BancorpSouth Bank (BXS) Q2 2021 Earnings Call Transcript

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BancorpSouth Bank (BXS 3.03%)
Q2 2021 Earnings Call
Jul 22, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and welcome to the BancorpSouth Q2 2021 Earnings Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Will Fisackerly, Executive Vice President and Director of Corporate Finance. Please go ahead.

Will Fisackerly -- Executive Vice President and Director of Corporate Finance

Good morning and thank you for being with us. I will begin by introducing the members of the senior management team participating today. We have Chairman and Chief Executive Officer, Dan Rollins; President and Chief Operating Officer, Chris Bagley; and Senior Executive Vice President and Chief Financial Officer, John Copeland. Before the discussion begins, I'll remind you of certain forward-looking statements that may be made regarding the company's future results or future financial performance.

Actual results could differ materially from those indicated in these forward-looking statements due to a variety of factors and/or risks. Information concerning certain of these factors can be found in BancorpSouth's 2020 annual report on Form 10-K. Also during the call, certain non-GAAP financial measures may be discussed regarding the company's performance. If so, you can find the reconciliation of these measures in the company's second quarter 2021 earnings release. Our speakers will be referring to prepared slides during the discussion. You can find these slides by going to bancorpsouth.com and clicking on our Investor Relations page, where you'll find them on the link to our webcast, or you can view them at the exhibit to the 8-K that we filed yesterday afternoon. These slides are also in the Presentations section of our Investor Relations website.

And now I'll turn to Dan Rollins for his comments on our financial results.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Good morning, everyone. Thank you for joining us today to discuss BancorpSouth's second quarter 2021 results. I'll begin by making a few remarks regarding the quarter, John will discuss the financial results in more detail, and Chris will provide more color on credit quality and our business development activities. After we conclude our prepared comments, our executive management team will be happy to answer questions. Let's turn to the slide presentation and spend a few minutes looking at our second quarter results. slide two contains the legal reminders Will already discussed.

The most noteworthy item of the quarter was obviously the April 12 announcement of our transaction with Cadence Bank. There's some summary information regarding the transaction on slide three. We discussed this transaction in great detail on both the transaction-specific call in April as well as our first quarter earnings call. Accordingly, I won't spend a whole lot of time in detail here today, but I would like to say that our teams are making great progress toward the planning for the legal closing as well as the conversion and integration. Paul, Chris, Valerie, Hank and I have traveled to 14 different cities across our footprint since April visiting with our teams, and we have more visits planned over the next several weeks.

We've enjoyed getting in front of teammates from both organizations and seeing the optimism around this transaction as well as our overall renewed energy around all -- being felt about being able to get out and interact with customers. Everything I've seen over the past few months has confirmed my belief that we are stronger together, creating an organization with additional opportunities for future growth. I'm optimistic we're on track for a fourth quarter 2021 transaction closing. We continue to believe this transaction is a great fit for our shareholders, our customers, our communities and our teammates. slide four provides our highlights for the quarter. We reported another record quarter from an operating perspective. Net income available to common shareholders for the second quarter was $73.2 million or $0.69 per diluted share. We had a negative MSR valuation adjustment of $1.9 million and recorded merger-related expenses of $10 million during the quarter.

Additionally, we had an $11.5 million in provision for credit losses associated with day one accounting provision requirements for acquired loans. When adjusting for these items, we reported net operating income excluding MSR of $90.6 million or $0.86 per diluted common share. This represents an increase compared to the $0.73 per diluted share in the first quarter of '21 and $0.59 per diluted share in the second quarter of 2020. We reported pre-provision net revenue, PPNR, of $119.9 million for the quarter, which represents an increase of approximately 21% compared to the first quarter of '21 and an increase of approximately 17% compared to the second quarter of 2020. By definition, we exclude the MSR adjustment and other nonoperating items from our PPNR calculation. I would point out that our results do include a $21.6 million gain on the sale of $725 million in PPP loans.

While this is certainly not a repeatable revenue source, we did include it in our operating metrics given the fact that the gain simply brought forward earnings that would have otherwise been recognized in future periods. This sale, along with the forgiveness payments of $347 million, resulted in only $167 million in PPP loans remaining on our balance sheet at quarter end. While the Paycheck Protection Program has provided a tremendous opportunity for our bankers to deepen existing relationships and develop new ones, we believe that this loan sale will allow them to return to a more normal day-to-day environment and provide a renewed focus on critical sales and customer service activities. And looking at our business development efforts more broadly, we saw another solid deposit growth quarter while continuing to chip away at our total cost of funding. Organic deposit and customer repo growth totaled approximately $225 million or just over 4% annualized for the quarter. We're pleased to report organic loan growth for the first time since early 2019.

