HANCOCK WHITNEY CORP - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended September 30, 2019

☐	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 WHITNEY CORPORATION

(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 No.)

Hancock Whitney 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 ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $3.33 per share	HWC	Nasdaq

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

87,214,220 common shares were outstanding as of October 31, 2019.

Table of Contents

Hancock Whitney Corporation

Index

Part I. Financial Information		Page Number
ITEM 1.	Financial Statements	4
	Consolidated Balance Sheets (unaudited) – September 30, 2019 and December 31, 2018	4
	Consolidated Statements of Income (unaudited) – Three and Nine Months Ended September 30, 2019 and 2018	5
	Consolidated Statements of Comprehensive Income (unaudited) – Three and Nine Months Ended September 30, 2019 and 2018	6
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) – Three and Nine Months Ended September 30, 2019 and 2018	7
	Consolidated Statements of Cash Flows (unaudited) – Nine Months Ended September 30, 2019 and 2018	8
	Notes to Consolidated Financial Statements (unaudited) – September 30, 2019 and 2018	9
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	39
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	62
ITEM 4.	Controls and Procedures	63
Part II. Other Information
ITEM 1.	Legal Proceedings	64
ITEM 1A.	Risk Factors	64
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
ITEM 3.	Default on Senior Securities	N/A
ITEM 4.	Mine Safety Disclosures	N/A
ITEM 5.	Other Information	N/A
ITEM 6.	Exhibits	64
Signatures		65

Table of Contents

Hancock Whitney Corporation

Glossary of Defined Terms

Entities:

Hancock Whitney Corporation – a financial holding company registered with the Securities and Exchange Commission

Hancock Whitney Bank – a wholly-owned subsidiary of Hancock Whitney Corporation through which Hancock Whitney Corporation conducts its banking operations

Company – Hancock Whitney Corporation and its wholly-owned subsidiaries

Parent – Hancock Whitney Corporation, exclusive of its subsidiaries

Bank – Hancock Whitney Bank

Other Terms:

AFS – available for sale securities

AOCI – accumulated other comprehensive income or loss

ALLL – allowance for loan and lease losses

ASC – Accounting Standards Codification

ASU – Accounting Standards Update

ATM - automated teller machine

Basel III - Basel Committee's 2010 Regulatory Capital Framework (Third Accord)

Beta – amount by which deposit or loan costs change in response to movement in short-term interest rates

Beige Book - Federal Reserve’s Summary of Commentary on Current Economic Conditions

BOLI – bank-owned life insurance

bp(s) – Basis point(s)

C&I – commercial and industrial loans

Capital One – Capital One, National Association, from which the Company acquired a trust and asset management business in July 2018.

CECL – Current Expected Credit Losses, the Accounting Standards Update effective for the Company on January 1, 2020

CD – certificate of deposit

CDE – Community Development Entity

CMO – collateralized mortgage obligation

FASB – Financial Accounting Standards Board

FDIC – Federal Deposit Insurance Corporation

Federal Reserve Bank – The 12 banks that are the operating arms of the U.S. central bank. They implement the policies of the Federal Reserve Board and also conduct economic research.

FHLB – Federal Home Loan Bank

GAAP – Generally Accepted Accounting Principles in the United States of America

HFC – Harrison Finance Company, a former consumer finance subsidiary

HTM – held to maturity securities

LIBOR – London Interbank Offered Rate

LIHTC – Low Income Housing Tax Credit

MD&A – management’s discussion and analysis of financial condition and results of operations

MidSouth – MidSouth Bancorp, Inc., an entity the Company acquired on September 21, 2019

NAICS – North American Industry Classification System

NII – net interest income

n/m – not meaningful

OCI – other comprehensive income

OFI – Louisiana Office of Financial Institutions

ORE – other real estate defined as foreclosed and surplus real estate

PCI – purchased credit impaired loans

Repos – securities sold under agreements to repurchase

SEC – U.S. Securities and Exchange Commission

Securities Act – Securities Act of 1933, as amended

Tax Act – Tax Cuts and Jobs Act of 2017

te – taxable equivalent adjustment, or the term used to indicate that a financial measure is presented on a fully taxable equivalent basis

TDR – troubled debt restructuring (as defined in ASC 310-40)

TSR – total shareholder return

U.S. Treasury – The United States Department of the Treasury

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

Hancock Whitney Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	September 30,			December 31,
(in thousands, except per share data)	2019			2018
ASSETS
Cash and due from banks	$	468,063		$	383,372
Interest-bearing bank deposits		47,604			110,579
Federal funds sold		1,909			515
Securities available for sale, at fair value (amortized cost of $3,480,949 and $2,755,806)		3,549,657			2,691,037
Securities held to maturity (fair value of $2,920,356 and $2,935,856)		2,855,062			2,979,547
Loans held for sale		75,789			28,150
Loans		21,035,952			20,026,411
Less: allowance for loan losses		(195,572	)		(194,514	)
Loans, net		20,840,380			19,831,897
Property and equipment, net of accumulated depreciation of $245,013 and $225,969		382,934			353,668
Right of use assets, net of accumulated amortization of $9,328		113,598			—
Prepaid expenses		41,768			35,047
Other real estate and foreclosed assets, net		30,955			26,270
Accrued interest receivable		93,038			86,681
Goodwill		861,291			790,972
Other intangible assets, net		116,078			96,151
Life insurance contracts		609,567			549,300
Deferred tax asset, net		—			22,967
Funded pension assets, net		171,080			65,125
Other assets		284,776			184,629
Total assets	$	30,543,549		$	28,235,907
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest-bearing	$	8,686,383		$	8,499,027
Interest-bearing		15,514,916			14,651,158
Total deposits		24,201,299			23,150,185
Short-term borrowings		2,108,815			1,589,128
Long-term debt		246,641			224,993
Accrued interest payable		17,956			12,267
Lease liabilities		131,077			—
Deferred tax liability, net		25,510			—
Other liabilities		225,871			177,994
Total liabilities		26,957,169			25,154,567
Stockholders' equity:
Common stock		309,513			292,716
Capital surplus		1,919,840			1,725,741
Retained earnings		1,408,183			1,243,592
Accumulated other comprehensive loss, net		(51,156	)		(180,709	)
Total stockholders' equity		3,586,380			3,081,340
Total liabilities and stockholders' equity	$	30,543,549		$	28,235,907
Preferred shares authorized (par value of $20.00 per share)		50,000			50,000
Preferred shares issued and outstanding		—			—
Common shares authorized (par value of $3.33 per share)		350,000			350,000
Common shares issued		92,947			87,903
Common shares outstanding		90,822			85,643

See notes to unaudited consolidated financial statements.

Table of Contents

Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except per share data)	2019		2018		2019		2018
Interest income:
Loans, including fees	$	243,875	$	224,332	$	725,390	$	645,340
Loans held for sale		592		268		1,189		784
Securities-taxable		32,724		32,482		94,107		92,566
Securities-tax exempt		5,058		5,461		15,715		16,488
Short-term investments		915		669		3,424		1,733
Total interest income		283,164		263,212		839,825		756,911
Interest expense:
Deposits		49,220		34,190		145,201		91,019
Short-term borrowings		7,729		11,780		23,658		24,547
Long-term debt		3,276		3,048		8,905		9,940
Total interest expense		60,225		49,018		177,764		125,506
Net interest income		222,939		214,194		662,061		631,405
Provision for loan losses		12,421		6,872		38,552		28,016
Net interest income after provision for loan losses		210,518		207,322		623,509		603,389
Noninterest income:
Service charges on deposit accounts		21,892		21,377		62,982		63,806
Trust fees		15,098		16,738		46,126		39,726
Bank card and ATM fees		17,154		14,862		49,063		44,784
Investment and annuity fees and insurance commissions		7,048		6,652		20,167		19,041
Secondary mortgage market operations		5,713		4,333		13,872		11,699
Other income		16,325		11,556		40,773		31,546
Total noninterest income		83,230		75,518		232,983		210,602
Noninterest expense:
Compensation expense		93,858		84,389		265,573		244,374
Employee benefits		18,622		18,084		57,240		55,316
Personnel expense		112,480		102,473		322,813		299,690
Net occupancy expense		13,156		11,895		38,101		35,221
Equipment expense		4,685		4,520		13,706		12,328
Data processing expense		21,532		20,492		60,951		55,214
Professional services expense		17,704		9,555		35,537		32,191
Amortization of intangible assets		4,889		5,638		15,074		16,578
Deposit insurance and regulatory fees		3,995		8,345		14,156		24,669
Other real estate and foreclosed assets (income) expense		2,055		16		1,459		(63	)
Other expense		33,058		18,253		71,024		60,552
Total noninterest expense		213,554		181,187		572,821		536,380
Income before income taxes		80,194		101,653		283,671		277,611
Income taxes		12,387		17,775		48,423		50,081
Net income	$	67,807	$	83,878	$	235,248	$	227,530
Earnings per common share-basic	$	0.77	$	0.96	$	2.69	$	2.62
Earnings per common share-diluted	$	0.77	$	0.96	$	2.69	$	2.61
Dividends paid per share	$	0.27	$	0.27	$	0.81	$	0.75
Weighted average shares outstanding-basic		86,377		85,348		85,934		85,298
Weighted average shares outstanding-diluted		86,462		85,539		86,010		85,482

See notes to unaudited consolidated financial statements.

Table of Contents

Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2019			2018			2019			2018
Net income	$	67,807		$	83,878		$	235,248		$	227,530
Other comprehensive income/loss before income taxes:
Net change in unrealized gain/loss on securities available for sale and cash flow hedges		34,159			(25,242	)		160,627			(110,895	)
Reclassification of net losses realized and included in earnings		3,280			2,547			11,483			6,560
Other valuation adjustments for employee benefit plan		(7,015	)		—			(7,015	)		(9,039	)
Amortization of unrealized net loss on securities transferred to held to maturity		954			747			2,435			2,427
Other comprehensive income/loss before income taxes		31,378			(21,948	)		167,530			(110,947	)
Income tax expense (benefit)		7,331			(4,978	)		37,977			(25,170	)
Other comprehensive income/loss net of income taxes		24,047			(16,970	)		129,553			(85,777	)
Comprehensive income	$	91,854		$	66,908		$	364,801		$	141,753

See notes to unaudited consolidated financial statements.

Table of Contents

Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

Three Months Ended September 30, 2019 and 2018										Accumulated
	Common Stock									Other
(in thousands, except per share data)	Shares Issued		Amount		Capital Surplus		Retained Earnings			Comprehensive Loss, Net			Total
Balance, June 30, 2019		87,903	$	292,716	$	1,737,492	$	1,363,910		$	(75,203	)	$	3,318,915
Net income		—		—		—		67,807			—			67,807
Other comprehensive income		—		—		—		—			24,047			24,047
Comprehensive income		—		—		—		67,807			24,047			91,854
Cash dividends declared ($0.27 per common share)		—		—		—		(23,597	)		—			(23,597	)
Common stock issued in business combination		5,044		16,797		177,052		—			—			193,849
Common stock activity, long-term incentive plan		—		—		4,407		63			—			4,470
Issuance of stock from dividend reinvestment and stock purchase plans		—		—		889		—			—			889
Balance, September 30, 2019		92,947	$	309,513	$	1,919,840	$	1,408,183		$	(51,156	)	$	3,586,380
Balance, June 30, 2018		87,903	$	292,716	$	1,729,542	$	1,110,506		$	(203,209	)	$	2,929,555
Net income		—		—		—		83,878			—			83,878
Other comprehensive loss		—		—		—		—			(16,970	)		(16,970	)
Comprehensive income		—		—		—		83,878			(16,970	)		66,908
Cash dividends declared ($0.27 per common share)		—		—		—		(23,512	)		—			(23,512	)
Common stock activity, long-term incentive plan		—		—		5,053		25			—			5,078
Issuance of stock from dividend reinvestment and stock purchase plans		—		—		849		—			—			849
Balance, September 30, 2018		87,903	$	292,716	$	1,735,444	$	1,170,897		$	(220,179	)	$	2,978,878

Nine Months Ended September 30, 2019 and 2018										Accumulated
	Common Stock									Other
(in thousands, except per share data)	Shares Issued		Amount		Capital Surplus		Retained Earnings			Comprehensive Loss, Net			Total
Balance, December 31, 2018		87,903	$	292,716	$	1,725,741	$	1,243,592		$	(180,709	)	$	3,081,340
Net income		—		—		—		235,248			—			235,248
Other comprehensive income		—		—		—		—			129,553			129,553
Comprehensive income		—		—		—		235,248			129,553			364,801
Cash dividends declared ($0.81 per common share)		—		—		—		(70,771	)		—			(70,771	)
Common stock issued in business combination		5,044		16,797		177,052		—			—			193,849
Common stock activity, long-term incentive plan		—		—		14,355		114			—			14,469
Issuance of stock from dividend reinvestment and stock purchase plans		—		—		2,692		—			—			2,692
Balance, September 30, 2019		92,947	$	309,513	$	1,919,840	$	1,408,183		$	(51,156	)	$	3,586,380
Balance, December 31, 2017		87,903	$	292,716	$	1,718,117	$	1,008,518		$	(134,402	)	$	2,884,949
Net income		—		—		—		227,530			—			227,530
Other comprehensive loss		—		—		—		—			(85,777	)		(85,777	)
Comprehensive income		—		—		—		227,530			(85,777	)		141,753
Cash dividends declared ($0.75 per common share)		—		—		—		(65,287	)		—			(65,287	)
Common stock activity, long-term incentive plan		—		—		14,832		136			—			14,968
Issuance of stock from dividend reinvestment and stock purchase plans		—		—		2,495		—			—			2,495
Balance, September 30, 2018		87,903	$	292,716	$	1,735,444	$	1,170,897		$	(220,179	)	$	2,978,878

See notes to unaudited consolidated financial statements.

Table of Contents

Hancock Whitney Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	September 30,
(in thousands)	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	235,248		$	227,530
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		22,867			19,740
Provision for loan losses		38,552			28,016
(Gain) loss on other real estate and foreclosed assets		852			(313	)
Deferred tax expense		30,136			20,342
Increase in cash surrender value of life insurance contracts		(10,792	)		(6,714	)
Loss on disposal of other assets		70			1,748
Loss on sale of business		—			1,145
Net (increase) decrease in loans held for sale		(46,727	)		10,942
Net amortization of securities premium/discount		23,133			25,440
Amortization of intangible assets		15,074			16,578
Stock-based compensation expense		15,497			14,868
Contribution to pension plan		(100,000	)		—
Decrease in interest payable and other liabilities		(44,132	)		(2,662	)
Decrease in payable to FDIC for loan servicing		—			(11,113	)
Increase in other assets		(10,631	)		(15,748	)
Other, net		(2,854	)		299
Net cash provided by operating activities		166,293			330,098
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of securities available for sale		143,334			—
Proceeds from maturities of securities available for sale		204,391			253,755
Purchases of securities available for sale		(810,198	)		(365,529	)
Proceeds from maturities of securities held to maturity		297,150			272,986
Purchases of securities held to maturity		(183,626	)		(375,770	)
Net (increase) decrease in short-term investments		383,970			(15,690	)
Proceeds from sales of loans and leases		111,141			47,481
Net increase in loans		(353,971	)		(706,989	)
Purchase of life insurance contracts		(32,788	)		(1,601	)
Purchases of property and equipment		(33,746	)		(32,583	)
Proceeds from sales of other real estate		20,764			10,114
Cash acquired in stock-based business combination		28,060			—
Consideration (paid) received in business combination		(1,112	)		141,769
Proceeds from the sale of business, net of cash sold		—			77,648
Other, net		(19,815	)		(50,935	)
Net cash used in investing activities		(246,446	)		(745,344	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits		(229,964	)		(52,709	)
Net increase in short-term borrowings		452,691			572,757
Repayments of long-term debt		(226	)		(90,142	)
Net proceeds from issuance of long-term debt		11,649			124
Dividends paid		(70,771	)		(65,287	)
Payroll tax remitted on net share settlement of equity awards		(1,594	)		(563	)
Proceeds from exercise of stock options		367			1,232
Proceeds from dividend reinvestment and stock purchase plans		2,692			2,495
Net cash provided by financing activities		164,844			367,907
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS		84,691			(47,339	)
CASH AND DUE FROM BANKS, BEGINNING		383,372			386,948
CASH AND DUE FROM BANKS, ENDING	$	468,063		$	339,609
SUPPLEMENTAL INFORMATION FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Value of stock-based consideration in business combination	$	193,849		$	—
Assets acquired in settlement of loans	$	14,170		$	19,542

See notes to unaudited consolidated financial statements.

Table of Contents

HANCOCK WHITNEY CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The consolidated financial statements include the accounts of Hancock Whitney Corporation 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 fairly state the Company’s financial condition, results of operations, changes in stockholders’ equity and cash flows for the interim periods presented. The Company has also evaluated all subsequent events for potential recognition and disclosure through the date of the filing of this Quarterly Report on Form 10-Q. 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 Quarterly Report on 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, 2018. 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.

Certain prior period amounts have been reclassified to conform to the current period presentation. These changes in presentation did not have a material impact on the Company’s financial condition or operating results.

Use of Estimates

The accounting principles the Company follows and the methods for applying these principles conform to GAAP and general practices followed by 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 during the reporting period 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, 2018. Refer to Note 16 – Recent Accounting Pronouncements for a discussion of accounting standards adopted during the nine months ended September 30, 2019.

2. Business Combinations

MidSouth Bancorp, Inc.

On September 21, 2019, the Company completed the acquisition of MidSouth Bancorp, Inc. (“MidSouth”) (NYSE: MSL), parent company of MidSouth Bank, N.A. The transaction provides the Company opportunity for both enhanced growth in several of its current markets, such as MidSouth’s home market of Lafayette, Louisiana, as well as opportunities for expansion into new markets in Louisiana and Texas. The transaction was accounted for as a business combination whereby the Company acquired net assets with an estimated fair value of $124.6 million and recorded goodwill of $69.2 million. In consideration for the net assets acquired, each outstanding share of MidSouth common stock converted to 0.2952 shares of the Company’s common stock. As such, the Company issued approximately 5.0 million shares resulting in a transaction value of $193.8 million. The following table sets forth the preliminary acquisition date fair value of the assets acquired and liabilities assumed, and the resulting goodwill. The goodwill is not deductible for federal income tax purposes.

(in thousands)
ASSETS
Cash and due from banks	$	28,060
Interest bearing bank deposits		318,914
Federal funds sold		3,475
Securities available for sale		272,406
Loans		785,204
Property and equipment		30,164
Other real estate		435
Identifiable intangible assets		35,000
Other assets		56,860
Total identifiable assets		1,530,518
LIABILITIES
Deposit liabilities		1,281,078
Short term borrowings		66,996

Table of Contents

Long term debt		13,919
Other liabilities		43,883
Total liabilities		1,405,876
Net assets acquired		124,642
Value of stock-based consideration		193,849
Goodwill	$	69,207

The loans acquired were recorded at an estimated fair value at the acquisition date using a loss adjusted cash flow method, with no carryover of the related allowance for loan losses. Acquired loans are classified as either purchased credit performing or purchased credit impaired based on such factors as past due status, nonaccrual status and internal risk rating. Loans considered to be purchased credit performing were accounted for under Accounting Standards Codification (“ASC”) 310-20. The purchased credit performing loans had a book balance of $686.0 million, of which $17.2 million is not expected to be collected, and an estimated fair value of $667.2 million. Loans considered to be purchased credit impaired were accounted for under ASC 310-30 using the expected cash flow method. The purchased credit impaired loans had a book balance of $140.3 million and an estimated fair value of $118.0 million.

The securities available for sale portfolio consisted primarily of collateralized mortgage obligations and mortgaged backed securities. Approximately $143.3 million of the acquired portfolio was sold prior to September 30, 2019, and the Company intends to sell the remainder of the portfolio during the fourth quarter of 2019.

The core deposit intangible asset of $35 million represents the value of the relationships with deposit customers based on the favorable source of funds method. The core deposit intangible will be amortized using sum of years’ digits over the asset’s estimated life of 15 years.

Short-term borrowings consisted of customer repurchase agreements of $39.5 million and two FHLB advances totaling $27.5 million. The FHLB advances had 30 day maturities with fixed interest rates of 2.16%.

Long-term debt consists of three trust preferred debentures with maturities through 2037; however, each is callable and may be redeemed at the Company’s election. The Company intends to redeem each debenture in full before December 31, 2019.

The results of the acquired business were included in the Company’s consolidated results of operations from the date of acquisition. The results of the acquired business are not material to the Company’s consolidated results of operations and, as such, neither supplemental pro forma information of the combined entity nor revenue and earnings contributed by the acquired business since the date of acquisition are presented.

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During the three and nine months ended September 30, 2019, the Company incurred acquisition related costs of approximately $28.8 million. The following table presents the acquisition related costs by component:

(in thousands)
Personnel expense	$	5,002
Net occupancy expense		735
Equipment expense		188
Data processing expense		437
Professional services expense		7,491
Advertising		2,624
Printing and supplies		433
Other expense		11,900
Total acquisition related expenses	$	28,810

Personnel expense includes severance and change in control costs. Professional services expense includes legal and consulting costs, including costs associated with systems conversion. Other expense includes contract and lease termination fees and other transaction-related costs.

