HANCOCK WHITNEY CORP - Quarter Report: 2015 September (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36872

HANCOCK HOLDING COMPANY

(Exact name of registrant as specified in its charter)


Mississippi		64-0693170
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

One Hancock Plaza, 2510 14^th Street, Gulfport, Mississippi		39501
(Address of principal executive offices)		(Zip Code)

(228) 868-4000

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, address and fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

77,397,992 common shares were outstanding as of November 3, 2015.

Hancock Holding Company

Index


		Page Number
Part I. Financial Information

ITEM 1.	Financial Statements
	Consolidated Balance Sheets – September 30, 2015 (unaudited) and December 31, 2014		1

	Consolidated Statements of Income (unaudited) – Three and nine months ended September 30, 2015 and 2014		2

	Consolidated Statements of Comprehensive Income (unaudited) – Three and nine months ended September 30, 2015 and 2014		3

	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) – Nine months ended September 30, 2015 and 2014		4

	Consolidated Statements of Cash Flows (unaudited) – Nine months ended September 30, 2015 and 2014		5

	Notes to Consolidated Financial Statements (unaudited) – September 30, 2015		6-48

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		49-75

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk		75

ITEM 4.	Controls and Procedures		76

Part II. Other Information

ITEM 1.	Legal Proceedings		76

ITEM 1A.	Risk Factors		76-77

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		77

ITEM 3.	Default on Senior Securities		N/A

ITEM 4.	Mine Safety Disclosures		N/A

ITEM 5.	Other Information		N/A

ITEM 6.	Exhibits		78

Signatures			79

Part I. Financial Information

Item 1. Financial Statements

Hancock Holding Company and Subsidiaries

Consolidated Balance Sheets


(in thousands, except share data)	September 30, 2015			December 31, 2014
	unaudited
ASSETS
Cash and due from banks	$	323,743		$	356,455
Interest-bearing bank deposits		189,989			801,576
Federal funds sold		4,425			1,372
Securities available for sale, at fair value (amortized cost of $2,140,436 and $1,631,761)		2,168,837			1,660,165
Securities held to maturity (fair value of $2,414,682 and $2,186,340)		2,380,085			2,166,289
Loans held for sale		19,764			20,252
Loans		14,763,050			13,895,276
Less: allowance for loan losses		(139,576	)		(128,762	)

Loans, net		14,623,474			13,766,514

Property and equipment, net of accumulated depreciation of $203,994 and $193,527		380,809			398,384
Prepaid expenses		23,555			28,277
Other real estate, net		32,493			58,415
Accrued interest receivable		51,781			47,501
Goodwill		621,193			621,193
Other intangible assets, net		113,229			132,810
Life insurance contracts		431,524			426,617
FDIC loss share receivable		32,035			60,272
Deferred tax asset, net		66,942			74,335
Other assets		144,272			126,839

Total assets	$	21,608,150		$	20,747,266

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	6,075,558		$	5,945,208
Interest-bearing		11,364,390			10,627,623

Total deposits		17,439,948			16,572,831

Short-term borrowings		1,049,182			1,151,573
Long-term debt		497,177			374,371
Accrued interest payable		7,087			4,204
Other liabilities		161,195			171,885

Total liabilities		19,154,589			18,274,864

Stockholders’ equity
Common stock – $3.33 par value per share; 350,000,000 shares authorized, 77,518,998 and 80,426,485 shares outstanding		258,138			267,820
Capital surplus		1,710,903			1,689,291
Treasury shares at cost – 9,296,513 and 7,053,028 shares		(251,082	)		(158,131	)
Retained earnings		781,769			723,496
Accumulated other comprehensive loss, net		(46,167	)		(50,074	)

Total stockholders’ equity		2,453,561			2,472,402

Total liabilities and stockholders’ equity	$	21,608,150		$	20,747,266

See notes to unaudited consolidated financial statements.

Hancock Holding Company and Subsidiaries

Consolidated Statements of Income

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share data)	2015			2014			2015			2014
Interest income:
Loans, including fees	$	146,398		$	150,481		$	435,270		$	453,066
Loans held for sale		176			197			494			544
Securities-taxable		23,631			20,824			66,095			64,601
Securities-tax exempt		839			954			2,564			2,946
Short-term investments		285			245			913			685

Total interest income		171,329			172,701			505,336			521,842

Interest expense:
Deposits		8,933			5,828			23,680			16,431
Short-term borrowings		273			238			631			2,109
Long-term debt		5,293			3,094			14,246			9,421

Total interest expense		14,499			9,160			38,557			27,961

Net interest income		156,830			163,541			466,779			493,881
Provision for loan losses		10,080			9,468			22,842			24,122

Net interest income after provision for loan losses		146,750			154,073			443,937			469,759

Noninterest income:
Service charges on deposit accounts		18,619			20,000			53,842			57,981
Trust fees		11,345			11,530			34,340			33,267
Bank card and ATM fees		11,637			11,641			34,688			33,806
Investment and annuity fees		6,149			5,506			16,037			15,555
Secondary mortgage market operations		3,413			2,313			9,695			6,036
Insurance commissions and fees		2,238			1,979			6,587			7,611
Amortization of FDIC loss share receivable		(1,564	)		(2,760	)		(4,034	)		(9,989	)
Other income		8,370			7,732			26,139			26,771
Securities transactions		4			—			337			—

Total noninterest income		60,211			57,941			177,631			171,038

Noninterest expense:
Compensation expense		71,187			69,207			206,754			204,900
Employee benefits		12,968			11,957			41,472			38,812

Personnel expense		84,155			81,164			248,226			243,712

Net occupancy expense		11,222			10,848			34,203			32,983
Equipment expense		3,598			4,619			11,623			12,958
Data processing expense		13,844			13,004			41,412			38,310
Professional services expense		7,656			7,229			31,978			22,817
Amortization of intangibles		6,027			6,570			18,493			20,352
Telecommunications and postage		3,485			3,648			10,607			11,094
Deposit insurance and regulatory fees		4,225			2,967			12,033			8,677
Other real estate expense, net		422			(104	)		1,379			1,757
Other expense		16,559			19,134			53,671			60,259

Total noninterest expense		151,193			149,079			463,625			452,919

Income before income taxes		55,768			62,935			157,943			187,878
Income taxes		14,602			16,382			41,789			52,248

Net income	$	41,166		$	46,553		$	116,154		$	135,630

Earnings per common share-basic	$	0.52		$	0.56		$	1.45		$	1.62
Earnings per common share-diluted	$	0.52		$	0.56		$	1.45		$	1.62
Dividends paid per share	$	0.24		$	0.24		$	0.72		$	0.72
Weighted average shares outstanding-basic		77,928			81,721			78,452			81,965
Weighted average shares outstanding-diluted		78,075			81,942			78,609			82,204

See notes to unaudited consolidated financial statements.

Hancock Holding Company and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2015		2014			2015			2014
Net income	$	41,166	$	46,553		$	116,154		$	135,630
Other comprehensive income:
Net change in unrealized gain (loss)		15,131		(6,293	)		2,174			9,119
Reclassification adjustment for net losses realized and included in earnings		802		98			2,208			293
Valuation adjustment for employee benefit plans		4,963		(104	)		(959	)		1,902
Amortization of unrealized net gain on securities transferred to held to maturity		1,023		892			2,609			2,463

Other comprehensive income (loss) before income taxes		21,919		(5,407	)		6,032			13,777
Income tax expense (benefit)		8,002		(2,005	)		2,125			5,091

Other comprehensive income (losses) net of income taxes		13,917		(3,402	)		3,907			8,686

Comprehensive income	$	55,083	$	43,151		$	120,061		$	144,316

See notes to unaudited consolidated financial statements.

Hancock Holding Company and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


	Common Stock						Capital Surplus		Retained Earnings			Accumulated Other Comprehensive Income (Loss), net			Treasury Stock			Total
(in thousands, except share data)	Shares			Amount			Capital Surplus		Retained Earnings			Accumulated Other Comprehensive Income (Loss), net			Treasury Stock			Total
Balance, January 1, 2014		82,237,162		$	273,850		$	1,647,467	$	628,166		$	(35,379	)	$	(89,035	)	$	2,425,069

Net income		—			—			—		135,630			—			—			135,630
Other comprehensive income		—			—			—		—			8,686			—			8,686

Comprehensive income		—			—			—		135,630			8,686			—			144,316
Cash dividends declared ($0.72 per common share)		—			—			—		(60,290	)		—			—			(60,290	)
Common stock activity, long-term incentive plan		224,963			749			49,119		—			—			(39,654	)		10,214
Purchase of common stock under stock buyback program		(895,485	)		(2,982	)		—		—			—			(6,985	)		(9,967	)

Balance, September 30, 2014		81,566,640		$	271,617		$	1,696,586	$	703,506		$	(26,693	)	$	(135,674	)	$	2,509,342


Balance, January 1, 2015		80,426,485		$	267,820		$	1,689,291	$	723,496		$	(50,074	)	$	(158,131	)	$	2,472,402

Net income		—			—			—		116,154			—			—			116,154
Other comprehensive income		—			—			—		—			3,907			—			3,907

Comprehensive income		—			—			—		116,154			3,907			—			120,061
Cash dividends declared ($0.72 per common share)		—			—			—		(57,881	)		—			—			(57,881	)
Common stock activity, long-term incentive plan		224,399			747			21,612		—			—			(12,544	)		9,815
Purchase of common stock under stock buyback programs		(3,131,886	)		(10,429	)		—		—			—			(80,407	)		(90,836	)

Balance, September 30, 2015		77,518,998		$	258,138		$	1,710,903	$	781,769		$	(46,167	)	$	(251,082	)	$	2,453,561

See notes to unaudited consolidated financial statements.

Hancock Holding Company and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
(in thousands)	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	116,154		$	135,630
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		21,533			22,976
Provision for loan losses		22,842			24,122
Gain on other real estate owned		(521	)		(34	)
Deferred tax expense		11,895			24,295
Increase in cash surrender value of life insurance contracts		(7,700	)		(6,960	)
Loss (gain) on disposal of other assets		1,626			(1,411	)
Net decrease in loans held for sale		498			7,017
Write-downs on closed branch transfers to other real estate owned		—			2,683
Net amortization of securities premium/discount		15,456			12,891
Amortization of intangible assets		18,493			20,352
Amortization of FDIC indemnification asset		4,034			9,989
Stock-based compensation expense		9,469			10,514
(Decrease) increase in interest payable and other liabilities		(6,753	)		(9,132	)
Net payments from (to) FDIC for loss share claims		14,667			(366	)
Decrease in FDIC loss share receivable		6,309			7,729
(Increase) decrease in other assets		(9,339	)		21,086
Other, net		4,127			6,256

Net cash provided by operating activities		222,790			287,637

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities		9,287			1,301
Proceeds from maturities of securities available for sale		755,663			218,351
Purchases of securities available for sale		(1,286,443	)		(440,187	)
Proceeds from maturities of securities held to maturity		439,410			358,649
Purchases of securities held to maturity		(658,226	)		(1,031	)
Net decrease (increase) in interest-bearing bank deposits		611,587			(199,982	)
Net increase in federal funds sold and short-term investments		(3,053	)		(2,736	)
Net increase in loans		(882,702	)		(1,060,864	)
Purchase of life insurance contracts		—			(30,000	)
Purchases of property and equipment		(19,529	)		(14,370	)
Proceeds from sales of property and equipment		13,607			8,607
Proceeds from sales of other real estate		39,612			42,913
Other, net		(8,603	)		4,273

Net cash used in investing activities		(989,390	)		(1,115,076	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		867,117			376,178
Net (decrease) increase in short-term borrowings		(102,391	)		513,849
Repayments of long-term debt		(31,621	)		(26,558	)
Net proceeds from issuance of long-term debt		149,153			17,184
Dividends paid		(57,881	)		(60,290	)
Purchase of common stock under stock buyback program		(90,836	)		(9,967	)
Proceeds from exercise of stock options		347			962

Net cash provided by financing activities		733,888			811,358

NET DECREASE IN CASH AND DUE FROM BANKS		(32,712	)		(16,081	)
CASH AND DUE FROM BANKS, BEGINNING		356,455			348,440

CASH AND DUE FROM BANKS, ENDING	$	323,743		$	332,359

SUPPLEMENTAL INFORMATION FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Assets acquired in settlement of loans	$	12,997		$	23,920

See notes to unaudited consolidated financial statements.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The consolidated financial statements include the accounts of Hancock Holding Company and all other entities in which it has a controlling interest (the “Company”). The financial statements include all adjustments that are, in the opinion of management, necessary to present fairly the Company’s financial condition, results of operations, changes in stockholders’ equity and cash flows for the interim periods presented. Some financial information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been condensed or omitted in this Form 10-Q pursuant to Securities and Exchange Commission rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Financial information reported in these financial statements is not necessarily indicative of the Company’s financial condition, results of operations, or cash flows for any other interim or annual period.

Use of Estimates

The accounting principles the Company follows and the methods for applying these principles conform with GAAP and with those generally practiced within the banking industry. These accounting principles require management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

Critical Accounting Policies and Estimates

There were no material changes or developments with respect to methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2014.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

2. Securities

The amortized cost and fair value of securities classified as available for sale and held to maturity follow.


Securities Available for Sale
(in thousands)	September 30, 2015								December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
US Treasury and government agency securities	$	144	$	—	$	1	$	143	$	300,207	$	372	$	71	$	300,508
Municipal obligations		15,712		240		—		15,952		13,995		186		5		14,176
Mortgage-backed securities		1,814,818		30,021		3,470		1,841,369		1,217,293		31,094		2,823		1,245,564
Collateralized mortgage obligations		303,816		1,964		633		305,147		88,093		—		1,229		86,864
Corporate debt securities		3,500		—		—		3,500		3,500		—		—		3,500
Equity securities		2,446		313		33		2,726		8,673		891		11		9,553

	$	2,140,436	$	32,538	$	4,137	$	2,168,837	$	1,631,761	$	32,543	$	4,139	$	1,660,165


Securities Held to Maturity
(in thousands)	September 30, 2015								December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
US Treasury and government agency securities	$	50,000	$	343	$	—		50,343	$	—	$	—	$	—	$	—
Municipal obligations		187,541		3,777		575		190,743		180,615		3,416		1,144		182,887
Mortgage-backed securities		992,984		27,677		—		1,020,661		899,923		23,897		162		923,658
Collateralized mortgage obligations		1,149,560		8,655		5,280		1,152,935		1,085,751		5,590		11,546		1,079,795

	$	2,380,085	$	40,452	$	5,855	$	2,414,682	$	2,166,289	$	32,903	$	12,852	$	2,186,340

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

2. Securities (continued)

The following table presents the amortized cost and fair value of debt securities at September 30, 2015 by contractual maturity. Actual maturities will differ from contractual maturities because of rights to call or repay obligations with or without penalties and scheduled and unscheduled principal payments on mortgage-backed securities and collateralized mortgage obligations.


(in thousands)	Amortized Cost		Fair Value
Debt Securities Available for Sale
Due in one year or less	$	43,655	$	43,069
Due after one year through five years		78,375		79,710
Due after five years through ten years		280,603		289,987
Due after ten years		1,735,357		1,753,345

Total available for sale debt securities	$	2,137,990	$	2,166,111


	Amortized Cost		Fair Value
Debt Securities Held to Maturity
Due in one year or less	$	248,854	$	250,028
Due after one year through five years		420,607		420,768
Due after five years through ten years		107,040		107,116
Due after ten years		1,603,584		1,636,770

Total held to maturity securities	$	2,380,085	$	2,414,682

The Company held no securities classified as trading at September 30, 2015 or December 31, 2014.

The details for securities classified as available for sale with unrealized losses for the periods indicated follow.


Available for Sale September 30, 2015	Losses < 12 months				Losses 12 months or >				Total
(in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
US Treasury and government agency securities	$	—	$	—	$	88	$	1	$	88	$	1
Mortgage-backed securities		482,530		1,884		115,334		1,586		597,864		3,470
Collateralized mortgage obligations		48,576		11		34,958		622		83,534		633
Equity securities		1,510		31		2		2		1,512		33

	$	532,616	$	1,926	$	150,382	$	2,211	$	682,998	$	4,137

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

2. Securities (continued)


Available for Sale December 31, 2014	Losses < 12 months				Losses 12 months or >				Total
(in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
US Treasury and government agency securities	$	99,950	$	70	$	121	$	1	$	100,071	$	71
Municipal obligations		2,995		5		—		—		2,995		5
Mortgage-backed securities		38,955		163		125,641		2,660		164,596		2,823
Collateralized mortgage obligations		—		—		86,864		1,229		86,864		1,229
Equity securities		5,998		10		3		1		6,001		11

	$	147,898	$	248	$	212,629	$	3,891	$	360,527	$	4,139

The details for securities classified as held to maturity with unrealized losses for the periods indicated follow.


Held to maturity September 30, 2015	Losses < 12 months				Losses 12 months or >				Total
(in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Municipal obligations	$	21,844	$	65	$	49,025	$	510	$	70,869	$	575
Collateralized mortgage obligations		47,775		314		375,397		4,966		423,172		5,280

	$	69,619	$	379	$	424,422	$	5,476	$	494,041	$	5,855


Held to maturity December 31, 2014	Losses < 12 months				Losses 12 months or >				Total
(in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Municipal obligations	$	4,316	$	12	$	58,105	$	1,132	$	62,421	$	1,144
Mortgage-backed securities		—		—		95,522		162		95,522		162
Collateralized mortgage obligations		119,222		616		540,607		10,930		659,829		11,546

	$	123,538	$	628	$	694,234	$	12,224	$	817,772	$	12,852

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

2. Securities (continued)

The unrealized losses primarily relate to changes in market rates on fixed-rate debt securities since the respective purchase dates. In all cases, the indicated impairment on these debt securities would be recovered no later than the security’s maturity date or possibly earlier if the market price for the security increases with a reduction in the yield required by the market. None of the unrealized losses relate to the marketability of the securities or the issuer’s ability to meet contractual obligations. The Company believes it has adequate liquidity and, therefore, does not plan to and, more likely than not, will not be required to sell these securities before recovery of the indicated impairment. Accordingly, the unrealized losses on these securities have been determined to be temporary.

Securities with carrying values totaling $3.0 billion at September 30, 2015 and $3.2 billion at December 31, 2014 were pledged as collateral primarily to secure public deposits or securities sold under agreements to repurchase.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses

Loans, net of unearned income, consisted of the following.


(in thousands)	September 30, 2015		December 31, 2014
Originated loans:
Commercial non-real estate	$	6,232,310	$	5,917,728
Construction and land development		1,068,895		1,073,964
Commercial real estate		2,956,354		2,428,195
Residential mortgages		1,843,756		1,704,770
Consumer		1,976,872		1,685,542

Total originated loans	$	14,078,187	$	12,810,199

Acquired loans:
Commercial non-real estate	$	107,985	$	120,137
Construction and land development		8,297		21,123
Commercial real estate		352,896		688,045
Residential mortgages		819		2,378
Consumer		22		985

Total acquired loans	$	470,019	$	832,668

FDIC acquired loans:
Commercial non-real estate	$	5,699	$	6,195
Construction and land development		8,393		11,674
Commercial real estate		18,136		27,808
Residential mortgages		169,214		187,033
Consumer		13,402		19,699

Total FDIC acquired loans	$	214,844	$	252,409

Total loans:
Commercial non-real estate	$	6,345,994	$	6,044,060
Construction and land development		1,085,585		1,106,761
Commercial real estate		3,327,386		3,144,048
Residential mortgages		2,013,789		1,894,181
Consumer		1,990,296		1,706,226

Total loans	$	14,763,050	$	13,895,276

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

The following briefly describes the distinction among originated, acquired and FDIC acquired loans and certain significant accounting policies relevant to each category.

Originated loans

Loans reported as “originated” include both loans and leases originated for investment and acquired-performing loans where the discount (premium) has been fully accreted (amortized). Originated loans are reported at the principal balance outstanding, net of unearned income. Interest on loans and accretion of unearned income, including deferred loan fees, are computed in a manner that approximates a level yield on recorded principal. Interest on loans is recognized in income as earned.

The accrual of interest on an originated loan is discontinued when, in management’s opinion, it is probable that the borrower will be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. When accrual of interest is discontinued on a loan, all unpaid accrued interest is reversed and payments subsequently received are applied first to recover principal. Interest income is recognized for payments received after contractual principal has been satisfied. Loans are returned to accrual status when all the principal and interest contractually due are brought current and future payment performance is reasonably assured.

Acquired loans

Loans reported as “acquired” are those loans that were purchased in the 2011 Whitney Holding Corporation acquisition. These loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses. At the time of the Whitney acquisition, the Whitney acquired loans were segregated between those considered to be performing (“acquired-performing”) and those with evidence of credit deterioration (“acquired-impaired”) based on such factors as past due status, nonaccrual status and credit risk ratings (rated substandard or worse). The acquired loans were further segregated into loan pools designed to facilitate the development of expected cash flows to be used in estimating fair value for purchase accounting. Acquired-performing loans are accounted for under ASC 310-20 and acquired-impaired loans are accounted for under ASC 310-30.

Acquired-performing loans were segregated into pools based on common risk characteristics such as loan type, credit risk ratings, and contractual interest rate and repayment terms. The major loan types included commercial and industrial loans not secured by real estate, real estate construction and land development loans, commercial real estate loans, residential mortgage loans, and consumer loans, with further segregation within certain loan types as needed. Expected cash flows, both principal and interest, from each pool were estimated based on key assumptions covering such factors as prepayments, default rates, and severity of loss given a default. These assumptions were developed using both historical experience and the portfolio characteristics at acquisition as well as available market research. The fair value for each acquired-performing pool was based on the estimate of expected cash flows from the pool discounted at prevailing market rates.

