Saturday, July 31, 2010 - Page updated at 11:46 PM
The Seattle Times
By Drew DeSilver
Seattle Times business reporter
The store in downtown Portland, with its Ikea-esque furnishings and big flat-screen monitors, has a sleek, streamlined look. At three computer stations, young people sip coffee as they surf the Web or check e-mail; a local florist's promotional display occupies the center of the room, next to the logo T-shirts and coffee mugs.
But this isn't a coffee shop, an electronics store or even a florist. It's a branch of Umpqua Bank, and from the free coffee to the free cookies to the free Internet access, it reflects the determinedly untraditional image Umpqua has striven for more than a decade to create.
Washingtonians are going to see a lot more of the Umpqua brand of banking. More than any other Northwest bank, Umpqua has taken advantage of the banking crisis to rapidly build up its position in the state.
This year, the Oregon company has absorbed the retail operations of Seattle's Evergreen Bank and Tacoma's Rainier Pacific Bank after regulators shut them down. Along with the 2009 acquisition of a failed bank in Clark County, Umpqua has 28 offices in Washington.
And it's eager for more.
"We want to have enough presence (in Washington) that people know who we are and we can be viable competitors," Ray Davis, Umpqua's chief executive, said in an interview. "So our plans are definitely to continue to grow ” absolutely."
Davis, 60, has led Umpqua for 16 years and has remade the bank in his own brash, assertive mold. That's summed up by the unambiguous message on the wall of each Umpqua branch: "Welcome to the World's Greatest Bank."
In the past decade, Umpqua has acquired 19 banks in 11 transactions. The deals here have swiftly moved it from 46th to 14th in Washington deposits, with about $1.3 billion; in Oregon, it's the fifth-largest bank. In June, it moved into Nevada by acquiring another failed bank ” with government assistance, like the Washington deals.
"They've really emerged as one of the leading regional players in the Northwest," said Joe Morford, a banking analyst for RBC Capital Markets in San Francisco.
But the bigger Umpqua gets, the harder it is for it to deliver fat growth numbers while retaining the friendly informality that has gotten it this far.
Hovering over Umpqua is the ghost of another Northwest bank that used a quirky brand image and a string of acquisitions to build itself into a giant: Seattle's Washington Mutual, which collapsed in September 2008 under the weight of its poor lending practices.
Davis is well aware of the challenges posed by Umpqua's rapid growth. But it's necessary, he said, if Umpqua is to pursue its strategy of combining a regional bank's reach and breadth of offerings with a community bank's informality and local ties.
"Do I want to continue building our company?" he asked rhetorically. "Yes. I believe there are two options in business: You're either building it or killing it. But if we just start growing for the sake of growth ” if we've become just another big bank ” we've lost it."
Laboratory for ideas
Davis was head of a bank-consulting firm in Atlanta before coming to what was then South Umpqua State Bank in June 1994. He soon began using the sleepy bank, headquartered in rural Roseburg, Ore., (population about 21,000) as a laboratory for his ideas about where banking was headed.
South Umpqua, he declared, wasn't a community bank; it was a "community-oriented financial-services retailer." And if it wanted to survive against competition from big banks ” which were hard to beat on things such as interest rates and ubiquity of branches ” it had to think more like a retailer.
So Davis began remodeling the bank's branches to look and feel more like boutiques. He began rating branch personnel on how many financial products their customers bought, and employed "mystery shoppers" to evaluate customer service. (Today, Umpqua employees are trained by Ritz-Carlton in customer service.)
Umpqua customers outside a Northeast Portland branch on a recent Friday said that, while they appreciate the freebies and the decor, it's the service that keeps them.
"They're awesome," said Ashley Piper, 25, who's been banking with Umpqua for the past seven or eight years. "You always talk to a person when you're on the phone." She said the bank also is "very proactive" about letting her know if there's an overdraft or other issue with her account.
"They constantly have fliers for concerts or other community-type events," she added. "It doesn't feel like you're walking into a national bank; it feels like a community bank."
Craig Nicholls, owner of Roots Organic Brewing in Portland, walked into the branch to cash a check drawn on an Umpqua account and came out saying he was likely to switch his own banking business there.
Umpqua, he said, appeared to understand the needs of small businesses like his better than Chase. And he liked the bank's "mom-and-pop, smaller sensibility," and the free cookies.
