Hancock Whitney Corporation (HWC) Q2 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Trisha Carlson, Investor Relations Manager. You may begin.

Thank you and good morning. During today's call we may make forward-looking statements. We would like to remind everyone to review the safe harbor language that was published with yesterday's release and presentation and in the company's most recent 10-K, including the risk and uncertainties identified therein. Hancock Whitney's ability to accurately project results or predict the effects of future plans or strategies or predict market or economic developments is inherently limited. We believe that the expectations reflected or implied by any forward-looking statements are based on reasonable assumptions, but our actual results and performance could differ materially from those set forth in our forward-looking statements. Hancock Whitney undertakes no obligation to update or revise any forward-looking statements and you are cautioned not to place undue reliance on such forward-looking statements. In addition, some of the remarks this morning contain non-GAAP financial measures. You can find reconciliations to the most comparable GAAP measure in our earnings release and financial tables. The presentation slides included in our 8-K are also posted with the conference call webcast link on the Investor Relations website. We will reference some of these slides in today's call. Participating in today's call are John Hairston, President and CEO; Mike Achary, CFO; and Chris Ziluca, Chief Credit Officer. I will now turn the call over to John Hairston.

Thanks, Trisha, and good morning, everyone. Results for the second quarter were solid despite a more challenging rate environment. We reported net income of $88 million or $1.01 of EPS, up $0.10 from last quarter. Loan growth occurred within a desirable mix and it yield strong enough to defray pressure on interest income, especially from LIBOR-indexed credits. Energy loans returned to just under 5%. And in current projections, we should be near 5% upon closing the transaction with MidSouth. We continued our focus on improving yield to help drive a better NIM, as noted on slide 7. Likewise, we are pleased to report another quarter of improved criticized and non-performing loan ratios, as noted on slides 9 through 12. We're near peer levels for criticized loan ratio and expect to close the GAAP compared to peer non-performing loan ratios over the next several quarters. Operating leverage increased $1.4 million, with revenue up $9.3 million, offset by an increase in expense of almost $8 million. The drivers of revenue, which Mike will go over in more detail in a moment, were mainly from fee income. All core business lines reported a linked-quarter increase and some specialty lines combined to contribute an excellent quarter for non-interest revenue. Expenses were up almost $8 million, with approximately $3 million of the change related to seasonal personnel expense. Expenses also included some non-permanent expenses and we reported about $1 million in professional services expense related to investments in new and upgraded technology we mentioned last quarter. There are also expenses directly associated to outperformance in card interchange income. As it was suggested before, we began investing in technology in 2017, directed towards becoming more scalable, more effective and more efficient at growing the granular portions of our business. We do expect technology-related expenses to increase in the back half of this year and in 2020, all of which are included in our 2019 expense guidance and fourth quarter 2020 CSOs. During this quarter our Capital One trust and asset management acquisition completed the systems integration and our entire wealth group is now on an enhanced platform. The conversion occurred on time and within budget, exceeding our targeted efficiencies. Now the integration-related distraction is behind us, we are looking to this group to continue growing fee income in the second half of 2019. During the quarter, we announced our acquisition of MidSouth Bancorp headquartered in Lafayette, with operations in both Louisiana and Texas. Slide 22 provides a refresher on transaction details. Since the announcement, we have submitted our regulatory filings and announced an estimated 20 branch consolidations expected upon transaction closure and simultaneous integration in late third quarter. Our capital remained strong this quarter, with a reported TCE of 8.75% at June 30, up 39 basis points from the end of the prior quarter. We recognized this is a higher level than our target of around 8%. However, we will maintain this current capital structure until we close the transaction with MidSouth. Once that acquisition is completed, we expect to consider opportunities ranging from organic growth to share repurchases and/or dividend increases. Finally, we recognized the near-term rate environment creates headwinds to achieve our previously determined CSOs. However, we remained focused on achieving those CSOs as scheduled. We will continue adopting strategies and improvements we believe are best for our clients, associates and to enhance shareholder value. I will now turn the call over to Mike for a few additional comments and details.