The difference at the acquisition date between the fair value and the contractual amounts due of an acquired-performing loan pool (the “fair value discount”) is accreted into income over the estimated life of the pool. Acquired-performing loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

The acquired-impaired loans were segregated into pools by identifying loans with common credit risk profiles and were based primarily on characteristics such as loan type and market area in which originated. The major loan types included commercial and industrial loans not secured by real estate, real estate construction and land development loans, commercial real estate loans, and residential mortgage loans, with further segregation within certain loan types as needed. The acquired-impaired loans were further disaggregated by geographic region in recognition of the differences in general economic conditions affecting borrowers in certain states. The fair value estimate for each pool of acquired-impaired loans was based on the estimate of expected cash flows from the pool discounted at prevailing market rates.

The excess of estimated cash flows expected to be collected from an acquired-impaired loan pool over the pool’s carrying value is referred to as the accretable yield and is recognized in interest income using an effective yield method over the expected life of the loan pool. Each pool of acquired-impaired loans is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Acquired-impaired loans in pools with an accretable yield and expected cash flows that are reasonably estimable are considered to be accruing and performing even though collection of contractual payments on loans within the pool may be in doubt, because the pool is the unit of accounting. Acquired-impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans or troubled debt restructurings even if they would otherwise qualify for such treatment.

FDIC acquired loans and the related loss share receivable

Loans reported as “FDIC acquired” are loans purchased in the 2009 acquisition of Peoples First Community Bank (“Peoples First”) that were covered by two loss share agreements between the FDIC and the Company. These loans are accounted for as acquired-impaired loans as described above in the section on acquired loans. The Company treated all loans for the Peoples First acquisition as impaired based on the significant amount of deteriorating and nonperforming loans, comprised mainly of adjustable rate mortgages and home equity loans, located in Florida. The loss share receivable is measured separately from the related covered loans as it is not contractually embedded in the loans and is not transferrable should the loans be sold. The fair value of the loss share receivable at acquisition was estimated by discounting expected reimbursements for losses from the loans covered by the loss share agreements, including appropriate consideration of possible true-up payments to the FDIC at the expiration of the agreements.

The loss share receivable is reviewed and updated prospectively as loss estimates related to covered loan pools change. Increases in expected reimbursements under the loss sharing agreement will lead to an increase in the loss share receivable. A decrease in expected reimbursements is reflected first as a reversal of any previously recorded increase in the loss share receivable on the covered loan pools with the remainder reflected as an increase in the loss share receivable’s amortization rate. The loss share receivable serves to offset the impact on provision due to impairments or impairment reversals that occur as a result of changes in loss estimates on the underlying covered loan pools. The excess (or shortfall) of expected claims compared to the carrying value of the loss share receivable is accreted (amortized) into noninterest income over the shorter of the remaining life of the covered loan pool or the life of the loss share agreement. The impact on operations of an increase in the loss share receivable’s amortization rate is associated with an increase in the accretable yield on the underlying loan pool. The loss share receivable is reduced as cash is received from the FDIC related to losses incurred on covered assets.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

The following schedule shows activity in the loss share receivable for the nine months ended September 30, 2015 and 2014.


	Nine Months Ended
(in thousands)	September 30, 2015			September 30, 2014
Balance, January 1	$	60,272		$	113,834
Amortization		(4,034	)		(9,989	)
Charge-offs, write-downs and other recoveries		(6,733	)		(793	)
External expenses qualifying under loss share agreement		1,035			3,325
Changes due to changes in cash flow projections		(1,984	)		(14,569	)
FDIC resolution of denied claims		(1,854	)		(10,268	)
Net payments (from) to FDIC		(14,667	)		366

Ending balance	$	32,035		$	81,906

The loss share agreement covering the non-single family FDIC acquired portfolio expired in December 2014. The loss share agreement covering the single family portfolio expires in December 2019.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

The following schedule shows activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2015 and 2014 as well as the corresponding recorded investment in loans at the end of each period.


(in thousands)	Commercial non-real estate			Construction and land development			Commercial real estate			Residential mortgages			Consumer			Total
	Nine Months Ended September 30, 2015
Originated loans
Allowance for loan losses:
Beginning balance	$	50,258		$	5,413		$	16,544		$	8,051		$	17,435		$	97,701
Charge-offs		(3,068	)		(1,483	)		(1,128	)		(1,451	)		(10,431	)		(17,561	)
Recoveries		2,589			2,006			635			578			3,418			9,226
Net provision for loan losses		13,594			(289	)		825			283			10,119			24,532

Ending balance	$	63,373		$	5,647		$	16,876		$	7,461		$	20,541		$	113,898

Ending balance:
Individually evaluated for impairment	$	5,588		$	21		$	2,737		$	96		$	3		$	8,445
Collectively evaluated for impairment		57,785			5,626			14,139			7,365			20,538			105,453

Loans:
Ending balance:	$	6,232,310		$	1,068,895		$	2,956,354		$	1,843,756		$	1,976,872		$	14,078,187
Individually evaluated for impairment		75,345			2,053			31,478			903			157			109,936
Collectively evaluated for impairment		6,156,965			1,066,842			2,924,876			1,842,853			1,976,715			13,968,251

Acquired loans
Allowance for loan losses:
Beginning balance	$	—		$	—		$	477		$	—		$	—		$	477
Charge-offs		—			—			—			—			—			—
Recoveries		—			—			—			—			—			—
Net provision for loan losses		—			—			(304	)		—			—			(304	)

Ending balance	$	—		$	—		$	173		$	—		$	—		$	173

Ending balance:
Individually evaluated for impairment	$	—		$	—		$	173		$	—		$	—		$	173
Amounts related to acquired-impaired loans		—			—			—			—			—			—
Collectively evaluated for impairment		—			—			—			—			—			—

Loans:
Ending balance:	$	107,985		$	8,297		$	352,896		$	819		$	22		$	470,019
Individually evaluated for impairment		—			—			2,507			—			—			2,507
Acquired-impaired loans		7,459			7,943			18,818			819			22			35,061
Collectively evaluated for impairment		100,526			354			331,571			—			—			432,451

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


(in thousands)	Commercial non-real estate			Construction and land development			Commercial real estate			Residential mortgages			Consumer			Total
	Nine Months Ended September 30, 2015
FDIC acquired loans
Allowance for loan losses:
Beginning balance	$	911		$	1,008		$	4,061		$	20,609		$	3,995		$	30,584
Charge-offs		(1,425	)		(406	)		(2,732	)		(748	)		(140	)		(5,451	)
Recoveries		1,699			896			957			5			185			3,742
Net provision for loan losses		(950	)		235			(620	)		1,181			(1,232	)		(1,386	)
Increase (decrease) in FDIC loss share receivable		314			(6	)		523			(2,718	)		(97	)		(1,984	)

Ending balance	$	549		$	1,727		$	2,189		$	18,329		$	2,711		$	25,505

Ending balance:
Individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—
Amounts related to acquired-impaired loans		549			1,727			2,189			18,329			2,711			25,505
Collectively evaluated for impairment		—			—			—			—			—			—

Loans:
Ending balance:	$	5,699		$	8,393		$	18,136		$	169,214		$	13,402		$	214,844
Individually evaluated for impairment		—			—			—			—			—			—
Acquired-impaired loans		5,699			8,393			18,136			169,214			13,402			214,844
Collectively evaluated for impairment		—			—			—			—			—			—

Total loans
Allowance for loan losses:
Beginning balance	$	51,169		$	6,421		$	21,082		$	28,660		$	21,430		$	128,762
Charge-offs		(4,493	)		(1,889	)		(3,860	)		(2,199	)		(10,571	)		(23,012	)
Recoveries		4,288			2,902			1,592			583			3,603			12,968
Net provision for loan losses		12,644			(54	)		(99	)		1,464			8,887			22,842
Increase (decrease) in FDIC loss share receivable		314			(6	)		523			(2,718	)		(97	)		(1,984	)

Ending balance	$	63,922		$	7,374		$	19,238		$	25,790		$	23,252		$	139,576

Ending balance:
Individually evaluated for impairment	$	5,588		$	21		$	2,910		$	96		$	3		$	8,618
Amounts related to acquired-impaired loans		549			1,727			2,189			18,329			2,711			25,505
Collectively evaluated for impairment		57,785			5,626			14,139			7,365			20,538			105,453

Loans:
Ending balance:	$	6,345,994		$	1,085,585		$	3,327,386		$	2,013,789		$	1,990,296		$	14,763,050
Individually evaluated for impairment		75,345			2,053			33,985			903			157			112,443
Acquired-impaired loans		13,158			16,336			36,954			170,033			13,424			249,905
Collectively evaluated for impairment		6,257,491			1,067,196			3,256,447			1,842,853			1,976,715			14,400,702

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


	Commercial non-real estate			Construction and land development			Commercial real estate			Residential mortgages			Consumer			Total
(In thousands)	Nine Months Ended September 30, 2014
Originated loans
Allowance for loan losses:
Beginning balance	$	33,091		$	6,180		$	20,649		$	6,892		$	12,073		$	78,885
Charge-offs		(4,690	)		(2,615	)		(2,255	)		(1,793	)		(11,920	)		(23,273	)
Recoveries		2,118			1,220			1,231			501			3,722			8,792
Net provision for loan losses		3,929			2,151			(3,231	)		3,647			10,921			17,417

Ending balance	$	34,448		$	6,936		$	16,394		$	9,247		$	14,796		$	81,821

Ending balance:
Individually evaluated for impairment	$	24		$	250		$	98		$	382		$	—		$	754
Collectively evaluated for impairment		34,424			6,686			16,296			8,865			14,796			81,067

Loans:
Ending balance:	$	4,806,740		$	974,442		$	2,245,855		$	1,635,462		$	1,623,069		$	11,285,568
Individually evaluated for impairment		5,582			6,617			14,486			2,712			—			29,397
Collectively evaluated for impairment		4,801,158			967,825			2,231,369			1,632,750			1,623,069			11,256,171

Acquired loans
Allowance for loan losses:
Beginning balance	$	1,603		$	10		$	34		$	—		$	—		$	1,647
Charge-offs		—			—			—			—			—			—
Recoveries		—			—			—			—			—			—
Net provision for loan losses		5,800			1,436			57			(4	)		182			7,471

Ending balance	$	7,403		$	1,446		$	91		$	(4	)	$	182		$	9,118

Ending balance:
Individually evaluated for impairment	$	92		$	426		$	46		$	—		$	—		$	564
Amounts related to acquired-impaired loans		—			—			—			—			—			—
Collectively evaluated for impairment		7,311			1,020			45			(4	)		182			8,554

Loans:
Ending balance:	$	769,226		$	110,294		$	813,429		$	37,739		$	51,488		$	1,782,176
Individually evaluated for impairment		931			2,284			458			28			—			3,701
Acquired-impaired loans		4,064			19,200			27,392			5,038			143			55,837
Collectively evaluated for impairment		764,231			88,810			785,579			32,673			51,345			1,722,638

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


	Commercial non-real estate			Construction and land development			Commercial real estate			Residential mortgages			Consumer			Total
(In thousands)	Nine Months Ended September 30, 2014
FDIC acquired loans
Allowance for loan losses:
Beginning balance	$	2,323		$	2,655		$	10,929		$	27,989		$	9,198		$	53,094
Charge-offs		(176	)		(350	)		(4,480	)		(677	)		(1,192	)		(6,875	)
Recoveries		467			1,504			1,408			1			370			3,750
Net provision for loan losses		(79	)		(138	)		(125	)		(257	)		(167	)		(766	)
(Decrease) increase in FDIC loss share receivable		(1,507	)		(2,404	)		(2,418	)		(4,873	)		(3,368	)		(14,570	)

Ending balance	$	1,028		$	1,267		$	5,314		$	22,183		$	4,841		$	34,633

Ending balance:
Individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—
Amounts related to acquired-impaired loans		1,028			1,267			5,314			22,183			4,841			34,633
Collectively evaluated for impairment		—			—			—			—			—			—

Loans:
Ending balance:	$	11,171		$	11,166		$	41,550		$	185,289		$	31,654		$	280,830
Individually evaluated for impairment		—			—			—			—			—			—
Acquired-impaired loans		11,171			11,166			41,550			185,289			31,654			280,830
Collectively evaluated for impairment		—			—			—			—			—			—

Total loans
Allowance for loan losses:
Beginning balance	$	37,017		$	8,845		$	31,612		$	34,881		$	21,271		$	133,626
Charge-offs		(4,866	)		(2,965	)		(6,735	)		(2,470	)		(13,112	)		(30,148	)
Recoveries		2,585			2,724			2,639			502			4,092			12,542
Net provision for loan losses		9,650			3,449			(3,299	)		3,386			10,936			24,122
(Decrease) increase in FDIC loss share receivable		(1,507	)		(2,404	)		(2,418	)		(4,873	)		(3,368	)		(14,570	)

Ending balance	$	42,879		$	9,649		$	21,799		$	31,426		$	19,819		$	125,572

Ending balance:
Individually evaluated for impairment	$	116		$	676		$	144		$	382		$	—		$	1,318
Amounts related to acquired-impaired loans		1,028			1,267			5,314			22,183			4,841			34,633
Collectively evaluated for impairment		41,735			7,706			16,341			8,861			14,978			89,621

Loans:
Ending balance:	$	5,587,137		$	1,095,902		$	3,100,834		$	1,858,490		$	1,706,211		$	13,348,574
Individually evaluated for impairment		6,513			8,901			14,944			2,740			—			33,098
Acquired-impaired loans		15,235			30,366			68,942			190,327			31,797			336,667
Collectively evaluated for impairment		5,565,389			1,056,635			3,016,948			1,665,423			1,674,414			12,978,809

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

The following table shows the composition of nonaccrual loans by portfolio segment and class. Acquired-impaired and certain FDIC acquired loans are considered to be performing due to the application of the accretion method and are excluded from the table. FDIC acquired loans accounted for using the cost recovery method do not have an accretable yield and are included below as nonaccrual loans. Acquired-performing loans that have subsequently been placed on nonaccrual status are also included below.


	September 30,		December 31,
(in thousands)	2015		2014
Originated loans:
Commercial non-real estate	$	93,448	$	15,511
Construction and land development		5,527		6,462
Commercial real estate		36,367		22,047
Residential mortgages		21,750		21,702
Consumer		6,838		5,574

Total originated loans	$	163,930	$	71,296

Acquired loans:
Commercial non-real estate	$	—	$	—
Construction and land development		—		—
Commercial real estate		3,015		6,139
Residential mortgages		—		—
Consumer		—		—

Total acquired loans	$	3,015	$	6,139

FDIC acquired loans:
Commercial non-real estate	$	—	$	—
Construction and land development		—		1,103
Commercial real estate		—		433
Residential mortgages		—		392
Consumer		—		174

Total FDIC acquired loans	$	—	$	2,102

Total loans:
Commercial non-real estate	$	93,448	$	15,511
Construction and land development		5,527		7,565
Commercial real estate		39,382		28,619
Residential mortgages		21,750		22,094
Consumer		6,838		5,748

Total loans	$	166,945	$	79,537

Nonaccrual loans include loans modified in troubled debt restructurings (“TDRs”) of $4.9 million and $7.0 million at September 30, 2015 and December 31, 2014, respectively. Total TDRs, both accruing and nonaccruing, were $10.7 million as of September 30, 2015 and $16.0 million at December 31, 2014.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

The table below details TDRs that were modified during the nine months ended September 30, 2015 and September 30, 2014 by portfolio segment.


	Nine Months Ended
(in thousands)	September 30, 2015						September 30, 2014
Troubled Debt Restructurings:	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Originated loans:
Commercial non-real estate		—	$	—	$	—		—	$	—	$	—
Construction and land development		—		—		—		—		—		—
Commercial real estate		1		482		482		2		2,430		2,385
Residential mortgages		4		185		185		4		1,495		848
Consumer		1		20		20		—		—		—

Total originated loans		6	$	687	$	687		6	$	3,925	$	3,233

Acquired loans:
Commercial non-real estate		—	$	—	$	—		—	$	—	$	—
Construction and land development		—		—		—		—		—		—
Commercial real estate		—		—		—		—		—		—
Residential mortgages		—		—		—		—		—		—
Consumer		—		—		—		—		—		—

Total acquired loans		—	$	—	$	—		—	$	—	$	—

FDIC acquired loans:
Commercial non-real estate		—	$	—	$	—		—	$	—	$	—
Construction and land development		—		—		—		—		—		—
Commercial real estate		—		—		—		—		—		—
Residential mortgages		—		—		—		—		—		—
Consumer		—		—		—		—		—		—

Total FDIC acquired loans		—	$	—	$	—		—	$	—	$	—

Total loans:
Commercial non-real estate		—	$	—	$	—		—	$	—	$	—
Construction and land development		—		—		—		—		—		—
Commercial real estate		1		482		482		2		2,430		2,385
Residential mortgages		4		185		185		4		1,495		848
Consumer		1		20		20		—		—		—

Total loans		6	$	687	$	687		6	$	3,925	$	3,233

No TDRs that subsequently defaulted within twelve months of modification were recorded in the nine months ended September 30, 2015. For the nine months ended September 30, 2014, one originated commercial non-real estate loan with a recorded investment of $0.9 million subsequently defaulted within twelve months of modification.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

The tables below present loans that are individually evaluated for impairment disaggregated by class at September 30, 2015 and December 31, 2014. Loans individually evaluated for impairment include TDRs and loans that are determined to be impaired and have aggregate relationship balances of $1 million or more.


September 30, 2015	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Originated loans:
With no related allowance recorded:
Commercial non-real estate	$	32,963	$	33,468	$	—	$	14,887	$	—
Construction and land development		1,391		1,391		—		1,319		—
Commercial real estate		12,945		14,952		—		11,018		26
Residential mortgages		—		—		—		259		2
Consumer		95		95		—		74		—

		47,394		49,906		—		27,557		28
With an allowance recorded:
Commercial non-real estate		42,382		43,146		5,588		16,683		6
Construction and land development		662		2,224		21		3,443		66
Commercial real estate		18,533		18,536		2,737		12,143		70
Residential mortgages		903		1,413		96		1,578		18
Consumer		62		62		3		27		3

		62,542		65,381		8,445		33,874		163
Total:
Commercial non-real estate		75,345		76,614		5,588		31,570		6
Construction and land development		2,053		3,615		21		4,762		66
Commercial real estate		31,478		33,488		2,737		23,161		96
Residential mortgages		903		1,413		96		1,837		20
Consumer		157		157		3		101		3

Total originated loans	$	109,936	$	115,287	$	8,445	$	61,431	$	191

Acquired loans:
With an allowance recorded:
Commercial non-real estate	$	—	$	—	$	—	$	—	$	—
Construction and land development		—		—		—		—		—
Commercial real estate		2,507		2,522		173		2,580		—
Residential mortgages		—		—		—		—		—
Consumer		—		—		—		—		—

		2,507		2,522		173		2,580		—
Total:
Commercial non-real estate		—		—		—		—		—
Construction and land development		—		—		—		—		—
Commercial real estate		2,507		2,522		173		2,580		—
Residential mortgages		—		—		—		—		—
Consumer		—		—		—		—		—

Total acquired loans	$	2,507	$	2,522	$	173	$	2,580	$	—

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


September 30, 2015	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Total loans:
With no related allowance recorded:
Commercial non-real estate	$	32,963	$	33,468	$	—	$	14,887	$	—
Construction and land development		1,391		1,391		—		1,319		—
Commercial real estate		12,945		14,952		—		11,018		26
Residential mortgages		—		—		—		259		2
Consumer		95		95		—		74		—

		47,394		49,906		—		27,557		28
With an allowance recorded:
Commercial non-real estate		42,382		43,146		5,588		16,683		6
Construction and land development		662		2,224		21		3,443		66
Commercial real estate		21,040		21,058		2,910		14,723		70
Residential mortgages		903		1,413		96		1,578		18
Consumer		62		62		3		27		3

		65,049		67,903		8,618		36,454		163
Total:
Commercial non-real estate		75,345		76,614		5,588		31,570		6
Construction and land development		2,053		3,615		21		4,762		66
Commercial real estate		33,985		36,010		2,910		25,741		96
Residential mortgages		903		1,413		96		1,837		20
Consumer		157		157		3		101		3

Total loans	$	112,443	$	117,809	$	8,618	$	64,011	$	191

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


December 31, 2014 (in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Originated loans:
With no related allowance recorded:
Commercial non-real estate	$	3,003	$	3,646	$	—	$	1,209	$	51
Construction and land development		3,345		6,486		—		3,330		142
Commercial real estate		8,467		10,575		—		8,461		331
Residential mortgages		—		—		—		88		3
Consumer		—		—		—		—		—

		14,815		20,707		—		13,088		527
With an allowance recorded:
Commercial non-real estate		984		984		14		5,522		99
Construction and land development		4,905		4,906		19		6,660		137
Commercial real estate		3,654		3,654		11		7,500		109
Residential mortgages		2,656		3,311		330		2,204		50
Consumer		6		6		3		1		—

		12,205		12,861		377		21,887		395
Total:
Commercial non-real estate		3,987		4,630		14		6,732		150
Construction and land development		8,250		11,392		19		9,990		279
Commercial real estate		12,121		14,229		11		15,961		439
Residential mortgages		2,656		3,311		330		2,292		53
Consumer		6		6		3		1		—

Total originated loans	$	27,020	$	33,568	$	377	$	34,976	$	921

Acquired loans:
With no related allowance recorded:
Commercial non-real estate	$	—	$	—	$	—	$	357	$	—
Construction and land development		—		—		—		121		—
Commercial real estate		—		—		—		311		—
Residential mortgages		—		—		—		88		—
Consumer		—		—		—		—		—

		—		—		—		877		—
With an allowance recorded:
Commercial non-real estate		—		—		—		1,059		122
Construction and land development		—		—		—		1,037		56
Commercial real estate		2,691		2,720		477		1,357		75
Residential mortgages		—		—		—		—		—
Consumer		—		—		—		—		—

		2,691		2,720		477		3,453		253
Total:
Commercial non-real estate		—		—		—		1,416		122
Construction and land development		—		—		—		1,158		56
Commercial real estate		2,691		2,720		477		1,668		75
Residential mortgages		—		—		—		88		—
Consumer		—		—		—		—		—

Total acquired loans	$	2,691	$	2,720	$	477	$	4,330	$	253

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


December 31, 2014 (in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Total loans:
With no related allowance recorded:
Commercial non-real estate	$	3,003	$	3,646	$	—	$	1,566	$	51
Construction and land development		3,345		6,486		—		3,451		142
Commercial real estate		8,467		10,575		—		8,772		331
Residential mortgages		—		—		—		176		3
Consumer		—		—		—		—		—

		14,815		20,707		—		13,965		527
With an allowance recorded:
Commercial non-real estate		984		984		14		6,581		221
Construction and land development		4,905		4,906		19		7,697		193
Commercial real estate		6,345		6,374		488		8,857		184
Residential mortgages		2,656		3,311		330		2,204		50
Consumer		6		6		3		1		—

		14,896		15,581		854		25,340		648
Total:
Commercial non-real estate		3,987		4,630		14		8,147		272
Construction and land development		8,250		11,392		19		11,148		335
Commercial real estate		14,812		16,949		488		17,629		515
Residential mortgages		2,656		3,311		330		2,380		53
Consumer		6		6		3		1		—

Total loans	$	29,711	$	36,288	$	854	$	39,305	$	1,175

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

The tables below present the age analysis of past due loans at September 30, 2015 and December 31, 2014. FDIC acquired and acquired-impaired loans accounted for in pools with an accretable yield are considered to be current.


