Columbia Banking System, Inc. (COLB) Earnings Call Transcript & Summary

Good day and thank you for standing by. Welcome to the Umpqua Holdings Corporation's First Quarter 2022 Earnings Call. [Operator Instructions] At this time, I would like to introduce Jacque Bohlen, Investor Relations Director for Umpqua to begin the conference call. Thank you. Please go ahead.

Thank you, Lee. Good morning and good afternoon, everyone. Thank you for joining us today on our first quarter 2022 earnings call. With me this morning are Cort O'Haver, the President and CEO of Umpqua Holdings Corporation; Tory Nixon, President of Umpqua Bank; Ron Farnsworth, our Chief Financial Officer; and Frank Namdar, our Chief Credit Officer. After our prepared remarks, we will take your questions. Yesterday afternoon, we issued an earnings release discussing our first quarter 2022 results. We've also prepared a slide presentation, which we will refer to during our remarks this morning. Both of these materials can be found on our website at umpquabank.com in the Investor Relations section. During today's call, we will make forward-looking statements, which are subject to the risks and uncertainties and are intended to be covered by the safe harbor provisions of federal securities law. For a list of factors that may cause actual results to differ materially from expectations, please refer to Slides 2 and 3 of our earnings presentation as well as the disclosures contained within our SEC filings. We will also reference non-GAAP financial measures alongside our discussion of GAAP results. We encourage you to review the GAAP to non-GAAP reconciliation provided in the earnings presentation appendix. I will now turn the call over to Cort.

All right. Thank you, Jacque. I'll provide a brief recap of our performance, then pass to Ron to discuss financials. Frank will discuss credit, and then we'll take your questions. For the quarter, we reported earnings available to shareholders of $91 million. This represents EPS of $0.42 per share compared to the $0.41 reported last quarter and $0.49 reported in the first quarter of last year. On an operating basis, which excludes a number of interest rate-driven items and merger expenses that Ron will review, EPS of $0.36 compared to $0.44 last quarter and $0.46 in the first quarter of last year. Lower mortgage origination volume and the return of a provision for credit losses impacted the first quarter compared to the 2021 results. I'll provide an overview of actions we are taking in our Mortgage Banking segment later in my remarks. Non-PPP loan balances grew $630 million in the first quarter, representing a quarterly growth rate of 2.8% and annual growth rate of 11%. This level of expansion during what is typically a slower growth quarter for the bank is commendable in its own right but is particularly notable on the heels of last quarter's record loan generation. This quarter's organic generation is significantly offset -- this quarter's organic significantly offset continued declines in PPP loan balances, enabling total portfolio expansion of 1.9% or 7% annualized during the first quarter. Net expansion was centered in the commercial real estate and residential mortgage portfolios as commercial loans contracted by 1% following a 3.9% growth in the fourth quarter. Commercial pipelines have since rebounded following a lower start to the year that reflected the fourth quarter's volume. The quarter's growth reflects both favorable market conditions and outstanding execution by our teams who continue to bring new relationships to the bank. Ongoing talent acquisition remains successful. We recently added a middle market leader in the Denver, Colorado region, and we'll continue to hire bankers in new and existing markets throughout the West. The first quarter provided an excellent start to our net portfolio growth expectations for 2022, and we expect