Earnings Call Transcript - COLB Q2 2022

Operator, Operator

Good morning, and welcome to the Umpqua Holdings Corporation Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As a reminder, this call is being recorded. At this time, I would like to introduce Jacque Bohlen, Investor Relations Director for Umpqua to begin the conference call.

Jacque Bohlen, Investor Relations Director

Thank you, Michelle. Good morning, and good afternoon, everyone. Thank you for joining us today on our second quarter 2022 earnings call. With me this morning are Cort O'Haver, the President and CEO of Umpqua Holdings Corporation; Torran 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 second 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 risks and uncertainties and are intended to be covered by the Safe Harbor provisions of Federal Securities Laws. For a list of factors that may cause actual results to differ materially from expectations, please refer to Slides two and three 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. We'll now turn the call over to Cort.

Cort O'Haver, President and CEO

Okay. Thank you, Jacque. I'll provide a brief recap of our performance and pass to Ron to discuss financials. Frank will discuss credit, and then we'll take your questions. For the second quarter, we reported earnings available to shareholders of $79 million. This represents EPS of $0.36 per share compared to the $0.42 reported last quarter and the $0.53 reported in the second 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 $0.37 compares to $0.36 last quarter and $0.55 in the second quarter of last year. The return of a provision for credit losses compared to 2021's recapture was the primary driver of the annual variance. Notably, rising interest rates and portfolio loan growth enabled higher net interest income to exceed lower mortgage banking revenue. Customer tax payments contributed to a 2% decline in deposits for the quarter, but we are seeing growth in the third quarter to date. Loan balances grew $1.5 billion in the second quarter, representing a quarterly growth rate of 6.3% and an annualized growth rate of 25%. The second quarter's growth reflects an anticipated pickup in activity relative to the first quarter that expands business lines, portfolio classes, and geographies given favorable market conditions and the continued momentum of our associates in both new and existing markets. The loan portfolio was up 8% this year, meeting the mid to upper single-digit levels of annual expansion we have been discussing over the past few quarters. Slower payoff activity relative to 2021 and a small increase in net advances in the second quarter favorably impacted net portfolio growth in the first half of the year. At this point, market trends in our existing pipelines indicate continued loan growth into the second half of the year, but at likely a slower pace than the second quarter's significant volume. We remain acutely focused on the health of our new and existing borrowers, and our new loan production mirrors the high-quality metrics exhibited by our overall loan portfolio. In June of this year, we published our annual business barometer, which measures the mood, mindset, and strategic priorities of leaders at small and middle market companies across the United States. Inflation and rising interest rates are driving an increase in the cost for goods, talent, and capital for these businesses. Our customers managed through the pandemic and then gained knowledge over the past two years, enabling them to adjust strategies and adapt to the challenges in front of them. While many business leaders reported more cautious views of the overall economy compared to the prior year, they remain confident in their resilience and ability to continue to grow their businesses to expand revenue and improve profitability. We remain focused on being the business bank of choice for these existing and prospective customers, and our bankers and support teams will continue to focus on providing a distinguishing level of service that enables us to win business with strong companies throughout our markets. Now moving on to a handful of other initiatives. Our ongoing advancements in payments technology, most recently through two commercial card solutions in collaboration with Visa, continue to produce tangible results as commercial card spend set new records during the quarter and was up 50% in June compared to the year-ago period. The pipeline is strong across all fee-based businesses, which includes treasury management, cards, merchant, and international. Our teams continue to implement enhancements to our product offerings and service capabilities, and we expect a busy second half of the year as many of the initiatives currently under development are brought live. As an industry, home lending is facing significant headwinds given the sharp increase in mortgage rates and the impact on volume and margins. As previously announced, we reduced headcount earlier in the second quarter, and we implemented other strategic measures to shift production towards saleable volume, which is a more profitable business segment. We will continue to take necessary steps to adjust the business model in light of the current operating environment, which we expect to persist for the foreseeable future, and we are evaluating multiple options. Everything is on the table with regard to our mortgage business. Regarding capital. Yesterday, we declared a $0.21 per share dividend payable to our shareholders of record as of August 1st. While the amount is consistent with historical payments, the timing has accelerated compared to our prior cadence as we continue to plan for our pending combination with Columbia Banking System. We currently target a close date during the third quarter, where the timing will ultimately be determined by the receipt of all regulatory approvals, which we have not received to date. As we detail on slides six and seven of the deck, we continue to make headway with our integration planning, and our scheduled Q1 of 2023 core system conversion date remains achievable at this point, given our ability to separate conversion planning activities from the legal close date. As we have discussed on prior calls, the integration management office, which includes senior executive leaders from both Columbia and Umpqua, enables Umpqua’s bankers to have an undisturbed focus on generating business and serving customers. The separation of our integration planning activities from our growth objective has enabled us to successfully drive our business forward. We continue to attract and hire exceptional talent, which has enabled us to build deeper presence in existing markets and expand in new desirable areas like Colorado and Arizona. Proven local leaders who know their regions are joining Umpqua. They are embracing our expertise-driven and personalized team-based approach to customer relationships, and their success is highlighted by the growth momentum exhibited over the past several quarters. Our operating markets and top-tier banking teams support my expectation for net expansion through 2022 and into 2023, outside significant economic deterioration, which we have not seen yet today. And with that, Ron, take it away.

