Transcript
Coming up, a conversation with the CEO of a $14 billion bank based in the great state of California, a bank that has been recognized as the best bank in America by Forbes four times in the last eight years. That recognition is based on metrics related to credit quality, growth and profitability, all of which reflect the bank’s consistently strong performance.
This is an institution founded in 1970 as Chino Valley Bank, but it’s better known today as Citizens Business Bank. We are very happy to welcome Dave Brager, who leads that fine institution, to get Plugged In with Steve Williams and me, Al Dominick, on this new episode.
Steve, we’re hitting the home stretch of the year, right? So pretty cool to talk shop with a guy like Dave.
Yeah. And Al, I’ve got to point out something before we let Dave introduce himself. Our 2022 GonzoBanker of the Year award went to Mr. Brager. I’ve got my GonzoBanker cup here, so we’re in good company with a legend in the GonzoBanker world.
Totally. Dave, how are you doing?
That’s a lot to live up to, that introduction. I’m doing great. Thank you guys for having me on.
We have the video and the audio. I brought a tie. I’m not necessarily wearing it, but I see Dave is making me proud. I would love to put the suit and tie back on, but I’m constantly overruled at Cornerstone about our attire, so it’s nice to see a dapper CEO joining us for this conversation.
What we’ve done in the past to keep our musical interests aligned with the business ones has been to drop lyrics from a number of really interesting artists. Today I decided to pull some stuff from Blues Traveler to Lenny Kravitz and Quavo, who mashed up a song. Tempting as it was to have “Everybody’s Working for the Weekend” lead things off because we are hitting record on a Friday morning, I think we probably have to get going with REO Speedwagon. That good with you guys?
Yeah, let’s do it.
All right. Dave, you know this format. We’ve got five songs, five things that we want to cover. When we start thinking REO Speedwagon, they’ve got a lot of songs, but being in California, there’s been a lot of talk about who’s leaving. So we’re going to borrow from the band’s hit “Roll with the Changes” to talk about the state that really does remain a massive economic engine.
It strikes me that a bank like yours has ample room to compete for business opportunities and business relationships. Steve and I really want to kick things off by asking what gets you excited about the next few years, given California is your home state?
I think, obviously, there’s a lot in the news about businesses leaving and people leaving. That’s something that we deal with. Fortunately, with today’s technology, a lot of times even if people leave, we can still bank them. We actually have customers through about 24 to 25 states across the country.
As you mentioned, California is a very large market, a very large GDP. I’ll correct you a little bit, we’re a $15.4 billion bank. But that $15.4 billion, in the big scheme of things, is still small relative to the market that California is.
I get excited over the next couple of years just about the opportunity to deliver our model and our delivery system across the state. We’re not in all parts of the state yet, so there’s still plenty of opportunity for us.
We have 62 locations, basically from Yuba City, which is north of Sacramento, to San Diego in the south. We do cover a large portion of it, but there are still a lot of great markets for us to deliver our brand of banking to those top 25% of clients out there that we strive for.
We can increase market share from the big boys and still have a lot of opportunities here, even with some of the movement out.
Al, one cool thing I’ve got to say about the story of Citizens. We talk about the grassroots a lot. This was a bank in Chino, California, started by a dairy farmer, George Borba Sr., and the family is still involved in the bank today. The awards and the culture, salute George.
I think what’s really cool is the heritage of the entrepreneurial spirit and diversity of California. We’re seeing now at Citizens all types of ethnicities owning and starting businesses across California, so I think it’s very true to the heritage of the organization as well, Al.
Totally. To build on that, I was just looking at your third quarter in 2024. I think I have the notes right, but Dave, you can correct me if I’ve got the numbers wrong. It looked like you’ve had 190 consecutive quarters of profitability.
Yeah. It’s something that we’re extremely proud of. It’s just the consistency of the bank. That’s every quarter of every year for over 47 years.