We reported organic loan growth excluding PPP of approximately $65 million for the quarter. While the day-to-day volatility in our economy makes it hard to predict the future, we are hopeful we will see continued organic loan growth in future quarters. Chris will provide more commentary on our business development efforts in a moment. Credit quality continues to remain strong. Our nonperforming assets declined by just over 8% compared to the end of the first quarter. This marks the third consecutive quarter in which we've reported a decline in nonperforming assets. We did record a provision of $11.5 million for the quarter, which was primarily related to the day one accounting provision requirements for acquired loans. I'll close my initial remarks by mentioning that we successfully closed our mergers with National United Bank and FNB Bank effective May 1. We also completed the operational integrations of both banks during the month of June. These transactions collectively added approximately $1.6 billion in assets to our franchise. As expected, the teams from both banks have been a great addition to our company, and we look forward to seeing their successes continue to contribute to our growth efforts.

I'll now turn to John and allow him to discuss our financial results in more detail.

John G. Copeland -- Senior Executive Vice President, Treasurer and Chief Financial Officer.

Thanks, Dan. slides five through seven show our summary income statement as well as details of our noninterest revenue and expenses. Dan has already mentioned the trend in our EPS and PPNR numbers. I'll disclose -- I will focus my comments this morning on our net interest margin as well as a few other items that had variances compared to the first quarter of 2021. Before we begin that, I would like to point out that the two transactions that closed May 1, and which are noted on slide four in the M&A Update section, will certainly impact the comparability of the information shown on these three slides.

The 4.3% quarter-over-quarter increase in net interest revenue that you see on slide five was primarily the result of these transactions. As we've said for several quarters, the balance sheet dynamics for BancorpSouth and the industry continue to put pressure on the margin and net interest income. We reported a net interest margin excluding accretion of 2.94% for the quarter compared to 3.08% for the first quarter of 2021. This compression continues to be driven primarily by balance sheet mix. Going into the pandemic, the expectation was that PPP would be a temporary drag on margin. However, the reality is that liquidity has done nothing but increase while we work through the forgiveness and sale of PPP loans, which has put further pressure on margin given the relatively lower yields in our securities portfolio.

As we look further at some of the individual components, our loan yields, excluding PPP and accretion, declined by 10 basis points from 4.49% for the first quarter to 4.39%. We also saw a comparable decline in our cost of deposits from 33 basis points for the first quarter to 27 basis points. While we expect it to be lumpy and take some time, we remain optimistic that we can continue to drive deposit costs down, particularly in the time deposit and public fund products. Regarding PPP, net interest income for the quarter included approximately $3.7 million of accelerated income recognition associated with PPP loans that were forgiven or paid off during the quarter.

As Dan mentioned, the remaining PPP balance at the end of the second quarter was only $167 million. Accordingly, the balance of unrecognized net fees associated with this program is not material. slide six shows the breakout of our noninterest revenue components. You'll notice here the $21.6 million gain on sale of PPP loans that Dan mentioned earlier. Beyond that, the primary variances outside of the impact of the merger closes are in our mortgage production and servicing revenue as well as in our insurance commission revenue. Chris will discuss both of these business lines more in a moment, but I would just briefly say that we've known that the elevated mortgage revenue that we reported through the refi cycle wasn't sustainable. While that will provide a headwind going forward, our insurance team is seeing and expect to continue to see the benefits of a firming premium market. slide seven provides the details around our noninterest expense, which was very stable quarter-over-quarter.

Outside of merger expenses, which is obviously elevated with the two merger closings and integrations as well as the Cadence transaction, the only variance of note here is in salaries and employee benefits, which increased just over 7% compared to the first quarter. This variance is driven by the $3 million equity incentive comp accrual true-up that lowered our first quarter salary and benefits total combined with the comp expense associated with the two merger closings. I don't think that any of the other line items here warrant any additional discussion. That concludes my comments on the financials. Chris will now provide some color on our business development activities.

Chris A. Bagley -- President and Chief Operating Officer.

Thanks, John, and good morning, everyone. Starting with slide eight, you will see our current funding mix. We reported $1.7 billion in deposit and customer repo growth for the quarter. $1.5 billion of the growth was added with the National United and FNB mergers, we also realized organic deposit growth for the quarter of $225 million or just over 4% annualized. Second quarter has historically had pressure on deposits from a tax and public runoff, but this is obviously an unprecedented environment from a liquidity perspective.

We continue to focus on bringing our deposit costs down. Our total cost of deposits declined another six basis points to 27 basis points. With our time deposit book still at a weighted average of around 1% for the quarter, there's additional rate to continue to drive total deposit costs down. In addition to the time deposits, our public fund rates should continue to see downward pressure as well, although, as John mentioned, that will be somewhat lumpy. Moving to slide nine, you'll see similar data for our loan portfolio. The PPP, or triple P as we call them, and acquisition activity, both of which have been discussed, obviously, creates a number of moving parts in the loan portfolio. When we adjust for those items, we actually reported net organic growth for the quarter for the first time since pre-pandemic.

