Q2 2019 Earnings Call
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Good day, ladies and gentlemen, and welcome to Hancock Whitney's 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 zero key on your Touchtone telephone as a reminder, call may be recorded I would now like to introduce your host for today's conference Trisha Carlson.
Okay.
Lesions manager you may begin.
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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 risks and uncertainties identified there Fran.
Hancock Whitney's ability to accurately project results or predict the effects of future plans or strategies or predict market. Our 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 Harrison, President and CEO , Mike Achary, CFO , and Chris Deluca, Chief Credit Officer, I will now turn the call over to John Harrison.
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 one dollar in one cents EPS up 10 cents from last quarter loan growth occurred within a desirable mix and yield strong enough to defray pressure on interest income, especially from LIBOR indexed credits energy loans return to just under 5% and at current projections, we should be near 5% upon closing the transaction with Michelle.
We continued our focus on improving yield to help drive a better now as noted on slide seven Likewise, we are pleased to report another quarter of improved criticized and nonperforming loan ratios as noted on slides nine through 12, we're near peer levels for criticized loan ratios and expect to close the gap compared to peer nonperforming loan ratios over the next several quarters operating leverage increased 1.4 million with revenue up a 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, where mainly from fee income all core business lines reported a linked quarter increase and some specialty lines combined to contribute an excellent quarter for noninterest 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.
Thats related to investments in new and upgraded technology, We mentioned last quarter. They are also expenses directly associated to outperformance and card interchange income.
As we 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, C. Assos. 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 mid South Bank Corp. headquartered in Lafayette with operations in both Louisiana, and Texas Slide 22 provides a refresher on transaction details since the announcement, we have submitted a 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 TCV of 8.75% at June 30 of 39 basis points from the end of the prior quarter. We recognize this is a higher level than our target of around 8%. However, we will maintain this current capital structure and two we closed the transaction with itself. Once that acquisition is completed we expect to consider opportunities ranging from organic growth to share repurchases and or dividend increases. Finally, we recognized a near term rate environment creates headwinds to achieve our previously determined to see Assos. However, we remain.
And focused on achieving those see assos 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, but EPS for the second quarter was up 10 cents 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. However, as we noted last quarter, we did expect a higher level of paydowns during the second quarter, mainly from CRT loans. We also saw payoffs and pay downs in energy and health care, 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 provide 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 point.
As noted on slide 14 in the earnings deck, our remix efforts in 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 cost down we feel that's the formula for NIM stability in this environment.
Switching to fee income seasonality in 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 Beauly derivatives, and our SB IC 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 or the item to the mix.
Well, where we expense return to a more normal level in the second quarter and drove a 1.4 million dollar 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 midsize.
Once the transaction closes we will update as appropriate.
Finally, we have our CFO those detailed on slide 21 of the deck.
No changes there until we complete this year's planning process and then re publish after fourth quarter earnings in January .
Just a reminder, that when the sea Assos, where originally published in January we assume 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 will now turn the call back to John .
Thanks, Mike and Brian , Let's just opened 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.
My questions have been answered.
You simply press the pound key and our first question will come from Calvin melanoma with KBW. Your line is now open.
Thanks, Good morning.
Good morning, Kevin.
Let's start with the margin and I appreciate that it's hard to.
Really think about guidance you if rates are tight but could you kind of dig into that a little bit more Mike can you maybe talk through some of the strategy is that you think you may have.
At your fingertips to try to keep the NIM or stable and present you the margin from moving lower if rates are 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 catheter 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 thats, probably about two to four basis points or so and certainly that comes from our concentration primarily in LIBOR based loans that we have about 31% of our loan book.
Thats explicitly tied to to that index.
So our game plan really involves mitigating has much of that two to four basis points as possible by merely by being fairly aggressive in cutting deposit costs.
As a reminder, we we have a relatively low loan to deposit ratio at 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 a 100% deposit beta.
And then certainly we have about $1 billion billion to urso in wholesale funding sources that have high beta is obviously as well.
So so thats, how were 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 just 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 band and that should carry through next year.
As we think about it 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 soon as those costs are already embedded in your expense base into the growth rate could actually.
It did soften a little bit which may help you hit that is theoretical.
Well the kind of think about the little bit of a changing guidance that we gave for the back half of 19 around expenses.
And you really kind of go through the math of kind of backing out the 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 kind of back out additional technology spends that we'll have in the second half of 19, then for all practical purposes really our guidance would or would not have changed would have stayed around the four of the 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 spend.
So John if you want to comment a little bit on some of the things we are doing.
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 expansion the normal annual salary increases which were fully loaded into Q2.