Ronald Farnsworth, Chief Financial Officer

All right. Thank you, Court. And for those on the call who want to follow along, I'll be referring to certain page numbers from our earnings presentation. Starting on page 12 of the slide presentation, which contains our summary of quarterly P&L. Our GAAP earnings for Q2 were $79 million or $0.36 per share. The adjustments to our internal operating measures with various fair value changes from interest rate volatility, along with merger and exit disposal costs, which are detailed in the appendix on slide 31. On an operating basis, we earned $80 million or $0.37 per share. For the moving parts as compared to Q1, net interest income increased $19.4 million or 8%, representing the power of our interest-bearing cash, shifting bonds, and waterfalling down into loans this quarter, combined with the recent Fed rate increases. We had a provision for credit loss of $18.7 million, driven primarily by continued strong loan growth. Non-interest income declined $24.7 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, mostly offset by rate-driven fair value losses on bonds and loans held at fair value. As detailed later on the right side of slide 31. And non-interest expense declined $2.9 million or 2% from lower mortgage banking and payroll tax expenses. As for the balance sheet on slide 13, interest-bearing cash was used to fund the significant loan growth and deposit decline. 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 $1.5 billion or 6% during the quarter. This was net of $71 million in PPP loan forgiveness. This makes five quarters in a row of robust loan growth, and the total non-PPP growth over the past year was $3.6 billion or 17.3%. At quarter-end, we had $102 million in remaining PPP loans. And deposits were up 2%, driven in part by seasonal tax payment trends and continued reduction in time deposits. Our total available liquidity, including off-balance sheet sources ended the quarter at $14.3 billion, representing 48% of total assets and 55% of total deposits. And noted on the bottom of slide 13, our tangible book value declined due to the AOCI rate mark on AFS investments, but we've also added measures for this and TCE ratio, both including and excluding AOCI for reference. Slide 15 highlights net interest income and the declining effects of PPP and acquired loan accretion. The base increase again due to the recent rate increases, along with reducing cash, funding record loan growth. From a rate-volume standpoint, increasing rates led to $13 million of the $19 million increase with volume and mix making up the $6 million difference. Following that on slide 16 of the presentation, the trends for our net interest margin. Our NIM increased 27 basis points in total to 3.41% in Q2 and represents a waterfall on the margin change on the right of the page. And NIM excluding the impact of PPP allowance and discount accretion was up 32 points in Q2, which is great to see the impact of continued non-PPP loan growth. Our cost of interest rate deposits increased slightly to 11 basis points in Q2, though the spot rate at June 30 was 10 basis points, equivalent with Q1's average level. Key for me here is, following the 125 basis point increase in the federal funds rate during Q2, our NIM for the month of June was 3.60%, another 19 basis points higher than the full Q2 amount, which bodes well for the remainder of the year. The next two slides include information which investors may find helpful in continued rate sensitivity. First, on slide 17 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. I mean, as of quarter-end 35% of the portfolio is fixed, 31% is in floating rate, and 34% are in adjustable rates over time. The lower left table shows the maturity schedule by category. The upper right table shows loan rate floor buckets for floating and adjustable-rate loans; 8% of the combined total were at their floor, meaning 92% are near floor or above it. For the $1.3 billion in floating and adjustable-rate loans at their floor, the lower right table breaks down the balances by rate change band, loans with weighted average rate change required at least 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 18. On the left, we've included our projected net interest income sensitivity for future rate changes, in both ramp and shock scenarios over two years. This is a simulation we run in back test quarterly and assumes a static balance sheet. The deposit beta used in this simulation is 45% on interest-bearing deposits. For sensitivity on our model results, every 10% change in the absolute beta is plus or minus 1.2% on the plus 100 basis point shock