Thanks, John. Good morning, everyone. As John noted, the EPS for the second quarter was up $0.10 from last quarter. Drivers of the increase were mainly related to a $10 million lower provision for loan losses and additional fee income from specialty lines. If you recall, the last quarter's provision was elevated due to the DC Solar charge. Overall, we'd say, it was a good stable quarter. Loans came in just below our guidance. However, as we noted last quarter, we did expect a higher level of paydowns during the second quarter, mainly from CRE loans. We also saw payoffs and paydowns in energy and healthcare, which helped with our overall remix efforts. And finally, we sold $45 million of lower-yielding mortgage loans during the quarter. Slide six of the earnings deck provides some details by market and segment. Despite the lower level of growth, we still expect average loan growth for the year to come in around mid-single-digit levels. Earlier John mentioned in his comments, the challenging rate environment. We're pleased to note that we were able to maintain a stable NIM in the second quarter so down only one basis points. As noted on slide 14 in the earnings deck, our remix efforts and a higher level of interest recoveries were nice NIM tailwinds for the quarter. Headwinds included higher CD renewal rates and higher premium amortization on the bond portfolio. We do see the potential for stabilization of deposit rates going forward and in fact, our cost of deposits did flatten out in June as compared to May. Looking forward, if the Fed does move rates lower later this month, it would absolutely be a headwind to our margin. However, rest assured that we will continue our focus on improving loan yields and we'll be proactive in moving our deposit costs down. We feel that's the formula for NIM stability in this environment. Switching to fee income, seasonality and specialty income led to a better-than-expected increase in fees for the second quarter. We reported increases in all lines of business, driven by additional days in the quarter, increased activity on certain products and seasonality such as tax-prep fees. Income from BOLI derivatives and our SBIC investments contributed almost $5 million to fees. So while it's hard to predict the timing on this kind of income, we did increase our 2019 guidance slightly to reflect this. John detailed our expense increase in his comments and I'll add one other item to the mix. ORE expense returned to a more normal level in the second quarter and drove $1.4 million linked-quarter increase related to a gain in the first quarter. Our guidance on slide 20 of the deck reflects a slightly higher 2019 expense level related to the investments in technology mentioned earlier. We are however continuing efforts to help offset those costs by managing down other expenses where appropriate. One note related to the outlook slide. For now, the guidance excludes any impact of our acquisition to MidSouth. Once the transaction closes, we will update as appropriate. Finally, we have our CSOs detailed on slide 21 of the deck. No changes there until we complete this year's planning process and then republish after fourth quarter earnings in January. Just a reminder that when the CSOs were originally published in January, we assumed no changes in interest rates and no M&A activity. Certainly, the rate environment looks to be a headwind toward achieving our goals, while the MSL deal gives us some EPS tailwind. So, while the path to achieving our targets may be a little different than originally planned, we remain committed to the goals. I'll now turn the call back to John.

Thanks Mike. And Brian, let's just open up the call directly for questions.

Yes sir. Thank you. [Operator Instructions] And our first question will come from the line of Catherine Mealor with KBW. Your line is now open.

Thanks. Good morning.

Good morning, Catherine.

I'm going to start with the margin. And I appreciate that, it's hard to really think about guidance if rates are cut. But, could you kind of dig into that a little bit more Mike? And maybe talk through some of the strategies that you think, you may have at your fingertips to try to keep the NIM more stable and prevent the margin from being lower if the rates are in fact cut? Maybe talk about you wanted deposit ratio? And how quickly, you think you can actually lower deposits, if we really do get in that environment? Thanks.

Sure Catherine, I'll be glad to. So certainly, if the Fed does cut rates by say 25 basis points later this month, we do have a bit of a headwind obviously to overcome on a full quarter's impact. That's probably about two to four basis points or so. And certainly that comes from our concentration primarily in LIBOR-based loans. So we have about 31% of our loan book that's explicitly tied to that index. So, our game plan really involves mitigating as much of that two to four basis points as possible by being fairly aggressive in cutting deposit costs. As a reminder, we have a relatively low loan-to-deposit ratio around 86%, 87%. And so, we think that gives us a great deal of flexibility to be pretty aggressive in cutting rates. Also, as a reminder, we have a $3 billion public fund book that has nearly 100% deposit beta and then certainly we have about $1 billion, $1.2 billion or so, the wholesale funding sources that have high betas obviously as well. So, that's how we're kind of thinking about a fed rate cut potentially later this month and really those are our strategies to kind of deal with that. That makes sense?