Take up a nonrecurring expenses all of the increase really in the second half isn't technology.
And we've talked about our technology plans for a few quarters and if we go all the way back to comments, maybe in 17 and 18 and those days.
We were busy assuring that our core systems were completely updated.
And the middleware work that was needed for the various database analytics to achieve the future csrs and maybe the next round as well.
What's also scalable all that work included in 17 in early 18 and are extremely scalable. So none of the technology expense, we've talked about this year or that will be dealing with next year is related to those items.
Everything investment.
So they are for practical purposes every investment is targeted to advance solutions, it's about enhancing sales from relationship retention.
For customer facing ft.
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 expense base to win them is quite lucrative.
Thats an area that we really havent availed ourselves of yet so I'm looking forward to seeing some good progress there.
And 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 season. So cycle and then I'd be disappointed if we don't outperform and technology expense compared to revenue as the revenue thrown off from those technology investments materializes. So.
Theres a few more milestones to complete before we go into adds and deletes to expenses and what we expect the sales effectiveness metrics debate 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 and maybe what Mike was lead me to was the tech spend we're talking about is not catch up expense, it's enhancement towards being more effective in getting the efficiency ratio ultimately down below that CSL go in future years does that answer your question, yes. It makes sense great. Thank you very much.
And Kathryn 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. So all of those investments as well as the expenses are built into our csrs through next year.
Got it.
Alright, great. Thank you great quarter.
Hi.
Thank you and our next question.
Ebrahim Poonawala with Bank of America. Your line is now open.
Good morning, guys.
Morning, Mike.
I was just wondering John if you could fill your provisioning guidance implies relatively subdued outlook on credit. If you can just talk about in terms of you seem pretty decent healthy credits in for a while now at the bank.
In terms of how you look how you view credit business going forward you, obviously seen one all from banks continue to rise over the last several quarters. So would love to get just talked about on credit credit quality and customer sentiment, even if this leads to loan growth.
If you could.
Sure. Abraham this is this is John Chris Lucas here with US I will let Chris take that question.
Hi Ram.
Yes, 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've met a few customers recently I think theres still generally positive sentiment out there. So I think you know over the over the coming quarters I think we'll see continued improvement in that area.
Okay.
Understood and just moving back to.
The margin and the deposit costs, Mike when you think about.
Oh.
One last thing you mentioned loan to deposit ratio 86 to 87, if you could tell us how high you feel comfortable with and getting that the shale. If you had to and also in terms of when you think about customer pricing you do expect the CD pricing public funded obviously income to have it really can be quickly or is it going to be market, driven b cell and compared it does end up doing.
Okay. Thank thank Abraham related to the first part of the question and LD ratio.
Certainly don't want to create an expectation that were going to increase our LD ratio simply was saying 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 the 9% maybe although.
That's right.
And again, the the effort there would be.
To be fairly aggressive in terms of dropping deposit costs.
Should the fed move down later this month.
Now some of that is kind of already happening 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 but for the most part related to the CD maturities that will have coming up we think that there's a real opportunity.
No for a bit of a price down.
Going forward.
So hopefully that answers your question.
No thats helpful. Thank you very much for taking my questions.
Abraham This is John I, just had one other credit point on there.
If you note in the the investor deck on slide 10.
We've mentioned last several quarters that getting our criticized and nonperforming loan ratios down into the pier.
Comparative areas with something very important to us an important to investors.
If you look on slide 10, you'll note that gap from a year ago has gone from roughly 300 basis points down around 70, so the gap is getting close.
Yes.
As tdrs begin to come down and come out of both Npls and the criticized credits I would expect that gap to be extinguished, but so I think and we're not ready to call victory yet on criticized credits, we still have some more progress to make there.
But I think just from a focus and a amount of vigor.
Our attention is more on the nonperforming sector than than just criticized now because I think thats whats weighing the sungard our market cap. So 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.
We'll be as attractive as the criticized so that's going to take a few quarters, that's not going to all happen in one time would make good progress so far but.
But the background for Christmas town as shown in those ratios can be found on slides 10 to 12.
No.
Thanks.
Thank you and our next question will come from 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 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 have a little it looks like a little over $2.2 billion of production.
In the year ago quarter or this quarter was around a billion. Two I'm. Just curious you know study a number of loans this quarter versus year ago quarter, just thinking about how granular have you've gotten in terms of what you've been able to put on the books as you know as part of that plan too.
I guess reduced risk around larger loan to get better pricing.
Okay and thanks for the question this is John .
I think the 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 is some seasonality impact, but generally speaking the volumes of credits and the commercial banking space and down.