Trust and Asset Management Business

On July 13, 2018, the Company acquired the bank-managed high net worth individual and institutional investment management and trust business of Capital One, National Association (“Capital One”). The transaction added assets under management of $4 billion and assets under management and administration of $10.4 billion to the Company’s existing trust and asset management business. In addition, the Company assumed approximately $217 million of customer deposit liabilities. The following table sets forth the acquisition date fair value of the assets acquired and the liabilities assumed, the consideration received, and the resulting goodwill. The goodwill is deductible for federal income tax purposes.

(in thousands)
ASSETS
Accounts receivable	$	2,803
Identifiable intangible assets		27,562
Total identifiable assets		30,365
LIABILITIES
Deposit liabilities		217,432
Other liabilities		151
Total liabilities		217,583
Net liabilities assumed		(187,218	)
Consideration received		140,657
Goodwill	$	46,561

Identifiable intangible assets include customer relationships that are being amortized using an accelerated method based on forecasted cash flows over a useful life of approximately 17 years.

The acquired trust and asset management business added $14.8 million in trust fee revenue and $14.0 million of expense to the Company’s results of operations for the nine months ended September 30, 2019. The results are not material to the Company’s results of operations and, as such, supplemental proforma financial information for the nine months ended September 30, 2018 is not presented. During the nine months ended September 30, 2018, the Company incurred acquisition related costs of approximately $5.7 million.

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Goodwill Resulting from Business Combinations

Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired or excess of the fair value of net liabilities assumed over the consideration received. It is comprised of estimated future economic benefits arising from the transaction that cannot be individually identified or do not qualify for separate recognition. These benefits include expanded presence in existing markets and entry into new markets, and expected earnings streams and operational efficiencies that the Company believes will result from this business combination. The following table presents the change in the Company’s goodwill during the year ended December 31, 2018 and the nine months ended September 30, 2019.

(in thousands)
Goodwill balance at December 31, 2017	$	745,523
Initial goodwill recorded - acquisition of trust and asset management business		45,634
Measurement period adjustments - acquisition of trust and asset management business		(185	)
Goodwill balance at December 31, 2018	$	790,972
Final settlement of cash consideration - acquisition of trust and asset management business		1,112
Initial goodwill recorded - acquisition of MidSouth		69,207
Goodwill balance at September 30, 2019	$	861,291

3. Securities

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available for sale and held to maturity at September 30, 2019 and December 31, 2018 follow.

Securities Available for Sale
(in thousands)	September 30, 2019								December 31, 2018
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Treasury and government agency securities	$	93,415	$	1,726	$	—	$	95,141	$	74,339	$	—	$	2,633	$	71,706
Municipal obligations		243,941		8,222		—		252,163		246,713		360		6,646		240,427
Residential mortgage-backed securities		1,321,109		20,598		2,236		1,339,471		1,468,912		4,284		29,794		1,443,402
Commercial mortgage-backed securities		1,585,956		39,066		853		1,624,169		799,060		1,953		30,936		770,077
Collateralized mortgage obligations		232,577		2,302		63		234,816		163,282		903		2,260		161,925
Corporate debt securities		3,951		—		54		3,897		3,500		—		—		3,500
	$	3,480,949	$	71,914	$	3,206	$	3,549,657	$	2,755,806	$	7,500	$	72,269	$	2,691,037

Securities Held to Maturity
(in thousands)	September 30, 2019								December 31, 2018
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Treasury and government agency securities	$	50,000	$	—	$	46	$	49,954	$	50,000	$	—	$	478	$	49,522
Municipal obligations		647,500		28,613		95		676,018		688,201		2,347		9,503		681,045
Residential mortgage-backed securities		549,929		9,226		355		558,800		640,393		1,461		6,117		635,737
Commercial mortgage-backed securities		539,877		20,099		10		559,966		357,175		376		10,882		346,669
Collateralized mortgage obligations		1,067,756		9,920		2,058		1,075,618		1,243,778		1,598		22,493		1,222,883
	$	2,855,062	$	67,858	$	2,564	$	2,920,356	$	2,979,547	$	5,782	$	49,473	$	2,935,856

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The following tables present the amortized cost and estimated fair value of debt securities available for sale and held to maturity at September 30, 2019 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.

Debt Securities Available for Sale	Amortized		Fair
(in thousands)	Cost		Value
Due in one year or less	$	6,598	$	6,629
Due after one year through five years		1,529,328		1,558,458
Due after five years through ten years		1,569,872		1,606,207
Due after ten years		375,151		378,363
Total available for sale debt securities	$	3,480,949	$	3,549,657

Debt Securities Held to Maturity	Amortized		Fair
(in thousands)	Cost		Value
Due in one year or less	$	74,476	$	74,611
Due after one year through five years		1,852,708		1,864,562
Due after five years through ten years		927,878		981,183
Due after ten years		—		—
Total held to maturity securities	$	2,855,062	$	2,920,356

The Company held no securities classified as trading at September 30, 2019 and December 31, 2018.

The fair value and gross unrealized losses for securities classified as available for sale with unrealized losses for the periods indicated follow.

Securities Available for Sale
September 30, 2019	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
U.S. Treasury and government agency securities	$	—	$	—	$	—	$	—	$	—	$	—
Municipal obligations		—		—		—		—		—		—
Residential mortgage-backed securities		2		—		438,339		2,236		438,341		2,236
Commercial mortgage-backed securities		108,208		844		15,098		9		123,306		853
Collateralized mortgage obligations		613		—		4,091		63		4,704		63
Other debt obligation		1,903		54		—		—		1,903		54
	$	110,726	$	898	$	457,528	$	2,308	$	568,254	$	3,206

Securities Available for Sale
December 31, 2018	Losses < 12 months				Losses 12 months or >				Total
			Gross				Gross		Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(in thousands)	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury and government agency securities	$	—	$	—	$	71,706	$	2,633	$	71,706	$	2,633
Municipal obligations		41,203		591		170,883		6,054		212,086		6,645
Residential mortgage-backed securities		305,090		2,485		762,826		27,309		1,067,916		29,794
Commercial mortgage-backed securities		96,226		1,851		570,485		29,085		666,711		30,936
Collateralized mortgage obligations		254		1		111,804		2,259		112,058		2,260
	$	442,773	$	4,928	$	1,687,704	$	67,340	$	2,130,477	$	72,268

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The fair value and gross unrealized losses for securities classified as held to maturity with unrealized losses for the periods indicated follow.

Securities Held to Maturity
September 30, 2019	Losses < 12 months				Losses 12 months or >				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(in thousands)	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury and government agency securities	$	—		—	$	49,954	$	46	$	49,954	$	46
Municipal obligations		3,820		30		6,431		65		10,251		95
Residential mortgage-backed securities		—		—		122,687		355		122,687		355
Commercial mortgage-backed securities		29,101		10		—		—		29,101		10
Collateralized mortgage obligations		18,661		65		255,511		1,993		274,172		2,058
	$	51,582	$	105	$	434,583	$	2,459	$	486,165	$	2,564

Securities Held to Maturity
December 31, 2018	Losses < 12 months				Losses 12 months or >				Total
			Gross		Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(in thousands)	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury and government agency securities	$	—	$	—	$	49,521	$	478	$	49,521	$	478
Municipal obligations		233,469		2,256		233,280		7,247		466,749		9,503
Residential mortgage-backed securities		90,730		123		235,251		5,994		325,981		6,117
Commercial mortgage-backed securities		—		—		305,419		10,882		305,419		10,882
Collateralized mortgage obligations		77,394		281		897,153		22,212		974,547		22,493
	$	401,593	$	2,660	$	1,720,624	$	46,813	$	2,122,217	$	49,473

The unrealized losses relate primarily 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 issuers’ abilities to meet contractual obligations. The Company had adequate liquidity as of September 30, 2019 and December 31, 2018 and did not intend to nor believe that it would be required to sell these securities before recovery of the indicated impairment. Accordingly, the unrealized losses on these securities were determined to be temporary. Should the Company’s intent to sell these securities change, the difference between the amortized cost and the fair value will be recognized into earnings at that time.

Proceeds from the sales of securities were approximately $143.3 million with no gross gains or losses during the nine months ended September 30, 2019. There were no sales of securities during the nine months ended September 30, 2018.

Securities with carrying values totaling $3.0 billion and $3.4 billion at September 30, 2019 and December 31, 2018, respectively, were pledged as collateral, primarily to secure public deposits or securities sold under agreements to repurchase.

4. Loans and Allowance for Loan Losses

The Company generally makes loans in its market areas of south Mississippi, southern and central Alabama, northwest, central and south Louisiana, East Texas, the northern, central, and panhandle regions of Florida, and Nashville, Tennessee. Loans, net of unearned income, by portfolio are presented in the table below.

	September 30,		December 31,
(in thousands)	2019		2018
Commercial non-real estate	$	8,893,004	$	8,620,601
Commercial real estate - owner occupied		2,734,379		2,457,748
Total commercial and industrial		11,627,383		11,078,349
Commercial real estate - income producing		3,060,568		2,341,779
Construction and land development		1,190,718		1,548,335
Residential mortgages		3,004,958		2,910,081
Consumer		2,152,325		2,147,867
Total loans	$	21,035,952	$	20,026,411

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The following briefly describes the composition of each loan category.

Commercial and industrial

Commercial and industrial loans are made available to businesses for working capital (including financing of inventory and receivables), business expansion, to facilitate the acquisition of a business, and the purchase of equipment and machinery, including equipment leasing. These loans are primarily made based on the identified cash flows of the borrower and, when secured, have the added strength of the underlying collateral.

Commercial non-real estate loans may be secured by the assets being financed or other tangible or intangible business assets such as accounts receivable, inventory, ownership, enterprise value or commodity interests, and may incorporate a personal or corporate guarantee; however, some short-term loans may be made on an unsecured basis, including a small portfolio of corporate credit cards, generally issued as a part of overall customer relationships.

Commercial real estate – owner occupied loans consist of commercial mortgages on properties where repayment is generally dependent on the cash flow from the ongoing operations and activities of the borrower. Like commercial non-real estate, these loans are primarily made based on the identified cash flows of the borrower, but also have the added strength of the value of underlying real estate collateral.

Commercial real estate – income producing

Commercial real estate – income producing loans consist of loans secured by commercial mortgages on properties where the loan is made to real estate developers or investors and repayment is dependent on the sale, refinance, or income generated from the operation of the property. Properties financed include retail, office, multifamily, senior housing, hotel/motel, skilled nursing facilities and other commercial properties.

Construction and land development

Construction and land development loans are made to facilitate the acquisition, development, improvement and construction of both commercial and residential-purpose properties. Such loans are made to builders and investors where repayment is expected to be made from the sale, refinance or operation of the property or to businesses to be used in their business operations. This portfolio also includes a small amount of residential construction loans and loans secured by raw land not yet under development.

Residential mortgages

Residential mortgages consist of closed-end loans secured by first liens on 1- 4 family residential properties. The portfolio includes both fixed and adjustable rate loans, although most longer term, fixed rate loans originated are sold in the secondary mortgage market.

Consumer

Consumer loans include second lien mortgage home loans, home equity lines of credit and nonresidential consumer purpose loans. Nonresidential consumer loans include both direct and indirect loans. Direct nonresidential consumer loans are made to finance the purchase of personal property, including automobiles, recreational vehicles and boats, and for other personal purposes (secured and unsecured), and deposit account secured loans. Indirect nonresidential consumer loans include automobile financing provided to the consumer through an agreement with automobile dealerships. Consumer loans also include a small portfolio of credit card receivables issued on the basis of applications received through referrals from the Bank’s branches, online and other marketing efforts.

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Allowance for Loan Losses

The following tables show activity in the allowance for loan losses by portfolio class for the nine months ended September 30, 2019 and 2018, as well as the corresponding recorded investment in loans at the end of each period.

				Commercial			Total			Commercial
	Commercial			real estate-			commercial			real estate-			Construction
	non-real			owner			and			income			and land			Residential
(in thousands)	estate			occupied			industrial			producing			development			mortgages			Consumer			Total
	Nine Months Ended September 30, 2019
Allowance for loan losses:
Beginning balance	$	97,752		$	13,757		$	111,509		$	17,638		$	15,647		$	23,782		$	25,938		$	194,514
Charge-offs		(33,382	)		(137	)		(33,519	)		(10	)		(7	)		(660	)		(13,169	)		(47,365	)
Recoveries		5,662			284			5,946			518			108			433			2,866			9,871
Net provision for loan losses		29,267			545			29,812			7,604			(5,982	)		(2,076	)		9,194			38,552
Ending balance	$	99,299		$	14,449		$	113,748		$	25,750		$	9,766		$	21,479		$	24,829		$	195,572
Ending balance:
Allowance:
Individually evaluated for impairment	$	11,535		$	57		$	11,592		$	49		$	29		$	183		$	365		$	12,218
Amounts related to purchased credit impaired loans		135			172			307			40			144			8,032			300			8,823
Collectively evaluated for impairment		87,629			14,220			101,849			25,661			9,593			13,264			24,164			174,531
Total allowance	$	99,299		$	14,449		$	113,748		$	25,750		$	9,766		$	21,479		$	24,829		$	195,572
Loans:
Individually evaluated for impairment	$	201,979		$	11,109		$	213,088		$	2,781		$	3,385		$	4,301		$	1,583		$	225,138
Purchased credit impaired loans		33,040			45,124			78,164			27,281			23,431			93,450			6,294			228,620
Collectively evaluated for impairment		8,657,985			2,678,146			11,336,131			3,030,506			1,163,902			2,907,207			2,144,448			20,582,194
Total loans	$	8,893,004		$	2,734,379		$	11,627,383		$	3,060,568		$	1,190,718		$	3,004,958		$	2,152,325		$	21,035,952

				Commercial			Total			Commercial
	Commercial			real estate-			commercial			real estate-			Construction
	non-real			owner			and			income			and land			Residential
(in thousands)	estate			occupied			industrial			producing			development			mortgages			Consumer			Total
	Nine Months Ended September 30, 2018
Allowance for loan losses:
Beginning balance	$	127,918		$	12,962		$	140,880		$	13,709		$	7,372		$	24,844		$	30,503		$	217,308
Charge-offs		(15,401	)		(7,330	)		(22,731	)		(1,633	)		(265	)		(585	)		(18,599	)		(43,813	)
Recoveries		13,234			282			13,516			221			68			1,854			4,028			19,687
Net provision for loan losses		(5,073	)		7,203			2,130			6,288			6,248			(1,803	)		15,153			28,016
Reduction as a result of sale of subsidiary		—			—			—			—			—			—			(6,648	)		(6,648	)
Ending balance	$	120,678		$	13,117		$	133,795		$	18,585		$	13,423		$	24,310		$	24,437		$	214,550
Ending balance:
Allowance:
Individually evaluated for impairment	$	23,101		$	225		$	23,326		$	285		$	1		$	163		$	131		$	23,906
Amounts related to purchased credit impaired loans		327			403		$	730			45			91			10,109			433			11,408
Collectively evaluated for impairment		97,250			12,489		$	109,739			18,255			13,331			14,038			23,873			179,236
Total allowance	$	120,678		$	13,117		$	133,795		$	18,585		$	13,423		$	24,310		$	24,437		$	214,550
Loans:
Individually evaluated for impairment	$	275,966		$	22,437		$	298,403		$	4,615		$	112		$	3,061		$	890		$	307,081
Purchased credit impaired loans		7,907			7,113		$	15,020			3,790			4,232			107,535			4,458			135,035
Collectively evaluated for impairment		8,155,011			2,270,721		$	10,425,732			2,303,294			1,519,075			2,736,320			2,117,180			19,101,601
Total loans	$	8,438,884		$	2,300,271		$	10,739,155		$	2,311,699		$	1,523,419		$	2,846,916		$	2,122,528		$	19,543,717

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Impaired Loans

The following table shows the composition of nonaccrual loans by portfolio class. Purchased credit impaired loans accounted for in pools with an accretable yield are considered to be performing and are excluded from the table.

	September 30,		December 31,
(in thousands)	2019		2018
Commercial non-real estate	$	150,705	$	110,653
Commercial real estate - owner occupied		13,087		16,895
Total commercial and industrial		163,792		127,548
Commercial real estate - income producing		2,957		4,991
Construction and land development		1,336		2,146
Residential mortgages		37,901		35,866
Consumer		16,874		16,744
Total loans	$	222,860	$	187,295

Nonaccrual loans include nonaccruing loans modified in troubled debt restructurings (“TDRs”) of $101.1 million and $85.5 million at September 30, 2019 and December 31, 2018, respectively. Total TDRs, both accruing and nonaccruing, were $162.0 million at September 30, 2019 and $224.6 million at December 31, 2018. All TDRs are individually evaluated for impairment. At September 30, 2019 and December 31, 2018, the Company had unfunded commitments of $2.0 million and $2.1 million, respectively, to borrowers whose loan terms have been modified in a TDR.

The tables below detail by portfolio class TDRs that were modified during the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended
($ in thousands)	September 30, 2019						September 30, 2018
			Pre- Modification		Post- Modification				Pre- Modification		Post- Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
	of		Recorded		Recorded		of		Recorded		Recorded
Troubled Debt Restructurings:	Contracts		Investment		Investment		Contracts		Investment		Investment
Commercial non-real estate		2	$	13,083	$	6,271		11	$	23,347	$	23,347
Commercial real estate - owner occupied		—		—		—		1		229		229
Total commercial and industrial		2		13,083		6,271		12		23,576		23,576
Commercial real estate - income producing		1		123		123		—		—		—
Construction and land development		3		323		323		—		—		—
Residential mortgages		3		297		297		8		930		930
Consumer		4		70		70		6		89		89
Total loans		13	$	13,896	$	7,084		26	$	24,595	$	24,595

	Nine Months Ended
($ in thousands)	September 30, 2019						September 30, 2018
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
Commercial non-real estate		10	$	27,220	$	20,408		29	$	85,306	$	85,306
Commercial real estate - owner occupied		1		167		167		2		6,138		6,138
Total commercial and industrial		11		27,387		20,575		31		91,444		91,444
Commercial real estate - income producing		1		123		123		1		1,564		1,564
Construction and land development		3		323		323		—		—		—
Residential mortgages		10		2,199		2,199		11		1,048		1,048
Consumer		6		116		116		7		311		311
Total loans		31	$	30,148	$	23,336		50	$	94,367	$	94,367

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The TDRs modified during the nine months ended September 30, 2019 reflected in the table above include $0.6 million of loans with extended amortization terms or other payment concessions, $22.1 million with significant covenant waivers and $7.4 million with other modifications. In addition, the Company received approximately $6.8 million of equity securities of one commercial non-real estate borrower in satisfaction of a portion of its debt. The TDRs modified during the nine months ended September 30, 2018 include $50.7 million of loans with extended amortization terms or other payment concessions, $14.6 million with significant covenant waivers and $29.1 million with other modifications.

There were no defaults on loans during the three and nine months ended September 30, 2019 or 2018 that had been modified in a TDR during the prior twelve months.

The tables below present loans that are individually evaluated for impairment disaggregated by portfolio class at September 30, 2019 and December 31, 2018. 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, 2019
(in thousands)	Recorded investment without an allowance		Recorded investment with an allowance		Unpaid principal balance		Related allowance
Commercial non-real estate	$	161,275	$	40,704	$	239,506	$	11,535
Commercial real estate - owner occupied		9,183		1,926		15,087		57
Total commercial and industrial		170,458		42,630		254,593		11,592
Commercial real estate - income producing		1,222		1,559		3,793		49
Construction and land development		3,121		264		4,123		29
Residential mortgages		2,665		1,636		4,831		183
Consumer		494		1,089		1,864		365
Total loans	$	177,960	$	47,178	$	269,204	$	12,218

	December 31, 2018
(in thousands)	Recorded investment without an allowance		Recorded investment with an allowance		Unpaid principal balance		Related allowance
Commercial non-real estate	$	144,625	$	94,759	$	273,290	$	3,636
Commercial real estate - owner occupied		13,027		8,639		25,888		607
Total commercial and industrial		157,652		103,398		299,178		4,243
Commercial real estate - income producing		1,138		1,563		3,428		210
Construction and land development		100		21		121		1
Residential mortgages		2,058		1,818		4,421		444
Consumer		279		728		1,253		216
Total loans	$	161,227	$	107,528	$	308,401	$	5,114

The tables below present the average balances and interest income for total impaired loans for the three and nine months ended September 30, 2019 and 2018. Interest income recognized represents interest on accruing loans modified in a TDR.

	Three Months Ended
	September 30, 2019				September 30, 2018
(in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial non-real estate	$	213,291	$	1,062	$	283,519	$	2,275
Commercial real estate - owner occupied		14,439		45		24,702		90
Total commercial and industrial		227,730		1,107		308,221		2,365
Commercial real estate - income producing		2,331		7		6,718		15
Construction and land development		1,702		2		113		—
Residential mortgages		4,195		2		3,397		4
Consumer		1,552		21		745		10
Total loans	$	237,510	$	1,139	$	319,194	$	2,394

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	Nine Months Ended
	September 30, 2019				September 30, 2018
(in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial non-real estate	$	225,597	$	4,202	$	295,636	$	5,863
Commercial real estate - owner occupied		17,044		196		26,416		258
Total commercial and industrial		242,641		4,398		322,052		6,121
Commercial real estate - income producing		2,430		21		10,988		64
Construction and land development		597		2		155		—
Residential mortgages		4,525		9		6,307		14
Consumer		1,442		55		769		28
Total loans	$	251,635	$	4,485	$	340,271	$	6,227

Aging Analysis

The tables below present the age analysis of past due loans by portfolio class at September 30, 2019 and December 31, 2018. Purchased credit impaired loans accounted for in pools with an accretable yield are considered to be current.

