Umpqua Holdings Corp. is a minor player in the Sacramento market now, but it won't be for long.
The Portland, Ore., company announced Wednesday that it has a deal to buy Western Sierra Bancorp of Cameron Park, Calif., for $355 million in stock. The deal would more than triple Umpqua's branch count in and around Sacramento, the state capital, strengthening its foothold in one of the country's fastest-growing metropolitan markets.
"Sacramento is the hottest market in the West by far, not only in terms of population growth, but also for construction lending, residential lending, and for the vast majority of bank products we sell," said Raymond P. Davis, Umpqua's president and chief executive, in an interview Wednesday. "This deal gives us a shot of adrenaline to take the speed of our growth up a notch."
The population in Sacramento County alone grew 30%, to 1.35 million, from 1990 to 2004. The rate was over 20% in many of the surrounding counties.
Umpqua, with $5.4 billion of assets, entered northern California and the suburbs of Sacramento in 2004 by buying the $1.5 billion-asset Humboldt Bancorp in Roseville.
It has opened several branches in other Sacramento suburbs since then, but as of June 30 its Umpqua Bank was still ranked No. 20 in deposit market share for the Sacramento metropolitan statistical market, with a 0.87% share, according to the Federal Deposit Insurance Corp.
Western Sierra is a four-bank holding company with 31 branches $1.3 billion of assets. Its largest subsidiary, Western Sierra Bank, is ranked 12th, with a 1.75% share; another subsidiary, Auburn Community Bank, is ranked 31st, with 0.32%.
Umpqua would rank No. 7, , with a 2.94% share, after buying Western Sierra. (The target's two other subsidiaries lie just outside the area.)
Joseph K. Morford, an analyst at Royal Bank of Canada's RBC Capital Markets in San Francisco, said the deal "nicely fills out the southern portion of Umpqua's footprint.
"We also see numerous opportunities for cost savings through back-office staff reductions and consolidation of the charters," he said, as well as "revenue synergies with a wider array of products and additional cross-selling opportunities."
The purchase, expected to close in the second quarter, would be Umpqua's sixth since 2000. It now has 95 branches in Oregon, Washington, and California.
Umpqua said that the deal - priced at 2.6 times Western Sierra's book value - would be neutral to core earnings per share in 2006 and accretive in 2007.
Each Western Sierra share would be traded for 1.61 of Umpqua. About 12.5 million Umpqua shares are expected to be issued in connection with the acquisition.
James Bradshaw, an analyst with D.A. Davidson & Co. in Portland, said Umpqua seems to be paying full price, but that the deal is "in line with what we thought a company would pay to get into Sacramento, so I'm not troubled by that."
Umpqua's stock fell slightly, to close at $26.59. Western Sierra's rose nearly 5%, to close at $42.05.
William T. Fike, the president of Umpqua's California operations, is to oversee the integration, which is to be completed in the fourth quarter. Gary Gall, Western Sierra's president and CEO, would work with him through that period and then retire.