our brand momentum and banking team's execution to drive net expansion throughout the year. Remaining PPP balances, which are now less than 1% of the portfolio, are no longer a headwind to growth, and any favorable movement in line utilization, which we have not yet seen to date, will provide additional tailwind. Moving on to a handful of initiatives. Our advancements in payments technology during the quarter included an announced collaboration with Visa to launch 2 commercial card solutions. One, the Visa Commercial Preferred Solution helps our middle market businesses -- business owners streamline money movement through digital-first capabilities, while meeting the rewards preferences; and two, the Umpqua Bank Commercial Pay Solution leverages Visa Commercial Pay to provide an app-based solution and real-time transaction visibility to enable businesses to virtually digitize and streamline their payment needs. This week, we launched a new collaboration with Rectangle Health, a leading health care technology company, to introduce an industry-specific payment solution to provide -- to improve practice efficiency and optimize security for our health care practice customers. Our human digital initiatives remain critical to our long-term strategy to actively and personally engage with our customers through digital channels, and I'm excited to announce that an enhanced version of Umpqua Go-To is in pilot. Initial feedback is highly complementary. We also continue to roll out nCino through the bank in the first quarter, creating efficiencies internally, while improving speed to market and the overall customer experience. As it relates to our ESG journey, we published our fourth annual report this week, which is evidence of our continued evolution in this important area. We are aware of the increased regulatory disclosure expectations, and we are positioned to meet them. We have a program, and it is continuing to mature. We have many of the elements in place already, and we are in good shape to be able to deliver on the proposed SEC disclosures. Other actionable items relate to our Mortgage Banking segment which was adversely impacted by the sharp increase in mortgage rates during the quarter. In April, we adjusted our capacity and expense run rate through a headcount reduction to meet the demand that we anticipate over the foreseeable future. We are also looking at actions related to MSR, which Ron will detail later. We will continue to evaluate ways to ensure we have the optimal mix of salable and portfolio originations in order to balance the business mix to support the bank and our investors. Regarding capital, in February, we paid our shareholders a dividend of $0.21 per share, consistent with historical payments. And as we previously communicated, we did not repurchase any shares given our pending combination with Columbia Banking System, which received shareholder approval by January 26. We continue to project a mid-2022 closing time frame in the integration management office, which includes senior executive leadership from both Umpqua and Columbia, enable Umpqua's bankers to have undisturbed focus on generating business and serving customers. While the IMO facilitated the completion of the post-closing organizational design and made progress on system selections and cost savings realization plans during the quarter, Umpqua's bankers generated net loan and deposit growth and replenished pipelines for continued expansion. For the past 2 quarters, I've told you to hold us accountable for our growth. The separation of our integration planning activities from our growth objectives has enabled us to successfully drive our business forward, and I remain highly enthusiastic that our operating markets and top-tier banking teams will contribute to the net expansion that delivers shareholder value through 2022 and beyond. And with that, Ron, take it away.