Why that’s important, obviously we like to pat ourselves on the back and say we have 190 consecutive profitable quarters, but really what it boils down to is the ability to deliver and lend through all economic cycles.
When banks have problems, sometimes they might stuff something in a quarter and still have a profitable year. We’ve been through different recessions, the Great Recession and different things over that timeframe since our founding, and we’ve still been able to make money in every single quarter of every single year for over 47 years. So it’s definitely something we’re proud of.
We’ve also paid 140 consecutive quarters of a cash dividend, which is also a return to our shareholders. It’s important to us.
That was super awesome. Telling that growth story is something that a lot of people aspire to, but it’s much more difficult to have on that recurring basis like you all have. So, again, hat tip from the whole Cornerstone team to yours for pulling that off.
Thank you. I don’t want to be the CEO that breaks that streak, I’ll just say that too.
Nobody would.
Dave, we sometimes throw some tough questions at our guests, but I had a funny example I wanted to share of a tough question that was posed within Cornerstone. This came over a weekend text between Sam Kilmer, who runs our research and fintech practice, Ron Shevlin, our very outspoken chief snarking officer, Mary Wisniewski, Steve Williams and me.
The question was: Who has the best full live album in their collection? Steve Williams, out of nowhere from the top rope, drops the mic and says it’s UFO’s “Strangers in the Night,” or it’s Thin Lizzy’s “Live and Dangerous.” I thought, I’m just getting out of this chat, because if Steve’s going to be coming in like that, we have no chance.
We have serious conversations like that. We also have others that are a little bit more playful. One of them that Steve and I had talked about in advance of this was how regional bank stocks have recovered somewhat since the early parts of 2023.
If we look at this year alone, they’re up about 50% from last year. But whether it’s earnings calls or road shows, we continue to hear investors asking about future revenue growth prospects. Just like that tough question of what’s your best live album, “What are your best revenue growth prospects?” is kind of a thorny issue.
I’m not sure how you and Allen and others on the team help get folks excited to answer that. Anything you could share with us about that very specific question?
Look, I think we’ve never been a very big organic grower. We kind of grow three yards and a cloud of dust, prospect by prospect, customer by customer. For us, we have to be realistic about what the organic growth opportunities are.
I’ve been with the bank for 21 years. I came to manage a de novo office, so that’s part of an organic strategy. There’s a lot of disruption in California, and we have the opportunity to pick up teams.
We’ve always augmented that growth and that story with acquisitions. We might grow two to 3% a year organically, but when you look back over time, it’s more like 12% with the acquisitions added in.
If you’re realistic and honest about what you can do, who you want to be, and the type of client you’re going after, we’re just not that huge-growth story. But it is very important for us to grow revenue and earnings per share, obviously. Those two things are at the top of our list when we’re talking about it.
Our team is constantly evaluating different opportunities and making sure we have the product array, the delivery and all of the things that we need. Because if you’re not doing that, if you’re not really proving your worth, then you’re not really earning your independence, so to speak. We work hard at all of those things.
This echoes a recent guest we’ve had, David Findlay from Lake City. He was on a recent episode sharing similar mindsets, maybe not three yards and a cloud of dust, but just being disciplined and deliberate and able, on a recurring basis, to encourage the team to perform at a high level, where everyone understands that quality doesn’t go out of style.
I think Dave and Dave both also confront the market and say, “I’m not going to put myself into some growth story that you want on the Street that I know is not realistic.” I respect that. It really creates value over time very consistently.
The other thing I’m seeing in both cases is that talent-grab growth is something that is more credible every year in banking as there’s more disruption. We’ve talked about California and how much disruption there’s been. Good relationship producers want a place to live where they can do what they do well and not have too much bureaucracy and rules. Watching organic growth through talent grabs is going to be interesting with the regional banks.
Absolutely. We augment the organic growth with de novos, and we’ve done de novo office openings between whole-bank acquisitions. We’ve done that for a long time, so that is an important part.
