Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation 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. If anyone should require operator assistance, please press star, then the zero key on your touchtone telephone. 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. 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 risks 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. 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 at yields strong enough to defray pressure on interest income, especially from LIBOR-indexed credits. Energy loans returned to just under 5%, and at 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 seven. Likewise, we are pleased to report another quarter of improved criticized and non-performing loan ratios, as noted on slides nine through twelve. We are near peer levels for criticized loan ratios and expect to close the gap compared to peer non-performing loan ratios over the next several quarters.
Operating leverage increased to $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 we've 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 that 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 remains 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 recognize this is a higher level than our target of around 8%. 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. We recognize the near-term rate environment creates headwinds to achieve our previously determined CSOs. We remain 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 that 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. As we noted last quarter, we did expect a higher level of pay downs during the second quarter, mainly from CRE loans. We also saw payoffs and pay downs in energy and healthcare, which helped with our overall remix efforts. 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, down only one basis point.
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. 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. Rest assured that we will continue our focus on improving loan yields and will 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. 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 a $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 of MidSouth. Once the transaction closes, we will update as appropriate. 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. 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 the call directly for questions.
Yes, sir. Thank you. Ladies and gentlemen, at this time, if you would like to ask a question over the phone, please press star and then one on your telephone keypad. If your questions have been answered or you wish to move yourself in the queue, simply press the pound key. Our first question will come from Catherine Mealor with KBW. Your line is now open.
Thanks. Good morning.
Good morning, Catherine.
I'm going to start with the margin and appreciate that it's hard to really think about guidance if rates are cut. Could you kind of dig into that just 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 moving lower if rates are in fact cut? Maybe talk about your loan-to-deposit ratio and how quickly you think you can actually lower deposits if we really do get in that environment. Thanks.
Sure, Catherine. Be glad to. 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 2-4 basis points or so. Certainly, that comes from our concentration primarily in LIBOR-based loans. We have about 31% of our loan book that's explicitly tied to that index. Our game plan really involves mitigating as much of that 2-4 basis points as possible by being fairly aggressive in cutting deposit costs. As a reminder, we have a relatively low loan-to-deposit ratio at around 86%-87%. 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. Certainly we have about $1 billion, $1.2 billion or so in wholesale funding sources that have high betas, obviously, as well. That's how we're kind of thinking about a Fed rate cut potentially later this month. Really, those are our strategies to kind of deal with that. That make sense?
That does. It does. Very helpful. Thank you. One follow-up, just on the expense growth. You talked about how the back half of the year is going to be higher expenses because of the tech spend, and that should 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 slow next year versus this year, just as some of those costs are already embedded in your expense base, so the growth rate could actually just soften a little bit, which may help you hit some of those CSO goals?
If you think about the little bit of a change in guidance that we gave for the back half of 2019 around expenses, 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. Those two items together were about $3 million. 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%-5%. 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 spend. John, I don't know if you want to comment a little bit on some of the things we're doing in that area.
Sure. I'll be glad to. 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 loaded into Q2, take out the non-recurring expenses, all of the increase really in the second half is in technology. We've talked about our technology plans for a few quarters. If we go all the way back to comments maybe in 2017 and 2018, in those days, we were busy assuring that our core systems were completely updated, the middleware work that was needed for the various database analytics to achieve 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.
None of the technology expense we've talked about this year or that we'll be doing with next year is related to those items. For practical purposes, every investment is targeted to advance solutions. It's about enhancing sales and relationship retention per 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. The expense base to win them is quite lucrative. That's an area that we really haven't availed ourselves of yet. I'm looking forward to seeing some good progress there. The process reductions will yield to a little smaller servicing back office relative to revenue.
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. 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. There's a few more milestones to complete before we go into adds and deletes to expenses and what we expect the sales effectiveness 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. To answer the question, maybe what Mike was leading me to was the tech spend 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. Yeah. It makes sense. Great. Thank you very much.
