMorgan, but to have a better product, hopefully more simple product, more user-friendly product. So that's what we did so pre-COVID. We were doing that In January of 2020, we happened to close our last location in San Diego At least it's buying and it rolled off.
Speaker 2:So then COVID occurred February 2020. So when COVID occurred now I'm going to go to the COVID period and then I'll go after, during COVID. Covid actually bode well for our business model. It bode well, because we understood how to do the digital banking platform side of it how to onboard loans digitally, how to onboard deposit digitally, how to service clients digitally. So when everyone went more digital and other banks struggled, it actually bode well for commerce.
Speaker 2:We ended up doing approximately $250, $300 million in PPP loans, saved tens of thousands of jobs. We had $500 million of the Main Street loan gene number one in the state of California, number four in the US. I believe B of A was number three ahead of us, so that gives you an idea that we opened up $700 million in new deposit accounts approximately, so COVID actually bode well. The second fun fact that I'd like to give you is we bought all of our employees back in.
Speaker 1:Really Okay.
Speaker 2:COVID, we did something a little different. A lot of employers were trying to push their employees to come back. We incentivized them. So we started hiring barbers, hairstylists, manicures, pedicures to set up a little tension back. Employees would start using the services to get a manicure, pedicure, haircut. We called in food trucks from LA County, riverside County, san Diego, in Orange County. If they were open and had a food truck, we rotated food trucks in here. We brought in car wash people so we created a safe ecosystem where people could go out to dinner and lunches still and feel somewhat normal but still employ people right, because people were looking for work at the time.
Speaker 2:So that was our COVID period. We did really well because 95% of our employees brought the team back in and we offered them all these car wash services and all these things to really make them feel special.
Speaker 2:We had a full kitchen with snack bar I love that Right After COVID, we actually continued to do well. Last year. We won a couple of awards. We just won an award by Newsweek. In November December we were named one of America's top regional banks and credit units for 2024. Wow. We also won the top 50 award on the QTX OCQTX board, where we were one of the best performing banks or companies, I should say in that top 50. So we actually ended up winning a lot of accolades. We had a record year last year in terms of growth and profitability, on the backdrop of a lot of banks struggling with first Republic, silicon Valley and other noises like that. So after COVID, we continue to perform really well and continue to take more market share, but our approach is still the same core competency, still the same group of clients. We bank the businesses, owners and key executives, and that's really our target audience.
Speaker 1:And that seems to be working and you're growing.
Speaker 2:Yes.
Speaker 1:So I love that story. So what are your sources telling you about interest rates in the next nine months? So how important is that in terms of you and your board, in terms of executing your maybe short term, near term, maybe long term strategy?
Speaker 2:Yes. So interest rates, we've always said since fourth quarter of last year to first quarter, I did a couple of. I was a keynote speaker at a couple of economic events and I could tell you that our forecast is that the Federal Reserve most likely doesn't move quickly on cutting rates. And I know that the market said six or seven starting in March. We always said there's somewhere between one to four that's possible. Well, we don't see it likely until third or fourth quarter of this year. The one to four rate drops. So I think higher for long-term is probably here because unemployment continues to stay fairly low, which causes consumer spending to continue to be at some moderate pace, which means inflation continues to go down but probably doesn't go down as quickly. And then two, I believe the fans are going to want to see a little seasoning. They're not going to take one month or two months or one quarter of data. I think they'd probably like to see one or two quarters of inflation kind of going away.
Speaker 1:So that's our view of interest rates.
Speaker 2:Well, how does it affect the bank and the industry? I believe as interest rates continue to stay high, loan demand will continue to be termuted. It'll be more challenging for people that want to buy buildings to make the math economically make sense. It requires to be more challenging for business owners that need working capital loans and they see an eight, nine or 10% number. It really makes them pause a little bit more because, again, high risk, high reward kind of model, and then the last part is for the banks itself. So it'll continue to put some margin pressure on banks that rely on heavier costs of deposits.