September 30, 2015	30-59 days past due		60-89 days past due		Greater than 90 days past due		Total past due		Current		Total Loans		Recorded investment > 90 days and still accruing
(in thousands)
Originated loans:
Commercial non-real estate	$	19,298	$	3,271	$	6,805	$	29,374	$	6,202,936	$	6,232,310	$	878
Construction and land development		2,489		602		4,471		7,562		1,061,333		1,068,895		1,700
Commercial real estate		5,823		3,572		16,289		25,684		2,930,670		2,956,354		1,773
Residential mortgages		25,525		4,619		9,669		39,813		1,803,943		1,843,756		46
Consumer		13,037		5,490		5,271		23,798		1,953,074		1,976,872		1,350

Total	$	66,172	$	17,554	$	42,505	$	126,231	$	13,951,956	$	14,078,187	$	5,747

Acquired loans:
Commercial non-real estate	$	—	$	—	$	—	$	—	$	107,985	$	107,985	$	—
Construction and land development		—		—		—		—		8,297		8,297		—
Commercial real estate		744		428		445		1,617		351,279		352,896		129
Residential mortgages		—		—		—		—		819		819		—
Consumer		—		—		—		—		22		22		—

Total	$	744	$	428	$	445	$	1,617	$	468,402	$	470,019	$	129

FDIC acquired loans:
Commercial non-real estate	$	—	$	—	$	—	$	—	$	5,699	$	5,699	$	—
Construction and land development		—		—		—		—		8,393		8,393		—
Commercial real estate		—		—		—		—		18,136		18,136		—
Residential mortgages		—		—		—		—		169,214		169,214		—
Consumer		—		—		—		—		13,402		13,402		—

Total	$	—	$	—	$	—	$	—	$	214,844	$	214,844	$	—

Total loans:
Commercial non-real estate	$	19,298	$	3,271	$	6,805	$	29,374	$	6,316,620	$	6,345,994	$	878
Construction and land development		2,489		602		4,471		7,562		1,078,023		1,085,585		1,700
Commercial real estate		6,567		4,000		16,734		27,301		3,300,085		3,327,386		1,902
Residential mortgages		25,525		4,619		9,669		39,813		1,973,976		2,013,789		46
Consumer		13,037		5,490		5,271		23,798		1,966,498		1,990,296		1,350

Total	$	66,916	$	17,982	$	42,950	$	127,848	$	14,635,202	$	14,763,050	$	5,876

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)


December 31, 2014	30-59 days past due		60-89 days past due		Greater than 90 days past due		Total past due		Current		Total Loans		Recorded investment > 90 days and still accruing
(in thousands)
Originated loans:
Commercial non-real estate	$	4,380	$	1,742	$	8,560	$	14,682	$	5,903,046	$	5,917,728	$	630
Construction and land development		6,620		1,532		4,453		12,605		1,061,359		1,073,964		142
Commercial real estate		6,527		2,964		13,234		22,725		2,405,470		2,428,195		696
Residential mortgages		14,730		3,261		11,208		29,199		1,675,571		1,704,770		1,199
Consumer		8,422		2,450		4,365		15,237		1,670,305		1,685,542		1,897

Total	$	40,679	$	11,949	$	41,820	$	94,448	$	12,715,751	$	12,810,199	$	4,564

Acquired loans:
Commercial non-real estate	$	—	$	—	$	—	$	—	$	120,137	$	120,137	$	—
Construction and land development		111		—		—		111		21,012		21,123		—
Commercial real estate		3,861		282		1,591		5,734		682,311		688,045		261
Residential mortgages		—		—		—		—		2,378		2,378		—
Consumer		—		—		—		—		985		985		—

Total	$	3,972	$	282	$	1,591	$	5,845	$	826,823	$	832,668	$	261

FDIC acquired loans:
Commercial non-real estate	$	—	$	—	$	—	$	—	$	6,195	$	6,195	$	—
Construction and land development		—		—		1,103		1,103		10,571		11,674		—
Commercial real estate		—		—		433		433		27,375		27,808		—
Residential mortgages		—		272		—		272		186,761		187,033		—
Consumer		1		—		34		35		19,664		19,699		—

Total	$	1	$	272	$	1,570	$	1,843	$	250,566	$	252,409	$	—

Total loans:
Commercial non-real estate	$	4,380	$	1,742	$	8,560	$	14,682	$	6,029,378	$	6,044,060	$	630
Construction and land development		6,731		1,532		5,556		13,819		1,092,942		1,106,761		142
Commercial real estate		10,388		3,246		15,258		28,892		3,115,156		3,144,048		957
Residential mortgages		14,730		3,533		11,208		29,471		1,864,710		1,894,181		1,199
Consumer		8,423		2,450		4,399		15,272		1,690,954		1,706,226		1,897

Total	$	44,652	$	12,503	$	44,981	$	102,136	$	13,793,140	$	13,895,276	$	4,825

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

The following tables present the credit quality indicators of the Company’s various classes of loans at September 30, 2015 and December 31, 2014.

Commercial Non-Real Estate Credit Exposure

Credit Risk Profile by Internally Assigned Grade


(in thousands)	September 30, 2015								December 31, 2014
	Originated		Acquired		FDIC acquired		Total		Originated		Acquired		FDIC acquired		Total
Grade:
Pass	$	5,531,569	$	100,836	$	2,201	$	5,634,606	$	5,577,827	$	111,847	$	2,027	$	5,691,701
Pass-Watch		134,860		76		883		135,819		174,742		715		1,120		176,577
Special Mention		225,228		328		—		225,556		52,962		350		—		53,312
Substandard		340,618		6,745		2,615		349,978		112,153		7,225		3,017		122,395
Doubtful		35		—		—		35		44		—		31		75

Total	$	6,232,310	$	107,985	$	5,699	$	6,345,994	$	5,917,728	$	120,137	$	6,195	$	6,044,060

Construction Credit Exposure

Credit Risk Profile by Internally Assigned Grade


(in thousands)	September 30, 2015								December 31, 2014
	Originated		Acquired		FDIC acquired		Total		Originated		Acquired		FDIC acquired		Total
Grade:
Pass	$	1,020,611	$	1,354	$	2,238	$	1,024,203	$	1,012,128	$	14,377	$	2,468	$	1,028,973
Pass-Watch		3,038		2,324		947		6,309		21,516		432		532		22,480
Special Mention		11,612		—		286		11,898		7,097		129		319		7,545
Substandard		33,634		4,619		4,922		43,175		33,223		6,185		8,355		47,763

Total	$	1,068,895	$	8,297	$	8,393	$	1,085,585	$	1,073,964	$	21,123	$	11,674	$	1,106,761

Commercial Real Estate Credit Exposure

Credit Risk Profile by Internally Assigned Grade


(in thousands)	September 30, 2015								December 31, 2014
	Originated		Acquired		FDIC acquired		Total		Originated		Acquired		FDIC acquired		Total
Grade:
Pass	$	2,769,860	$	328,821	$	3,298	$	3,101,979	$	2,241,391	$	641,966	$	4,139	$	2,887,496
Pass-Watch		41,344		5,247		2,585		49,176		61,589		11,142		4,547		77,278
Special Mention		42,674		5,373		1,433		49,480		21,543		8,113		1,319		30,975
Substandard		102,459		13,455		10,820		126,734		103,651		26,824		17,803		148,278
Doubtful		17		—		—		17		21		—		—		21

Total	$	2,956,354	$	352,896	$	18,136	$	3,327,386	$	2,428,195	$	688,045	$	27,808	$	3,144,048

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

Residential Mortgage Credit Exposure

Credit Risk Profile Based on Payment Activity and Accrual Status


(in thousands)	September 30, 2015								December 31, 2014
	Originated		Acquired		FDIC acquired		Total		Originated		Acquired		FDIC acquired		Total
Performing	$	1,821,959	$	819	$	169,214	$	1,991,992	$	1,681,868	$	2,378	$	186,641	$	1,870,887
Nonperforming		21,797		—		—		21,797		22,902		—		392		23,294

Total	$	1,843,756	$	819	$	169,214	$	2,013,789	$	1,704,770	$	2,378	$	187,033	$	1,894,181

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity and Accrual Status


(in thousands)	September 30, 2015								December 31, 2014
	Originated		Acquired		FDIC acquired		Total		Originated		Acquired		FDIC acquired		Total
Performing	$	1,968,684	$	22	$	13,402	$	1,982,108	$	1,678,069	$	985	$	19,525	$	1,698,579
Nonperforming		8,188		—		—		8,188		7,473		—		174		7,647

Total	$	1,976,872	$	22	$	13,402	$	1,990,296	$	1,685,542	$	985	$	19,699	$	1,706,226

Loan review uses a risk-focused continuous monitoring program that provides for an independent, objective and timely review of credit risk within the Company. Below are the definitions of the Company’s internally assigned grades:

Commercial:

•

Pass – loans properly approved, documented, collateralized, and performing which do not reflect an abnormal credit risk.

•

Pass – Watch – credits in this category are of sufficient risk to cause concern. This category is reserved for credits that display negative performance trends. The “Watch” grade should be regarded as a transition category.

•

Special Mention – a criticized asset category defined as having potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the credit or the institution’s credit position. Special mention credits are not considered part of the Classified credit categories and do not expose an institution to sufficient risk to warrant adverse classification.

•

Substandard – an asset that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Loans and Allowance for Loan Losses (continued)

•

Doubtful – an asset that has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection nor liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

•

Loss – credits classified as Loss are considered uncollectable and are charged off promptly once so classified.

Residential and Consumer:

•

Performing – loans on which payments of principal and interest are less than 90 days past due.

•

Nonperforming – a nonperforming loan is a loan that is in default or close to being in default and there are good reasons to doubt that payments will be made in full. All loans rated as nonaccrual loans are also classified as nonperforming.

Changes in the carrying amount of acquired-impaired loans and accretable yield are presented in the following table for the nine months ended September 30, 2015 and the year ended December 31, 2014.


(in thousands)	September 30, 2015												December 31, 2014
	FDIC acquired						Acquired						FDIC acquired						Acquired
	Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield
Balance at beginning of period	$	252,409		$	112,788		$	61,276		$	74,668		$	358,666		$	122,715		$	68,075		$	131,370
Payments received, net		(47,732	)		(395	)		(38,243	)		(14,256	)		(125,388	)		(1,071	)		(50,178	)		(32,855	)
Accretion		10,167			(10,167	)		12,028			(12,028	)		19,131			(19,131	)		43,379			(43,379	)
Decrease in expected cash flows based on actual cash flows and changes in cash flow assumptions		—			(1,385	)		—			(627	)		—			(1,137	)		—			(203	)
Net transfers from nonaccretable difference to accretable yield		—			(2,485	)		—			(466	)		—			11,412			—			19,735

Balance at end of period	$	214,844		$	98,356		$	35,061		$	47,291		$	252,409		$	112,788		$	61,276		$	74,668

Included in loans are $9.0 million and $13.7 million of consumer loans secured by single family residential mortgage real estate that are in process of foreclosure as of September 30, 2015 and December 31, 2014, respectively. Of these loans, $5.4 million and $8.1 million, respectively, are covered by an FDIC loss share agreement that provides significant protection against losses. Loans in process of foreclosure include those for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. In addition to the single family residential real estate loans in process of foreclosure, the Company also held $7.9 million and $12.7 million of foreclosed single family residential properties in other real estate owned as of September 30, 2015 and December 31, 2014, respectively. Of these foreclosed properties, $2.3 million and $8.2 million as of September 30, 2015 and December 31, 2014, respectively, are also covered by the FDIC loss share agreement.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

4. Securities Sold under Agreements to Repurchase

Included in short term borrowings at September 30, 2015 was $439.0 million of customer securities sold under agreements to repurchase (“repurchase agreements”) that mature daily and were secured by agency securities. The Company borrows funds on a secured basis by selling securities under agreements to repurchase, mainly in connection with treasury-management services offered to its deposit customers. As the Company maintains effective control over assets sold under agreements to repurchase, the securities continue to be carried on the consolidated statements of financial condition. Because the Company acts as borrower transferring assets to the counterparty, and the agreements mature daily, the Company’s risk is very limited.

5. Long-Term Debt

Long-term debt consisted of the following.


(in thousands)	September 30, 2015		December 31, 2014
Subordinated notes payable, maturing June 2045	$	150,000	$	—
Subordinated notes payable, maturing April 2017		98,011		98,011
Term note payable, maturing December 2015		123,200		149,600
Other long-term debt		125,966		126,760

Total long-term debt	$	497,177	$	374,371

On March 9, 2015, the Company completed the issuance of subordinated notes payable with an aggregate principal amount of $150 million. The notes mature on June 15, 2045 and accrue interest at a rate of 5.95% per annum. Quarterly interest payments began in June. Subject to prior approval by the Federal Reserve, the Company may redeem the notes in whole or in part on any interest payment date on or after June 15, 2020. This debt qualifies as Tier 2 capital in the calculation of certain regulatory capital ratios.

The 5.875% fixed-rate subordinated notes maturing April 2017 were issued by Whitney National Bank and later assumed by Hancock in the Whitney acquisition. As of September 30, 2015, 20% of the balance of these notes qualifies as capital in the calculation of certain regulatory capital ratios. The notes will no longer qualify as capital as of April 1, 2016.

On December 21, 2012, the Company entered into a three-year term loan agreement that provides for a $220 million term loan facility, all of which was borrowed on the closing date. The agreement also provides for up to $50 million in additional borrowings under the loan facility, subject to obtaining additional commitments from existing or new lenders and satisfaction of certain other conditions. Amounts borrowed under the loan facility bear interest at a variable rate based on LIBOR plus 1.875% per annum. The loan agreement requires quarterly principal payments of $8.8 million, and outstanding borrowings may be prepaid in whole or in part at any time prior to the December 21, 2015 maturity date without premium or penalty.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

5. Long-Term Debt (continued)

The Company and the Bank must comply with certain financial covenants in the term loan agreement and are subject to other restrictions customary in financings of this nature, none of which are expected to adversely impact their operations. The financial covenants cover, among other things, the maintenance of minimum levels for regulatory capital ratios, consolidated net worth, consolidated return on assets, and holding company liquidity and dividend capacity, and specify a maximum ratio of consolidated nonperforming assets to consolidated total loans and other real estate, calculated without FDIC acquired assets. The Company was in compliance with all covenants as of September 30, 2015 and December 31, 2014.

Substantially all of the other long-term debt consists of borrowings associated with tax credit fund activities. Although these borrowings have indicated maturities through 2053, they are expected to be paid off at the end of the seven-year compliance period for the related tax credit investments.

6. Fair Value

The Financial Accounting Standards Board (“FASB”) defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The FASB’s guidance also established a fair value hierarchy that prioritizes the inputs to these valuation techniques used to measure fair value, giving preference to quoted prices in active markets for identical assets or liabilities (“level 1”) and the lowest priority to unobservable inputs such as a reporting entity’s own data (“level 3”). Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in markets that are not active, observable inputs other than quoted prices, such as interest rates and yield curves, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Fair Value of Assets and Liabilities Measured on a Recurring Basis

The following tables present for each of the fair value hierarchy levels the Company’s assets and liabilities that are measured at fair value on a recurring basis in the consolidated balance sheets.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

6. Fair Value (continued)


	September 30, 2015
(in thousands)	Level 1		Level 2		Total
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities	$	—	$	143	$	143
Municipal obligations		—		15,952		15,952
Corporate debt securities		—		3,500		3,500
Mortgage-backed securities		—		1,841,369		1,841,369
Collateralized mortgage obligations		—		305,147		305,147
Equity securities		2,726		—		2,726

Total available for sale securities		2,726		2,166,111		2,168,837

Derivative assets (1)		—		31,399		31,399

Total recurring fair value measurements – assets	$	2,726	$	2,197,510	$	2,200,236

Liabilities
Derivative liabilities (1)	$	—	$	30,908	$	30,908

Total recurring fair value measurements – liabilities	$	—	$	30,908	$	30,908

(1)	For further disaggregation of derivative assets and liabilities, see Note 7 – Derivatives.


	December 31, 2014
(in thousands)	Level 1		Level 2		Total
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities	$	—	$	300,508	$	300,508
Municipal obligations		—		14,176		14,176
Corporate debt securities		—		3,500		3,500
Mortgage-backed securities		—		1,245,564		1,245,564
Collateralized mortgage obligations		—		86,864		86,864
Equity securities		9,553		—		9,553

Total available for sale securities		9,553		1,650,612		1,660,165

Derivative assets (1)		—		19,432		19,432

Total recurring fair value measurements – assets	$	9,553	$	1,670,044	$	1,679,597

Liabilities
Derivative liabilities (1)	$	—	$	20,860	$	20,860

Total recurring fair value measurements – liabilities	$	—	$	20,860	$	20,860

(1)	For further disaggregation of derivative assets and liabilities, see Note 7 – Derivatives.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

6. Fair Value (continued)

Securities classified as level 1 within the valuation hierarchy include U.S. Treasury securities and certain other debt and equity securities. Level 2 classified securities include obligations of U.S. Government agencies and U.S. Government-sponsored agencies, residential mortgage-backed securities and collateralized mortgage obligations that are issued or guaranteed by U.S. government agencies, and state and municipal bonds. The level 2 fair value measurements for investment securities are obtained quarterly from a third-party pricing service that uses industry-standard pricing models. Substantially all of the model inputs are observable in the marketplace or can be supported by observable data.

The Company invests only in securities of investment grade quality with a targeted duration, for the overall portfolio, generally between two and five. Company policies generally limit investments to agency securities and municipal securities determined to be investment grade according to an internally generated score which generally includes a rating of not less than “Baa” or its equivalent by a nationally recognized statistical rating agency. There were no transfers between valuation hierarchy levels during the periods shown.

The fair value of derivative financial instruments, which are predominantly customer interest rate swaps, is obtained from a third-party pricing service that uses an industry-standard discounted cash flow model that relies on inputs, LIBOR swap curves and Overnight Index swap rate curves, observable in the marketplace. To comply with the accounting guidance, credit valuation adjustments are incorporated in the fair values to appropriately reflect nonperformance risk for both the Company and the counterparties. Although the Company has determined that the majority of the inputs used to value the derivative instruments fall within level 2 of the fair value hierarchy, the credit value adjustments utilize level 3 inputs, such as estimates of current credit spreads. The Company has determined that the impact of the credit valuation adjustments is not significant to the overall valuation of these derivatives. As a result, the Company has classified its derivative valuations in their entirety in level 2 of the fair value hierarchy. The Company’s policy is to measure counterparty credit risk quarterly for all derivative instruments, including those subject to master netting arrangements consistent with how market participants would price the net risk exposure at the measurement date.

The Company also has certain derivative instruments associated with the Bank’s mortgage-banking activities. These derivative instruments include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a best efforts delivery basis. The fair value of these derivative instruments is measured using observable market prices for similar instruments and is classified as a level 2 measurement.

Fair Value of Assets Measured on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis. Collateral-dependent impaired loans are level 2 assets measured at the fair value of the underlying collateral based on independent third-party appraisals that take into consideration market-based information such as recent sales activity for similar assets in the property’s market.

Other real estate owned, including both foreclosed property and surplus banking property, are level 3 assets that are adjusted to fair value, less estimated selling costs, upon transfer to other real estate owned. Subsequently, other real estate owned is carried at the lower of carrying value or fair value less estimated selling costs. Fair values are determined by sales agreement or third-party appraisals as discounted for estimated selling costs, information from comparable sales, and marketability of the property.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

6. Fair Value (continued)

The fair value information presented below is not as of the period-end, rather it was as of the date the fair value adjustment was recorded during the twelve months ended for each of the dates presented below, and excludes nonrecurring fair value measurements of assets no longer on the balance sheet.