Catherine, one other quick item I would add to John's comments. All of the technology spend and investments that we're talking about, all of that was part of this year's business plan. All of those investments as well as the expenses are built into our CSOs through next year.
Got it. All right, great. Thank you, and great quarter.
Thank you.
Thank you. Our next question will come from Ebrahim Poonawala with Bank of America. Your line is now open.
Good morning, guys.
Morning.
Morning.
I was just wondering, John, if you could, your provisioning guidance implies a relatively subdued outlook on credit. If you can just talk about in terms of, you've seen pretty decent healthy credit trends for a while now at the bank. In terms of how you view credit risk going forward, you've obviously seen one-offs from banks continue to rise over the last several quarters. Would love to get just your thoughts around 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 a continued opportunity to improve on some of the core asset quality metrics that we report on in the earnings releases. I've met a few customers recently. I think there's still a generally positive sentiment out there. I think over the coming quarters, I think we'll see continued improvement in that area.
Understood. Just moving back to the margin and the deposit costs, Mike. When you think about, one, you mentioned loan to deposit ratio 86%-87%. If you could tell us how high you feel comfortable with in getting that ratio if you had to. Also, in terms of when you think about customer pricing, do you expect the CD pricing, public funds, obviously, in terms to re-rate 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 in the LD ratio, certainly don't want to create an expectation that we're going to increase our LD ratio. Simply was stating that we have the flexibility to do so with a relatively low one. We stand at about 86%, 87% now, and I think we feel comfortable as a company bringing that right around the 90%, maybe the low 90s range. Again, the effort there would be to be fairly aggressive in terms of dropping deposit costs should the Fed move down later this month. Some of that's kind of already happening. We really have 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 for the most part, related to the CD maturities that we'll have coming up, we think that there's a real opportunity for a bit of a price down going forward. Hopefully that answered your question.
No, that's helpful. Thank you very much for taking my questions.
Yeah.
Ebrahim, this is John. I'll just tag one other credit point on there. If you note on the investor deck on slide 10, we've mentioned the last several quarters that getting our criticized and non-performing loan ratios down into the peer comparative areas was something very important to us and important to our investors. If you look on slide 10, you'll note that gap from a year ago has gone from roughly 300 basis points down to around 70. The gap is getting close. As TDRs begin to come down and come out of both NPLs and criticized credits, I would expect that gap to be extinguished. I think we're not ready to call victory yet on criticized credits. We still have some more progress to make there.
I think, just from a focus and amount of vigor, our attention is more on the non-performing sector than just criticized now, because I think that's what's weighing to some degree our market cap. We're anxious to get some lumpy credits remaining, particularly inside that accruing TDR bucket, either upgraded or gone. At that point in time, that comparison will be as attractive as the criticized. That's going to take a few quarters. It's not going to all happen at one time. We've made good progress so far, but the background for Chris' tone, as shown in those ratios, can be found in slides 10 through 12.
Noted. Thanks, John.
Yes, sir.
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 and Mike, I just wanted to talk a little bit more about your chart on page seven. I know you talked a little bit about this last quarter, but focused on doing more granular loans. You did looks like a little over $2.2 billion 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. Thanks for the question. This is John. We haven't really talked about specific numbers of credits. I think we've given some tone on that in the past. 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 improve year-over-year. When the rate environment changes, the impact of the overall consumer book is heavily impacted by what happens in mortgage. I'm trying to discount my answer a little bit with that. Let me talk about mortgage first. Mortgage approved or closed business was up about 20%. The number of apps was up about 39% over the previous quarter. That had been drifting downward from the beginning of last year, just because, remember at that time, rates were actually going the other way.
As long-term to 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. Some of our overall impact on loan growth was affected by the portfolio sale Mike mentioned, about $45 million. We're still seeing an uptick in overall mortgage book because production has indeed increased. 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 for at least the last year or two. Commercial banking segment is doing well. The business banking segment is doing well.