Sporadically improve 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.
But but so let me talk about mortgage first mortgage.
Approved our clothes business was up about 20%.
The number of apps was up about 39% over the previous quarter.
Now that had been drifting downward from the beginning of last year, just because if you remember that time rates were actually going the other way.
As long term 15, and 30 year money rates have declined.
Than we've seen as you would expect a bump up in both apps and any clothes business.
So some of.
Of 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 increase and that happens every time, we see it as money rights come down.
Interestingly enough, it's not really driven entirely by refinery.
There just seems to be new borrower interest.
In home deals after somewhat of a declining environment at least in our footprints where were active in the last year or two.
But commercial banking segment is doing well the business banking segment is doing well and I am really.
And just looking overall loan growth.
There may be a little bit of a mismatch.
Brad and are what we consider adequate amounts of.
Covenants tied to construction CRT the deal flow in the first half of the year.
Was that was real good but the covenant light nature of those deals were a little bit outside our appetite at this point the credit cycle and that did begin to moderate as we got towards the end of the second quarter.
Same similar point on health care, the amount of leverage per deal.
The deal flow was good but the leverage with a little half our appetite and so we saw the healthcare book shrimp 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 we're 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 and the granular segments and then 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 to yield does that kind of expand the color of what you were looking for you I guess my question was more from the perception of risk you know the market.
Yes, ultra concerned about credit risk in the perception is.
Bigger credits carry more risk.
Just wondered if are you guys really focused on do you have the credits gotten smaller.
If you're just doing more of them.
Well 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 were carrying about the same amount of snakes, I think thats 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 16, three years ago. So.
But what's inside that Snick book is quite different so we expect to have a little bit more of a positive depository or fee participation with national shared national credits were involved in.
And the participation in energy related snacks has continued to decline. So 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 index credits is at the upper end so.
We're not having to do something really new to deal with the the rate environment is getting a little bit more challenging.
Because the focus on the smaller credits with something we really focused hard on a year ago and continue to ramp up.
No that's very helpful.
Brad just one quick comment this is Mike and thanks for kind of calling attention to 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 Thats related to a larger number of smaller credits that were putting on the books and we believe that we are able to do that with really.
Kind of a better risk trade off if you will.
Yes, yes follow up on that 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 a 134, so you feel like you've got some permanent.
Better pricing on it above where.
What what the index rates have done is that it would that be a fair assessment.
Yes, correct it would be a perfect session.
Okay, great. Thanks, Thanks for the color.
Just wish we had more of it.
Understood well.
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.
Hi, just looking kind of at rate cuts a little differently, what what's the impact of rate cuts on kind of the MSR acquisition accretion numbers you guys put out.
Yes, no discernible impact at this point, Steve and certainly Thats something I think we'll talk a little bit more about once we consummate the transaction and again thats planned for in the current quarter and at that point, we'll share it gets a little bit more color around how that book is impacting our rate since two okay. So if we get a cut end of this month you guys are still okay with that kind of 13 to 15 cents.
Yes, that's right.
Okay.
And then looking back at that kind of that slide we were just talking about the new loan yields kind of have risen nicely.
Exit 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 to add to the book.
Well I'll start and Mike can.
Can can cleanup of we need some more clarity the.
I think it's important to note in the second COVID-19 that that new loan business coming in if that in fact 22 number.
No there hasn't been a fed overnight money rate cut, but lob or is absolutely price that in already so I don't have that number may be around 30, bips compared to the previous quarter.
On us and some 60% of our new credits are still indexed produced in the second quarter in the end the new money yield held up so I think we've been able to find ways, both with the intention of granularity pricing discipline and being selective around what deals we participated in or did and we've been able to weather that storm with only a three step decline in new money from the first quarter and a much better indexed business. So weve.
We feel pretty good about it holding up.
I mean, I'm, not naive and and ignoring that if there was another rate cut that happened in the tone towards the second 25.
Decrease would certainly make that tough, but I don't think it affects our strategy any other than.
We would want to understand more about about why would we want to see a second rate cut occur in an expanding economy that seeing what some seem somewhat counterintuitive.
Thanks, guys.
Thank you Matt.
Thank you and our next question will come from Casey Haire with Jefferies. Your line is now open.
Thanks, Good morning, guys.
Wanted to touch on the on the loan growth.
I appreciate the guide 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 to.
An outlook as to how you see loan growth trending in the back half of the year or do you still anticipate these kind of headwinds and CRT paydowns in the energy health care or or can we see.
Loan pipeline start to deliver without the sort of impediments.