September 30, 2019	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)
Commercial non-real estate	$	29,770	$	19,786	$	56,767	$	106,323	$	8,786,681	$	8,893,004	$	2,928
Commercial real estate - owner occupied		5,222		909		14,635	$	20,766		2,713,613		2,734,379		2,837
Total commercial and industrial		34,992		20,695		71,402		127,089		11,500,294		11,627,383		5,765
Commercial real estate - income producing		817		473		2,751		4,041		3,056,527		3,060,568		—
Construction and land development		550		77		1,076		1,703		1,189,015		1,190,718		644
Residential mortgages		5,650		11,140		21,964		38,754		2,966,204		3,004,958		576
Consumer		14,598		4,730		9,434		28,762		2,123,563		2,152,325		887
Total	$	56,607	$	37,115	$	106,627	$	200,349	$	20,835,603	$	21,035,952	$	7,872

December 31, 2018	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)
Commercial non-real estate	$	12,257	$	3,895	$	77,551	$	93,703	$	8,526,898		8,620,601	$	10,823
Commercial real estate - owner occupied		2,394		1,570		14,542		18,506		2,439,242		2,457,748		380
Total commercial and industrial		14,651		5,465		92,093		112,209		10,966,140		11,078,349		11,203
Commercial real estate - income producing		2,371		772		5,495		8,638		2,333,141		2,341,779		1,844
Construction and land development		7,397		1,129		2,165		10,691		1,537,644		1,548,335		644
Residential mortgages		32,869		14,706		23,175		70,750		2,839,331		2,910,081		—
Consumer		20,402		4,695		9,665		34,762		2,113,105		2,147,867		618
Total	$	77,690	$	26,767	$	132,593	$	237,050	$	19,789,361	$	20,026,411	$	14,309

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Credit Quality Indicators

The following tables present the credit quality indicators by segments and portfolio class of loans at September 30, 2019 and December 31, 2018.

	September 30, 2019
(in thousands)	Commercial non-real estate		Commercial real estate - owner- occupied		Total commercial and industrial		Commercial real estate - income producing		Construction and land development		Total commercial
Grade:
Pass	$	8,193,707	$	2,498,260	$	10,691,967	$	2,941,146	$	1,149,268	$	14,782,381
Pass-Watch		209,523		132,611		342,134		64,280		30,455	$	436,869
Special Mention		84,741		18,697		103,438		15,409		81	$	118,928
Substandard		405,025		84,811		489,836		39,733		10,914	$	540,483
Doubtful		8		—		8		—		—	$	8
Total	$	8,893,004	$	2,734,379	$	11,627,383	$	3,060,568	$	1,190,718	$	15,878,669

	December 31, 2018
(in thousands)	Commercial non-real estate		Commercial real estate - owner- occupied		Total commercial and industrial		Commercial real estate - income producing		Construction and land development		Total commercial
Grade:
Pass	$	7,875,588	$	2,274,211	$	10,149,799		2,265,087	$	1,487,599	$	13,902,485
Pass-Watch		260,510		84,271		344,781		46,535		49,099		440,415
Special Mention		75,752		23,149		98,901		5,510		816		105,227
Substandard		408,751		76,117		484,868		24,647		10,821		520,336
Doubtful		—		—		—		—		—		—
Total	$	8,620,601	$	2,457,748	$	11,078,349	$	2,341,779	$	1,548,335	$	14,968,463

	September 30, 2019						December 31, 2018
(in thousands)	Residential mortgage		Consumer		Total		Residential mortgage		Consumer		Total
Performing	$	2,966,578	$	2,134,360	$	5,100,938	$	2,873,669	$	2,130,395	$	5,004,064
Nonperforming		38,380		17,965	$	56,345		36,412		17,472		53,884
Total	$	3,004,958	$	2,152,325	$	5,157,283	$	2,910,081	$	2,147,867	$	5,057,948

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 the 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.

•

Doubtful – an asset that has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or 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.

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Residential and Consumer:

•

Performing – accruing loans that have not been modified in a troubled debt restructuring.

•

Nonperforming – loans for which there are good reasons to doubt that payments will be made in full. All loans with nonaccrual status and all loans that have been modified in a troubled debt restructuring are classified as nonperforming.

Purchased Credit Impaired Loans

Changes in the carrying amount of purchased credit impaired loans and related accretable yield are presented in the following table for the nine months ended September 30, 2019 and the year ended December 31, 2018.

	September 30, 2019						December 31, 2018
(in thousands)	Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield
Balance at beginning of period	$	129,596		$	37,294		$	153,403		$	62,517
Additions		118,047			6,238			—			—
Payments received, net		(28,846	)		(3,517	)		(39,556	)		(5,779	)
Accretion		9,823			(9,823	)		15,749			(15,749	)
Increase in expected cash flows based on actual cash flows and changes in cash flow assumptions		—			4,190			—			(3,695	)
Balance at end of period	$	228,620		$	34,382		$	129,596		$	37,294

Residential Mortgage Loans in Process of Foreclosure

Included in loans are $8.9 million and $7.1 million of consumer loans secured by single family residential real estate that are in process of foreclosure as of September 30, 2019 and December 31, 2018, respectively. 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 $2.7 million and $1.8 million of foreclosed single family residential properties in other real estate owned at September 30, 2019 and December 31, 2018, respectively.

5. Operating Leases

Effective January 1, 2019, the Company adopted the amended provisions of Financial Accounting Standards Codification Topic 842, “Leases,” using the modified retrospective approach, impacting the reporting and disclosures for operating leases. The core principle of Topic 842 is that a lessee should recognize in the statement of financial position a liability representing the present value of future lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset over the lease term, as well as the disclosure of key information about operating leasing arrangements.

The Company has amended its accounting policy related to leases to comply with the new standard as follows. The Company determines if an arrangement is a lease at inception of the contract and assesses the appropriate classification as finance or operating. Operating leases with terms greater than one year are included in right-of-use lease assets and lease obligations on the Company’s balance sheets. The lease term includes payments to be made in optional or renewal periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term using the interest rate implicit in the contract, when available, or the Company’s incremental collateralized borrowing rate with similar terms. Agreements with both lease and non-lease components are accounted for separately, with only the lease component capitalized. The right-of-use asset is the amount of the lease liability adjusted for prepaid or accrued lease payments, remaining balance of any lease incentives received, unamortized initial direct costs, and impairment. Lease expense is recorded on a straight-line basis over the lease term through amortization of the right-of-use asset plus implicit interest accreted on the operating lease liability obligation, and is reflected in Net Occupancy Expense in the Consolidated Statement of Income.

Some of the Company’s leases contain variable components, such as annual changes to rent based on the consumer price index. Operating lease liabilities are not re-measured as a result of changes to variable components unless the lease must be re-measured for some other reason such as a renewal that was not reasonably certain of being exercised. Changes to the variable components are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.

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The standard provides several practical expedients available for use in transition. The Company elected to use the standard’s “package of practical expedients,” which allows the use of previous conclusions about lease identification, lease classification and the accounting treatment for initial direct costs. The Company also elected the short-term lease recognition exemption for all leases with lease terms of one year or less; as such, the Company will not recognize right-of-use assets or lease liabilities on the consolidated balance sheet for such leases. The Company valued its lease obligation using incremental collateralized borrowing rates as of January 1, 2019 for the remaining term of each identified lease. At adoption, the Company recorded a right-of-use asset totaling $115.9 million and a liability for lease payment obligations totaling $130.7 million, offset by the elimination of $14.8 million of existing lease incentive and other deferred rent liabilities. Accounting for leases in accordance with Topic 842 has not had a material impact upon the Company’s consolidated results of operations, and is not expected to in future periods.

The Company has operating leases on a number of its branches, certain regional headquarters and other properties to limit its exposure to ownership risks such as fluctuations in real estate prices and obsolescence. The Company leases real estate with lease terms generally from five to 20 years, some of which have renewal options from one to 20 years. As these extension options are not generally considered reasonably certain of renewal, they are not included in the lease term. The Company is not a lessee in any contracts classified as finance leases.

Supplemental balance sheet information pertaining to operating leases:

(dollars in thousands)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities for operating leases	$	3,922	$	11,802
Right of use assets obtained in exchange for lease liabilities	$	3,343	$	121,066

			September 30, 2019
Weighted average remaining lease term (in years)				13.09
Weighted average discount rate				3.53	%

The following table sets forth the maturities of the Company’s lease liabilities and the present value discount at September 30, 2019.

(dollars in thousands)
2019	$	4,309
2020		16,543
2021		15,846
2022		15,449
2023		13,903
Thereafter		102,110
Total		168,160
Present value discount		(37,083	)
Lease liability	$	131,077

The following table sets forth the components of the Company’s lease expense for the three and nine months ended September 30, 2019.

(in thousands)	Three months ended September 30, 2019			Nine months ended September 30, 2019
Operating lease expense	$	4,286		$	12,783
Short-term lease expense		109			148
Variable lease expense		11			35
Sublease income		(70	)		(246	)
Total	$	4,336		$	12,720

6. Securities Sold under Agreements to Repurchase

Included in short-term borrowings are customer securities sold under agreements to repurchase that mature daily and are secured by U.S. agency securities totaling $545.9 million and $428.6 million at September 30, 2019 and December 31, 2018, respectively. 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 limited.

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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 associated with fixed rate brokered deposits, certain investment securities and select pools of variable rate loans. The Bank also enters 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 its net risk exposure resulting from such agreements. The Bank also enters into risk participation agreements under which it 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.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the notional or contractual amounts and fair values of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets at September 30, 2019 and December 31, 2018.

		September 30, 2019								December 31, 2018
				Derivative ⁽¹⁾								Derivative ⁽¹⁾
(in thousands)	Type of Hedge	Notional or Contractual Amount		Assets			Liabilities			Notional or Contractual Amount		Assets			Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps - variable rate loans	Cash Flow	$	1,075,000	$	31,453		$	—		$	875,000	$	3,954		$	9,173
Interest rate swaps - securities	Fair Value		441,400		—			7,872			—		—			—
Interest rate swaps - brokered deposits	Fair Value		163,110		—			80			483,110		—			2,089
			1,679,510		31,453			7,952		$	1,358,110	$	3,954		$	11,262
Derivatives not designated as hedging instruments:
Interest rate swaps ⁽²⁾	N/A		1,726,248		70,701			72,804		$	1,277,404	$	23,670		$	24,669
Risk participation agreements	N/A		237,081		38			60			171,222		10			131
Forward commitments to sell residential mortgage loans	N/A		151,413		335			649			77,208		110			664
Interest rate-lock commitments on residential mortgage loans	N/A		78,769		240			149			59,119		464			67
Foreign exchange forward contracts	N/A		73,076		735			692			37,749		751			718
Visa Class B derivative contract	N/A		43,753		—			6,249			43,753		—			7,304
			2,310,340		72,049			80,603			1,666,455		25,005			33,553
Total derivatives		$	3,989,850	$	103,502		$	88,555		$	3,024,565	$	28,959		$	44,815
Less: netting adjustment ⁽³⁾					(31,598	)		(65,088	)				(11,979	)		(22,588	)
Total derivative assets/liabilities				$	71,904		$	23,467				$	16,980		$	22,227

(1)	Derivative assets and liabilities are reported at fair value in 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.

(3)	Represents balance sheet netting of derivative assets and liabilities for variation margin collateral held or placed with the same central clearing counterparty. See offsetting assets and liabilities for further information.

Cash Flow Hedges of Interest Rate Risk

The Company is party to various interest rate swap agreements designated and qualifying as cash flow hedges of the Company’s forecasted variable cash flows for pools of variable rate loans. For each agreement, the Company receives interest at a fixed rate and pays at a variable rate. During the nine months ended September 30, 2018, the Company terminated five of its shorter-term swap agreements with notional amounts totaling $450 million and entered into five longer-term agreements with notional amounts totaling $450 million. The Company paid termination fees of approximately $10.6 million to settle the interest rate swap liabilities, and the resulting accumulated other comprehensive loss is being amortized over the remaining maturities of the designated instruments. Amortization of other comprehensive loss on terminated cash flow hedges totaled $3.4 million and $4.1 million for the nine months ended September 30, 2019 and 2018. The notional amounts of the swap agreements in place at September 30, 2019 expire as follows: $50 million in 2021; $475 million in 2022; $450 million in 2023; and $100 million in 2024.

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Fair Value Hedges of Interest Rate Risk

Interest rate swaps on brokered deposits

The Company enters into interest rate swap agreements that modify the Company’s exposure to interest rate risk by effectively converting a portion of the Company’s brokered certificates of deposit from fixed rates to variable rates. The maturities and call features of these interest rate swaps match the features of the hedged deposits. As interest rates fall, the decline in the value of the certificates of deposit is offset by the increase in the value of the interest rate swaps. Conversely, as interest rates rise, the value of the underlying hedged deposits increases, but the value of the interest rate swaps decreases, resulting in no impact on earnings. Interest expense is adjusted by the difference between the fixed and floating rates for the period the swaps are in effect.

Interest rate swaps on securities available for sale

In the third quarter of 2019, the Company executed multiple forward starting fixed payer swaps to convert the latter portion of pools of available for sale securities to a floating rate. These instruments were designated as last-of-layer fair value hedges against the select closed pools of prepayable commercial mortgage backed securities. This strategy provides the Company with a fixed rate coupon during the front end unhedged tenor of the bonds and results in a floating rate security during the back end hedged tenor, with hedged start dates between August 2023 through August 2024 and maturity dates from January 2028 through January 2029. In accordance with ASC 815, an entity may exclude prepayment risk when measuring the change in fair value of the hedged item attributable to interest rate risk under the last-of-layer approach. The fair value of the hedged item attributable to interest rate risk will be presented in interest income along with the change in the fair value of the hedging instrument.

At September 30, 2019, the amortized cost basis of the closed portfolio of prepayable commercial mortgage backed securities totaled $499.2 million. The amount that represents the hedged items was $441.4 million and the basis adjustment associated with the hedged items totaled $7.9 million.

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 its credit risk under risk participation agreements by monitoring the creditworthiness of the borrower, based on the Bank’s 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 foreign currency contracts, with commercial banking customers to facilitate their risk management strategies. The Bank manages its risk exposure from such transactions by entering

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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.

Visa Class B derivative contract

The Company is a member of Visa USA. During the fourth quarter of 2018, the Company sold the majority of its Visa Class B holdings, at which time it entered into a derivative agreement with the purchaser whereby the Company will make or receive cash payments whenever the conversion ratio of the Visa Class B shares into Visa Class A shares is adjusted. The conversion ratio changes when Visa deposits funds to a litigation escrow account established by Visa to pay settlements for certain litigation, for which Visa is indemnified by Visa USA members. The Company is also required to make periodic financing payments to the purchaser until all of Visa’s covered litigation matters are resolved. Thus, the derivative contract extends until the end of Visa’s covered litigation matters, the timing of which is uncertain.

The contract includes a contingent accelerated termination clause based on the credit ratings of the Company. At September 30, 2019 and December 31, 2018 the fair value of the liability associated with this contract was $6.2 million and $7.3 million, respectively. Refer to Note 15 – Fair Value of Financial Instruments for discussion of the valuation inputs for this derivative liability.

Effect of Derivative Instruments on the Statement of Income

The effects of derivative instruments on the consolidated statements of income for the three and nine months ended September 30, 2019 and 2018 are presented in the table below. For the three and nine months ended September 30, 2019 and 2018, the reduction of interest income attributable to cash flow hedges includes amortization of accumulated other comprehensive loss that resulted from termination of five interest rate swap contracts.

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
Derivative Instruments:	Location of Gain (Loss) Recognized in the Statement of Income:	2019			2018			2019			2018
Interest rate swaps designated as hedges:
Cash flow hedges - variable rate loans	Interest income	$	(956	)	$	(1,276	)	$	(4,632	)	$	(2,841	)
Fair value hedges - securities	Interest income		15			—			15			—
Fair value hedges - brokered deposits	Interest expense		(243	)		(725	)		(1,692	)		(1,371	)
All other instruments	Other noninterest income		4,324			1,363			8,733			4,474
Total		$	3,140		$	(638	)	$	2,424		$	262

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 a 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. At September 30, 2019, the Company was not in violation of any such provisions.

Offsetting Assets and Liabilities

The Bank’s derivative instruments with certain counterparties contain legally enforceable netting provisions that allow for net settlement of multiple transactions to a single amount, which may be positive, negative, or zero. Agreements with certain bilateral counterparties require both parties to maintain collateral in the event that the fair values of derivative instruments exceed established exposure thresholds. For centrally cleared derivatives, the Company is subject to initial margin posting and daily variation margin exchange with the central clearinghouses. Offsetting information in regards to all derivative assets and liabilities, including accrued interest, subject to these master netting agreements at September 30, 2019 and December 31, 2018 is presented in the following tables.

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(in thousands)			Gross Amounts			Net Amounts		Gross Amounts Not Offset in the Statement of Income
Description	Gross Amounts Recognized		Offset in the Statement of Income			Presented in the Statement of Income		Financial Instruments		Cash Collateral		Net Amount
As of September 30, 2019
Derivative Assets	$	32,718	$	(32,694	)	$	24	$	24			$	—
Derivative Liabilities	$	79,900	$	(65,280	)	$	14,620	$	24	$	37,657	$	(23,061	)

(in thousands)			Gross Amounts			Net Amounts		Gross Amounts Not Offset in the Statement of Income
Description	Gross Amounts Recognized		Offset in the Statement of Income			Presented in the Statement of Income		Financial Instruments		Cash Collateral		Net Amount
As of December 31, 2018
Derivative Assets	$	16,167	$	(12,842	)	$	3,325	$	1,846	$	—	$	1,479
Derivative Liabilities	$	23,811	$	(21,651	)	$	2,160	$	1,846	$	2,871	$	(2,557	)

The Company has excess collateral compared to total exposure due to initial margin requirements for day-to-day rate volatility.

8. Stockholders’ Equity

Common Shares Outstanding

Common shares outstanding excludes treasury shares totaling 0.8 million at September 30, 2019 and 0.9 million at December 31, 2018, with a first-in-first-out cost basis of $14.9 million and $18.5 million at September 30, 2019 and December 31, 2018, respectively. Shares outstanding also excludes unvested restricted share awards totaling 1.3 million at September 30, 2019 and December 31, 2018.

Shares Issued as Consideration in Business Combination

On September 20, 2019, the Company issued approximately 5.0 million shares of common stock at $38.42 as consideration in its acquisition of MidSouth. Refer to Note 2 – Business Combinations for further information.

Stock Buyback Program

On May 24, 2018, the Company’s board of directors approved a stock buyback program whereby the Company was authorized to repurchase up to 5%, or 4.3 million shares, of its 85.3 million shares common stock then outstanding. The program was set to expire on December 31, 2019. Under this program, 200,000 shares of the Company’s common stock were repurchased at an average price of $41.30 per share.

On September 23, 2019, the Company’s board of directors approved a new amended stock buyback program that authorizes the Company to repurchase up to 5.5 million shares of its common stock through the expiration date of December 31, 2020. The program, as amended, allows the Company to repurchase its common shares in the open market, by block purchase, through accelerated share repurchase programs, in privately negotiated transactions, or as otherwise determined by the Company in one or more transactions. The Company is not obligated to purchase any shares under this program, and the board of directors may terminate or amend the program at any time prior to the expiration date. Refer to Note 17 – Subsequent Event for information about the accelerated share repurchase agreement the Company entered into subsequent to the balance sheet date.

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Accumulated Other Comprehensive Loss

The components of Accumulated Other Comprehensive Loss and changes in those components are presented in the following table.

	Available for Sale Securities			HTM Securities Transferred from AFS			Employee Benefit Plans			Cash Flow Hedges			Equity Method Investment			Total
(in thousands)
Balance, December 31, 2017	$	(29,512	)	$	(14,585	)	$	(79,078	)	$	(11,227	)	$	—		$	(134,402	)
Other comprehensive income/loss before income taxes:
Net change in unrealized loss		(92,477	)		—			—			(18,418	)		—			(110,895	)
Reclassification of net loss realized and included in earnings		—			—			3,719			2,841			—			6,560
Other Valuation adjustments for employee benefit plan		—			—			(9,039	)		—			—			(9,039	)
Amortization of unrealized net loss on securities transferred to HTM		—			2,427			—			—			—			2,427
Income tax expense (benefit)		(20,985	)		550			(1,205	)		(3,530	)		—			(25,170	)
Balance, September 30, 2018	$	(101,004	)	$	(12,708	)	$	(83,193	)	$	(23,274	)	$	—		$	(220,179	)
Balance, December 31, 2018	$	(50,125	)	$	(12,044	)	$	(110,247	)	$	(8,293	)	$	—		$	(180,709	)
Other comprehensive income (loss) before income taxes:
Net change in unrealized gain or loss		125,589			—			—			35,472			(434	)		160,627
Reclassification of net loss realized and included in earnings		—			—			6,851			4,632			—			11,483
Valuation adjustment employee benefit plan		—			—			(7,015	)		—			—			(7,015	)
Amortization of unrealized net loss on securities transferred to HTM		—			2,435			—			—			—			2,435
Income tax expense (benefit)		28,395			551			(37	)		9,068			—			37,977
Balance, September 30, 2019	$	47,069		$	(10,160	)	$	(110,374	)	$	22,743		$	(434	)	$	(51,156	)

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Accumulated Other Comprehensive Income or 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”), including the Company’s share of unrealized gains and losses reported by a partnership accounted for under the equity method, 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 and 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. Subject to certain thresholds, unrealized losses on employee benefit plans will be reclassified into income as pension and post-retirement costs are recognized over the remaining service period of plan participants. Accumulated gains or losses on the cash flow hedge of the variable rate loans described in Note 7 will be reclassified into income over the life of the hedge. Accumulated other comprehensive loss resulting from the terminated interest rate swaps will be amortized over the remaining maturities of the designated instruments. Gains and losses within AOCI are net of deferred income taxes, where applicable.