It does. Very helpful. Thank you. And then one follow-up, which is on the expense growth. So you talked about how the back half of the year is going to be higher expenses because of the tax spend and actually carry through next year. As we think about the expense growth rate as we move through next year, would it be fair to assume that the growth rate could flow next year versus this year? Just as some of this costs are already embedded in your expense betas so the growth rate could actually soften a little bit, which may help hit some of these seasonal goals?

Well, to think about the little bit of a changing guidance that we gave for the back half of 2019 around expenses. And you really go through the math of backing out the non-permanent expenses we had in the second quarter as well as the technology spend. So those two items together were about $3 million. And then if you back out additional technology spends that we'll have in the second half of 2019 then for all practical purposes really our guidance would not have changed. It would have stayed around the 4% to 5%. So the thing that's driving it a little bit higher again is those non-permanent items that we had in the second quarter as well as the technology spent. So John I don't know if you want to kind of comment a little bit on some of the things we're doing here?

Sure. I'll be glad to. And good morning Catherine. I guess, the only thing I would add is when you get -- aside from the personnel expense and the normal annual salary increases, which were fully lettered in the Q2 take out the non-recurring expenses and all of the increase really in the second half is in technology. And we've talked about our technology plans for a few quarters. And if we go all the way back to comments may be in 2017 and 2018 in those days, we were busy assuring that our core systems were completely updated in the middleware work that was needed for the various database analytics achieved the future CSOs and maybe the next round as well was also scalable. All that work concluded in 2017 and early 2018 and are extremely scalable. So none of the technology expense we've talked about this year or that we'll be dealing with next year is related to those items. Every investment of -- for practical purposes every investment is targeted to advance solutions. It's about enhancing sales and relationship retention for customer facing FTE. It's about increasing our digital account wins on both sides of the balance sheet both deposits and loans, which is not as good a retention account business as branch opened but the expense base to win them is quite lucrative. That's an area that we really haven't availed ourselves of yet. So I'm looking forward to seeing some good progress there. And then the process reductions will yield to a little smaller servicing back office relative to revenue. And so by the time you pull all the numbers together, we'll end up at about 10% technology expense to total revenue, which is in line with peers and will remain so for this upcoming CSO cycle. And then I'd be disappointed if we don't outperform in technology expense compared to revenue as the revenue thrown off from those technology investments materializes. So there's a few more milestones to complete before we go into adds and deletes to expenses and what we expect the sales affecting this metrics to be. I'd like to get past MSL because things are going to somewhat reset with the new expense base when that happens and we can share more about it. But to answer the question or maybe what Mike was leading to was the tax thing we're talking about is not catch-up expense, it's enhancement towards being more effective and getting the efficiency ratio ultimately down below that CSO goal in future years. Did that answer your question, Catherine?

It does. Yes, it make sense. Great. Thank you very much.

And Catherine one other quick item I would add to John's comment. All of the technology spend and investments that we're talking about, all of that was part of this year's business plan. So all of those investments as well as the expenses are built into our CSOs through next year.

Got it. All right. Great, thank you. Great quarter.

Thank you. And our next question will come from the line of Ebrahim Poonawala with Bank of America. Your line is now open.

Good morning, guys.

Good morning.

I was just wondering, John, if you could sort of -- your provisioning guidance implies that you actually subdued outlook on credit. If you can just talk about in terms of -- we've seen pretty decent healthy credit sales for a while now at the bank in terms of how you look -- how you view credit risk going forward. You've, obviously, seen one-off from banks continue to rise over the last several quarters. So would love to get just your thoughts around credit, credit quality and customer sentiment even as it leads to loan growth if you could?