results. The table on the right shows our deposit betas in the last rising rate cycle, starting Q3 2015 and leading through Q3 2019 to catch the lag effect. Our beta then was 42% of interest-bearing deposits. Okay. Now to our segment disclosures. Starting with the core banking segment on slide 21 of the presentation. Net interest income increased $20 million in Q1 given the higher rates and loan growth discussed previously. I'll talk about CECL and the provision in detail in a few minutes, but you'll see here we had an $18.7 million provision this quarter primarily related to continued loan growth. The next few rows show the fair value changes due to rising interest rates. I mean, there's a group where $10 million loss in Q2 compared to $17 million fair value loss in Q1. Non-interest income of $34.5 million was down from Q1 due to lower gain on sale gains being offset by continued growth in card-based fees. In the non-interest expense section, you'll see the merger expense recognized to date on the combinations, along with exit and disposal costs related to lease exits on recent store consolidations. The direct non-interest expense for the core banking segment was up slightly this quarter primarily related to some non-recurring project costs. The efficiency ratio for the segment improved to 57%, knowing this would be 54% ex-non-operating fair value changes and merger exit costs. In the operating disclosure for the core banking segment, back in the appendix and also on Page 24 of the release, it's good to see the operating PPNR increased year-over-year, which is great to see the benefit of continued loan growth and rate increases, more than offsetting the significant decline in PPP fees over the past year. Turning now to slide 22 of the presentation, we show the mortgage banking segment's five quarter trends. To start, the continued increase in longer-term yields, rate volatility, and our volume, gain on sale margin, and MSR valuation. We had $577 million in total loans held for sale volume this quarter, down 11% from Q1, due entirely to lower activity with higher rates. The gain on sale margin was 2.62%, up slightly from Q1. These two items resulted in the $15.1 million in origination and sale revenue noted towards the top left of the page. Our servicing revenue is stable, and for the change in MSR fair value, the passage of time piece was stable, while the change due to valuation inputs was a gain of $10.9 million, due again to the increase in long-term interest rates in the quarter. Non-interest expense totaled $24 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 $13.2 million as noted on the right side of the page, representing 2.3% of production volume, up slightly in basis points from the last few quarters with the lower volume. As noted towards the bottom of the page, the MSR is at a record high evaluation of 1.39% as of quarter-end. 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 over the next few months and we'll keep you updated. A couple of final items before I turn it over to Frank. On slide 24, we've included the quarterly loan balance roll forward. Quarterly non-PPP loan growth was driven by a $2.6 billion in new originations and net advances, offset by $1.2 billion in payoffs. Next, let me take your attention to Slide 26 on CECL and our allowance for credit loss. And 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. We use the consensus economic forecast this quarter updated in May. Overall, the forecast showed improvement in some areas, offset by higher expected inflation and interest rates. We recognized a $19 million provision for credit loss with about two-thirds of that for strong loan growth this quarter, and one-third for slightly deteriorating economic variables. The ACL at quarter-end was 1.12%. As these are economic forecasts driving the reserve, it will simply take the passage of time to see if net charge-offs follow this model. But today, the models have simply overestimated the actual net charge-offs given a lag of at least eight quarters. Our day one CECL level was right at 1% on the ACL which is about $30 million lower on the ACL for non-PPP loans than we were at currently. All else equal, this excess ACL will either 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 improve. Time will tell. And lastly, I want to highlight capital on page 28. Knowing that all the regulatory ratios remain in excess of well-capitalized levels, our Tier 1 common ratio was 10.9% and our total risk-based capital ratio is 13.5%. At bank level, total risk-based capital ratio was 12.6%. And with that, I will now turn the call over to Frank Namdar to discuss credit.