The following table shows the line items of the consolidated statements of income affected by amounts reclassified from AOCI.

	Nine Months
Amount reclassified from AOCI (a)	September 30,						Affected line item on
(in thousands)	2019			2018			the statement of income
Amortization of unrealized net loss on securities transferred to HTM	$	(2,435	)	$	(2,427	)	Interest income
Tax effect		551			550		Income taxes
Net of tax		(1,884	)		(1,877	)	Net income
Amortization of defined benefit pension and post-retirement items		(6,851	)		(3,719	)	Other noninterest expense (b)
Tax effect		1,546			842		Income taxes
Net of tax		(5,305	)		(2,877	)	Net income
Reclassification of unrealized gain (loss) on cash flow hedges		(1,200	)		1,264		Interest income
Tax effect		271			(286	)	Income taxes
Net of tax		(929	)		978		Net income
Amortization of loss on terminated cash flow hedges		(3,432	)		(4,105	)	Interest income
Tax effect		776			930		Income taxes
Net of tax		(2,656	)		(3,175	)	Net income
Total reclassifications, net of tax	$	(10,774	)	$	(6,951	)	Net income

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

(b)	These AOCI components are included in the computation of net periodic pension and post-retirement cost that is reported with employee benefits expense (see Note 12 – Retirement Plans for additional details).

9. Other Noninterest Income

Components of other noninterest income are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2019		2018		2019		2018
Income from bank-owned life insurance	$	4,147	$	3,100	$	11,495	$	9,283
Credit related fees		2,988		2,762		8,520		7,900
Income from derivatives		4,324		1,363		8,733		4,474
Gain (loss) on sales of assets		205		989		636		(177	)
Other miscellaneous		4,661		3,342		11,389		10,066
Total other noninterest income	$	16,325	$	11,556	$	40,773	$	31,546

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10. Other Noninterest Expense

Components of other noninterest expense are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2019			2018			2019			2018
Advertising	$	5,435		$	2,553		$	11,768		$	8,596
Corporate value and franchise taxes		4,109			3,718			12,366			10,735
Telecommunications and postage		3,610			3,598			10,439			11,063
Entertainment and contributions		2,765			2,539			8,215			8,250
Printing and supplies		1,459			1,287			3,720			4,261
Travel expense		1,172			1,365			3,614			3,872
Tax credit investment amortization		1,286			1,560			3,658			3,309
Other retirement expense		(4,152	)		(4,664	)		(12,409	)		(13,585	)
Loss on restructuring of bank-owned life insurance contracts		—			—			—			3,240
Other miscellaneous		17,374			6,297			29,653			20,811
Total other noninterest expense	$	33,058		$	18,253		$	71,024		$	60,552

Included in other miscellaneous expense for the three and nine months ended September 30, 2019 is approximately $11.9 million of expenses associated with the MidSouth acquisition, such as contract and lease termination fees, and other transaction related costs.

11. Earnings Per Common Share

The Company 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 nonvested share-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				Nine Months Ended
	September 30,				September 30,
(in thousands, except per share data)	2019		2018		2019		2018
Numerator:
Net income to common shareholders	$	67,807	$	83,878	$	235,248	$	227,530
Net income allocated to participating securities - basic and diluted		1,141		1,544		3,980		4,238
Net income allocated to common shareholders - basic and diluted	$	66,666	$	82,334	$	231,268	$	223,292
Denominator:
Weighted-average common shares - basic		86,377		85,348	$	85,934	$	85,298
Dilutive potential common shares		85		191		76		184
Weighted-average common shares - diluted		86,462		85,539	$	86,010	$	85,482
Earnings per common share:
Basic	$	0.77	$	0.96	$	2.69	$	2.62
Diluted	$	0.77	$	0.96	$	2.69	$	2.61

Potential common shares consist of stock options, nonvested performance-based awards, and nonvested restricted share awards deferred under the Company’s nonqualified deferred compensation plan. These potential common shares do not enter into the calculation of diluted earnings per share if the impact would be antidilutive, i.e., increase earnings per share or reduce a loss per share. Weighted average antidilutive potential common shares totaled 43,794 and 37,680 for the three and nine months ended September 30, 2019, respectively. There were 14,904 and 18,257 antidilutive potential common shares excluded from the calculation of diluted earnings per share for the three and nine months ended September 30, 2018, respectively.

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12. Retirement Plans

The Company sponsors a qualified defined benefit pension plan, the Hancock Whitney Corporation Pension Plan (“Pension Plan”), covering certain eligible associates. Those hired or rehired by the Company prior to June 30, 2017 are eligible to participate; however, the accrued benefits of each participant in the Pension Plan whose combined age plus years of service as of January 1, 2018 totaled less than 55 were frozen as of January 1, 2018 and will not thereafter increase. The Company makes contributions to the Pension Plan in amounts sufficient to meet funding requirements set forth in federal employee benefit and tax laws, plus such additional amounts as the Company may determine to be appropriate. During the first quarter of 2019, the Company made a discretionary contribution of $100 million to the Pension Plan. During the third quarter of 2018, the Company made a discretionary contribution of $39 million to the Pension Plan designated to the 2017 plan year.

The Company also offers a defined contribution retirement benefit plan, the Hancock Whitney Corporation 401(k) Savings Plan (“401(k) Plan”), that covers substantially all associates who have been employed 60 days and meet a minimum age requirement and employment classification criteria. The Company matches 100% of the first 1% of compensation saved by a participant, and 50% of the next 5% of compensation saved. Newly eligible associates are automatically enrolled at an initial 3% savings rate unless the associate actively opts out of participation in the plan. Beginning January 1, 2018, the Company makes an additional basic contribution to associates hired or rehired after June 30, 2017 in an amount equal to 2% of the associate’s eligible compensation. For Pension Plan participants whose benefits were frozen as of January 1, 2018, the 401(k) Plan provides an enhanced Company contribution in the amount of 2%, 4% or 6% of such participant’s eligible compensation, based on the participant’s age and years of service with the Company. Participants vest in basic and enhanced Company contributions upon completion of three years of service.

The Company sponsors a nonqualified defined benefit plan covering certain legacy Whitney employees that was frozen as of December 31, 2012 and no future benefits are accrued under this plan.

The Company 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.

							Other Post-
(in thousands)	Pension Benefits						Retirement Benefits
For the Three Months Ended September 30,	2019			2018			2019			2018
Service cost	$	2,735		$	3,163		$	22		$	28
Interest cost		4,659			4,279			165			161
Expected return on plan assets		(11,299	)		(10,375	)		—			—
Amortization of net loss and prior service costs		2,553			1,366			(229	)		(95	)
Net periodic benefit cost (reduction of cost)	$	(1,352	)	$	(1,567	)	$	(42	)	$	94

							Other Post-
(in thousands)	Pension Benefits						Retirement Benefits
For the Nine Months Ended September 30,	2019			2018			2019			2018
Service cost	$	8,245		$	9,251		$	73		$	91
Interest cost		14,183			12,481			457			459
Expected return on plan assets		(33,899	)		(30,244	)		—			—
Amortization of net loss and prior service costs		7,535			4,057			(684	)		(338	)
Net periodic benefit cost (reduction of cost)	$	(3,936	)	$	(4,455	)	$	(154	)	$	212

13. Share-Based Payment Arrangements

The Company 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 17 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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A summary of stock option activity for the nine months ended September 30, 2019 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
Options	Shares			Price		Term (Years)		Value ($000)
Outstanding at January 1, 2019		46,865		$	31.88		2.6	$	164
Former MidSouth options converted at acquisition		20,530			46.76				—
Exercised/Released		(18,969	)		31.54				172
Cancelled/Forfeited		—			—				—
Expired		—			—				—
Outstanding at September 30, 2019		48,426		$	38.32		1.5	$	174
Exercisable at September 30, 2019		48,426		$	38.32		1.5	$	174

The total intrinsic value of options exercised during the nine months ended September 30, 2019 and 2018 was $0.2 million and $0.6 million, respectively.

The Company’s restricted and performance-based share awards to certain employees and directors are subject to service requirements. A summary of the status of the Company’s nonvested restricted and performance-based share awards at September 30, 2019 and changes during the nine months ended September 30, 2019, are presented in the following table.

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Nonvested at January 1, 2019		1,494,041		$	39.89
Granted		102,221			35.74
Vested		(35,353	)		40.96
Forfeited		(53,525	)		39.22
Nonvested at September 30, 2019		1,507,384		$	39.60

As of September 30, 2019, there was $41.3 million of total unrecognized compensation expense related to nonvested restricted and performance shares expected to vest in the future. This compensation is expected to be recognized in expense over a weighted average period of 3.0 years. The total fair value of shares which vested during the nine months ended September 30, 2019 and 2018 was $1.3 million and $2.0 million, respectively.

During the nine months ended September 30, 2019, the Company granted 33,691 performance share awards subject to a total shareholder return (“TSR”) performance metric with a grant date fair value of $35.27 per share and 33,691 performance shares subject to an operating earnings per share performance metric with a grant date fair value of $32.15 per share to key members of executive management. The number of performance shares subject to TSR that ultimately vest at the end of the three-year performance period, if any, will be based on the relative rank of the Company’s three-year TSR among the TSRs of a peer group of 42 regional banks. The fair value of the performance shares subject to TSR at the grant date was determined using a Monte Carlo simulation method. The number of performance shares subject to operating earnings per share that ultimately vest will be based on the Company’s attainment of certain operating earnings per share goals over the two-year performance period. The maximum number of performance shares that could vest is 200% of the target award. Compensation expense for these performance shares is recognized on a straight line basis over the three-year service period.

14. Commitments and Contingencies

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 its 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 and Bank must include unfunded commitments meeting certain criteria in risk-weighted capital calculations.

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

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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 presents a summary of the Company’s off-balance sheet financial instruments as of September 30, 2019 and December 31, 2018:

	September 30,		December 31,
(in thousands)	2019		2018
Commitments to extend credit	$	7,478,907	$	7,234,528
Letters of credit		389,998		365,498

Legal Proceedings

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

15. Fair Value Measurements

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 establishes 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 at September 30, 2019 and December 31, 2018:

	September 30, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities	$	—	$	95,141	$	—	$	95,141
Municipal obligations		—		252,163		—	$	252,163
Corporate debt securities		—		3,897		—	$	3,897
Residential mortgage-backed securities		—		1,339,471		—	$	1,339,471
Commercial mortgage-backed securities		—		1,624,169		—	$	1,624,169
Collateralized mortgage obligations		—		234,816		—	$	234,816
Total available for sale securities		—		3,549,657		—		3,549,657
Derivative assets (1)		—		71,904		—		71,904
Total recurring fair value measurements - assets	$	—	$	3,621,561	$	—	$	3,621,561
Liabilities
Derivative liabilities (1)	$	—	$	17,218	$	6,249	$	23,467
Total recurring fair value measurements - liabilities	$	—	$	17,218	$	6,249	$	23,467

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	December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities	$	—	$	71,706	$	—	$	71,706
Municipal obligations		—		240,427		—		240,427
Corporate debt securities		—		3,500		—		3,500
Residential mortgage-backed securities		—		1,443,402		—		1,443,402
Commercial mortgage-backed securities		—		770,077		—		770,077
Collateralized mortgage obligations		—		161,925		—		161,925
Total available for sale securities		—		2,691,037		—		2,691,037
Derivative assets (1)		—		16,980		—		16,980
Total recurring fair value measurements - assets		—	$	2,708,017		—	$	2,708,017
Liabilities
Derivative liabilities (1)	$	—	$	14,923	$	7,304	$	22,227
Total recurring fair value measurements - liabilities	$	—	$	14,923	$	7,304	$	22,227

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

Securities classified as level 2 include obligations of U.S. Government agencies and U.S. Government-sponsored agencies, residential and commercial 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 and a half years. Company policies generally limit investments to U.S. 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.

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For the Company’s derivative financial instruments designated as hedges and those under the customer interest rate program, the fair value is obtained from a third-party pricing service that uses an industry-standard discounted cash flow model that relies on inputs, LIBOR swap curves, Overnight Index swap rate curves, all 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 these 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 for these instruments in level 2 of the fair value hierarchy. The Company’s policy is to measure counterparty credit risk quarterly for all derivative instruments 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.

The Company’s Level 3 liability consists of a derivative contract with the purchaser of 192,163 shares of Visa Class B common stock. Pursuant to the agreement, the Company retains the risks associated with the ultimate conversion of the Visa Class B common shares into shares of Visa Class A common stock, such that the counterparty will be compensated for any dilutive adjustments to the conversion ratio and the Company will be compensated for any anti-dilutive adjustments to the ratio. The agreement also requires periodic payments by the Company to the counterparty calculated by reference to the market price of Visa Class A common shares at the time of sale and a fixed rate of interest that steps up once after the eighth scheduled quarterly payment. The fair value of the liability is determined using a discounted cash flow methodology. The significant unobservable inputs used in the fair value measurement are the Company’s own assumptions about estimated changes in the conversion rate of the Visa Class B common shares into Visa Class A common shares, the date on which such conversion is expected to occur and the estimated growth rate of the Visa Class A common share price. Refer to Note 7 – Derivatives for information about the derivative contract with the counterparty.

The Company believes its valuation methods for its assets and liabilities carried at fair value are appropriate; however, the use of different methodologies or assumptions, particularly as applied to Level 3 assets and liabilities, could have a material effect on the computation of their estimated fair values.

Changes in Level 3 Fair Value Measurements and Quantitative Information about Level 3 Fair Value Measurements

The table below presents a rollforward of the amounts on the consolidated balance sheets for the nine months ended September 30, 2019 and the year ended December 31, 2018 for financial instruments of a material nature that are classified within Level 3 of the fair value hierarchy and are measured at fair value on a recurring basis:

(in thousands)
Balance at December 31, 2017	$	—
Entry into derivative contract		7,304
Balance at December 31, 2018		7,304
Cash settlements		(1,262	)
Losses included in earnings		207
Balance at September 30, 2019	$	6,249

The table below provides an overview of the valuation techniques and significant unobservable inputs used in those techniques to measure the financial instrument measured on a recurring basis and classified within Level 3 of the valuation. The range of sensitivities that management utilized in its fair value calculations is deemed acceptable in the industry with respect to the identified financial instrument.

($ in thousands)

Fair Value

Level 3 Class

September 30, 2019

December 31, 2018

Valuation Technique

Unobservable Input

Values Utilized

Visa Class A appreciation

6% - 18%

Derivative liability

6,249

7,304

Discounted cash flow

Conversion rate

1.62x - 1.59x

Time until resolution

24-39 months

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The Company’s policy is to recognize transfers between valuation hierarchy levels as of the end of a reporting period. There were no transfers between levels during the periods presented.

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 and foreclosed assets, including both foreclosed property and surplus banking property, are level 3 assets that are adjusted to fair value, less estimated selling costs, upon transfer from loans or property and equipment. Subsequently, other real estate owned and foreclosed assets 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 assets.

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 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, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Collateral-dependent impaired loans	$	—	$	170,425	$	—	$	170,425
Other real estate owned and foreclosed assets, net		—		—		30,955	$	30,955
Total nonrecurring fair value measurements	$	—	$	170,425	$	30,955	$	201,380

	December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total
Collateral-dependent impaired loans	$	—	$	170,918	$	—	$	170,918
Other real estate owned and foreclosed assets, net		—		—		14,594		14,594
Total nonrecurring fair value measurements	$	—	$	170,918	$	14,594	$	185,512

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.

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

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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 amounts:

	September 30, 2019
							Total Fair		Carrying
(in thousands)	Level 1		Level 2		Level 3		Value		Amount
Financial assets:
Cash, interest-bearing bank deposits, and federal funds sold	$	517,576	$	—	$	—	$	517,576	$	517,576
Available for sale securities		—		3,549,657		—		3,549,657		3,549,657
Held to maturity securities		—		2,920,356		—		2,920,356		2,855,062
Loans, net		—		170,425		20,812,059		20,982,484		20,840,380
Loans held for sale		—		75,789		—		75,789		75,789
Derivative financial instruments		—		71,904		—		71,904		71,904
Financial liabilities:
Deposits		—		—		24,188,274		24,188,274		24,201,299
Federal funds purchased		125,400		—		—		125,400		125,400
Securities sold under agreements to repurchase		545,915		—		—		545,915		545,915
FHLB short-term borrowings		1,437,500		—		—		1,437,500		1,437,500
Long-term debt		—		245,715		—		245,715		246,641
Derivative financial instruments		—		17,218		6,249		23,467		23,467

	December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total Fair Value		Carrying Amount
Financial assets:
Cash, interest-bearing bank deposits, and federal funds sold	$	494,466	$	—	$	—	$	494,466	$	494,466
Available for sale securities		—		2,691,037		—		2,691,037		2,691,037
Held to maturity securities		—		2,935,856		—		2,935,856		2,979,547
Loans, net		—		170,918		19,555,969		19,726,887		19,831,897
Loans held for sale		—		28,150		—		28,150		28,150
Derivative financial instruments		—		16,980		—		16,980		16,980
Financial liabilities:
Deposits		—		—		23,129,574		23,129,574		23,150,185
Federal funds purchased		425		—		—		425		425
Securities sold under agreements to repurchase		428,599		—		—		428,599		428,599
FHLB short-term borrowings		1,160,104		—		—		1,160,104		1,160,104
Long-term debt		—		223,135		—		223,135		224,993
Derivative financial instruments		—		14,923		7,304		22,227		22,227

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16. Recent Accounting Pronouncements

Accounting Standards Adopted in 2019

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. With the exception of short-term leases, lessees are required to recognize a lease liability representing the lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset representing the lessee’s right to use, or control the use of, a specified asset for the lease term upon adoption. Lessor accounting was largely unchanged under the new guidance, except for clarification of the definition of initial direct costs which provided additional guidance on the timing of recognition of those costs. Subsequent to the issuance of this update, the FASB issued three additional ASUs that provide codification improvements and certain transition elections, including ASU 2018-11, which permits an additional transition method whereby an entity may elect to record a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company was required to and did adopt the standard effective January 1, 2019, using the modified retrospective transition method permitted by ASU 2018-11. Thus, the Company’s reporting for the comparative period presented in the financial statements and disclosures continues to be in accordance with GAAP Topic 840. Upon adoption, the Company recorded a gross-up of assets and liabilities in its Consolidated Balance Sheet, with approximately $116 million for right of use assets and $131 million of lease payment obligations offset by the elimination of $15 million of existing lease incentive and other deferred rent liabilities. Accounting for leases in accordance with Topic 842 has not had a material impact upon the Company’s consolidated results of operations, and is not expected to in future periods. Refer to Note 5 – Operating Leases for further information related to operating lease accounting policy, practical expedient elections for adoption and operating leasing information at adoption and as of September 30, 2019.

Issued but Not Yet Adopted Accounting Standards

In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The Update provides clarification and correction to certain areas of previously issued ASUs concerning financial instruments (2016-01, 2016-13 and 2017-12). The FASB does not expect the provisions contained in this Update to have a significant effect on current accounting practice. Effective dates for adoption of this Update’s provisions vary in accordance with the effective dates and adoption status of the amended ASUs. The Company is currently assessing the impact of adoption of this guidance, but it is not expected to have a material impact upon its financial position and results of operations.

In August 2018, the FASB issued ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans.” The amendments in this Update modify certain disclosure requirements by removing disclosures that are no longer considered cost beneficial, clarifying specific requirements of disclosures, and adding disclosure requirements identified as relevant. The amendments in this Update are effective for fiscal years ending after December 15, 2020 for public business entities, and early adoption is permitted. The Company is currently assessing the impact of adoption of this guidance upon its pension and postretirement plan disclosures. Adoption of this guidance will have no impact upon the Company’s results of operations or financial condition.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in this Update modify certain disclosure requirements on fair value measurements set forth in Topic 820, Fair Value Measurements. In addition, the amendments in this Update eliminate the phrase “an entity shall disclose at a minimum” to promote the appropriate exercise of discretion by entities when considering fair value measurement disclosures to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2019, and early adoption is permitted. The Company is currently assessing the impact of adoption of this guidance upon its fair value measurements disclosures. Adoption of this guidance will have no impact upon the Company’s results of operations or financial condition.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU, more commonly referred to as Current Expected Credit Losses, or CECL, requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations are required to use forward-looking information to inform their credit loss estimates. Many of the loss estimation techniques currently applied will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. In addition, the ASU amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. The ASU is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with a cumulative-effect adjustment to retained earnings for non-purchased credit impaired loans as of the beginning of the year of adoption. For purchased credit impaired loans, there is no impact to retained earnings upon adoption; rather, the entity will reclassify a portion of the purchase accounting fair value mark to

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allowance for credit losses as of the beginning of the year of adoption. Early application is permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company will not early adopt this guidance.

The Company has internally developed credit models and completed the implementation of a vendor provided platform to aggregate inputs and perform the calculation of allowance for credit losses. The validation of the credit loss models is ongoing and expected to be completed during the fourth quarter of 2019. Additional CECL implementation activities in the fourth quarter 2019 will include refinement of procedures, completion of the design and implementation of internal controls over financial reporting, conclusion of validation of credit models and end-to-end processes, and drafting of newly required disclosures.