"I think anybody who's doing that kind of thing is pretty cool," he said. "That's one of the things that's wrong with business in America; there's not enough friendliness."
By 2000, the bank had more than doubled in size, to $419 million in assets and 13 locations up and down the Willamette River Valley. With profits strong and the stock now listed on the Nasdaq, it was time to go shopping.
Umpqua spent much of the 2000s acquiring a string of rivals in Oregon and later Northern California, furthering Davis' "I-5 strategy." Those acquisitions have generally worked out smoothly, RBC analyst Morford said: "They've generally done a good job of delivering synergies and integrating (the acquired banks) into their culture."
The entry into Northern California (where Umpqua has 72 branches) coincided with the real-estate boom in Sacramento and several other cities. In 2007, when the boom began to deflate, many of those mortgages starting going bad.
But Umpqua, unlike some other banks, had the balance-sheet strength and the willingness to cut its losses early and aggressively. And construction and development loans, which have proved fatal for a dozen community banks around the Northwest, were a relatively small part of Umpqua's loan book.
By the time the financial crisis hit in late 2008, Umpqua was in strong enough condition that regulators began looking to it to help wind up troubled Northwest banks.
String of acquisitions
First down was Vancouver's Bank of Clark County, across the Columbia River from Portland; Umpqua took it over in January 2009. Early this year Umpqua snagged Evergreen Bank; a month later, it won the bidding for Rainier Pacific Bank.
Dustin Brumbough, a banking analyst with Ragen MacKenzie in Seattle, said Umpqua has benefited by waiting to fill what he called "a glaring hole in their franchise": the Seattle-Tacoma area.
"They could have done deals (in Washington) at the peak of the cycle in '05, '06, '07, but in retrospect those probably wouldn't have looked like very good deals," he said. But now, with the FDIC picking up the bulk of the loan losses in failed-bank deals, "you're able to come in and get a branch presence without taking on a lot of risk."
Davis said Umpqua will continue to look at bank deals ” anything west of the Rockies is fair game, he said "as long as it makes strategic sense."
And it's financially strong enough to support more acquisitions, with or without government help. The bank is well-capitalized by regulatory standards, and in the past 12 months it has raised $534 million from investors; part of that money went to repay the $214 million Umpqua had received from the government's contentious Troubled Asset Relief Program.
But bidding for distressed Northwest banks has become much more competitive recently, Morford said. Umpqua and other Northwest banks of similar size, strength and ambition, such as Seattle's Washington Federal and Tacoma's Columbia Banking System, face competition from much larger institutions, such as Union Bank of California and private equity firms.
Integrating the banks it acquires hasn't been much of an issue for Umpqua; Davis called his company "a melting pot of bankers."
But the bigger a bank gets, the more crucial it becomes to smoothly merge the different cultures and computer systems. That's one of the lessons of WaMu, which built its reputation as a savvy acquirer of smaller thrifts but stumbled more than once on its larger deals.
Another issue for Umpqua is the heavy load of commercial real-estate loans on its books. Commercial real estate makes up more than half Umpqua's loan portfolio, and many banking-industry observers worry that sector will be the next domino to fall.
Unlike home mortgages, which crashed early in the recession, commercial real-estate loans typically take longer to sour, Brumbaugh said: "We haven't seen the end of that, in my mind."
Davis conceded that "we have more commercial real estate than I particularly care to." But, he said, Umpqua can handle whatever problems may arise: "Do we have systemic issues through the portfolio? No."
As for the specter of WaMu, Brumbaugh conceded certain similarities to the Seattle thrift's earlier history but said too much has changed ” tighter capital requirements, slack loan demand due to the sluggish economy, the near-evaporation of the market for risky mortgages ” for its endgame to be replicated.
"Even if Ray Davis wanted to grow a business the way WaMu did, he couldn't do it," he said.
Drew DeSilver: 206-464-3145 or firstname.lastname@example.org
The Seattle Times Company
Established: 1953, as South Umpqua State Bank in Canyonville, Ore.; holding company formed in 1999
Umpqua? The bank originally was named after Oregon's South Umpqua River; the river in turn was named for a local Native American tribe.
Also owns: Umpqua Investments, a broker-dealer and investment adviser
CEO: Ray Davis
Offices: 184 (77 in Oregon, 75 in California, 28 in Washington, 4 in Nevada)
Total assets: $10.8 billion as of June 30
First-half 2010 profit: $13.2 million
Source: Company reports, FDIC