You’re right, Steve, there’s a lot of disruption in California. Notwithstanding the failures, there are just a lot of regional banks that have been acquired as well, Union Bank, Bank of the West, and that really creates an opportunity for us.
I think that’s where we shine, just below that corporate banking level, in business banking or the middle market, however you define that. That’s really where we can differentiate ourselves.
I joke with analysts sometimes, if you hear me saying we’re going to grow 10 to 15% a year organically, you should start to question some of the other stuff we also say, which is we want pristine credit quality, we want all these other things. If you want to grow 15%, you’ve got to meet my crazy credit officer.
Right. I don’t think he would want to do that, for sure.
See, remember, we’ve learned the hard way. Let’s not drop names when we talk crazy banking execs. We say it in a loving way.
In a loving way. You got another song for us, Al?
I do have another song, Steve, and it’s from Blues Traveler, “But Anyway.”
As I’m listening to Dave, on one hand he’s talking about being a magnet for talent, which is super important. But we also know people are the largest expense that pretty much any business has to account for.
Then I think about the business that you’re running, and I would describe it as efficient and disciplined. I’m curious, how do you think about maintaining that reputation while also thinking about diversifying the business without losing the focus on the performance that people have come to expect?
If you go back to the very beginning, it really has to do with our model. We are a business bank. We focus on small to medium-sized businesses. We’re not trying to be everything to everybody, which obviously helps from the perspective of being cost-effective.
We have generally one office in every market we serve. We bring the bank to our customers and prospects. Cost-effective operation is one of our core values. Also, one of our core values is superior people.
If you have superior people who feel like they can get stuff done, because there are two parts of that efficiency, there’s the revenue side and then there’s the expense side, we really manage it with a founder’s mentality. It’s like it’s our money.
That’s another thing we’ve actually done a lot more on, the equity side for our associates, to help them feel like it really is their money. So they are all focused on doing things in the most efficient way, the most cost-effective way.
I think that’s something that has really differentiated us, that discipline around not only the infrastructure of the bank, but also how we can continue to do things even more effectively, especially with the rise of technology as part of what we do.
You’re talking about people. Steve and I have talked a lot about how you attract the right team in and the ownership that leadership can naturally take on. Instead of outsourcing these new hires that are important, look around your leadership team and say, “This is our responsibility. We have to be accountable.”
That’s something I think you guys have done pretty well, at least in the last few years that I’ve been paying attention to your story. Talk a little bit about the talent pipeline stuff that we’ve been discussing.
Absolutely. The talent pipeline is as important as the loan pipeline, basically. Who are we bringing in that can drive that organic growth?
One thing also about Citizens that’s really interesting is, being around people like me, Al, consultants or investment bankers, it’s always like, “Okay, Brager, why don’t you start a retail digital bank? Why don’t you go into specialty lending? Why don’t you get into banking as a service?”
What’s funny is they always say, “No. We’re efficient. We go after C&I and real estate customers. We do it very well. We fund it with 60-plus percent core deposits.”
It’s just fun sometimes when the pundits come around and try to dilute the model. All that comes back is, no, we kind of like who we are and we like how it creates value over time.
Steve, you have all the opinions, but you don’t have the responsibility.
Exactly. It’s so much more fun to have an opinion than to have to actually execute. “Hey, Dave, I’ve got another shiny object for you. You want it?”
No.
There’s no question. Going back to the 190 consecutive quarters, at different times in the economic environment, growth might be important, or they’re trying to sell you something to go do SBA lending across the country or small-ticket leasing across the country. It’s just really not who we are.
Remaining disciplined about the vision and mission of the bank, and really living it, not just having it be words on a wall, is super important. That’s hard sometimes because our share price is impacted. When growth is king, we’re not the darling. When safety is king, maybe we are.