Sure. Ebrahim. This is John. Chris Ziluca is here with us. I'm going to let Chris take that question.

Hi, Ebrahim. Yeah, I think our forward view on asset quality is still positive. I think we see continued opportunity to improve on some of the core asset quality metrics that we report on in the earnings releases. So I met a few customers recently. I think there's still generally positive sentiment out there. So, I think over the coming quarters, I think we'll see continued improvement in that area.

Understood. And just moving back to the margin and the deposit cost Mike, when you think about -- one, you mentioned loan-to-deposit ratio 86% to 87%, if you could tell us how high you feel comfortable with in getting that ratio if you had to? And also in terms of when you think about customer pricing, do you expect the CD pricing public funds obviously in terms to rerate relatively quickly? Or is it going to be market-driven based on what competitors end up doing?

Okay. Thank you, Ebrahim. Related to the first part of the question and the LD ratio, certainly don't want to create expectation that we're going to increase our LD ratio. Since we were stating that we have the flexibility to do so with a relatively low one. And so we stand at about 86%, 87% now. And I think we feel comfortable as a company bringing that right around that 90% maybe a little above 90s range. And again, the effort there would be to be fairly aggressive in terms of dropping deposit cost should the Fed move down later this month. Now, some of that's kind of already happening. We really have kind of put on the sidelines, nearly all of our CD promotional rates and promotional CDs. We do have one out there that, we think is attractive, but to the most part related to the CD maturities that we'll have coming out we think that there's a real opportunity for a bit of a price down going forward. So, hopefully that answers your question?

No that's helpful. Thank you very much for taking my questions.

Ebrahim, this is John. I'll just tag one other credit point on there. If you note in the investor deck on slide 10, we've mentioned last several quarters that getting our criticized and non-performing loan ratios down into the peer comparative areas is something very important to us, important to our investors. If you look on slide 10, you'll note that gap from a year ago is gone from roughly 300 basis points to now around 70. So the gap is getting close. As TDRs begin to come down and come out of both NPLs and the criticized credits, I'd expect that gap to be extinguished. But so I think -- and we're not ready to call it victory yet on criticized credits. We still have some more progress to make there. But I think just from a focus, and amount of vigor, our attention is more on the non-performing sector than just criticize now, because I think that's what's weighing to sub-grid our market cap. So, we're -- just to get some lumpy credits remaining particularly inside that accruing TDR bucket either upgraded or gone, it's at that point in time that comparison will be as attractive as the criticized. So that's going to take a few quarters. It's not going all happen in one-time. We've made good progress so far, but the background for Chris tone as shown in those ratios can be found on slides 10 through 12.

Noted. Thanks, John.

Yeah. Sure.

Thank you. Our next question will come from the line of Brad Milsaps with Sandler O'Neill. Your line is now open.

Hey, good morning, guys.

Good morning.

John, Mike I just wanted to talk a little bit about your chart on page 7. I know you talked a little bit about this last quarter, but focused on doing more granular loans. You did a little -- looks like a little over $2.2 million of production in the year ago quarter. This quarter was around $1.2 billion. I'm just curious, number of loans this quarter versus year-ago quarter just thinking about how granular have you gotten in terms of what you've been able to put on the books as part of that plan to I guess reduce risk around larger loans and get better pricing?