Frank Namdar, Chief Credit Officer

Thank you, Ron. I want to call your attention to Slide 25. We have provided expanded disclosure on the characteristics of our loan portfolio to highlight how new loan generation in the second quarter compares to the overall loan book. The average size of new loans is larger than the existing portfolio averages, given higher real estate values, the mix of loans within those portfolios, and our intentional focus and investment in middle market bankers. Moving on to Slide 27, our non-performing assets to total assets ratio of 0.15% was relatively steady with the prior quarter, and our classified loans to total loans ratio declined 0.75% after last quarter's modest increase. Our annualized net charge-off percentage to average loans and leases was only 11 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 1.47%, notably below its historical 3% to 3.5% range for the fourth consecutive quarter, still reflective of higher levels of customer liquidity and the impact of strategic credit tightening implemented last year. My expectation continues to be a gradual migration to historical norms over the coming quarters in this space. Essentially, all of the quarter's charge-off activity was in the FinPac portfolio as the bank's activity was de minimis. We continue to be very pleased with our credit quality metrics. Charge-off activity is minimal, non-performing and classified loan ratios are low, and delinquency migration continues to cure. This latter metric remains great to see, as it's a positive signal of stability within the portfolio. We remain confident in the quality of our loan book and we look forward to continued high-quality growth, balanced with effective and active risk management practices. Back to you, Cort.

Cort O'Haver, President and CEO

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

Operator, Operator

Our first question comes from Jeff Rulis with D.A. Davidson. Your line is open.

Jeff Rulis, Analyst

Thanks. Good morning.

Cort O'Haver, President and CEO

Hi, Jeff.

Jeff Rulis, Analyst

Could you discuss how you manage deposits in relation to the loan to deposit ratio, particularly considering the possibility of the Columbia merger? Would you be more focused on retaining deposits if the merger didn't happen, or are you operating independently of that situation? What are your thoughts on deposit retention with and without the merger?

Cort O'Haver, President and CEO

It's a good question, Jeff. Honestly, we are still Umpqua Bank, navigating our own path, and we will manage independently until we receive the necessary approvals to close the bank. So, to answer your question, we will continue our balanced growth approach for loans and deposits, just as we have over the past five to seven years. As Rod mentioned in my comments, we've seen an increase in deposits due to the positive efforts from previous quarters, and we will maintain this momentum as we approach the closing.

Jeff Rulis, Analyst

Got it. That's reasonable. I also wanted to ask Ron about the average margin for June. Can you clarify the timing of the cash work down over the quarter? Specifically, does the margin for the quarter or for June reflect the total cash deployment, or is there a delay into the third quarter for the cash impact?

Ronald Farnsworth, Chief Financial Officer

Good question, Jeff. It was pretty ratable over the course of the quarter. So not exactly third, third, third by month but pretty close. So we will definitely see some lift in margin. And on a quarterly basis in Q3 compared to Q2, and again, that will be what happens on the deposit beta side.

Jeff Rulis, Analyst

Got it. Thank you. And maybe a last one, just on the expenses. The drop in comp expenses, what portion of that was kind of variable or mortgage? And/or what piece was maybe structural savings, if any?

Ronald Farnsworth, Chief Financial Officer

Yeah. Jeff, this is Ron again. And there's a good slide in the presentation deck and let’s say, it's probably Page 20 of the deck. I’d say that a couple of million dollars was on the home lending side for the quarter. I mean, there is some lag there, and there's another just under $2 million payroll tax related are the two primary drivers of the drop in comp.

Jeff Rulis, Analyst

I guess maybe to quantify that a bit more. On the next gen savings left to come in ‘22, is there much more there or is that kind of complete for the year?

Ronald Farnsworth, Chief Financial Officer

I'd say we're pretty close to that run rate. Because right now, we're right smack dab. I mean, if you back out merger and exit and disposal costs, we'll basically ballpark in the middle of that 690 million to $710 million range I gave on expenses for the year. I feel pretty good about where we are at.

Jeff Rulis, Analyst

Thank you.

Operator, Operator

Our next question comes from Jared Shaw with Wells Fargo. Your line is open.

Jared Shaw, Analyst

Hi there. Good morning, good afternoon. Thank you. I just wanted to follow up on the deposit question. With the loan to deposit ratio increasing, should we expect to reach the full 45% deposit beta more quickly as you work to retain deposits at this time? How should we consider the progression towards that 45% beta?

Ronald Farnsworth, Chief Financial Officer

Hey, Jared, this is Ron. I don't expect to see that impact immediately. That amount is based on past experience. We'll observe how it develops in the second half of this year. However, I do anticipate some net interest margin improvement early in the third quarter based on the figures from June compared to the second quarter. The important factor will be to increase deposits slightly more than loans in the latter half of the year. If we can achieve that, I would project that we will finish with a 45% beta.

Cort O'Haver, President and CEO

Hey, Jared, Cort, let me just throw on you. We have a different philosophy than maybe prior deposit cycles, if you will, about how we look at relationships. And you've heard Tory and I talked about at nauseam about our balanced growth philosophy. We've seen that in the run-up of deposits. This is the way we're continuing to grow C&I customers, which carry much higher deposit balances relative to borrowing levels. So it's a completely different company than it was when we go into a raising rate environment. I just want to make sure everyone keeps that in mind.

