BancorpSouth Bank
Q2 2021 Earnings Call Transcript

Published: 22 Jul 2021

[Will Fisackerly:]

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.

[Dan Rollins:]

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. 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 2 contains the legal reminders Will already discussed. The most noteworthy item of the quarter was obviously the April 12th announcement of our transaction with Cadence Bank. There's some summary information regarding the transaction on Slide 3. 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 towards 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 of 2021 transaction closing. We continue to believe this transaction is a great fit for our shareholders, our customers, our communities and our teammates. Slide 4 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.

[John Copeland:]

Thanks Dan. Slides 5 through 7 show our summary income statement, as well as details of our non-interest revenue and expenses. Dan has already mentioned the trend and our EPS and PP in our numbers have disclosed our 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'd like to point out that the two transactions that closed May 1st and which are noted on Slide 4 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 increased in interest revenue that you see on Slide 5 was primarily the result of these transactions. And as we've said for several quarters, the balance sheet dynamics for BancorpSouth and the industry continued to put pressure on the margin and the 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 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 the positive 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 payoff 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 6 shows the breakout as our non-interest 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 in a moment, but I would just briefly say that we've known that the elevated mortgage revenue that we've reported through the refi cycle wasn't sustainable. While that will provide a headwind going forward, our insurance team has seen and expected to continue to see the benefits of affirming premium market.

[Chris Bagley:]

Thanks, John and good morning, everyone. Starting with Slide 8, you'll 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 of 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 6 basis points to 27 basis points, but our time deposits still at a weighted average of around 1% for the quarter, there is additional revenue to continue to drive total deposit costs down. In addition to the time deposits or public fund rate should continue to see downward pressure, as well, although, as John mentioned, that will be somewhat lumpy. Moving to Slide 9, you'll see similar data for our loan portfolio, PPP or PPP we call them, an acquisition that came in, both of which have been discussed, obviously trades 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 wind considering the environment we've been in. Even with the liquidity in the market, there is activity in loan markets, especially around multifamily, home construction, what also continues to be true is, 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 non-performing assets, and all the excess originated criticized assets declined as well. All in including acquired assets, total non-performing assets to total loans and total assets at 56 basis points and 37 basis points respectively. We experienced net recoveries for the quarter of 5 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 in this quarter.

[Dan Rollins:]

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 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 the 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, win for our shareholders, a win for our customers, a win for our teammates and a win for the communities we serve.

[Operator:]

We will now begin the question-and-answer session. Our first question will come from Jennifer Demba with Truist Securities. Please go ahead.

[Jennifer Demba:]

Hi Dan, can you hear me?

[Dan Rollins:]

Hey, Jenny; good morning. Yes, we can.

[Jennifer Demba:]

I'm 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?

[Dan Rollins:]

Yes. C&I is where there is 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 I know we're seeing some opportunities, but Texas has consistently now for 10 or 12 or 15 quarters just continued to grow.

[Jennifer Demba:]

And can you just talk about the pipeline. How it looks now versus – is it larger than it was a few months ago?

[Dan Rollins:]

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

[Chris Bagley:]

Yes. The pipelines are running in well, in the last 60 days we've – our economies have opened up, our communities opened up and that's allowed us and start 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’s creating a pretty good key for us to explore, Texas and Florida have been successful opportunities in multifamily are presenting themselves. And some of those geographies, especially Texas and the C&I space is pretty strong today.

[Jennifer Demba:]

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

[Dan Rollins:]

Yes. I'll let John jump in here on that one too. Jenny clearly, we closed on May the 1st, so we're 60 days 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 two, 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, four months of those two acquisitions coming forward. John, you want to jump in on that?

[John Copeland:]

Yes. We've 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 1 acquisitions, those two May 1 acquisitions.

[Dan Rollins:]

And one was depressed because…

[John Copeland:]

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 Demba:]

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?

[Dan Rollins:]

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 right 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 the 1st. 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 Copeland:]

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 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 have, they do have going forward.

[Dan Rollins:]

Reversing none of those were in place in the second quarter.

[John Copeland:]

Right.

[Dan Rollins:]

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

[John Copeland:]

That's right.