Okay. And thanks for the question. This is John. I think we haven't really talked about specific numbers of credits. I think we've given some tone on that in the past. But over the course of just quarter-over-quarter, and there's some seasonality impact. But generally speaking, the volumes of credits in the commercial banking space and down sporadically improved year-over-year. When the rate environment changes the impact to the overall consumer book is heavily impacted by what happens in mortgage. And so I'm trying to discount my answer a little bit with that. So let me talk about mortgage first. Mortgage approved. Our closed business was up about 20%. The number of apps was about 39% over the previous quarter. Now that had been drifting downward from the beginning of last year, just because -- remember that time the rates were actually going the other way. As long term -- 15 and 30 year money rates have declined then we've seen as you would expect a bump up in both apps and in closed business. So, some of our overall impact on loan growth was affected by the portfolio sale. Mike mentioned about $45 million, but we're still seeing an uptick in overall mortgage book, because production has indeed increased. And that happens every time we see those money rates come down. Interestingly enough, it's not really driven entirely by refi. There just seems to be new borrower interest in home deals after somewhat of a declining environment at least in our footprints, where we're active over the last year or two. But commercial banking segment is doing well. The business banking segment is doing well. And really and just looking at overall loan growth, there may be a little bit of a mismatch Brad. And our -- what we consider adequate amounts of covenants tied to construction CRE, the deal flow in the first half of the year was real good, but the covenant-like nature of those deals were a little bit outside our appetite at this point in credit cycle. Now that did begin to moderate as we got towards the end of the second quarter. Same -- similar point on healthcare, the amount of leverage per deal -- the deal flow was good, but the leverage was a little high for our appetite and so we saw the healthcare book shrink. That also began to moderate a little as we got towards the end of the quarter. And so those are two segments that we think are more likely to expand in the second half of the year versus the first half of the year. And on top of that, we expect to see continuing ramp-up in the granular segments and then finally the seasonality draw downs, we see on lines of credit in Q4 should lead to a more impressive second half than first half, even while we still maintain very rigid attention to yield. Does that kind of expand the color of what you were looking for?

Yes. I guess my question is more from the perception of risk. The market is concerned about credit risk and the perception is bigger credits carry more risk. Just wondered if -- are you guys really focused on -- you have the credits gotten smaller and you're just doing more of them?

I think we're doing more of the smaller segments. We're doing less of the very large lumpy credits. Our syndication percentage is markedly different. So even though we're carrying about the same amount of SNCs, I think that's about $2.1 billion. It's similar to last quarter. It's about the same volume or same balance sheet as we had probably in the second quarter 2016, three years ago. So, but what's inside that SNC book is quite different. So we expect to have a little bit more of a depository or fee participation with -- where Shared National Credits were involved in and the participation in energy-related SNCs has continued to decline. So I think it would be yes, the number of larger credits has diminished. And yes, the number of smaller credits has increased. And I'm glad we did that when we did it, because primarily the pressure on LIBOR-indexed credits is at the upper end. So we're not having to do something really new to deal with the rate environment getting a little bit more challenging, because the focus on the smaller credits was something we really focused hard on a year ago and continue to ramp up.

Now that's very helpful.

Brad just one quick comment. This is Mike. And thanks for kind of calling attention for the slide. You -- we think it's a pretty good depiction of the strategy, our remix strategy and the fact that it's actually working. And certainly, you see the yield on new loans increasing the way it's done over the last five quarters and certainly the production levels as John mentioned, certainly in part that's related to a larger number of smaller credits that we're putting on the books. And we believe that we're able to do that with really kind of a better risk trade-off if you will.

Yeah. You guys follow-up on the yield piece of it. I mean, I guess, Prime is up 100 basis points since last March. Your yields are up I think 134. So you feel like you've got some permanent better pricing on and above where -- what the index rates have done. Is that -- would that be a fair assessment?

Yes, correct. It would be a fair assessment.

Okay. Great. Thanks for the color.

Just wish we had more of it.

Understood. Don't we all?

Thank you. And our next question will come from Jennifer Demba with SunTrust. Your line is now open.

Hey, guys, it's actually Steve on for Jennifer.

Hi, Steve.

Just looking kind of that rate cuts a little differently. What's the impact of rate cuts on kind of the MSL acquisition accretion numbers you guys have put out?

There's no discernible impact at this point, Steve. And certainly, that's something I think we'll talk a little bit more about once we consummate the transaction. And again, that's planned for end of the current quarter. And at that point, we'll share I guess a little bit more color around, how that book is impacting our rates sensitivity.

Okay. So if we get a cut end of this month, you guys are still okay with that kind of $0.13 to $0.15?

Yes. That's right.

Okay. And then looking back at kind of that slide we were just talking about the new loan yield, which kind of have risen nicely. Ex rate cuts, do you guys have a chance to kind of improve those? Do you think those are going to kind of hold steady and add to the book?

