Money Talks


Will community banks survive the digital age? Three CEOs peer into banking’s crystal ball.

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Umpqua Bank
Headquarters: Portland
Latest acquisition:
Idaho’s Sterling Bank (2014)

2014 loan and deposit growth:
98%; 85%

Bank of the Cascades
Headquarters: Bend
Latest acquisition:
Idaho’s Home Federal (2014)

2014 loan and deposit growth:
50.9%; 69.8%

Pacific Continental Bank
Headquarters: Eugene
Latest acquisition:
Capital Pacific (2015)

2014 loan and deposit growth:
5.15%; 10.8% 

The specter of post-recession bank failures has receded into memory, and Oregon’s community banks are moving full-steam ahead, snapping up smaller institutions to grow business and market share.

But if the fittest have survived, the law of the jungle continues unabated. Today’s evolutionary threat is coming from big-box stores, tech companies and alternative lending systems, all of which are encroaching on bankers’ territory, chipping away at their traditional brick-and-mortar foundations.

Oregon Business spoke separately with the leaders of Oregon’s three largest community banks: Ray Davis, CEO of Umpqua Bank; Terry Zink, CEO of Bank of the Cascades; and Roger Busse, CEO of Pacific Continental Bank. The trio talked about the regulatory, technology and market trends driving banking, and how they are repositioning their companies in an industry known for being staid and slow moving.

With about $22 billion in assets, Umpqua is in a far bigger category compared to BOTC ($2.4B) and Pacific Continental ($1.7B). But collectively, the conversations reveal a common set of challenges, as well as a range of solutions to and perspectives regarding the viability of the bank of the future and that potentially endangered species: the community banker.

Note: The following interviews have been compiled and edited for clarity.

OB: What is driving the wave of mergers and acquisitions?

Ray Davis: Small institutions — the capital they require to stay up to snuff and the talent they need — are competing against bigger institutions as well as tech companies. On top of it, you have regulations. So you can’t stay small; you have to join forces. For the first time, size matters.

Roger Busse: Institutions face additional regulatory costs, which may make them more prone to look for partners and get scale. But transactions such as Capital Pacific arise not just from regulatory pressures. They are opportunities on the strategic level. The acquisitions are a combination of talent and opportunity to get scale in major markets strategically.

[The $42.4 million acquisition of Capital Pacific reflects Pacific Continental’s push to expand in the Portland market.]

Terry Zink: A larger bank can spread its infrastructure costs over a larger number of customers and can earn the profit that is needed for viability. When I came onboard in 2012, we had the option of drastically downsizing or looking for someone to partner with. That’s how we came up with Home Federal. We were able to take out 25% of the cost of the combined companies.

OB: How does the emphasis on size impact your growth strategy?

RD: We never plan on acquisitions. Our growth strategy is around organic growth. But the organic growth is unbelievable, and because of this, we are successful in having banks want to join us. We have integrated 32 banks in the past 15 years. 

TZ: We’d like to be a $5 billion bank. We’re not going to get there through lending. We’re looking to acquire smaller banks; that will probably represent 75% of our growth, and the other 25% will be organic growth.

RB: We can leverage our existing locations and grow organically into the new locations. We have an organic growth model in community based business but we also have a nationwide footprint in dental lending. We went from being in a handful of states to 35 by slowly taking on states one at a time. Our goal is to grow with the quality of referrals we receive.

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 Ray Davis in the Portland Armory.

OB: Most people think of community banks as small banks. As you grow, how do you maintain your status — and stature — as community banks?

RD: We are trying to do something that has never been accomplished before in the history of banking: Create a community bank without borders, a big institution that is a community bank. We provide the products and services of any institution but with the same ethics and transparency as a small bank. I don’t believe in categorization by size; it has everything to do with how you operate.

TZ: We are trying to find a niche where people like community banking and feel part of the community. But community banks have to do a better job of letting people know community banking is “shopping local.” The other day, I drove by the Bank of America parking lot and saw an SUV with giant “Shop local” decals. Last time I looked, BOA’s headquarters was not in Bend or Oregon. Everything we do in Oregon goes back to Oregon.

RB: We anticipate being in communities truly as a community bank. Businesses in our sweet spot, loans $1 million and under, want a consultative relationship: They want banking with a true banker. Our clients like to know their banker’s name and face.

OB: Where does niche banking fit into your business strategy?

RB:. We are a very specialized bank focused on community-based business, nonprofits and healthcare, primarily startup acquisition and expansion loans to dentists. We have developed a great deal of expertise in the nonprofit market: We provide cash-flow seminars, fraud detection and great services that specifically fit their needs.

TZ: One of the things that got banks into trouble was how concentrated they were. We’re interested in diversification. The baby boomer generation is starting to gray, so healthcare is becoming a good industry. The other area that we’re starting to look at is assisted living. We are looking at other specialties: airplane lending, small-equipment finance.

[Before the recession, BOTC invested about $600 million in “dirt lending”; today it’s about $20 million.]

RD: People view us as a consumer bank.They’re wrong. We are a highly focused commercial bank that just happens to fund retail with core deposits. It’s a great formula.

OB: Most bank transactions are conducted electronically. Will the bank branch survive the next decade?

RD: Will there be bank branches as you know them today? No. Will there be bank stores? Oh, yes. Here’s the problem. Banks sell a commodity; all the products are the same. So how do you differentiate a bank? We started converting bank branches into bank stores. What we are trying to do is create an environment in our stores where people want to come in versus “Gosh, I have to [go to the bank],” which they don’t have to do anymore. To sustain their relevancy, our stores are constantly evolving.

[Umpqua’s bank “stores” feature community meeting spaces, movie nights, art shows and other amenities.]

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 Terry Zink with one of his prized possessions: a Chevy Bel-Air.