[Jennifer Demba:]

Okay. Thank you.

[Dan Rollins:]

Thank you for your help.

[Operator:]

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

[Dan Rollins:]

Good morning, Mike.

[Michael Rose:]

Hey, good morning everyone. Hey, good morning. Thanks for taking my – I'm good, how are you?

[Dan Rollins:]

I'm good. Coughing.

[Michael Rose:]

Yes, we can hear, hopefully you're okay. Just wanted to touch on, because you mentioned it in the press release, just that the buyback authorization is outstanding, I know we've 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 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? Thanks.

[Dan Rollins:]

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. Pardon me, I think that we cannot execute prior to the shareholder meeting on August 9, but post that, I think, unless there is some other reason that we wouldn't be able to trade, I think that we're in an open window at that point.

[Michael Rose:]

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. Thanks.

[Dan Rollins:]

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

[Chris Bagley:]

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

[Dan Rollins:]

Yes. Hard pricing. 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 a cadence transaction, they would like to be able to expand with us, they're looking for those growth opportunities. So I think there is real opportunity in that line. Chris, talk about the revenue pickups.

[Chris Bagley:]

Yes. Thank you. You described it as a hard market out there, but we're also winning some business. So it's a combination of that. And I would tag onto Dan's comments that I think the expanding footprint will help us, but also our insurance team does a great job growing talent 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'll help us expand our presence while we are also searching for acquisition opportunities.

[Michael Rose:]

Great. Thanks for taking my questions.

[Operator:]

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

[Kevin Fitzsimmons:]

Hey, good morning everyone.

[Dan Rollins:]

Hey, good morning, Kevin. How are you?

[Kevin Fitzsimmons:]

I'm good, Dan. 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?

[Dan Rollins:]

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 a automated process that we're still driving today that was making it run fairly smooth for us. But 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 is no real discount to speak of a little bit, by the time you took all the technology costs and 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 taken care of the PPP process, it'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 Fitzsimmons:]

Okay, great. Thanks. Just a quick follow-up just to the best you can as we're looking forward on the margin. So at 2.99% in 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? Thanks.

[Dan Rollins:]

I'm sorry, I was punched the wrong button. I said, I'll let John jump in here on this in just a second. 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 cost down. But those deposit costs that are just deposits inflows, there is just nowhere to put that, it’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, if the balance sheet holds, where are we?

[John Copeland:]

Well, if you look at the quarter 2.99% before adjusting for accretion lower because as Dan said, balance sheet mix and that's where the 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 are in loan floors. Now that is – those on average are paying a 438, but fully index rates 372. So it's going – it would take a 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. And the negatives, loan growth was not robust. We – 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 improve in the margin. We may be near the trough, if we could start to have some decent loan growth and the liquidity slows down. So 280 after adjusting for PPP and accretion maybe somewhat of a trough, we'll have to see.

[Dan Rollins:]

Lots of moving parts.

[Kevin Fitzsimmons:]

Okay, great. Yes, certainly. But a few less with PPP gone. Thank you.

[Dan Rollins:]

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

[Kevin Fitzsimmons:]

Thank you.

[Operator:]

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

[Dan Rollins:]

Good morning, Matt.

[Matt Olney:]

Hey, good morning guys. I want to stick with that last question around the strategy of a securities portfolio. Is this strategy just to layer in gradually as the deposits come in just to continue to graduate by securities, or are you being more selective based off 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.

[Dan Rollins:]

The timing of the purchases of…

[Matt Olney:]

Of the securities in 2Q, were those more layered throughout the quarter or those more loaded in either the front half or the back half?

[Dan Rollins:]

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 – throws off from that, I think we feel like we can continue to manage that and we were better off having it, earning something over virtually nothing in overnight funds because of the cash flow that's coming in from the portfolio. And total, John, you want to add to that?

[John Copeland:]

We've been buying mortgage backs gradually, as the 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.

[Dan Rollins:]

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

[Matt Olney:]

Sure. Yes. I appreciate that.

[John Copeland:]

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

[Matt Olney:]

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 shouldn't appreciate when those balance sheets do come together, if should we anticipate a more active deployment of their excess liquidity once it's closed?