All of those things play into it, but we’ve just remained very disciplined about who we are and very focused on what we want to accomplish. Sometimes that’s hard because you’re getting pressure from your board, analysts, investors, whatever the case may be. But at the end of the day, I have to do what I believe is not just in the best interest of the next quarter, but in the best interest of the bank a year, five years, 10 years from now.
Al, we’ve nailed discipline. You want to talk about creativity? You probably have a song related to that, is my next guess.
We’ve been doing this too long, Steve. You know I’ve got a song. I’m just laughing because Dave has the football analogy stuck in my head, and I have a seventh-grade son who is playing for his team.
He had a game yesterday, and we were talking about the music they listen to before as they’re on the bus. He’s like, “What are you talking about, the music? We’re doing our homework so that we don’t have to do any after the game.” I’m like, “Alfred, you’ve got this all wrong.”
When I was going to football games, I’d be listening to things like Metallica, Dr. Dre and Smashing Pumpkins. Halloween is in our rearview mirror, so Smashing Pumpkins is probably the band I would use for a few reasons. They have one called “Today.” When we got off the bus, that was always the song that was played.
“Today” is the mindset. There’s a lot going on in the future. You’ve got to think about earning your independence, being a proper steward of capital, being able to attract the right team. But you also have to find some creativity.
One of the things that I am really interested in is how people get outside of their comfort zone, outside of our industry, and start to pull in different perspectives that might influence how the bank operates. It could really reflect how your customers are doing things.
When you mentioned technology, I know there’s such an appetite to look at advances in AI applications. How is it that you’re encouraging your team to be a little bit more intentional about bringing those external ideas into the organization for at least consideration?
I’ll give a little plug to Cornerstone here because you’ve done our strategic planning session for the last few years and done a great job in helping drive some of that openness and ability to share other people’s opinions and thoughts about whatever it is.
It’s hard, especially in our situation when we’ve had the success we’ve had, to really look at, I’ll put in air quotes, the “creative” type thing, because we’re a relatively simple bank in that sense.
But I do think our executive team and our senior leadership team feel they have the opportunity to share things that we could be doing maybe a little bit differently or a little bit more effectively and efficiently. I think that’s important, to bring those ideas. Then we can discuss them and decide if it’s something that we believe we should invest in or pursue, whatever the case may be.
It’s hard when you’ve had the success we’ve had to really change things pretty substantially. Most of the time, I’d say the creativity is on the margins and incremental things that we can do that we think will make us better.
The named executives and the rest of the senior leadership team, I do believe they’re not afraid to share their opinions. I tell Steve to make sure I don’t say anything when they’re doing it in our strategic planning sessions so that I don’t just say, “No, we’re not doing that,” or, “Oh, that’s a great idea,” and shut down the conversation.
Just having that open environment where people feel like they can share, I think, is really important. We have an outstanding group of leaders in this organization, and it’s really what drives everything we do. They know I value them, they know the board values them, and it shows up in the results.
Al, knowing some of Dave’s colleagues, Dave Harvey, their chief operations and information officer, Crazy Dave Harvey, let’s call him crazy, but every year Brager gives David a $7 R&D budget to be innovative.
I’ve got to tell you, a lot of our clients talk about relationship cross-sell, total share of wallet. What’s really interesting about what they’ve done with technology is the data that they use to help relationship bankers know, this is the total relationship, this is where their liquidity is going day to day, this is the next opportunity to offer something.
The proof is in the pudding. They’ve done a lot of work around the technology that drives the commercial relationship banker. Again, they’ve done it not with a big bang, “We spent $40 million on it,” but by innovating year to year with the tools they had and bringing in some new tools.
Pragmatic innovation, I think, is what you see there. But it’s around the strategy. It’s not just to be cute. It’s, “We’re relationship bankers. Shouldn’t our technology budget reflect that?”
Dave Harvey and his team, the IT team and the data warehouse team, have done an unbelievable job because we have the ability to make decisions now that before were more anecdotal. Now we really have information to say, “Okay, here’s where we are with each relationship.”