TZ: Branches are going the way of the dinosaur. The comet is coming. And if your strategy is to create “wow” experiences at a branch, you’re never going to do it. You can wow other employees. However: The art of the successful community bank of the future is they need people for those things that are inevitably part of the human interface. We need great bankers when we have a complicated deal and need somebody to talk to. The future of the branch is a place where people go to transact complicated things.

[Umpqua has about 400 branches, Pacific Continental, 14, and Bank of the Cascades, 39.]

RB: Strategically, we’re looking at what brick and mortar means going forward. We are going to build a new office in Vancouver that blends new technology with brick and mortar. The office will include a 50-person-capacity room that we’re inviting people to use. That office is an opportunity to see what the future bank office should look like.

OB: Beyond the branch, where does technology fit into your business strategy?

TZ: Banks have to redefine their space — become viable in an electronic age. We are updating our strategic plan to continue on the technology front, and we are breaking into online lending: You will be able to do all lending direct.

RB: For the first time in the bank’s history, we have a person [Mitch Hagstrom] spearheading electronic strategy: the Future Bank. Mitch’s position adds depth and opportunity for us in mobile data and electronic-banking venues. The question is what do we need in the next three to five years to continue to connect with our business-banking clients and niche segments.


Bankers aren’t known for being an
especially quirky or charismatic lot.
Mobile technology threatens to
depersonalize banking professionals
even further. As Busse, Zink and
Davis touted the primacy of
relationships in modern financial life,
they took a moment to reveal their
personal sides.

Busse, 59, an avid fisherman, is the
father of four, including a daughter
at University of Oregon and a son,
a junior, at Oregon State. “For the
Civil War, we take a picture of myself
with an Oregon hat and send it to my
daughter,” he says. “Then I take a picture
of myself with a Beaver hat and send it
to my son.”

Zink is a car collector who counts among
his ten classic automobiles a 1960 Corvette
and 1970 Road Runner. For the past 30
years, the 65-year-old has also reenacted
his own version of “Wild,” in which he and
his wife decamp to the Appalachian trail in
Vermont for their November wedding
anniversary. During a snowstorm a few
years ago, the couple “lost the trail,” Zink
recalls. “We spent the night in one of the
shacks set up for people who are lost.”

A theater buff with a passion for travel,
Davis, 65, highlights a trip he and his
wife took to Morocco a few years ago,
biking and hiking throughc small villages.
Perhaps the most outsized personality of
the three, Davis cast aside immodesty
during a conversation about Umpqua’s
“succession” plan. The bank is strongly
associated with his image, Davis allows.
“But I’m very comfortable with someone
taking it higher than I will.”

OB: Are community banks technology innovators — or adopters?

RB: We are adopting technologies clients are asking for, and as a result, we have identified and prioritized those strategies to meet their needs. We are not on the bleeding edge, but we want to be on the cutting edge.

TZ: The Wells Fargos and Bank of Americas of the world are able to build a technology; we don’t have that kind of capital. We are always going to be a close follower, but we are not going to be innovators.

RD: Technology is changing everything. But if you think you can differentiate yourself with a product, you’re dreaming. Because if you come up with a really cool idea, I’ll copy it. Even with technology, banking today is about relationships. It’s about service.

OB: So you’re not worried about the Apple Pays of the world?

RD: The nonbank lenders have built-in constraints. A lot of these people are owned by private equity, and private equity says: You’re making loans for 5%; make them [higher.] And if they have the ability to compete on rates: Welcome to my world of regulations. But we are watching. Walmart came out with a checking account a couple of months ago. It’s a dud. But there will be more of this as technology moves.

TZ: I do worry about the outside competition like Amazon nibbling at what we do as a core competency. There is a new lender, Lending Club, that started out a year and half ago, and they’ve already gotten up to $2 billion in lending. That is going to be competition for us. But you’re also going to see banks invest in different areas, like the Lending Clubs.

OB: As those models grow, community banks sound like they are going back to the future: focusing on old school banking but consolidating and adopting new technologies. How is the skill set of the community banker changing?

TZ: Banking is very competitive. We are looking for bankers who go out in the community and work with businesses and are aggressive about selling the bank. You have to be very knowledgeable and understand the businesses you are serving other than banking: manufacturing, retail.

RB: Our growth comes from one client telling another about us, and the way we work together in teams internally. That relationship focus plays out by us understanding our clients’ businesses. We have deliberately trained our lenders to understand all the business nuances in their particular areas.

RD: Bankers have to figure out: How do you do service? We have a measurement in place — a return on quality where every store is measured on service. Over the years, it has morphed into customer experience. I want to outperform the Ritz Carlton when it comes to the way we treat clients. The way we do that is train the heck out of our people; we empower our troops. Don’t ask your boss. Just do it. That empowerment has created an iconic culture. Anyone can have a cool looking store. Our value proposition is what happens when you walk in.

OB: So what is your outlook for the community-banking model?

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 Roger Busse, pictured here in the library of
his Portland home, is relocating to
Eugene, headquarters for Pacific Continental.

RB: It is an outstanding model. It’s needed and sustains communities. 

TZ: The community-bank environment is certainly getting better, but it is not going to be what it was in the decade prior to the crisis. It will be interesting watching the evolution of banking over next couple of years. The biggest thing is how people come through the crisis. It got to the point where you were almost embarrassed to tell people you were a banker. So it will be interesting to see if banking turns out to be a good industry to be associated with.

RD: Change is coming; embrace it. When I talk to Wall Street about the community bank without borders, they say: You can’t do that. I say: Why not? Because it’s never been done before. I say: Great. We’ll be the first. We have to challenge bankers. The banking industry has the potential to become Uber. The taxis had it; they got caught by the revolution. We don’t want to get caught.

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