All right. Thank you, Cort. And for those on the call who want to follow along, I'll be referring to certain page numbers from our earnings presentation. First up, I'll reiterate, we've expanded our financial disclosures in both the presentation and earnings release to include more detail, and also include our non-GAAP internal operating information with reconciliations to the GAAP included in the appendix. We've just given moving the parts in the past, but Jacque did an excellent job this quarter laying out the new format on Pages 16 through 20 of the earnings release, along with the appendix in the presentation, and we hope you find it useful. And now we'll start on Page 11 of the slide presentation, which contains our summary of quarterly P&L. Our GAAP earnings for Q1 were $91 million or $0.42 per share. The adjustments to our internal operating measures include various fair value changes from interest rate volatility, along with merger and exit disposal costs, which are detailed in the appendix on Slide 30. On an operating basis, we earned $78 million or $0.36 per share. For the moving parts as compared to Q4, net interest income decreased $4.6 million due mainly to a $4.3 million decline in PPP fees and related interest income. Higher average loan balances and the mid-March rate increase contributed to higher interest income that was offset by 2 less days in the quarter. We had a provision for credit loss of $5 million, driven primarily by the continued strong loan growth, and noninterest income declined $2.7 million, reflecting lower home lending gain on sale revenue, along with the fair value adjustments driven by the significant bond market sell-off and higher yields, namely MSR and swap CVA gains, not fully offset by rate-driven fair value losses on bonds and loans held at fair value, as detailed later on the right side of Slide 30. And finally, noninterest expense declined $17 million from lower merger expense and lower Mortgage Banking expense. As for the balance sheet on Slide 12, interest-bearing cash decreased slightly to $2.4 billion this quarter, driven by the asset remix into loans with the non-PPP growth this quarter. The decline in investments, AFS, related primarily to the unrealized loss resulting from higher market yields this quarter as new purchases offset maturing cash flows. Overall, loans held for investment increased $423 million or 2% during the quarter. And again, this was net of the $208 million in PPP loan forgiveness, so in ex-PPP, we had $630 million or 3% in non-PPP loan growth. This makes 4 quarters in a row of robust loan growth, and the total non-PPP growth over the past year was $2.7 billion or 13.5%. At quarter end, we had $173 million in remaining PPP loans, which are expected to be mostly forgiven over the coming quarters. And deposits were up $105 million, which was net of a seasonally expected $114 million decline in public funds deposits. Our total available liquidity, including off-balance sheet sources, ended the quarter at $15.7 billion, representing 51% of total assets and 59% of total deposits. And noted on the bottom of Slide 12, our tangible book value declined due to the AOCI rate mark on AFS investments, but we've also added measures for this and the TCE ratio both including and excluding AOCI for reference. Slide 14 highlights the declining impact of PPP fees on net interest income. And following that on Slide 15 of the presentation, our NIM decreased 1 basis point in total to 3.14% in Q1, and we present a waterfall on the margin change on the right of the page. The NIM, excluding the impact of PPP loans and discount accretion, was up 2 basis points in Q1, which is great to see the impact of continued non-PPP loan growth and deposits continue to reprice lower, offsetting the impact of the low rate environment. Our cost of interest-bearing deposits declined to 10 basis points in Q1. And key for me here is following the 25-basis-point increase to the federal funds rate in mid-March, our NIM for the month of March was 3.18%, 4 basis points higher than the full Q1 amount, which bodes well for the remainder of the year. The next 2 slides include information which investors may find helpful as the market is pricing and the potential for Fed funds rate increases in 2022. First, on Slide 16, we provide the repricing and maturity characteristics of our loan portfolio. The first table on the upper left breaks down the pricing drivers on loans, leaving us at quarter end, 34% of the portfolio is fixed, 1% is in the remaining PPP balances, 32% is in floating rate and 33% are in adjustable rates over time. The lower left table shows the maturity schedule by category. And the upper right table shows the loan rate floor buckets for floating and adjustable rate loans, noting 23% of the combined total are at their floor, meaning 77% have no floor or are above it. For the $3.5 billion in floating and adjustable rate loans at their floor, the lower right table breaks down the balances by rate change band, along with the weighted average rate change required for these loans to move above their floor. Hopefully, investors and analysts will find this information useful in assessing the beneficial impact on net interest income of future potential rate hikes. Next on Slide 17. On the left, we have included our projected net interest income sensitivity for future rate changes in both ramp and shock scenarios over 2 years. This is a simulation we run in backtest quarterly and assumes a static balance sheet. Ideally, we'll continue to see an asset remix with cash skipping bonds and flowing down into loans, which will benefit our net interest income absent any rate change, but this is not included here. The deposit betas used in this simulation range from 43% to 45% on interest-bearing deposits. And for sensitivity on our model results, every 10% change in the beta is plus or minus 1.3% on the plus 100 basis point shock results. The table on the right shows our deposit beta from the last rising rate cycle starting Q3 2015 and running through Q3 2019 to catch the lag effect. Our beta then was 42% on interest-bearing