The following tables present the Company’s financial assets that are measured at fair value on a nonrecurring basis for each of the fair value hierarchy levels.


	September 30, 2015
(in thousands)	Level 1		Level 2		Level 3		Total
Collateral-dependent impaired loans	$	—	$	98,019	$	—	$	98,019
Other real estate owned		—		—		21,778		21,778

Total nonrecurring fair value measurements	$	—	$	98,019	$	21,778	$	119,797


	December 31, 2014
(in thousands)	Level 1		Level 2		Level 3		Total
Collateral-dependent impaired loans	$	—	$	30,204	$	—	$	30,204
Other real estate owned		—		—		29,715		29,715

Total nonrecurring fair value measurements	$	—	$	30,204	$	29,715	$	59,919

Accounting guidance from the FASB requires the disclosure of estimated fair value information about certain on- and off-balance sheet financial instruments, including those financial instruments that are not measured and reported at fair value on a recurring basis. The significant methods and assumptions used by the Company to estimate the fair value of financial instruments are discussed below.

Cash, Short-Term Investments and Federal Funds Sold – For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities – The fair value measurement for securities available for sale was discussed earlier in the note. The same measurement techniques were applied to the valuation of securities held to maturity.

Loans, Net – The fair value measurement for certain impaired loans was discussed earlier in the note. For the remaining portfolio, fair values were generally determined by discounting scheduled cash flows using discount rates determined with reference to current market rates at which loans with similar terms would be made to borrowers of similar credit quality.

Loans Held for Sale – These loans are recorded at fair value and carried at the lower of cost or market. The carrying amount is considered a reasonable estimate of fair value.

Deposits – The accounting guidance requires that the fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking and savings accounts, be assigned fair values equal to amounts payable upon demand (“carrying amounts”). The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

6. Fair Value (continued)

Securities Sold under Agreements to Repurchase, Federal Funds Purchased, and Federal Home Loan Bank (“FHLB”) Borrowings – For these short-term liabilities, the carrying amount is a reasonable estimate of fair value.

Long-Term Debt – The fair value is estimated by discounting the future contractual cash flows using current market rates at which debt with similar terms could be obtained.

Derivative Financial Instruments – The fair value measurement for derivative financial instruments was discussed earlier in the note.

The following tables present the estimated fair values of the Company’s financial instruments by fair value hierarchy levels and the corresponding carrying amount at September 30, 2015 and December 31, 2014.


	September 30, 2015
(in thousands)	Level 1		Level 2		Level 3		Total Fair Value		Carrying Amount
Financial assets:
Cash, interest-bearing bank deposits, and federal funds sold	$	518,157	$	—	$	—	$	518,157	$	518,157
Available for sale securities		2,726		2,166,111		—		2,168,837		2,168,837
Held to maturity securities		—		2,414,682		—		2,414,682		2,380,085
Loans, net		—		98,019		14,558,423		14,656,442		14,623,474
Loans held for sale		—		19,764		—		19,764		19,764
Derivative financial instruments		—		31,399		—		31,399		31,399

Financial liabilities:
Deposits	$	—	$	—	$	17,423,721	$	17,423,721	$	17,439,948
Federal funds purchased		10,200		—		—		10,200		10,200
Securities sold under agreements to repurchase		438,982		—		—		438,982		438,982
FHLB borrowings		600,000		—		—		600,000		600,000
Long-term debt		—		504,475		—		504,475		497,177
Derivative financial instruments		—		30,908		—		30,908		30,908

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

6. Fair Value (continued)


	December 31, 2014
(in thousands)	Level 1		Level 2		Level 3		Total Fair Value		Carrying Amount
Financial assets:
Cash, interest-bearing bank deposits, and federal funds sold	$	1,159,403	$	—	$	—	$	1,159,403	$	1,159,403
Available for sale securities		9,553		1,650,612		—		1,660,165		1,660,165
Held to maturity securities		—		2,186,340		—		2,186,340		2,166,289
Loans, net		—		30,204		13,672,427		13,702,631		13,766,514
Loans held for sale		—		20,252		—		20,252		20,252
Derivative financial instruments		—		19,432		—		19,432		19,432

Financial liabilities:
Deposits	$	—	$	—	$	16,398,878	$	16,398,878	$	16,572,831
Federal funds purchased		12,000		—		—		12,000		12,000
Securities sold under agreements to repurchase		624,573		—		—		624,573		624,573
FHLB borrowings		515,000		—		—		515,000		515,000
Long-term debt		—		346,379		—		346,379		374,371
Derivative financial instruments		—		20,860		—		20,860		20,860

7. Derivatives

Risk Management Objective of Using Derivatives

The Company enters into derivative financial instruments to manage risks related to differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments, currently related to its variable rate borrowing. The Bank has also entered into interest rate derivative agreements as a service to certain qualifying customers. The Bank manages a matched book with respect to these customer derivatives in order to minimize their net risk exposure resulting from such agreements. The Bank also enters into risk participation agreements under which they may either sell or buy credit risk associated with a customer’s performance under certain interest rate derivative contracts related to loans in which participation interests have been sold to or purchased from other banks.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

7. Derivatives (continued)

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the notional amounts and fair values of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of September 30, 2015 and December 31, 2014.


								Fair Values (1)
		Notional Amounts				Assets				Liabilities
(in thousands)	Type of Hedge	September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014
Derivatives designated as hedging instruments:
Interest rate swaps	Cash Flow	$	500,000	$	300,000	$	1,419	$	—	$	—	$	592

		$	500,000	$	300,000	$	1,419	$	—	$	—	$	592

Derivatives not designated as hedging instruments:
Interest rate swaps (2)	N/A	$	728,674	$	747,754	$	26,621	$	17,806	$	27,362	$	18,419
Risk participation agreements	N/A		87,184		80,438		107		125		206		208
Forward commitments to sell residential mortgage loans	N/A		38,817		52,238		100		80		329		250
Interest rate-lock commitments on residential mortgage loans	N/A		22,127		33,068		161		111		45		44
Foreign exchange forward contracts	N/A		62,221		89,432		2,991		1,310		2,966		1,347

		$	939,023	$	1,002,930	$	29,980	$	19,432	$	30,908	$	20,268

(1)	Derivative assets and liabilities are reported with other assets or other liabilities, respectively, in the consolidated balance sheets.

(2)	The notional amount represents both the customer accommodation agreements and offsetting agreements with unrelated financial institutions.

Cash Flow Hedges of Interest Rate Risk

The Company is party to two interest rate swap agreements – one with a notional amount of $300 million and the second with a notional amount of $200 million. For both agreements, the Company receives interest at a fixed rate and pays at a variable rate. The derivative instruments represented by these swap agreements were designated as and qualify as cash flow hedges of the Company’s forecasted variable cash flows for a pool of variable rate loans. The $300 million swap agreement expires in January, 2017 and the $200 million swap agreement expires in June, 2017.

During the terms of the swap agreements, the effective portion of changes in the fair value of the derivative instruments are recorded in accumulated other comprehensive income (“AOCI”) and subsequently reclassified into earnings in the periods that the hedged forecasted variable-rate interest payments affects earnings. The impact on AOCI was insignificant for the three-month and nine-month periods ended September 30, 2015. There was no ineffective portion of the change in fair value of the derivative recognized directly in earnings.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

7. Derivatives (continued)

Derivatives Not Designated as Hedges

Customer interest rate derivative program

The Bank enters into interest rate derivative agreements, primarily rate swaps, with commercial banking customers to facilitate their risk management strategies. The Bank enters into offsetting agreements with unrelated financial institutions, thereby mitigating its net risk exposure resulting from such transactions. Because the interest rate derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

Risk participation agreements

The Bank also enters into risk participation agreements under which it may either assume or sell credit risk associated with a borrower’s performance under certain interest rate derivative contracts. In those instances where the Bank has assumed credit risk, it is not a direct counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because it is a party to the related loan agreement with the borrower. In those instances in which the Bank has sold credit risk, it is the sole counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because other banks participate in the related loan agreement. The Bank manages their credit risk under risk participation agreements by monitoring the creditworthiness of the borrower, based on its normal credit review process.

Mortgage banking derivatives

The Bank also enters into certain derivative agreements as part of its mortgage banking activities. These agreements include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a best efforts delivery basis.

Customer foreign exchange forward contract derivatives

The Bank enters into foreign exchange forward derivative agreements, primarily forward currency contracts, with commercial banking customers to facilitate its risk management strategies. The Bank manages its risk exposure from such transactions by entering into offsetting agreements with unrelated financial institutions. Because the foreign exchange forward contract derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

Effect of Derivative Instruments on the Income Statement

The effect of the Company’s derivative financial instruments on the income statement was immaterial for the three-month and nine-month periods ended September 30, 2015 and 2014.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

7. Derivatives (continued)

Credit risk-related Contingent Features

Certain of the Bank’s derivative instruments contain provisions allowing the financial institution counterparty to terminate the contracts in certain circumstances, such as the downgrade of the Bank’s credit ratings below specified levels, a default by the Bank on its indebtedness, or the failure of the Bank to maintain specified minimum regulatory capital ratios or its regulatory status as a well-capitalized institution. These derivative agreements also contain provisions regarding the posting of collateral by each party. As of September 30, 2015, the aggregate fair value of derivative instruments with credit risk-related contingent features that were in a net liability position was $12.8 million, for which the Bank had posted collateral of $28.9 million.

Offsetting Assets and Liabilities

Offsetting information in regards to derivative assets and liabilities subject to master netting agreements at September 30, 2015 and December 31, 2014 is presented in the following tables.


	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position		Net Amounts Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position
(in thousands)	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position				Financial Instruments		Cash Collateral		Net Amount
As of September 30, 2015
Derivative Assets	$	26,728	$	—	$	26,728	$	118	$	—	$	26,610

Total	$	26,728	$	—	$	26,728	$	118	$	—	$	26,610

Derivative Liabilities	$	27,568	$	—	$	27,568	$	118	$	28,796	$	(1,346	)

Total	$	27,568	$	—	$	27,568	$	118	$	28,796	$	(1,346	)


	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position		Net Amounts Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position
Description	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position				Financial Instruments		Cash Collateral		Net Amount
As of December 31, 2014
Derivative Assets	$	17,931	$	—	$	17,931	$	936	$	—	$	16,995

Total	$	17,931	$	—	$	17,931	$	936	$	—	$	16,995

Derivative Liabilities	$	18,627	$	—	$	18,627	$	936	$	17,343	$	348

Total	$	18,627	$	—	$	18,627	$	936	$	17,343	$	348

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

8. Stockholders’ Equity

Stock Repurchase Program

On August 28, 2015, the Company’s board of directors approved a stock repurchase plan that authorizes the repurchase of up to 5%, or approximately 3.9 million shares of its outstanding common stock. The approved plan allows the Company to repurchase its common shares either in the open market in compliance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions with non-affiliated sellers or as otherwise determined by the Company from time to time until September 30, 2016. Under this plan, the Company has repurchased 568,279 shares of its common stock at an average price of $27.39 per share through September 30, 2015.

In March 2015, the Company completed the prior stock repurchase program that had been approved by the Company’s board of directors on July 16, 2014 which authorized the repurchase of up to 5%, or approximately 4.1 million shares, of its outstanding common stock. Under this plan, the Company repurchased a total of 4.1 million shares of its common stock at an average price of $30.02 per share.

Accumulated Other Comprehensive Income (Loss)

AOCI is reported as a component of stockholders’ equity. AOCI can include, among other items, unrealized holding gains and losses on securities available for sale (“AFS”), gains and losses associated with pension or other post retirement benefits that are not recognized immediately as a component of net periodic benefit cost, and gains and losses on derivative instruments that are designated as, and qualify as, cash flow hedges. Net unrealized gains/losses on AFS securities reclassified as securities held to maturity (“HTM”) also continue to be reported as a component of AOCI and will be amortized over the estimated remaining life of the securities as an adjustment to interest income. The components of AOCI are reported net of related tax effects.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

8. Stockholders’ Equity (continued)

The components of AOCI and changes in those components are presented in the following table.


(in thousands)	Available for Sale Securities			HTM Securities Transferred from AFS			Employee Benefit Plans			Loss on Effective Cash Flow Hedges			Total
Balance, December 31, 2013	$	8,263		$	(21,189	)	$	(22,453	)	$	—		$	(35,379	)

Other comprehensive income before income taxes:
Net change in unrealized gain		9,119			—			—			—			9,119
Reclassification of net losses realized and included in earnings		—			—			293			—			293
Valuation adjustment for employee benefit plans		—			—			1,902			—			1,902
Amortization of unrealized net loss on securities transferred to HTM		—			2,463			—			—			2,463
Income tax expense		3,309			879			903			—			5,091

Balance, September 30, 2014	$	14,073		$	(19,605	)	$	(21,161	)	$	—		$	(26,693	)

Balance, December 31, 2014	$	18,001		$	(19,074	)	$	(48,626	)	$	(375	)	$	(50,074	)

Other comprehensive income before income taxes:
Net change in unrealized gain		163			—			—			2,011			2,174
Reclassification of net (gain) losses realized and included in earnings		(165	)		—			2,373			—			2,208
Valuation adjustment for employee benefit plans		—			—			(959	)					(959	)
Amortization of unrealized net loss on securities transferred to HTM		—			2,609			—			—			2,609
Income tax (benefit) expense		(73	)		953			513			732			2,125

Balance, September 30, 2015	$	18,072		$	(17,418	)	$	(47,725	)	$	904		$	(46,167	)

The following table shows the line items in the consolidated income statements affected by amounts reclassified from accumulated other comprehensive income.


	Nine Months Ended September 30,						Affected line item on the income statement
Amount reclassified from AOCI (a)	Nine Months Ended September 30,
(in thousands)	2015			2014
Gain on sale of AFS securities	$	165		$	—		Securities gains (losses)
Tax effect		(58	)		—		Income taxes

Net of tax		107			—		Net income

Amortization of unrealized net loss on securities transferred to HTM	$	(2,609	)	$	(2,463	)	Interest income
Tax effect		953			879		Income taxes

Net of tax		(1,656	)		(1,584	)	Net income

Amortization of defined benefit pension and post-retirement items		(2,373	)		(293	)	Employee benefits expense (b)
Tax effect		831			103		Income taxes

Net of tax		(1,542	)		(190	)	Net income

Total reclassifications, net of tax	$	(3,091	)	$	(1,774	)	Net income

(a)	Amounts in parenthesis indicate reduction in net income.

(b)	These accumulated other comprehensive income components are included in the computation of net periodic pension and post-retirement cost that is reported with employee benefits expense (see Note 11 for additional details).

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

9. Earnings Per Share

Hancock calculates earnings per share using the two-class method. The two-class method allocates net income to each class of common stock and participating security according to common dividends declared and participation rights in undistributed earnings. Participating securities consist of unvested stock-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents.

A summary of the information used in the computation of earnings per common share follows.


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	2015		2014		2015		2014
*Numerator:*
Net income to common shareholders	$	41,166	$	46,553	$	116,154	$	135,630
Net income allocated to participating securities – basic and diluted		840		883		2,541		2,783

Net income allocated to common shareholders – basic and diluted	$	40,326	$	45,670	$	113,613	$	132,847

*Denominator:*
Weighted-average common shares – basic		77,928		81,721		78,452		81,965
Dilutive potential common shares		147		221		157		239

Weighted-average common shares – diluted		78,075		81,942		78,609		82,204

Earnings per common share:
Basic	$	0.52	$	0.56	$	1.45	$	1.62
Diluted	$	0.52	$	0.56	$	1.45	$	1.62

Potential common shares consist of employee and director stock options. These potential common shares do not enter into the calculation of diluted earnings per share if the impact would be anti-dilutive, i.e., increase earnings per share or reduce a loss per share. Weighted-average anti-dilutive potential common shares totaled 761,113 and 815,765, respectively, for the three and nine months ended September 30, 2015 and 569,404 and 639,486, respectively, for the three and nine months ended September 30, 2014.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

10. Share-Based Payment Arrangements

Hancock maintains incentive compensation plans that provide for awards of share-based compensation to employees and directors. These plans have been approved by the Company’s shareholders. Detailed descriptions of these plans were included in Note 12 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

A summary of option activity for the nine months ended September 30, 2015 is presented below.


Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value ($000)
Outstanding at January 1, 2015		933,750		$	37.03
Exercised		(11,577	)		29.94
Cancelled/Forfeited		(56,987	)		35.89
Expired		(111,424	)		34.79

Outstanding at September 30, 2015		753,762		$	37.55		3.9	$	—

Exercisable at September 30, 2015		635,712		$	38.90		3.5	$	—

The total intrinsic value of options exercised was $0.2 million for both the nine months ended September 30, 2015 and 2014.

The restricted and performance shares in the table below are subject to service requirements. A summary of the status of the Company’s nonvested restricted and performance shares as of September 30, 2015 and changes during the nine months ended September 30, 2015, is presented in the following table.


	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2015		2,040,299		$	32.27
Granted		106,833			27.40
Vested		(239,761	)		31.93
Forfeited		(143,884	)		32.64

Nonvested at September 30, 2015		1,763,487		$	31.99

As of September 30, 2015, there were $32.2 million of total unrecognized compensation expense related to nonvested restricted and performance shares expected to vest. This compensation is expected to be recognized in expense over a weighted average period of 3.1 years. The total fair value of shares which vested during the nine months ended September 30, 2015 and 2014 was $7.6 million and $10.0 million, respectively.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

10. Share-Based Payment Arrangements (continued)

During the nine months ended September 30, 2015, the Company granted 59,312 performance shares with a grant date fair value of $25.77 per share to key members of executive and senior management. The number of 2015 performance shares that ultimately vest at the end of the three-year required service period, if any, will be based on the relative rank of Hancock’s three-year total shareholder return (“TSR”) among the TSRs of a peer group of fifty regional banks. The maximum number of performance shares that could vest is 200% of the target award. The fair value of the performance awards at the grant date was determined using a Monte Carlo simulation method. Compensation expense for these performance shares is recognized on a straight-line basis over the service period.

11. Retirement Plans

The Company has a qualified defined benefit pension plan covering all eligible employees. Eligibility is based on minimum age-related and service-related requirements as well as job classification. Accrued benefits under a nonqualified plan covering certain legacy Whitney employees were frozen as of December 31, 2012 and no future benefits will be accrued under this plan.

The Company also sponsors defined benefit postretirement plans for both legacy Hancock and legacy Whitney employees that provide health care and life insurance benefits. Benefits under the Hancock plan are not available to employees hired on or after January 1, 2000. Benefits under the Whitney plan are restricted to retirees who were already receiving benefits at the time of plan amendments in 2007 or active participants who were eligible to receive benefits as of December 31, 2007.

The following tables show the components of net periodic benefits cost included in expense for the plans for the periods indicated.


(in thousands)	Pension Benefits						Other Post- retirement Benefits
	2015			2014			2015			2014
Three Months Ended September 30,
Service cost	$	3,383		$	3,230		$	23		$	31
Interest cost		4,672			4,812			174			285
Expected return on plan assets		(8,207	)		(8,056	)		—			—
Amortization of net loss		842			7			(40	)		91

Net periodic benefit cost	$	690		$	(7	)	$	157		$	407

Nine Months Ended September 30,
Service cost	$	10,128		$	9,690		$	95		$	94
Interest cost		13,963			14,438			717			855
Expected return on plan assets		(24,626	)		(24,167	)		—			—
Amortization of net loss		2,328			20			45			273

Net periodic benefit cost	$	1,793		$	(19	)	$	857		$	1,222

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

11. Retirement Plans (continued)

Hancock contributed $10 million to the pension plan during the first quarter of 2015. While no further contribution is required in 2015 to meet minimum funding requirements, the Company may consider making an additional contribution during the fourth quarter based on the performance of plan assets and the updated estimated plan liability.

The Company also provides a defined contribution 401(k) retirement benefit plan. Under the plan, the Company matches 100% of the first 1% of compensation saved by a participant, and 50% of the next 5% of compensation saved.

12. Other Noninterest Income

Components of other noninterest income are as follows.


	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2015		2014			2015		2014
Income from bank-owned life insurance	$	2,451	$	2,377		$	7,788	$	7,048
Credit related fees		2,718		2,822			7,786		8,388
Income from derivatives		74		191			1,486		1,431
Net gain (loss) on sale of assets		418		(56	)		363		1,409
Safety deposit box income		441		448			1,356		1,404
Other miscellaneous		2,268		1,950			7,360		7,091

Total other noninterest income	$	8,370	$	7,732		$	26,139	$	26,771

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

13. Other Noninterest Expense

Components of other noninterest expense are as follows.


