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Umpqua looks for additional savings in declining-rate environment

Portland, Ore.-based Umpqua Holdings Corp. executives said Oct. 17 they are looking to ramp up their cost-savings efforts to help grow the bank's earnings even as interest rates keep declining.

The company has targeted 65 branches for closures since the third quarter of 2017 as part of its "operational excellence" initiative, which includes consolidation of branches, reorganizing some internal functions and investing in digital offerings to grow revenues.

Umpqua President and CEO Cort O'Haver told analysts on a third-quarter earnings call that additional branch closures may happen in 2020 but are unlikely for the remainder of 2019. Separately, the bank is launching the third phase of its savings effort expected to amount to 3% to 5% of its overall expense base. Executives said they would provide more details in early 2020.

Those cost-cutting initiatives will help the company navigate through a lower interest rate environment that puts pressure on bank earnings, said Ronald L. Farnsworth, executive vice president and CFO.

The Federal Reserve has cut its benchmark interest rate twice this year and may do so again at its Oct. 29-30 meeting.

Umpqua is adjusting its balance sheet to ensure it performs better in a low-rate environment, extending the duration of bonds in its portfolio, reducing the cost of its more expensive deposit accounts and reallocating some of its rate-sensitive loans, Farnsworth said.

"We are not hoping for the best on that front," Farnsworth said. "We're going to make sure we plan for the potential of a lower rate environment."

The bank has also seen substantial improvement in its treasury management business and growth among commercial customers, two other factors that should boost its income in the coming months, O'Haver said.

Umpqua also outlined the effects that the current expected credit loss accounting standard will have on its balance sheet. The new CECL methodology will require the company to set aside 30% to 45% more in reserves on the first day of implementation, currently slated for the start of 2020.

The bank's net income fell to $84.5 million, or 38 cents per share, in the third quarter, down from $91.0 million, or 41 cents per share, in the year-ago period.