Speaker 2:But I guess for the part of the banking industry sound. I just believe that over the next three or horizon, rates will continue to keep dropping Gene. So the key right now is if you're a bank with a fortress balance sheet, like we believe we have, you want to go out and take market share.
Speaker 2:This is the time to go after new clients or have clients come to us that need working capital, or they need a better cash or treasury management platform or want to save money on their deposit accounts. This is the time to probably do that now, with the banks that have a fortress balance sheet wrote, and, in our opinion, we're continuing to be aggressive on the offensive side, more so this year than last year, but it's because we think that a lot of banks are going to be more passive. I think they're going to be more defensive is what I'm trying to say.
Speaker 1:OK, so you foresee maybe a reduction in the prime rate, maybe at least once by December, in to the magnitude of 25 basis points.
Speaker 2:I think they'll be anywhere from one to four rate drops, 25 basis points to 100 being the max somewhere in third and fourth board this year.
Speaker 1:OK, so let me shift gears on you again, Evo. So what, if any, impact will the winner of the presidential race have on how you manage your bank?
Speaker 2:Wow, that's a tough one right.
Speaker 1:Yeah, they've aimed in a big box to ask these kinds of questions.
Speaker 2:You got two interesting characters that are ready for that. I believe that in the short term neither are going to have a great effect on the economy. That's my elbow in the short term. Ok, over the next two or three years. I believe the difference in the approach is Biden is probably more restrictive on business M&A, mergers and acquisitions he's not very big on. You can tell by the jet blue spirit, you can tell by some banking M&As have kind of grind to a halt. So I think from a business standpoint I think I believe the Biden administration is less business friendly.
Speaker 2:I think Trump will be more business friendly and open to sort of ideas or thoughts about acquisitions or mergers and what the benefits are and so forth. What I think becomes challenging in the Trump administration or it could be is will he be consistent or will he vacillate back and forth through different agendas? But I think that's probably for me the short term. I don't think it has an effect on the economy. But 25, 26, 27. I think it could have a long term effect on the economy. I think they're just for the business community. I think they're too divergent. One is just less business friendly, one is more business friendly.
Speaker 1:So are you using business and the banking industry synonymously, then?
Speaker 2:Yes, I think so.
Speaker 1:OK, ok, all right. So what's your current geographic footprint now, and what would you like it to be?
Speaker 2:So we will bank any client in California. Primarily our clients are in the four major counties.
Speaker 1:LA.
Speaker 2:County, Orange County, Riverside County and San Diego, but we do bank clients all up and down California. We do have clients probably in several states, some of them between 10 to 15 states that we do have clients primarily on the depository side, a little bit on the loan side, on commercial real estate. So our real concentration is really in the four major counties but we do bank clients in California.
Speaker 1:Okay, so you don't have to name them, but how many banks would you consider a peer group in terms of size, the target market they're trying to service, that are really viable competitors?
Speaker 2:So, it's a tough question to answer only this there are some banks that are like us that are billion plus banks, but I think our competitors that we usually run and take business from Gene are usually more of the five or six larger banks.
Speaker 2:We compete a lot against JP Morgan Chase. We compete a lot against BFA Wells Fargo. The old bank of the West is now BMO, us Bank, a little bit the old Union Bank, you know they acquired Union Bank, sometimes PNC, a little bit truest. So they're not really our peers because of the size that they are. But most of the time when we're competing on the business side it's usually one of those banks that we're competing with or taking business from.
Speaker 1:So, as a general statement, if my CEO listeners are listening and let's just say they're with a mega bank, we might say why don't you give a smaller bank a chance? They're gonna give you a high-touch service. Just give them a chance.