The Company has completed parallel testing of the CECL estimation process for the third quarter 2019, which included executed controls established to-date surrounding data, models and governance. Results from this process indicated a net increase of approximately 20 to 30 percent over the September 30, 2019 incurred loan loss reserve level utilizing the CECL models and current economic forecast; this range excludes the impact of the loans and debt securities recently acquired from MidSouth. The Company’s CECL allowance for loan losses estimates losses over a two-year reasonable and supportable forecast period utilizing the weighted average of a range of macroeconomic scenarios, and then reverts to longer historical loss experience to estimate losses for the remaining life. Significant drivers in the aforementioned increase were higher calculated reserve levels for longer life real-estate secured loans and the expected funding of off-balance sheet exposures, partially offset by lower reserves for shorter-term commercial loans. Immaterial expected credit losses were calculated on held to maturity debt securities. The amount of increase in allowance for credit losses upon adoption will be impacted by the portfolio composition and quality as well as current economic conditions and forecasts at that time.

17. Subsequent Event

On October 18, 2019, the Company entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co. LLC (“Morgan Stanley”) to repurchase $185 million of the Company’s common stock. The ASR agreement was entered into under the current stock buyback program, under which the Company is authorized to repurchase up to 5.5 million shares of its common stock prior to December 31, 2020. Refer to Note 8 – Stockholders’ Equity for information about the stock buyback program.

Pursuant to the ASR agreement, the Company made a $185 million payment to Morgan Stanley on October 21, 2019, and received from Morgan Stanley on the same day an initial delivery of approximately 3.6 million shares of the Company’s common stock, which represents approximately 75% of the estimated total number of shares to be repurchased under the ASR agreement based on the October 18, 2019 closing price of the Company’s common stock. The final number of shares to be repurchased will be based generally on the volume-weighted average price per share of the Company’s common stock during the term of the ASR agreement, less a discount, and subject to possible adjustments in accordance with the terms of the ASR agreement. Final settlement of the ASR agreement is scheduled to occur no later than the third quarter of 2020.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning and protections of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q and in other reports or documents that we file from time to time with the SEC include, but are not limited to, the following:

•

balance sheet and revenue growth expectations may differ from actual results;

•

the risk that our provision for loan losses may be inadequate or may be negatively affected by credit risk exposure;

•

loan growth expectations;

•

management’s predictions about charge-offs, including energy-related credits, the impact of changes in oil and gas prices on our energy portfolio, and the downstream impact on businesses that support that sector, especially in the Gulf Coast Region;

•

the risk that our enterprise risk management framework may not identify or address risks adequately, which may result in unexpected losses;

•

the impact of the transactions with Capital One or MidSouth, or future business combinations upon our performance and financial condition including our ability to successfully integrate the businesses;

•

deposit trends;

•

credit quality trends;

•

changes in interest rates;

•

the impact of the change in the LIBOR benchmark;

•

net interest margin trends;

•

future expense levels;

•

improvements in expense to revenue (efficiency ratio);

•

success of revenue-generating initiatives;

•

the effectiveness of derivative financial instruments and hedging activities to manage risks;

•

risks related to our reliance on third parties to provide key components of our business infrastructure, including the risks related to disruptions in services or financial difficulties of a third-party vendor;

•

risks related to the ability of our operational framework to manage risks associated with our business such as credit risk and operation risk, including third-party vendors and other service providers, which could among other things, result in a breach of operating or security systems as a result of a cyber-attack or similar act;

•

projected tax rates;

•

future profitability;

•

purchase accounting impacts, such as accretion levels;

•

our ability to identify and address potential cybersecurity risks, including data security breaches, credential stuffing, malware, “denial-of-service” attacks, “hacking” and identify theft, a failure of which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage to our systems, increased costs, losses, or adverse effects to our reputation;

•

our ability to receive dividends from Hancock Whitney Bank could affect our liquidity, including our ability to pay dividends or take other capital actions;

•

the impact on our financial results, reputation, and business if we are unable to comply with all applicable federal and state regulations or other supervisory actions or directives and any necessary capital initiatives;

•

our ability to effectively compete with other traditional and non-traditional financial services companies, some of whom possess greater financial resources than we do or are subject to different regulatory standards than we are;

•

our ability to maintain adequate internal controls over financial reporting;

•

potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions;

•

the financial impact of future tax legislation; and

•

changes in laws and regulations affecting our businesses, including legislation and regulations relating to bank products and services, as well as changes in the enforcement and interpretation of such laws and regulations by applicable governmental and self-regulatory agencies, which could require us to change certain business practices, increase compliance risk, reduce our revenue, impose additional costs on us, or otherwise negatively affect our businesses.

Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “forecast,” “goals,” “targets,” “initiatives,” “focus,” “potentially,” “probably,” “projects,” “outlook,” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.” Forward-looking statements are based upon the current beliefs and expectations of management and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events.

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Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward looking statements. Additional factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 and in other periodic reports that we file with the SEC.

You are cautioned not to place undue reliance on these forward-looking statements. We do not intend, and undertake 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.

OVERVIEW

Non-GAAP Financial Measures

Management’s Discussion and Analysis of Financial Condition and Results of Operations include non-GAAP measures used to describe our performance. These non-GAAP financial measures have inherent limitations as analytical tools and should not be considered on a standalone basis or as a substitute for analyses of financial condition and results as reported under GAAP. Non-GAAP financial measures are not standardized and therefore, it may not be possible to compare these measures with other companies that present measures having the same or similar names. These disclosures should not be considered an alternative to GAAP.

A reconciliation of those measures to GAAP measures are provided within the Selected Financial Data section that appears later in this item. The following is a summary of these non-GAAP measures and an explanation as to why they are deemed useful.

Consistent with Securities and Exchange Commission Industry Guide 3, we present net interest income, net interest margin and efficiency ratios on a fully taxable equivalent (“te”) basis. The te basis adjusts for the tax-favored status of net interest income from certain loans and investments using a statutory federal tax rate of 21% to increase tax-exempt interest income to a taxable equivalent basis. We believe this measure to be the preferred industry measurement of net interest income, and that it enhances comparability of net interest income arising from taxable and tax-exempt sources.

We present certain additional non-GAAP financial measures to assist the reader with a better understanding of the Company’s performance period over period, as well as to provide investors with assistance in understanding the success management has experienced in executing its strategic initiatives. These non-GAAP measures may reference the concept “operating.” We use the term “operating” to describe a financial measure that excludes income or expense considered to be nonoperating in nature. Items identified as nonoperating are those that, when excluded from a reported financial measure, provide management or the reader with a measure that may be more indicative of forward-looking trends in our business.

We define Operating Revenue as net interest income (te) and noninterest income less nonoperating revenue. We define Operating Pre-Provision Net Revenue as operating revenue (te) less noninterest expense, excluding nonoperating items. Management believes that operating pre-provision net revenue 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.

We define Operating Earnings as reported net income excluding nonoperating items net of income tax. We define Operating Earnings per Share as operating earnings expressed as an amount available to each common shareholder on a diluted basis.

MidSouth Acquisition

On September 21, 2019, we completed the acquisition of MidSouth Bancorp, Inc. (“MidSouth”) (NYSE: MSL), parent company of MidSouth Bank, N.A, with simultaneous operational conversion. We acquired net assets of approximately $124.7 million, including the following:

•

loans totaling $785 million, net of a $41 million discount

•

cash, short-term investments and securities available for sale totaling $622.9 million

•

deposits of $1.3 billion, which includes $389.6 million of noninterest-bearing deposits

In consideration for the net assets acquired, each outstanding share of MidSouth common stock converted to 0.2952 shares of our common stock. As such, we issued approximately 5.0 million shares resulting in a transaction value of approximately $193.8 million. The transaction resulted in estimated goodwill of $69.2 million.

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Upon acquisition, we closed or consolidated 20 MidSouth branches. The Company incurred acquisition-related expenses of $28.8 million, or $0.26 per diluted share, in the third quarter and expects to incur an additional $3 to $5 million of expenses before the end of year. The transaction is expected to be accretive to income beginning in the first quarter of 2020 and is projected to add approximately $0.13 to $0.15 to 2020 earnings once fully phased-in. The transaction provides the opportunity for both enhanced growth in several of our current markets, such as MidSouth’s home market of Lafayette, Louisiana, as well as opportunities for expansion into new markets in Louisiana and Texas.

Current Economic Environment

Most of our market areas experienced a modest to moderate expansion in economic activity during the third quarter of 2019, according to the Federal Reserve’s Summary of Commentary on Current Economic Conditions (“Beige Book”). Overall, the economic outlook was generally positive, though there is continued concern over trade tensions and a more pessimistic outlook in energy as a result of reduced expectations for global economic growth.

Drilling activity in the energy sector continued to erode, contributing to a notable weakness in oilfield services. However, oil and gas production continued to rise and well completion continued to increase in the Permian Basin. The attacks on Saudi Arabian oil facilities did not change planned capital spending in the energy sector because there was not a lasting increase in the price of oil. Forecast for the remainder of the year was slightly more pessimistic than previously reported due to lower spending and a weaker economic outlook.

Commercial real estate conditions remained steady in most of our markets, with vacancies continuing to trend downward at a modest pace. Industrial demand and construction remained solid, despite growing construction costs. A robust amount of concentrated new multifamily construction in some metro submarkets is leading to some concern of oversupply.

The residential real estate market experienced increased demand in most of our markets, with lower mortgage rates and a relatively healthy economy. Demand was strongest in the more affordable price segments where inventory remained limited. Declining inventory levels led to strong upward pressure on home prices across most of our markets.

Retail sales activity and consumer spending were steady in most of our markets and auto sales increased. Retailers remained concerned that heightened uncertainty among consumers due to the geopolitical environment would negatively impact consumer confidence and spending during the upcoming holiday season. Tourism and hospitality industries reported mixed results with some areas experiencing strong activity and some areas experiencing a decrease in year over year activity. The labor market remained tight in our markets with accelerated wage growth in lower-skilled positions.

Economic data indicates that loan growth was positive but slowing in most of our markets, generally led by real estate lending. Interest rate margins were stable to declining across most institutions and there continues to be concern over lower interest rates, the uncertain business climate, and political and trade tensions.

Highlights of Third Quarter 2019

Net income for the third quarter of 2019 was $67.8 million, or $.77 per diluted common share (EPS), compared to $88.3 million, or $1.01 EPS in the second quarter of 2019 and $83.9 million, or $.96 EPS, in the third quarter of 2018. The third quarter of 2019 included $28.8 million ($.26 per share after-tax impact) of merger costs associated with the September 21, 2019 acquisition of MidSouth. The second quarter of 2019 did not include any nonoperating items while the third quarter of 2018 included $4.8 million ($.05 per share after-tax impact) of nonoperating expenses primarily related to the trust and asset management acquisition that closed on July 13, 2018.

Highlights of our third quarter 2019 results (compared to second quarter 2019):

•

Closed MidSouth acquisition effective September 21, 2019 with a simultaneous systems conversion. The acquisition included $785 million of loans (net of a $41 million loan mark) at 5.57% yield, and $1.3 billion of deposits at 38 basis points.

•

Net income was $67.8 million, or $.77 per diluted share.

•

Results include $28.8 million, or $.26 per share, of merger-related costs.

•

Operating leverage increased $5.8 million with revenue up $7.0 million and operating expense up $1.2 million.

•

Energy loans, including those acquired from MidSouth, remained virtually unchanged at $1.0 billion, or 4.9% of total loans.

•

Net interest margin narrowed by 4 bps to 3.41%.

•

Tangible common equity ratio was up 7 bps to 8.82%.

•

Board approved increased buyback authorization to 5.5 million shares.

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The third quarter of 2019 results were solid and included the acquisition and integration of MidSouth ten days prior to quarter-end. Earnings, excluding merger costs, were in line with our guidance and expectations for the quarter. We also noted increased operating leverage and reduced total nonperforming loan levels. While our net interest margin narrowed 4 basis points in the quarter, an interest recovery from a support services credit and a proactive stance on reducing deposit costs helped offset two Federal Reserve rate cuts.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income (te) for the third quarter of 2019 was $226.6 million, a $3.0 million, or 1%, increase from the second quarter of 2019. Compared to the third quarter of 2018, net interest income (te) increased $8.3 million, or 4%. The linked quarter increase is primarily attributable to one additional accrual day and higher earning assets, partially offset by the impact of two Federal Reserve rate decreases. The increase compared to the prior year is due largely to an increase in loan balances with higher yields and an overall more favorable net mix of rates.

The net interest margin (te) for the third quarter of 2019 was down 4 bps at 3.41% from the second quarter of 2019. The decrease was primarily due to the impact of the Federal Reserve rate decreases, with the yield on earning assets decline of 7 bps exceeding the cost of funds of 3 bps. Interest recoveries on problem credits have favorably impacted the net interest margin by adding 5 bps to the third quarter of 2019, compared to 3 bps in the second quarter of 2019. The third quarter 2019 net interest margin (te) was also positively impacted by a proactive move in lowering deposit costs and a change in the borrowing mix related to the addition of MidSouth.

Compared to the third quarter of 2018, the net interest margin (te) increased 5 bps, due in part to interest recoveries, which favorably impacted the net interest margin in the third quarter of 2019 by 5 bps and by 2 bps in the third quarter of 2018, as well as an improvement in the earning asset mix, partially offset by increased funding costs.

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


	Three Months Ended
	September 30, 2019							June 30, 2019								September 30, 2018
(dollars in millions)	Volume		Interest (d)		Rate			Volume		Interest (d)			Rate			Volume		Interest (d)		Rate
Average earning assets
Commercial & real estate loans (te) (a)	$	15,126.1	$	185.5		4.87	%	$	15,081.9	$	185.3			4.93	%	$	14,542.3	$	168.9		4.61	%
Residential mortgage loans		2,978.7		30.1		4.05	%		2,969.7		30.1			4.03	%		2,816.2		29.4		4.17	%
Consumer loans		2,092.3		30.4		5.76	%		2,098.5		30.3			5.79	%		2,106.2		28.6		5.39	%
Loan fees & late charges		—		0.1		0.00	%		—		(0.1	)		0.00	%		—		—		0.00	%
Total loans (te) (b)		20,197.1		246.1		4.84	%		20,150.1		245.6			4.89	%		19,464.7		226.9		4.63	%
Loans held for sale		55.3		0.6		4.26	%		27.9		0.3			4.96	%		26.0		0.3		3.60	%
US Treasury and government agency securities		141.6		0.8		2.33	%		126.0		0.7			2.30	%		144.7		0.8		2.21	%
Mortgage-backed securities and collateralized mortgage obligations		4,966.5		31.4		2.53	%		4,550.1		29.0			2.55	%		5,092.4		31.1		2.44	%
Municipals (te)		893.1		6.9		3.08	%		906.8		7.1			3.12	%		945.7		7.5		3.19	%
Other securities		3.5	0.0			3.61	%		3.5	0.0				3.30	%		3.6	0.0			2.81	%
Total securities (te) (c)		6,004.7		39.1		2.61	%		5,586.4		36.8			2.64	%		6,186.4		39.4		2.55	%
Total short-term investments		180.5		1.0		2.01	%		228.5		1.4			2.36	%		155.3		0.7		1.71	%
Total earning assets (te)	$	26,437.6	$	286.8		4.31	%	$	25,992.9	$	284.1			4.38	%	$	25,832.4	$	267.3		4.11	%
Average interest-bearing liabilities
Interest-bearing transaction and savings deposits	$	8,179.3	$	15.7		0.76	%	$	8,026.0	$	15.3			0.76	%	$	7,944.3	$	10.9		0.54	%
Time deposits		3,840.1		20.0		2.07	%		3,817.8		19.4			2.03	%		3,377.6		14.1		1.66	%
Public funds		2,979.5		13.5		1.80	%		3,194.1		15.2			1.91	%		2,682.3		9.2		1.36	%
Total interest-bearing deposits		14,998.9		49.2		1.30	%		15,037.9		49.9			1.33	%		14,004.2		34.2		0.97	%
Short-term borrowings		2,063.3		8.1		1.57	%		1,617.8		7.8			1.94	%		2,610.2		11.8		1.81	%
Long-term debt		234.3		2.9		4.82	%		232.3		2.8			4.86	%		241.5		3.0		5.05	%
Total borrowings		2,297.6		11.0		1.90	%		1,850.1		10.6			2.31	%		2,851.7		14.8		2.07	%
Total interest-bearing liabilities		17,296.5		60.2		1.38	%		16,888.0		60.5			1.44	%		16,855.9		49.0		1.15	%
Net interest-free funding sources		9,141.1							9,104.9								8,976.5
Total cost of funds	$	26,437.6	$	60.2		0.90	%	$	25,992.9	$	60.5			0.93	%	$	25,832.4	$	49.0		0.75	%
Net interest spread (te)			$	226.6		2.93	%			$	223.6			2.94	%			$	218.3		2.96	%
Net interest margin	$	26,437.6	$	226.6		3.41	%	$	25,992.9	$	223.6			3.45	%	$	25,832.4	$	218.3		3.36	%

(a)	Taxable equivalent (te) amounts were calculated using a federal income tax rate of 21%.

(b)	Includes nonaccrual loans.

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

(d)	Included in interest income is net purchase accounting accretion of $4.6 million, $4.8 million and $5.2 million for the three months ended September 30, 2019, June 30, 2019 and September 30, 2018, respectively.

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	Nine Months Ended
	September 30, 2019								September 30, 2018
(dollars in millions)	Volume		Interest (d)			Rate			Volume		Interest (d)		Rate
Average earning assets
Commercial & real estate loans (te) (a)	$	15,090.3	$	551.3			4.88	%	$	14,383.7	$	482.2		4.48	%
Residential mortgage loans		2,963.7		91.4			4.11	%		2,763.3		85.4		4.12	%
Consumer loans		2,104.3		90.6			5.76	%		2,083.4		84.8		5.44	%
Loan fees & late charges		—		(0.9	)		0.00	%		—		0.7		0.00	%
Total loans (te) (b)		20,158.3		732.4			4.86	%		19,230.4		653.1		4.54	%
Loans held for sale		34.7		1.2			4.57	%		26.9		0.8		3.89	%
US Treasury and government agency securities		130.5		2.2			2.30	%		146.2		2.4		2.21	%
Mortgage-backed securities and collateralized mortgage obligations		4,706.7		90.3			2.56	%		4,937.7		88.2		2.38	%
Municipals (te)		909.8		21.4			3.13	%		952.2		22.7		3.18	%
Other securities		3.5		0.1			3.33	%		3.5		0.1		2.57	%
Total securities (te) (c)		5,750.5		114.0			2.64	%		6,039.6		113.4		2.50	%
Total short-term investments		208.3		3.4			2.20	%		149.0		1.7		1.56	%
Total earning assets (te)	$	26,151.8	$	851.0			4.35	%	$	25,445.9	$	769.0		4.04	%
Average interest-bearing liabilities
Interest-bearing transaction and savings deposits	$	8,096.3	$	45.6			0.75	%	$	7,948.8	$	29.3		0.49	%
Time deposits		3,800.8		57.4			2.02	%		3,160.9		35.4		1.50	%
Public funds		3,077.7		42.1			1.83	%		2,906.1		26.4		1.21	%
Total interest-bearing deposits		14,974.8		145.1			1.30	%		14,015.8		91.1		0.87	%
Short-term borrowings		1,790.1		24.1			1.93	%		2,143.8		24.5		1.53	%
Long-term debt		230.5		8.5			3.22	%		281.9		9.9		4.70	%
Total borrowings		2,020.6		32.6			2.15	%		2,425.7		34.4		1.90	%
Total interest-bearing liabilities		16,995.4		177.7			1.40	%		16,441.5		125.5		1.02	%
Net interest-free funding sources		9,156.4								9,004.4
Total cost of funds	$	26,151.8	$	177.7			0.91	%	$	25,445.9	$	125.5		0.66	%
Net interest spread (te)			$	673.3			2.95	%			$	643.5		3.02	%
Net interest margin	$	26,151.8	$	673.3			3.44	%	$	25,445.9	$	643.5		3.38	%

(a)	Taxable equivalent (te) amounts were calculated using a federal income tax rate of 21%.

(b)	Includes nonaccrual loans.

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

(d)	Included in interest income is net purchase accounting accretion of $14.4 million and $18.1 million for the nine months ended September 30, 2019 and 2018, respectively.

Provision for Loan Losses

During the third quarter of 2019, we recorded a provision for loan losses of $12.4 million, up $4.3 million from the second quarter of 2019 and $5.5 million from the third quarter of 2018, due primarily to a $9.3 million energy charge-off in the current quarter. For the nine months ended September 30, 2019, we recorded a total provision for loan losses of $38.6 million, up $10.5 million from the same period in 2018. Included in the first nine months of 2019 provision was a $9.0 million charge-off related to the DC Solar credit discussed below. The remaining year-over-year increase is primarily attributable to the third quarter 2019 energy charge-off noted above, partially offset by lower losses and reserves in the consumer portfolio.

The Company had a lease financing facility outstanding to DC Solar, a company that sold and managed mobile solar generators. In February 2019, the borrower filed for Chapter 11 bankruptcy protection and we became aware of an affidavit from a Federal Bureau of Investigation special agent that alleged that this borrower was operating a potentially fraudulent Ponzi-type scheme and that the majority of mobile solar generators sold to investors and managed by the borrower and the majority of the related lease revenues claimed to have been received by the borrower may not have existed. Management continues to believe there could be potential for recovery in the future as we work to sell or re-lease the solar units.