Jared Shaw, Analyst

Yeah. That's a good highlight. Thanks. And then on the commercial real estate side, there was solid growth this quarter. Are you starting to see the impact of higher rates yet on sort of that incremental demand? I mean, maybe that pipeline in terms of how they're evaluating incremental purchases? Is it, right now things are still pretty good on CRE as we go into the third quarter.

Torran Nixon, President of Umpqua Bank

Hey, Jared. This is Tory Nixon. We are observing the most significant impact of interest rates on commercial real estate within the multifamily sector. We had an excellent second quarter in multifamily, largely because borrowers secured financing before the ongoing rise in interest rates. Thus, it was a particularly strong quarter for that reason. The overall pipeline for the company remains very robust, although the pipeline for the multifamily division has decreased slightly due to various factors, including interest rates.

Jared Shaw, Analyst

Okay, that's good color. Thanks. And then just final question for me. You said that you're still looking to not move the integration date for the deal if we get approval here in the near term. I guess, what's the latest approval could come before you have to actually start thinking about changing the conversion integration date?

Cort O'Haver, President and CEO

We've got some time – Jared, this is Cort. Obviously, as we get closer to the holidays, we would either probably issue some type of statement, but we've got.

Jared Shaw, Analyst

Okay. Thanks for taking the questions.

Cort O'Haver, President and CEO

Yes, thank you.

Operator, Operator

Our next question comes from Matthew Clark with Piper Sandler. Your line is open.

Matthew Clark, Analyst

Hey, good morning.

Cort O'Haver, President and CEO

Good morning.

Matthew Clark, Analyst

Trying to get a sense for how much of the loan growth this quarter was kind of a pull forward in anticipation of higher rate. So comfortable with mid to high single-digit loan growth, given higher recession?

Torran Nixon, President of Umpqua Bank

The loan growth for the quarter was quite impressive, with growth observed across every line of business within the bank. This level of diversification in growth is very encouraging. I believe there are three main reasons for this. First, in the multifamily division, part of the growth came from securing loans and finalizing them before rates increased, particularly for fixed-rate products. While this isn't the majority of our activity, it did contribute to our results. Secondly, the rates on payoffs are somewhat lower than what we've historically experienced, which offers a boost. Lastly, the strong efforts of our teams, both customer-facing relationship managers and back-office staff, have played a crucial role. As mentioned earlier, we maintain a focus on balanced growth in relationship banking, dedicating time to our customers and pursuing new prospects. Our sales efforts are robust, and our pipelines remain strong. I am confident that as we move into the third quarter, we will see good loan growth, although not quite at the same level as we experienced in the second quarter; nonetheless, we anticipate strong growth across all areas of the bank.

Matthew Clark, Analyst

Sorry for that. Just last question for me. Do you have a guesstimate for where you think your pro forma CET1 ratio will shake out with Columbia based on your latest results and your estimated rate marks?

Ronald Farnsworth, Chief Financial Officer

Hey, Matt, this is Ron. I'd say, overall, obviously, when we announced the deal last fall, rates were much lower. Most of the marks were premium marks and how they fit with higher rates to be discount marks. Overall though, it's really going to be a function of where we'll be when we close this. I’m not going to speculate where that might be, but we do have a healthy capital cushion at the end of the day, which is one of the reasons for having that capital-efficient and a rate mark discount would also accrete back in income pretty quickly. So we'll give updates as we get closer.

Operator, Operator

Our next question comes from Andrew Terrell with Stephens. Your line is open.

Andrew Terrell, Analyst

Hey, good morning.

Cort O'Haver, President and CEO

Good morning.

Andrew Terrell, Analyst

Cort, I wanted to go back to some of your comments earlier in the call around the mortgage division, maybe everything being on the table. Just trying to get a sense or love some color on, I guess, at this point in the rate cycle, what type of efficiency ratio you would view as acceptable in the mortgage division?

Cort O'Haver, President and CEO

Let me start by saying that mortgages have been a significant product for the company and will remain so. They have served us well. However, the mortgage market, including both refinancing and new purchases, has significantly declined. As I have mentioned during my tenure as CEO, we have a scalable model that can adapt to changing conditions. Given the current higher rates and the limited available inventory, we do not expect the mortgage sector to recover to the levels we saw three or four quarters ago. That said, we will need to continue examining our model and reducing costs. While I can't provide a specific efficiency number right now, I assure you that we are critically evaluating our approach, which has been effective so far. Looking ahead, we need to consider the capital requirements and their impact on profitability as we make decisions. I won't announce any major changes to our business model without first communicating with our team. Everything is being considered, but we acknowledge that things will not return to what they once were. We will keep everyone informed as we finalize a model that we wish to discuss.