Speaker 2:But I'll tell you this for a business owner right, I would. My recommendation is your most important relationship. Whether you realize that today, in the middle of your business growth cycle, or in the growth cycle you're in, or if you're mature, your most important relationship, in my humble opinion, is your banking relationship. When we provide working capital, for example, we become technically your larger shareholders. The way I look at it, and we want you to be successful and I don't think you're gonna get that not only the level of service but that level of customization in a large bank that you're gonna get at Commerce West Bank, I think, at our bank.
Speaker 2:Your most important relationship as a business owner is your bank. You wanna take them on as advisors. You wanna you know, if you're looking at acquisitions, you're looking at growth capital, you have big sales growth. You need a banker to actually partner up with you and help. You wanna do more online cash and treasury management services, save money on wires, ach. You wanna bank to help you do that. You're just not gonna get that usually at those banks that I just mentioned earlier, but you're gonna get at a Commerce West Bank and I think, as a business owner, if I was a business owner, I'm telling you going to a smaller bank like us makes absolutely the most sense and you will see the difference On the consumer side. I'm gonna tell you, I think the opposite.
Speaker 1:Yes.
Speaker 2:Sometimes you can get. Look, a free checking account is a free checking account. I think you can get that service at Commerce West. You can probably get it at B of A and Wells Fargo. I think they do a really good job at that. A car loan is almost like a car loan, gene, you know that. I mean you walk in. It's based on your fight to score. Here's what you get, right. A mortgage loan is somewhat all the same, right 30 or 50, which one do you want? 30 or 50, but I think when it comes to a business.
Speaker 2:I think that's where people need to pause.
Speaker 2:You need to partner up with something with someone and I'll tell you this one last thing the number one reason for failure in business is usually is growth. So, all of the people that are listening, if you're growing, that's the number one reason why businesses fail. It's not because you're in the restaurant business or you sell donuts or food, it's because you grow. You know this Gene. When you start growing, that's usually when your working capital dries up. That's usually when you look at the bank account. You're like okay, I see my cruel-based financial choose. I made a million dollars. I look at my bank account I have $5,000, evo, where's?
Speaker 1:the money.
Speaker 2:But on an accrual basis.
Speaker 1:If the world stopped, that's how much you have.
Speaker 2:But right now your money's tied all over that balance sheet and the accounts receivable, accounts, payable whatever it is. So that's why you need a bank. You need a bank that actually can help you grow your business, maintain your business and flourish your business.
Speaker 1:Well, I 100% agree with you and, as you know and it's your industry there's so many mid-sized banks that have been acquired over the years, whether it's Community Bank from Citizens Business Bank, or the middle guy, the mid, the meeting size guy, is becoming a dinosaur. It's either the teeny-weeny ones and the mega ones, and as you know there's, you just can't get the personal attention. So, alright, so you and your executive team and your board, you're doing your strategic planning and, unless you've been living in a cave for the last year, artificial intelligence is on everyone's mind. Is that a curse or a blessing for your industry and for your bank and your opinion?
Speaker 2:Yes, my opinion is that I'm more positive about AI or the bank or the industry or General Society.
Speaker 2:I think, AI can help with medicine. It can help with interacting financially with people to make sure that they're investing their money properly. I think it can help on analysis when it comes to your financial statements on businesses, etc. So I'm actually very positive. I think we're the infancy of AI. I think it probably evolves over the next five, 10, 15, 20 years. Gene. But you know, using chat, gpt I mean, you can't interact with it, which is kind of cool.
Speaker 1:Yeah, yeah.
Speaker 2:I believe as a person, but it's pretty good.
Speaker 1:Yeah, it's not bad.
Speaker 2:It's not bad, you can talk to it which is the first time I think you and I ever seen that right. Everyone talks about AI and then all of a sudden it pops up less than a year ago, so I'm very inspired. I don't know in terms of functionality yet where we can use it as an organization, but I do think from here on out going forward, businesses have to start executing. Over the next 10 years I think you have a 10-year horizon on how to use that tool to benefit your clients.