The third quarter of 2019 provision included net charge-offs of $12.5 million, or 0.25% of average total loans on an annualized basis, compared to $7.2 million, or 0.14% in the second quarter of 2019 and $6.9 million, or 0.14% in the third quarter of 2018. Included in net charge-offs for the third quarter of 2019 was $9.8 million of energy related losses, primarily in our upstream segment.

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The discussion of Allowance for Loan Losses and Asset Quality later in this Item provides additional information on changes in the allowance for loan losses and general credit quality.

Noninterest Income

Noninterest income totaled $83.2 million for the third quarter of 2019, up $4.0 million, or 5%, from the second quarter of 2019 and up $7.7 million, or 10%, compared to the third quarter of 2018. The results for the third quarter of 2019 reflect increases in most of our products, with continued growth in many of our specialty business lines.

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,
	2019		2019		2018		2019		2018
Service charges on deposit accounts	$	21,892	$	20,723	$	21,377	$	62,982	$	63,806
Trust fees		15,098		15,904		16,738		46,126		39,726
Bank card and ATM fees		17,154		16,619		14,862		49,063		44,784
Investment and annuity fees and insurance commissions		7,048		6,591		6,652		20,167		19,041
Secondary mortgage market operations		5,713		4,433		4,333		13,872		11,699
Income from bank-owned life insurance		4,147		4,083		3,100		11,495		9,283
Credit related fees		2,988		2,937		2,762		8,520		7,900
Income from derivatives		4,324		3,600		1,363		8,733		4,474
Gain (loss) on sales of assets		205		34		989		636		(177	)
Other miscellaneous		4,661		4,326		3,342		11,389		10,066
Total noninterest income	$	83,230	$	79,250	$	75,518	$	232,983	$	210,602

Service charges on deposits totaled $21.9 million for the third quarter of 2019, up $1.2 million, or 6%, from the second quarter of 2019 and $0.5 million, or 2%, from the third quarter of 2018. The increase from the prior quarter was primarily due to an additional processing day. The increase from the third quarter of 2018 was due to higher overdraft fees and business service charges.

Trust fees decreased $0.8 million, or 5%, linked quarter largely due to seasonal tax preparation fees in the second quarter of 2019. Compared to the third quarter of 2018, trust fees decreased $1.6 million, or 10%, largely due to changes in market conditions.

Bank card and ATM fees totaled $17.2 million for the third quarter of 2019, up $0.5 million, or 3%, from the second quarter of 2019, primarily due to an additional day in the quarter. Compared to the third quarter of 2018, bank card and ATM fees were up $2.3 million, or 15%, primarily due to increased card activity.

Investment and annuity fees and insurance commissions increased $0.5 million, or 7%, compared to second quarter 2019 primarily due to an increase in corporate underwriting fees, bond trading fees, and insurance commissions, partially offset by a decrease in annuity fees. Investment and annuity fees and insurance commissions increased $0.4 million, or 6%, compared to third quarter 2018 due to higher bond trading fees, investment fees and insurance fees, partially offset by a decrease in annuity sales.

Fee income from secondary mortgage market operations was up $1.3 million, or 29%, from the second quarter of 2019 and up $1.4 million, or 32%, from the third quarter of 2018. Origination volume during the third quarter of 2019 was positively impacted by both seasonality and lower interest rates. These fees will vary based on origination volume and the timing of subsequent sales.

Income from bank-owned life insurance was $4.1 million in the third quarter of 2019, up $0.1 million, or 2%, from the second quarter of 2019 and up $1.0 million, or 34%, from the third quarter of 2018. The increase from the third quarter of 2018 is attributable to both mortality gains and incremental earnings on the additional investment of $33 million in April 2019.

Credit related fees were $3.0 million for the third quarter of 2019, up $0.1 million, or 2%, from the second quarter of 2019 and up $0.2 million, or 8%, from the third quarter of 2018. The linked quarter increase was due to both higher unused commitment fees and letter of credit fees, with the increase over the same quarter last year primarily due to higher unused commitment fees.

Income from our customer interest rate derivative program totaled $4.3 million for the third quarter of 2019 compared to $3.6 million in the second quarter of 2019 and $1.4 million for the third quarter of 2018. Increased derivative income reflects increased activity due to market conditions. Derivative income can be volatile and is dependent upon the composition of the portfolio, customer sales activity and market value adjustments due to market interest rate movement.

Other miscellaneous income of $4.7 million was up $0.3 million, or 8%, compared to the second quarter of 2019 and $1.3 million, or 39%, compared to the third quarter of 2018. The increase compared to the prior quarter was due to higher syndication fees. The

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increase compared to the third quarter of 2018 includes higher income from investments in small business investment companies of $1.2 million and $0.8 million higher syndication fees.

Noninterest income was $233.0 million in the first nine months of 2019, up $22.4 million, or 11%, from the first nine months of 2018. Trust fees increased $6.4 million, or 16%, due to the trust and asset management acquisition in July 2018. Bank card and ATM fees were $49.1 million, up $4.3 million, or 10%, due to increased card activity. Derivative income increased $4.3 million, or 95%, with increased activity and the changing interest rate environment. Income from bank-owned life insurance was up $2.2 million, or 24%, due to the third quarter 2018 restructure and the additional investment in April of 2019. Secondary mortgage market income was up $2.2 million, or 19%, to $13.9 million due to higher production and sales volumes. Investment and annuity fees and insurance commissions increased $1.1 million, or 6%. Service charges were down $0.8 million, or 1%, primarily due to lower consumer overdraft fees and service charges.

Noninterest Expense

Noninterest expense for the third quarter of 2019 was $213.6 million, up $30.0 million, or 16%, from the second quarter of 2019, and up $32.4 million, or 18%, from the third quarter of 2018. There were $28.8 million of expenses in the third quarter of 2019 related to the acquisition and operational integration of MidSouth Bancorp, Inc. There were no nonoperating expenses in the second quarter of 2019 and there were $4.8 million in the third quarter of 2018, primarily related to the trust and asset management acquisition. Items identified as nonoperating are those that, when excluded from a reported financial measure, provide management or the reader with a measure that may be more indicative of forward-looking trends in our business. Due to the late quarter timing of the acquisition, MidSouth had limited impact to operating results.

The components of noninterest and nonoperating expense for the periods indicated are presented in the following tables.

	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
(in thousands)	2019			2019			2018			2019			2018
Noninterest expense
Compensation expense	$	93,858		$	87,747		$	84,389		$	265,573		$	244,374
Employee benefits		18,622			18,888			18,084			57,240			55,316
Personnel expense		112,480			106,635			102,473			322,813			299,690
Net occupancy expense		13,156			12,961			11,895			38,101			35,221
Equipment expense		4,685			4,342			4,520			13,706			12,328
Data processing expense		21,532			20,088			20,492			60,951			55,214
Professional services expense		17,704			9,665			9,555			35,537			32,191
Amortization of intangible assets		4,889			5,047			5,638			15,074			16,578
Deposit insurance and regulatory fees		3,995			4,755			8,345			14,156			24,669
Other real estate and foreclosed assets (income) expense		2,055			395			16			1,459			(63	)
Advertising		5,435			3,253			2,553			11,768			8,596
Corporate value and franchise taxes		4,109			4,215			3,718			12,366			10,735
Printing and supplies		1,459			1,092			1,287			3,720			4,261
Telecommunications and postage		3,610			3,363			3,598			10,439			11,063
Travel expense		1,172			1,344			1,365			3,614			3,872
Entertainment and contributions		2,765			2,742			2,539			8,215			8,250
Tax credit investment amortization		1,286			1,234			1,560			3,658			3,309
Other retirement expense		(4,152	)		(4,152	)		(4,664	)		(12,409	)		(13,585	)
Other miscellaneous		17,374			6,588			6,297			29,653			24,051
Total noninterest expense	$	213,554		$	183,567		$	181,187		$	572,821		$	536,380

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	Three Months Ended							Nine Months Ended
	September 30,		June 30,		September 30,			September 30,
(in thousands)	2019		2019		2018			2019		2018
Nonoperating expense
Personnel expense	$	5,002	$	—	$	1,300		$	5,002	$	5,316
Net occupancy expense		735		—		66			735		751
Equipment expense		188		—		896			188		1,570
Data processing expense		437		—		2,074			437		3,149
Professional services expense		7,491		—		638			7,491		7,238
Advertising		2,624		—		(360	)		2,624		952
Printing and supplies		433		—		5			433		1,106
Loss on restructure of bank-owned life insurance contracts		—		—		—			—		3,240
Other expense		11,900		—		208			11,900		3,163
Total nonoperating expenses	$	28,810	$	—	$	4,827		$	28,810	$	26,485

Personnel expense totaled $112.5 million for the third quarter of 2019, up $6.1 million, or 7%, compared to the prior quarter, primarily due to $5.0 million of merger-related expenses from the MidSouth acquisition, including severance and change in control expense, as well as one additional payroll day. Compared to the third quarter of 2018, personnel costs were up $10.0 million, or 10%, primarily related to annual merit increases, an increase in incentives and a $3.7 million increase in merger-related expense.

Occupancy and equipment expenses totaled $17.8 million in the third quarter of 2019, up $ 0.5 million, or 3%, from the second quarter of 2019 and up $1.4 million, or 9%, from the third quarter of 2018. The increase compared to the prior quarter is largely due to additional merger-related expenses of $0.9 million from the MidSouth acquisition, partially offset by annual insurance payments in the second quarter of 2019. The increase compared to the third quarter of 2018 is largely attributable to the move of the New Orleans regional headquarters.

Data processing expense was $21.5 million for the third quarter of 2019, up $1.4 million, or 7%, from the second quarter of 2019, and $1.0 million, or 5%, from the third quarter of 2018. The increase from the second quarter of 2019 is primarily due to expenses resulting from increased card activity and merger-related expense from the MidSouth transaction. The increase from the third quarter of 2018 was primarily the result of expenses related to increased card activity and expenses from investments in new technology, partially offset by merger-related expenses in the third quarter of 2018 from the trust and asset management acquisition.

Professional services expense for the third quarter of 2019 totaled $17.7 million, up $8.0 million, or 83%, compared to the previous quarter and up $8.1 million, or 85%, from the third quarter of 2018. The increase over both periods is largely due to $7.5 million in expenses related to the MidSouth acquisition in the third quarter of 2019, including transaction-related expenses and costs related to systems integration. The increase over the third quarter of 2018 also includes a higher level of expense related to the investment in new technology aimed at becoming more scalable, effective and efficient.

Deposit insurance and regulatory fees and corporate value and franchise taxes were $8.1 million, down $0.9 million, or 10%, from the second quarter of 2019 and down $4.0 million, or 33%, from the third quarter of 2018. The decrease from both the prior quarter and the same period in 2018 is primarily due to a reduction in the risk-based deposit insurance assessment fees, with the year over year variance also favorably impacted by the elimination of the large bank deposit insurance fund surcharge.

Business development-related expenses (including advertising, travel, entertainment and contributions) were $9.4 million for the third quarter of 2019, up $2.0 million, or 28%, from the second quarter of 2019 and up $2.9 million, or 45%, from the third quarter of 2018. The linked-quarter and year-over-year increase was largely due to $3.2 million of merger-related expenses, primarily advertising expense.

Other real estate and foreclosed asset (income) expense was $2.1 million for the third quarter of 2019, compared to $0.4 million in the second quarter of 2019 and less than $0.1 million in the third quarter of 2018. Third quarter of 2019 expense includes a non-cash write-down of foreclosed assets, partially offset by a gain on the sale of a former corporate office building. Management believes that the second quarter of 2019 reflects a more typical level of other real estate and foreclosed asset expense.

All other expenses, excluding amortization of intangibles, totaled $19.6 million for the third quarter of 2019, an increase of $11.5 million from both the second quarter of 2019 and third quarter of 2018. The linked-quarter and year-over-year increase is primarily due to expenses associated with the MidSouth acquisition, including contract buyouts, lease terminations, and other merger-related costs.

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Noninterest expense for the first nine months of 2019 was $572.8 million, an increase of $36.4 million, or 7%, from the same period in 2018. The first nine months of 2019 includes $28.8 million of merger-related MidSouth expenses and the first nine months of 2018 includes $26.5 million of nonoperating expenses related to the brand consolidation, the trust and asset management business acquisition, the relocation of the New Orleans regional headquarters, a charge related to the restructure of our bank-owned life insurance contracts, as well as a one-time all hands bonus and other miscellaneous items. Personnel expense for the nine months ended September 30, 2019 totaled $322.8 million, up $23.1 million, or 8%. Occupancy and equipment expenses totaled $51.8 million, up $4.3 million, or 9%. Data processing expense was $61.0 million, an increase of $5.7 million, or 10%. Professional service expense was $35.5 million for the first nine months of 2019, up $3.3 million, or 10%. Deposit insurance and regulatory fees and corporate value and franchise taxes were down $8.9 million, or 25%. Business development-related expenses were $24.0 million, up $2.9 million, or 14%. All other expenses, excluding amortization of intangibles, were up $6.0 million, or 20%. The increase in noninterest expense from the first nine months in 2018 is in large part attributable to annual merit raises, increased expenses related to the trust and asset management business acquired in July of 2018, investment in new technologies, and the relocation of the New Orleans regional headquarters. The decline in deposit insurance and regulatory fees and corporate value and franchise tax expense is due to a reduction in the risk-based deposit insurance assessment fees and the elimination of the large bank deposit insurance fund surcharge.

Income Taxes

The effective income tax rate for the third quarter of 2019 was approximately 15.5%, compared to 17.9% in the second quarter of 2019 and 17.5% in the third quarter of 2018. The decrease in the effective tax rate from the prior quarter is primarily attributable to the benefit of including the impact of merger-related costs in our estimated annual effective tax rate.

Management expects the effective tax rate for 2019 will be approximately 17% in the fourth quarter and full year 2019, based on current forecasts. Our effective tax rate has historically varied from the federal statutory rate primarily because of tax-exempt income and tax credits. Interest income on bonds issued by or loans to state and municipal governments and authorities, and earnings from the life insurance contract 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”) as well as Federal and State New Market Tax Credit (“NMTC”) 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 Tax Act repealed the provision related to tax credit bonds effective for bonds issued after December 31, 2017.

We have invested in NMTC projects through investments in our own Community Development Entity (“CDE”), as well as other unrelated CDEs. Federal tax credits from NMTC investments are recognized over a seven-year period, while recognition of the benefits from state tax credits varies from three to five years.

Based on tax credit investments that have been made to date and those anticipated to be made utilizing the remaining portion of our $50 million NMTC allocation award received in 2018, we expect to realize benefits from federal and state tax credits over the next three years totaling $7.5 million, $5.6 million and $4.9 million for 2020, 2021 and 2022, respectively. We intend to continue making investments in tax credit projects. However, our ability to access new credits will depend upon, among other factors, federal and state tax policies and the level of competition for such credits.

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,
(in thousands)	2019			2019			2018			2019			2018
Taxes computed at statutory rate	$	16,841		$	22,567		$	21,347		$	59,571		$	58,298
Tax credits:
QZAB/QSCB		(710	)		(710	)		(760	)		(2,130	)		(2,279	)
NMTC - Federal and State		(1,701	)		(1,999	)		(1,379	)		(5,102	)		(4,136	)
Total tax credits		(2,411	)		(2,709	)		(2,139	)		(7,232	)		(6,415	)
State income taxes, net of federal income tax benefit		1,519			1,756			1,989			5,180			5,957
Tax-exempt interest		(2,881	)		(2,274	)		(2,720	)		(7,572	)		(8,267	)
Life insurance contracts		(1,266	)		(927	)		(866	)		(2,871	)		(1,490	)
Employee share-based compensation		(85	)		(74	)		(146	)		(431	)		(461	)
Impact from interim estimated effective tax rate		(289	)		27			(664	)		(1,038	)		(1,152	)
FDIC Assessment Disallowance		443			379			748			1,367			2,252
Other, net		516			441			226			1,449			1,359
Income tax expense	$	12,387		$	19,186		$	17,775		$	48,423		$	50,081

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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,		June 30,		September 30,		September 30,
	2019		2019		2018		2019		2018
Common Share Data
Earnings per share:
Basic	$	0.77	$	1.01	$	0.96	$	2.69	$	2.62
Diluted	$	0.77	$	1.01	$	0.96	$	2.69	$	2.61
Cash dividends paid	$	0.27	$	0.27	$	0.27	$	0.81	$	0.75
Book value per share (period-end)	$	39.49	$	38.70	$	34.90	$	39.49	$	34.90
Tangible book value per share (period-end)	$	28.73	$	28.46	$	24.44	$	28.73	$	24.44
Weighted average number of shares (000s):
Basic		86,377		85,728		85,348		85,934		85,298
Diluted		86,462		85,835		85,539		86,010		85,482
Period-end number of shares (000s)		90,822		85,759		85,364		90,822		85,364
Market data:
High sales price	$	42.11	$	44.74	$	53.00	$	44.74	$	56.40
Low sales price	$	33.63	$	37.03	$	46.05	$	33.63	$	45.76
Period-end closing price	$	38.30	$	40.06	$	47.55	$	38.30	$	47.55
Trading volume (000s) (a)		29,038		27,874		28,332		85,037		99,407

(a)	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)	2019		2019		2018		2019		2018
Income Statement:
Interest income	$	283,164	$	280,378	$	263,212	$	839,825	$	756,911
Interest income (te) (a)		286,816		284,096		267,307		851,019		769,050
Interest expense		60,225		60,510		49,018		177,764		125,506
Net interest income (te)		226,591		223,586		218,289		673,255		643,544
Provision for loan and lease losses		12,421		8,088		6,872		38,552		28,016
Noninterest income		83,230		79,250		75,518		232,983		210,602
Noninterest expense (excluding amortization of intangibles)		208,665		178,520		175,549		557,747		519,802
Amortization of intangibles		4,889		5,047		5,638		15,074		16,578
Income before income taxes		80,194		107,463		101,653		283,671		277,611
Income tax expense		12,387		19,186		17,775		48,423		50,081
Net income	$	67,807	$	88,277	$	83,878	$	235,248	$	227,530

Nonoperating items, pre-tax (for informational purpose
Provision for alleged fraud (b)		—		—		—		10,084		—
Loss on sale of business		—		—		—		—		1,145
Merger-related expenses		28,810		—		3,853		28,810		5,707
Other nonoperating expenses		—		—		974		—		20,778
Nonoperating items, pre-tax		28,810		—		4,827		38,894		27,630

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	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
	2019			2019			2018			2019			2018
Performance Ratios
Return on average assets		0.92	%		1.24	%		1.19	%		1.10	%		1.10	%
Return on average common equity		7.95	%		10.96	%		11.27	%		9.69	%		10.45	%
Return on average tangible common equity		10.77	%		15.07	%		16.11	%		13.32	%		14.75	%
Earning asset yield (te) (a)		4.31	%		4.38	%		4.11	%		4.35	%		4.04	%
Total cost of funds		0.90	%		0.93	%		0.75	%		0.91	%		0.66	%
Net interest margin (te)		3.41	%		3.45	%		3.36	%		3.44	%		3.38	%
Noninterest income to total revenue (te)		26.86	%		26.17	%		25.70	%		25.71	%		24.66	%
Efficiency ratio (c)		58.05	%		58.95	%		58.11	%		58.37	%		57.68	%
Average loan/deposit ratio		87.47	%		87.09	%		88.39	%		87.21	%		87.19	%
FTE employees (period-end)		3,894			3,930			3,858			3,894			3,858
Capital Ratios
Common stockholders' equity to total assets		11.74	%		11.54	%		10.60	%		11.74	%		10.60	%
Tangible common equity ratio (d)		8.82	%		8.75	%		7.67	%		8.82	%		7.67	%

(a)	Taxable equivalent (te) amounts were calculated using a federal income tax rate of 21%.

(b)	Provision for loan loss in response to circumstances surrounding the bankruptcy filing and alleged fraud by DC Solar.

(c)	The efficiency ratio is noninterest expense to total net interest (te) and noninterest income, excluding amortization of purchased intangibles and nonoperating items.

(d)	The tangible common equity ratio is common stockholders’ equity less intangible assets divided by total assets less intangible assets.

	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
($ in thousands)	2019			2019			2018			2019			2018
Asset Quality Information
Nonaccrual loans (a)	$	222,860		$	209,831		$	201,646		$	222,860		$	201,646
Restructured loans - still accruing		60,897			101,250			162,189			60,897			162,189
Total nonperforming loans		283,757			311,081			363,835			283,757			363,835
Other real estate (ORE) and foreclosed assets		30,955			27,520			27,475			30,955			27,475
Total nonperforming assets	$	314,712		$	338,601		$	391,310		$	314,712		$	391,310
Accruing loans 90 days past due (b)	$	7,872		$	6,493		$	24,460		$	7,872		$	24,460
Net charge-offs		12,474			7,151			6,852			37,494			24,126
Allowance for loan and lease losses		195,572			195,625			214,550			195,572			214,550
Provision for loan and lease losses		12,421			8,088			6,872			38,552			28,016
Ratios:
Nonperforming assets to loans, ORE and foreclosed assets		1.49	%		1.68	%		2.00	%		1.49	%		2.00	%
Accruing loans 90 days past due to loans		0.04	%		0.03	%		0.13	%		0.04	%		0.13	%
Nonperforming assets + accruing loans 90 days past due to loans, ORE and foreclosed assets		1.53	%		1.71	%		2.12	%		1.53	%		2.12	%
Net charge-offs to average loans		0.25	%		0.14	%		0.14	%		0.25	%		0.17	%
Allowance for loan losses to period-end loans		0.93	%		0.97	%		1.10	%		0.93	%		1.10	%
Allowance for loan losses to nonperforming loans + accruing loans 90 days past due		67.06	%		61.60	%		55.25	%		67.06	%		55.25	%

(a)

Included in nonaccrual loans are nonaccruing restructured loans totaling $101.1 million, $99.1 million and $92.7 million at September 30, 2019, June 30, 2019 and September 30, 2018, respectively. Nonaccrual loans and accruing loans past due 90 days or more do not include purchased credit impaired loans which were written down to fair value upon acquisition and accrete interest income over the remaining life of the loan.