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2015		2014		2015		2014
Advertising	$	2,856	$	2,457	$	7,154	$	6,395
Ad valorem and franchise taxes		2,868		3,098		8,319		8,397
Printing and supplies		1,193		1,189		3,568		3,467
Insurance expense		794		944		2,644		3,002
Travel expense		1,419		1,009		3,946		2,966
Entertainment and contributions		1,634		1,396		5,009		4,337
Tax credit investment amortization		2,161		2,220		6,352		6,590
Other miscellaneous		3,634		6,821		16,679		25,105

Total other noninterest expense	$	16,559	$	19,134	$	53,671	$	60,259

There were no nonoperating expenses included in other miscellaneous expense in the table above in the third quarter of 2015 compared to $1.1 million in the third quarter of 2014. For the first nine months of 2015 and 2014, other miscellaneous expense included nonoperating expenses totaling $2.7 million and $8.4 million, respectively. In 2015, these nonoperating expenses primarily include the net impact from branch sales and closings and the resolution of FDIC denied claims. Other nonoperating expenses in 2014 included expenses related to the FDIC settlement, sale of certain insurance business lines, branch closures and fees related to the early termination of reverse purchase obligations.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

14. New Accounting Pronouncements

In September 2015, the FASB issued an Accounting Standards Update (“ASU”) that eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new standard should be applied prospectively to measurement period adjustments that occur after the effective date. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

In May 2015, the FASB issued an ASU to remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient and remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

In April 2015, the FASB issued an ASU to provide guidance to customers about how to account for a cloud computing arrangement depending on whether or not it includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. For public business entities, the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted for all entities. The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

In April 2015, the FASB issued an ASU to simplify presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance in this ASU does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Therefore, the FASB issued an ASU in August 2015 to clarify the SEC staff position that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2015. Early adoption of the amendments in this update is permitted for financial statements that have not been previously issued. The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

In February 2015, the FASB issued an ASU to change the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in this ASU (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

Hancock Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

14. New Accounting Pronouncements (continued)

In January 2015, the FASB issued an ASU to address the elimination of the concept of extraordinary items. The standard is the first in the FASB’s simplification initiative that is aimed at reducing the cost and complexity of financial reporting while improving or maintaining the usefulness of information reported to investors. The amendments in this update are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted but adoption must occur at the beginning of the year. The Company adopted this guidance in January 2015 and it did not have a material impact on the Company’s financial condition or results of operations.

In August 2014, the FASB issued an ASU to address the diversity in practice regarding the classification and measurement of foreclosed loans which were part of a government-sponsored loan guarantee program. The ASU outlines certain criteria that, if met, the loan (residential or commercial) should be derecognized and a separate other receivable should be recorded upon foreclosure at the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. This ASU was effective for annual reporting periods beginning after December 15, 2014, including interim periods within that reporting period. The Company adopted this guidance in January 2015 and it did not have a material impact on the Company’s financial condition or results of operations.

In June 2014, the FASB issued an ASU regarding repurchase-to-maturity transactions, repurchase financings, and disclosures. Under the new standard, repurchase-to-maturity transactions will be reported as secured borrowings, and transferors will no longer apply the current “linked” accounting model to repurchase agreements executed contemporaneously with the initial transfer of the underlying financial asset with the same counterparty. Public business entities are generally required to apply the accounting changes and comply with the enhanced disclosure requirements for periods beginning after December 15, 2014 and interim periods beginning after March 15, 2015. A public business entity may not early adopt the standard’s provisions. The Company adopted the accounting guidance in January 2015 and it did not have a material impact on the Company’s financial condition or results of operations. The new disclosure requirements are included in Note 4 – Securities Sold under Agreements to Repurchase.

In May 2014, the FASB issued an ASU regarding revenue from contracts with customers affecting any entity that enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of this standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will be effective for the Company for annual reporting periods beginning after December 15, 2017. The Company is currently assessing this pronouncement and adoption of this guidance is not expected to have a material impact on the Company’s financial condition or results of operations.

In January 2014, the FASB issued an ASU on reclassification of residential real estate collateralized consumer mortgage loans upon foreclosure. The new ASU clarifies when an in substance repossession or foreclosure occurs – that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The new ASU requires a creditor to reclassify a collateralized consumer mortgage loan to real estate property upon obtaining legal title to the real estate collateral, or the borrower voluntarily conveying all interest in the real estate property to the lender to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement. The ASU is effective for interim and annual reporting periods beginning after December 15, 2014. The Company adopted this guidance in January 2015 and it did not have a material impact on the Company’s financial condition or results of operations. The new disclosure requirements are included at the end of Note 3 – Loans and Allowance for Loan Losses.

In January 2014, the FASB issued an ASU in order to provide guidance on accounting for investments in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for low-income housing tax credit (“LIHTC”). Through the Company’s investments in these entities, the Company receives tax credits and/or tax deductions from operating losses, which are allowable on the Company’s filed income tax returns over the life of the project beginning with the first year the tax credits are earned. The Company adopted this guidance in January 2015 and it did not have a material impact on the Company’s financial condition or results of operations.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

NON-GAAP FINANCIAL MEASURES

Throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations, management uses several non-GAAP financial measures including Operating Income, Pre-Tax, Pre-Provision Profit, Core Net Interest Income and Core Net Interest Margin. These measures are provided to assist the reader with better understanding the Company’s financial condition and results of operations.

We define Operating Income as net income less tax-effected nonoperating expense items and securities gains/losses. Management believes this is a useful financial measure as it enables investors to assess ongoing operations and compare the Company’s fundamental operational performance from period to period. A reconciliation of net income to operating income is included in Selected Financial Data. The components of nonoperating expense are further discussed in the Noninterest Expense section of this item.

We define Pre-Tax, Pre-Provision Profit as taxable equivalent (te) net interest income and noninterest income less noninterest expense. Management believes that Pre-Tax, Pre-Provision Profit is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle. A reconciliation of net income to pre-tax, pre-provision profit is included in Selected Financial Data.

We define Core Net Interest Income as net interest income (te) excluding net purchase accounting adjustments. We define Core Net Interest Margin as Core Net Interest Income (annualized) expressed as a percentage of average earning assets. A reconciliation of Reported Net Interest Income to Core Net Interest Income and Reported Net Interest Margin to Core Net Interest Margin is included in the Net Interest Income section of this item. Management believes that Core Net Interest Income and Core Net Interest Margin provide a useful measure to investors regarding the Company’s performance period over period as well as providing investors with assistance in understanding the success management has experienced in executing its strategic initiatives.

Recent Economic and Industry Developments

The Federal Reserve publishes its Summary of Commentary on Current Economic Conditions (the “Beige Book”) eight times a year, most recently on October 14, 2015. The Beige Book includes summaries from all 12 Banks in the Federal Reserve System. Reports from the Atlanta Bank and the Dallas Bank indicate continued improvement of economic activity throughout most of Hancock’s market area. However, activity among energy-related businesses operating mainly in Hancock’s south Louisiana and Houston, Texas market areas continued to decline. The travel and tourism industry, which is important within several of the Company’s market areas, saw an increase in activity with many hotels and resorts reporting high occupancy levels and an increase in consumer spending compared to prior year. Outlooks for the next three months were favorable. Auto sales continued to experience increases in sales activity. Reports on manufacturing activity were mixed.

The real estate markets for residential properties were mostly positive, with most brokers indicating that sales met or exceeded their expectations; however, Houston contacts noted some decrease in activity of higher-priced new homes and condominiums. Most of Hancock’s market areas reported growth in real estate activity. Inventory levels remained stable year-over-year. Outside of Houston, the demand for apartments increased, keeping occupancy rates at high levels. The outlook for home sales is positive, with brokers expecting to see an increase in sales over the next three months. New home sales and construction activity are flat to slightly ahead of prior-year levels and expected to improve modestly.

The commercial real estate market continues to improve in most areas, with growing demand for office and industrial space in certain market areas. Commercial construction activity has increased in these sectors. Continued improvement is expected in the commercial real estate market. However, the Houston market is the exception to this positive outlook due to the concerns about the energy sector.

Loan demand across most of the geographic markets that Hancock serves has increased slightly since the last Beige Book report, but competition for quality borrowers remains stiff. Consumer lending and business outside the oil and gas industry increased, while commercial real estate held steady. Reports cited recent monetary policy actions, financial market turbulence, and low oil prices as factors that contribute to increased uncertainty.

The overall U.S. economy continued to expand, with almost all regions showing modest to moderate growth rates. Confidence in the prospect of a higher rate of sustained growth is improving for businesses and consumers alike, although uncertainties remain about such matters as the health of the international economy and the implications of pending or proposed changes in U.S. fiscal and tax policies and regulations.

Highlights of Third Quarter 2015 Financial Results

Net income in the third quarter of 2015 was $41.2 million, or $0.52 per diluted common share, compared to $34.8 million, or $0.44 per diluted common share, in the second quarter of 2015. Net income was $46.6 million, or $0.56 per diluted common share, in the third quarter of 2014. The third quarter year-over-year decline in earnings was mainly related to a tax-effected decrease in purchase accounting income of $8.7 million. The improvement in linked-quarter net income was mainly due to $8.9 million of nonoperating expenses included in the second quarter of 2015. Net income for the nine months ended September 30, 2015 was $116.2 million, or $1.45 per diluted common share, compared to $135.6 million, or $1.62 per diluted common share, for the nine months ended September 30, 2014. The primary reason for the year-to-date decrease in net income for 2015 compared to 2014 was a $25.6 million tax-effected reduction in purchase accounting income. Included in net income for the nine months ended September 30, 2015 and 2014 was the negative impact from nonoperating items totaling $16.2 and $16.0 million, respectively.

Operating income for the third quarter of 2015 was $41.2 million or $0.52 per diluted common share, compared to $40.6 million, or $0.51 per diluted common share in the second quarter of 2015. Operating income was $49.1 million, or $0.59 per diluted common share, in the third quarter of 2014. For the nine months ended September 30, 2015, operating income was $126.5 million, or $1.57 per diluted common share, down $21.3 million from the same period in 2014. As discussed further in the Results of Operations section below, the primary driver for the decrease in operating income for both the quarter and nine-month periods ended September 30, 2015, compared to similar prior periods, was the reduction in income from purchase accounting adjustments.

Over the past several quarters the Company has disclosed its focus on strategic initiatives that are designed to replace declining levels of purchase accounting income from acquisitions with improvement in core income, which the Company defines as operating income excluding tax-effected purchase accounting adjustments. The impact to the Company’s bottom line from net purchase accounting items has significantly diminished, and core results are now substantially equal to operating results.

Highlights of the Company’s third quarter of 2015 results compared to the second quarter of 2015:

•

Earnings increased $6.3 million, or 18%

•

Earnings per share of $0.52 increased 18%

•

Pre-tax, pre-provision earnings grew 22%

•

Provision reflects approximately $5 million in reserve build for the energy portfolio

•

Loans increased $418 million, or 12% annualized

•

Deposits increased $138 million, or 3% annualized

•

Core revenue increased $6.2 million

•

Core net interest margin of 3.15% increased 1 basis point

•

Operating expense up less than 1%

The total allowance for loan losses was $139.6 million at September 30, 2015, up $8.5 million from June 30, 2015. The ratio of the allowance for loan losses to period-end loans was 0.95% at September 30, 2015, up from 0.91% at June 30, 2015. The allowance maintained on the non-FDIC acquired portion of the loan portfolio increased $7.0 million linked-quarter, totaling $114 million, and the impaired reserve on the FDIC acquired loan portfolio increased approximately $1.5 million linked-quarter.

The increase in the non-FDIC portion of the allowance was primarily driven by an increase of approximately $5 million in the reserve related to the energy portfolio. This increase resulted from downward pressure on energy related loan risk ratings as pricing pressure on oil continued during the third quarter, as well as updates to the qualitative factors related to energy. The Company’s balance of criticized commercial loans increased $181.1 million, or approximately 29%, from June 30, 2015, to $806.9 million at September 30, 2015. Approximately $173.0 million, or 95%, of the increase was from energy-related credits. Included in the increase in risk rating downgrades within the energy portfolio during the third quarter was approximately $66 million of shared national credits that were on appeal at June 30, 2015. The impact to the allowance for the possible downgrades on these credits was included in the second quarter of 2015. Management believes that if further risk rating downgrades occur in the energy portfolio, they could lead to additional loan loss provisions and a higher allowance for losses on loans. The impact and severity of risk-rating migration, associated provision, allowance for losses on loans and net charge-offs will ultimately depend on the overall oil price reduction and the duration of the cycle.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income (te) for the third quarter of 2015 was $160.1 million, up $5.3 million from the second quarter of 2015. During the third quarter, net interest income from purchase accounting adjustments declined $1.3 million compared to the second quarter. Excluding the impact from purchase accounting items, core net interest income increased $6.6 million linked-quarter. The increase in net interest income (te) was primarily due to additional interest income from a $653 million linked-quarter increase in average earning assets. In addition, the impact of one additional day of interest accruals in the third quarter of 2015 compared to the second quarter of 2015 added almost $1.3 million. For analytical purposes, management adjusts net interest income to a taxable equivalent basis using a 35% federal tax rate on tax exempt items (primarily interest on municipal securities and loans).

Net interest income (te) for the third quarter of 2015 was down $6.1 million, or 4%, compared to the third quarter of 2014. A $15.1 million reduction in total purchase accounting accretion was partially offset by net interest income earned on a $2.1 billion increase in average earning assets.

Net interest income (te) for the first nine months of 2015 totaled $476.2 million, a $25.7 million, or 5%, decrease from the first nine months of 2014. Excluding a $47.2 million decrease in purchase accounting accretion, net interest income increased $21.5 million for the first nine months of 2015 compared to the same period of 2014. Incremental interest income earned on a $1.9 billion, or 11%, increase in average earning assets was partially offset by a 10 basis point decrease in the loan yield, excluding purchase accounting accretion and a 6 basis point increase in the cost of

funds. The increase in the cost of funds was attributable to the $150 million 2015 subordinated debt issuance at a cost of 5.95% and the impact from several deposit initiatives implemented during the second half of 2014 and early 2015 designed to generate deposit growth in an amount sufficient to fund loan growth.

The reported net interest margin was 3.28% for the third quarter of 2015, down 2 basis points (“bps”) from the second quarter of 2015, and down 53 bps from the third quarter of 2014. Excluding the impact of the decline in purchase accounting adjustments noted above, the net interest margin would have been up slightly linked quarter. The current quarter’s core net interest margin of 3.15% was 17 bps less than third quarter of 2014. The third quarter 2015 loan yield excluding purchase accounting accretion was up 4 bps linked quarter but down 5 bps compared to the third quarter of 2014. The cost of funds increased compared to both the prior quarter and the same quarter last year. Increased rates paid on interest-bearing deposits and the interest cost of subordinated debt that was issued in the first quarter of 2015 were the primary drivers for the rising cost of funds.

The reported net interest margin for the first nine months of 2015 was 3.37% compared to 3.95% in 2014, while the core margin declined 19 bps to 3.16% in 2015 compared to 3.35% in 2014. Changes in net interest income (te) and the net interest margin between the year-to-date periods reflected, for the most part, the same factors that affected the quarterly comparisons.

The overall reported yield on earning assets was 3.57% in the third quarter of 2015, down slightly from the second quarter of 2015 and down 45 bps from the third quarter of 2014. This decrease was primarily a result of the lower yields on the loan portfolio due to the impact of the decline in purchase accounting income. In addition, the yield on the investment securities portfolio was down 11 bps compared to the third quarter of 2014, but up 3 bps linked quarter.

The cost of funding earning assets was 0.30% in the third quarter of 2015, up 2 bps from the second quarter of 2015 and up 9 bps from the third quarter of 2014. These increases were primarily attributable to the increase in deposit rates related to the Company’s deposit initiatives. In addition to increased deposit rates compared to the third quarter of 2014, other borrowings also increased as a result of the subordinated debt issuance.

The following tables detail the components of our net interest income and net interest margin.


	September 30, 2015							June 30, 2015							September 30, 2014
(dollars in millions)	Volume		Interest		Rate			Volume		Interest		Rate			Volume		Interest		Rate
Average earning assets
Commercial & real estate loans (te) (a) (b)	$	10,608.2	$	104.4		3.91	%	$	10,398.5	$	101.6		3.92	%	$	9,627.6	$	108.2		4.46	%
Mortgage loans		1,978.0		20.2		4.08			1,930.6		19.9		4.13			1,814.2		20.0		4.41
Consumer loans		1,925.3		24.5		5.04			1,809.8		23.0		5.10			1,660.4		24.0		5.74
Loan fees & late charges		—		0.1					—		—					—		0.4

Total loans (te)		14,511.5		149.2		4.09			14,138.9		144.5		4.10			13,102.2		152.6		4.63


Loans held for sale		17.2		0.2		4.07			22.9		0.2		3.88			16.9		0.1		4.66

US Treasury and agency securities		166.8		0.6		1.55			300.0		1.2		1.54			184.8		0.7		1.47
Mortgage-backed securities and CMOs		4,052.0		22.0		2.17			3,641.6		19.6		2.15			3,379.2		19.2		2.27
Municipals (te) (a)		200.3		2.3		4.52			195.5		2.2		4.54			203.7		2.4		4.62
Other securities		6.4		—		1.59			6.0		—		1.61			12.3		0.1		2.21

Total securities (te) (c)		4,425.5		24.9		2.25			4,143.1		23.0		2.22			3,780.0		22.4		2.36

Total short-term investments		479.1		0.3		0.24			475.9		0.3		0.23			425.3		0.3		0.23

Average earning assets (te)	$	19,433.3	$	174.6		3.57	%	$	18,780.8	$	168.0		3.58	%	$	17,324.4	$	175.4		4.02	%

Average interest-bearing liabilities
Interest-bearing transaction and savings deposits	$	7,270.1	$	3.7		0.20	%	$	6,656.9	$	2.5		0.15	%	$	6,160.9	$	1.6		0.11	%
Time deposits		2,171.7		3.8		0.70			2,206.9		3.8		0.69			1,955.3		3.1		0.64
Public funds		1,839.0		1.4		0.31			1,890.4		1.3		0.28			1,547.5		1.1		0.27

Total interest-bearing deposits		11,280.8		8.9		0.31			10,754.2		7.6		0.28			9,663.7		5.8		0.24

Short-term borrowings		1,050.8		0.3		0.10			896.0		0.2		0.08			1,139.7		0.2		0.08
Long-term debt		504.5		5.3		4.16			516.0		5.3		4.14			375.9		3.2		3.27

Total borrowings		1,555.3		5.6		1.42			1,412.0		5.5		1.56			1,515.6		3.4		0.87

Total interest-bearing liabilities		12,836.1		14.5		0.45	%		12,166.2		13.1		0.43	%		11,179.3		9.2		0.33	%

Net interest-free funding sources		6,597.2							6,614.6							6,145.1

Total cost of funds	$	19,433.3	$	14.5		0.30	%	$	18,780.8	$	13.1		0.28	%	$	17,324.4	$	9.2		0.21	%

Net interest spread (te)			$	160.1		3.13	%			$	154.9		3.15	%			$	166.2		3.69	%
Net interest margin	$	19,433.3	$	160.1		3.28	%	$	18,780.8	$	154.9		3.30	%	$	17,324.4	$	166.2		3.81	%

(a)	Tax equivalent (te) amounts are calculated using a marginal federal income tax rate of 35%.

(b)	Includes nonaccrual loans.

(c)	Average securities do not include unrealized holding gains/losses on available for sale securities.


	Nine Months Ended
	September 30, 2015							September 30, 2014
(dollars in millions)	Volume		Interest		Rate			Volume		Interest		Rate
Average earning assets
Commercial & real estate loans (te) (a) (b)	$	10,415.4	$	312.8		4.01	%	$	9,361.4	$	324.4		4.63	%
Mortgage loans		1,937.4		60.6		4.17			1,760.1		62.4		4.73
Consumer loans		1,822.8		69.5		5.10			1,601.9		70.8		5.91
Loan fees & late charges		—		0.4					—		1.9

Total loans (te)		14,175.6		443.3		4.18			12,723.4		459.5		4.82


Loans held for sale		18.6		0.5		3.54			16.9		0.5		4.29

US Treasury and agency securities		246.9		2.9		1.56			93.1		1.2		1.73
Mortgage-backed securities and CMOs		3,664.2		60.2		2.19			3,493.5		60.5		2.31
Municipals (te) (a)		197.2		6.7		4.56			208.8		7.2		4.60
Other securities		8.0		0.2		3.00			14.8		0.2		2.22

Total securities (te) (c)		4,116.3		70.0		2.27			3,810.2		69.1		2.42

Total short-term investments		537.0		0.9		0.23			403.8		0.7		0.23

Average earning assets (te)	$	18,847.5	$	514.7		3.65	%	$	16,954.3	$	529.8		4.17	%

Average interest-bearing liabilities
Interest-bearing transaction and savings deposits	$	6,814.1	$	8.4		0.16	%	$	6,104.0	$	4.6		0.10	%
Time deposits		2,205.6		11.3		0.68			2,049.9		9.3		0.60
Public funds		1,848.3		4.0		0.29			1,508.2		2.5		0.23

Total interest-bearing deposits		10,868.0		23.7		0.29			9,662.1		16.4		0.23

Short-term borrowings		956.2		0.6		0.09			962.0		2.1		0.29
Long-term debt		478.2		14.2		3.98			380.7		9.4		3.31

Total borrowings		1,434.4		14.8		1.39			1,342.7		11.5		1.15

Total interest-bearing liabilities		12,302.4		38.5		0.42	%		11,004.8		27.9		0.34	%

Net interest-free funding sources		6,545.1							5,949.5

Total cost of funds	$	18,847.5	$	38.5		0.28	%	$	16,954.3	$	27.9		0.22	%

Net interest spread (te)			$	476.2		3.23	%			$	501.9		3.83	%
Net interest margin	$	18,847.5	$	476.2		3.37	%	$	16,954.3	$	501.9		3.95	%

(a)	Tax equivalent (te) amounts are calculated using a marginal federal income tax rate of 35%.

(b)	Includes nonaccrual loans.

(c)	Average securities do not include unrealized holding gains/losses on available for sale securities.

Due to the significant, unsustainable contribution from purchase accounting accretion, management believes that core net interest income and core net interest margin provide investors with meaningful financial measures of the Company’s performance over time. The following table provides a reconciliation of reported and core net interest income and reported and core net interest margin.