Really, in just looking at overall loan growth, there may be a little bit of a mismatch, Brad Milsaps, in 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-light nature of those deals were a little bit outside our appetite at this point in the credit cycle. That did begin to moderate as we got towards the end of the second quarter. 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, so we saw the healthcare book shrink. That also began to moderate a little as we got towards the end of the quarter.
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. On top of that, we expect to see continuing ramp up in the granular segments. Finally, the seasonality drawdowns 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 span the color of what you were looking for?
Yeah, I guess, my question was more from the perception of risk. The market is ultra concerned about credit risk, and the perception is bigger credits carry more risk. Just wondered, are you guys really focused on, 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. Even though we're carrying about the same amount of SNCs, I think that's about $2.1 billion, is similar to last quarter. It's about the same volume or same balance sheet, as we had, probably in second quarter 2016, three years ago. What's inside that SNC book is quite different. We expect to have a little bit more of a depository or fee participation with Shared National Credits we're involved in, and the participation in energy-related SNCs has continued to decline. I think it would be, yes, the number of larger credits has diminished, and yes, the number of smaller credits has increased.
I'm glad we did that when we did it because primarily the pressure on LIBOR index credits is at the upper end. 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 continued to ramp up.
No, that's very helpful.
Brad, just one quick comment. This is Mike. Thanks for kind of calling attention to the slide. We think it's a pretty good depiction of the strategy, our remix strategy, and the fact that it's actually working. Certainly, you see the yield on new loans increasing the way it's done over the last 5 quarters. 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. We believe that we're able to do that with really, kind of a better risk trade-off, if you will.
Yeah. Just to follow up on the yield piece of it, I guess, Prime is up 100 basis points since last March. Your yields are up, I think, 134. You feel like you've got some permanent, better pricing, on and above what the index rates have done. Would that be a fair assessment?
Yes. Correct.
That'd be a fair assessment.
Okay, great. Thanks for the color.
Just wish we had more of it.
Understood. Don't we all.
Thank you. 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.
Hi. Just looking kind of at 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?
No discernible impact at this point, Steve. Certainly, that's something I think we'll talk a little bit more about once we consummate the transaction. Again, that's planned for end of the current quarter. At that point, we'll share, I guess, a little bit more color around how that book is impacting our rate sensitivity.
Okay. If we get a cut end of this month, you guys are still okay with that kind of $0.13-$0.15?
Yes, that's right. Mm-hmm.
Okay. Looking back at kind of that slide we were just talking about, the new loan yields kind of have risen nicely. X rate cuts, do you guys have a chance to kind of improve those, or you think those are going to kind of hold steady and add to the book?
Well, I will start, Mike can clean up if we need some more clarity. I think it's important to note in the second quarter 2019, that new loan business coming in at that 5.22 number, there hadn't been a Fed overnight money rate cut, LIBOR has absolutely priced that in already. I don't know if that number may be around 30 basis points compared to the previous quarter on us, 60% of our new credits are still indexed that we produced in the second quarter, and the new money yield held up. 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 basis points decline in new money from the first quarter and a much better indexed business. We feel pretty good about it holding up. We're not naïve and ignoring that if there was another rate cut that happened and the tone towards a second 25 basis points increase would certainly make that tough, I don't think it affects our strategy any other than, we would want to understand more about why would we want to see a second rate cut occur in an expanding economy. That seem somewhat counterintuitive.
Thanks, guys.
Thank you.
You bet.
Thank you. Our next question will come from Casey Haire with Jefferies. Your line is now open.
Thanks. Good morning, guys.
Hey.
Wanted to touch on the loan growth. I appreciate the guide that you guys have, if my math is right, you guys could kind of run loans in place and still hit your guide. Just trying to get an outlook as to how you see loan growth trending in the back half of the year. Do you still anticipate these kind of headwinds in CRE pay-downs in the energy healthcare, or can we see loan pipelines start to deliver without these sort of impediments?
Yeah. Thanks for the question. Just to make sure we're interpreting correctly. To hit the mid-single level digits over end of year, we'll need more loan growth in second half, 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. We'll continue growing the granular areas of the balance sheet, we 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 the first half of the year.