Yes to hit thanks for the question, Yes, and just to make sure we're in interpreting correctly.
To hit the mid single level digits end of year over end of year, we'll need more loan growth in second half and somewhat substantially so than the first half.
To to getting into specifics of your question.
What we would expect to happen is health care is probably static to up in the second half versus shrinking in the first half.
Ditto CRD.
We'll continue growing the granular areas of the balance sheet, and we probably won't have as much of a headwind with energy.
Noting that we had to reduce energy.
Some of the neighborhood of around 70 million in the 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 in the fourth quarter line draws I mentioned before.
We think we will see a second half loan growth numbers.
Higher.
Yes.
Casey.
I'm sorry.
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 so totally agree with what John just said in terms of looking forward.
To to some pretty nice levels of loan growth in the second half of this year.
Okay. So the the the the guidance is average I'm sorry, it's ended period not average I know the guidance is year over year average loan growth mid single digits.
Year to year.
Net net of MSL right.
Okay, Okay great.
All right and then just just switching to fees I know I know its difficult. Some of these transactional fee items that did very well this quarter, but is there any.
Is there any piece of it that you that you see is a little bit more recurring maybe on the SPC or.
On the swap side.
Yes, I think the part of it that it's really hard to predict is certainly the boldly and the mortality gains that you have there.
The FDIC and there was a current investments our ongoing investments that we have so it's not like all of that's going to disappear in a quarter and then maybe reappear at some other point the derivative fees is interesting we've had an absolutely great quarter in terms of derivative fees.
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.
Yes, you bet. Thank you and our next question will come from the line of Matt Olney with Stephens. Your line is now open.
Hi, 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, though when you talk about relatively stable are you thinking about the range of plus or minus three bits or 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 345 or do you think we should be looking at that 342, NIM that would exclude some of those interest recoveries in twoq.
Yes, great question, and when we talk about the NIM guidance and their relative stability, but really looking at reported NIM. So 345, and certainly we've had this quarter.
Little bit of a benefit from from interest recoveries, but again, if you go back over the last four or five quarters. We've had I think in 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 to harvest some of that in terms of.
Interest recoveries.
So to your question about what stability.
It means a couple of basis points out being piloted in either direction as 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.
Pretty challenging rate environment I think.
Adequately.
Fits the depiction of NIM stability.
Got it Okay. That's that's helpful. Mike and then I also wanted to circle back on the credit trends within the energy portfolio. It seems like last year that banks are really good improvement across the board in energy credit trends, but 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. 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 the problem energy loans that are low and liquidation are just not seen very strong bid 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 am at the I think the one observation that's that's worth mentioning is.
If you're doing a comparative of energy banks you have to know.
What type of energy they are doing and if they're if they're all midstream that 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 in particularly the GE OEM services book.
The day rates, while they are improving in the contracts are getting let and drilling has begun to occur its just going to take a little bit longer for all those energy services credits and specifically the TD ours.
To 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 we're terribly dissimilar dissimilar from anyone else.
The lag is really more because of energy services. So thats, just going to take a little bit longer for that to complete its resolution. Chris do you have anything you want to add to that now and I would just say that.
There are a number of our energy credits still remain in that TDR category, and so thats kind of our bigger focus and 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 a 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.
Thank you.
Thank you and our next question will come from the line of Christopher Marinac with Janney Montgomery. Your line is open.
Hi, Good morning, I, just wanted to verify on mid south that it is it accretive to margin and that the sort of accretion impact is sort of de minimis as that comes online for next year.
Yes, Chris This is Mike that's correct. So we're looking at the the MSL impact on our NIM to be around three basis points or so.
So that hasn't changed and then in terms of the the loan Mark the 5% loan Mark we're looking at the vast majority of that really being added to the triple well.
Down the road so that there is some accretable impact, but it's not significant.
Great Mike Thats helpful and just one quick one for Chris Chris do you see anything from the utilization rates have seen I loans or anything else on the credit front that gives you a read through it to kind of.
Just overall health and demand from borrowers.
Yes so.
We've been looking at you know I've been looking at utilization rates kind of as an indicator of that visit both business activity and then also Conversely any indicators of.
Issues.
The market because it kind of cuts 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 rate I don't know if.
John do you have any comments and ask him to answer your question yes.
Alright, great guys. Thank you for the background here.
Thanks, Chris.
Thank you and this concludes our question and answer session for today. It is now my pleasure hand, the conference back over Mr., John Harrison, President and Chief Executive Officer for any closing comments or remarks.
Thanks, Brian for monitoring 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.
We may all disconnect everybody have a wonderful day.