Reconciliation of Reported Net Interest Income and Margin to Core Net interest Income and Margin


	Three Months Ended									Nine Months Ended
(dollars in millions)	September 30, 2015			June 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
Net interest income (te) (a)	$	160.1		$	154.9		$	166.2		$	476.2		$	501.9
Purchase accounting adjustments
Loan discount accretion		7.3			8.7			22.8			32.4			80.6
Bond premium amortization		(0.9	)		(1.0	)		(1.3	)		(3.0	)		(4.2	)
CD premium accretion		—			—			—			—			0.2

Net purchase accounting accretion		6.4			7.7			21.5			29.4			76.6

Net interest income (te) – core	$	153.7		$	147.2		$	144.7		$	446.8		$	425.3

Average earning assets	$	19,433.3		$	18,780.8		$	17,324.4		$	18,847.5		$	16,954.3
Net interest margin – reported		3.28	%		3.30	%		3.81	%		3.37	%		3.95	%
Net purchase accounting adjustments		0.13	%		0.16	%		0.49	%		0.21	%		0.60	%

Net interest margin – core		3.15	%		3.14	%		3.32	%		3.16	%		3.35	%

(a)	Tax equivalent (te) amounts are calculated using a marginal federal income tax rate of 35%.

Provision for Loan Losses

During the third quarter of 2015, Hancock recorded a total provision for loan losses of $10.1 million, up $3.5 million from the second quarter of 2015 and up $0.6 million from the third quarter of 2014. The linked-quarter increase reflects additional build for the energy portfolio as discussed more fully in the “Allowance for Loan Losses and Asset Quality” section of this document. The provision for the FDIC acquired portfolio was a credit of $0.4 million for the three months ended September 30, 2015, virtually flat with the same period prior year. For the three months ended June 30, 2015, the provision for the FDIC acquired portfolio was a credit of $0.9 million. For the first nine months of 2015, the total provision for loans losses was $22.8 million, down from $24.1 million for the same period in 2014.

The section on “Allowance for Loan Losses and Asset Quality” provides additional information on changes in the allowance for loan losses and general credit quality. Certain differences in the determination of the allowance for loan losses for originated loans and for acquired-performing loans and acquired-impaired loans (which includes all FDIC acquired loans) are described in Note 3 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Noninterest Income

Noninterest income totaled $60.2 million for the third quarter of 2015, down slightly from the second quarter of 2015 as an increase in investment and annuity income was offset by a decrease in income recorded from market valuation of derivative contracts. Compared to the third quarter of 2014, noninterest income was up $2.3 million, or 4%. Amortization of the FDIC indemnification asset improved from $2.8 million in the third quarter of 2014 to $1.6 million in the third quarter of 2015. Noninterest income totaled $177.6 million for the first nine months of 2015, up $6.6 million, or 4%, from the first nine months of 2014.

The components of noninterest income are presented in the following table for the indicated periods.


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
(in thousands)	2015			2015			2014			2015			2014
Service charges on deposit accounts	$	18,619		$	17,908		$	20,000		$	53,842		$	57,981
Trust fees		11,345			11,795			11,530			34,340			33,267
Bank card and ATM fees		11,637			11,868			11,641			34,688			33,806
Investment and annuity fees		6,149			4,838			5,506			16,037			15,555
Secondary mortgage market operations		3,413			3,618			2,313			9,695			6,036
Insurance commissions and fees		2,238			2,595			1,979			6,587			7,611
Amortization of FDIC loss share receivable		(1,564	)		(1,273	)		(2,760	)		(4,034	)		(9,989	)
Income from bank-owned life insurance		2,451			2,671			2,377			7,788			7,048
Credit related fees		2,718			2,611			2,822			7,786			8,388
Income from derivatives		74			1,464			191			1,486			1,431
Gain (loss) on sale of assets		418			(62	)		(56	)		363			1,409
Safety deposit box income		441			429			448			1,356			1,404
Other miscellaneous		2,268			2,412			1,950			7,360			7,091
Securities transactions gains, net		4			—			—			337			—

Total noninterest income	$	60,211		$	60,874		$	57,941		$	177,631		$	171,038

Service charges on deposits totaled $18.6 million for the third quarter of 2015, up $0.7 million, or 4%, from the second quarter of 2015, and down $1.4 million, or 7%, from the third quarter of 2014. For the nine months ended September 30, 2015, service charges decreased $4.1 million, or 7% compared to the same period in 2014. The decreases in both quarter-to-date and year-to-date service charges in 2015 compared to 2014 are primarily related to a decline in overdraft/nonsufficient funds occurrences. This decline is attributable, in part, to an increase in average balances per account in the consumer noninterest-bearing portfolio, a reduction in the number of consumer accounts, mostly attributable to branch closings and sales, and higher customer usage of our overdraft protection product.

Trust fees totaled $11.3 million for the quarter ended September 30, 2015, down $0.4 million, or 4%, from the second quarter of 2015, primarily due to the $0.4 million of seasonal fees related to tax return preparation in the second quarter of 2015. Investment and annuity income increased $1.3 million, or 27%, compared to the second quarter of 2015, and was up $0.6 million, or 12% compared to the third quarter of 2014. The increase in investment and annuity income for the third quarter of 2015 was attributable to a number of revenue enhancing initiatives implemented during the first half of 2015 including increased staffing, revised incentive programs and focused training.

Fees from secondary mortgage market operations totaling $3.4 million in the third quarter of 2015 were down $0.2 million, or 6%, compared to the second quarter of 2015. These fees were up almost 50% compared to the third quarter of 2014. The Company typically sells its longer-term fixed-rate loans in the secondary mortgage market while retaining in the portfolio the majority of its adjustable rate loans. We also retain loans generated through certain programs to support customer relationships including programs for high net worth individuals and non-builder construction loans. The decrease in these fees in the current quarter compared to the second quarter of 2015 was primarily due to seasonality. Through the first nine months of 2015, fees from secondary mortgage market operations increased $3.7 million, or 61%, compared to the first nine months of 2014 as the Company has originated a higher percentage of loans for sale in the secondary market.

Amortization of the FDIC loss share receivable totaled $1.6 million in the third quarter of 2015 compared to $1.3 million in the second quarter of 2015 and $2.8 million in the third quarter of 2014. For the first nine months of 2015, amortization of the FDIC loss share receivable totaled $4.0 million, compared to $10.0 million for the same period in 2014. The amortization reflects a reduction in the amount of expected reimbursements under the loss share agreements due to lower loss projections for the related FDIC acquired loan pools. The non-single family loss share agreement expired in December of 2014, which is the primary reason for the decrease in the amortization in the first nine months of 2015 compared to 2014. Beginning in 2015, the FDIC loss share receivable and the related amortization relates only to the single family loss share agreement which will expire in December of 2019.

Income from derivatives totaled $0.1 million for the third quarter of 2015 compared to $1.5 million for the second quarter of 2015 and $0.2 million for the third quarter of 2014. This income is volatile in nature and is primarily related to market valuations on our customer interest rate derivative program as described fully in Note 5 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Excluding the amortization of the FDIC loss share receivable and the impact of the sale of certain insurance lines of business, year-to-date noninterest income was up $2.4 million in 2015 compared to 2014. Increases in secondary mortgage operations and trust fees were partially offset by decreases in service charges.

Noninterest Expense

Noninterest expense for the third quarter of 2015 was $151.2 million, a $7.7 million, or 5%, decrease from the second quarter of 2015, and a $2.1 million, or 1%, increase from the third quarter of 2014. Excluding nonoperating expense items, operating expense for the third quarter of 2015 totaled $151.2 million, up $1.2 million, or 1%, from the second quarter of 2015 and $6.0 million, or 4%, from the same period in 2014. Operating expense for the first nine months of 2015 totaled $447.4 million, up $10.5 million, or 2%, compared to the first nine months of 2014.

There were no nonoperating expenses in the third quarter of 2015, compared to $8.9 million in the second quarter of 2015 and $3.9 million in the third quarter of 2014. Nonoperating expense for the second quarter of 2015 included approximately $4.7 million related to branch closings and asset dispositions as part of the Company’s ongoing branch rationalization process, $1.9 million related to the resolution of FDIC denied loss share claims and $2.3 million of consulting and professional fees related to investments in technology to enhance the Company’s risk management processes. All of the nonoperating expense in the third quarter of 2014 related to the Company’s expense and efficiency initiative. The following discussion of the components of noninterest expenses excludes nonoperating expenses for each period.

Total personnel expense totaled $84.2 million for the third quarter of 2015, up $1.6 million, or 2%, from the second quarter of 2015, and $4.1 million, or 5%, compared to the third quarter of 2014. Total personnel expense for the first nine months of 2015 was up $5.8 million, or 2%, compared to the first nine months of 2014. This increase is generally the result of an increase in full-time equivalent employees related to new business initiatives, annual merit increases and higher pension and post-retirement benefit costs.

Occupancy and equipment expenses totaled $14.8 million for the third quarter of 2015, down $1.0 million, or 6%, from the second quarter of 2015 and $0.5 million, or 3%, from the third quarter of 2014. Occupancy and equipment expenses totaled $45.8 million for the first nine months of 2015, unchanged from the first nine months in 2014. The second quarter of 2015 included an unusually high level of ATM and general facilities maintenance expense.

Other real estate (“ORE”) expense in the third quarter of 2015 was $0.4 million, slightly down from the second quarter of 2015. ORE expense for the first nine months of 2015 totaled $1.4 million compared to $1.8 million in the first nine months of 2014.

All other expenses, excluding amortization of intangibles and nonoperating expense items, totaled $45.8 million for the third quarter of 2015, up $0.8 million, or 2%, compared to the second quarter of 2015 and up $2.4 million, or 6%, from the third quarter of 2014. For the first nine months of 2015 compared to the first nine months of 2014, all other expenses increased $6.9 million, or 5%. The largest component of the year-to-date increase was deposit insurance and regulatory fees which have increased primarily as a result of the growth in assets.

The components of noninterest expense are presented in the following table for the indicated periods.


	Three Months Ended							Nine Months Ended
	September 30,		June 30,		September 30,			September 30,
(in thousands)	2015		2015		2014			2015		2014
Operating expense
Compensation expense	$	71,187	$	69,771	$	68,151		$	205,505	$	202,264
Employee benefits		12,968		12,762		11,892			41,300		38,717

Personnel expense		84,155		82,533		80,043			246,805		240,981

Net occupancy expense		11,222		11,765		10,799			34,149		32,905
Equipment expense		3,598		4,079		4,542			11,610		12,875
Data processing expense		13,844		13,926		12,984			41,306		38,231
Professional services expense		7,656		6,091		5,879			20,067		18,709
Amortization of intangibles		6,027		6,148		6,570			18,493		20,352
Telecommunications and postage		3,485		3,470		3,640			10,606		11,058
Deposit insurance and regulatory fees		4,225		4,213		2,967			12,033		8,677
Other real estate expense, net		422		501		(104	)		1,379		1,757
Advertising		2,856		2,127		2,412			7,140		6,177
Ad valorem and franchise taxes		2,868		2,736		3,098			8,319		8,397
Printing and supplies		1,193		1,158		1,123			3,568		3,244
Insurance expense		794		928		944			2,644		3,002
Travel expense		1,419		1,306		1,006			3,944		2,961
Entertainment and contributions		1,634		1,736		1,396			5,009		4,337
Tax credit investment amortization		2,161		2,096		2,220			6,352		6,590
Other miscellaneous		3,634		5,177		5,673			13,960		16,648

Total operating expense	$	151,193	$	149,990	$	145,192		$	447,384	$	436,901

Nonoperating expense items
Impact of insurance business line divestiture	$	—	$	—	$	—		$	—	$	(9,101	)
FDIC resolution of denied claims		—		1,854		—			1,854		10,268
Expense and efficiency initiatives and other items		—		7,073		3,887			14,387		11,390
Early debt redemption		—		—		—			—		3,461

Total nonoperating expense items	$	—	$	8,927	$	3,887		$	16,241	$	16,018

Total noninterest expense	$	151,193	$	158,917	$	149,079		$	463,625	$	452,919

Income Taxes

The effective income tax rate for the third and second quarters of 2015 as well as third quarter of 2014 was approximately 26%. Management expects the effective tax rate for the remainder of 2015 will approximate 25% to 27%. Hancock’s effective tax rates have varied from the 35% federal statutory rate primarily because of tax-exempt income and the use of tax credits. Interest income on bonds issued by or loans to state and municipal governments and authorities, and earnings from the bank-owned life insurance program are the major components of tax-exempt income. The main source of tax credits has been investments in tax-advantaged securities and tax credit projects. These investments are made primarily in the markets the Company serves and are directed at tax credits issued under the Qualified Zone Academy Bonds (“QZAB”), Qualified School Construction Bonds (“QSCB”), Federal and State New Market Tax Credit (“NMTC”) and Low-Income Housing Tax Credit (“LIHTC”) programs. The investments generate tax credits, which reduce current and future taxes and are recognized when earned as a benefit in the provision for income taxes.

The Company invests in Federal and State NMTC projects related to tax credit allocations that have been awarded to its wholly-owned Community Development Entity (“CDE”) as well as projects that utilize credits awarded to unrelated CDEs. From 2008 through 2014, the Company’s CDE was awarded three allocations totaling $148 million. These awards are expected to generate tax credits totaling $57.7 million over their respective seven-year compliance periods.

The Company intends to continue making investments in tax credit projects, though its ability to access new credits will depend upon, among other factors, federal and state tax policies and the level of competition for such credits. Based on tax credit investments that have been made, the Company expects to realize tax credits over the next three years of $10.0 million, $8.8 million and $7.4 million for 2016, 2017 and 2018, respectively.

The following table reconciles reported income tax expense to that computed at the statutory federal tax rate for the indicated periods.


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(in thousands)	2015			2015			2014			2015			2014
Taxes computed at statutory rate	$	19,519		$	16,499		$	22,027		$	55,280		$	65,757
Tax credits:
QZAB/QSCB		(730	)		(730	)		(841	)		(2,191	)		(2,378	)
NMTC – Federal and State		(2,430	)		(1,829	)		(3,173	)		(6,831	)		(9,780	)
LIHTC		(25	)		(25	)		(113	)		(73	)		(339	)

Total tax credits		(3,185	)		(2,584	)		(4,127	)		(9,095	)		(12,497	)
State income taxes, net of federal income tax benefit		911			742			706			2,381			3,423
Tax-exempt interest		(1,908	)		(1,783	)		(1,577	)		(5,401	)		(4,691	)
Bank owned life insurance		(858	)		(948	)		(790	)		(2,725	)		(2,425	)
Goodwill – writeoff		—			—			—			—			1,112
Other, net		123			385			143			1,349			1,569

Income tax expense	$	14,602		$	12,311		$	16,382		$	41,789		$	52,248

Selected Financial Data

The following tables contain selected financial data as of the dates and for the periods indicated.


	Three Months Ended						Nine Months Ended
	September 30, 2015		June 30, 2015		September 30, 2014		September 30, 2015		September 30, 2014
Common Share Data
Earnings per share:
Basic	$	0.52	$	0.44	$	0.56	$	1.45	$	1.62
Diluted	$	0.52	$	0.44	$	0.56	$	1.45	$	1.62
Operating earnings per share: (a)
Basic	$	0.52	$	0.51	$	0.59	$	1.58	$	1.77
Diluted	$	0.52	$	0.51	$	0.59	$	1.57	$	1.76
Cash dividends paid	$	0.24	$	0.24	$	0.24	$	0.72	$	0.72
Book value per share (period-end)	$	31.65	$	31.12	$	30.76	$	31.65	$	30.76
Tangible book value per share (period-end)	$	22.18	$	21.63	$	21.44	$	22.18	$	21.44
Weighted average number of shares (000s):
Basic		77,928		77,951		81,721		78,452		81,965
Diluted		78,075		78,115		81,942		78,609		82,204
Period-end number of shares (000s)		77,519		78,094		81,567		77,519		81,567
Market data:
High sales price	$	32.47	$	32.98	$	36.47	$	32.98	$	38.50
Low sales price	$	25.20	$	28.02	$	31.25	$	24.96	$	31.25
Period-end closing price	$	27.05	$	31.91	$	32.05	$	27.05	$	32.05
Trading volume (000s) (b)		44,705		40,162		25,553		136,733		84,239

(a)	Net income less tax-effected securities transactions and nonoperating expense items. Management believes that operating income provides a useful measure of financial performance that helps investors compare the Company’s fundamental operations over time.

(b)	Trading volume is based on the total volume as determined by NASDAQ on the last day of the quarter.


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,
(in thousands)	2015		2015		2014		2015			2014
Income Statement:
Interest income	$	171,329	$	164,920	$	172,701	$	505,336		$	521,842
Interest income (te) (a)		174,633		168,008		175,390		514,684			529,720
Interest expense		14,499		13,129		9,160		38,557			27,961

Net interest income (te)		160,134		154,879		166,230		476,127			501,759
Provision for loan losses		10,080		6,608		9,468		22,842			24,122
Noninterest income excluding securities transactions		60,207		60,874		57,941		177,294			171,038
Securities transactions gains, net		4		—		—		337			—
Noninterest expense (excluding amortization of intangibles)		145,166		152,769		142,509		445,132			432,567
Amortization of intangibles		6,027		6,148		6,570		18,493			20,352

Income before income taxes		55,768		47,140		62,935		157,943			187,878
Income tax expense		14,602		12,311		16,382		41,789			52,248

Net income	$	41,166	$	34,829	$	46,553	$	116,154		$	135,630

Securities transactions gains, net	$	—	$	—	$	—	$	(333	)	$	—
Total nonoperating expense items		—		8,927		3,887		16,241			16,018
Taxes on adjustments at marginal tax rate		—		3,125		1,361		5,568			3,879

Total adjustments, net of taxes		—		5,802		2,526		10,340			12,139

Operating income (b)	$	41,166	$	40,631	$	49,079	$	126,494		$	147,769

Difference between interest income and interest income (te)	$	3,304	$	3,088	$	2,689	$	9,348		$	7,878
Provision for loan losses		10,080		6,608		9,468		22,842			24,122
Income tax expense		14,602		12,311		16,382		41,789			52,248

Pre-tax, pre-provision profit (PTPP) (te) (c)	$	69,152	$	56,836	$	75,092	$	190,133		$	219,878

(a)	For analytical purposes, management adjusts net interest income to a “taxable equivalent” basis using a 35% federal tax rate on tax exempt items (primarily interest on municipal securities and loans).

(b)	Net income less tax-effected securities transactions and nonoperating expense items. Management believes that operating income provides a useful measure of financial performance that helps investors compare the Company’s fundamental operations over time.

(c)	Net interest income (te) and noninterest income less noninterest expense. Management believes that PTPP is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover the losses through a credit cycle.


	Three Months Ended												Nine Months Ended
(in thousands)	September 30, 2015				June 30, 2015				September 30, 2014				September 30, 2015				September 30, 2014
Performance Ratios
Return on average assets			0.76	%			0.67	%			0.94	%			0.74	%			0.94	%
Return on average assets – operating (a)			0.76	%			0.78	%			1.00	%			0.81	%			1.03	%
Return on average common equity			6.70	%			5.75	%			7.42	%			6.37	%			7.36	%
Return on average common equity – operating (a)			6.70	%			6.70	%			7.82	%			6.93	%			8.02	%
Return on average tangible common equity			9.60	%			8.28	%			10.70	%			9.16	%			10.72	%
Return on average tangible common equity – operating (a)			9.60	%			9.66	%			11.28	%			9.98	%			11.68	%
Earning asset yield (te)			3.57	%			3.58	%			4.02	%			3.65	%			4.17	%
Total cost of funds			0.30	%			0.28	%			0.21	%			0.28	%			0.22	%
Net interest margin (te)			3.28	%			3.30	%			3.81	%			3.37	%			3.95	%
Noninterest income excluding securities transactions to total revenue (te)			27.32	%			28.21	%			25.85	%			27.13	%			25.42	%
Efficiency ratio (b)			65.88	%			66.67	%			61.84	%			65.64	%			61.91	%
Average loan/deposit ratio			83.82	%			83.85	%			85.24	%			83.93	%			83.52	%
FTE employees (period-end)			3,863				3,825				3,787				3,863				3,787

Capital Ratios
Common stockholders’ equity to total assets			11.35	%			11.28	%			12.56	%			11.35	%			12.56	%
Tangible common equity ratio			8.24	%			8.12	%			9.10	%			8.24	%			9.10	%

(a) Excludes tax-effected securities transactions and nonoperating expense items. Management believes that this is a useful financial measure that helps investors compare the Company’s fundamental operations over time.
(b) Noninterest expense as a percent of total revenue (te) before amortization of purchased intangibles, securities transactions, and nonoperating expense items.

	Three Months Ended												Nine Months Ended
(in thousands)	September 30, 2015				June 30, 2015				September 30, 2014				September 30, 2015				September 30, 2014
Asset Quality Information
Nonaccrual loans (a)		$	166,945			$	118,445			$	83,154			$	166,945			$	83,154
Restructured loans – still accruing			5,779				7,966				7,944				5,779				7,944

Total nonperforming loans			172,724				126,411				91,098				172,724				91,098
Other real estate (ORE) and foreclosed assets			33,599				38,630				56,081				33,599				56,081

Total nonperforming assets		$	206,323			$	165,041			$	147,179			$	206,323			$	147,179

Accruing loans 90 days past due (a)			5,876				3,478				6,667				5,876				6,667
Net charge-offs – non-FDIC acquired			3,471				1,210				6,439				8,335				14,481
Net charge-offs – FDIC acquired			(1,328	)			582				(566	)			1,709				3,125
Allowance for loan losses			139,576				131,087				125,572				139,576				125,572
Provision for loan losses			10,080				6,608				9,468				22,842				24,122
Ratios:
Nonperforming assets to loans, ORE and foreclosed assets			1.39	%			1.15	%			1.10	%			1.39	%			1.10	%
Accruing loans 90 days past due to loans			0.04	%			0.02	%			0.05	%			0.04	%			0.05	%
Nonperforming assets + accruing loans 90 days past due to loans, ORE and foreclosed assets			1.43	%			1.17	%			1.15	%			1.43	%			1.15	%
Net charge-offs – non-FDIC acquired to average loans			0.09	%			0.03	%			0.19	%			0.08	%			0.15	%
Allowance for loan losses to period-end loans			0.95	%			0.91	%			0.94	%			0.95	%			0.94	%
Allowance for loan losses to nonperforming loans + accruing loans 90 days past due			78.15	%			100.92	%			128.44	%			78.15	%			128.44	%

(a)

Nonaccrual loans and accruing loans past due 90 days or more do not include acquired-impaired loans with an accretable yield. Included in nonaccrual loans are $4.9 million, $4.9 million, and $9.9 million in restructured loans at September 30, 2015, June 30, 2015, and September 30, 2014, respectively.