Well, I will start and Mike can clean up, if you need some more clarity, but I think it's important to note in the second quarter 2019 that new loan business coming in at -- that 522 number. There hadn't been a Fed overnight rate cut, but LIBOR has absolutely priced that in already. So I don't know if that number may be around 30 bps compared to the previous quarter. On a -- and some 60% of our new credits are still indexed based in the second quarter and the new money yield held up. So I think we've been able to find ways both with the attention to granularity, pricing discipline and being selective around what deals we participated in or didn't, we've been able to weather that storm with only a three bp decline in new money from the first quarter and a much better indexed business. So we've -- we feel pretty good about it holding up. I mean, we're not naive and ignoring that if there was another rate cut that happened and the tone towards the second 25 bp increase would certainly make that tough, but I don't think it affects our strategy other than we would want to understand more about why would we want to see the second rate cut occur in an expanding economy that seem what -- seems somewhat counterintuitive.

Thanks guys.

Thank you.

Thank you. And our next question will come from the line of Casey Haire with Jefferies. Your line is now open.

Thanks. Good morning guys. Wanted to touch on the loan growth. I appreciate the guidance that you guys have. But I mean if my math is right you guys could kind of run loans in place and still hit your guide. So, just trying to get an outlook as to how you see the loan growth trending in the back half of the year? Do you still anticipate these kind of headwinds in CRE paydowns and the energy healthcare? Or can we see loan pipeline start to deliver without these sort of impediments?

Yes to hit -- thanks for the question. Yes -- and just to make sure we're interpreting correctly. To hit the mid-single-level digits end of year -- over end of year we'll need more loan growth in the second half and somewhat substantially so than the first half. To get to the specifics of your question what we would expect to happen is healthcare is probably static to up in the second half versus shrinking in the first half. Ditto CRE will continue growing the granular areas of the balance sheet. And we'll probably won't have as much of a headwind with energy noting that we had to reduce energy somewhere in the neighborhood of around 70 million in first half of the year. So, with some of those headwinds out and with what we see is a little stronger deal flow coming in the second half together with seasonality of the fourth quarter line drawls I've mentioned before, we think we'll see a second half loan growth number that's going to be a bit higher.

So we...

I'm sorry…

John's comment is also reminder that the third quarter and fourth quarter of every year seasonality tends to be the better loan growth quarters for our company. So, totally agree with what John just said in terms of looking forward to some pretty nice levels of loan growth in the second half of this year.

Okay. So, the outlook -- the guidance is average? I'm sorry it's end of period and not average?

No, no. The guidance is year-over-year average loan growth mid-single-digits year-to-year.

Year-to-year?

Net of MSL.

Right. Okay. Okay. Great. All right. And then just switching to fees. I know it's difficult -- some of these transactional fee items that did very well this quarter. But is there any piece of it that you see is little bit more recurring maybe on the SBIC or on the swap side?

Yes, I think the part of it that's really hard to predict is certainly the BOLI and the mortality gains that you have there. The SBIC income I mean those are -- the current investments or ongoing investments that we have, so it's not like all of that's going to disappear in a quarter and then may be reappear at some other point. The derivative fees is interesting. We've had an absolutely great quarter in terms of derivative fees and those kinds of products being sold to our customers. And with the challenging rate environment one positive byproduct of that is you tend to have bigger sales or greater sales in terms of these kinds of products. So, I would expect to see additional derivative income fees in the second half of the year. I don't think that's going to go away next quarter.

Okay, great. Thank you.

Thank you. You bet.

Thank you. And our next question will come from the line of Matt Olney with Stephens. Your line is now open.

Hey, good morning. Thanks guys.

Hey Matt.

I just want to follow-up on the margin outlook. I guess the guidance to keep the margin relatively stable absent any rate changes. Not to get too precise, when you talk about relatively stable, are you thinking about over a range of plus or minus three bps or some other range? And then secondly when you're guiding towards that stable NIM, are you guiding towards stable from the reported levels of 3.45%? Or do you think we should be looking at that 3.42% NIM that would exclude some of those interest recoveries in 2Q?