deposits. Okay. Now on to our segment disclosures. Starting with the Core Banking segment on Slide 20 of the presentation. Net interest income was down slightly versus Q4 given the decline in PPP fees and related income. I'll talk about CECL in the provision in detail in a few minutes, but you'll see here that we had a $5 million provision this quarter related to continued loan growth. And 4 rows down, as the change in fair value on loans carried at fair value at a loss of $21 million here in Q1 driven entirely by the bond market sell-off and resulting significant increase in long-term yields this quarter. Noninterest income of $35.7 million was down from Q4 due to lower swap and syndication revenue from some outsized transactions back in Q4. In the noninterest expense section, you'll see the merger expense recognized to date on the combination, along with exit disposal costs related to lease exits on recent store consolidations and a right-of-use lease as an impairment as we execute our return-to-work plan. The direct noninterest expense for the Core Banking segment decreased this quarter, primarily related to lower compensation and other costs. The efficiency ratio for the segment remained at 64% as net fair value losses reduced income. Noting this would be 58% ex the nonoperating fair value changes and merger exit costs. In the operating disclosure for the Core Banking segment back in the appendix, and also on Page 19 of the release, it's great to see the operating PPNR increased 4% year-over-year, which is great again to see the benefit of continued loan growth more than offsetting the significant decline in PPP fees over the past year. This is significant and bodes well for future Core Banking revenue with forecasted Fed funds rate increases. Turning now to Slide 21 of the presentation, we show the Mortgage Banking segment 5 quarter trends. To start, the significant increase in longer-term yields led to volatility in our volume, gain on sale margin and MSR. We had $649 million in total held-for-sale volume this quarter, down 25% from Q4, in part seasonal and in part due to the lower refi activity with higher rates. The gain on sale margin was 2.59%, down from Q4, given the slowing mortgage market and impacted pipelines from rising rates. These 2 items resulted in the $16.8 million of origination of sale revenue noted towards the top left of the page. Our servicing revenue was stable. And for the change in MSR fair value, the passage-of-time piece, again, was stable, while the change due to valuation inputs was a gain of $40 million, due, again, to the increase in long-term interest rates in the second half of the quarter. Noninterest expense totaled $25 million for the quarter. Again, this represents held-for-sale origination costs, servicing costs, along with administrative and allocated costs. The direct expense component of this was $14.3 million as noted on the right side of the page, representing 2.2% of production volume, up slightly in basis points from the last few quarters with the lower volume. As Cort mentioned earlier, home lending is now facing significant headwinds given the sharp increase in mortgage rates driven by the bond market sell-off. We are adjusting capacity by reducing headcount and the expense run rate to meet expected origination volume over the foreseeable future. And given the MSRs had a record high valuation of 1.29% as of quarter end, and even higher through the first half of April, we are working through the governance and risk management process to hedge the MSR asset in an effort to reduce future net volatility. We expect to have this in place by Q3, and we'll keep you updated. A couple of final items before I turn it over to Frank. On Slide 23, we've included the quarterly loan balance roll forward. Quarterly non-PPP loan growth was driven by a $1.7 billion in new originations, offset by $1.1 billion in payoffs. And next, let me take your attention to Slide 25 on CECL, and our allowance for credit loss. As a reminder, our CECL process incorporates the life of the loan, reasonable and supportable period for the economic forecast for all portfolios, with the exception of C&I, which uses a 12-month reasonable and supportable period, reverting gradually to the output mean thereafter. Hence, these forecasts incorporate economic recovery through 2022 and beyond as most economic forecasts revert to the mean within a 2 to 3-year period. We used the baseline economic forecast this quarter updated in March. Overall, the forecast showed continued improvement in several key areas, along with higher expected inflation and interest rates. We included a $9 million overlay for various CRE portfolios to hedge against any potential near-term slowdown or negative terms with the pandemic. Net of this overlay, including providing for the strong loan growth, we recognized a $5 million provision for credit loss. Net charge-offs for Q1 remained low at $5.5 million or 0.1% of loans, much lower than the models from last year suggested. And the majority of net charge-offs this quarter related to the small ticket lease portfolio. The ACL at quarter end was 1.14%. As these are economic forecasts driving the reserve, it will simply take the passage of time to see if net charge-offs follow as modeled. But to date, the models are simply overestimated the actual net charge-offs given the lag of at least 7 quarters. Our day 1 CECL level was right at 1% on the ACL, which is about $30 million lower on the ACL for non-PPP loans than we are at currently. All else equal, this excess ACL will be charged off in future periods if the models are eventually proven correct or be recaptured and/or used for providing for future loan growth if the economic forecasts continue to improve. Time will tell. And lastly, I want to highlight capital on Page 27, noting that all of our regulatory ratios remain in excess of well-capitalized levels. Our Tier 1 common ratio was 11.3%, and our total risk-based capital ratio was 14%. The bank level total risk-based capital ratio was 12.6%. And with that, I'll now turn the call over to Frank Namdar to discuss credit.