While $65 million organic growth is nominal, we view it as a win considering the environment we've been in. Even with the liquidity in the market, there's activity in the loan market, especially around multifamily home construction, but also continues to be true as a very competitive pricing environment around quality credits. Moving to slide 10, you'll see key credit quality highlights for the quarter. As Dan already mentioned, we saw another sequential quarter decline in total nonperforming assets, and our BXS-originated criticized assets declined as well. All in, including acquired assets, total nonperforming assets to total loans and total assets at 56 and 37 basis points, respectively. We experienced net recoveries for the quarter at five basis points annualized. We did record a provision for credit losses of $11.5 million, primarily as a result of day one CECL requirements associated with the acquired loans from the two mergers closed this quarter. This provision, along with the reserve on PCD loans, contributed to an allowance coverage ratio of 1.79% of net loans and leases excluding PPP loans.

While we do continue to actively monitor the segments of the loan portfolio that have been identified as higher risk as a result of the pandemic, as shown on slide 11, it is clear that at this time, the economies in the markets we serve are performing well. There are currently no commercial loans and payment deferment from the pandemic, and there's a small dollar amount of loans still on interest-only, primarily in the hospitality group. Our view today is that these credits are improving, and our current expectation is that they will return to scheduled payments as the interest-only periods expire in the back half of 2021. slide 12 provides a five quarter look at our results for insurance and mortgage products. Mortgage reported origination volume of $906 million for the quarter, 68% of which was purchase money. While the pipeline remains elevated relative to historical levels, it did decline quarter-over-quarter as we work through a large portion of the remaining refinances. This decline contributed to an expected decline in margin for the quarter. Moving to insurance. Total commission revenue for the quarter was $36.1 million, which represents an increase of about 9% over the second quarter of last year. We've seen a steady increase in revenue due to a combination of winning new customers and continued firming in the premium market. We are seeing rate increases across the board, particularly in the P&C space.

Now I'll turn it back over to Dan for his concluding remarks.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Thanks, Chris. I would like to see a more robust environment in terms of growth and interest rate environment. Our Board and management team are both proud of the successes that have been achieved by our teammates. Most importantly, we've maintained outstanding credit quality throughout this cycle. Our bankers did a tremendous job of utilizing the Paycheck Protection Program as an opportunity to deepen relationships with our current customers and also develop new ones. Successes on the deposit side of the balance sheet obviously speak for themselves.

And finally, as to our other frontline efforts, our mortgage team continues to maintain a strong purchase money pipeline. Our insurance team is taking advantage of the firming market, and our wealth management team continues to grow assets under management. I'm looking forward to getting back out on the road in the coming weeks and continuing to spend time visiting with our folks and meeting more of the Cadence team. As I said earlier, the combination of our companies, creating a new Cadence, provides us with a unique opportunity to create an organization with scale and expertise within the fastest-growing parts of the United States. Truly a win-win-win-win: a win for our shareholders, a win for our customers, a win for our teammates and a win for the communities we serve.

Operator, we'll now be happy to answer any questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from Jennifer Demba with Truist Securities. Please go ahead.

Jennifer Haskew Demba -- Truist Securities -- Analyst

Dan, can you hear me?

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Jenny, yes, we can.

Jennifer Haskew Demba -- Truist Securities -- Analyst

Just curious about the lending pipeline as it stands now versus a few months ago. You said you're hoping loan growth is going to improve here soon. What are you seeing and what types of geographies are stronger and asset classes are stronger?

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Yes. C&I is where there's some strength, and Texas and a couple of other places is where we're seeing some of that. So if you pull back the PPP noise of the quarter and you look at what was really happening and you pull off the acquisition noise of the quarter and then look at the territories, Texas grew, the Florida Panhandle grew, and I think Missouri grew a little bit on top of that. So we're seeing some opportunities. But Texas has consistently, now for 10 or 12 or 15 quarters, just continued to grow.

Jennifer Haskew Demba -- Truist Securities -- Analyst

And can you just talk about the pipeline, how it looks now versus -- is it larger than it was a few months ago?

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Yes. I'm going to let Chris jump in here on pipeline, but the pipeline's been holding in pretty well. I don't know if larger, but it's going to be very similar.

Chris A. Bagley -- President and Chief Operating Officer.

Yes. Pipeline's rolling in well. In the last 60 days, we've -- our economies have opened up, our communities opened up, and that's allowed us -- and are starting making more calls and log more pipelines. It is competitive, but I think we've got good data and good calling efforts going on, and it is creating a pretty good queue for us to explore. Android, Texas and Florida have been successful. Opportunities in multifamily are presenting themselves in some of those geographies, especially Texas. And the C&I space is pretty strong today.