Supplemental Asset Quality Information	Originated		Acquired (a)			FDIC acquired (b)			Total
(in thousands)	September 30, 2015
Nonaccrual loans (c)	$	163,930	$	3,015		$	—		$	166,945
Restructured loans – still accruing		5,779		—			—			5,779

Total nonperforming loans		169,709		3,015			—			172,724
ORE and foreclosed assets (d)		21,849		—			11,750			33,599

Total nonperforming assets	$	191,558	$	3,015		$	11,750		$	206,323

Accruing loans 90 days past due		5,747		129			—			5,876
Allowance for loan losses		113,898		173			25,505			139,576


	June 30, 2015
Nonaccrual loans	$	111,455	$	5,401		$	1,589		$	118,445
Restructured loans – still accruing		7,966		—			—			7,966

Total nonperforming loans		119,421		5,401			1,589			126,411
ORE and foreclosed assets		25,768		—			12,862			38,630

Total nonperforming assets	$	145,189		5,401		$	14,451		$	165,041

Accruing loans 90 days past due		3,478		—			—			3,478
Allowance for loan losses		106,811		214			24,062			131,087


Loans Outstanding	Originated		Acquired (a)			FDIC acquired (b)			Total
(in thousands)	September 30, 2015
Commercial non-real estate loans	$	6,232,310	$	107,985		$	5,699		$	6,345,994
Construction and land development loans		1,068,895		8,297			8,393			1,085,585
Commercial real estate loans		2,956,354		352,896			18,136			3,327,386
Residential mortgage loans		1,843,756		819			169,214			2,013,789
Consumer loans		1,976,872		22			13,402			1,990,296

Total loans	$	14,078,187	$	470,019		$	214,844		$	14,763,050

Change in loan balance from previous quarter		687,696		(259,605	)		(9,793	)		418,298


	June 30, 2015
Commercial non-real estate loans	$	6,058,998	$	120,020		$	6,666		$	6,185,684
Construction and land development loans		1,100,788		9,064			11,095			1,120,947
Commercial real estate loans		2,591,384		598,962			22,487			3,212,833
Residential mortgage loans		1,784,730		1,554			169,553			1,955,837
Consumer loans		1,854,591		24			14,836			1,869,451

Total loans	$	13,390,491	$	729,624		$	224,637		$	14,344,752

Change in loan balance from previous quarter		469,961		(35,700	)		(13,895	)		420,366

(a)	Loans which have been acquired and no allowance brought forward in accordance with acquisition accounting. Acquired-performing loans in pools with fully accreted purchase fair value discounts are reported as originated loans, resulting in changes in classification between periods.

(b)

Loans acquired in an FDIC-assisted transaction. Non-single family loss share agreement expired on December 31, 2014. As of September 30, 2015, $177.5 million in loans and $2.3 million in ORE remain covered by the FDIC single family loss share agreement, providing considerable protection against credit risk. As of June 30, 2015, $179.0 million in loans and $3.5 million in ORE remained covered by the FDIC single family loss share agreement.

(c)	Included in nonaccrual loans are $4.9 million of nonaccruing restructured loans at both September 30, 2015 and June 30, 2015.

(d)	ORE received in settlement of acquired loans is no longer subject to purchase accounting guidance and has been included with ORE from originated loans. ORE received in settlement of FDIC acquired loans remains covered under the FDIC single-family loss share agreement.


	Three Months Ended
	September 30, 2015			June 30, 2015			March 31, 2015			December 31, 2014			September 30, 2014
(in thousands)	September 30, 2015			June 30, 2015			March 31, 2015			December 31, 2014			September 30, 2014
Period-End Balance Sheet
Total loans, net of unearned income (a)	$	14,763,050		$	14,344,752		$	13,924,386		$	13,895,276		$	13,348,574
Loans held for sale		19,764			21,304			19,950			20,252			15,098
Securities		4,548,922			4,445,452			4,107,904			3,826,454			3,913,370
Short-term investments		194,414			598,455			515,797			802,948			471,558

Earning assets		19,526,150			19,409,963			18,568,037			18,544,930			17,748,600
Allowance for loan losses		(139,576	)		(131,087	)		(128,386	)		(128,762	)		(125,572	)
Goodwill		621,193			621,193			621,193			621,193			621,193
Other intangible assets, net		113,229			119,256			125,404			132,810			139,256
Other assets		1,487,154			1,519,080			1,538,263			1,577,095			1,602,473

Total assets	$	21,608,150		$	21,538,405		$	20,724,511		$	20,747,266		$	19,985,950


Noninterest-bearing deposits	$	6,075,558		$	6,180,814		$	6,201,403		$	5,945,208		$	5,866,255

Interest-bearing transaction and savings deposits		7,360,677			6,994,603			6,576,658			6,531,628			6,325,671
Interest-bearing public funds deposits		1,768,133			1,962,589			1,828,559			1,982,616			1,534,678
Time deposits		2,235,580			2,163,782			2,253,865			2,113,379			2,010,090

Total interest-bearing deposits		11,364,390			11,120,974			10,659,082			10,627,623			9,870,439

Total deposits		17,439,948			17,301,788			16,860,485			16,572,831			15,736,694
Short-term borrowings		1,049,182			1,079,193			755,250			1,151,573			1,171,809
Long-term debt		497,177			507,341			516,007			374,371			376,452
Other liabilities		168,282			220,043			167,671			176,089			191,653
Stockholders’ equity		2,453,561			2,430,040			2,425,098			2,472,402			2,509,342

Total liabilities & stockholders’ equity	$	21,608,150		$	21,538,405		$	20,724,511		$	20,747,266		$	19,985,950


	Three Months Ended									Nine Months Ended
(in thousands)	September 30, 2015			June 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
Average Balance Sheet
Total loans, net of unearned income (a)	$	14,511,474		$	14,138,904		$	13,102,108		$	14,175,611		$	12,723,409
Loans held for sale		17,233			22,883			16,885			18,567			16,916
Securities (b)		4,425,546			4,143,097			3,780,089			4,116,270			3,810,186
Short-term investments		479,084			475,887			425,362			536,961			403,809

Earning assets		19,433,337			18,780,771			17,324,444			18,847,409			16,954,320
Allowance for loan losses		(132,634	)		(130,124	)		(129,734	)		(131,001	)		(130,412	)
Goodwill and other intangible assets		737,361			743,435			763,652			743,785			771,728
Other assets		1,443,346			1,481,008			1,591,585			1,477,061			1,620,949

Total assets	$	21,481,410		$	20,875,090		$	19,549,947		$	20,937,254		$	19,216,585


Noninterest-bearing deposits	$	6,032,680		$	6,107,900		$	5,707,523		$	6,022,034		$	5,571,843

Interest-bearing transaction and savings deposits		7,270,061			6,656,911			6,160,911			6,814,057			6,104,039
Interest-bearing public fund deposits		1,838,952			1,890,364			1,547,513			1,848,340			1,508,222
Time deposits		2,171,740			2,206,913			1,955,262			2,205,574			2,049,914

Total interest-bearing deposits		11,280,753			10,754,188			9,663,686			10,867,971			9,662,175

Total deposits		17,313,433			16,862,088			15,371,209			16,890,005			15,234,018
Short-term borrowings		1,050,801			896,014			1,139,694			956,228			962,014
Long-term debt		504,544			515,997			375,914			478,162			380,660
Other liabilities		173,564			170,281			173,182			173,675			176,591
Stockholders’ equity		2,439,068			2,430,710			2,489,948			2,439,184			2,463,302

Total liabilities & stockholders’ equity	$	21,481,410		$	20,875,090		$	19,549,947		$	20,937,254		$	19,216,585

(a)	Includes nonaccrual loans.

(b)	Average securities does not include unrealiabed holding gains/losses on available for sale securities.

LIQUIDITY

Liquidity management is focused on ensuring that funds are available to meet the cash flow requirements of our depositors and borrowers, while also meeting the operating, capital and strategic cash flow needs of the Company, the Bank and other subsidiaries. Hancock develops its liquidity management strategies and measures and regularly monitors liquidity risk as part of its overall asset/liability management process.

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, as well as maturities and repayments of investment securities. Short-term investments such as federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with the Federal Reserve Bank or with other commercial banks are additional sources of liquidity to meet cash flow requirements. Free securities represent unpledged securities that can be sold or used as collateral for borrowings, and include unpledged securities assigned to short-term dealer repurchase agreements or to the Federal Reserve Bank discount window. Management has established a 15% minimum target for the ratio of free securities to total securities although management will allow the ratio to be less than 15% on a temporary basis if it believes there are sufficient securities available to meet the Company’s projected funding needs. As shown in the table below, our ratio of free securities to total securities was 33.68% at September 30, 2015, compared to 27.37% at June 30, 2015 and 14.04% at December 31, 2014. The increase compared to year-end was due in part to the reduction in securities required to collateralize public funds deposits and repurchase agreements as well as the overall increase in the investment securities portfolio.

Liquidity Metrics


	September 30, 2015			June 30, 2015			March 31, 2015			December 31, 2014			September 30, 2014
Free securities / total securities		33.68	%		27.37	%		27.06	%		14.04	%		23.00	%
Core deposits / total deposits		93.50			93.56			93.08			93.95			94.57
Wholesale funds / core deposits		9.48			9.80			8.10			9.80			10.40
Quarter-to-date average loans / quarter-to-date average deposits		83.82			83.85			84.13			85.44			85.24

The liability portion of the balance sheet provides liquidity mainly through the Company’s ability to use cash sourced from various customers’ interest-bearing and noninterest-bearing deposit and sweep accounts. Core deposits consist of total deposits less certificates of deposits (“CDs”) of $250,000 or more, brokered CDs, and balances in sweep time deposit products used by commercial customers. The ratio of core deposits to total deposits was a healthy 93.50% at September 30, 2015, relatively flat compared to June 30, 2015 and down 45 bps from December 31, 2014. Brokered CDs totaled $381 million as of September 30, 2015, a $164 million increase from June 30, 2015. There were no brokered CDs outstanding at December 31, 2014 or September 30, 2014. The Company’s use of brokered deposits as a funding source is subject to very strict parameters regarding the term and interest rate.

Purchases of federal funds, securities sold under agreements to repurchase and other short-term borrowings provide additional sources of liquidity to meet short-term funding requirements. Besides funding from customer sources, our short-term borrowing capacity includes an approved line of credit with the FHLB of $3.5 billion and borrowing capacity at the Federal Reserve’s discount window of $1.8 billion at September 30, 2015. Wholesale funds, which are comprised of short-term borrowings and long-term debt, were 9.48% of core deposits at September 30, 2015, compared to 9.80% at June 30, 2015 and December 31, 2014. The decrease from June 30, 2015 primarily reflects the $119 million growth in core deposits. The Company had borrowings from the FHLB totaling $600 million at September 30, 2015 and June 30, 2015. FHLB borrowings totaled $515 million at year end 2014. No amounts had been borrowed at the Federal Reserve’s discount window in any period. See the discussion on “Balance Sheet Analysis – Deposits” for more information.

Another key measure the Company uses to monitor its liquidity position is the loan to deposit ratio (average loans outstanding for the reporting period divided by average deposits outstanding). The loan to deposit ratio measures the amount of funds the Company lends out for each dollar of deposits on hand. The Company’s loan to deposit ratio for the third quarter of 2015 was 83.82%, a slight decrease from the second quarter of 2015, and down 162 bps from December 31, 2014. The Company has established an internal loan to deposit ratio target of 85.00%.

Cash generated from operations is another important source of funds to meet liquidity needs. The consolidated statements of cash flows present operating cash flows and summarize all significant sources and uses of funds for the nine months ended September 30, 2015 and 2014.

Dividends received from the Bank have been the primary source of funds available to the Company for the payment of dividends to our stockholders, stock buybacks, and for servicing debt issued by the parent company. The liquidity management process takes into account the various regulatory provisions that can limit the amount of dividends the Bank can distribute to the Company. The Company maintains cash and other liquid assets at the parent company to provide liquidity sufficient to fund six quarters of anticipated common stockholder dividends.

CAPITAL RESOURCES

Stockholders’ equity totaled $2.5 billion at September 30, 2015, up $24 million from June 30, 2015. Total stockholders’ equity has decreased $19 million since December 31, 2014, due to the common stock buyback program discussed below. The tangible common equity ratio of 8.24% at September 30, 2015 was up 12 bps from June 30, 2015. This ratio was 8.59% at December 31, 2014 with the decline primarily due to $861 million in asset growth.

The Board of Directors authorized a common stock buyback program in July 2014 for up to 5%, or approximately 4.1 million shares, of the Company’s common stock issued and outstanding. Under the program, the shares could be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the Securities and Exchange Commission. During the first quarter of 2015, the Company completed this buyback authorization by repurchasing 2,563,607 shares of its common stock at an average price of $29.36 per share. Under this plan, the Company repurchased a total of 4,093,149 shares of its common stock at an average price of $30.02 per share.

On March 9, 2015, the Company issued $150 million aggregate principal amount of subordinated debt at an annual interest rate of 5.95% maturing on June 15, 2045. Subject to prior approval by the Federal Reserve, the Company may redeem the notes in whole or in part on any interest payment date on or after June 15, 2020. The debt qualifies as Tier 2 Capital under regulatory guidelines. A portion of the proceeds from the subordinated debt issuance was used to repurchase the Company’s common stock as noted above with the remainder available for general corporate purposes.

On July 2, 2013 the Federal Reserve Board finalized its rule implementing the Basel III regulatory capital framework and related Dodd-Frank Act changes. The final rule became effective January 1, 2015 with transition periods for certain changes. The final rule strengthens the definition of regulatory capital, increases risk-based capital requirements, and makes selected changes to the calculation of risk-weighted assets. The rule sets the Basel III minimum regulatory capital requirements for all organizations. Under the final rule, the primary quantitative measures that regulators use to gauge capital adequacy are the ratios of Total, Tier 1 and Common Equity Tier 1 regulatory capital to risk-weighted assets (risk-based capital ratios) and the ratio of Tier 1 capital to average

total assets (“leverage ratio”). Both the Company and its bank subsidiary are currently required to maintain minimum risk-based capital ratios of 8.0% total regulatory capital, 6.0% Tier 1 capital and 4.5% Common Equity Tier 1 capital. Additionally the final rule establishes a new conservation buffer of 2.5% of risk-weighted assets when fully phased in on January 1, 2019.

At September 30, 2015, the regulatory capital ratios of the Company and the Bank were well in excess of current regulatory minimum requirements, as indicated in the table below. The Company and the Bank have been categorized as “well-capitalized” in the most recent notices received from our regulators and both currently exceed all capital requirements of the new rule, including the fully phased-in conservation buffer.

The following table shows the regulatory capital ratios for the Company and the Bank as calculated under current rules for the indicated periods.


	September 30, 2015			June 30, 2015			March 31, 2015			December 31, 2014			September 30, 2014
Total capital (to risk weighted assets)
Hancock Holding Company		12.32	%		12.53	%		12.77	%		12.30	%		12.66	%
Whitney Bank		12.04	%		12.04	%		12.17	%		12.20	%		12.40	%

Tier 1 common equity capital (to risk weighted assets)
Hancock Holding Company		10.56	%		10.77	%		10.86	%		11.23	%		11.59	%
Whitney Bank		11.13	%		11.16	%		11.16	%		11.13	%		11.32	%

Tier 1 capital (to risk weighted assets)
Hancock Holding Company		10.56	%		10.77	%		10.86	%		11.23	%		11.59	%
Whitney Bank		11.13	%		11.16	%		11.16	%		11.13	%		11.32	%

Tier 1 leverage capital
Hancock Holding Company		8.85	%		9.07	%		9.17	%		9.17	%		9.48	%
Whitney Bank		9.36	%		9.42	%		9.45	%		9.13	%		9.31	%

Regulatory definitions:

(1)	Tier 1 common equity capital generally includes common equity and retained earnings, reduced by goodwill and other disallowed intangibles, disallowed deferred tax assets and certain other assets.

(2)	Tier 1 capital consists of Tier 1 common equity capital plus non-controlling interest in equity of consolidated subsidiaries and a limited amount of qualifying perpetual preferred stock.

(3)	Total capital consists of Tier 1 capital plus perpetual preferred stock not qualifying as Tier 1 capital, mandatory convertible securities, certain types of subordinated debt and a limited amount of allowances for credit losses.

(4)	The risk-weighted asset base is equal to the sum of the aggregate value of assets and credit-converted off-balance sheet items in each risk category as specified in regulatory guidelines, multiplied by the weight assigned by the guidelines to that category.

(5)	The Tier 1 leverage capital ratio is Tier 1 capital divided by average total assets reduced by the deductions for Tier 1 capital noted above.

BALANCE SHEET ANALYSIS

Securities

Investment in securities totaled $4.5 billion at September 30, 2015, up $103 million from June 30, 2015 and $636 million from September 30, 2014. During the third quarter, the Company purchased approximately $585 million of mortgage-backed securities at an average yield of 2.29%. At September 30, 2015, securities available for sale totaled $2.2 billion and securities held to maturity totaled $2.4 billion.

The securities portfolio consists mainly of residential mortgage-backed securities and collateralized mortgage obligations issued or guaranteed by U.S. government agencies. The portfolio is designed to enhance liquidity while providing an acceptable rate of return. The Company invests only in high quality securities of investment grade quality with a targeted duration for the overall portfolio of between two and five. At September 30, 2015, the average maturity of the portfolio was 5.17 years with an effective duration of 3.87 and a weighted-average yield of 2.25%. The effective duration increases, under management scenarios, to 4.34 with a 100 basis point increase in the yield curve and to 4.50 with a 200 basis point increase. At year-end 2014, the average maturity of the portfolio was 4.38 years with an effective duration of 3.51 and a weighted-average yield of 2.36%. The 11 bps decrease in the weighted average security portfolio yield between December 31, 2014 and September 30, 2015 is primarily the result of portfolio growth at current interest rates which were below the average portfolio yield.

Loans

Total loans at September 30, 2015 were $14.8 billion, up $418 million, or 3%, compared to June 30, 2015, and up $868 million, or 6%, compared to December 31, 2014. Many markets across the footprint reported net loan growth during the quarter, with growth also noted in various business lines, such as indirect, mortgage and specialty finance. See Note 3 to the consolidated financial statements for the composition of originated, acquired and FDIC acquired loans at September 30, 2015 and December 31, 2014.

The Company’s commercial customer base is diversified over a range of industries, including energy, wholesale and retail trade in various durable and nondurable products and the manufacture of such products, marine transportation and maritime construction, financial and professional services, and agricultural production.

At September 30, 2015, loans in the energy segment, which is comprised of credits to both the exploration and production segment and the support services segment, totaled $1.6 billion, or 11% of total loans. The energy portfolio declined approximately $10 million linked-quarter. In light of expected headwinds related to the current energy cycle, no growth or a slight decline is expected for the remainder of 2015. See Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for a further discussion regarding the Company’s energy portfolio.

The Bank lends mainly to middle-market and smaller commercial entities, although it participates in larger shared-credit loan facilities with familiar businesses operating in the Company’s market areas. Shared national credits funded at September 30, 2015 totaling approximately $1.9 billion, or 11% of total loans, were down approximately $53 million from June 30, 2015 and up $83 million from December 31, 2014. Approximately $943 million of shared national credits were with energy-related customers at September 30, 2015, down $74 million from June 30, 2015 and down $56 million from year-end.

On October 6, 2015, the Company announced the opening of a loan production office in Nashville, Tennessee, and an agreement to purchase approximately $190 million of healthcare loans. This transaction supports our initiative to continue diversifying our loan portfolio, in addition to capitalizing on opportunities we see to expand our $830 million healthcare lending business across our Gulf South footprint. The purchased loans are expected to be included in the fourth quarter results.

Commercial non-real estate loans, construction and land development loans, and commercial real estate loans increased $464 million over the first nine months of 2015. Commercial real estate loans include loans on both income-producing properties as well as properties used by borrowers in commercial operations.

Residential mortgages were up $120 million during the first nine months of 2015. Consumer loans increased by $284 million over the first nine months of 2015, as a result of a number of initiatives implemented by management during 2014.

Total FDIC acquired loans at September 30, 2015 were down $10 million from June 30, 2015 and down $38 million from December 31, 2014, reflecting normal repayments, charge-offs and foreclosures.

Allowance for Loan Losses and Asset Quality

The Company’s total allowance for loan losses was $139.6 million at September 30, 2015, compared to $131.1 million at June 30, 2015. The allowance maintained on the non-FDIC acquired portion of the loan portfolio totaled $114.1 million, a $7.0 million linked-quarter increase, and the impaired reserve on the FDIC acquired loan portfolio increased $1.4 million linked-quarter.