Thank you, Ron. Turning back to page -- to Slide 26. Our nonperforming assets to total assets ratio declined 3 basis points to 0.14%. And lower classified loans to total loans ratio increased modestly to 0.87%, the lift was on a particularly low level at year-end. Our annualized net charge-off percentage to average loans and leases was 10 basis points in the quarter, reflecting continued below-average net charge-off activity in the FinPac portfolio. The FinPac portfolio's ratio came in at 1.49%, notably below its historical 3% to 3.5% range for the third consecutive quarter, still reflective of the higher levels of customer liquidity, improving economies and the overall favorable impact of strategic credit tightening implemented last year. Essentially, all of the quarter's charge-off activity was in the FinPac portfolio as the bank's activity was de minimus. We are very pleased with the credit quality metrics. Charge-off activity is minimal. Nonperforming and classified loan ratios are low and delinquency migration continues to cure. This latter metric in particular, is indicative of the bank's strong credit risk profile as it is a positive signal of continued stability within the overall portfolio. We remain confident in the quality of our loan book, and we look forward to continued high-quality growth. Back to you, Cort.

Okay. Thank you, Frank and Ron, for your comments. We will now take your questions.

[Operator Instructions] And your first question comes from the line of Jeff Rulis from D.A. Davidson.

My question on -- maybe, Cort, you talked about the first quarter loan growth being encouraging, seasonally a bad quarter and coming off a pretty big one in Q4. I guess where would you assign the production and probably a mix, but the macro environment improving or market share gains? I know you pointed to hires, but I just want to kind of get a sense for the environment versus what you're doing in-house?

Well, seasonally, I don't know if first quarter is a bad quarter for us, Jeff, but I know you didn't mean it that way. It's just -- generally, we have ag stuff that goes on in Q1s, so we don't see a lot of commercial loan growth. And we didn't see that here in 2022 either. So that attributed to the lack of growth in commercial. To answer your question directly, I think as rates started to move up, specifically in multifamily, which we've got a very experienced vertical that's been around for a long, long time, as rates started to move up, people start to refinance and/or acquire assets and get them in their portfolios. Their production and growth in the first quarter was very, very strong. Same thing with commercial real estate because we were heavy in commercial real estate. And same thing with resi, too, right? Resi portfolio grew. So I'm going to attribute the growth in the real estate side to rates moving up. People just -- that may have been sitting on the fence to get in to the market. And that's not to take away from all the teams that we've got, the hires that we've made, the professional folks in the new markets and in the markets that we've been serving for many, many years.

A follow-up on the sort of the loan officer count, and maybe a question for Tory. Just interested in, Cort, you called out the hire you made in Denver. But getting a sense for kind of net loan officers that you've added versus those that have departed. Do you have either a specific number or a general sense for how that team in the last couple of quarters, how that number is fluctuated.

Let me -- I'll pitch this over to Tory but let me make just a global comment because I'm sure you won't be the only person to be thinking it or ask it, we have not seen any extraordinary turnover in lenders due to our pending combination with Columbia. We always lose some. When bonuses pay out this time of year, there's always a natural churn out the door and in the door. And I would say this year is consistent with what we've seen in my 12 years being at the bank. Now specifically, I'll pitch it over to Tory and he can answer your question.

Yes. Thanks, Cort. And Jeff, I don't have an exact number for you, but to Cort's point, attrition in the commercial bank, in particular, has been really light. I mean we just are seeing very, very few leave the company. And we just continue to look for talent to bring in the company. So we're bringing in talent from the Pacific Northwest to the Bay Area to Sacramento to Southern California, made a couple more hires in Arizona. So the team in Arizona now is at 5 people strong, hired somebody in Denver to lead it and built the team there. So we just continue to bring net talent into the company, takes them 3 to 6 months to build a pipeline, but it bodes well for us to continue to find opportunities to take market share and to do more for our existing customers.

Great. I appreciate that. And if I could, one more -- last one. More on the Mortgage Banking side. And if we kind of exclude the MSR noise, just looking at combined Mortgage Banking revenue and servicing, I guess it's roughly $26 million this quarter. And perhaps, Ron touched on this a bit. I'm interested in your thoughts about the return to mortgage seasonality versus the rate moves that we had. Does that kind of wipe that seasonal impact we're coming off of a pretty robust mortgage production? But just your sense of how mortgage trends through the year, and what you saw in Q1, any thoughts there?