Jennifer Haskew Demba -- Truist Securities -- Analyst

Okay. And my second question is on expenses. Can you just kind of give us an -- some thoughts on the outlook given you just integrated the two deals that closed in May? Can you talk about the outlook there?

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Yes. I'll let John jump in here on that one, too. Jenny, clearly, we closed on May 1. So we're 60 days in at quarter end to those two transactions. We integrated them onto our systems. We will continue to be able to lower some expenses out of those 2, but we were fully loaded with two months of expense run in the quarter. So in the next quarter, even with some cost savings in place, we've got three full months of those two acquisitions coming forward. John, you want to jump in on that?

John G. Copeland -- Senior Executive Vice President, Treasurer and Chief Financial Officer.

Yes. We pretty much held the line, Jenny, in the second quarter. We did have a jump up in salary and benefits, and much of that is due to the May one acquisitions, those two May one acquisitions.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

And 1Q was depressed because...

John G. Copeland -- Senior Executive Vice President, Treasurer and Chief Financial Officer.

And then -- yes. And Q1 was down about $3 million because of a true-up -- accrual true-up that we had in the first quarter. So all in all, it's pretty even quarter-over-quarter after just making those adjustments.

Jennifer Haskew Demba -- Truist Securities -- Analyst

So do you think -- are you looking for kind of a flattish third quarter as you have the full load of the deals but some cost savings come in?

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

I think we're working hard to try and control expenses every way we can, just as we always have. I don't know that we've got a guidance on what the expense run rate will be for the third quarter. We know we've got cost saves coming in from the two small transactions that we completed on May 1. We know we've got a full quarter of them. So you've got revenue for three months on top of the expenses for three months there. I don't know that we have a number for you for the third quarter, but we feel pretty good about our ability to control expenses.

John G. Copeland -- Senior Executive Vice President, Treasurer and Chief Financial Officer.

And we feel good about the small acquisitions that we've done, Jenny. They typically are more efficient, at least via the efficiency ratio, than we are before acquisition. And then after acquisition, we do have a fair amount of cost saves coming into play. They're small, so they don't have a huge impact on our efficiency ratio, but they do help going forward.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

So Virtually, none of those were in place in the second quarter.

John G. Copeland -- Senior Executive Vice President, Treasurer and Chief Financial Officer.

Right.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Whatever cost saves is going to come in 3Q and 4Q.

John G. Copeland -- Senior Executive Vice President, Treasurer and Chief Financial Officer.

That's right.

Operator

Our next question will come from Michael Rose with Raymond James. Please go ahead.

Michael Edward -- Raymond James -- Analyst

Just wanted to touch on, because you mentioned it in the press release, just that the buyback authorization is outstanding. I know we got the shareholder vote coming up on August 9. I mean, could we assume given where the stock is trading, that you would look to pull the trigger, assuming that the deal is approved? Do you have the authority to utilize that buyback either before or after the shareholder vote just given where the stock is?

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Yes. I think that's a great question. And yes, I don't think anybody is pleased with where the stock is. I think the buyback is certainly in the cards. I think that we cannot execute prior to the shareholder meeting on August 9. But post that, I think -- unless there's some other reason that we wouldn't be able to trade, I think that we're in an open window at that point.

Michael Edward -- Raymond James -- Analyst

Okay. That's helpful. And then maybe just on the insurance income. This is a really strong quarter. I think we all know it's a pretty hard pricing market out there. Can you just give us some color and outlook as to how we should think about trends as we move forward? And then what's the appetite here for additional insurance acquisitions? I know they're a little bit pricey, but you guys have been pretty active in that space over the past few years.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

I'll start with the back side of that and let Chris have the front side of that.

Chris A. Bagley -- President and Chief Operating Officer.

I was going to say it sounds like an insurance guy talking about hard commissions and all that.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Yes. Yes. Hard price. Pricing is definitely good. From an M&A perspective, I think that there are opportunities out there. We want to continue to look for those opportunities. You're right, pricing is there. But I think we've got a good fit for many of the smaller property and casualty brokers that are out there that would fit well with us. And so I think our team is continuing to have conversations with opportunities. Certainly, as we expand our footprint with the Cadence transaction, they would like to be able to expand with us. They're looking for those growth opportunities. So I think there's real opportunity in that line. Chris, talk about the revenue pickups.

Chris A. Bagley -- President and Chief Operating Officer.