(b)	Excludes 90+ accruing troubled debt restructured loans already reflected in total nonperforming loans of $6.1 million at September 30, 2018.

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	September 30,			June 30,			March 31,			December 31,			September 30,
(in thousands)	2019			2019			2019			2018			2018
Period-End Balance Sheet
Total loans	$	21,035,952		$	20,175,812		$	20,112,838		$	20,026,411		$	19,543,717
Loans held for sale		75,789			36,150			27,437			28,150			29,043
Securities		6,404,719			5,725,735			5,577,522			5,670,584			5,987,447
Short-term investments		49,513			151,062			163,762			111,094			108,074
Earning assets		27,565,973			26,088,759			25,881,559			25,836,239			25,668,281
Allowance for loan losses		(195,572	)		(195,625	)		(194,688	)		(194,514	)		(214,550	)
Goodwill and other intangible assets		977,369			878,051			883,097			887,123			892,595
Other assets		2,195,779			1,990,678			1,920,263			1,707,059			1,751,849
Total assets	$	30,543,549		$	28,761,863		$	28,490,231		$	28,235,907		$	28,098,175
Noninterest-bearing deposits	$	8,686,383		$	8,114,632		$	8,158,658		$	8,499,027		$	8,140,530
Interest-bearing transaction and savings deposits		8,758,993			8,034,801			8,224,203			8,000,093			7,972,417
Interest-bearing public funds deposits		2,954,966			3,159,790			3,229,589			3,006,516			2,613,858
Time deposits		3,800,957			3,926,819			3,767,844			3,644,549			3,691,002
Total interest-bearing deposits		15,514,916			15,121,410			15,221,636			14,651,158			14,277,277
Total deposits		24,201,299			23,236,042			23,380,294			23,150,185			22,417,807
Short-term borrowings		2,108,815			1,641,598			1,388,735			1,589,128			2,276,647
Long-term debt		246,641			232,754			224,962			224,993			215,912
Other liabilities		400,414			332,554			305,665			190,261			208,931
Stockholders' equity		3,586,380			3,318,915			3,190,575			3,081,340			2,978,878
Total liabilities & stockholders' equity	$	30,543,549		$	28,761,863		$	28,490,231		$	28,235,907		$	28,098,175

	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
(in thousands)	2019			2019			2018			2019			2018
Average Balance Sheet
Total loans	$	20,197,114		$	20,150,104		$	19,464,639		$	20,158,313		$	19,230,385
Loans held for sale		55,348			27,873			25,992			34,740			26,898
Securities (a)		6,004,688			5,586,390			6,186,410			5,750,530			6,039,645
Short-term investments		180,463			228,527			155,331			208,263			148,958
Earning assets		26,437,613			25,992,894			25,832,372			26,151,846			25,445,886
Allowance for loan losses		(197,259	)		(195,238	)		(214,376	)		(196,297	)		(214,637	)
Goodwill and other intangible assets		886,868			880,497			886,226			884,254			849,279
Other assets		2,020,884			1,859,657			1,522,701			1,875,236			1,505,382
Total assets	$	29,148,106		$	28,537,810		$	28,026,923		$	28,715,039		$	27,585,910
Noninterest-bearing deposits	$	8,092,482		$	8,099,621		$	8,017,353		$	8,139,439		$	8,039,574
Interest-bearing transaction and savings deposits		8,179,240			8,026,012			7,944,349			8,096,299			7,948,819
Interest-bearing public fund deposits		2,979,494			3,194,113			2,682,269			3,077,760			2,906,067
Time deposits		3,840,139			3,817,817			3,377,588			3,800,771			3,160,943
Total interest-bearing deposits		14,998,873			15,037,942			14,004,206			14,974,830			14,015,829
Total deposits		23,091,355			23,137,563			22,021,559			23,114,269			22,055,403
Short-term borrowings		2,063,335			1,617,776			2,610,176			1,790,058			2,143,759
Long-term debt		234,240			232,277			241,517			230,528			281,876
Other liabilities		375,438			319,691			201,240			335,113			193,166
Stockholders' equity		3,383,738			3,230,503			2,952,431			3,245,071			2,911,706
Total liabilities & stockholders' equity	$	29,148,106		$	28,537,810		$	28,026,923		$	28,715,039		$	27,585,910

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

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Reconciliation of Non-GAAP Measures

Operating revenue (te) and operating pre-provision net revenue (te)

	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
(in thousands)	2019			2019			2018			2019			2018
Net interest income	$	222,939		$	219,868		$	214,194		$	662,061		$	631,405
Noninterest income		83,230			79,250			75,518			232,983			210,602
Total revenue	$	306,169		$	299,118		$	289,712		$	895,044		$	842,007
Tax-equivalent adjustment (a)		3,652			3,718			4,095			11,194			12,139
Nonoperating revenue		—			—			—			—			1,145
Operating revenue (te)	$	309,821		$	302,836		$	293,807		$	906,238		$	855,291
Noninterest expense		(213,554	)		(183,567	)		(181,187	)		(572,821	)		(536,380	)
Nonoperating expense		28,810			—			4,827			28,810			26,485
Operating pre-prevision net revenue (te)	$	125,077		$	119,269		$	117,447		$	362,227		$	345,396

Operating earnings per share - diluted

	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
(in thousands)	2019			2019			2018			2019			2018
Net income	$	67,807		$	88,277		$	83,878		$	235,248		$	227,530
Net income allocated to participating securities		(1,141	)		(1,502	)		(1,544	)		(3,980	)		(4,238	)
Net income available to common shareholders		66,666			86,775			82,334			231,268			223,292
Nonoperating items, net of applicable income tax		22,760			—			3,813			30,720			22,081
Nonoperating items allocated to participating securities		(383	)		—			(71	)		(517	)		(413	)
Operating earnings available to common shareholders		89,043			86,775			86,076			261,471			244,960
Weighted average common shares - diluted		86,462			85,835			85,539			86,010			85,482
Earnings per share - diluted	$	0.77		$	1.01		$	0.96		$	2.69		$	2.61
Operating earnings per share - diluted	$	1.03		$	1.01		$	1.01		$	3.04		$	2.87

(a)	Taxable equivalent adjustment (te) amounts are calculated using a federal income tax rate of 21%.

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. We develop liquidity management strategies and measure and monitor liquidity risk as part of our overall asset/liability management process.

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, maturities and repayments of investment securities and occasional sales of various assets. 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 an internal target for the ratio of free securities to total securities to be 20% or more. As shown in the table below, our ratio of free securities to total securities was 54.44% at September 30, 2019, compared to 40.10% at June 30, 2019 and 48.90% at September 30, 2018. The total of pledged securities at September 30, 2019 was $3.0 billion, down $511.5 million from June 30, 2019 as we used FHLB letters of credit as collateral during the quarter, impacting the availability on that line. Securities and FHLB letters of credit are pledged as collateral related to public funds and repurchase agreements. Also impacting the free securities ratio was an increase in total securities available for pledging, up $698.2 million compared to June 30, 2019 and $442.3 million compared to September 30, 2018, as the Company acquired bonds during third quarter of 2019 in anticipation of the MidSouth acquisition. The total bond portfolio is expected to decrease to our targeted level of approximately $6.2 billion during the fourth quarter of 2019.

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	September 30,			June 30,			March 31,			December 31,			September 30,
Liquidity Metrics	2019			2019			2019			2018			2018
Free securities / total securities		54.44	%		40.10	%		33.57	%		41.39	%		48.90	%
Core deposits / total deposits		90.31	%		89.30	%		89.98	%		90.47	%		89.71	%
Wholesale funds / core deposits		15.54	%		15.13	%		13.61	%		14.53	%		19.34	%
Quarter-to-date average loans /quarter-to-date average deposits		87.47	%		87.09	%		87.08	%		88.09	%		88.39	%

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. At September 30, 2019, deposits totaled $24.2 billion, an increase of $965.3 million, or 4%, from June 30, 2019 and an increase of $1.8 billion, or 8%, from September 30, 2018. The increase over both periods is due largely to the acquisition of $1.3 billion in deposits in the MidSouth transaction. Core deposits consist of total deposits excluding certificates of deposit (“CDs”) of $250,000 or more and brokered deposits. Core deposits totaled $21.9 billion at September 30, 2019, an increase of $1.1 billion from June 30, 2019, and $1.7 billion from September 30, 2018. The ratio of core deposits to total deposits was 90.31% at September 30, 2019, compared to 89.30% at June 30, 2019 and 89.71% at September 30, 2018. Brokered deposits totaled $1.0 billion as of September 30, 2019, a decrease of $223.1 million compared to June 30, 2019 and $354.8 million compared to September 30, 2018. The use of brokered deposits as a funding source is subject to certain policies regarding the amount, term and interest rate.

Purchases of federal funds, securities sold under agreements to repurchase and other short-term borrowings from customers provide additional sources of liquidity to meet short-term funding requirements. Besides funding from customer sources, the Bank has a line of credit with the FHLB that is secured by blanket pledges of certain mortgage loans. At September 30, 2019, the Bank had borrowings of approximately $1.4 billion and had approximately $3.0 billion available under this line. The Bank also has unused borrowing capacity at the Federal Reserve’s discount window of approximately $2.5 billion; there were no outstanding borrowings with the Federal Reserve at any date during any period covered by this report.

Wholesale funds, which are comprised of short-term borrowings, long-term debt and brokered deposits were 15.54% of core deposits at September 30, 2019, compared to 15.13% at June 30, 2019 and 19.34% at September 30, 2018. The linked quarter increase in wholesale funds was primarily related to increases in FHLB borrowings and federal funds purchased, partially offset by a decrease in brokered certificates of deposit and repurchase agreements. The year over year decrease in wholesale funds was primarily related to decreases in FHLB borrowings and brokered certificates of deposit, partially offset by an increase in repurchase agreements and federal funds purchased. The Company has established an internal target for wholesale funds to be less than 25% of core deposits.

Another key measure used to monitor our 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 for each dollar of deposits on hand. Our average loan-to-deposit ratio for the third quarter of 2019 was 87.47%, compared to 87.09% for the second quarter of 2019 and 88.39% for the third quarter of 2018. Management has an established target range for the loan-to-deposit ratio of 87% to 89%, which could be exceeded under certain circumstances.

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, 2019 and 2018.

Dividends received from the Bank have been the primary source of funds available to the Parent for the payment of dividends to our stockholders and for servicing its debt. The liquidity management process takes into account the various regulatory provisions that can limit the amount of dividends the Bank can distribute to the Parent. The Parent targets cash and other liquid assets to provide liquidity in an amount sufficient to fund approximately four quarters of anticipated common stockholder dividends, but will temporarily operate below that level if a return to the target can be achieved in the near-term. On September 23, 2019, the Bank declared a special dividend of $150 million to the Parent to assist in the completion of the MidSouth acquisition and provide additional liquidity for the approved share buyback program and other activity of the Parent.

CAPITAL RESOURCES

Stockholders’ equity totaled $3.6 billion at September 30, 2019, up $267.5 million, or 8%, from June 30, 2019 and $607.5 million, or 20%, from September 30, 2018. The tangible common equity ratio was 8.82% at September 30, 2019, compared to 8.75% at June 30, 2019 and 7.67% at September 30, 2018. The increase in the tangible common equity ratio from both June 30, 2019 and September 30, 2018 was primarily attributable to growth in net tangible retained earnings and net gains on fair value adjustments of securities available for sale included in other accumulated comprehensive loss, partially offset by the impact of the MidSouth acquisition and other growth in tangible assets. Management has established an internal target for the tangible common equity ratio of at least 8.00%; however,

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management will allow the tangible common equity ratio to drop below 8.00% on a temporary basis if it believes that the shortfall can be replenished through normal operations within a short time frame.

The regulatory capital ratios of the Company and the Bank at September 30, 2019 remained well in excess of current regulatory minimum requirements. The decline in Bank regulatory capital ratios compared to the prior quarter was due in part to a special $150 million dividend from the Bank to the Parent in the third quarter of 2019 to assist in the MidSouth transaction and provide additional liquidity for the approved buyback program and other activities of the Parent. The Company and the Bank have been categorized as “well-capitalized” in the most recent notices received from our regulators. Both entities currently exceed all capital requirements of the Basel III requirements. Refer to the Supervision and Regulation section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for further discussion of our capital requirements.

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

	Well-			September 30,			June 30,			March 31,			December 31,			September 30,
	Capitalized			2019			2019			2019			2018			2018
Total capital (to risk weighted assets)
Hancock Whitney Corporation		10.00	%		12.43	%		12.43	%		12.24	%		11.99	%		11.98	%
Hancock Whitney Bank		10.00	%		11.19	%		11.81	%		11.73	%		11.17	%		11.25	%
Tier 1 common equity capital (to risk weighted assets)
Hancock Whitney Corporation		6.50	%		11.02	%		10.94	%		10.74	%		10.48	%		10.36	%
Hancock Whitney Bank		6.50	%		10.39	%		10.97	%		10.88	%		10.32	%		10.30	%
Tier 1 capital (to risk weighted assets)
Hancock Whitney Corporation		8.00	%		11.02	%		10.94	%		10.74	%		10.48	%		10.36	%
Hancock Whitney Bank		8.00	%		10.39	%		10.97	%		10.88	%		10.32	%		10.30	%
Tier 1 leverage capital
Hancock Whitney Corporation		5.00	%		9.49	%		9.10	%		8.85	%		8.67	%		8.50	%
Hancock Whitney Bank		5.00	%		8.95	%		9.12	%		8.97	%		8.54	%		8.46	%

On July 29, 2019, our board of directors declared a regular third quarter cash dividend of $0.27 per share, consistent with the prior quarter.

On September 21, 2019, we issued approximately 5.0 million shares of common stock at $38.42 as consideration in the acquisition of MidSouth. Refer to Note 2 – Business Combinations for more information regarding this transaction.

On May 24, 2018, the Company’s board of directors approved a stock buyback program whereby the Company was authorized to repurchase up to 5%, or 4.3 million shares, of 85.3 million shares common stock then outstanding. The program was set to expire on December 31, 2019. Under this program, 200,000 shares of the Company’s common stock were repurchased at an average price of $41.30 per share.

On September 23, 2019, the Company’s board of directors approved a new stock buyback program that authorizes the Company to repurchase up to 5.5 million shares of our common stock through the expiration date of December 31, 2020. The program allows the Company to repurchase its common shares in the open market, by block purchase, through accelerated share repurchase programs, in privately negotiated transactions, or as otherwise determined by the Company in one or more transactions. The Company is not obligated to purchase any shares under this program, and the board of directors may terminate or amend the program at any time prior to the expiration date.

Subsequent to quarter end, we entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co. LLC (“Morgan Stanley”) to repurchase $185 million of our common stock. Pursuant to the ASR agreement, we made a $185 million payment to Morgan Stanley on October 21, 2019, and received from Morgan Stanley on the same day an initial delivery of approximately 3.6 million shares of our common stock, which represents 75% of the estimated total number of shares to be repurchased based on the October 18, 2019 closing price of our common stock. The final number of shares to be repurchased will be based generally on the volume-weighted average price per share of our common stock during the term of the ASR agreement, less a discount, and subject to possible adjustments in accordance with the terms of the ASR agreement. Final settlement of the ASR agreement is scheduled to occur no later than the third quarter of 2020.

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BALANCE SHEET ANALYSIS

Securities

Investment in securities totaled $6.4 billion at September 30, 2019, up $679 million, or 12%, from June 30, 2019 and up $417 million, or 7%, from September 30, 2018. At September 30, 2019, securities available for sale totaled $3.5 billion and securities held to maturity totaled $2.9 billion.

Our securities portfolio consists mainly of residential and commercial mortgage-backed securities and collateralized mortgage obligations that are issued or guaranteed by U.S. government agencies. We invest only in high quality investment grade securities with a targeted portfolio duration generally between two and five and a half years. At September 30, 2019, the average expected maturity of the portfolio was 5.75 years with an effective duration of 4.0 years and a nominal weighted-average yield of 2.63%. Management simulations indicate that the effective duration would increase to 4.21 years with a 100 bp increase in the yield curve and increase to 4.38 years with a 200 bp increase. At June 30, 2019, the average expected maturity of the portfolio was 5.41 years with an effective duration of 4.18 years and a nominal weighted-average yield of 2.75%. The average maturity of the portfolio at September 30, 2018 was 5.61 years, with an effective duration was 4.90 years and the nominal weighted-average yield was 2.54%. The changes in expected maturity, effective duration, and nominal weighted-average yield compared to prior quarter and year-over-year were primarily related to purchases during the third quarter of 2019 in anticipation of the MidSouth acquisition. Year-over-year metrics were also impacted by the fourth quarter 2018 portfolio restructure.

Loans

Total loans at September 30, 2019 were $21.0 billion, up $860.1 million, or 4%, from June 30, 2019, and up $1.5 billion, or 8%, from September 30, 2018. Growth compared to both the prior quarter and same quarter last year reflect the acquisition of $785 million in loans, net of purchase discount, from MidSouth during the third quarter of 2019. Additional net loan growth continues to be diversified across products and the Bank’s footprint. Management continues to anticipate the year-over-year average loan growth percentage for 2019 will be in the mid-single digits.

The following table shows the composition of our loan portfolio at each date indicated:

	September 30,		June 30		March 31,		December 31,		September 30,
(in thousands)	2019		2019		2019		2018		2018
Total loans:
Commercial non-real estate	$	8,893,004	$	8,559,118	$	8,656,326	$	8,620,601	$	8,438,884
Commercial real estate - owner occupied		2,734,379		2,519,970		2,515,428		2,457,748		2,300,271
Total commercial and industrial		11,627,383		11,079,088		11,171,754		11,078,349		10,739,155
Commercial real estate - income producing		3,060,568		2,895,468		2,563,394		2,341,779		2,311,699
Construction and land development		1,190,718		1,144,062		1,340,067		1,548,335		1,523,419
Residential mortgages		3,004,958		2,968,271		2,933,251		2,910,081		2,846,916
Consumer		2,152,325		2,088,923		2,104,372		2,147,867		2,122,528
Total loans	$	21,035,952	$	20,175,812	$	20,112,838	$	20,026,411	$	19,543,717

Our commercial customer base is diversified over a range of industries, including energy, healthcare, 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.

Commercial and industrial (“C&I”) loans, including both non-real estate and owner occupied real estate secured loans, totaled approximately $11.6 billion, or 55% of the total loan portfolio at September 30, 2019, an increase of $548.3 million, or 4.9%, from June 30, 2019. Approximately 70% of the linked-quarter increase is related to the MidSouth acquisition, with the remaining growth across most regions and specialty lines.

The Bank lends mainly to middle market and smaller commercial entities, although it participates in larger shared credit loan facilities. Shared national credits funded at September 30, 2019 totaled approximately $2.1 billion, or 10% of total loans, an increase of $14.7 million from June 30, 2019. Approximately $499.7 million of our shared national credits at September 30, 2019 were with energy-related customers.

Loans to borrowers in the energy sector totaled $1.0 billion at September 30, 2019, up $26.2 million, or 3%, from June 30, 2019 and $106.9 million, or 12%, compared to September 30, 2018. The linked quarter increase in energy-related loans resulted from $82 million in MidSouth acquired loans that are largely in support services sector, partially offset by net payoffs and charge-offs. While our overall energy exposure increased during the third quarter of 2019 due to the MidSouth acquisition, the level remains below our target of 5%. At

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September 30, 2019, approximately $494 million, or 48%, of the energy portfolio was comprised of customers engaged in exploration and production, transportation, and storage activities. The remaining $540 million, or 52%, of the portfolio was comprised of customers engaged in onshore and offshore services and products to support exploration and production activities. We expect to continue to reduce our energy exposure through the next several quarters.

The following table provides detail of the more significant industry concentrations for our commercial and industrial loan portfolio, which is based on NAICS codes.

