Ivo Tjan knew his career path when he was 18.
“I came home and told my father I wanted to be a banker. I’m not sure he believed me. I was always good at math and extrapolating business models.
“It wasn’t a dream. It was something I was passionate about.”
Tjan more than fulfilled that passion by starting CommerceWest Bank in 2001 when he was 27.
Now 45, he’s been chief executive for 17 years at the Irvine-based bank, which moved up two spots to eighth on the Business Journal’s annual ranking of Orange County-based banks by deposits (see list, page 34).
CommerceWest (OTC: CWBK) is a little-known bank with a $90 million market cap, headquartered in a low-rise building next to the San Diego (405) Freeway near John Wayne Airport, towered over by the buildings holding larger rivals, including First Foundation Inc., Pacific Premier Bancorp and MUFG Union Bank.
What it lacks in size, it makes up for with sterling 2017 statistics, such as a 23% profit margin, a 54% efficiency ratio, and a stock that’s grown fivefold since 2011.
It’s reported a profit every quarter since its founding except for the first year and in 2009 when it acquired a San Diego-based bank.
It survived the last financial crisis by reducing lending activity as early as 2005, Tjan said.
CommerceWest has been so profitable that it started issuing a dividend in late 2016. Last year, it paid $2 million in dividends with a 2.7% yield. It still had enough money to buy back $4.9 million worth of shares.
The secret sauce has been sticking to its core competency of lending to businesses with revenue of $5 million to $100 million, companies that are “underserved” by larger banks, he said.
It doesn’t offer loans on cars, mortgages, home equity or other consumer lines.
“We’re not all things to all people. We’re all things to some people,” Tjan said. “It’s a simple business model. We customize and tailor-make things for businesses.”
Indonesian Roots
Tjan’s parents left Indonesia when he was 8.
“We were poor,” he said. “The family’s Catholic” in a predominantly Muslim country. “My mom and dad wanted a better future.”
Instead of going to college full time, he attended night school, taking seven years to graduate from California State University-Fullerton. During the day, he worked at a variety of banks, becoming a vice president at 21 and an executive vice president at 22.
When he left to start his own bank, he took a 60% pay cut, much to the chagrin of his wife.
Tjan saw an unfilled niche where a bank could focus on a core competency rather than being all things to all customers. He compared it to the difference of Nordstrom Inc. focusing on selling clothes while Sears ventured into car repair and appliances, in addition to clothes.
He reached out to former clients to explain his vision, eventually raising about $11 million.
“The shocking part was no one knew my age. I was 26 when I filed. They were surprised. I was very humbled that they continued to support me.”
The Art of Lending
CommerceWest focuses on commercial lines of credit, term loans, acquisition loans, and asset-based lines.
“Those are the lines that will add value,” he said. “Very few bankers know how to properly structure lines of credit. There is an art and science to it.”
The bank studies metrics, such as cash flow, which “is still king,” and leverage ratios. It also researches intangibles, such as character.
“We are in the toughest business—lending money,” Tjan said. “Giving money away is easy. Getting it back is hard.”
It customizes loans and deposits to fit clients’ needs, he said. For example, one client, who said “nine is my lucky number,” wanted nine tiers of money market accounts. Another customer might want to structure a loan over nine and a half years rather than 15 years.
“It’s harder for our clients to leave us because they’re getting something that middle-market banks cannot offer to lower-market companies.”
Tjan’s particularly proud of his bank’s efficiency ratio, which is lower than most banks in the county. It’s a metric popular among bank investors for showing the percentage of expenses per revenue; the lower the ratio, the higher the profit.
CommerceWest’s 54% efficiency ratio compares favorably to most other OC banks, which last year ranged from 51% at Pacific Premier to 70% at Irvine-based Opus Bank to 89% at Santa Ana-based Banc of California Inc.
“It equalizes the playing field between the large and the small banks. We can compete on pricing on loans and deposits,” Tjan said.
No Customers in Lobby
During a 75-minute interview at his headquarters, he noted that no customer was seen in its lobby, a move reflective of a strategic change in recent years.
The bank has closed all of its branches except for one in San Diego. Instead, Tjan places representatives in WeWork offices near its biggest clients, who are visited in person.
He has ditched automated voice responses so that when customers call, they’re immediately connected to bankers.
The bank has designed its online app so that clients can access all of the information when they want to at any time. He said the bank can respond to loan requests within 48 hours.
“I don’t believe that businesspeople, who are really busy, want to physically go into a bank” nor have their employees spend an hour at a bank, Tjan said.
“The reason our client satisfaction is so high is because we answer the phone. We give people a direct line. No automated calls.”
Deposit Issues
The bank, along with others in OC and nationally, has seen some signs of problems with deposits, such as in the second quarter, when CommerceWest’s deposits contracted.
It could be an issue at CommerceWest, which reported $340.5 million in deposits via 10 clients—almost half of its total deposits base—according to its 2017 annual report.
However, by the third quarter, deposits rose 5%. Third-quarter earnings jumped 17% to $1.58 million, according to its report, which was issued on Oct. 25.
Tjan wants to boost assets so he can service companies with up to $250 million in annual revenue. While his focus is organic growth and he has only bought one bank during his tenure, he’s open to an acquisition if it’s the right fit.
And while a number of banks in Orange County have been acquired in recent years, Tjan declined to comment on whether he’s received buyout offers, saying, “We’re not running the bank to sell. It’s being built to be a long-lasting machine.”
Undervalued Stock?
Tjan, who owns about 10% of the bank’s shares, said he believes there’s more room for upside. He’s considering moving the bank to the Nasdaq to attract more attention to the stock, which trades a relatively low average of 6,600 shares daily.
“I need to get out on the circuit more and talk to investors more,” he said. He predicts the company’s stock could see “meaningful appreciation” in the next three years.
Would he invest in a 27 year old who wanted to start a bank? Tjan said he would want to see the management talent around the person, and most importantly determine if the bank would fulfill a niche. He won’t invest in a bank that says it will provide better service, because every bank makes the same pitch.
What does he know now that he didn’t when he began CommerceWest in 2001?
“Patience and persistence,” he said. “When you’re younger, you need to learn patience.”