Yes. I think you described it. It's a hard market out there, but we're also winning some business. So it's a combination of that. And I would tag on to Dan's comments that I think the expanding footprint will help us. But also our insurance team does a great job growing talent and producers inside. So I mean that's a tribute to them. And they've got a good model of bringing folks in and training them to produce. And I think that will help us expand our presence while we are also searching for acquisition opportunities.

Operator

Next question will come from Kevin Fitzsimmons with D.A. Davidson. Please go ahead.

Kevin Patrick Fitzsimmons -- D.A. Davidson & Co -- Analyst

So on the PPP sale, on behalf of all those that have to try and model that in for the margin and loan growth, I'll start with that. But if you can give us a little -- your frame of thought going into that, because I suspect that it's an equally frustrating thing for you guys, or more so, for you to deal with internally. And you mentioned that it can be a distraction from your core operations. So I'm just wondering, the fact that you chose to accelerate that, is that a reflection on you seeing better loan growth out there coming in the near term that you don't want to miss or you don't want to be distracted from? Or are there other puts and takes in that decision?

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Yes. So let me start back with the decision process. So I think that there were buyers out there for PPP all along. Pricing bounced around. We had an automated process that we're still driving today that was making it run fairly smooth for us but with -- we produced 24,000 PPP loans. So just the raw number of customer contacts that you have to go through on the forgiveness piece was time-consuming on our team. So as that pricing continued to improve, and you can see from the numbers, we basically pulled forward every bit of the revenue that we would have recognized in the second or third or fourth quarters through normal forgiveness process, we just eliminated the workload for those almost 13,000 loans that we were able to move over to a new servicer. So the decision was pretty easy on -- take all the revenue now.

There's no real discount to speak of a little bit. But by the time you took all the technology cost in time, it was a big win for us to move that off of our relationship managers and allow our relationship managers to get back focused on doing what they do best, which is take care of our customers. I don't know that I would tell you that across our entire footprint, we're seeing tremendous growth opportunities. But I think being out in front of customers gives us those opportunities. And there are parts of our footprint that are seeing tremendous growth opportunities. And frankly, I think we've had a pretty good success in hiring folks and bringing new folks on to help us grow revenue producers. So I think that the focus has been -- for the last 18 months, has been taking care of the PPP process. That's been an all-hands-on-deck program for us. It took lots of time, lots of effort. And it was beneficial to us, obviously, from a revenue standpoint. But we want to be focused back on taking care of our customers, and this gives us the ability to do that.

Kevin Patrick Fitzsimmons -- D.A. Davidson & Co -- Analyst

Okay. Great. Just a quick follow-up. Just to the best you can as we're looking forward on the margin, so at 2.99 in the second quarter -- and I know largely removing PPP removes, on one hand, the drag from the loans. It also removes the accelerated fees going forward. The excess liquidity still remains considerable. So should we expect that to continue to grind lower but at a slower pace and eventually stabilize? How should we view that margin?

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

I'm sorry. I was -- punched the wrong button. I said I'll let John jump in here on this in just a second. A large piece of this is just balance sheet size. So we continue to see deposit inflows. We continue to manage deposit costs down. We think we continue to manage deposit costs down. But those deposit costs that are just deposit inflows, there's just nowhere to put that, that's going to continue to be able to hold. So the larger the balance sheet gets, the more pressure it puts on the margin. If the balance sheet holds, John, I'll jump from there, is if the balance sheet holds, where are we?

John G. Copeland -- Senior Executive Vice President, Treasurer and Chief Financial Officer.

Well, if you look at the quarter, 2.99 before adjusting for accretion, lower because, as Dan said, balance sheet mix, that's with a 35% of our earning assets and investments and short term -- investment securities and short-term investments, 35%. That cost us about 50 bps in the margin, that balance sheet mix. If you go back to 2016 second quarter, investment securities was 18% of earning assets. So that's the difference there, about 50 bps between those two profiles going back. Let's talk about the positives before we talk about any more of the negatives. Certainly, we did have net loan growth in the quarter. So that bodes well. Loan rate for protection is about 50% of our variable and floating rate loans. We've got about $10 billion variable and floating rate, about $5 billion there in loan floors. Now that is -- those, on average, are paying a 4.38%, but fully indexed rates 3.72%. So it's going to -- it would take three or four rate movements probably to start seeing some good from rate movements upward.

Loan yields, though, are holding up pretty well. We are chipping away at deposit costs. And as Dan mentioned earlier, credit quality remains pretty darn good. The negatives: loan growth was not robust. If we have the continued outsized deposit growth, that will further dilute the margin. As we get more of a concentration in short term securities and investments in our earning assets, that's going to further dilute the margin. So what's going to happen with loan growth and what's going to happen with this outsized liquidity that we're seeing? Those are, I think, the two keys to improving the margin. We may be near the trough if we could start to have some decent loan growth and the liquidity slows down. So 2 80 after adjusting for PPP and accretion may be somewhat of a trough. We'll have to see.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Lots of moving parts.