Andrew Terrell, Analyst

Okay, great. That's really helpful color. I appreciate it. Maybe one for Ron. I mean, we all know that the production picture is going to be challenged, but looking at the gain on sale margin in the mortgage business, it was pretty stable around close to 2.5% number quarter-on-quarter, any reason to think there would be any margin degradation going forward on the gain on sale side or do you think it'll be pretty stable near this 2.5% level?

Ronald Farnsworth, Chief Financial Officer

Well, I'd say, bigger picture, it's hard to give guidance on something with such volatility in the right markets which caused that headwind on the gain on sale margin. So I'd like to think it would be higher than that. It has been historically refined, but there is probably more to tell on where you think rates are going to be and I can give you a better answer.

Andrew Terrell, Analyst

Yeah. Okay. If I could sneak one last one in as well, just Frank, on some of your comments around just a really low level of FinPac charge-offs we've seen so far. Is there any way to think about or if you've done any analysis on just how much more liquid these borrowers are versus kind of pre-pandemic levels? And then kind of so far in the third quarter have you seen any of that kind of normalization higher in charge-offs come to fruition at all?

Frank Namdar, Chief Credit Officer

Hi, Andrew. With the number of individual lessees in that portfolio, it's challenging to determine a dollar figure for customer liquidity. Therefore, we focus on the delinquency number, which has remained relatively stable. My expectation is that, given the current inflation, liquidity for those small businesses will likely decrease gradually, making payments more challenging and increasing delinquencies. As those delinquencies rise, they will probably move through the delinquency categories and return closer to historical norms.

Andrew Terrell, Analyst

Okay. Great. Thank you all for taking my questions.

Cort O'Haver, President and CEO

Thank you.

Operator, Operator

You are next question comes from Chris McGratty with KBW. Your line is open.

Chris McGratty, Analyst

Great, thanks. Ron, could you remind us of the monthly or quarterly cash flows from the bond book? Additionally, what might the strategy be moving forward, considering the accelerating loan growth? Should we assume that this portfolio will continue to support loan growth?

Ronald Farnsworth, Chief Financial Officer

Hey, Chris, this is Ron. Yeah, I'd say, on the cash flow side, obviously prepays slowed down to you're indiscernible on the CBR side, right? Which just went up, and so it's probably going to be tens of millions of dollars a month on the lower end of that compared to where we were a year ago, year, and a half back with much higher prepays. I'm not looking at that specifically to fund loan growth; I’m looking at continued deposit growth, right? Balance deposit growth just north of loan growth, which seasonally we usually see in the second half of the year. So that's the indiscernible take the bond portfolio to be relatively static aside from fair value changes as rates move higher.

Chris McGratty, Analyst

Okay, that's helpful. Finally, on the acquisition, you said in the release just the regulatory world that we're in. Anything additional you can share. I mean, it feels like it just has taken a long time, and the HHI issue is something I feel the questions with? But just any color on what might be driving that a little bit of slower approval process?

Cort O'Haver, President and CEO

First of all, it’s a merger then acquisition. But we're not going to comment on individual examiners and where they're at, there is a process you all know. There was a series of deals ahead of us going into the year, which I think you all know. Some of those got cleaned out right around the first of the year. There was a backup, if you will, in the entire process. So, we are just kind of working through the process. We feel good about where we're at with all of our regulators; we talk to them on a regular basis. Going back to the question on core integration, we don't feel like we need to move that date at this point. We've separated, like we've talked about before, the approval and the close from the core integration, which is really the tipping point and the beginning point of all the cost saves associated with and revenue synergies with the merger. So we feel good about it. And obviously, if something changes, we will certainly let you know immediately, but right now, maybe a little longer than we anticipated, but such is life, right? So we just work through.

Chris McGratty, Analyst

Great, thank you.

Cort O'Haver, President and CEO

You got it.

Operator, Operator

There are no further questions. I'd like to turn the call back over to Jacque Bohlen for any closing remarks.

Jacque Bohlen, Investor Relations Director

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

Operator, Operator

This concludes today's call. You may now disconnect.