Pricing pressures on oil continued during the third quarter and led to additional downward pressure on risk ratings. The Company’s balance of criticized commercial loans increased $181.1 million, or approximately 29%, from June 30, 2015, to $806.9 million at September 30, 2015. Approximately $173.0 million, or 95%, of the increase was from energy related credits. As of September 30, 2015, criticized loans in the energy portfolio were $455 million, or approximately 27% of the energy portfolio. Based on those changes and updates to the qualitative factors related to energy, the reserve for the energy portfolio increased approximately $5.0 million linked-quarter to $35.2 million, or 2.12% of the energy portfolio at September 30, 2015, up from 1.91% at June 30, 2015.

The Company has been lending to the energy sector for over 60 years using disciplined underwriting standards. A significant portion of the Company’s portfolio consists of long-term relationships with customers that have experienced management in place and that have demonstrated the ability to successfully manage through previous economic downturns. The Company’s reserve-based lending practices are generally limited to “proved reserves” and our customers are diversified across a number of basins in the United States and Gulf of Mexico. Borrowing base redeterminations are completed twice a year and all borrowing bases were reviewed and appropriately adjusted in the second quarter of 2015. Borrowing base redeterminations for the fourth quarter of 2015 are currently in process. The Company’s loans to the energy support sector are typically made to customers with low to moderate leverage, strong balance sheets and experienced management.

Management continues to closely monitor the potential impact that the decrease in oil prices over the past twelve months will have on the ability of the Company’s energy loan portfolio customers’ to service their debt. Part of the ongoing monitoring includes a review of customers’ balance sheets, leverage ratios, collateral values and other critical lending metrics. As new information becomes available, the Company could have additional risk rating downgrades. Management believes that if further risk rating downgrades occur, they could lead to additional loan loss provisions, a higher allowance for loan losses, and additional charge-offs. However, management does not believe any resulting losses will be significant enough to put our solid capital levels at risk. See Item 7 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for further discussion of the Company’s energy portfolio and its potential impact on the allowance for loan losses.

The $1.4 million linked-quarter increase in the allowance related to the FDIC acquired loan portfolio is the result of changes in the portfolio’s projected cash flows.

The ratio of the allowance to period-end loans was 0.95% at September 30, 2015, compared to 0.91% at June 30, 2015. The allowance maintained on the originated portion of the loan portfolio totaled $113.9 million, or 0.81% of related loans, at September 30, 2015, compared to $106.8 million, or 0.80%, at June 30, 2015.

During the third quarter of 2015, Hancock recorded a total provision for loan losses of $10.1 million, up $3.5 million from the second quarter of 2015, and up $0.6 million for September 30, 2014.

Net charge-offs for the three months ended September 30, 2015 from the non-FDIC acquired loan portfolio were $3.5 million, or 0.09% of average total loans on an annualized basis, compared to $1.2 million, or 0.03%, for the three-month period ended June 30, 2015.

The following table sets forth activity in the allowance for loan losses for the periods indicated.


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
(in thousands)	2015			2015			2014			2015			2014
Allowance for loan losses at beginning of period	$	131,087		$	128,386		$	128,672		$	128,762		$	133,626

Loans charged-off:
Non-FDIC acquired loans:
Commercial non real estate		853			518			1,032			3,068			4,690
Construction and land development		655			81			1,574			1,483			2,615
Commercial real estate		603			274			882			1,128			2,255
Residential mortgages		159			83			696			1,451			1,793
Consumer		3,702			3,173			4,298			10,431			11,920

Total non-FDIC acquired charge-offs		5,972			4,129			8,482			17,561			23,273

FDIC acquired loans:
Commercial non real estate		326			972			106			1,425			176
Construction and land development		121			9			(274	)		406			350
Commercial real estate		364			—			458			2,732			4,480
Residential mortgages		580			75			(53	)		748			677
Consumer		—			—			62			140			1,192

Total FDIC acquired charge-offs		1,391			1,056			299			5,451			6,875

Total charge-offs		7,363			5,185			8,781			23,012			30,148

Recoveries of loans previously charged-off:
Non-FDIC acquired loans:
Commercial non real estate		538			1,070			707			2,589			2,118
Construction and land development		698			65			156			2,006			1,220
Commercial real estate		209			429			174			635			1,231
Residential mortgages		129			144			138			578			501
Consumer		927			1,211			868			3,418			3,722

Total non-FDIC acquired recoveries		2,501			2,919			2,043			9,226			8,792

FDIC acquired loans:
Commercial non real estate		1,685			—			16			1,699			467
Construction and land development		490			—			608			896			1,504
Commercial real estate		492			352			37			957			1,408
Residential mortgages		3			2			(18	)		5			1
Consumer		49			120			222			185			370

Total FDIC acquired recoveries		2,719			474			865			3,742			3,750

Total recoveries		5,220			3,393			2,908			12,968			12,542

Net charge-offs – non-FDIC acquired		3,471			1,210			6,439			8,335			14,481
Net charge-offs – FDIC acquired		(1,328	)		582			(566	)		1,709			3,125

Total net charge-offs		2,143			1,792			5,873			10,044			17,606

Provision for loan losses before FDIC benefit – FDIC acquired loans		115			(2,994	)		(7,086	)		(3,370	)		(15,336	)
Benefit attributable to FDIC loss share agreement		(552	)		2,115			6,695			1,984			14,570
Provision for loan losses non-FDIC acquired loans		10,517			7,487			9,859			24,228			24,888

Provision for loan losses, net		10,080			6,608			9,468			22,842			24,122
(Decrease) Increase in FDIC loss share receivable		552			(2,115	)		(6,695	)		(1,984	)		(14,570	)

Allowance for loan losses at end of period	$	139,576		$	131,087		$	125,572		$	139,576		$	125,572

Ratios:
Gross charge-offs – non-FDIC acquired to average loans		0.16	%		0.12	%		0.26	%		0.17	%		0.24	%
Recoveries – non-FDIC acquired to average loans		0.07	%		0.08	%		0.06	%		0.09	%		0.09	%
Net charge-offs – non-FDIC acquired to average loans		0.09	%		0.03	%		0.19	%		0.08	%		0.15	%
Allowance for loan losses to period-end loans		0.95	%		0.91	%		0.94	%		0.95	%		0.94	%

The following table sets forth nonperforming assets by type for the periods indicated, consisting of nonaccrual loans, troubled debt restructurings and foreclosed and surplus ORE and other foreclosed assets. Loans past due 90 days or more and still accruing are also disclosed.


(in thousands)	September 30, 2015			December 31, 2014
Loans accounted for on a nonaccrual basis: (a)
Commercial non-real estate loans	$	92,794		$	14,248
Commercial non-real estate loans – restructured		654			1,263

Total commercial non-real estate loans		93,448			15,511

Construction and land development loans		3,767			5,187
Construction and land development loans – restructured		1,760			2,378

Total construction and land development loans		5,527			7,565

Commercial real estate loans		37,600			26,017
Commercial real estate loans – restructured		1,782			2,602

Total commercial real estate loans		39,382			28,619

Residential mortgage loans		21,027			21,348
Residential mortgage loans – restructured		723			746

Total residential mortgage loans		21,750			22,094

Consumer loans		6,838			5,748

Total nonaccrual loans		166,945			79,537

Restructured loans – still accruing:
Commercial non-real estate loans		—			424
Construction and land development loans		20			4,905
Commercial real estate loans		5,590			3,580
Residential mortgage loans		107			54
Consumer loans		62			8

Total restructured loans – still accruing		5,779			8,971

Total nonperforming loans		172,724			88,508

ORE and foreclosed assets		33,599			59,569

Total nonperforming assets (b)	$	206,323		$	148,077

Loans 90 days past due still accruing		5,876			4,825
Total restructured loans		10,698			15,960
Ratios:
Nonperforming assets to loans plus ORE and foreclosed assets		1.39	%		1.06	%
Allowance for loan losses to nonperforming loans and accruing loans 90 days past due		78.15	%		137.96	%
Loans 90 days past due still accruing to loans		0.04	%		0.03	%

(a)	Nonaccrual loans and accruing loans past due 90 days or more do not include acquired credit-impaired loans which were written down to fair value upon acquisition and accrete interest income over the remaining life of the loan.

(b)	Includes total nonaccrual loans, total restructured loans – still accruing and ORE and foreclosed assets.

Nonperforming assets totaled $206.3 million at September 30, 2015, up $58.2 million from December 31, 2014. During the first nine months of 2015, total nonperforming loans increased approximately $84.2 million while ORE and other foreclosed assets decreased approximately $26.0 million. The net increase in nonperforming loans was mainly due to five large energy-related loans which were downgraded and placed on nonaccrual during the second and third quarters of 2015. At September 30, 2015, energy related nonaccruals totaled $98.3 million, or 59% of total nonaccruals. The potential impact from this increased balance has been considered in the calculation of the allowance for loan losses. Nonperforming assets as a percent of total loans, ORE, and other foreclosed assets was 1.39% at September 30, 2015, compared to 1.06% at December 31, 2014.

Short-Term Investments

Short-term liquidity assets are held to ensure funds are available to meet the cash flow needs of both borrowers and depositors. Short-term liquidity investments, including interest-bearing bank deposits and federal funds sold, decreased to $194 million at September 30, 2015. This total was down $404 million from June 30, 2015, and $277 million from September 30, 2014. These assets are highly volatile on a daily basis dependent upon movement in customer loan and deposit accounts. Average short-term investments of $479 million for the third quarter of 2015 were up slightly compared to the second quarter of 2015, and up $54 million, or 13%, compared to the third quarter of 2014. See the Liquidity section above for further discussion regarding the management of its short-term investment portfolio and its impact on the Company’s liquidity in general.

Deposits

Total deposits were $17.4 billion at September 30, 2015, up $138 million, or 1%, from June 30, 2015, and $1.7 billion, or 11%, from September 30, 2014. Average deposits for the third quarter of 2015 were $17.3 billion, up $451 million, or 3% from the second quarter of 2015. The deposit growth is due, in part, to a number of strategic initiatives implemented during 2014 that are aimed at growing deposits.

Noninterest-bearing demand deposits were $6.1 billion at September 30, 2015, down $105 million, or 2%, compared to the second quarter and were up $209 million, or 4%, from September 30, 2014. Noninterest-bearing demand deposits comprised 34.8% of total period-end deposits at September 30, 2015, down from 35.7% at June 30, 2015 and 35.9% at year-end 2014. This ratio stood at 37.3% at September 30, 2014 as interest-bearing deposits grew at a faster rate than noninterest-bearing deposits.

Interest-bearing public fund deposits totaled $1.8 billion at September 30, 2015, down $194 million, or 10% from June 30, 2015. This category totaled $1.5 billion at September 30, 2014. These deposits are seasonal in nature with normal quarterly fluctuations.

Time deposits, other than public funds, totaled $2.2 billion at September 30, 2015, increasing $72 million, or 3% from the prior quarter end and $225 million, or 11% compared to a year earlier. Brokered CDs increased $164 million from June 30, 2015 and $381 million from September 30, 2014. Other CDs increased $29 million during the third quarter, and $3 million from September 30, 2014. Balances in sweep deposit products decreased $121 million and $159 million during these periods. As discussed in the Liquidity section, the Company uses brokered deposits, subject to strict parameters regarding term and rates, as a short-term funding source.

Short-Term Borrowings

At September 30, 2015, short-term borrowings totaled $1.0 billion, down $102 million, or 9%, from December 31, 2014. Securities sold under agreements to repurchase decreased $186 million, or 30%, while FHLB borrowings increased $85 million, or 17%. Securities sold under agreements to repurchase (“Reverse Repos”) and FHLB borrowings are the major sources of short-term borrowings. Reverse Repos are offered mainly to commercial customers to assist them with their cash management strategies or to provide a temporary investment vehicle for their excess liquidity pending redeployment for corporate or investment purposes. While customer repurchase agreements provide a recurring source of funds to the Bank, the amounts available over time can be volatile. FHLB borrowings are funds from the Federal Home Loan Bank that are collateralized by loans in the bank’s loan portfolio.

OFF-BALANCE SHEET ARRANGEMENTS

Loan Commitments and Letters of Credit

In the normal course of business, the Bank enters into financial instruments, such as commitments to extend credit and letters of credit, to meet the financing needs of their customers. Such instruments are not reflected in the accompanying consolidated financial statements until they are funded, although they expose the Bank to varying degrees of credit risk and interest rate risk in much the same way as funded loans. Under regulatory capital guidelines, the Company must include unfunded commitments meeting certain criteria in its risk-weighted capital calculation.

Commitments to extend credit include revolving commercial credit lines, nonrevolving loan commitments issued mainly to finance the acquisition and development or construction of real property or equipment, and credit card and personal credit lines. The availability of funds under commercial credit lines and loan commitments generally depends on whether the borrower continues to meet credit standards established in the underlying contract and has not violated other contractual conditions. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the borrower. Credit card and personal credit lines are generally subject to cancellation if the borrower’s credit quality deteriorates. A number of commercial and personal credit lines are used only partially or, in some cases, not at all before they expire, and the total commitment amounts do not necessarily represent future cash requirements of the Company.

A substantial majority of the letters of credit are standby agreements that obligate the Bank to fulfill a customer’s financial commitments to a third party if the customer is unable to perform. The Bank issues standby letters of credit primarily to provide credit enhancement to its customers’ other commercial or public financing arrangements and to help them demonstrate financial capacity to vendors of essential goods and services.

The contract amounts of these instruments reflect the Company’s exposure to credit risk. The Company undertakes the same credit evaluation in making loan commitments and assuming conditional obligations as it does for on-balance sheet instruments and may require collateral or other credit support.

The following table shows the commitments to extend credit and letters of credit at September 30, 2015 according to expiration date.


			Expiration Date
(in thousands)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Commitments to extend credit	$	5,956,203	$	2,966,900	$	1,178,858	$	1,144,614	$	665,831
Letters of credit		386,879		222,753		108,802		55,324		—

Total	$	6,343,082	$	3,189,653	$	1,287,660	$	1,199,938	$	665,831

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There were no material changes or developments with respect to methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and with those generally practiced within the banking industry which require management to make estimates and assumptions about future events. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, and the resulting estimates form the basis for making judgments about the carrying values of certain assets and liabilities not readily apparent from other sources. Actual results could differ significantly from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 14 to our Consolidated Financial Statements included elsewhere in this report.

FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and we intend such forward-looking statements to be covered by the safe harbor provisions therein and are including this statement for purposes of invoking these safe-harbor provisions. Forward-looking statements provide projections of results of operations or of financial condition or state other forward-looking information, such as expectations about future conditions and descriptions of plans and strategies for the future.

Forward-looking statements that we may make include, but may not be limited to, comments with respect to future levels of economic activity in our markets, including the impact of volatile or continuing depressed oil and gas prices on our energy portfolio and associated loan loss reserves and the downstream impact on businesses that support the energy sector, especially in the Gulf Coast region, loan growth expectations, deposit trends, credit quality trends, net interest margin trends, future expense levels, success of revenue-generating initiatives, projected tax rates, future profitability, improvements in expense to revenue (efficiency) ratio, purchase accounting impacts such as accretion levels, possible repurchases of shares under stock buyback programs, and the financial impact of regulatory requirements. Hancock’s ability to accurately project results, predict the effects of future plans or strategies, or predict market or economic developments is inherently limited. Although Hancock believes that the expectations reflected in its forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could cause actual results to differ from those expressed in Hancock’s forward-looking statements include, but are not limited to, those risk factors included in Hancock’s public filings with the Securities and Exchange Commission, which are available at the SEC’s internet site (http://www.sec.gov). You are cautioned not to place undue reliance on these forward-looking statements. Hancock does not intend, and undertakes no obligation, to update or revise any forward-looking statements, whether as a result of differences in actual results, changes in assumptions or changes in other factors affecting such statements, except as required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our net income is materially dependent on our net interest income. Hancock’s primary market risk is interest rate risk that stems from uncertainty with respect to absolute and relative levels of future market interest rates that affect our financial products and services. In an attempt to manage our exposure to interest rate risk, management measures the sensitivity of our net interest income and cash flows under various market interest rate scenarios, establishes interest rate risk management policies and implements asset/liability management strategies designed to produce a relatively stable net interest margin under varying rate environments.

Hancock measures its interest rate sensitivity primarily by running net interest income simulations. Hancock’s balance sheet is asset sensitive over a 2 year period to rising interest rates under various shock scenarios. The model measures annual net interest income sensitivity relative to a base case scenario and incorporates assumptions regarding balance sheet growth and the mix of earning assets and funding sources as well as pricing, re-pricing and maturity characteristics of the existing and projected balance sheet.

The table below presents the results of simulations run as of September 30, 2015 for year 1 and year 2, assuming the indicated instantaneous and sustained parallel shift in the yield curve at the measurement date. These results indicate that we are slightly asset sensitive compared to the stable rate environment assumed for the base case.


Net Interest Income (te) at Risk
Change in interest rate (basis points)	Estimated increase (decrease) in net interest income
Change in interest rate (basis points)	Year 1			Year 2
+100		1.01	%		1.23	%
+200		2.92	%		3.28	%
+300		4.16	%		4.38	%

Note: Decrease in interest rates discontinued in the current rate environment

The foregoing disclosures related to our market risk should be read in conjunction with our audited consolidated financial statements, related notes and management’s discussion and analysis for the year ended December 31, 2014 included in our Annual Report on Form 10-K for the year ended December 31, 2014.

Item 4. Controls and Procedures

At the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to timely alert them to material information relating to us (including our consolidated subsidiaries) required to be included in our Exchange Act filings.

Our management, including the Chief Executive Officer and Chief Financial Officer, identified no change in our internal control over financial reporting that occurred during the three-month period ended September 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company, including subsidiaries, is party to various legal proceedings arising in the ordinary course of business. We do not believe that loss contingencies, if any, arising from pending litigation and regulatory matters will have a material adverse effect on our consolidated financial position or liquidity.

Item 1A. Risk Factors

The risks described below, as well as those risks described in Part 1, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2014 should be carefully considered.

The risks described may not be the only risks facing us. Additional risks and uncertainties not currently known to us or that are currently considered to not be material also may materially adversely affect our business, financial condition, and/or operating results.

A prolonged contraction of economic activity in the energy sector may adversely affect our earnings, result in the further deterioration in the quality of our energy or energy-related credits, and reduce demand for our loans and other products.

The oil and gas industry and related industries are a significant part of the economy in several or our core geographic markets. A prolonged period of low oil and gas prices could (i) result in the further deterioration of our portfolio of energy credits, (ii) require us to write down or write off distressed energy credits, (iii) require us to make additional provisions for loan losses in order to replenish our loan loss reserves, thus adversely affecting our earnings, and (iv) decrease demand for loans and other banking products from the energy sector.

Further, a prolonged or deeper downturn could also have a significant negative impact on the economies of our core geographic markets, many of which are at least partially dependent on the energy and energy service industry. Many of the possible effects discussed above could likewise be experienced in other sectors of our loan portfolio if conditions persist or worsen.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table provides information with respect to purchases made by the issuer or any affiliated purchaser of the issuer’s equity securities for the three months ended September, 2015. All equity securities purchased during the quarter were shares of the Company’s common stock.


	Total number of shares or units purchased		Average price paid per share		Total number of shares purchased as a part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under plans or programs
Jul. 1, 2015 – Jul. 31, 2015		—	$	—		—		—
Aug 1, 2015 – Aug 31, 2015		—		—		—		—
Sep. 1, 2015 – Sep. 30, 2015		568,279		27.39		568,279		3,335,866

Total		568,279	$	27.39		568,279

On August 28, 2015 the Company approved a stock purchase program authorizing the repurchase of up to 5% of its outstanding stock, or approximately 3.9 million shares, until September 2016.

Item 6. Exhibits.

(a) Exhibits:


Exhibit Number		Description

3.1		Composite Articles of the Company (filed as Exhibit 2.1 to the Company’s Form 10-K for the year ended December 31, 2014 (file No. 01-36872) filed with the Commission on February 27, 2015.

3.2		Amended and Restated Bylaws, dated November 8, 1990 (filed as Exhibit 3.2 to Hancock’s registration statement on Form S-8 filed with the Commission on September 19, 1996 and incorporated herein by reference.

*10.6		Retirement and Restrictive Covenant Agreement, between the Company and Clifton J. Saik, dated June 29, 2015 and effective June 30, 2015 (filed as Exhibit 10.6 to Hancock’s Form 10-Q filed with the Commission on August 7, 2015 and incorporated herein by reference).

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		XBRL Interactive Data.

*	Compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Hancock Holding Company

By:		/s/ John M. Hairston
		John M. Hairston
		President & Chief Executive Officer
		(Principal Executive Officer)

		/s/ Michael M. Achary
		Michael M. Achary
		Chief Financial Officer
		(Principal Financial Officer)

Date:		November 6, 2015

Index to Exhibits


Exhibit Number		Description

3.1		Composite Articles of the Company (filed as Exhibit 2.1 to the Company’s Form 10-K for the year ended December 31, 2014 (file No. 01-36872) filed with the Commission on February 27, 2015.

3.2		Amended and Restated Bylaws, dated November 8, 1990 (filed as Exhibit 3.2 to Hancock’s registration statement on Form S-8 filed with the Commission on September 19, 1996 and incorporated herein by reference.

*10.6		Retirement and Restrictive Covenant Agreement, between the Company and Clifton J. Saik, dated June 29, 2015 and effective June 30, 2015 (filed as Exhibit 10.6 to Hancock’s Form 10-Q filed with the Commission on August 7, 2015 and incorporated herein by reference).

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		XBRL Interactive Data.

*	Compensatory plan or arrangement