Kevin Patrick Fitzsimmons -- D.A. Davidson & Co -- Analyst

Okay. Great. Yes, certainly, but a few less with PPP gone.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Trying to clean up there. Appreciate it, Kevin. Thanks for your help.

Kevin Patrick Fitzsimmons -- D.A. Davidson & Co -- Analyst

Thank you.

Operator

Our next question will come from Matt Olney with Stephens. Please go ahead.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Good morning, Matt.

Matthew Covington Olney -- Stephens Inc -- Analyst

I want to stick with that last question around the strategy of securities portfolio. Is the strategy just to layer in gradually as the deposits come in, just to continue to gradually buy securities? Or are you being more selective based on the yield curve? I guess the question is partially around the timing of the 2Q purchases given we saw a fight in the yield curve in the back half of the quarter.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

The timing of the purchases of -- say that...

Matthew Covington Olney -- Stephens Inc -- Analyst

Of the securities in 2Q. Were those more layered throughout the quarter? Or are those more loaded in the front half or the back half?

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Yes. I don't think we bought anything during the big trough that happened in the last couple of weeks here, if that's what you're talking about. And most of that would have already been on coming into the quarter and then early in the quarter as we were looking at liquidity. But we're certainly price-sensitive to what's happening out there. We're watching the market just like everybody else.

I think as we're looking at the securities ladder that's been built out there and the cash flow that flows -- that throws off from that, I think we feel like we can continue to manage that. And we're better off having it earning something over virtually nothing in overnight funds because of the cash flow that's coming in from the portfolio in total. John, do you want to add to that?

John G. Copeland -- Senior Executive Vice President, Treasurer and Chief Financial Officer.

So we've been buying mortgage backs gradually. As liquidity comes in, mortgage backs at 1, 1 05, something like that that's throwing off -- depending on prepayment speeds, throwing off some good cash flows as we go through time. But mostly mortgage backs, yes.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

It'd be much better if we could put it in the loan book.

Matthew Covington Olney -- Stephens Inc -- Analyst

Sure. Yes, I know. Appreciate that.

John G. Copeland -- Senior Executive Vice President, Treasurer and Chief Financial Officer.

We're giving up versus loan book 350 basis points in the spread, certainly. So yes, that's a negative.

Matthew Covington Olney -- Stephens Inc -- Analyst

Well, I guess the other part to the question is, the strategy of BancorpSouth seems to be quite a bit different than what we're seeing at Cadence right now in terms of their portfolio and their liquidity build. So just trying to appreciate, when those balance sheets do come together, if -- should we anticipate a more active deployment of their excess liquidity once it's closed?

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

I don't know that we've made that decision yet. Our integration teams are talking daily. Certainly, the accounting and ALCO teams are talking every day as we ramp up toward the finish line here. I think we both know what each other is doing. I think that the hope is that we can deploy that and C&I credits in a faster way. Their balance sheet is built a little different than our balance sheet. I think that's one of the strengths of putting the two companies together, is the diversification that it brings to us. I don't know that we have an answer for you as to whether we would expect to see the $2 billion in overnight funds that they're carrying moved into a bond portfolio at some extremely low rate.

Matthew Covington Olney -- Stephens Inc -- Analyst

Okay. That's helpful. Thank you, guys.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Thank you.

Operator

Our next question will come from Brett Rabatin with Hovde Group. Please go ahead.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Hi Brett.

Brett D. Rabatin -- Hovde Group -- Analyst

Wanted to ask about mortgage and just maybe the trends in the quarter. I was a little surprised the gain-on-sale margin. I was just curious, one, does that bounce back any? And then the pipeline was down a little bit from 1Q. I guess I'm just looking for a bit of an outlook on the mortgage banking piece of the business.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Sure. I think that I'm going to jump in and let Chris take that, too. So when you're looking at the pipeline being down, that's what drives the margin down. So the negative move in the pipeline has an exponential move on to the margin. If we can grow the pipeline in this quarter, and there's a possibility that, that could happen, then we can see some swing back the other way. Even if the pipeline stays flat, you're going to see some pickup because that's a depressed margin from our normal rates along the way. I think one of the things that you'll see is refi in the quarter was only 32% of our production. So we were 70% -- or 68% purchase money, 32% new money in the quarter.

We think that our team is out continuing to mine for business. When you're looking at just total overall origination volume, we're actually ahead year-to-date in the first six months over where we were in the first six months of 2020. So from a volume standpoint, we're hanging in there. We had a $1.4 billion, almost $1.5 billion last year, and we're at $1.7 billion in production in the first six months of 2021. So the team's out there working hard. I think the margin is obviously a factor of the pipeline changes. Chris, do you want to add on to that?