[Dan Rollins:]

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 towards the finish line here. I think we both know what each other is doing. I think that the hope is, is that we can deploy that in 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.

[Matt Olney:]

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

[Dan Rollins:]

Thank you.

[Operator:]

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

[Dan Rollins:]

Hi, Brett.

[Brett Rabatin:]

Hey, good morning, everyone. Good morning, Dan. Wanting to ask about mortgage and just maybe the trends in the quarter, I was a little surprised the gain on sale margin, just curious one, does that bounce back any and then the pipeline was down a little bit from 1Q. I figured, just looking for a bit of an outlook on the mortgage banking piece of the business.

[Dan Rollins:]

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 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, 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 mind for business, when you're looking at just total overall origination volume. We're actually ahead year-to-date in the first six months of where we were in the first six months of 2020. So from a volume standpoint, we're hanging in there. We got 1.4 billion, almost 1.5, last year and we're at 1.7 billion in production in the first six months of 2021. So the teams out there working hard, I think the margin is obviously a factor if the pipeline changes. Chris, you want to add onto that?

[Chris Bagley:]

No, you explained it well, as you can have it to 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 talked about that in prior years, how the margin can bounce around. And it depends a lot on the deliveries on 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 it too – little bit, maybe two plus type margin kind of stabilize there. It's clearly peaked out a little higher than that when the production volumes were just, out the roof last – half of last year a bit. I would expect this 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 and some of these markets that are really good as the refi market.

[Dan Rollins:]

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

[Chris Bagley:]

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

[Brett Rabatin:]

Okay. Appreciate the color on that. And then the other thing I was curious about was, 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 getting 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?

[Dan Rollins:]

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 have 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 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 Rabatin:]

Okay, great. Appreciate the color.

[Dan Rollins:]

Thank you. Appreciate you.

[Operator:]

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

[Dan Rollins:]

Hi Catherine.

[Catherine Mealor:]

Hey good morning. Most of mine have been answered, but just maybe one follow-up on growth. If we – can you give some 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 that's really just from the PPP sale…

[Dan Rollins:]

That’s correct.

[Catherine Mealor:]

So just kind of look forward on where you're really seeing that newer generation?

[Dan Rollins:]

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 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 Bagley:]

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

[Dan Rollins:]

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 Mealor:]

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

[Dan Rollins:]

Thank you, Catherine.

[Operator:]

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

[Dan Rollins:]

Good morning, Jon.

[Jon Arfstrom:]

Hey, good morning. Good morning. A few follow-ups, on PPP, what did you keep and what was the decision behind?

[Dan Rollins:]

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 Arfstrom:]

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. And we had to focus on just kind of pluses and minuses?

[Dan Rollins:]

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 what 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? All of our concentrations on our sub, we've been visiting with Texas 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 Arfstrom:]

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

[Dan Rollins:]

Chris?

[Chris Bagley:]

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

[Dan Rollins:]

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

[Chris Bagley:]

But even going back to 2019 pre-pandemic, back at the envelope, I mean, I think we're up $6 billion and you can put two or three of that to acquisition. It's just, that's a lot. And it's staying so far. Call the government and ask them, maybe they can answer your questions.

[Dan Rollins:]

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 Arfstrom:]

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 to just recover?

[John Copeland:]

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

[Jon Arfstrom:]

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

[John Copeland:]

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

[Dan Rollins:]

Card revenues looks good. And so again, I think when we look back at 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 live, and that would be in the NSF, insufficient funds category. Those revenue lines are continuing to be pressured primarily because people haven't got cash.

[Jon Arfstrom:]

I guess one more down. I asked this on the merger call. Any more feedback from your side on the name change, do you view it as really a non-issue?

[Dan Rollins:]

Say that one more time, Jon.

[Jon Arfstrom:]

On the name change, any more feedback from your side on the name change that's coming, or do you view it as a non-issue?

[Dan Rollins:]

Yes. That's certainly quieted down as we've made the rounds and we've had the opportunity to discuss the why's 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 as 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 Arfstrom:]

All right. Thanks guys. Appreciate it.

[Dan Rollins:]

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.

[Dan Rollins:]

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'll look forward to speaking with you again soon. Thank you.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.