Speaker 1:You know, one of my thoughts is you could tell me your opinion is that if you have any clients that are engaged in B2B marketing, it may be the products or servicing that they're marketing now can become obsolete, because the customer can go to chat, gpt and get the same information.
Speaker 2:Yeah.
Speaker 1:So it could impact your portfolio, if you will.
Speaker 2:Yeah, I think we on our side, the way we look at commercial banking and helping businesses. I think the hardest part there is it's art and science. I believe a home loan is not art and science. It's what the LTV of the house is. What an appraise for. Are you getting a 30-year fixed rate loan?
Speaker 2:I think when it comes to a business that example I gave you earlier. One client holds more inventory, a lot of inventory, one doesn't. They're financial ratios and balance sheet cash flow profitability is completely different. But it doesn't mean either one is wrong or right. Right.
Speaker 2:I think in our business, the way we look at AI that way is it's art and science. So I think it'll be. They'll figure out the science piece, but the art piece I think will be a little bit harder. So I think for us that's why we chose the business that we're in for the last 24 years. It's a tougher business to use AI, machine learning or just AI in general, where I think consumer loans, auto loans, home loans I think those things continue to go way of AI.
Speaker 1:Yes, and one of my other businesses is I'm talking to bankers all the time and I'm just made that there are less options for small business owners today that there used to be in the prior years and, as you have already echoed, the bigger banks, the mega bank, it's just homogenized how they underwrite. You can already tell it advanced what they're going to say, whereas at least the small banks Are thinking entrepreneurial.
Speaker 2:Yes.
Speaker 1:I mean, as I was reading some of your bio, I look at you more as the entrepreneur who knows banking Than a banker who fancies himself as an entrepreneur.
Speaker 2:Thank you for that. I I do see myself as a banker, an entrepreneur, and I think, look, that's another reason why you want to go to commerce was paying very few CEOs of a bank are, on, an entrepreneur as well. So I think I have the ability to connect with a lot of entrepreneurs, a lot of our clients and friends and prospects when we meet them, because I think like a business person, I think like a banker, but I also think like an entrepreneur.
Speaker 1:So yeah, that's important. That's important, so Okay. So a couple of takeaways evil, what would you like my listener to take from today's show, amongst the married of comments that you could make, and maybe it's not even a fair statement to ask you?
Speaker 2:Yeah, I think number one is hopefully you understand the difference with Commerce, west Bank and Banks in general. Right, I think that's the first thing we try to differentiate. That's why our tag on is bank. On the difference number two how important having a real Banking relationship is for business owners, for small and small-mail market. Look, you're a billion dollar company gene. You're gonna get every bank to pay attention to you, that's not the problem.
Speaker 2:But if you're that five million hundred million dollar revenue company. I think you need a banking partner, not a banking relationship, and then the last thing I'll leave you with is look, you want to, you want to bank that has the digital banking platform today, that has the cash, treasury management, depository products, but also has a full suite of loans, meaning that we're, you know, plp for SBA loans. We can, you know, we can approve those SP loans, but we offer things like asset-based lines, lines of credit to term loans, acquisition loan, long-term, short-term working capital. So, as a business, there's very few banks regional banks like our size Especially that can actually full give you a full array of lending products and depository. So I'll leave you with those three thoughts that I think you know. Hopefully the listeners will kind of come away with something.
Speaker 1:Well, if you don't mind evil, you know, maybe I can leave your contact information or one of your Regional VPs and, if they want to, you know, ask some general questions about Do you do this, do you do that? Are you in this industry? Because everybody's a fair weather lender in my opinion.
Speaker 1:So Absolutely okay, so that's it for today, evil. Thank you so much for your time. You can see this podcast on YouTube channel my YouTube channel or you can listen to it in your favorite podcast outlet. So, allowing for editing time, the show will air in early April and, again, thank you so much. I'll see everyone in two weeks and and thank you for listening. Bye, bye.
Speaker 2:Thank you I.