Chris A. Bagley -- President and Chief Operating Officer.

No. You explained it well. As you know, it's the revenue recognition accounting guidance and the way those are presented, so it makes it a little bit lumpy. I think given the unprecedented volumes we've experienced the last few quarters, it's almost best to look at it maybe over a bit of a time. And we've talked about that in prior years, how the margin can bounce around. And it depends a lot on the deliveries and the accounting recognition on rate locks.

And without going into all that, I would tell you that there's probably some downward pressure on margin. 1.35 is too low. It's probably more like the -- if all production volumes and rate locks were the same every month or every quarter, you'd probably see a two to a little bit maybe 2-plus type margin kind of stabilize there. It clearly peaked out a little higher than that when the production volumes were just out the roof last -- half of last year. But I would expect us to move to -- it's still high. Pipelines are still good. I think it's going to move to more seasonality, and a lot of it will depend on housing availability in some of these markets that are really good as the refi market...

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Availability of product is the key. We hear that from all of our producers.

Chris A. Bagley -- President and Chief Operating Officer.

Yes, especially in the Texas market. So refi may slow, and then some of that will depend on the availability of new stuff.

Brett D. Rabatin -- Hovde Group -- Analyst

Okay. Appreciate the color on that. And then the other thing I was curious about was there's the usual commentary from some players talking about opportunities with M&A to maybe pick up people. And I know I asked about this earlier once the deal was announced but was just curious for any update on how the retention has been with -- from the Cadence side in terms of tying up the people and keeping the core revenue producers with the pro forma company.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Yes. I think the answer's fantastic. Paul and Hank and Chris and Valerie and I, as we've been on the road talking to folks, there's not a whole lot of direct overlap. So those teams are excited about continuing to grow with a bigger balance sheet. I think to my knowledge, I can't name anybody that has left. They've done a great job on retention. We had some retention agreements out upfront. So certainly, the key folks were locked in with some retention awards along the way. But I think the team is excited as we made the rounds this past month just visiting in a couple of places, and we've got a couple of more stops scheduled in the next couple of weeks. Lots of smiling faces, lots of excitement about what's going on. We haven't had -- to date, we haven't seen any attrition that I would be able to speak of.

Brett D. Rabatin -- Hovde Group -- Analyst

Okay. Great. Appreciate the color.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Thank you. Appreciate to you.

Operator

Our next question will come from Catherine Mealor with KBW. Please go ahead.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Hi, Catherine.

Catherine Fitzhugh Summerson -- Keefe, Bruyette -- Analyst

Most of mine have been answered, but just maybe one follow-up on growth. If we -- can you give just kind of color on where the pickup in growth is coming from? It was a little bit hard to determine in the release with the PPP loans coming out and then the two deals coming on from a geographic and a loan type perspective where that growth is coming from. It looks like C&I loans declined a lot, but I think a lot of it's really just from the PPP sale.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

That's correct.

Catherine Fitzhugh Summerson -- Keefe, Bruyette -- Analyst

So just kind of color on where you're really seeing that new loan generation.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Yes. That's -- you're spot on, on the PPP, is coming mostly out of the C&I category, which puts a blanket on those numbers. C&I ex PPP grew, and again, Texas is the star geography in the process. There were a couple of other geographies that grew a little bit, but Texas had the biggest part of that. And C&I is where that growth is coming from. Chris?

Chris A. Bagley -- President and Chief Operating Officer.

That's it. We drilled down the numbers that we -- the PPP noise in the C&I was disclosed or covered in that C&I book. So you're right, it would be hard to see it. But if you drill down, most of it -- most of that organic growth came from the C&I space. And then the geographic markets we mentioned and most of that opportunities there, they're just mixed, but some of the bigger opportunities are more multifamily.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

We were down to $167 million in PPP at the end of the quarter, and that number is continuing to decline on a daily basis. My hope would be that we would be virtually out of it at the end of the third quarter and certainly completely out of it by the end of the fourth quarter.

Catherine Fitzhugh Summerson -- Keefe, Bruyette -- Analyst

Right. That's all I got. Appreciate the color.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Thank you, Catherine.

Operator

[Operator Instructions] Our next question will come from Jon Arfstrom with RBC Capital Markets. Please go ahead.

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

A few follow-ups. On PPP, what did you keep? And what was the decision behind...

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

The answer is anything that was in the process of forgiveness, we kept. You can't move something that's in the process of forgiveness. And then we acquired some little parts of PPP through the two small acquisitions, and we didn't have the ability to divest that. So anything that was in the process of forgiveness or acquired through the two acquisitions is what stayed on the balance sheet.