Jeff, this is Ron. Great question. Typically, historically, you have seasonality, right? In the summer quarters, Q2, Q3 and then dropping off in Q4 and Q1 and with where rates are in the market over the last few years, that's definitely made a change. The volatility here this quarter, it's tough to get a read on, hey, what do we think Q2, Q3 look like? Traditionally, again, they would be higher. I'd say it's too early to say. You always have some seasonality, though, just given movement or relocation, but hard to give an updated guide on that for the balance of the year.

And your next question comes from the line of Brandon King from Truist Securities.

I wanted to touch on the actions in the mortgage segment as far as reducing headcount. I know the direct loan held-for-sale expense has kind of been ticking up as a percentage of volumes. And I'm wondering, with the reduction in headcount and trying to gain better efficiency within the segment, there is a certain target there that you're trying to achieve over the long term?

Brandon, this is Ron. Yes, historically, we've been closer to the 2% and have pushed up above it a bit this quarter. Just given a certain chunk of that cost is fixed underneath, and that's part of what we're looking to address. It's also around market allocation from certain markets or more favorable towards held-for-sale volume versus portfolio volume and then vice versa the other way. So hard to say here where we'll have that number over the course of the year, but the long-term goal is to be 2 or just under.

Okay. And then in regards to the hedge on the MSR, I know it's an imperfect hedge to hedge it completely. But I was wondering if there is a certain quantification you could provide more color on as far as hedging just half of it or trying to hedge all of it? And then just more details around the mechanics of that?

Yes, Brandon, this is Ron again. I'd say, yes, it is imperfect, although it's better than nothing. The interesting thing about it though, we're at record levels on that just given, again, the activity over the last few years and record levels over the course of my career, and it's even higher here in Q2. Hedging will be a combination of treasury future purchases, some options and/or mortgage purchases just to ride that gain down if we do see rates down in the future, which erodes the value of the MSR. Too early to say how much we look to hedge. Again, it's probably easily a 3 to 4-month process just with the risk and governance side to stand it up. I think we've got time on that front, but more to come. We'll talk about that more in July as we get closer in terms of the specific tactics around it. But I do agree it isn't perfect, but it is better than nothing when you get an asset at record levels.

Got it. Got it. And then lastly, in regards to liquidity management, now with higher yields on securities, is there more of an intent to purchase more securities, kind of lay into that more now given the lower downside risk?

Yes. I mean, obviously, the self and the bond market is good opportunities. I'd much rather though that cash go into loans, as we've talked about consistently over the last couple of quarters, and that's been $2.7 billion of non-PPP growth over the past year. We very much look forward to seeing a chunk, if not most of that continue over the coming years. So there could be opportunities on the bond portfolio side. But again, I'd rather skip that and go into [ lowers ] just for a higher return overall.

Your next question comes from the line of Jared Shaw from Wells Fargo Securities.

Maybe sticking with the loan growth side, could you give a little update on what you're seeing for commercial utilizations? And I know that it's tough to with all the moving parts, but give a little more color on what the commercial pipeline looks like. And then as rates are higher, should we expect that payoff number that's been a little bit higher to really go down, especially on the CRE side?

Jared, this is Tory. I'll start with line utilization for a second. Our -- we've been relatively flat over a couple of years now in the commercial line utilization. We were actually down this quarter maybe about 1.5% from last quarter. And so we're still not seeing any uptick in the utilization, and we're about probably, I think, about 10% down from maybe 2.5 years ago. So still some upside and some opportunity there. On the pipeline, we had such a strong Q4. I think we mentioned it in the call for Q4 that we just kind of reduced the pipeline a little bit because of all the activity, and all the success and all the booking of loans in Q4. We've now rebuilt that pipeline. So we were at about $4.4 billion in total pipeline at the end of September, kind of dipped down into the low $3 billion, and now we're back up to $4.4 billion. So we've increased the pipeline, I think, really nicely in the C&I space and in the commercial real estate space. So we feel really good about activity, really good about the growth in the pipeline, and feel positive looking over the next 9 to 12 months. On payoffs and paydowns, I think the market is highly, highly competitive, as you guys all know and everybody knows it. And certainly in the real estate space is one where you can potentially have more payoffs than in others. When people are selling property, maybe refinance with something else, there's just a lot of things happen in the real estate space. We certainly see that, and we tend to cover it every quarter, but it's just something that we deal with, it's how we do business. So not overly concerned or alarmed about that either. So really good momentum from the teams and the pipeline is strong and so feel very positive.

