PORTLAND, ORE. (
) -- For those unfamiliar with
Umpqua Holdings Corp.
, the parent company to Umpqua Bank, it's easy to lump the $9 billion-asset company in with the many community banks still struggling with the fallout of the housing sector.
But that would be a mistake, as a quick rundown of the unconventional methods it's using to attract visitors to its branches and build its deposit base show the company is far from typical.
Indeed, there are some funky things going on at Umqua Bank branches -- from Wii bowling leagues to daytime showings of classic movies; even holiday present wrapping, using Umpqua Bank-donated wrapping paper and ribbons, of course. While the activities are diverse, the point is the same -- to get customers into the branch, where they can take a peek at what Umpqua Bank has to offer.
This attention-grabbing strategy, combined with Umpqua Bank's strong customer service-driven culture, as well as early measures taken to rectify residential development loans gone bad in its northern West Coast footprint is what helped the company get through the financial crisis.
Umpqua Bank is also one of the stronger capitalized names among the small cap banks, bolstered by a $259 million common stock offering this summer. It currently has the cash on hand to repay its TARP funds, but, given the economy, will likely wait until early next year to make that move, longtime CEO Raymond Davis said in an interview earlier this month with
shareholders get out of Umpqua clearly is that we have a very good reputation; we are extremely well capitalized as well as incredibly liquid, if not the most liquid bank on the West Coast," Davis says. "Those are very important parts to the company and our credit metrics still are not good, but they are certainly a lot better than peer average around here."
Davis is a firm believer that culture starts at the top. Umpqua Bank uses the same training for branch employees as
luxury hotels does for its exceptional customer-service driven employees -- a notion that underscores the importance it places on forging a clear corporate identity for its workers.
With the advent of Internet banking, customers, particularly younger generations, are finding even fewer reasons to enter a branch, while cross-selling is difficult online. That's why Davis says, it's imperative to figure out a way to get customers into the branch and get them to stay longer than cashing a check or making a deposit.
"We want to grow the bank in the form of new deposits and new loans. The best way to do that is face-to-face conversations with people. The only way I am going to be able to do that is to figure out how to get in front of them," Davis says.
Davis views the bank more as a retailer than a traditional bank. Branches are called "stores," similar to that of another deposit gathering machine, Commerce Bank, which was bought in 2007 by
, so that customers can "browse" available products and services, much like they would in a clothing or other service-specific store. Umpqua Bank does not compete on price for deposits.
Branches can remain relevant by being innovative with design and using technology as a major part in creating an experience for the customers that's "pleasant, fun, fast or slow depending on your choice," Davis says. "Give them the opportunity to feel that banking doesn't have to be a horror story. It actually can be something that is truly enjoyable."
Umpqua got its start as a commercial bank focused on lending to businesses in the natural resources sector. It now has 153 branches between northern California, Oregon and Washington.
CEO Davis, a strategic consultant in his previous life before coming on board in 1994, was the force behind the bank's metamorphisis from a slower-growth bank to entering faster growing metro markets, according to Jeff Rulis, an analyst at D.A. Davidson & Co.
"Really, growth began to take off when he came on board," Rulis says.
In late 2007 Umpqua Bank unveiled its "innovation lab" branch concept. Branches with innovation labs test new technologies, initiatives and delivery systems. Umpqua Bank collaborated with numerous technology companies including
among others, to enhance the customer experience and store operations.
"It's a much different story than your typical regional bank," says Brett Rabatin, Sterne Agee & Leach, who has a neutral rating on the company. Umpqua Bank is "trying to create brand loyalty and create a sense of how Umpqua really is a piece of the community and draw people in, as opposed to, whose offering the best CD rate."
CEO Davis "has a different view on how to measure success and how to get things done," Rabatin says. "He is a sales-oriented banker. He is certainly going to have his people working hard at credit quality, but he is also going to be thinking more along the lines of 'Am I doing things as innovatively as
as opposed to a bank?'"
Up against large banks like
, after it bought Washington Mutual, the combination of a strong community-based culture, the current low interest rates, and customers generally looking for safe places to park their money at least while the economy shakes out is proving advantageous for Umpqua Bank.
At Sept. 30, Umpqua's total deposits rose 9.5% since the beginning of the year to $7.21 billion. Only a portion of that is from acquisitions. Umpqua Bank in January bought the Bank of Clark County of Vancouver, Wash., after it was taken over by the Federal Deposit Insurance Corp., acquiring $183.9 million in deposits from the deal.
Davis acknowledges he wants more deposits to fund commercial loans.
"We get a lot of accolades for being a great retail bank," Davis says. "But if you look at our balance sheet it's a commercial bank. And so you also have to be very good at accumulating lower-cost deposits if you're going to be successful in generating additional business loans, etc., so the store design certainly makes a big difference."
Still the company's overhang is its loan portfolio and Davis makes no qualms about the fact that Umpqua Bank has had its share of troubles.
Stuffed heavy with commercial exposure and residential development loans, Umpqua Bank has been dealing with the fallout of overbuilt retail areas in some of its markets, particularly in California.
Total gross loans and leases were $6.1 billion as of Sept. 30, according to
Securities and Exchange Commission
filings. At that time, 39% of Umpqua's $123 million of non-performing loans were residential development loans, followed by commercial real estate at 28%, with other commercial loans making up the remainder.
Umpqua Bank has focused its efforts on reducing its exposure to residential development loans. It increased staff in its special assets unit early on to deal with the volume and speed of problem loans occurring, Davis says.
"The loans that had stress you don't want them to go bad so let's see if we can fix them," Davis says. "Once they do go bad that special assets team kicks in. Their job is bottom line, get rid of it as fast as we can. If that means you sell a loan, you foreclose on it, you bring it into real estate owned -- let's move it through the system as fast as we can because we know there is more coming."
Pressures aside, Umpqua remains a well-capitalized franchise that is both a "survivor and an acquirer in this uncertain banking landscape," D.A. Davidson's Rulis wrote in a November note.
Davis affirms that it wants to use some of the capital raised in August for FDIC-assisted transactions. As of Sept. 30, Umpqua Bank had tangible common equity of 8.88% and total risk-based capital of 17.52%.
"We're going to be opportunistic when it comes to those," Davis says. "The other thing is to fund our organic growth. Now that we see the light at the end of the tunnel with all this residential development stuff we're turning those growth spigots back on."
--Written by Laurie Kulikowski in New York.