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

A little more on your trips across the footprint. Can you give us a little bit more on the new information you picked up? And I'd just be curious what kind of critical feedback you picked up where you said this is something we didn't realize that we had to focus on, just kind of pluses and minuses?

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

I don't know that there's been a whole lot of minuses because I think we had seen and knew where we were. I think most of our trips have been focused on with the revenue producers out front on what kind of appetite is there. Can we continue to grow? We've got a bigger balance sheet. What does that mean for us? The -- all of our concentrations on our sub. We've been visiting with BXS folks just as much as Cadence folks and on both sides of the aisle, our team has been in some concentration penalty boxes on some CRE buckets that we have tried to slow down because of our concentration issues. Cadence had some concentration issues that they were trying to throttle back a little bit. And I think the diversification that we bring to each other is a big plus.

So again, most of the conversations have been very positive. On the support teams that are behind us, lots of conversations going on. It's early in the game on all the different decisions that have to get made on a day-to-day support and where we're going because we'll be well into 2022 before we start flipping the switch to actually merge technology together. But lots of work going on behind the scenes, and that just creates questions.

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

Chris, a question for you. When do you think some of this deposit growth will moderate? What are some of the signposts you're looking at and considering?

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Is that for Chris?

Chris A. Bagley -- President and Chief Operating Officer.

Yes. That's a great question. Our deposits grew over the last 18 months, in some cases, while we basically had our doors locked. So it's really been an unprecedented time of liquidity that's flown into the system. I can't answer your question. I would have expected it.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

We're at $1.5 billion in organic growth in the first six months of the year.

Chris A. Bagley -- President and Chief Operating Officer.

Right. But even going back to 2019, pre-pandemic, back of the envelope, I mean, I think we were up $6 billion. And you can put $2 billion or $3 billion of that to acquisition. It's just -- that's a lot, and it's staying, so far. Maybe I can call the government and ask them. Maybe they can answer your question.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

And the new -- there was additional stimulus money that was put out just in this month. We're seeing the electronic deposits flow through on the child tax credit payments now.

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

It kind of segues to my last question. But John, maybe for you. On the card revenues and the deposit service charge revenues, would you consider those back to normal from your point of view? Or do you think there's still more room for this to recover?

John G. Copeland -- Senior Executive Vice President, Treasurer and Chief Financial Officer.

The increase in credit card, debit card and merchant fees quarter-over-quarter?

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

Yes. Quarter-over-quarter or year-over-year. I'm just curious if you feel like that's normalized somewhat or you've -- you just alluded to some of the payments that you're seeing flow through. Do you think there's still more room for that to rebound?

John G. Copeland -- Senior Executive Vice President, Treasurer and Chief Financial Officer.

I think there may be some normalization in there, certainly getting back to normal in the economy. So I think it's partly that.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Card revenues looks good. And so again, I think when we look back and compare even wherever we were during the pandemic, the card services dropped way off, but they're back better than they've been. And then on the other side of that is the deposit service charges. Deposit service charges are still running light, and that would be in NSF insufficient funds category. Those revenue lines are continuing to be pressured, primarily because people have got cash.

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

I guess one more, Dan. I asked this on the merger call. Any more feedback from your side on the name change? Or you view it as really a nonissue?

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Say that one more time, Jon.

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

On the name change, any more feedback from your side on the name change that's coming? Or do you view it as a...

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Yes. That's certainly quieted down as we've made the rounds and we've had the opportunity to discuss the whys behind what we're doing and the future growth opportunities with a name like Cadence Bank. I think that's fairly well behind us from the current state, but we all are fully aware that when a sign changes sometime in 2022, that will rear its head up again and we'll be dealing with it. We know we've got to spend energy, time, effort and money on a rollout of a name change. And when we said all along is we want to make a new Cadence. And so our marketing teams are actively working together to build that process out as we speak.

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

All right, thanks guys. Appreciate it.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to the management team for any closing remarks.

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

All right. Thank you all for joining us today. Look forward to catching up with you again in the near future as we're out and about. Thank you for your support of our company. Otherwise, we look forward to speaking with you again soon. Thank you.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Will Fisackerly -- Executive Vice President and Director of Corporate Finance

James D. Rollins III -- Chairman of the Board and Chief Executive Officer

John G. Copeland -- Senior Executive Vice President, Treasurer and Chief Financial Officer.

Chris A. Bagley -- President and Chief Operating Officer.

Jennifer Haskew Demba -- Truist Securities -- Analyst

Michael Edward -- Raymond James -- Analyst

Kevin Patrick Fitzsimmons -- D.A. Davidson & Co -- Analyst

Matthew Covington Olney -- Stephens Inc -- Analyst

Brett D. Rabatin -- Hovde Group -- Analyst

Catherine Fitzhugh Summerson -- Keefe, Bruyette -- Analyst

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

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