	September 30,					June 30,					March 31,					December 31,					September 30,
	2019					2019					2019					2018					2018
			Pct of					Pct of					Pct of					Pct of					Pct of
( $ in thousands )	Balance		Total			Balance		Total			Balance		Total			Balance		Total			Balance		Total
Commercial & industrial loans:
Real Estate and Rental and Leasing	$	1,426,334		12	%	$	1,303,770		12	%	$	1,406,207		12	%	$	1,326,146		12	%	$	1,232,737		11	%
Health Care and Social Assistance		1,084,884		9	%		1,040,352		9	%		1,083,469		10	%		1,120,799		10	%		1,135,040		11	%
Retail Trade (a)		1,060,765		9	%		1,024,031		9	%		970,599		9	%		937,971		8	%		934,281		9	%
Manufacturing (a)		1,034,030		9	%		946,700		9	%		922,365		8	%		877,950		8	%		852,643		8	%
Mining, Quarrying, and Oil and Gas Extraction (a)		893,218		8	%		922,055		8	%		957,590		8	%		1,016,870		9	%		917,389		9	%
Transportation and Warehousing (a)		775,869		7	%		745,403		7	%		746,837		7	%		717,746		7	%		700,698		6	%
Public Administration		765,492		7	%		778,622		7	%		799,237		7	%		814,442		7	%		842,199		8	%
Wholesale Trade (a)		699,993		6	%		657,215		6	%		657,685		6	%		602,052		5	%		559,638		5	%
Construction		638,384		6	%		619,204		6	%		645,107		6	%		643,932		6	%		582,761		5	%
Finance and Insurance		632,197		5	%		610,900		5	%		595,373		5	%		605,663		6	%		524,836		5	%
Professional, Scientific, and Technical Services (a)		498,591		4	%		459,794		4	%		421,999		4	%		462,984		4	%		439,153		4	%
Other Services (except Public Administration)		477,625		4	%		452,958		4	%		450,153		4	%		436,390		4	%		391,040		4	%
Accommodation and Food Services		451,150		4	%		415,814		4	%		413,732		4	%		385,958		4	%		416,734		4	%
Educational Services		353,366		3	%		351,697		3	%		353,803		3	%		359,997		3	%		430,238		4	%
Other (a)		835,485		7	%		750,573		7	%		747,598		7	%		769,449		7	%		779,768		7	%
Total commercial & industrial loans	$	11,627,383		100	%	$	11,079,088		100	%	$	11,171,754		100	%	$	11,078,349		100	%	$	10,739,155		100	%

(a)

Certain balances within each of these industry categories may contain loans considered to be energy related lending, as our definition of energy related is based on the borrower’s source of revenue. The energy related portfolio totaled approximately $1.0 billion at September 30, 2019 and June 30, 2019, $1.1 billion at March 31, 2019 and December 31, 2018 and $0.9 billion at September 30, 2018.

Commercial real estate – income producing loans totaled approximately $3.1 billion at September 30, 2019, an increase of $165.1 million, or 6%, from June 30, 2019, largely due to the addition of MidSouth loans. The following table details for the preceding five quarters the end-of-period commercial real estate – income producing loan balances by property type.

	September 30,					June 30,					March 31,					December 31,					September 30,
	2019					2019					2019					2018					2018
			Pct of					Pct of					Pct of					Pct of					Pct of
( $ in thousands )	Balance		Total			Balance		Total			Balance		Total			Balance		Total			Balance		Total
Commercial real estate - income producing loans:
Retail	$	637,707		21	%	$	607,622		21	%	$	542,904		21	%	$	507,129		22	%	$	499,395		22	%
Office		532,191		17	%		465,498		16	%		436,819		17	%		444,973		19	%		421,965		18	%
Multifamily		466,545		15	%		519,808		18	%		369,041		14	%		332,145		14	%		333,144		15	%
Industrial		409,828		13	%		406,926		14	%		353,804		14	%		311,933		13	%		285,292		12	%
Hotel/Motel		325,003		11	%		379,385		13	%		377,674		15	%		374,430		16	%		346,735		15	%
Other		689,294		23	%		516,229		18	%		483,152		19	%		371,169		16	%		425,168		18	%
Total commercial real estate - income producing loans	$	3,060,568		100	%	$	2,895,468		100	%	$	2,563,394		100	%	$	2,341,779		100	%	$	2,311,699		100	%

Construction and land development loans, totaling approximately $1.2 billion at September 30, 2019, increased $46.7 million, or 4%, from June 30, 2019. Residential mortgages increased $36.7 million and consumer loans increased $63.4 million during the third quarter of 2019. These increases were also primarily as a result of the MidSouth acquisition.

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Allowance for Loan Losses and Asset Quality

The Company's total allowance for loan losses was $195.6 million at September 30, 2019 virtually unchanged from June 30, 2019 and down $19.0 million compared to September 30, 2018. The ratio of the allowance for loan losses to period-end loans was 0.93% at September 30, 2019 compared to 0.97% at both June 30, 2019 and December 31, 2018 with the decline resulting from the addition of MidSouth loans with no allowance as that portfolio is largely covered by the $41 million acquisition discount. Excluding the impact of MidSouth, coverage to total loans would have been flat. The relatively flat allowance (excluding the impact of MidSouth) reflects mixed credit metrics with higher commercial criticized and nonaccrual loans, largely attributable to a few shared national credit downgrades, partially offset by problem credit resolutions, payoffs, restructure to performing loans and other upgrades. The energy allowance totaled $32.0 million, or 3.1% of energy loans at September 30, 2019, up $0.5 million, or 1% from June 30, 2019. The slight increase in energy allowance reflects the replenishment of the $9.9 million of current quarter net charge-offs due to increasing concerns over borrower specific liquidity issues in the upstream subsector.

The Company’s balance of criticized commercial loans totaled $659.4 million at September 30, 2019, up $86.6 million, or 15%, compared to June 30, 2019, with $47.9 million of the increase attributable to MidSouth loans which are covered by the purchased discount. The increase in commercial criticized loans includes $63.4 million attributable to the commercial nonenergy portfolio ($43.1 million from MidSouth) and $23.1 million attributable to the energy portfolio ($4.5 million from MidSouth). Compared to September 30, 2018, criticized commercial loans were down $174.4 million, or 21%, with $98.5 million attributable to the commercial nonenergy portfolio and $76.0 million of the decrease attributable to the energy portfolio. Criticized loans are defined as those having potential weaknesses that deserve management’s close attention (risk-rated as special mention, substandard and doubtful), including both accruing and nonaccruing loans. Our commercial nonenergy criticized portfolio, totaling $378.4 million at September 30, 2019, is comprised of loans that are diversified as to both industry and geography. Commercial nonenergy criticized loans comprised 2.55% of that portfolio at September 30, 2019, compared to 2.23% at June 30, 2019 and 3.49% at September 30, 2018. At September 30, 2019, criticized loans in the energy portfolio were $281.0 million, or approximately 27% of that portfolio, up slightly compared to 26% at June 30, 2019, but down significantly from 39% at September 30, 2018.

Net charge-offs were $12.5 million, or 0.25%, of average total loans on an annualized basis in the third quarter of 2019, up from $7.2 million, or 0.14%, of average total loans in the second quarter of 2019. Commercial net charge-offs totaled $8.3 million in the third quarter of 2019, up compared to $4.3 million in the second quarter of 2019. The increase in third quarter of 2019 charge-offs is largely due to net charge-offs of $9.8 million in energy portfolio, primarily in the upstream subsector, partially offset by nonenergy commercial net recoveries. There were no energy-related net charge-offs in the second quarter of 2019 or the third quarter of 2018. Residential mortgage net charge-offs at $0.1 million were relatively flat to linked-quarter and were up from a net recovery of $1.1 million in the third quarter of 2018. Consumer net charge-offs were up $1.2 million compared to the prior quarter, but were down $0.6 million when compared to the same quarter last year.

We have completed our first round of parallel testing of the calculation of our Current Expected Credit Loss (CECL) or life of loan loss allowance that replaces the current incurred loss allowance method effective January 1, 2020. Preliminary results using September 30, 2019 information indicates a net increase of approximately 20 to 30% over our incurred loan loss reserve level utilizing the CECL models and current economic forecast; this range excludes the impact of the loans and debt securities recently acquired from MidSouth. Significant drivers in the aforementioned increase were higher calculated reserve levels for longer life real-estate secured loans and the expected funding of off-balance sheet exposures, partially offset by releases in reserves for shorter-term commercial loans. The amount of actual increase in allowance for credit losses upon adoption will be impacted by the portfolio composition and quality, as well as current economic conditions and forecasts at that time. Refer to Note 16 – Recent Accounting Pronouncements for additional discussion on status of implementation activities and our CECL estimation process.

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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)	2019			2019			2018			2019			2018
Allowance for loan losses at beginning of period	$	195,625		$	194,688		$	214,530		$	194,514		$	217,308
Loans charged-off:
Commercial non real estate		11,729			5,309			3,556			33,382			15,401
Commercial real estate - owner-occupied		66			71			526			137			7,330
Total commercial & industrial		11,795			5,380			4,082			33,519			22,731
Commercial real estate - income producing		—			—			29			10			1,633
Construction and land development		7			—			45			7			265
Total commercial		11,802			5,380			4,156			33,536			24,629
Residential mortgages		221			33			87			660			585
Consumer		5,002			3,936			5,635			13,169			18,599
Total charge-offs		17,025			9,349			9,878			47,365			43,813
Commercial non real estate		2,932			804			758			5,662			13,234
Commercial real estate - owner-occupied		63			204			7			284			282
Total commercial & industrial		2,995			1,008			765			5,946			13,516
Commercial real estate - income producing		516			—			156			518			221
Construction and land development		11			86			30			108			68
Total commercial		3,522			1,094			951			6,572			13,805
Residential mortgages		167			104			1,142			433			1,854
Consumer		862			1,000			933			2,866			4,028
Total recoveries		4,551			2,198			3,026			9,871			19,687
Total net charge-offs		12,474			7,151			6,852			37,494			24,126
Provision for loan losses		12,421			8,088			6,872			38,552			28,016
Decrease in allowance as a result of sale of subsidiary		—			—			—			—			(6,648	)
Allowance for loan losses at end of period	$	195,572		$	195,625		$	214,550		$	195,572		$	214,550
Ratios:
Gross charge-offs to average loans		0.33	%		0.19	%		0.20	%		0.31	%		0.30	%
Recoveries to average loans		0.09	%		0.04	%		0.06	%		0.07	%		0.14	%
Net charge-offs to average loans		0.25	%		0.14	%		0.14	%		0.25	%		0.17	%
Allowance for loan losses to period-end loans		0.93	%		0.97	%		1.10	%		0.93	%		1.10	%

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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.

	September 30,			December 31,
(in thousands)	2019			2018
Loans accounted for on a nonaccrual basis: (a)
Commercial non-real estate	$	52,131		$	26,617
Commercial non-real estate - restructured		98,574			84,036
Total commercial non-real estate		150,705			110,653
Commercial real estate - owner occupied		12,790			16,682
Commercial real estate - owner-occupied - restructured		295			213
Total commercial real estate - owner-occupied		13,085			16,895
Commercial real estate - income producing		2,848			4,991
Commercial real estate - income producing - restructured		109			—
Total commercial real estate - income producing		2,957			4,991
Construction and land development		1,184			2,134
Construction and land development - restructured		153			12
Total construction and land development		1,337			2,146
Residential mortgage		36,122			34,594
Residential mortgage - restructured		1,778			1,272
Total residential mortgage		37,900			35,866
Consumer		16,661			16,744
Consumer - restructured		215			—
Total consumer		16,876			16,744
Total nonaccrual loans	$	222,860		$	187,295
Restructured loans - still accruing:
Commercial non-real estate	$	58,837		$	130,075
Commercial real estate - owner occupied		—			7,286
Commercial real estate - income producing		379			398
Construction and land development		112			9
Residential mortgage		480			546
Consumer		1,089			728
Total restructured loans - still accruing		60,897			139,042
Total nonperforming loans		283,757			326,337
ORE and foreclosed assets		30,955			26,270
Total nonperforming assets (b)	$	314,712		$	352,607
Loans 90 days past due still accruing to loans (c)	$	7,872		$	5,589
Total restructured loans	$	162,021		$	224,575
Ratios:
Nonperforming assets to loans plus ORE and foreclosed assets		1.49	%		1.76	%
Allowance for loan losses to nonperforming loans and accruing loans 90 days past due		67.06	%		58.60	%
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 purchased 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.

(c)	Excludes 90+ accruing TDR already reflected as a restructured accruing loan totaling $8.7 million at December 31, 2018.

Nonperforming assets totaled $314.7 million at September 30, 2019, down $23.9 million from June 30, 2019, $37.9 million from December 31, 2018 and $76.6 million from September 30, 2018. Nonperforming loans decreased approximately $27.3 million compared to June 30, 2019, due largely to a reduction in restructured accruing loans as a result of one of our energy credits returning to a conforming market structure, as well as other activity including both net paydowns and charge-offs, partially offset by new downgrades. Our nonperforming loans included $60.9 million of accruing restructured loans, most of which are energy credits that endured challenges during the downturn in the energy cycle. Nonperforming assets as a percent of total loans, ORE and other foreclosed assets was 1.49% at September 30, 2019, down 19 bps from June 30, 2019, 27 bps from December 31, 2018 and 51 bps from September 30, 2018.

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Short-Term Investments

Short-term liquidity investments, including interest-bearing bank deposits and federal funds sold, were $49.5 million at September 30, 2019. This represents a decrease of $101.5 million from June 30, 2019 and $58.6 million from September 30, 2018. These asset levels vary on a daily basis depending upon movement in customer loan and deposit accounts. Average short-term investments of $180.5 million for the third quarter of 2019 were down $48.1 million compared to the second quarter of 2019, and up $25.1 million compared to the third quarter of 2018. Short-term liquidity assets are held to ensure funds are available to meet the cash flow needs of both borrowers and depositors.

Deposits

Total deposits were $24.2 billion at September 30, 2019, up $965.3 million, or 4%, from June 30, 2019, and $1.8 billion, or 8%, from September 30, 2018, which included the impact of approximately $1.3 billion of deposits assumed from the MidSouth acquisition. MidSouth deposits improved our overall deposit mix and facilitated the paydown of $223 million in brokered certificates of deposit. Average deposits for the third quarter of 2019 were $23.1 billion, down $46.2 million, or less than 1%, from the second quarter of 2019 and up $1.1 billion, or 5%, from the third quarter of 2018.

Noninterest-bearing demand deposits were $8.7 billion at September 30, 2019, up $571.8 million, or 7%, from June 30, 2019, and $545.9 million, or 7%, from September 30, 2018. The linked-quarter increase reflects the $389 million of noninterest-bearing demand deposits assumed in the MidSouth acquisition. Noninterest-bearing demand deposits comprised 36% of total deposits at September 30, 2019, 35% at June 30, 2019 and 36% at September 30, 2018.

Interest-bearing transaction and savings accounts of $8.8 billion at September 30, 2019 increased $724.2 million, or 9%, from June 30, 2019 and $786.6 million, or 10%, from September 30, 2018, with the linked-quarter and year-over-year increase mainly attributable to deposits from the MidSouth acquisition.

Interest-bearing public fund deposits totaled $3.0 billion at September 30, 2019, down $204.8 million, or 6%, from June 30, 2019, and up $341.1 million, or 13%, from September 30, 2018. The decrease in public fund deposits is related to typical seasonality and is expected to increase in fourth quarter of 2019. Time deposits other than public funds totaled $3.8 billion at September 30, 2019, down $125.9 million, or 3%, from June 30, 2019, driven primarily by a $222 million decrease in brokered certificates of deposit, partially offset by an increase in retail certificates of deposits, largely from the MidSouth acquisition. Time deposits other than public funds were up $110.0 million, or 3%, from September 30, 2018, largely due to an increase in retail certificates of deposit, primarily from the MidSouth acquisition, offset by a decrease in brokered certificates of deposit. The level of time deposits was impacted by $446 million of maturities during the third quarter of 2019 compared to $715 million in second quarter of 2019 and $239 million during the third quarter of 2018.

Short-Term Borrowings

At September 30, 2019, short-term borrowings totaled $2.1 billion, up $467.2 million, or 28%, from June 30, 2019, with increases in FHLB borrowings of $427.5 million and federal funds purchased of $124.9 million partially offset by an $85.1 million decrease in securities sold under repurchase agreements. The increase in FHLB borrowings was due largely to preparations for the MidSouth acquisition in anticipation of near-term balance sheet changes. Short-term borrowings decreased $167.8 million, or 7%, from September 30, 2018. The decrease compared to third quarter of 2018 was due in part to a portfolio restructure late in the fourth quarter where proceeds from the sale of loans and securities were used to pay down a portion of FHLB borrowings, partially offset by increases in securities sold under repurchase agreements.

Average short-term borrowings of $2.1 billion in the third quarter of 2019 were up $445.6 million, or 28%, compared to the second quarter of 2019, and down $546.8 million, or 21%, compared to the third quarter of 2018.

Customer repurchase agreements and FHLB borrowings are the major sources of short-term borrowings. Customer repurchase agreements 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, amounts available will vary. FHLB borrowings are funds from the Federal Home Loan Bank that are collateralized by single family and commercial real estate loans included in the Bank’s loan portfolio, subject to specific criteria.

Operating Leases

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payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset over the lease term, as well as the disclosure of key information about operating leasing arrangements. Upon adoption, the Company recorded a gross-up of assets and liabilities in its consolidated balance sheet, with approximately $116 million for right-of-use assets and $131 million of lease payment obligations offset by the elimination of $15 million of existing lease incentive and other deferred rent liabilities. Accounting for leases in accordance with Topic 842 has not had a material impact upon our consolidated results of operations, and is not expected to in future periods. Refer to Note 5 – Operating Leases for further information related to the operating lease accounting policy, practical expedient elections for adoption and operating leasing information at adoption.

OFF-BALANCE SHEET ARRANGEMENTS

Loan Commitments and Letters of Credit

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, 2019 according to expiration date.

			Expiration Date
			Less than		1-3		3-5		More than
(in thousands)	Total		1 year		years		years		5 years
Commitments to extend credit	$	7,478,907	$	3,352,245	$	1,549,939	$	1,622,515	$	954,208
Letters of credit		389,998		303,681		41,756		44,561		—
Total	$	7,868,905	$	3,655,926	$	1,591,695	$	1,667,076	$	954,208

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, 2018.

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. Estimates are based 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.

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NEW ACCOUNTING PRONOUNCEMENTS

Refer to Note 16 to our Consolidated Financial Statements included elsewhere in this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s net income is materially dependent on net interest income. The Company’s primary market risk is interest rate risk which stems from uncertainty with respect to absolute and relative levels of future market interest rates that affect financial products and services. In order to manage the exposures to interest rate risk, management measures the sensitivity of 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.

The following table presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from an instantaneous and sustained parallel shift in rates at September 30, 2019. Shifts are measured in 100 basis point increments in a range from -500 to +500 basis points from base case, with -100 through +300 basis points presented in the table below. Our interest rate sensitivity modeling incorporates a number of assumptions including loan and deposit repricing characteristics, the rate of loan prepayments and other factors. The base scenario assumes that the current interest rate environment is held constant over a 24-month forecast period and is the scenario to which all others are compared in order to measure the change in net interest income. Policy limits on the change in net interest income under a variety of interest rate scenarios are approved by the Board of Directors. All policy scenarios assume a static volume forecast where the balance sheet is held constant, although other scenarios are modeled.

	Estimated Increase
	(Decrease) in NII
Change in Interest Rates	Year 1			Year 2
(basis points)
-100		(4.30	)%		(6.84	)%
+100		1.94	%		3.69	%
+200		4.43	%		7.77	%
+300		6.76	%		11.55	%

The results indicate a general asset sensitivity across most scenarios driven primarily by repricing in variable rate loans and a funding mix which is composed of material volumes of non-interest bearing and lower rate sensitive deposits. When deemed prudent, management has taken actions to mitigate exposure to interest rate risk with on- or off-balance sheet financial instruments and intends to do so in the future. Possible actions include, but are not limited to, changes in the pricing of loan and deposit products, modifying the composition of earning assets and interest-bearing liabilities, and adding to, modifying or terminating existing interest rate swap agreements or other financial instruments used for interest rate risk management purposes.

Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities would perform as anticipated. Additionally, a change in the U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the U.S. Treasury yield curve would cause significantly different changes to net interest income than indicated above. Strategic management of our balance sheet and earnings is fluid and would be adjusted to accommodate these movements. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented above. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Certain assets such as adjustable-rate loans have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Also, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. We consider all of these factors in monitoring exposure to interest rate risk.

In July 2017, the United Kingdom Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. At September 30, 2019, approximately 30% of our loan portfolio consisted of variable rate loans tied to LIBOR, along with related derivatives and other financial instruments. During the third quarter of 2019, we began transition activities by modifying new and renewed loan and derivative documents to include the following terms: (1) ability for the Bank to use its discretion to determine when to name a replacement index; (2) ability for the Bank to name the replacement index; (3) ability for the Bank to adjust credit spread to the replacement index for the loan; and (4) ability for the Bank to make these changes by notifying the customer and without requiring a modification of the document. Our LIBOR transition team is continuing to monitor developments and is taking steps to ensure readiness should the LIBOR benchmark rate be discontinued.

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 included in our Annual Report on Form 10-K for the year ended December 31, 2018.

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Item 4. Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2019, the Company’s disclosure controls and procedures were effective.

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, 2019, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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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 Company disclosed risk factors in its Annual Report on Form 10-K for the year ended December 31, 2018. 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.

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

None.

Item 6. Exhibits

(a) Exhibits:

Exhibit Number	Description	Filed Herewith	Form	Exhibit	Filing Date
3.1	Composite Articles of the Company		8-K	3.1	5/24/2018
3.2	Amended and Restated Bylaws		8-K	3.2	5/24/2018
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
101	Inline XBRL Interactive Data	X
104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL	X

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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 Whitney Corporation

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

		/s/ Michael M. Achary
		Michael M. Achary
		Senior Executive Vice President & Chief Financial Officer (Principal Financial Officer)

		/s/ Stephen E. Barker
		Stephen E. Barker
		Executive Vice President, Senior Accounting and Finance Executive (Principal Accounting Officer)

		November 8, 2019