With some of those headwinds out and with what we see as a little stronger deal flow coming in the second half, together with seasonality of the fourth quarter line draws I mentioned before, we think we'll see a second half loan growth number that's going to be a bit higher.
Yeah.
Casey.
I'm sorry. What I would add to John's comments is also a reminder that the third and fourth quarter of every year, seasonality tends to be the better loan growth quarters for our company. 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. The guidance is average? Sorry, it's end of period, not average?
No, the guidance is year-over-year average loan growth, mid-single digits.
Okay.
Year-to-year.
Right.
Net of MSL.
Right.
No. Right. Okay, great. All right. Just switching to fees, I know it's difficult, some of these transactional fee items that did very well this quarter. Is there any piece of it that you see as a little bit more recurring, maybe on the SBIC or on the swap side?
Yeah, 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, those are current investments or ongoing investments that we have. It's not like all of that's going to disappear in a quarter and then maybe reappear at some other point. The derivative piece is interesting. We've had an absolutely great quarter in terms of derivative fees and those kinds of products being sold to our customers. 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. 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.
You bet.
Thank you. 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.
Just want to follow up on the margin outlook. I guess the guidance is to keep the margin relatively stable absent any rate changes. Not to get too precise, but when you talk about relatively stable, are you thinking about of a range of ±3 basis points or some other range? Secondly, when you're guiding towards that stable NIM, are you guiding towards stable from the reported levels of 345, or do you think we should be looking at that 342 NIM that would exclude some of those interest recoveries in 2Q?
Great question, Matt. When we talk about the NIM guidance and the relative stability, we are really looking at reported NIM, so the 345. Certainly we have had this quarter a little bit of a benefit from interest recoveries. Again, if you go back over the last four or five quarters, we have had, I think, interest recoveries in four of the last five quarters to some degree. 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. 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. 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 NIM stability.
Got it. Okay. That is helpful, Mike. I also want to circle back on the credit trends within the energy portfolio. It seems like last year the bank saw really good improvement across the board in energy credit trends. When I look at the trends this year in 2019, it seems like the pace of the improvement in the energy book has kind of stalled out. I am 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 that are in liquidation are just not seeing very strong bids this year compared to this time last year. I am curious what you are seeing on the energy resolution side.
This is John. Matt, I think the one observation that is worth mentioning is, if you are doing a comparative of energy banks, you have to know what type of energy they are doing. If they are all midstream, they really did not 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 let and drilling has begun to occur, it is 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. I think our RBL book has probably healed up on pace with everybody else's RBL book.
There's still some issues out there, but I don't think we're terribly dissimilar from anyone else. The lag is really more because of energy services. That's just going to take a little bit longer for that to complete its resolution. Chris, you have anything you want to add to that?
No. I would just say that a number of our energy credits still remain in that TDR category, that's kind of our bigger focus. A lot of that is just driven off of the timing of the maturity of the loan so that we can rewrite the loan under conforming terms. 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.
Thank you.
Thank you. 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.
Chris, this is Mike. That's correct. We're looking at the MSL impact on our NIM to be around three basis points or so. That hasn't changed. Then in terms of the loan mark, the 5% loan mark, we're looking at the vast majority of that really being added to the ALLL down the road. There is some accretable impact, but it's not significant.
Great, Mike. That's helpful. Just one quick one for Chris. Chris, do you see anything from the utilization rates of C&I loans or anything else on the credit front that gives you a read-through into kind of just overall health and demand from borrowers?
Yeah. I've been looking at utilization rates kind of as an indicator of both business activity then also conversely, any indicators of issues in the market, because it kind of cuts both ways. I would say utilization rates overall have been fairly steady when you look at it across the board. I don't really see any indicators of issues. 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.
No, I think you answered the question. Yeah.
All right. Great, guys. Thank you for the background here.
Thanks, Chris.
Thank you. 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. Wish you a wonderful day and week. Take care.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and we may all disconnect. Everybody have a wonderful day.