I don’t say we pivot, but we have a renewed emphasis on this going forward right now, especially with the disruption in California. We’ve really focused on selling deeper into those relationships.
We actually call it cross-solve, not cross-sell, because what we’re really doing is trying to uncover needs and provide a service or a feature that allows them to achieve their goal. I think that’s part of that differentiation in the relationship.
It’s neat to watch as your team executes on a recurring basis, because again, that doesn’t just happen. It’s not like you can walk into a room and say, “Okay, guys, we’re going to perform at a higher level today,” and just walk out. There has to be that consistency of shared purpose.
Again, I think this is just another example of a bank doing it the right way on a recurring basis.
I want to wrap this up. I mentioned listening to a little Lenny Kravitz. I came across a mashup that he did with Quavo. I’ll put this into our Spotify playlist so you guys can listen to it. It’s his classic “Fly,” but it’s more like a Friday night going out with your friends, get-you-hyped-up song.
I was thinking about friends. If you have the right ones, life is good. If you have the wrong ones, you kind of feel bad for the person. Same thing goes on in business. If you have the wrong people or the wrong culture, then winning just isn’t sustainable. You might get some quick hits, you might get a little pop of something, but what Dave’s been talking about is a culture that allows a team to perform and to look around the table and know that they’re holding each other accountable, but they’re also celebrating each other’s accomplishments.
To bring this all home, I’m curious: How do you train your associates to model that behavior so that when you’re attracting new people in, your culture continues to expand as opposed to staying static?
It’s a really great question because there are some people who say culture isn’t that important anymore, and for us I think it’s absolutely one of the most important things.
We were actually just recognized for associate engagement. We utilize Gallup engagement surveys, and we had 97% of our associates complete the survey, which is an unbelievably high number. We’ve only been doing the survey, I believe, for four years, and every year it’s gone up. It started at a high number, in the 90% range, and last year was 97%.
It really is driven, and I’ll say the owner of our culture is kind of our human resources team. It starts from the very beginning. It starts with the hiring, it starts with the orientations, it starts with the training.
All of these things that we do for our associates, we’re constantly working on them understanding our core values, understanding the mission of the bank, understanding that we’re going to be a little bit different than maybe where they came from or what they did.
Our teams have done a great job in driving that. If you have engaged associates, you’re going to be doing more with that founder’s mentality, and you’re going to be doing more around those five core values: financial strength, superior people, customer focus, cost-effective operation and having fun.
Everybody always remembers number five, having fun. We have to help them remember the first four. We have a lot more fun when we’re winning and doing all the other stuff. But that’s just something for us that’s really important, and we talk about it all the time.
Al, I think we talk a lot about what a smarter bank is going to look like in the future, and I think one of the ingredients is the talent executive is part of driving the business, but they have a seat at the table equal to the CFO, the chief credit officer, the head of the front line.
I think that’s something very unique about Citizens. I’ll tell a quick story. Dave invited me to some of their leadership training, and going in I’m thinking, “Oh, commercial bank, what are the topics going to be? CECL? Workouts? How to avoid bankruptcy?” No. Emotional intelligence.
If you’d bet me that I would see a bunch of commercial bankers sitting through training on how to be more aware about emotional intelligence, I probably could have sold my car. But I think it’s really part of the Citizens culture, that talent has a seat at the table, and that’s a big part of how they talk about winning.
I’m going to borrow the fifth core value from the bank, have fun, and pull that into our smarter-bank framework, because I do think you’ve got to find the joy in showing up every day.
Absolutely. You have good days, you have bad, but if you know who you’re working with and you really believe in the vision and the purpose, man, that’s a great place to call home.
Dave, we appreciate your time, your effort and everything you’re doing. I’m Al Dominick, he’s Steve Williams. We’re going to be getting more Plugged Ins up and rolling in the future, but for this one we just want to say thanks.
Thank you guys, and thank you for everything you’ve helped us achieve as well. Appreciate it.
Thank you, sir.
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