Yes, great question Matt. And when we talk about the NIM guidance and the relative stability we're really looking at reported NIM so the 3.45%. And certainly we've had this quarter a little bit of a benefit from the interest recoveries. But again if you go back over the last four five quarters, what we've had I think interest recoveries in four of the last five quarters to some degree. So, again, as our credit especially on the energy side continues to improve we have opportunities to harvest some of that in terms of interest recoveries. So, to your question about what NIM stability means, it means a couple of basis points I think kind of in either direction. I hesitate to give you an exact basis point number, but I think that certainly this quarter, this past quarter is a great example with the NIM being down just one basis point in a pretty challenging rate environment. I think adequately fits the depiction of an instability.

Got it. Okay, that's helpful Mike. And then I also want to circle back on the credit trends within the energy portfolio. It seems like last year, the banks saw a really good improvement across the board in energy credit trends. But when I look at the trends this year 2019, it seems like the pace and the improvement and the energy that have kind of installed out. So I'm just looking for some commentary on why the resolution process has somewhat slowed this year? I think some of your peer banks have suggested that some of the problem -- energy loans and liquidation are just not seen very strong bids this year compared to this time last year. So I'm curious what you're seeing on the energy resolution side?

This is John. I'm at the -- I think the one observation that's worth mentioning is if you're doing a comparative of energy banks, you have to note what type of energy they're doing and if they're all midstream, they really didn't suffer too much during the cycle. If all upstream or reserve-based lending, much of that book has improved more quickly simply, because prices in the strip and cash flow was better. On the services book and particularly, the GOM services book the day rates while they are improving and the contracts are getting led and drilling has begun to occur it's just going to take a little bit longer for all those energy services credits, and specifically the TDRs to become conventionally structured so that we can get them off the TDR list. So I think our RBL book is probably healed up on pace with everybody else's RBL book. I mean, there's still some issues out there. But I don't think were terribly dissimilar from anyone else. The lag is really more because of energy services. So that's just going to take a little bit longer for that to complete this resolution. Chris, you have anything you want to add to that?

No. I mean, I would just say that a number of our energy credits still remain in that TDR category, and so that's kind of our bigger focus. And a lot of that is just driven off of the timing of maturity of the loans so that we can rewrite the loan under conforming terms, so some of those linger a little bit longer. And we will be focused on that in the next couple of quarters to affect a lot of those rewrites so that they come out of the NPL bucket.

Okay. Very helpful. Thank you.

Yes. Thank you.

Thank you. And our next question will come from the line of Christopher Marinac with Janney Montgomery. Your line is now open.

Hey, good morning. I just wanted to verify on MidSouth that it is accretive to margin? And that the sort of accretion impact is sort of de minimis as that comes online for next year?

Hey, Chris, this is Mike. That's correct. So we're looking at the NHL impact on our NIM to be around three basis points or so, so that hasn't changed. And then in terms of the loan mark, the 5% loan mark we're looking at the vast majorities of that really being added to the ALLL down the road. So there is some accretable impact, but that's not significant.

Great Mike. That's helpful. And just one quick one for Chris. Chris, do you see anything from the utilization rates or C&I loans or anything else on the credit fund that gives your read-through into kind of just overall health and demand from borrowers?

Yeah. So we've been looking at -- I've been looking at utilization rates kind of as an indicator of that -- both business activity and then also conversely any indicators of issues in the market, because they kind of cut both ways. And I would say utilization rates overall have been fairly steady when you look at it across the board. So, I don't really see any indicators of issues. And I think business activity continues to be positive from everything that I've seen based on looking at utilization rates. I don't know if John you have any comments rounds?

No, I think you answered the question.

All right. Great guys. Thank you for the background view.

Thanks, Chris.

Thank you. And this concludes our question-and-answer session for today. It is now my pleasure to hand the conference back over to Mr. John Hairston, President and Chief Executive Officer for any closing comments or remarks.

Thanks Brian for moderating the call and thanks to everyone for your interest in Hancock Whitney. We wish you a wonderful day and week. Take care.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude the program and you may all disconnect. Everybody, have a wonderful day.