Okay. That's good color. And then switching, I guess, over to funding. You've had such strong growth in DDA over the last few years. It seems like we have sort of plateaued here. Do you think that reads sort of as a natural peak for DDA and as you go forward to fund that additional loan growth we're going to have to see more whether it's -- hopefully, it's core, but maybe more time and more interest-bearing growth?

Yes. Jared, this is Tory again. The -- relatively speaking, I think actually, Q1 is a quarter where we tend to see some deposit outflow. And this quarter, we did not. So we're still getting growth from the core bank on the deposit front on the funding side. So as we are progressing to bring more of a relationship of our existing customers into the bank or taking market share and bringing new customers into the bank, we continue to be focused on loan growth, deposit growth and core fee income growth from those customers. So expect that to continue and expect us to continue to grow the liquidity side of the balance sheet and have it be in DDA balances.

Okay. And then just finally for me, just on Slide 17, I'm just -- I'm assuming, but is that all as of March 31 as well, the asset sensitivity?

Yes. This is Ron, and that is -- that's updated through Q1.

And your next question comes from the line of Christopher McGratty from KBW.

Maybe a high-level picture on just the status of the merger. Since it's been announced, a lot the world has changed. Interest rates being one of the big ones. Just conceptually, how are you thinking about the economics of the deal today versus last fall?

Christopher -- I'm going to go with Chris, Christopher?

Chris.

It's Cort. Let me start high level. Our assessment of the merger remains the same or as bullish and as enthusiastic as we were on October 12 when we announced, but the combination, we think for long-term solutions for our customers, for our associates and our shareholders, it's certainly the right thing for both companies to do. So we're extremely enthusiastic. And like we have messaged since October, we're still anticipating sometime the end of this quarter for close of that deal. Now relative to the economics, I'll let Ron mention -- make a couple of comments.

Yes, you bet. Chris, yes, and we're very excited we're both asset sensitive, right? This is the time where net interest margin definitely should see some benefit. And we've got the liquidity to fund that with continued loan growth. So we feel very good about that.

Okay. And if I could -- one more on just the marks. Obviously, I know you're probably finalizing them all, but we obviously saw the move in the bond market this quarter that drove your book value down and Columbia is down a little bit more. How do we think about the fair value marks just directionally, given what's happened?

Yes. Directionally, what could have been a rate premium, what we're talking about is mostly rate or all rate, right? So directionally, what would have been a rate premium in the summer or fall last year could turn into a rate discount at this point. So might utilize some of that excess capital through those marks, but then you have higher earnings on the back end through accretion of a discount versus amortization of premium. That's thematically the main changes you'd see.

Okay. And would that affect any capital return post close with the buyback? Is it enough to impact your decisions there?

I'd say always post-close, pre-close the last couple of years, it's always been about continuing to fund organic -- strong organic loan growth with a healthy dividend, and we'll take a look at that from a buyback standpoint just based off opportunities we see looking ahead at that point. So a lot of moving parts in answering that other than to say, it's never the focus, but it's always an option.

[Operator Instructions] And we don't have any further questions at this time. I would now like to turn the call back over to Jacque Bohlen, Investor Relations Director for Umpqua. Please take it away, Jacque.

Thank you, Lee, and thank you, everyone, for your interest in Umpqua Holdings Corporation and participation on our first quarter 2022 earnings call. Please contact me if you'd like clarification on any of the items discussed today are provided in our presentation materials. This will conclude our call. Goodbye.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.